加载中...
共找到 39,134 条相关资讯
Operator: Ladies and gentlemen, thank you for standing by. Welcome to GSI Technologies Second Quarter Fiscal 2026 Results Conference Call. [Operator Instructions] Before we begin today's call, the company has requested that I read the following safe harbor statement. The matters discussed in this conference may include forward-looking statements regarding future events and the future performance of GSI Technology that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company's Form 10-K filed with the Securities and Exchange Commission. Additionally, I have also been asked to advise you that this conference is being recorded today, October 30, 2025, as the request of GSI Technology. Hosting the call today is Lee-Lean Shu, the company's Chairman, President and Chief Executive Officer. With him are Douglas Schirle, Chief Financial Officer; and Didier Lasserre, Vice President of Sales. I would now like to turn the call over to Mr. Shu. Please go ahead, sir. Lee-Lean Shu: Good afternoon, everyone, and thank you for joining us today. Let me start by highlighting two recent and important events for GSI. First, we announced a research paper published by Cornell University in mid-October. The paper verified that our Gemini-I chip performed on par with NVIDIA's A6000 on certain AI tasks, while consuming roughly 98% less energy. This paper validates the disruptive potential of our compute in memory design, particularly for the near-term commercialization of Gemini-II with 8x the memory and 10x the performance of Gemini-I. Gemini-II is positioned to deliver superior processing at a fraction of the power when compared to existing solutions. This brings me to my second point. The market quickly recognized the significance of our compute-in memory validation with the Cornell paper. Building on the momentum from the papers funding, we closed a $50 million equity financing. We are now deploying the capital to accelerate execution across our hardware and the software build-out, making this a pivotal period for GSS growth. Post funding, we are working on the initiative in parallel. First, we have begun the work to acquire the necessary IP for Plato, which will allow us to start hardware development. This IP provides crucial connection to support broader system interface and prototyping for future customer applications. To accelerate Plato's time to market and capture market opportunity sooner, we are building additional software team to support Plato. Second, to expedite the build-out of our Gemini-II software solutions and applications, we are investing in all the layers that make the platform more accessible and flexible for developers. These software tools are essential for customers integrating Gemini-II hardware into AI and signal processing workflows, particularly in edge and the defense applications, where efficiency and the low power provide a competitive advantage. Looking ahead, our initiatives for calendar year 2026 are centered on converting proof-of-concept projects into commercial customers and expanding those relationships into large production programs. Didier will provide an update on where those efforts stand today. To sum up, our post-funding initiative was target and discipline -- will be targeted and disciplined. We are rapidly moving forward with the Plato hardware design and the software development, ramping up our Gemini software ecosystem and strengthening ties with key defense and government partners in our POC and Small Business Innovation Research or SBIR programs. This action position GSI to turn technical progress into commercial success in the high-value edge and defense applications such as drone military vehicles, satellite and other use cases and ride the wave of AI compute innovation. Now I hand the call over to Didi, who will provide more details on this topic and discuss our business development and the sales activities. Please go ahead, Didi. Didier Lasserre: Thank you, Lee-Lean. Let me expand on the topics that Lee-Lean just highlighted. We continue to advance our ongoing projects, including our SBIR and POC engagements with potential customers. Recently, Gemini-II has been approved for prototyping by the offshore defense contractor to whom we shipped a board and software to a few months back. This POC focuses on synthetic aperture radar or SAR applications for drones and other edge systems. What's exciting here is that our solution delivers the required performance while maintaining an extremely low power profile around 15 watts, making it ideal for compact energy-constrained environments. For added context on just how competitive the solution is, an incandescent light bulb uses about 4x more wattage than our solution. We are also involved in a joint POC involving two defense organizations and a drone integration partner. This Gemini-II project combines YOLO model, we developed with multimodal large language model processing at the edge, specifically targeting time to first token, a key performance metric for drones. Along with our partner, we successfully demonstrated the end-to-end application to one of the potential end customers. Gemini-II outperformed the competing solution, particularly in how quickly the model produces its first response. We are now optimizing the algorithm and expect to publish initial benchmark results before year-end with a fully optimized version available in the first half of calendar 2026. This algorithm would be for defense applications such as drones, satellites and other military vehicles. Gemini-II is a central part of the near-term commercialization road map, and we are encouraged by the customer engagement and technical validation that is being received. Turning to our Plato program. We are embarking on the journey towards a major milestone, the tape-out of Plato chip in early calendar 2027. Over the next year or so, we plan to actively engage several strategic partners for Plato who could provide funding and collaborate on testing and prototyping early versions of the chip. Their involvement would also support the development of software libraries and APIs, ensuring that Plato becomes a versatile, scalable solution across multiple markets, starting with defense. In military and defense applications, the APU's high-performance and low-power capabilities provide unique advantages. And Plato will further enhance critical functions such as SAR imaging, object recognition, GPS-denied navigation and data fusion for drones and military vehicles, delivering real-time tactical capabilities in compact mobile systems. Plato's design builds directly on the foundation of Gemini-II. To accelerate time to market, we are acquiring building block IP that allows us to focus on differentiation rather than reinventing core components. Strategic partners would play a critical role, not just in meeting our ambitious time line, but in shaping the chip's capabilities, validating its performance in real-world applications and guiding future enhancements. Their technical collaboration and early adoption would position us to deliver a highly optimized field-tested solution, strengthening our long-term leadership in specialized AI compute architectures well beyond the immediate financial support. And lastly, a comment on our SBIR work. We recently received a $751,000 extension of one of our Space Development Agency contracts, which includes additional funding for radiation hardened beam testing of Gemini-II. The goal of this testing is to evaluate the robustness of the current Gemini-II commercial chip for possible use in satellite and other aerospace applications. While it's too early to confirm specific designations, we see this as a significant opportunity. Let me now switch to the second quarter's commercial -- I'm sorry, customer and product breakdown. By revenue, I am referring to net revenue in the following comments. In the second quarter of fiscal 2026, sales to KYEC were $802,000 or 12.5% of revenues compared to $650,000 or 14.3% of revenues in the same period a year ago and $267,000 or 4.3% of revenues in the prior quarter. Sales to Nokia were $200,000 or 3.1% of revenues compared to $812,000 or 17.8% in the same period a year ago and $536,000 or 8.5% of revenues in the prior quarter. Sales to Cadence Design Systems were $1.4 million or 21.6% of net revenues compared to 0 in the same period last year and $1.5 million or 23.9% of revenues in the prior quarter. Military defense sales were 28.9% of second quarter shipments compared to 40.2% of shipments in the comparable period a year ago and 19.1% of shipments in the prior quarter. SigmaQuad sales were 50.1% of second quarter shipments in fiscal 2026 compared to 38.6% in second quarter fiscal 2025 and 62.5% in the prior quarter. I'd now like to hand the call over to Doug. Please go ahead, Doug. Douglas Schirle: Thank you, Didier. The company reported net revenues of $6.4 million for the second quarter of fiscal 2026 compared to $4.6 million for the second quarter of fiscal 2025 and $6.3 million for the first quarter of fiscal 2026. Revenue growth in the quarter was driven by strong market momentum for leading SRAM solutions. Gross margin was 54.8% in the second quarter of fiscal 2026 compared to 38.6% in the year ago quarter and 58.1% in the preceding first quarter of fiscal 2026. The decrease in gross margin for the second quarter of 2026 was primarily due to a change in the product mix. Total operating expenses in the second quarter of fiscal 2026 were $6.7 million compared to $7.3 million in the second quarter of fiscal 2025 and $5.8 million in the prior quarter. Research and development expenses were $3.8 million compared to $4.8 million in the prior year period and $3.1 million in the prior quarter. The increase in research and development spending compared to the prior quarter is primarily due to changes in the level of stock-based compensation expense and amounts of government funding received under SBIRs in each quarter recorded as an offset to research and development expense. Selling, general and administrative expenses were $3 million in the quarter ended September 30, 2025, compared to $2.6 million in the prior year quarter and $2.7 million in the previous quarter. The second quarter fiscal 2026 operating loss was $3.2 million compared to an operating loss of $5.6 million in the prior year period and an operating loss of $2.2 million in the prior quarter. Second quarter fiscal 2026 net loss included interest and other income of $43,000 and a tax provision of $41,000 compared to $149,000 in interest and other income and a tax provision of $23,000 for the same period a year ago. In the preceding first quarter, net loss included interest and other income of $13,000 and a tax provision of $54,000. Net loss in the second quarter of fiscal 2026 was $3.2 million or $0.11 per diluted share compared to a net loss of $2.2 million or $0.08 per diluted share for the first quarter of fiscal 2026. For the prior year second fiscal quarter of 2025, net loss was $5.5 million or $0.21 per diluted share. Total second quarter pretax stock-based compensation expense was $856,000 compared to $663,000 in the comparable quarter a year ago and $341,000 in the prior quarter. At September 30, 2025, the company had $25.3 million in cash and cash equivalents compared to $13.4 million at March 31, 2025. Working capital was $26.8 million as of September 30, 2025, versus $16.4 million at March 31, 2025. Stockholders' equity as of September 30, 2025, was $38.6 million compared to $28.2 million as of the fiscal year ended March 31, 2025. Lastly, for the third quarter of fiscal 2026, we expect net revenues in the range of $6.0 million to $6.8 million with gross margin of approximately 54% to 56%. We remain focused on disciplined execution to bring Gemini-II to market, advance our road map for Plato and drive long-term shareholder value. Operator, at this point, we'll open the call to Q&A. Operator: [Operator Instructions] Our first question comes from Robert Christian, private investor. Robert Christian: I'd like to congratulate you on the Cornell verification. But I'd also like to know, have you done any work with the auto industry on autonomous vehicles? Didier Lasserre: We have not yet. So as we've talked about in past calls, we've certainly have limited resources, and that takes a tremendous effort for that market space. So we're currently starting in the military defense arena, but we certainly believe our technology will adapt well in those areas. And so that's certainly a focus for us in the future, but not yet. Operator: Our next question comes from Mark [indiscernible] private investor. Unknown Attendee: I had a question on the $50 million placement you recently did, was that with a strategic investor? What sort of investor? And was there a holding period to that stock? Douglas Schirle: No, it was just someone that was interested in the company, wasn't strategic in any way. And there is no required holding period for the shares. Unknown Attendee: Got it. Okay. And then just a follow-up to that. Were there -- have there been any strategic circling at all now post the Cornell report? Douglas Schirle: Can you repeat the question, please? Unknown Attendee: Have there been any inquiries from more strategic investors since the report came out from Cornell? Douglas Schirle: There are things that we're looking at and parties that we're talking to. But I wouldn't say that there's anything that anyone that we haven't already considered working with at this time. As Didier said, we have limited resources, and I think we have some very significant opportunities that he's already mentioned. Operator: Our next question comes from David Zalkowitz with ISQ. David Zalkowitz: Yes. Is there any plan to have Cornell or another third party validate the Gemini-II information, a different technology? I know the Cornell report was Gemini-I. So is there a plan to do that similar type of analysis for Gemini-II? Didier Lasserre: Yes. So you're absolutely correct. So Cornell actually received this Gemini-I board many years ago, and they've actually written a few other papers. And so they -- this was a continuation of that original board. And we are talking to them about getting a Gemini-II board to them and also other researchers as well. David Zalkowitz: Okay. And then I guess you're talking -- you're working with the military. I guess, I didn't see anybody on the Board or senior management team that has real military defense experience. Is there any plans to beef up that area of the management or the Board of Directors in order to target those applications? Douglas Schirle: Yes. No, that hasn't come up as a discussion or topic on the Board. At this point, there are no plans to revise the Board. It doesn't mean that we won't in the future, if it makes sense, though. David Zalkowitz: Okay. And then I saw you're developing your own large language model, which you're going to release some information on at the end of the year. Just curious why you wouldn't just use the plethora of large language models that are already out in the market and why spend resources developing your own? Lee-Lean Shu: No, we are not developing our own large language model. We are working on the open source large language model like Gemma III. So... David Zalkowitz: I'm just reading a press release, the press release says currently developing a multi-modal LLM that targets edge applications. Didier Lasserre: Correct. Yes. For 12b -- so Gemma-312B that's the model, and we're developing our algorithms to work with that model. David Zalkowitz: Okay. And why would you do that as opposed to utilizing other LLMs are already developed? Didier Lasserre: In this case, it was the definition from the POC that we're working on. So as we talked about, there are 2 government entities that have approached us and a partner to do a POC, and that is the model that they requested. Lee-Lean Shu: Yes. Also, there are certain aspects of the model, which support multi-modal well, okay? So they can support the image very well and in addition to the text. That's why they pick on this one. Operator: Our next question comes from [ Christian Rug from CER Holdings. ] Unknown Analyst: I was wondering, how are you differentiating your APU versus GPU competitors in terms of power, latency and cost efficiency? Didier Lasserre: That's a pretty broad question. And so if you look at the Cornell paper, that certainly hits on the power. The comparison was to an NVIDIA GPU and the use case they use, the performances were on par, but we were 98% less power. So that certainly shows that. With the SAR algorithm that we've been talking about, certainly, our image creation time is faster at a lower power footprint as well. So what we've done is we've done benchmarking on certain use cases based off of input from customers on what they'd like to see. So there are times where we beat them strictly on power. There's times we beat them strictly on performance. Well, I shouldn't say that, we've never lost to them on power. But there certainly are times that we have the advantage on both performance and lower power. Unknown Analyst: Okay. And then my second question is, given the performance claims and potential of Gemini-II APU, have you had any engagement or partnership discussions with larger semiconductor or AI-focused companies? Didier Lasserre: So right now, we're focused on the customers at this point. We haven't had any discussions at least recently with other semiconductor companies. Unknown Analyst: Okay. And then my last question is, how does the power factors play into building AI data centers at a large scale? Didier Lasserre: So we're focused on the edge right now. And so everything we've talked about right now is the edge. And so certainly, the data centers have a real power issue as well. There's no secret there. But what we've been focused on right now with Gemini-II and certainly with the next-generation chip Plato will be at the edge. And so if you look at -- as we discussed with Gemini-II, this project we did with this offshore defense contractor, we limited -- we limited our chip to 1 of the 4 cores that are there to get it down to 15 watts. If you look at Plato, depending on how it's used, can be as little as 4 watts and maximum 12 to 15 watts. So we're really focused at the edge, not in the data center. Operator: Our next question comes from Michael Roberts from Roberts Capital. It seems Michael has gone silent. We will move on to the next question. Michael Cooper, private investor. You may proceed with your question. Michael Cooper: Can you talk about the total addressable market that you're looking at over the next 5 years? And then how you expect that to ramp? I'm guessing you have a number of different scenarios, maybe a range of scenarios. You could give us a sense for how large this market is for these markets? I'm sure you're looking at various markets. And then what kind of price points your boards or chips go into products? Didier Lasserre: Sure. It's a good question. So Michael, I don't have the numbers in front of me. But certainly, there was a report very recently that was issued by one of the researcher analysts at Needham & Company that discussed the drone market specifically. And I don't have it in front of me, but I want to say it was either -- it was tens of billions at least market size. I want to say it might be larger than that. And so certainly, it's a very, very large market. And as we've discussed, we certainly feel with the power profile of our chips, along with some of the algorithm work that we're doing for, like Lee-Lean mentioned, the multimodal inputs, whether we take an image or text or voice in the future, along with the time to first token advantage that we have. We certainly think that we're well positioned to address that market. That was question one. The second question was -- I think it was a two-part question you had. Pricing. Yes. So pricing, I mean, we'll give you generalities. But certainly, it's going to be priced differently by market, but it could be a few thousand dollars a board to $10,000 a board that contains the chip. And then the chip will sell -- again, based on the market, but the chip could be $1,000 or more depending on the market and the volume. Michael Cooper: And you're working in gross margins in the 80-ish percent range? Didier Lasserre: Yes, it will be above where we are corporately today. And again, it really depends on the market and how it's sold. It could be 60% to 80%. It really depends on how it's sold, whether it's in a board, in a server, whether it comes with software or not. I mean there's a lot of different aspects that would move that margin needle. Operator: Our next question comes from Michael Roberts with Roberts Capital, who is rejoining us. Michael Roberts: On capital deployment on the $50 million raise, can you give an idea of how that plans to be allocated, whether it's percentage or dollar amount, amongst the Gemini-II completion, software development and the new Plato chip that you referenced? Lee-Lean Shu: Yes. On the Plato because there's some fixed costs that we have to spend like IP costs and the mass tape-out costs. So those are fixed $15 million, $60 million, $70 million kind of range, okay? And the rest of them, I think they're probably pretty even between the Gemini-II and the Plato, that's mostly engineering costs, the internal cost, and it will be distributed even inside the company. Michael Roberts: Evenly across. Okay. And in terms of then based on your cash runway now, what revenue or gross margin level do you expect to reach operating breakeven then? Douglas Schirle: If you can assume I don't know, 65% to 70% gross margin once we get into this. It's something that I need to take a look at. We're still putting our plans together in terms of hiring levels and so on. SoC teams or whoever we need for the chip development, additional software teams that we need for the software development. I don't have all those numbers yet to do a calculation. Michael Roberts: Understood. But are there concrete milestones and dates then for the Gemini-II in terms of expectation of pilot shipments or expected initial production orders? Didier Lasserre: Yes. So we will be doing some pilot shipments. We've done a couple already or we plan on doing more in the first half of 2026 calendar. This POC that hopefully, we'll be able to discuss a lot more in the upcoming months, depending on the schedules on that could give more substantial revenues in the back half of calendar 2026. Michael Roberts: Noted. And from the current evaluation customers now, has any purchase orders or letters of intent been provided yet? Didier Lasserre: I'm sorry, could you repeat the question? Michael Roberts: Yes. Have any of the evaluation customers provided any purchase orders or letters of intent yet against that production? Didier Lasserre: They're still in their evaluation at this point. So as we talked about, the Board that we sent along with the software to this offshore defense contractor, they have done a review and they've put us as what's called good acceptance in their system, which means it's passed and been accepted. And so now we're going through the possible use cases. They have a couple of different divisions. Two of them, we think will be a good fit. One obviously is the SAR division. The other one is what they call their AI division. And so we're looking for practical applications that can then, like you say, turn into design wins and revenue. So that's -- we're doing that with the customer today. Michael Roberts: All right. Very helpful. And one last question, then I'll let others proceed. Can you elaborate on that software stack maturity then, the compiler SDK model porting tools and when developers outside of GSI will have access? Going towards the ecosystem adoption of what we have? Lee-Lean Shu: No, for the Gemini-II, we -- right now, we are developing the library and algorithm. Now after that, we will move on to the tool and the compiler work, okay? And we are developing this with the customer -- the partner and the customer we have. Operator: Our next question comes from Robert Christian, private investor. Robert Christian: Yes. Can you help me understand why the company is not going after data centers in view of the environment impact with energy consumption and cooling? It seems like we're leaving a lot of money on the table, even if it was just licensed so others could use the technology. Didier Lasserre: So I'm not sure how long you've been following the company, but we had talked about another potential road map product at the time we were calling it Gemini-III, and that was going to be geared towards the data center. And that one needed a different kind of partner and it needed a lot more funding. It would have required a very aggressive process node and would have been much more expensive. And so we are going down that road. And again, that was -- it was targeted for the data center. In the meantime, we were getting way too much positive feedback and interest on the edge, and we were getting SBIR dollars, and there are other dollars, research dollars that we've submitted for to try and get, and it's all for the edge. And so the decision was made. We couldn't do both. It was one or the other at this point. And so we remain focused on the edge. Not to say with more influx of cash, we can't beef up the team and go after the data center, but it strategically made sense for us to remain at the edge for now. Robert Christian: Okay. But there's not a possibility, say, of NVIDIA or a Micron to come in and develop the chip and we get a percentage of it? Didier Lasserre: Yes. I mean that's certainly very possible. I can't say those discussions are happening, but we had some discussions in the past where that was kind of the model we were looking at. So the answer is yes, we could do that. It's just -- there's nothing in the hopper right now. Operator: Our next question comes from [ Marco Petroni with MG Capital. ] Unknown Analyst: Yes. You guys just recently raised $47 million net, and you had $13 million last quarter, and the balance sheet shows only $25 million now. So I was wondering where that money went, number one. And number two, going forward, what type of capital allocations do you need for -- to build out the software team to do all this other stuff that we've been talking about? Douglas Schirle: Well, the first answer is that, that transaction closed after the balance sheet date. It was an October transaction and the $27 million that you see is as of September 30. And then in terms of capital allocation, I think we answered a previous question where we're looking at some IP and other stuff that we need to purchase for Plato, and then we expect to split funding between software development and the Plato development. Unknown Analyst: So how much cash do you have on hand currently? Douglas Schirle: Well, take $27 million or $23 million -- I'm sorry, $25 million balance sheet date plus we got another $47 million. So that should give you a reasonable estimate. Operator: Our next question comes from [ Mohammed Alsousi from Scale. ] Unknown Analyst: I just want to know if you have attracted any interest from any potential new customers after the Cornell study on APU performance. Didier Lasserre: I'm sorry, just to be clear, you're asking if we've gotten any more customer traction because of the Cornell paper? Is that the question? Unknown Analyst: No, I want to know if you attract more interest or potential new customers after the new Cornell study on APU performance. Didier Lasserre: Okay. I think that's what I just said. Okay. So the answer is the customers we've been talking to, we've been talking about this low-power advantage for some time, and we've done benchmarks on several applications with some of our customers. And so they're aware of that. And so in that respect, it's not a surprise to our customers we've been talking to that we have this low-power advantage. This just illustrated it for the rest of the public as a third-party validation of what we've been saying. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Mr. Lee-Lean Shu for closing comments. Lee-Lean Shu: We look forward to seeing you at this event and -- and your participation in the third quarter fiscal 2026 earnings call. Thank you. Operator: Ladies and gentlemen, this concludes our conference for today. Thank you for your participation. You may disconnect your lines and have a wonderful day.
Operator: Welcome to the Third Quarter 2025 Stryker Earnings Call. My name is Robbie, and I'll be your operator for today's call. [Operator Instructions] This conference call is being recorded for replay purposes. Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC. I will now turn the call over to Mr. Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir. Kevin Lobo: Welcome to Stryker's third quarter earnings call. Joining me today are Preston Wells, Stryker's CFO; and Jason Beach, Vice President of Finance and Investor Relations. For today's call, I will provide opening comments, followed by Jason with the trends we saw during the quarter and some product updates. Preston will then provide additional details regarding quarterly results and guidance before opening the call to Q&A. Our third quarter results demonstrate our broad business strength and ongoing commitment to margin expansion. We delivered strong organic sales growth of 9.5% against last year's high 11.5% comparable. We also delivered double-digit adjusted EPS growth of 11.1% despite tariff headwinds, which picked up meaningfully versus Q2. Our organic sales growth was driven by widespread demand across our businesses and included high single-digit growth for MedSurg and Neurotechnology and double-digit growth from Orthopedics. Geographically, our U.S. organic sales growth of 10.6% included double-digit organic growth from our Vascular, Trauma and Extremities, Neuro Cranial and Instruments businesses and high single-digit organic growth in Hips, Knees and Endoscopy. We delivered 6.3% organic international sales growth with notable contributions from South Korea, Japan and emerging markets. We continue to view international markets as a significant opportunity for long-term growth and look forward to launching many products that have already demonstrated success in the United States. We completed 2 small acquisitions during the quarter. The first, Guard Medical's NPseal products brings simplified solution for negative pressure wound treatment that strengthens our orthopedic instrument offerings. The second, advanced medical balloons brings novel patient care products to our Sage business. These acquisitions demonstrate our commitment to deals that deepen our portfolio and enhance growth. Backed by a healthy deal pipeline and strong balance sheet, we plan to stay active on the M&A front. We have good momentum exiting Q3 and expect a strong finish to the year. As a result, we are raising our full year 2025 outlook. We are firmly on track to deliver a second consecutive year of 100 basis points of adjusted operating margin expansion backed by strong execution and conviction in the sustained growth and earnings power of our businesses. I would like to thank our teams for their dedication and passion and living our mission each and every day. With that, I will now turn the call over to Jason. Jason Beach: Thanks, Kevin. My comments today will focus on providing updates on the current environment, the integration of Inari and a preview of Investor Day. Procedural volumes remained healthy in the third quarter, in line with our expectations. We anticipate continued strength in procedural volumes through the end of the year. Demand for our capital products was strong once again in the quarter, and we exited Q3 with an elevated backlog. With a steady hospital CapEx environment, we expect continued strength in our order book. We delivered our best ever Q3 for Mako installations, both in the U.S. and worldwide. Mako continues to see high utilization rates, further bolstering our #1 position in U.S. hips and knees. In addition to Mako 4, our numerous recent product innovations continue to drive growth and interest in the marketplace. Notably, LIFEPAK 35 launched in Europe at the end of the quarter. Next, the Inari integration continues to progress well. We continue to convert the business to our Stryker offense with the successful onboarding of our sales professionals. The Inari business delivered double-digit pro forma organic sales growth in the quarter, highlighting robust procedural growth in the teens, partially offset by destocking, which we continue to work through. Inari remains on track to deliver double-digit pro forma sales growth in 2025, and approximately $590 million in sales for the 10 months this year as a part of Stryker. Lastly, we look forward to hosting our upcoming Investor Day on November 13, which will be webcast live on the Investor Relations page at stryker.com. During the event, various leaders from across our businesses will discuss our long-term strategy and illustrate how we are built for growth. For our in-person attendees, we will conclude with a product fair that will showcase exciting products and innovations across our MedSurg and Neurotechnology and Orthopedic businesses. Also, you will be able to interact with many of our leaders. With that, I will now turn the call over to Preston. Preston Wells: Thanks, Jason. Today, I will focus my comments on our third quarter financial results and related drivers. Our detailed financial results have been provided in today's press release. Organic sales growth was 9.5% for the quarter compared to the third quarter of 2024, with the same number of selling days in both periods. Pricing had a 0.4% favorable impact as we continue to see positive trends from our pricing initiatives across many of our businesses. Additionally, foreign currency had a 0.7% favorable impact on sales. Our adjusted earnings per share of $3.19 was up 11.1% from the same quarter last year, driven by our strong sales growth and margin expansion, partially offset by higher interest expense. Foreign currency translation had a favorable impact of $0.03 on adjusted earnings per share for the quarter. Now I will provide some highlights around our quarterly segment performance. In the quarter, MedSurg and Neurotechnology had an organic sales growth of 8.4%, which included 9.4% of U.S. organic growth and 5.1% of international organic growth. Instruments had U.S. organic sales growth of 11.5%, led by a double-digit performance from the Surgical Technologies business, which includes our Neptune waste management, SurgiCount and smoke evacuation products. Endoscopy had U.S. organic sales growth of 7.9%, led by a robust double-digit performance from our Sports Medicine business and near double-digit growth from our core endoscopy portfolio, somewhat offset by lower sales in the Communications operating room business due to the timing of infrastructure installations. Medical had U.S. organic sales growth of 6.5% that included a double-digit performance in the Acute Care business, which was driven by ProCuity and Vocera. We continue to expect Medical to achieve 10% organic sales growth this year, while we manage the previously discussed supply chain disruptions affecting our emergency care business. Vascular had U.S. organic sales growth of 13.4%, led by the recent launches of our Surpass Elite flow diverting stent and Broadway aspiration system. As a reminder, organic sales growth figures do not include Inari. And finally, Neuro Cranial had U.S. organic sales growth of 12.9%, led by strong double-digit growth in our IBS, Craniomaxillofacial and Neurosurgical businesses. Internationally, MedSurg and Neurotechnology's organic sales growth was 5.1% despite the ongoing supply disruptions affecting our medical business and against a very strong prior year comparable growth rate of over 11%, which was driven by our Medical, Endoscopy and Neuro Cranial businesses. The growth this quarter was led by our Neuro Cranial and Instrument businesses. Geographically, this included healthy performances in South Korea and Japan. Orthopedics had organic sales growth of 11.4%, which included organic growth of 12.9% in the U.S. and 7.8% internationally. Our U.S. Knee business grew 8.4% organically, reflecting our market-leading position in robotic-assisted knee procedures and continued momentum from new Mako installations. Our U.S. Hip business grew 8.7% organically, highlighted by the ongoing success of our Insignia Hip Stem and the continued adoption of our Mako robotic hip platform that now has the expanded ability to address more difficult primary hip cases as well as hip revisions. Our U.S. Trauma and Extremities business grew 13.2% organically with robust double-digit sales growth in our Upper Extremities and Core Trauma businesses. Our multiyear strong Shoulder growth continues while our Core Trauma performance continues to be driven by Pangea, our differentiated plating portfolio. Our U.S. Other Ortho business grew 38.5% organically, driven by robust installations in the quarter and amplified by Mako deal mix and a strong performance in navigational technology products. Internationally, Orthopedics organic growth of 7.8% included a strong performance from our emerging markets. Our international results also include a nominal amount of Spinal implant revenue because of previously accepted tenders that we are fulfilling before exiting those markets. Now I will focus on certain operating and nonoperating highlights in the third quarter. Our adjusted gross margin of 65% was favorable by 50 basis points over the third quarter of 2024 despite tariff headwinds, which we now estimate will have a net impact of approximately $200 million for the full year 2025. The adjusted gross margin improvement was primarily driven by business mix and cost improvements as we continue to optimize our supply chain and manufacturing processes. Our adjusted operating margin was 25.6% of sales, which was 90 basis points favorable to the third quarter of 2024, driven by the gross margin favorability I just discussed as well as lower adjusted SG&A as a percentage of sales due to ongoing spend discipline as part of our long-term focus on continued margin expansion. Adjusted other income and expense of $116 million for the quarter was $74 million higher than 2024 due to increased interest expense from the most recent debt issuances and lower interest income. We now expect our full year 2025 adjusted other income and expense to be approximately $415 million. The third quarter had an adjusted effective tax rate of 14%, reflecting the impact of geographic mix and certain discrete tax items. For 2025, we now expect our full year effective tax rate to be at the lower end of our previously guided range of 15% to 16%. Turning to cash flow. Our year-to-date cash from operations was $2.9 billion, driven by year-over-year working capital improvements. And now I will update our full year 2025 guidance. Considering our year-to-date results, continued strong demand for our products and our operational momentum, we are raising our full year guidance and now expect organic net sales growth of 9.8% to 10.2%, and adjusted earnings per share to be in the range of $13.50 to $13.60. Our updated sales guidance includes a modestly favorable pricing impact. In addition, foreign exchange is expected to have a slightly positive impact on both sales and earnings per share should rates hold near current levels. With that, I will now open the call for Q&A. Operator: [Operator Instructions] Our first question will come from Robbie Marcus with JPMorgan. Robert Marcus: Congrats on a nice quarter. Two for me. First, Kevin, you always have great insight into procedure volumes and the equipment market. You clearly had a great quarter on the ortho side, some bright spots on the CapEx side, also a little bit of softness, particularly in medical. I was hoping you could just walk us through what you're seeing globally in terms of procedure volume market and the health of it as well as some of the puts and takes on the capital equipment side globally? Kevin Lobo: Yes, sure. Thanks for the question. I would tell you that nothing has really changed if you think about what we've said in the past couple of quarters. Procedure volumes are very healthy, which affects, obviously, our implants as well as our small capital. And the capital markets are really strong. The balance sheets are strong with hospitals. You saw this quarter, in fact, a lot of Mako purchases, which helped -- obviously, we had strong installations, but a lot of those were cash purchases. And a year ago, those were being more leased. So balance sheets are strong. Procedure growth is strong. As it relates to our business mix, sometimes you see in the Communications area, there was a bit of timing. A lot of these installations of ORs are going to be delayed a little bit, but we have a very healthy order book in Communications. Medical, as you described, sometimes goes up and down. We had a big quarter last year in the third quarter. We're going to have a very strong fourth quarter, off to a fast start in October, and it will be a very strong fourth quarter. And as you've seen in the past, Medical does kind of move from quarter-to-quarter. There can be variability. But over the full year, very strong and healthy business. Obviously, we've had some supply chain disruptions in emergency care. That's continued all year. But in spite of that, still going to be a double-digit growth year. It would have been even higher if not for the supply chain challenges. But I would say across the board, the markets that we play in are very healthy. Robert Marcus: Great. Maybe one for Preston. Your business every year has a big step-up third quarter to fourth quarter, both on sales and margins. Obviously, we can back into what's implied in guidance. But just help us walk through some of the things to consider, particularly on the margin side and the levers that you pull to get to the step up there? Appreciate it. Preston Wells: Absolutely, Robbie. I appreciate it. So I think the thing to keep in mind as you think about the guidance range, particularly as we talk about margins, obviously, we do have a larger sales number that we'll be building on. We're going to continue with our focus around margin improvement that's driving upside on our gross margins as well as in the SG&A lines. The big offset this year is tariffs. So we look at the tariff impact, it's more second half weighted. And so that is going to certainly be the offsetting piece of what we would normally see as much bigger margin expansion in the fourth quarter. So we're still expecting operationally to drive better margins, but then that will be partially offset by tariffs in the fourth quarter to get to where we've guided to. Operator: Our next question is from Larry Biegelsen with Wells Fargo. Larry Biegelsen: Congrats on another nice quarter here. So Kevin, you're guiding to 10% organic growth at the midpoint in 2025. How are you thinking about maintaining this momentum next year? What are some of the puts and takes we should consider? And can you expand margins next year with the tariff impact increasing on a year-over-year basis? And I had one follow-up. Kevin Lobo: Yes. Sure, Larry. We have an Investor Day coming up pretty soon, and we'll share kind of our longer-term outlook at that time. What I would tell you is this is our fourth consecutive year of growing roughly 10% organically. Of course, last year was a little bit higher than that, over 11%. But this is a sustainable, durable high-growth business. So you're going to see more of the same for years to come. Larry Biegelsen: That's helpful. And Kevin, I'm sure everybody listening picked up on your M&A comments. So maybe just refresh us on areas of interest, if anything has changed, deal size, et cetera. Anything new? Kevin Lobo: No change, Larry. All of our businesses are lining up their targets that would help enhance their businesses. And as you know, there are adjacencies that we're going to continue to explore. I've been pretty clear about what those are. As you know, peripheral was one of those adjacencies that we pulled the trigger on in the first quarter of this year. And so there's no new ones. The same ones I've been talking about. We do have a strong balance sheet. We can do larger deals if they are going to be value creating for the company. It's always hard to predict the exact timing on deals. And so we do plan to be active. It is the #1 use of capital. That is our first priority is to use it for acquisitions. And so we remain on the hunt. Operator: Our next question is from Ryan Zimmerman with BTIG. Ryan Zimmerman: Let me echo the congratulations on the quarter. Kevin and Jason, your Knee number in the U.S. stands out pretty in stark contrast to your other competitor that has announced the spin out of its Orthopedic business. And I'm just wondering kind of Kevin, how do you think about the health of the orthopedics market, how you're preparing to maybe capitalize on any disruption that may come of that and just kind of your outlook on orthopedic. One thing I did notice was price pressure. We did see a little bit of price pressure in this quarter. We haven't seen that for a few quarters. So maybe you could comment on maybe what was driving that as well. Kevin Lobo: Yes. Sure. I'll take the first part, and I'll let Preston comment on the price pressure. Listen, we're in a great position with our Knee business. It's not new. This has been building over a number of years with our lead in cementless, the tremendous adoption of Mako for knees. We also have a new hinge, which is the revision system for knees. So this momentum has just been building. And with every Mako that gets installed, we know there's going to be a high adoption of our products. And so we've been growing above the market for quite some time. It was a terrific quarter, especially if you consider last year, we had a very big Q3 and so the Knee business is performing extremely well. We're very excited about additional changes that are coming, more software changes for Mako to make it even better to use, actually some new product innovations that we'll talk about on the investor call in a couple of weeks. And so the Knee business is really poised to continue this high growth. And then on price, Preston? Preston Wells: Yes, as far as pricing is concerned. When we think about where we are, we're pleased with the fact that we've been able to drive positive price for the overall organization over the last several quarters. That's really come out of the work that happened a few years ago. And so we're still driving that. The other thing to consider is now we're anniversarying some of that price improvement year-over-year-over-year. So now we're driving compounded price that we're seeing. And so when you think about the split between the multiple business on the MedSurg side, we're certainly seeing continued price improvement on that business. And with Orthopedics, we're not back to where we were historically. So we're still performing above historic levels on a pricing standpoint, and we expect that we're going to continue to try to work through the pricing muscle that we've learned to develop and that we have developed to continue to drive positive prices in the future. Ryan Zimmerman: Okay. And then second one for me. Thank you for both those answers, appreciate that. On Inari, Kevin, as you like to say, the U.S. business is humming. But maybe if I could ask about the OUS side and when you think you can kind of really take Inari to a bigger international presence maybe than prior -- when it was a stand-alone company. Kevin Lobo: Yes. Thanks. Look, our focus really has been on the U.S. I mean we've really been all hands on deck. We went through some real challenges in the second quarter, enforcing people's noncompetes, going through a lot of churn in the sales force, bringing on new Stryker leaders. That's been -- we've been laser-focused and I love the recovery and the bounce back in Q3. It was really terrific. And the outlook for Q4 is very good. We launched the first arterial product that's getting really favorable feedback. We have started to expand internationally, but I don't really -- hasn't really taken off yet. That will start to, I really think, have a big impact in the second half of next year. It's going to take a bit of time, but we do have infrastructure in Stryker that Inari did not have. And that clearly is one of the thesis for us in doing the deal is that international will be very exciting. But I really think it will start to take hold in the second half of next year. Operator: The next question comes from Travis Steed with Bank of America. Travis Steed: I will start with a follow-up on Inari. Just curious if maybe you can elaborate on some of the integration process in the sales force. And like is this quarter, you think kind of a low point in the growth and so we should kind of be sustaining this kind of double-digit growth going forward? And any comment on some of the P/E data that came out. Curious if you had any comments on that. Kevin Lobo: Yes. Look, we put our own Stryker sales leader in charge of the sales force, and we've been hiring pretty rapidly given the churn that we went through in the second quarter. It takes time for those sales reps to be fully productive. They had a really good Q3. I'm pleased with that. I'm not sure that I call this a low point. We do expect double-digit growth in Q4 and then again in Q1. However, we are still burning through some of that stocking that had occurred. The stocking will be completed, the burn-through will be completed by the end of the first quarter. So we still have some more of that in Q4 as well as Q1, and then that will be something we don't talk about any more after that. But we are excited about getting sort of the teens level of growth in procedures. That translated to double-digit growth. We do expect a strong Q4 as well as Q1 next year, and then it will really start to take off after that without having that drag of the stocking. Travis Steed: That's helpful. And maybe a question on the Siemens partnership that happened over the quarter in Neurovascular and if there's any more you can kind of say on kind of the goals and timing and kind of what you're trying to do with Siemens and Neurovascular robotics. Jason Beach: Travis, this is Jason. I would say, when appropriate, we'll certainly disclose more. But at this point, really nothing else to add in as far as that. Operator: The next question comes from Matthew O'Brien with Piper Sandler. Samantha Munoz: This is Samantha on for Matt today. We'd like to start off with asking about the Ortho other category that was -- had really nice performance this quarter. Can you just talk a little bit about what all is driving the strength there? And how durable do you see that growth? Jason Beach: Yes, this is Jason. I'll take this one. I would say a couple of different things, and it goes back to some of the prepared remarks. I mean if you just look at again another quarter of record installation of Mako, that certainly fuels that category and then there is a bit of, I'll call it, business mix. And I think Kevin touched on this, where outright purchases will drive revenue in that. So really, really strong strength. Is it going to grow at that level every quarter, I would say no, but certainly pleased with the performance in the quarter. Samantha Munoz: Great. And then also, just could you provide a little bit more commentary on the supply chain disruption in the Medical business? It was a little bit weaker than we were expecting. And does imply a steep rebound in Q4. So just any more commentary you could provide there would be great. Jason Beach: Sure. It's Jason again. So I would say, look, even if you go back to last quarter, we said some of these supply issues would kind of linger throughout the year. Certainly not going to quantify. But as you think about Medical performance in the fourth quarter, in order to get to this 10% growth on the year that we're talking about, you can imagine there's going to be an acceleration in the fourth quarter. October was off to a good start. And so we certainly expect that we'll have positive performance as we go throughout the quarter. Operator: Our next question comes from Vijay Kumar with Evercore ISI. Nicholas Amicucci: This is Nick on for Vijay. Would you break down the drivers of that 10% sales growth for Medical for the year? What's driving that? Jason Beach: Yes. I mean when you think about Medical, this is Jason, I mean we don't really get into product level drivers or even business unit level drivers. But when you think about products like LP 35 just launching in Europe, I mean, you'll see an -- start to see an acceleration there. Well, we would say across the lines of business in Medical, very good performance. If you look at Vocera as an example, that accelerated in the third quarter. That will continue to accelerate in the fourth quarter. So it's a big diverse business, frankly, that we expect to perform well in the fourth quarter. Kevin Lobo: And frankly, it's been a business that's performed double-digit for years. Year after year, it tends to report double-digit growth. They have a very strong order book as well. And in spite of the supply chain challenges, still on track to deliver double digits. Operator: Our next question comes from Matt Miksic with Barclays. Matthew Miksic: I wanted to just get a sense of the competitive dynamics in the ASC. It's been a place where you've been leading and it's been a place where you've had great success in knees, opportunities for bringing other businesses in there and leveraging your position across some of the other business lines. Any kind of color would be great. Kevin Lobo: Yes. Thanks, Matt. Listen, we love the ASC and the trend in procedures moving to the ASC because we can leverage our full portfolio, and our growth continues to be very high in the ASC. The additional products are really -- that are starting to emerge at a higher level, our torn shoulder, where we're the market leader and you're seeing more shoulders being done in the ASC, even some total ankles potentially moving to the ASC. So some of the higher acuity cases, I wouldn't say revisions, but certainly, many other procedures are starting to move to ASC, where we have a very strong position. So the more that procedures move to the ASC in the orthopedic world, the better it is for Stryker because we can then leverage an even broader portfolio than we're already leveraging, including our capital, our disposables and our inputs. Operator: Our next question comes from David Roman with Goldman Sachs. Jennifer Reena Rabinowitz: This is Jenny Rabinowitz on for David. Just a quick one for me. You mentioned briefly at the beginning of the call that you did 2 smaller product acquisitions in the quarter. I was just curious, can you go into any detail about what those products actually are or the markets they participate in? And are these smaller product acquisitions something we should expect going forward? Kevin Lobo: Yes. Small tuck-in acquisitions are clearly a part of our offense. The NPseal product is a negative pressure wound treatment that does not require capital equipment. So today, the other options on the market have a pump that's required. This is a really elegant solution, easy to use for the customer and then lower cost solution that drops right into the sales bag of our orthopedic instrument sales reps. They're already there in the procedure. So it's a beautiful tuck-in. The other product, the balloon is for fecal incontinence and that's part of the Sage business, which works in the intensive care units of hospitals and a very good product solution for a really troubling condition that patients have to go through, provides them with dignity and provides really good care. So we're really excited about that solution, and that's new for us. We have not been in the fecal incontinence space thus far. Operator: Next question comes from Philip Chickering with Deutsche Bank. Pito Chickering: One more question on Ortho. There's been an investor debate around the pull forward of demand of some neglected procedures due to the uncertainties around health care exchanges. Just curious if you view 3Q as just the core growth you're seeing due to market share or pull forward of demand? Kevin Lobo: We see it as core growth market. As we enter fourth quarter, we're seeing a continued strong demand. So we don't really foresee any pull forward. And obviously, osteoarthritis, when you have the pain, you want to get your procedures done. And so I think that's a much bigger driver. And I think it's more about the fact that we're growing at a robust rate. If you look at our growth rate, obviously, other people -- not everyone's reported yet, but we believe that we're growing considerably faster than the market. But we're seeing order -- like if you look at the surgery schedules and talk to surgeons, they don't really have any anxiety whatsoever about a falloff in procedures. At least we're not hearing that. Pito Chickering: All right. Perfect. And then I think you talked about the elevated backlog and CapEx is pretty good. Can you share that the feedback that you're hearing with hospitals as they're talking about the uncertainties around health care changes next year and the views of CapEx depending upon what will happen? Jason Beach: Yes. Peter, it's Jason. I'll take this. I mean, when you think about feedback from a hospital perspective and you think about the categories that we play, we play in categories that are moneymakers for the hospitals and they need our capital equipment, right? And so I would say, I think even Kevin said this earlier, environment for us really hasn't changed. If you think about the mix of our capital where the majority of our capital is the smaller capital that is closely tied to procedures. We continue to believe in the feedback that we continue to get is that as long as procedures remain strong, we're positioned well in the fourth quarter and well into 2026 as well. Kevin Lobo: And if you look at this quarter in particular, even the large capital, Mako was very strong with a lot of outright purchases and then you look at ProCuity, it was extremely strong, which beds are obviously large capital and expensive and the orders are very strong. So those orders are very rarely canceled. And so our hospitals have the budgets. They have the plans. They are planning to go ahead and purchase our capital in spite of what's happening around them. Operator: Next question comes from Joanne Wuensch with Citibank. Joanne Wuensch: Can you hear me okay? Kevin Lobo: Yes, I can. Joanne Wuensch: Excellent. I remember to maybe 2 years ago that we were talking about sprinting back to pre-pandemic levels and margins and 200 basis points of expansion. And you've hit it. The 25.6% you just did in the third quarter went to 2020, 2021. Where do you go from here? And how do we think about continued margin expansion? And I'm sorry if I'm sort of stealing some of the thunder from the Analyst Day. Kevin Lobo: Well, we're going to just defer this question to the Analyst Day, Joanne. So I apologize. We're going to duck the question because that, for sure, is going to be one of the topics that we discuss in a couple of weeks. Joanne Wuensch: Okay. Can I get a second question then? Kevin Lobo: Sure, you can. Yes, because we didn't answer your first one. Joanne Wuensch: I guess I'm going to go to Trauma and get a feel from you of what you're seeing in that particular industry or that particular segment of your business? Kevin Lobo: Yes. You've seen for quite some time, our Trauma and Extremities business is absolutely on fire. We have great leadership in that business. We have -- the Shoulder business had a phenomenal quarter again in Q3, really tremendous market-leading growth. And this is really without much an impact at all from Mako. So we are still in limited launch with Mako Shoulder. It's being very well received. We're not going to move until full launch until sometime in the first half of next year. So that's still a ways out, but we're very excited about that. It's just the core underlying portfolio of products with Blueprint software, really good, strong leadership. And then core Trauma has been amazing with Pangea. We've also launched volar plates for distal radius. Just a series of great product innovations and a tremendous commercial offense has core Trauma really growing at very robust rates. If you look at Foot and Ankle, it's actually a bit soft for us. So we see upside in Foot and Ankle going into next year. Our Total Ankle performs well. Our Augment performs well. But if you think about the core plates and nails, not quite as good as we would like that performance. We're getting after it, and we think that will be better going forward. But tremendous momentum overall and great business for us, and we're very excited about it. Operator: Our next question is Michael Matson with Needham & Company, Inc. Michael Matson: So guess I just a couple more on Inari. So the PEERLESS II trial, just can you give us an update on where things stand with that and when we could potentially see the results? And then the Artix product, I think that's been launched. Can you maybe comment on how that's doing? Kevin Lobo: Yes. I'll take the second question on Artix. It's our first arterial thrombus product that Inari has launched, everything else was venous. It's been extremely well received. It's doing well in the marketplace, performing really as good or if not better than we expected in the market. So off to a very good start. Jason Beach: It's Jason. In terms of the trial, it will be sometime next year before we start to see results. So you'll hear us talk about that as we get into next year, for sure. Michael Matson: Okay. And then just with the Guard Medical acquisition, looking at the website, it looks like it's more for surgical incisions, but is this a sign that Stryker has interest in kind of the broader advanced wound care market? Kevin Lobo: Yes. Listen, I wouldn't read too much into this. If you think about Zipline, that was a product for skin closure that we dropped right into the bag of the orthopedic instruments reps. This, of course, is -- its wound treatment with negative pressure, but it drops right into the back of that existing sales rep. Think about it more as a call point sale that drops right into the bag versus the creation of some new business. That's not how we're thinking about it today. That may change in the future. But for today, we're not thinking about a broader wound strategy. It's really more about optimizing the call point, dropping it into the bag and really providing an elegant solution for the customers. Operator: Next question is from Danielle Antalffy with UBS. Danielle Antalffy: Just [indiscernible] question. And I guess this goes to margins going towards guidance here. But we're seeing positive price in MedSurg. You mentioned you anniversaried some price upticks in Q3 in Orthopedics. So how do we think about go forward from here? You still have a pretty positive product cycle, but specifically in Ortho, do you think it's more like flat going forward from here? Or do you still have pricing power there, too? Jason Beach: Dan, thanks for the question. So from a pricing standpoint, yes, I mean, we do believe that based on our overall execution of our business from a contracting perspective with new products and innovation across our portfolio, we will have opportunities from a pricing standpoint as we go forward. And that will be in all businesses. It won't be exactly the same across the different business lines. But across all of our businesses, we do believe we have certain levels of pricing power that we will be able to continue as we go forward. Operator: Our next question is Shagun Singh with RBC. Kendall Au: This is Kendall on for Shagun. I just had one question on the upcoming Investor Day. I know last time you gave some targets on organic growth, operating margin, EPS growth and free cash flow conversion. I was wondering if those kind of targets will be laid out again? And if you could add any other color on that? And also, if you had any update on the current tariff environment and any impact on 2026? Jason Beach: Yes, this is Jason. I don't want to spoil any surprises that you'll hear in a couple of weeks. But yes, you're absolutely right. We will update our long-term financial goals, including, I think Kevin mentioned earlier, kind of our current view on margins as well. So expect to see that for sure. As it relates to the tariff environment, Preston, feel free to add on here, but I think Preston said in his script, we're now forecasting roughly a $200 million impact for the year. As you know, this is a fluid environment that we continue to monitor, but that's our latest outlook right now. Operator: There are no further questions. I will now turn the call over to Kevin Lobo for any closing remarks. Kevin Lobo: Thank you for joining today's call. We look forward to sharing updates on our business and strategy with you at our Investor Day on November 13 and our fourth quarter results with you in January. Thank you. Operator: This concludes the third quarter 2025 Stryker earnings call. You may now disconnect.
Operator: Good afternoon, and welcome to WEC Energy Group's Conference Call for Third Quarter 2025 Results. This call is being recorded for rebroadcast. [Operator Instructions] In conjunction with this call, a package of detailed financial information is posted at wecenergygroup.com. A replay will be available approximately 2 hours after the conclusion of this call. Before the conference call begins, please note that all statements in the presentation, other than historical facts, are forward-looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management's expectations at the time they are made. In addition to the assumptions and other factors referred to in connection with the statements, factors described in WEC Energy Group latest Form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated. During the discussions, referenced earnings per share will be based on diluted earnings per share, unless otherwise noted. This call also will include non-GAAP financial information. The company has provided reconciliations to the most directly comparable GAAP measures in the materials posted on its website for this conference call. And now it's my pleasure to introduce Scott Lauber, President and Chief Executive Officer of WEC Energy Group. Please go ahead. Scott Lauber: Good afternoon, everyone, and thank you for joining us today as we review our results for the third quarter of 2025. Here with me are Xia Liu, our Chief Financial Officer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations. As you saw from our news release this morning, we reported third quarter 2025 earnings of $0.83 per share. With this solid quarter, we remain on track for strong 2025 results. Our focus on executing the fundamentals of the business is creating real value for our customers and stockholders. Today, we are reaffirming our earnings guidance for the year at a range of $5.17 to $5.27 a share. Of course, this assumes normal weather through the remainder of 2025. In addition, I'm excited to share our new 5-year capital plan. Let's start by talking about the economic growth that's driving the plan. We continue to see major business building a future in our region. Overall, our electric demand is expected to grow 3.4 gigawatts between 2026 and 2030, an increase of 1.6 gigawatts compared to the prior plan. Microsoft is making good progress on its large data center complex in Mount Pleasant, Wisconsin. The company has stated that the first phase of that project is on track to go online next year. In addition, Microsoft also recently announced plans for a second phase in Mount Pleasant that will be similar in size and power. Its projected investment is an incremental $4 billion on top of the original $3.3 billion investment. The economic development south of Milwaukee is supporting approximately 2.1 gigawatts of our overall 3.4 gigawatt demand growth. And as you recall, Vantage Data Centers has signed on to develop data center facilities on approximately 1,900 acres north of Milwaukee in Port Washington. Just last week, Vantage has announced that this campus named Lighthouse will be part of open AI and Oracle's partnership on the Stargate expansion. Vantage has reported that the site has the potential to reach 3.5 gigawatts of demand over time. Right now, we're focused on providing generation for an estimated 1.3 gigawatts of demand at the site in the next 5 years. The city of Port Washington approved Vantage is planned in August for the initial development on 670 acres. Vantage has stated that it expects to invest $15 billion in the project. The campus will feature 4 data centers and construction is planned to start this year. Vantage has announced that the facility could go online in late 2027 with this first phase of the project scheduled for completion in 2028. Of course, the growth of large customers is also fostering small commercial and residential development throughout our service territory. And Wisconsin's unemployment rate stands at 3.1% continuing a long-running trend below the national average. This significant economic development is driving our capital plan. As you may have seen from our announcement this morning, we expect to invest $36.5 billion in capital projects between 2026 and 2030, an increase of $8.5 billion above our previous 5-year plan. That's more than a 30% increase. With this updated capital plan, we expect asset-based growth at an average rate of just over 11% a year. We expect that strong asset base growth to support our updated long-term projected earnings per share growth of 7% to 8% a year on a compound annual basis between 2026 and 2030, This is based on the midpoint of our 2025 guidance. For the next two years, however, we expect to maintain our existing EPS growth rate of 6.5% to 7% on a compound basis and then accelerate starting in 2028 to the upper half of the new guidance range on a compound basis. As you are well aware, we're in the early stages of deploying the capital required to support the robust growth in our region, and it takes time to fully put the projects in service. The increase in our plan is driven by investments in regulated electric generation, transmission and distribution in Wisconsin and the pipe retirement program in Illinois. Let me give you a few more details. Over the next 5 years, we'll utilize an all-of-the-above approach for generation to support the economic growth and reliability by investing in new natural gas, batteries and renewables. The key for reliability is dispatchable resources. Between 2026 and 2030, we expect to invest an incremental $3.4 billion in modern, efficient natural gas generation versus the prior plan. This includes combustion turbines, reciprocating internal combustion engines or race units and upgrades to existing facilities. We also will continue to invest in renewable generation and battery storage increasing our projected investment by $2.5 billion over our prior plan. In addition, American Transmission Company plans to continue to invest in our transmission capabilities to serve our region's economic growth, connect new generation and strengthen the system. Part of that new transmission is planned to serve customers and new data center needs. Our plan calls for us to invest approximately $4.1 billion in ATC projects between 2026 and 2030. This represents a $900 million increase from the previous plan. And to help assure reliability and support economic growth, we're continuing to invest in our electric and natural gas distribution networks with an additional $2 billion in the plan. This includes significant investment in our pipe retirement program in Chicago. Recall that the Illinois Commerce Commission directed us to review -- directed us to focus on retiring all cast iron and ductile iron pipe with a diameter under 36 inches by January 1, 2035. We expect that over 1,000 miles of older pipe will need to be replaced. Turning to the regulatory front. I have just a few updates across our service areas. In Wisconsin, our proposed very large -- or BLC tariff remains with the Public Service Commission for a review. As we discussed earlier this year, this tariff is designed to meet the needs of our very large customers while protecting all of our other customers and investors. As currently proposed, and in our testimony filed earlier this month, the tariff would provide for a fixed return on equity in an updated range of 10.48% to 10.98% and an equity ratio of 57%. These financial terms have been agreed upon with the customers. The proposed terms of the agreements are 20 years for wind and solar and the depreciable lives for natural gas and battery storage assets. We worked with a very large customer in designing the tariff, including the financial parameters, and we believe the tariff is a key component to making Wisconsin a prime spot for data center investment. We have a procedural schedule and provided our direct testimony earlier this month. A commission order is expected by early May of next year for customers to take service in June. And in Illinois, we are continuing to coordinate with the City of Chicago under Pipe retirement program. As we are ramping up these efforts, we will continue to have regulatory reviews of the process. This includes the forecast in the general rate case proceeding, which we are planning to file in early 2026 for test year 2027. Of course, we'll keep you updated on any further developments. Now I'll turn it to Xia to provide you more details on the financial results and our financial plans. Liu Xia: Thank you, Scott. Our third quarter 2025 earnings were $0.83 per share $0.01 over third quarter 2024 adjusted earnings. Our earnings package includes a comparison of third quarter results on Page 16. I'll walk through the significant drivers. Starting with our utility operations, earnings were $0.12 higher when compared to third quarter '24 adjusted earnings. Weather positively impacted earnings by about $0.01 relative to last year. Compared to normal conditions, we estimate that weather had a $0.03 favorable impact in the third quarter of 2025 compared to a $0.02 favorable impact in 2024. Rate-based growth contributed $0.15 more to earnings and timing of fuel expense, tax and other items added another $0.07. These positive drivers were partially offset by $0.06 from higher depreciation and amortization expense and $0.05 from higher day-to-day O&M. In terms of our weather-normal retail electric deliveries, excluding the iron ore mine, we saw a 1.8% increase compared to the third quarter of 2024. This was led by the large commercial and industrial segment, which grew 2.9%. The residential and small commercial and industrial segments grew 1.3% and 1.4%, respectively. Overall, we are slightly ahead of our annual electric sales growth forecast. Looking ahead, with the updated load growth, we now expect our annual electric sales growth to be between 6% and 7% for the period 2028 through 2030, that's up from the 4.5% to 5% we previously forecasted. Turning to American Transmission Company. Capital investment growth contributed an incremental $0.02 to Q3 earnings versus 2024. And at our Energy Infrastructure segment, earnings increased $0.01 in the third quarter of 25% from higher production tax credits. 0next, you'll see that earnings from the Corporate and Other segment increased $0.11. This was largely driven by tax timing and higher interest expense. In terms of common equity, we issued about $800 million through the first 9 months via our ATM program as well as the dividend reinvestment and employee benefit plans. This largely satisfied our common equity needs for this year. As Scott noted, we're reaffirming our 2025 earnings guidance of $5.17 to $5.27 per share. This includes October weather and assumes normal weather for the remainder of the year. Going forward, with the updated capital plan, we expect our EPS growth to accelerate post 2027. Overall, based off the midpoint of the 25% guidance range, our long-term growth rate CAGR is expected to be 7% to 8% through 2030. Now let me comment on the financing plan that supports this growth and the new capital plan. As we have consistently guided you, we expect any incremental capital will be funded with 50% equity content. When compared to the prior plan, we added $8.5 billion of capital and about $4 billion of incremental equity content equally split between incremental common equity and hybrid or like-kind securities. So here are the details of the funding sources. Over the next 5 years, we expect cash from operations to be approximately $21 billion, funding more than half of our cash needs. Approximately $14 billion of the funding is expected to come from incremental debt, and the remaining cash is expected to be funded by approximately $5 billion of common equity. As a reminder, the cadence of common equity is a function of capital expenditures. For 2026, we expect common equity issuances to be between $900 million to $1.1 billion. In closing, as Scott discussed previously, the strong economic development and low growth in Wisconsin is the foundation of our new 5-year plan. With the asset base forecasted to grow at 11.3% a year on average, we expect to nearly double our asset base over the next 5 years. It's important to note that the bespoke assets allocated to our very large customers, are projected to represent 14% of our total asset base by 2030. As a reminder, the tariff is designed so these customers pay their fair share and are not being subsidized by other customers. We're very excited about our company's future and the investment opportunities ahead of us. With that, I'll turn it back to Scott. Scott Lauber: Thank you, Xia. Finally, a quick reminder about the dividend. As usual, I expect we'll provide our 2026 dividend plan and earnings guidance in December. We continue to target a payout ratio of 65% to 70% of earnings, and we're currently positioned well within that range. We expect to grow the dividend at a rate of 6.5% to 7%, consistent with our past practice. Overall, we're optimistic about our 5-year plan and the longer-term outlook. I think we're in the early stages of the growth cycle as we continue to see opportunities in economic development in our region, including data centers. We look forward to providing additional details on our plan in just over a week at the EEI conference. Operator, we are now ready for questions-and-answer portion of the call. Operator: [Operator Instructions] We'll take our first question from Shahriar Pourreza at Wells Fargo. Shahriar Pourreza: Just on the -- obviously, just on the updated growth outlook, I mean there is that inflection post 27. I guess some would be surprised it's more back-end loaded. Can you maybe just walk us through how the CAGR shapes kind of in that back half of the plan? Can it be accelerated? -- other incrementals? Is there an opportunity to smooth this out a little bit? Scott Lauber: Sure, sure. Great question. And remember, as we historically have done, we've always taken the midpoint of the current year's guidance, the 2025 guidance and looked at a compound annual growth rate I think it will help if I give you a little color of what we're seeing year by year and think about it as you look at our capital plan. So in the first year in '26, we're seeing $6.5 billion to $7 billion. I think as you start looking in '27 then, you can see our capital plans are ramping up to a little almost $7 billion and over $7.7 billion. When you have that, you're going to see part of those earnings coming in. So in 2027, we're seeing 7% to 8% probably on that annual basis year-over-year growth versus looking at it on a compound basis. And then when you look at those outer years, '28 through '30, I'm seeing closer to 8%. That's kind of where we're seeing. It just takes a while to ramp up really lines up well with what our capital plan is -- and that's how you get that compound growth rate that 7% to 8% at the upper end of our plan here. Does that add a little color? Shahriar Pourreza: No, it does. And is there any opportunity, Scott, to smooth it out a little bit? Or is this the plan is the plan. Scott Lauber: Well I think there's some opportunities that we could see as things potentially accelerate. There's a lot of stuff that we're asking for approvals for and the commission is doing a great job getting us approvals. There's just a lot of activity and we want to be very prudent -- what it takes to get approvals, what it takes to actually get everything to start building those plans. So I think there's opportunity there. We're just -- we don't like to have any white space, we want to make sure we can execute and we want to make sure we can deliver. And we feel this is very, very executable. Shahriar Pourreza: Perfect. I appreciate that. And then just my perennial question for you is just around the Point Beach conversations just with NextEra. I guess any sort of sense of timing around an announcement? Are you still to have an Analyst Day coming up in early December. Are you still thinking about year-end? Or are the conversations kind of shifting a little bit further out? Scott Lauber: Yes, that's a great question. And the conversations are still going on. They're maybe shifting a little bit further out. I just wanted you to know in this plan, we haven't assumed 1 way or the other. So we have no capital in here if we had to replace that capacity. In the end, we're really looking at what's the best for our end-use customers and what value we have for the customers. We just got to be very prudent. We have a lot of opportunities, we think, in fact, -- if we don't renew something, I think there's potentially capital upside. We're just going to really look at it from the perspective of the customer and what makes sense overall. Operator: We'll take our next from Julien Dumoulin-Smith at Jefferies. Julien Dumoulin-Smith: I am wearing the rally cap for you guys here today on this one. Scott Lauber: I appreciate that. Julien Dumoulin-Smith: Of course. With that said, there's a lot to take on here. Let me come back to the question on this Microsoft expansion in the second phase. Obviously, they made some headlines recently. How should we interpret that as being incremental or not to the plan if eventually there's something folds in there? I mean, to what extent is it or isn't it fully reflected here? Scott Lauber: So -- and we work with Microsoft, along with all the other customers in Southeast Wisconsin that we came up to that 2.1 gigawatts for Southeastern Wisconsin. And I can't really divulge individual customer information -- but let's just say I'm very confident in the growth we have in Southeastern Wisconsin, and I think there's more growth in the remaining 5 years when you think about the next 5 years of our plan. And I don't know if you had a chance to listen to the Microsoft conference call, they actually called out the growth in Southeastern Wisconsin. They call the data center Fairwater. It's the world -- expected to go online next quarter or this quarter, they announced it expects to go online next year. And they say it could scale up to 2 gigawatts alone. So I think -- and I can't speak for them, but when you look at the overall picture, I think there's a lot of opportunities as you think about the next 5 years also. Julien Dumoulin-Smith: Got it. Excellent. If I can needle you on a couple of details here. One thing that stood out here, you raised the transmission CapEx by slightly less than $1 billion. But I think the Port Washington transmission project itself with ATC was 1.3%. Is that fully in there? Again, I know it's a partial ownership for you guys, et cetera, but -- just wanted to clarify that here. Scott Lauber: Sure. And we're a 60% owner of American Transmission Company. So it's all kind of factored in here. I think there's maybe a little bit more upside as we see other data centers in there. I think it's probably the basic is factored in our plan. So there's probably a little more upside at that $1.4 billion. I think that even came out after the original ATC forecast was pulled together. So I think there's a little bit more runway there. Remember, there's only so much transmission you kind of do on the system at a time. So it's maybe limited a little bit by that. Julien Dumoulin-Smith: Got it. And sorry to one more here. The ramp in Illinois seems a little bit more than perhaps some were expecting. Again, it's a pretty healthy number here with the $1.5 billion. Can you speak a little bit to what's taking place there? And also, if you have any latest thoughts about what could happen with this Illinois legislation, if it has any meaningful impact for you guys? Scott Lauber: Sure, sure. It's very consistent with what we've been laying out that it's going to ramp up some in 2026, then in 27, and we expect we'll be up to about that $500 million in 2028 and going forward. Remember, we had about $90 million a year on the plan. So it falls in line between that $1.4 billion and $1.6 billion. We have $1.5 billion in here. So that all is kind of consistent with what we've been saying. The Illinois legislation, we'll see where that goes, is a little bit on the efficiencies in there. I don't think you'll have a significant effect on us, but we, of course, are watching it. Operator: We'll move next to Michael Sullivan at Wolfe Research. Michael Sullivan: Scott, I wanted to start with Slide 22. If you could just help on the just bridging the asset base growth to earnings growth? Is the delta there from 11% to 7%-8%? Is it all just equity dilution? Or is there anything else we should be thinking about it? And then on that same slide, of asset base with the bespoke customer? Is that like a proxy for like earnings attached to those projects as well? Scott Lauber: So a couple of items, and we'll let Xia address it, too. At a high level, the bespoke portion there that's to identify people had asked how much of the potential rate base in those outer years will be tied to that very large customer tariff. And that's the current projection. And it's about 14% of our asset base up in 2030, dealing with that, the renewables and other stuff that the VLC payer will cover. And then the 11.3% to our growth rate, a large of it is just dealing with choice. I think it looks like what we do with the financing and the dilution from the equity issuance. Liu Xia: Yes. I think roughly 3% is from the equity and the rest is the little bit holding company, Terry, Michael? . Michael Sullivan: Okay. That's very helpful. And then sticking with the financing plan, any sense of where you are in terms of capacity for junior subs and hybrids? Like are there any thresholds that eventually you run into at some point or still a lot of runway? Liu Xia: Still a lot of runway. And as you know, the agencies have a slightly different definition for the capacity, S&P uses percentage of the total capitalization and Moody's uses a percentage of the total debt capacity. The 5-year plan with the planned juniors sub, we still have billions of dollars of capacity left. So we're good. Operator: We'll take our next question from Nicholas Campanella at Barclays. Nicholas Campanella: I wanted to ask just a very large increase in the capital plan and the rate base growth following that. That's obviously coming with a financing need. And you are in a lot of different states and jurisdictions. I noticed that you also, as part of this plan, put some capital out of WEC infrastructure. Just wondering what the appetite is to recycle capital to replace common equity needs or other financing needs in the plan? Scott Lauber: Sure. That's a great question. And if there was an opportunity that came along, we, of course, would look at it. We just want to make sure that it fits our financial parameters. It will be good for investors. But we really like the performance of our -- of some of our smaller companies. They perform very well. They don't take a lot of work, and we continue to execute on them. We've got a great team there. So it's not like we're looking to sell them at all. But if an opportunity would exist, we would always look at that opportunity. We just want to make sure it's good for our investors. Nicholas Campanella: Okay. Great. And then I guess just as we think about the ability for current customers to gross up commitments in your territory or potential new customers? I guess one thing we've heard through this earnings season from some other companies, they talked about just available turbine capacity, what their advantage in the supply chain would be to kind of deliver on those incremental deals. How do you kind of think about that from the WEC side if Vantage was to come and do an increased commitment or Microsoft was to come or other large load customers. Do you have the turbines or maybe the renewable agreements to kind of execute on that? Scott Lauber: Sure. Great question. And we have a team that works with our very large customers and potential additional customers on how we could supply either an accelerated load on their basis or additional load or new growth. So we are working with them every day. We have a robust supply chain and working with developers to have a path to be able to serve that. So very -- feel very confident that the load will increase, and we could work with them. So we have been working with them behind the scenes for several years on this to stay ahead of it. What you're seeing in the plan, though, is what they have firm commitments to. Nicholas Campanella: Maybe if I could just sneak one more in quickly, just on Point Beach. Just recognizing the license extension there just recently happened in the last few months, what's just the state of urgency from state stakeholders to kind of further lock up this capacity through the end of the decade or the end of 2030 now? And is that something that you think we could see by year-end? Scott Lauber: So I mean, we've got the capacity, I think it's to 2030 and 2033. So we have a lot of time. We've been working with NextEra. We just got to make sure that we have the right agreement for our customers. But as I said, we do have access to other abilities if we need to replace that capacity. So we're working with them. We just got to get to a right position. And if we get there, great. If we don't get there, there's a lot of opportunities for us, too. Operator: Next, we'll move to Andrew Weisel at Scotiabank. Andrew Weisel: First question -- sorry, if I'm getting 2 Qs here, but for '28 to '30, are you implying 8% or like 7.5% to 8%? And if it is the latter, doesn't the math suggest that the overall 5-year period would be below the midpoint? Scott Lauber: Well, I don't think it will be below the midpoint. I think we're going to look at probably in that 8% area that will get us to the midpoint on a compound basis. Liu Xia: I think there's a little confusion, Andrew, in terms of the upper half on the slide. I think that's a compound number of the midpoint of 2025. What Scott is talking about is on an annual basis, if you look at from '27 to '28, '28 to '29, we're seeing that 8% range. And if you compound it back, that's the 7% to 8% of the midpoint of 2025. Andrew Weisel: Okay. Great. Just wanted to clarify. So it's about 8% for the later years, right? Liu Xia: On an annual basis. Andrew Weisel: Okay. Great. Just wanted to clarify that. Next question, on the CapEx update, first of all, very impressive numbers, a huge increase. What I want to understand, though, is it's an $8.5 billion increase. But when I add up the pieces on Page 18, I'm calculating a total of $8.1 billion. So I don't know if it's rounding or if there's some pieces missing, but can you help me bridge that gap? Where is the extra $400 million coming from? Scott Lauber: Yes. That's -- I mean we just kind of picked out a couple of the highlights there. I guess if you do the specific reconciliation with the bar chart, you have a little bit more gas distribution of a couple of hundred million. And then I think it's kind of cats and dogs and generation and everything else. We just called out the significant ones. Andrew Weisel: Okay. That's what I thought. I just wanted to be sure. Then lastly, in terms of demand, again, a big increase. You're forecasting 3.4 gigawatts by 2030, up from 1.8 gigawatts in '29 previously. Is that increase related to data center projects you've been talking about ramping up? Or is it some of the other manufacturing activity you've discussed in the past? I know there's a lot going on along the I-94 corridor. How much of that is like existing projects ramping versus new incremental projects coming online? Scott Lauber: Yes, great question. So when you look at it, it's about 1.6 gigawatt growth, 1.3 is the Vantage data center in Port Washington. And then in Southeastern Wisconsin, as you can imagine, a significant part is from the data center in Southeastern Wisconsin, but it really is all the customers in that area. We have Eli Lilly expanding. We've got Amazon. We've got other companies coming to the region. And then that's not even counting all the residential load we're starting to see in new construction starting in the area. So I think it's all of the above, but definitely significantly related to database or data center growth. Operator: We'll take our next question from Sophie Karp of KeyBanc. Sophie Karp: Comprehensive update today. So if I may just dig in a little bit on the data center announcements, right? There's been a slew of announcements lately, some assets traded hands. So I think there's some confusion, what's incremental, what's in the plan. So could you make it very clear to us what's actually in the plan of the recent gigawatts of announcements and what yet is not in the plan, I guess? Scott Lauber: Sure, sure. So what's in the plan, and we have Southeastern Wisconsin. So there's 2.1 gigawatts down there that includes the Microsoft, what they have told us to factor into this 5-year plan. And then in Northern in that Port Washington site, it's really -- I would look at it as being Vantage and Vantage has worked with Oracle. So those are the same megawatts at 1.3 gigawatts, okay? So Vantage/Oracle is 1.3 gigawatts. That's what's in the plan. What's not in the plan is there's additional land of about 1,200 acres in Port Washington that potentially could house another, what, 2 gigawatts plus of additional capacity. And then in Southeastern Wisconsin, when you think about the Microsoft site, there's additional 700-plus acres that they have there that I think could be for future development that also could add into the overall gigawatt usage. So I think there's a lot of opportunity for future growth here. I hope that help clarifies it. Sophie Karp: Yes. So it sounds like the plan as it stands right now is just like super conservative. Is this a fair way to say? Scott Lauber: Yes. We only put what the other -- what the customers are announced and provide us the information on. Sophie Karp: Got it. Okay. And my other question was this like when you -- it's very helpful color when you talk about 14% of your rate base being under the large load customer tariff by the end of 2030 or by 2030. What do you, I guess, expect -- and the economics are never pretty clear, right, is the premium economics on that chunk of rate base. What do you expect the economics to be for the rest of the rate base? Like when you formulate your plan, do you expect that, I guess, they will -- the overall average will be similar to what you have today, the trajectory of what you have today or for the lack of a better word, some deterioration in the economics of the rest of the rate base? Or do you expect the -- take the rest to be unaffected by the presence of this like new premium part of rate base? Scott Lauber: Right? So we assume the rest of the rate base earns the current authorized return that we currently have in all the -- each of the jurisdictions when you look at them separately. And then when you look at Wisconsin, the Wisconsin right now, we're at that 9.8% ROE and depending upon the utility, like a 57.5%, 58% regulated ratio on Wisconsin Electric that each of those earn their separate return. Remember, the foundation of our tariffs is that the large customers don't get subsidized or subsidize the other customers they -- each pay their fair share. So we keep them as separate. Operator: We'll take our next question from Ryan Levine at Citigroup. Ryan Levine: Two quick questions. Just in terms of the execution or state of conversations for some of the Vantage expansion beyond the 1.3, any color you could share around maybe the engagement level or the time line that conversations are progressing through? Scott Lauber: Sure. So we're always in our discussions with Vantage, Microsoft and potential others -- but right now, Vantage, as we said in the prepared remarks, are really concentrating on that first 1.3 gigawatts. I think they had a press release out there. They're going to have construction of about 4,000 construction workers out there when they're able to start construction. So I think everyone is concentrating on that. We'll have more discussions over the next -- probably next year. But I think everyone is just concentrated on the first part of the load, which is what we want to make sure we can achieve too. Ryan Levine: Okay. And then there was a lot of mention about Microsoft and Oracle. But beyond those 2 customers, the engagement level fairly broad? Or is it really focused on a more narrow group of potential customers for expansion? Scott Lauber: We have other customers that we're talking to, but those are the 2 main ones that are already in the area and made public announcements. We're talking to others. I don't want to jump that like -- I try to play it pretty close to let them make the announcements or them sign purchase cancellation agreements before we get ahead of our skis on potential. But we are talking to others. Ryan Levine: Okay. And then unrelated, just to clarify around your plan, is the assumption embedded in the plan conservative and that doesn't assume an outcome or doesn't assume the higher very large load tariff ROE and to the extent that you were to be successful in that application that, that would be additive to the plan or help provide additional buffer? Scott Lauber: No. I mean, we're assuming the very large tariff is implemented. What we talked about on the call, there is a range of ROEs, 10.48% to 10.98%, which we really stay with the fundamentals of making sure we don't have a secondary effect that hurts our other customers. And those are more on -- we're working individually, and we can't give more details, but on a higher return on some of it to that 10.98%. But more to come on that as we continue to work with our customers on it. Operator: We'll move next to Paul Fremont at Ladenburg. Paul Fremont: First question has to do with the Microsoft announcement where they canceled the Caledonia site. But what they said, I think, was that they would continue to look for alternative sites in Southeastern Wisconsin in your service territory. What other locations do they have land? Or do you potentially have land that you would be able to sell to them? Scott Lauber: Yes. Good question. So you are correct. They're looking for a different site than what was the original plan. We really don't have that significant type of land available elsewhere, but I don't know their specific plans. So I know they said they're looking at other places in Southeastern Wisconsin, probably more to come in that area. It's just good that they're -- this is really great for the area when you think about property taxes and good paying jobs. So I know they're early in their look, so we'll see where that goes. But once again, that's a potential for more upside on our load. Paul Fremont: Great. And the timing of how long it would take for them to find sort of a replacement type scenario, would it be like 12 months? Or what would you -- what would be sort of a reasonable assumption? Scott Lauber: Yes. And I can't talk for Microsoft, but they move pretty fast. I think a year is may be reasonable, but we'll see where it goes. Paul Fremont: Okay. My next question on Point Beach would be, if you're unable to reach an accommodation with NextEra, what type of generation would you build? And when would you have to start building it? Scott Lauber: Yes. That's a good question. And we'll look at it, but it would have to be something that would be dispatchable that we could cover the dispatch on. So it would have to be some type of gas. We'll see what the EPA rules. Do we eventually look at a combined cycle maybe and maybe some renewables in there. So we like the all-the-above approach. And I know some people don't like renewables, but when you think the gas prices at times when they're high, renewables are very popular when gas prices are high. And also, we look at all of the above mix. So if you think about it, the contracts are 2030 and 2033. So there's still plenty of time. And like we said, we work with all our large customers and our planning team is looking at how do we replace this, and I'm sure we have several options available. Paul Fremont: And then last question for me. When we look at the $4.8 billion to $5.2 billion of common equity, would some of that be junior subordinated debt? Or would any junior subordinated debt issuances be incremental? Liu Xia: It's the latter. The $4.8 billion to $5.2 billion would be common equity. Paul Fremont: And then is there junior subordinated debt contemplated then as part of your incremental debt? Liu Xia: Correct. As I said in the prepared remarks, we added $4 billion of equity content. So 2 more of common and the other 2 would come from the junior subordinated debt or like-kind securities. Operator: We'll take our next question from Anthony Crowdell at Mizuho. Anthony Crowdell: Just one quick one. I'm curious with all the load and growth that we haven't seen for years in this sector, I'm curious if this is making earnings forecasting and rate base growth forecasting easier or harder? Like is it chunkier with these large loads coming in, and it's becoming more of a challenge of forecasting out? Or is this all this load just such a tailwind and it's making life a lot easier on the forecasting? Scott Lauber: Well, it's sure nice to have load to drive the capital plan, which makes it a lot nicer. But there's a lot of stuff that we have to keep into account, including the timing of in-service, the timing of the load, and we have a whole team working at staying ahead to make sure we have the turbines and the renewable sites located. So we always like growth. We'll take on that challenge. It just takes a lot of people, a lot of bodies monitoring and keeping on top of everything. And the key is execution. So we have a whole group executing on the capital projects as we're -- as we got commission approval this summer, we're working on those projects right now. So it's just different. Let's put it that way. Operator: Next, we'll go to Steve D'Ambrisi at RBC Capital Markets. Stephen D’Ambrisi: I just had a quick one just about -- a lot of the questions today have been about 2 existing hyperscale sites expanding and when. But I think what's interesting to me is realistically, you guys are relatively unique in the fact that you don't really talk about a sales funnel of other customers. And so I guess what I would most be interested in is, do you think that getting the VLC tariff through the Public Service Commission will help potentially broaden the customer base? Like clearly, you've had success citing some of the biggest data centers in your service territories that we've seen across the country. And so just interested to hear about potential other people. Scott Lauber: Yes. That's a good question. I think the very large customer tariff, in fact, we attract some of our -- the first customer before we even had a tariff. So I think if you think about location, the ability for WEC and American Transmission Company to be able to deliver and provide the generation and renewables and transmission to help energize their sites and move fastly in the Wisconsin environment and in the MISO footprint, I think that is a great advantage. I think also being in Wisconsin, you got a cooler environment for air storage cooling. So I think that's -- it's an advantage, and we don't have the natural disasters that other parts of the country have. So I think all of those are positive. Our customers, our very large customers, we worked with them as we filed the very large customer tariff. So I think they considered and I've heard several times how it's fair. I think that's also a plus. Once it gets approved, I think that will definitely be helpful. I think the key is and all our large customers make sure that we do not affect any other customers' rates. So that was good as a foundation for it. So having it approved, I think, can only help, but we're really excited about the pipeline we are talking to now and the potential growth at the significant sites that we have already going in Wisconsin. Operator: We'll go next to Bill Appicelli at UBS. William Appicelli: Most of the questions have been asked. Just one question clarifying. Just on the step-up in the asset base growth. Was there any additional offsets there or anything that came out? Just thinking because the back of envelope math maybe would have supported given the $8.5 billion of CapEx, something maybe a little bit closer to 12%. So I'm just curious if there's anything else different in the bridge there. Scott Lauber: No. I think the only thing we took out is we don't have any investments in [ WECE ] for the most part. But overall, I don't think there's much other changes there. It's just more back-end loaded starting more in '27, I guess. William Appicelli: Okay. And then just what -- from an affordability perspective, what's embedded in this plan in terms of the -- on the electric side in terms of average annual rate increases for residential customers? Scott Lauber: So we will be filing a rate case in Wisconsin for our biannual process. So we're pulling those numbers together now that we'll file sometime in the end of the first quarter, most likely beginning of the second quarter. We're looking at inflation type increases, but it's early in the process now. The key is none of it is going to be costs that are coming in from any of the hyperscalers. They're paying their fair share. Operator: And our final question today comes from Carly Davenport with Goldman Sachs. Carly Davenport: I just had one clarification. Just on some of the other growth opportunities. As you think about the next 5 years, do you see incremental capacity and potential on the system for more load to be added in the course of the current plan? Or would that be largely beyond the 2030 time frame as you think about those opportunities? Scott Lauber: So I think as we work with these very large customers, I think at the end of our current 5-year plan, we potentially could see additional growth come in depending upon how they look at their individual development. So I think there's a potential for both on the current plan plus in the next 5 years. Carly Davenport: Great. I'll leave it there. Scott Lauber: Sounds good. Thank you. All right. That concludes our conference call for today. Thank you for participating. If you have more questions, feel free to contact Beth Straka at (414) 221-4639. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to IDACORP's Third Quarter 2025 Earnings Call. Today's call is being recorded, and our webcast is live. A replay will be available later today and for the next 12 months on the IDACORP's website. [Operator Instructions]. I will now turn the call over to Amy Shaw, Vice President of Finance, Compliance and Risk. Amy Shaw: Thank you. Good afternoon, everyone. We appreciate you joining our call. The slides we'll reference during today's call are available on IDACORP's website. As noted on Slide 2, our discussion today includes forward-looking statements, including earnings guidance, spending forecast, financing plans, regulatory plans and actions and estimates and assumptions that reflect our current views on what the future holds, all of which are subject to risks and uncertainties. These risks and uncertainties may cause actual results to differ materially from statements made today, and we caution against placing undue reliance on any forward-looking statements. We've included our cautionary note on forward-looking statements and various risk factors in more detail for your review in our filings with the Securities and Exchange Commission. As shown on Slide 3, also presenting today, we have Lisa Grow, President and CEO; Brian Buckham, SVP, CFO and Treasurer; and John Wonderlich, Investor Relations Manager. Slide 4 has a summary of our third quarter results. IDACORP's diluted earnings per share were $2.26 compared with $2.12 for last year's third quarter. In the third quarter of this year, Idaho Power recorded $2.5 million of additional tax credit amortization under the Idaho Regulatory Mechanism, which is the same amount Idaho Power recorded in the third quarter of last year. For the first 3 quarters of 2025, diluted earnings per share were $5.13 versus $4.82 for the first 3 quarters of 2024. Those results include additional tax credit amortization of $39 million in the first 3 quarters of 2025, compared to $22.5 million in the first 3 quarters of last year. For our guidance, we're raising our full year IDACORP's diluted earnings per share guidance range for the second time this year. Our new expected range is $5.80 to $5.90 per diluted share. Our current expectation is that Idaho Power will use between $50 million and $60 million of additional tax credit amortization for the full year, a reduction from our estimate last quarter. So we were able to increase our earnings per share estimate for the year while decreasing our estimate of additional ADITC amortization, which is reflective of our strong operational performance this year. These estimates assume historically normal weather conditions and normal power supply expenses for the fourth quarter. Now I'll turn the call over to Lisa. Lisa Grow: Thanks, Amy, and thanks to everyone for joining us on the call. Let's start with a look at customer growth and economic expansion. As you can see on Slide 5, our customer base has grown 2.3% since last year's third quarter, including 2.5% for residential customers. We continue to see robust activity across several sectors, including manufacturing, food processing, distribution, warehousing and technology. Micron's 2 fab projects remain a cornerstone of our industrial engagement. The 2 fab expansion represents the largest private capital investment in Idaho's history and underscores our region's growing prominence in advanced manufacturing and technology. In parallel, we're actively engaging with several Micron suppliers planning to establish operations in the Treasure Valley. Perpetual Resources, another new large customer recently achieved a significant milestone in its mining project by transitioning from permitting to development. The project broke ground earlier this month, marking a new phase in Idaho's mining sector. We're also seeing increased momentum in agricultural-related projects in the southern part of our service area. These include cross-vent barnes, rotary milking parlors and biodigesters that will contribute to load growth while supporting energy production through renewable natural gas. Our new large load pipeline remains very robust. As we've previously communicated, our load forecasting methodology remains conservative and disciplined. We don't include new large projects in our forecast until contracts for the procurement and construction are executed, which occurs after we've identified how to serve the customer. This approach ensures that only viable projects are reflected in our projections. Now the laws of physics are unyielding. So we are working hard on creative options to serve these new large loads while ensuring the system remains reliable and affordable. As we work with these new loads, I want to emphasize Idaho Power's continued commitment to customer affordability. We work hard to keep our prices among the most affordable in the country. And according to national data compiled by the Edison Electric Institute, Idaho Power's customers' bills remain 20% to 30% lower than the national average. We strive to achieve a thoughtful balance between growth and affordability in part through the design of pricing and contractual provisions for new large load customers guided by a long-standing growth pace for growth philosophy. As shown on Slide 6, our residential customer rates -- our residential customers' rate increases since 2014 are much lower than the national average and the steep increase in consumer price index in recent years. Shifting gears and turning to Slide 7. We remain full speed ahead as we execute on key projects. Most notably, work is progressing quickly on the Boardman-to-Hemingway transmission line project. Several towers for that project are now complete. We're thrilled to have steel on the ground on this key resource for helping us access reliable, affordable energy in the Northwest. We continue working through the regulatory and permitting processes on the Gateway West and Swift North transmission lines, and we look forward to moving both of those projects into the construction phase, hopefully soon as they are necessary resources. As I touched on during the last call, recent policy changes impacted the permitting of the 600-megawatt Jackalope Wind project that we plan to have in service by 2027. As a result, we terminated the agreements we had for that project, both the ownership and the power purchase components. With the wind project's agreements terminated, we're busy identifying power supply solutions to meet future load growth. These solutions could include short-term market purchases, natural gas projects and potentially additional solar and battery storage resources. We're in a continuous state of planning and execution to affordably serve the growing demand with a reliable mix of generation resources. As described in our IRP, natural gas resources are a good operational fit for our system as well as a lease cost, lease risk resource. Idaho Power is planning a 167-megawatt expansion of the Bennett Mountain gas-fired power plant, which will help serve load during peak times. In September, we received a pre-permit to construct from the Idaho Department of Environmental Quality, which allows construction to begin. We've also submitted a certificate of public convenience and necessity for the project to the Idaho Commission. If approved, we expect to begin construction in the spring of 2026 and bring the project online in 2028. As you can see on Slide 8, there's lots of work going on in the RFP space and lots more to come. The Bennett project is an important step in helping to solve our future power supply needs. We're continuing to work through the resource selection process, and we anticipate being able to provide some updates on additional selected generation projects on our year-end call, if not sooner. The next 2 slides highlight the news in our pending Idaho General Rate Case. We recently reached a settlement with new rates designed to increase annual revenues by $110 million or 7.48% effective January 1. Additional details of the rate case settlement include a 9.6% ROE, a 7.41% overall rate of return and a $4.9 billion Idaho jurisdictional rate base, excluding coal plants that are under separate mechanisms. There were no capital disallowances in the settlement. Our ADITC mechanism remains in place with a $55 million annual cap for 2026 and thereafter. Also, all existing ADITCs not currently included in the mechanism and all investment tax credits generated through 2028 will be added to the mechanism. We view the settlement as a constructive outcome that helps us continue to safely, reliably and affordably provide electric service to our growing service area. The settlement requires approval by the Idaho Public Utilities Commission. And based on prior cases, we expect the commission will issue an order on the settlement sometime in December. Turning to Slide 11. We filed our 2026 Idaho Wildfire Mitigation plan with the Idaho Commission earlier this month. It's the first wildfire mitigation plan being filed pursuant to Idaho's new Wildfire Standard of Care Act and it outlines our proposed methods of mitigating wildfire risk and hardening our system. As a reminder, the Wildfire Standard of Care Act was signed into law earlier this year. The law empowers the Idaho Commission to set clear and consistent expectations for utilities wildfire mitigation efforts. Under the law, stated generally, utilities are assumed to be acting without negligence if they follow a commission-approved wildfire mitigation plan and provides up to 6 months for the Idaho Commission to review and approve the plan after it is filed. So with that, I will turn the presentation over to Brian for a financial update. Brian Buckham: Thanks, Lisa. Hi, everybody. I'm going to start today with the financial results on Slide 12. As you can see, IDACORP's net income increased $10.8 million for the third quarter of this year when compared with the third quarter last year. Just to summarize, that increase was mainly driven by higher retail revenues from the January rate change and from customer growth. On the other hand, we saw lower usage per customer, and that's because we're comparing to a very hot, very dry third quarter of last year. We also saw higher O&M expense and as expected, depreciation and interest expense increase from our continued build-out of the infrastructure to support the growth that Lisa talked about. To add some detail on that, a net increase in retail revenues per megawatt hour increased operating income by $17.6 million on a relative basis, resulting mostly from the rate changes from the limited issue rate case Idaho Power filed last year. Our customer growth increased operating income by $7.8 million. That was the result of adding 15,000 customers over the last year. And although cooling degree days in Boise were 14% higher than normal, we saw an impact from a relative decrease in usage per customer of $5.7 million. That's not intuitive, when it was so warm this year, but it's because the third quarter last year was even more abnormally hot and dry, which affects the comparability. Of the customer classes irrigation usage per customer decreased most significantly, with higher precipitation and lower temperatures during the quarter compared with the third quarter of last year. Other O&M expenses were $4.2 million higher, that was driven by inflationary pressures on labor and professional services and some wildfire mitigation program and some related insurance expenses. As the system grows, we also expect to see higher O&M expenses to maintain an expanding system, the natural result of that growth. That said, we plan to keep our culture of measured and thoughtful spending fully intact as we go forward. And depreciation expense increased $8.1 million quarter-over-quarter, again, as we expected from our infrastructure development and the placement of additional assets into service. Other net changes in operating revenues and expenses increased operating income by $4.3 million. This was due primarily to a decrease in net power supply expenses that weren't deferred through the power cost adjustment mechanisms. And then nonoperating expense increased $9.8 million from the third quarter on a net basis. As we continue to grow, we continue to experience higher interest expense to finance it. Also, we had an increase in interest that Idaho Power is required to pay on transmission customer deposits. And as I noted on our Q2 call, a portion of our higher interest expense is driven by our new finance lease, related to a third-party energy storage agreement and that affects comparability as well. I think it's important to remember that the additional financing costs and the amortization related to that right-of-use lease asset is recovered as a pass-through cost and the power cost adjustment mechanism. The increase in nonoperating expenses was partially offset by an increase in AFUDC, that's from higher average construction work in progress balances. Just as a barometer of how busy we've been as a company, our QIP balance was $1.6 billion at the end of the quarter. And at the same time, IDACORP's total assets went over $10 billion for the first time. Income tax expense, in this case, excluding additional ADITC amortization under the mechanism decreased by $9.1 million. I'd attribute this mostly to annual income tax return adjustments and recurring regulatory flow-through tax items. So to sum it up on financial results, it was a strong quarter, and it's been a strong year-to-date. And because of that, we've decreased our full year expectation of additional ADITC amortization, while at the same time raising our expectations on earnings for the year. Now moving on to Slide 13, I'll talk about the cash side. Our operating cash flow through September were $464 million, which was $6 million higher than the comparative period last year. This continues the trend of steadily improving cash flows from our rate cases and operation of our mechanisms. At the end of September, the Idaho Commission approved our request for additional pre-collection of Hells Canyon AFUDC. On an annual basis, this will increase cash collection by about $30 million. Now there's no income statement impact from that, but it's positive on the cash side and it's beneficial for our credit metrics. We think the order demonstrates the Idaho Commission's intent to support the financial health of the company, and also a willingness to make decisions to help keep financing costs low for the benefit of our customers. It was another busy quarter. The fourth quarter surely offers no reprieve. We're working through resource acquisitions, building infrastructure like the Bennett expansion and our major transmission projects, and undoubtedly other projects to meet load and reliability obligations and we're otherwise executing on our strategy. So we're hard at work. We're glad you're with us, and we're excited to share additional information on projects and the resulting in new CapEx expectations in the relative near term as soon as we have some. I'd be remiss if I didn't mention that we're excited to see many of you at the EEI financial conference coming up in a little over a week. Lisa, Amy, John and I will all be there. And now over to John for an update on our 2025 guidance. John Wonderlich: Thanks, Brian. Moving to Slide 14. You can see our updated 2025 full year earnings guidance and key operating metrics. This guidance assumes normal weather and normal power supply expenses for the rest of the year. Amy and Brian already mentioned this, but with continued positive operating results, we raised our guidance and now expect IDACORP's diluted earnings per share this year to be in the range of $5.80 to $5.90, with the assumption that Idaho Power will use $50 million to $60 million of additional investment tax credit amortization. Our expectation for full year O&M expense increased to a range of $470 million to $480 million as we continue to experience inflationary pressures on labor and professional services, and added work on wildfire mitigation efforts. We still expect to spend between $1 billion and $1.1 billion on CapEx in 2025. Finally, we still expect pretty good hydropower generation in 2025, though we've updated our range to 6.5 million to 7.0 million megawatt hours for the year. With that, we're happy to address any questions you might have. Operator: [Operator Instructions] Your first question comes from the line of Bill Appicelli with UBS. William Appicelli: Just a question around the medium generation needs and some of the considerations you are making around the change with the wind farm. So can you just maybe remind us what was in the capital plan for Jackalope? And then what are the sort of potential solutions and the time line for that? Lisa Grow: Well, I'll start. I'll have Brian go over the numbers. And certainly, as we shifted away from the wind project and we're reviewing what the opportunities are for replacement, we only have the really Bennett to talk about today, but it's worth noting that it was 600 megawatts of wind. So it won't be a megawatt per megawatt replacement. We do -- as I mentioned in my comments, gas is showing up in our IRP and we are certainly looking at those options as well as others as we work our way through the RFP process. So do you want to talk about what was in the budget, Brian? Brian Buckham: Sure, Bill. So one thing I'll mention about the Jackalope Wind project is that the spend for that project was consolidated in the years 2026 and 2027. So when you look at our capital stack, that's where you'll see the generation resource for that. Now 300 megawatts of that was owned, 300 megawatts was PPA. We don't have the exact number to give you in terms of the cost because it's competitive information. But I will say that if you use typical wind pricing on a 300-megawatt project, there's also some interconnection costs associated with that, that given the location were relatively high. Though it was a pretty significant piece of capital in our stack, but as we're looking to the future, I think there's some other pretty significant bias to the upside on capital from some of the other resources that might be coming out of the RFP process. Lisa Grow: Just so I'm going to have Adam just give a little highlight on the RFP process. Adam Richins: Yes. So we're still working through the 2028 and 2029 RFP processes. Just as a reminder, the 2028 process, Idaho Power has 3 projects on that final shortlist. On the 2029 shortlist, we have 4 projects, Lisa mentioned the Bennett Project. So we're going to continue to work through those to see how to replace that capacity in 600 megawatts, but Jackalope was mainly an energy resource for us. The effective load carrying capability was about 90 megawatts. So that's what you'll see us try to replace from a capacity perspective. Lisa also mentioned the IRP shows gas in the future in 2029 and 2030. There was only 1 gas bid that made the 2029 RFP. So we'll have to consider other options there as well as we evaluate our future in the gas space. William Appicelli: Okay. And then was the Bennett project in the capital stack, Brian, in February or now? Brian Buckham: We had a resource that was in there somewhat as a proxy in the most recent capital update that we gave, but it's not a full reflection of the '28, '29 RFPs. William Appicelli: Okay. And then just my only other question was just around customer growth trends. It seems like that's not an issue based on the amount of growth that you guys are talking about. But I just did note that the 12-month trailing did tick down a little bit. Any color there or just thoughts on those trends moving forward? Lisa Grow: Are you talking about the load growth or the actual? William Appicelli: Sorry, the customer growth, yes, the actual that you cite there, I think it was 2.3% year-over-year on a trailing 12-month basis. I think that had been a little bit less, and that was 2.5%, so? Lisa Grow: Yes. I think those have been pretty much... Adam Richins: We've been consistent kind of in the -- this is Adam, the 2.3%, 2.4%. That's meter growth. That's per customer or customer meters, really where we're going to see and continue to see more substantial growth is in the manufacturing area, and we expect that to happen here and ramp up over the next couple of years. Lisa Grow: Right. And just to sort of put a finer point on it, too, that prospectively, we're looking at around 8.3% growth overall. William Appicelli: Right, in terms of total load growth, right? Lisa Grow: Yes. And that's each year over the next 5. Brian Buckham: Bill, I want to go back to your question on the -- on whether or not the gas plant was included in the capital stack. So if you go back to February, we didn't have a CPCN on that and the RFP wasn't known. So that project is actually -- is an incremental add since then. So you take the wind out and the 167 megawatts Bennett project is actually an incremental add. Adam Richins: And then we'll expect additional adds beyond that in the future. Operator: Your next question comes from the line of Chris Ellinghaus with Siebert Williams Shank. Christopher Ellinghaus: So residential customer growth slowed sequentially from the last few quarters. Is that telling us anything about sort of how the ramping of staffing of the new customer loads is going? Or is that telling us anything about some slower economy overall? Is that like the labor market has slowed a little bit. What can you say about that? Lisa Grow: Well, certainly, on the large loads, I mean, right now, it's mostly construction personnel that are there. So I can't really say too much about what their final load growth will be. But I think the interest rates have impact. I think where you are in the year has impact in terms of people's ability and willingness to move. And I do think there probably is a little bit of softening in the economy, just given so much of the uncertainty out there. But there's not really any big trend that we're seeing that we're concerned about. Christopher Ellinghaus: Okay. The sales growth for the quarter was actually, I thought, a little surprisingly good despite the usage impact. Is that just sort of the year-over-year progression of customer growth? Or are there other factors there, given cooling degree days were down double digits. So to have your sales level be up as much as it was on the residential and commercial side may be a little surprising. Have you got any thoughts there? Lisa Grow: Yes. I mean I think it does speak to growth. Weather was a little wonky this year. So I think that kind of had us kind of dampened some of it, but yes, I think I would point to growth mostly. Adam Richins: Yes. Chris, this is Adam. It's been interesting looking at the operational side. Every single day, we look at the load and where it's going versus the temperatures and I think if you ask our operators, they would say they definitely noticed kind of an uptick even when the weather maybe wasn't as strong this year. So when I see that every single day, I view it is we're starting to see the manufacturing load increase. A lot of the projects -- there are large projects are starting to get construction power. We're starting to see that come through our loads. So I thought it was a pretty positive year when you consider the weather that we had. I agree with you. Christopher Ellinghaus: Can you say the same about irrigation? I really kind of thought it might be even lower given what the weather was, particularly sort of the way that precipitation fell during the quarter. So was there something going on with ag where it was particularly strong to keep irrigation as high as it was? Lisa Grow: Well, I think that the way that the spring and summer started, it was quite warm and dry. So I think we've got a good bump there. And then of course, it rained on the 4th of July, we had rain in August. It was -- it never really got miserably hot for extended periods of time, which often is where you see some of those super peaks show up. But overall, what we're projecting for the year, it is slightly up over last year, even though it sort of not -- doesn't have the historic shape as you go through the year. Anything you would add, Adam? Adam Richins: Maybe I'll just hit the kind of boots on ground perspective. And then, Brian, I know you have some numbers on it. Talking to our ag reps, they kind of have said that the demand has been pretty strong. It's been pretty steady. So that -- I think that's what we expected going into the year based on our conversations with farmers, and I think that's what we ended up seeing as a pretty steady amount of energy used throughout the year. Ebbs and flows, Brian, I know you have the numbers, but it was -- the demand was strong. Brian Buckham: Yes. And this is Brian. If you look at just the third quarter, a modest downtick in irrigation loads. But if you look at the 9 months -- the first 9 months of the year, kind of a modest increase, right, that you see overall. So June usage was high both years. June 2025 didn't have precept, right? And that's a big driver. It turns out the amount of precipitation not just the temperature. We saw an uptick in precipitation actually, in the third quarter, but nonetheless, still has a pretty strong quarter for irrigation. Christopher Ellinghaus: Okay. Lastly, if I recall correctly in the IRP with the preferred portfolio, I think you had a scenario in there with reduced renewables, probably in anticipation of the Jackalope issue. And if I recall correctly, sort of gas was next up in the queue there. Is that kind of what you're thinking? And given the sort of RFP results, do you anticipate sort of opening that up at all to see if there's additional interest, given the sort of gas environment that we see ourselves in today? Lisa Grow: Well, certainly, with a lot of the policy changes, that has changed the economics of renewables for sure. So that has an impact in how those inputs go into the model. And we'll see sort of what -- on the short-listed projects, their ability to meet the terms that they were selected on given those changes in policy. Anything you would add... Adam Richins: Chris, maybe I'll just add, you're right. 2029 had a gas plant, 2030 had a gas plant. If you look at our 2029 RFP, and it was actually 2029 and later, there was only 1 gas plant that was part of that RFP. So just by virtue of seeing what's lease costs, lease risk in our resource portfolios, we're going to have to start looking to see what might exist beyond the RFPs in that 2030 range. Operator: Your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Brian Russo: It's Brian Russo on for Julien. I think you may have just answered my question, but I'll just ask it again anyway. Given that you're really the only bidder of gas generation in the RFPs, is there an alternative to the RFPs to expedite the process, considering the long lead time to secure turbines, et cetera, and given the profile of your customer and the demand that you need to meet as we move towards the end of the decade. I was just curious if that was even considered? Lisa Grow: Well, we're certainly considering all options, and there's -- it's just an incredibly dynamic environment from which to try to plan and execute quickly. So we will report back to everyone next quarter when we have a little more insight as to what those alternatives will be. Brian Russo: Okay. Great. And then I think given that you can only get Bennett in service by 2028, right, that's a year after, you were hoping to have the Jackalope capacity. And you mentioned 3 alternative short-term purchases, I think the second one was gas and the third was solar and battery storage. I suppose that your preferred choice is to own something, but it doesn't seem realistic to own any gas generation that soon. So with solar or battery storage, be kind of the next preferred scenario to replace Jackalope? Lisa Grow: Well, I mean, we're -- again, we're looking at all options to see what can we actually get as quickly as we need. So I don't know that we have more than that to really say about it today. Is there anything that you'd add? Adam Richins: Brian, this is Adam. I mean, I think you're right. You're seeing a gap there. And certainly, we have a couple of PPA projects that were going to help fill that gap. But to your point, we've got to start considering what other options exist because what the IRP is showing is it's most cost effective right now to go forward with a gas facility. So we are taking a look at that, and hopefully, we'll be able to update you next quarter. Lisa Grow: Yes. And to just add too, our transmission projects also help get us to market to bring resources in. So those are also important. Adam Richins: And on those, just quickly as a reminder, 2027 is the in-service date for B2H. So that's pretty significant. We will bring resources in using that resource. And then 2028, we have both the Southwest Intertie project down south and a portion of Gateway West. So when you look at '27 and '28 from a CapEx perspective, they're going to be pretty busy setting aside the generation side of things. Lisa Grow: And I guess I'd just tie it up and just remind you that certainly, we have our obligation to serve, and we do also procure those resources competitively. So that doesn't change. Operator: Your next question comes from the line of David Arcaro with Morgan Stanley. Unknown Analyst: This is [ Alex Herman ] on for Dave. Could you talk about the priorities for your next rate case and especially related to potential tracking mechanisms. How important is that to your plan? And how do you see the regulatory support for that in Idaho? Lisa Grow: I just want to make sure that I heard the whole question. So we are very sensitive about rate cases. We want to make sure that we're being careful about meeting our obligation to serve, but also keeping rates as affordable as possible. And so with -- as we go through time, we evaluate each subsequent rate case and based on the need for what we're spending and if we can cover that with revenues that kind of growth. So it really is a very dynamic calculation as we go through time. We want to make sure that we maintain our financial health as we go through this extraordinary period of growth. But certainly, rates are -- rate cases are part of that calculation as we go through time. Is there anything, Tim, that you would add? Tim Tatum: Yes. Thanks for the question, Alex. It's a great one. We just filed our 2025 general rate case settlement stipulation last week. Timely question. I've met with a few folks this morning to start talking about it. And we are working on trying to assess the timing and need of our next case and what elements might be included, whether it's a traditional case, whether it's a case that has a tracker, all of that's on the table at this point. But the plan is in development and in early stages. So we'll have to report back more later. Unknown Analyst: Got it. No, very clear. And then shifting to the earnings outflow going forward. As our new large load customers start to come online, do you think you could earn an ROE above the minimum level of 9.12%? Brian Buckham: Yes, Alex, this is Brian. So at some point along the way, yes, there's a convergence of just revenues coming in from customers that caused our earned ROE to increase above the 9.12% level. In fact, that's what we've been looking to do is increase the ROE every year. We've done that with cases over the last few years. We have removed some element of regulatory lag by doing that and eventually hope that the magnitude of frequency of cases would decline and the revenues from large load customers would, in fact, come in and cover the infrastructure that -- that's being developed for them. So those large load, large volume customers pay for their share and that, therefore, would reduce the need for rate cases, and still allow earning at or above that 9.12% floor and then not needing ADITC support. Operator: Your next question comes from the line of Anthony Crowdell with Mizuho. Anthony Crowdell: I just want to follow up on one of the Bill Appicelli's question on the Jackalope project, the loss of 300 megawatts, I guess, in your capital plan, I know you talked about the transmission and maybe you'll meet the generation need. But is there offsetting CapEx that goes into your forecast? Or should we expect a dip from what you previously thought 2027 was going to be now that Jackalope is being canceled? Brian Buckham: Yes, great question, Anthony. So we typically update our capital forecast every February on the Q4 call. The last couple of years, we've done an interim update just based on the outcome of RFPs and resource procurement. I think you should expect us to do that potentially this time as well. I mean we've talked about the Bennett plant, but that is an inadequate resource to cover the load growth that we have going forward, even for just the customers we've announced so far, the ones that are in the construction phase or that have executed agreements with us. There are incremental generation requirements in there, and they are not reflected yet in the capital stack. But as we solidify those, we will add those to the capital stack. You'll see Jackalope come out, you'll see Bennett go in. And then by the time we get to that update, I would expect to see incremental resources in there as well as project costs and timing adjustments that we typically include in our annual update. So that may be in the Q4 call, it may actually be sooner that you see some of that coming to fruition possibly as early as this year, starting to see some incremental generation resources being added depending on the outcome of our processes. Anthony Crowdell: The driver that we would see in the update in 2025, is it approval of the settlement? Or is it something else that would cause us to see in '25? Brian Buckham: No. It's just getting through the procurement process. Sometimes that can be a relatively lengthy process and it is a competitive process. So identifying whether or not we've been the successful bidder, negotiating with the actual suppliers and vendors and ensuring we can meet time lines are all factors that go into whether or not that will be a 2025 announcement or not. And it's also a confidential process that we have as we negotiate with those vendors. So there's not much we can release until we've gotten to a point where we're very comfortable in the fact that is a winning project. And then we'll announce what it is and magnitude and add it to the capital stack. Anthony Crowdell: Great. And when do you expect approval of the settlement, I apologize if you've already put it in the 8-K on when the commission would vote on it? Lisa Grow: Yes, we're expecting that sometime in December as they have done historically, so probably late December. Anthony Crowdell: Great. And then lastly, Brian, you talked about, I guess, you're carrying a QIP balance of $1 billion. I believe Moody's has you on a negative outlook for your rating. Do you plan on working down that QIP balance in '26 or it stays at that level? And with the negative outlook and that large QIP balance that maybe accelerates equity needs? Brian Buckham: Actually, I would think the equity need would go the other direction in the near term, Anthony. And the reason for that was I mentioned the Jackalope Wind project had 2 large payment obligations in 2026 and 2027. As we look at removing that and replacing it with potentially more traditional timing of payment like for a gas plant, for example, those tend to be spread out longer and that can actually reduce our near-term equity need by pushing out the capital requirements until further in our 5-year window. So we can see a reduction in near-term equity and overall equity just as a result of the payment timing for CapEx. On the credit metrics side, we did have this rate case outcome. We do believe it to be -- the settlement is a balanced settlement certainly and constructive, but it does help on the credit rating side as does the outcome of the Hells Canyon AFUDC case. So we see ourselves naturally progressing out of being near the threshold for both Moody's and S&P without having to issue incremental equity in the near term. Operator: [Operator Instructions] That concludes the question-and-answer session for today. Lisa, I will turn the conference back to you. Lisa Grow: All right. Well, thank you very much for everyone for joining us today, and I hope you all have your Halloween costumes picked out and that you have a very safe and happy Halloween. So thank you. Operator: That concludes our conference for today. You may now disconnect. Thank you, and have a great day.
Operator: Ladies and gentlemen, welcome to AIXTRON's analyst conference call Q3 2025. Please note that today's call is being recorded. [Operator Instructions] Let me now hand you over to Mr. Christian Ludwig, Vice President, Investor Relations and Corporate Communications at AIXTRON for opening remarks and introductions. Christian Ludwig: Thank you very much, Gunner. A warm welcome also from my side to AIXTRON's Q3 2025 Results Call. My name is Christian Ludwig. I'm the Head of Investor Relation and Corporate Communications AIXTRON. With me in the room today are our CEO, Dr. Felix Grawert; and our CFO, Dr. Christian Danninger, who will guide you through today's presentation and then take your questions. This call is being recorded by AIXTRON and is considered copyright material. As such, it cannot be recorded or rebroadcast without permission. Your participation in this call implies your consent to this recording. Please take note of the disclaimer that you find on Page 1 of the presentation document as it applies throughout the conference call. This call is not being immediately presented via webcast or any other media. However, we will place a transcript on our website at some point after the call. I would now like to hand you over to our CEO for his opening remarks. Felix, the floor is yours. Felix Grawert: Thank you, Christian. Let me also welcome you to our Q3 '25 results call. I will start with an overview of the highlights of the quarter and then hand over to our CFO, Christian, for more details on our financial figures. Finally, I will give you an update on the development of our business and our guidance. Let me start by giving you an update on the key business developments of the second quarter on Slide 2. The important messages for Q3 '25 are our free cash flow in the quarter was EUR 39 million, totaling EUR 110 million in the first 9 months '25, while inventories are down to EUR 316 million, coming from EUR 369 million at the year-end '24. This shows we are well on track with our strategy to rebuild our cash position after we had depleted that with the construction of our 300-millimeter cleanroom, the innovation center in the years '23 and '24. In Q3, we recognized new orders of EUR 124 million, which lead to an equipment order backlog of EUR 287 million, where we have achieved a book-to-bill of 1.04. We concluded the quarter with revenues of EUR 120 million. With that, we were in our guided range of EUR 110 million to EUR 140 million. The gross margin reached 39% in Q3 and averaged 37% in the first 9 months. This figure includes a one-off expense related to our implemented personnel reduction earlier in the year. Adjusted for this effect, the gross margin after 9 months came out at 38%, slightly below previous year's 39%, mainly due to volume shifts and FX headwinds. As the market remains soft, we had to adjust our fiscal '25 guidance 2 weeks ago. We are now expecting revenues in the range between EUR 530 million and EUR 565 million, which corresponds to the lower half of the initial guidance of EUR 530 million to EUR 600 million, and a gross margin of now 40% to 41%, down from previously 41% to 42%, and an EBIT margin of now around 17% to 19% from previously 18% to 22%. AI continues to be the main end market driver, especially for our Optoelectronics segment. Automotive-driven power electronics demand, on the other hand, remains soft. Christian will now provide a detailed look into our financials on the following pages before I take over with an update. Christian? Christian Danninger: Thanks, Felix, and hello to everyone. Let me start with the key points of our revenue development on Slide 3. In a soft market environment, we achieved revenues of EUR 120 million, down versus the EUR 156 million last year, but well in the guided range of EUR 110 million to EUR 140 million. For the first 9 months, revenues came in at EUR 370 million, down about 9% year-over-year. A breakdown per application shows that 66% of equipment revenues after 9 months come from GaN and SiC power, 14% from LED, 16% from Optoelectronics and a 5% contribution from R&D tools. The aftersales business contributed to total revenues with EUR 80 million. The aftersales share of revenues after 9 months was up by 2 percentage points year-over-year to about 22%. Now let's take a closer look at the financial KPIs of the income statement on Slide 4. I already talked about the revenue line. Gross profit decreased year-over-year in Q3 '25 to EUR 246 million. Gross profit in the quarter was negatively affected by approximately EUR 8 million due to volume shifts from Q3 into Q4 and around EUR 2 million due to FX effects. Subsequently, the gross margin in the quarter came in at 39%, down 4 percentage points versus the prior year. After 9 months, gross profit was at EUR 136 million, 15% below last year's figure. At 37%, our gross margin after 9 months was 2 percentage points lower than after the same period last year. But please recall, as stated in our Q1 release, this includes a one-off expense of a mid-single-digit million euro amount in connection with the implemented personnel reduction in the operations area. Adjusted for these effects, the gross margin after 9 months would be around -- at around 38%. For the remainder of the year, we calculate with an average U.S. dollar-euro exchange rate of 1.15 and the continued weakness of the Japanese euro rate. Due to high expected revenues in foreign currency in Q4, we expect an additional around EUR 3 million negative impact in revenues and gross margin with the larger part resulting from the U.S. dollar and the smaller part from the Japanese yen. Together with the above-mentioned EUR 2 million effect realized in Q3, this totals to approximately EUR 5 million negative FX impact, which corresponds with the 1 percentage point gross margin adjustment of our guidance. OpEx in the quarter were slightly up by 4% year-over-year to EUR 31 million, primarily driven by higher R&D spending compared to the previous year. For the first 9 months, OpEx came in at EUR 94 million, a reduction of minus 6%, driven primarily by around 13% lower R&D expenses. R&D expenses were down mainly due to reduced external contract work and consumables costs. As stated before and visible in Q3 numbers, R&D costs in H2 will be higher than the H1 number. So for the full year, we expect R&D costs to be slightly lower than in 2024. EBIT for the quarter is EUR 15 million, a significant drop versus Q3 2024. The main drivers besides the already mentioned negative factors impacting gross profit is a negative operating leverage effect resulting from lower revenues. The weaker performance in Q3 led to an EBIT of EUR 42 million for the first 9 months, a decrease of 30% year-over-year. This translates into an EBIT margin of 11%. Again, please record the one-off expense in connection with the personnel reduction I've mentioned before. Adjusted for this effect, the 9-month EBIT margin would be around -- at around 12%. Now to our key balance sheet indicators on Slide 5. On a more positive note, working capital has continued to come down -- has come down by around EUR 100 million since end of fiscal year '24. Several balance sheet items contributed here. We continued to decrease inventories to EUR 316 million compared to EUR 369 million at the end of 2024. Year-over-year, inventories have been reduced by EUR 111 million as we continue to work through the surplus accumulated last year. And as stated before, we expect further inventory reductions to materialize throughout 2025 and into 2026. Trade receivables at the end of September were at EUR 129 million compared to EUR 193 million at the end of 2024. The reduction versus year-end is mainly the result of the collection of the payments related to the large shipments end of 2024. Advanced payments received from customers at quarter end were at EUR 73 million, a nice recovery of about EUR 20 million versus end of last quarter, but still down about EUR 9 million from end of 2024. This is primarily driven by some cutoff date effects and some regional shifts in the order book. Advanced payments now represent about 25% of order backlog. The fourth key element of working capital, trade payables, has now come down to EUR 24 million from EUR 34 million at the end of 2024. This reflects a now fully adjusted supply chain situation with significantly reduced purchasing levels. Adding it all up, our operating cash flow after 9 months improved to EUR 128 million, a strong improvement of EUR 100 million versus last year's EUR 28 million. On the back of the improvement in operating cash flow, free cash flow improved even more. It came in at EUR 110 million after 3 quarters compared to negative EUR 58 million last year. This was supported by a strong reduction in our CapEx. With EUR 18 million after 9 months, our CapEx was significantly lower than last year's number of EUR 86 million. This is primarily due to the now completed investment in the innovation center. As of September 2025, our cash balance, including other current financial assets improved to EUR 153 million. This equals an increase of EUR 88 million compared to EUR 65 million at the end of fiscal year 2024, despite the dividend payment of about EUR 17 million in Q2. As stated before, a key priority remains the rebuilding of a strong cash position. Our financial decisions continue to be guided by this objective to ensure a robust liquidity foundation for the future. This has served us well in the past, and we see ourselves well on track towards this target. With that, let me hand you back over to Felix. Felix Grawert: Thank you, Christian. Let me continue with an update on key trends in our different markets, starting with optoelectronics and lasers. In optoelectronics, AIXTRON has seen a continued recovery in demand for datacom applications, which began earlier this year and has been reaffirmed in Q3. This trend is expected to continue into '26 and beyond. Our customers are increasingly transitioning to 150-millimeter indium phosphide substrates and photonic integrated devices, PIC devices requiring advanced epitaxial performance. This segment is technology-wise very demanding. It requires excellence in the uniformity, doping control and defect management, areas where our G10-AsP platform excels. Historically, AIXTRON has held a market share of over 90% in this domain served by our G3 and G4 planetary reactors. The G10-AsP is now establishing itself as the tool of record to the laser market, replacing legacy systems at leading customers. Q3 shipments and scheduled Q4 deliveries underscore our strong market position with repeat orders from key customers such as Nokia. Additionally, VCSEL demand is recovering, driven by LiDAR modules and automotive applications. We, therefore, expect that tools for the various laser applications will contribute significantly to our full year order intake and also into next year '26. Now let me move on to our LED business. We are seeing first encouraging signs of reinvestment in red, orange, yellow -- ROY LED applications. Utilization rates for red, orange, yellow LEDs have been high throughout the year with double-digit system shipments for mini LED applications driven by demand for RGB fine pitch displays. Notably, some TV manufacturers such as Samsung are shifting to full RGB backlighting, boosting micro LED demand. While overall micro LED demand remains moderate, medium-term drivers are positive. We've received multiple orders for our G10-AsP platform, primarily for red pixel production in next-generation AR devices. The recent announcement of Meta's AR glasses based on micro LED technology signals a broader trend with more OEM products expected in '27 and '28. Our G5+ and G10-AsP platforms are ideally suited for these applications, which require ultra small pixels and defect-free epitaxial die. The launch of Garmin's first micro LED watch is likely to further stimulate demand across blue, green and red micro LED segments. In solar, after years of moderate investment, we are now seeing renewed interest, including multiple orders for low earth orbit -- LEO satellite applications in constellation projects. LEO satellites are those that orbit the earth at altitudes of about 2,000 kilometers. They enable both fast communication as well as high-resolution earth observation by operating in a zone just above the earth's atmosphere, where they can maintain strong signal connections with ground stations. These satellites work in interconnected constellations of hundreds of thousands of satellites of hundreds or thousands of satellites to provide global coverage, examples are Starlink or OneWeb. We anticipate this trend to continue in the years '26, '27 and '28. Let me now come to gallium nitride power. AIXTRON continues to lead GaN power segment with over 85% market share across all wafer sizes and power ranges. Although demand is softer compared to last year, we are seeing solid volume orders for both 150- and 200-millimeter solutions, particularly from Asian customers with ramp-up plans extending into '26 and '27. We've also strengthened our partnership with imec. Together, we are accelerating innovation at both the architecture and device level. imec has been using both our G5+ as well as the G10-GaN platform for its 150- and 200-millimeter partner programs for quite a while. And we have now shipped a 300-millimeter gallium nitride platform to enable broader access to imec's recipes. We see first power semiconductor manufacturers adopting 300-millimeter GaN technology such as Infineon Technologies. Regarding the overall GaN market, we are still dealing with a moderately oversaturated installed base, requiring some more time to absorb existing capacities. This digestion phase is expected to continue for some quarters before a broader recovery sets in. With that, let me come to silicon carbide. While end-user demand remained soft, we observed moderately increased utilization rates at some of our customers. On the one hand, this is due to new EV models being launched, which drive demand. On the other hand, SiC is starting to enter the AI data center value chain, especially in voltage classes of 1,200 volts and above. You have seen the new NVIDIA power architecture, which relies exclusively on wide band gap power devices. At the International Conference for Silicon Carbide and Related Materials -- in short, ICSCRM in Busan, Korea early in Q3, various industry players confirmed midterm adoption of super junction silicon carbide technology. This technology basically means that instead of one thick silicon carbide epi layer deposited today, we will see in the future multiple thinner silicon carbide epi deposition steps. These thinner epitaxial layers require enhanced uniformity and shortened process time. Our G10 silicon carbide platform is well positioned to meet these needs, offering superior productivity due to the benefit of the batch concept, especially for thinner layers. We are proud to have shipped our 100 G10-SiC CVD system, marking a major milestone and reinforcing our leadership in the silicon carbide power segment in this quarter. The silicon carbide market is still undergoing a longer digestion period, particularly in western-oriented regions. As a result, there are no major decisions for new fab investments on the agenda these days. In summary, we can say that the soft market period still continues in almost all markets, apart from the laser market, driven by the hunger for data from AI applications. A demand pickup will not materialize in '25, and visibility in '26 is still limited. With that, let me now move to our guidance. Due to the market situation just described, we had to adjust our guidance for 2025, 2 weeks ago. Based on the current soft market environment and assuming an exchange rate of USD 1.15 per euro for the remainder of the year, we now expect the following outlook for '25. We expect to generate revenues in the range between EUR 530 million and EUR 565 million, which corresponds to the lower half of the initial guidance, which was initially EUR 530 million to EUR 600 million. FX effects led to an approximately 1 percentage point reduction of gross margin and EBIT margin. As a result, we expect now a gross margin of around 40% to 41% and an EBIT margin of around 17% to 19%. The guidance for the gross margin and EBIT margin includes a one-off expense of a mid-single-digit million euro amount in the relation to the implemented personnel reduction in the operations area earlier this year. The measure will lead to annualized savings in the mid-single-digit million euro range in the future, which corresponds to an improvement in the gross margin and EBIT margin of around 1 percentage point. As previously stated, we expect our tools to remain exempt from U.S. tariffs. However, we continue to closely monitor the impact of U.S. trade policies on the global economy and stand ready to implement any necessary measures to ensure the best possible outcomes for our customers and stakeholders. Let me, at this place, also give you a first outlook for the next year 2026. We clearly see that the medium and long-term drivers for AIXTRON's growth such as demand for GaN and SiC power devices, LED and micro LED applications, lasers and LEO solar applications remain intact. However, visibility for the fiscal year '26 remains low. And as of today, we do not see signs of a demand recovery yet. Therefore, our view today is that 2026 revenues are likely to be slightly below those of '25, maybe flat. Furthermore, assuming an exchange rate of USD 1.15 per euro, we expect the EBIT margin not to come out below the range of the current year, maybe better. As always, we will give you a firm guidance with the release of our financial year results end of February 26. With that, I'll pass it back to Christian before we take questions. Christian Ludwig: Thank you very much, Felix. Thank you very much, Christian. Operator, we will now take the questions. Operator: [Operator Instructions] The first question comes from Janardan Menon from Jefferies. Janardan Menon: I just wanted to touch upon your final comments on 2026 to start off with. You said that 2026 is likely to be flat or down, but it sounded like you expect Opto to be up, and your trend -- when I look at your Q3, GaN seems to be doing quite well, while SiC is down quite sharply. So would it be fair to say that at current visibility, you would expect Opto to be up, SiC to be down and GaN to be somewhat flattish. Is that a view that -- which would be sort of a preliminary view for next year? Felix Grawert: It's a good -- I think you got a perfect read on this one. Let me try even to quantify it for you. I think roughly in terms of percentage of revenues, we expect as a percentage of total revenues next year, we're expecting to gain about 10 percentage points for Opto, 10 percentage points gain for GaN and minus 20 percentage points in silicon carbide. So a pretty weak year for SiC, but very strong year for the Opto segment. It used to be a smaller segment. So adding 10 percentage points of the total is quite a significant one. This also helps on the margin. You have seen my comment related to margin quality. And GaN also as a percentage gaining a bit. Janardan Menon: Just a follow-up. On the SiC side, yes, I understand that demand is quite weak right now. There's quite a bit of supply out there and automotive is still sluggish. But listening to companies like STMicro and all who are under quite severe margin pressure on the silicon carbide side, they seem to be accelerating their 6-inch to 8-inch transition because they see that as a way to improve their profitability. And ST specifically said that they'll do it within -- through the course of '26 and by early '27. I would assume that that would be true for other parts of the installed base as well given the price pressure on silicon carbide. Do you not see this as a driver at all for your silicon carbide revenue? And do you really need the end demand to recover before any improvement happens? Felix Grawert: I think you catch it very well. Yes, the 6- to 8-inch transition is going very fast, especially at outside of China players. I think worldwide outside of China, we see the 6- to 8-inch transition progressing at rapid speed, as you have indicated with one company name, and we see the same in other players. In fact, we do hear from some of our customers that while end customer revenue is flat or down, the unit numbers are going up and unit numbers is, of course, what we as an equipment maker like, because in the end, it's about wafers and increasing numbers of wafers. So in fact, we expect that by the end of '26, the transition in the Western world, as I may call it now, including Japan, is probably concluded '27, '28, I would expect the volume to be completely going on 8-inch. We do see on 8-inch also much better quality wafers, which helps the customers in terms of yield. That's one of the cost reduction drivers. Also 8-inch substrates are getting good pricing now. Initially, they used to be very expensive. Now the pricing for 8-inch substrates is going well. And that, at some point, means the excessive overcapacity that I was speaking about at some point will be digested. I would not dare at this point to give an exact prediction because there's multiple variables that we are just discussing. But I think we can clearly see at some point, the overcapacity will be digested and then there will be new demand. Janardan Menon: But that transition doesn't mean buying new 8-inch machines from you, is it to generate revenue for you? Felix Grawert: At some point, it will mean buying new demand and new tools when the existing overcapacity is consumed. Right now, we talk about existing overcapacity, which is just being converted. Operator: Next up is Martin Marandon-Carlhian from ODDO BHF. Martin Marandon-Carlhian: The first one is on something that you put on the press release on gallium nitride. You talked about utilization rate rising in data center. And I was wondering what does it mean exactly? I mean, does it mean that you already anticipate orders in the near term linked to the new 800-volt architecture from NVIDIA? Does that mean something else? Felix Grawert: Let me explain what we mean by that. Thanks for the question. What we have seen is we have seen in the years, especially '23 and '24, we have seen quite a number of gallium nitride orders, which were happening a bit ahead of the wave, such that, I would say, early '25 at the existing volume customers, we have seen quite a significant overcapacity of installed base also in gallium nitride. That was the reason why in '25, compared to '24, our gallium nitride shipments have been slowed down quite a bit, because our existing and established volume customers literally had also in GaN, not only in SiC, but also in GaN, some overcapacity to be digested. So as we started into '25 at some of our customers, also in gallium nitride, we have seen installed base utilization to be quite low. Now towards the end of '25 and looking into '26, we see that a much larger fraction of the installed capacity is being utilized at the existing GaN customers, while those who newly entered the GaN market in '24 and '25 in previous earnings calls, you may have recalled that we said -- well, there's still new players entering the market to gallium nitride. And those new entrants at this point in time are still in the qualification or in the device and the sampling phase of their technologies to their end customers. You have seen the numbers that I was just commenting towards the question that Janardan was asking. We expect the GaN segment for us to be slightly up next year. Again, it's an indication, qualitative indication. as we see that utilization is increasing, and we expect due to the increasing utilization, some expanding orders from some customers kicking in. The broad market recovery, as I've indicated, with the real volume pull, we don't expect in '26. We rather expect that in '27, '28, but some increasing orders in '26. Does that answer the question? Martin Marandon-Carlhian: Yes, that's very clear. But just a follow-up on this. I mean, why would you anticipate more of that volume in '27 and '28? Because we read that this new architecture from NVIDIA is supposed to be for Rubin Ultra, which is launched in H2 '27. So I was expecting capacity maybe to come a bit earlier than this. So does this mean that maybe it will not be 100% GaN for some steps at the beginning, the 50 and 12-volt steps and it will go gradually. I mean just can you explain a bit why it should come more gradually, let's say? Felix Grawert: So this is based on our current view, what we have and the signals we get from our customers. I share the view that the new 800-volt architecture will lead to significant volumes around '27, '28. This is also our view, I share that. Now for us, it's always very difficult to predict the exact timing when customers will place the orders for new equipment because we do see certain trends, but we cannot look into the exact budgets and plans of our customers. Therefore, at this point in time, we can only comment on what we are currently seeing. If later on in the year, volume kicks in and orders accelerate, we are very happy to it. We don't see signs to that yet. Martin Marandon-Carlhian: Great. And maybe a last question on GaN. I mean, you all is saying that the GaN market will be close to $500 million this year with that data centers really being really a contributor. What would you guess would be the size of the data center market for GaN compared to the overall size of the market this year, like $500 million? Felix Grawert: So I do not have the exact timing for my message in mind. We have looked at a midterm perspective, I think somewhere triangulating '28, '29, '30, something a little further out. And in this triangulation that we've done, the data center opportunity with an upside of about 50% on top of the market without the data center opportunity. You may recall that we have a slide out there in the investor deck, which on the X-axis has 3 time horizons. I think '20 to '23, I think '24 to '26 and whatever '28 to '30, something like this. And on the Y-axis, the different voltage levels, low voltage, medium voltage and then very high voltage. And there, we have put the AI data center opportunity, and this is the market that I'm referring to. Martin Marandon-Carlhian: Maybe last question for me on the gross margin. I mean the current guidance implies record gross margin in Q4. Just can you help us maybe see the main drivers of this? Christian Danninger: Yes. Martin, Christian here. I'll take that one. I mean, like in the last years, the Q4 will be the strongest quarter just by volume, purely shipments. Beyond that, we expect an improved product mix, especially a higher share of final acceptance revenues coming with high margins and also some fixed cost degression effects. A little bit of color on the product mix. We expect a big share of G10 family products, around 50% of Q4 revenue so that you get an idea. So also looking at the -- comparing this with the last year, these margin ranges appear achievable for us. Operator: Next up is Didier Scemama from the Bank of America. Didier Scemama: I've got a couple of questions maybe clarification on the comments you made earlier on '26. And perhaps my math is not right, so please don't shout at me if I'm wrong. I think you said the SiC part of the business would be down 20 percentage points in terms of group sales. I mean, by my calculation, that would imply a pretty minor revenue contribution in '26. So is that correct? And then equally, Optos up, I think you said 10 percentage points within the group, that's going to put it at something like EUR 150 million next year. Is that the right ballpark? Felix Grawert: I would say right ballpark, right indications, Yes. As far as we can say. I mean, it's very early, but we really want to give you some… Didier Scemama: Yes, of course. Felix Grawert: Yes, exactly, yes. Didier Scemama: No, that's incredibly helpful to me perfectly honest. So I guess the question, when I look at the comments you put on the 9-month report, you said about 50% of the bookings came from power electronics. So I have to assume that the rest mostly come from Optos because LEDs, et cetera, is fairly de minimis, which if you compare to what you said last year, means that the bookings in Optos are probably up meaningfully, which is again consistent with what you said. So perhaps when you look at history, Optos, like all the other segments have tended to be incredibly cyclical. So would you think that there is duration in that growth in optoelectronics beyond '26? Or do you think that the big CapEx cycle we see currently for silicon photonics and lasers is going to be as we've seen in the past, a big year and then it falls off a cliff. Felix Grawert: I think you asked the trillion, the multitrillion dollar question, how long the AI bubble will last. I do not have the crystal ball for you, right? If I would, I might not be sitting in this place right now. Didier Scemama: Okay. Well, yes, I mean, honestly, I wish you good luck. Felix Grawert: I think it fully relates given the serious note, yes. Some joking aside, a big part of the laser part is, in fact, coming from the datacom, right? And the datacom, again, is driven by the AI and the AI data center build-out. So it's really hinges on that one, to a very big part, probably 50%, 60%. So it really depends on how exactly that's progressing. But we can only see what we have now in our visibility. But a longer-term view 2, 3 years out, I think it's as difficult as for everybody predicting the AI trend. Didier Scemama: No, for sure. And if I may, as a follow-up, I mean, you mentioned Nokia/Infinera as a customer for your G10 platform for their peak products. Can you give us a few more examples of key customers for that division so that we understand the underlying dynamics, please? Felix Grawert: Unfortunately, I cannot, because we keep customer names always strictly -- very strictly confidential as under NDA. We stick to that. We are extremely sensitive to that. I can give you a qualitative indication. Imagine you think who may be the top 10 providers for data communications devices for AI, you can assume that at least 80%, 90%, maybe 100% of those guys are our customers currently placing order with us and 90% of those are placing orders for the G10-AsP. Maybe I can give you that indication. And I really mean it as I say it. Operator: Now we're coming to the next question. It comes from Madeleine Jenkins from UBS. Madeleine Jenkins: I just had one on utilization rates. You mentioned that the GaN power were increasing. Could you quantify that at all? And also, I guess, get a sense of what your silicon carbide utilization rates are at kind of Chinese and then Western customers? Felix Grawert: So I understand your question about detailed utilization rates. We don't have those. And we could also not share them if we would have them. But what we can say is that based on spare part orders, based on service orders, we see a trend here, which is a good utilization increase for the GaN power, which leads us to expect some volume expansion orders in '26 at a moderate level as we have indicated. At the same time, in silicon carbide for the overall market, I think towards the beginning of the year, we have seen very low utilizations with very low -- I mean, clearly far below 50% means far more than 50% of the capacity installed in the market was standing idle early in the market. And maybe we are now approaching a 50%, 60%, 70% utilization in silicon carbide. So we do see it increasing, but we are still far from a level on a market level where customers are really going into reorders and expansion orders. I think that's not yet on the agenda. Madeleine Jenkins: Then I guess all your kind of new orders in silicon carbide specifically, are those kind of new customers in China? Is that the right way to look at it? Felix Grawert: Yes. We did have significant orders and shipments in '25 in silicon carbide into China, quite a diverse set of customers, highlighting the success of our G10 silicon carbide platform. So I think we've managed to establish that platform very well in the China market. That was all relating to the earlier question by Janardan. That was all for 8-inch or having 8-inch in mind. However, we are all aware of the large overcapacity in silicon carbide in China. Also the China silicon carbide business at this point in time has slowed down. I think the market overall is digesting the existing overcapacity. However, I think we all see the very nice success of Chinese electric vehicles. At some point, the overcapacity will be digested and there will also be new orders. Madeleine Jenkins: Then just a quick final question. Do you have a sense of kind of how much of your current gallium nitride revenues this year, let's say, are for data center applications? Felix Grawert: That's honestly very difficult to predict. Sorry for having only a vague answer, because our gallium nitride customers, I think we all have a couple of very big names, leading power electronics makers in mind, right? They use our platform essentially our tools, essentially for all the applications across the board. On our tool in the same configuration, you can produce a 20-volt, 100 volt, a 650 volt and even if you want a 1,200-volt device without any change in configuration. And therefore, we, as a maker, just send the tool as it is and the customer can do whatever the customer wants with it without a modification in those power ranges. Therefore, it's for us very difficult to predict. If there would be a different configuration by voltage range, then at least we would have an indication. But therefore, it's difficult for us to say. Sorry for that one. Silicon carbide is different, right? 6- to 8-inch, right? It's always the customer needs a configuration and we see spare parts orders or parts orders, and we can at least give you here in the call a qualitative indication for the GaN, it's really one size fits all. And yes, customer takes it and then we don't know. Operator: Next up is Ruben Devos from Kepler Cheuvreux. Ruben Devos: I just had a follow-up on silicon carbide. I think you touched upon it already, but it was around your comments on benefiting over proportionally when the cycle would return. I think you talked about a more diverse set of customers. So that might be an explanation, right? But just curious around what degree of confidence you have, right, to make that statement of outgrowing the market. And even outside like automotive, how does the pipeline shape up thinking about industrial as well in silicon carbide? Felix Grawert: Thanks a lot. I think your question hints very well towards the future direction of silicon carbide. Let me go a little deeper to expand on it, maybe some of the backgrounds, the technical backgrounds are interesting. So the first generation of silicon carbide devices, which we have seen, I would say, in the last 5 years with a very simple MOSFET consisting essentially of just one thick layer, one thick epi layer. Now what I mentioned, the next generation of devices, which to the expectation of all market participants will be the main volume in the next wave. Everybody expects the next wave of growth, '27, '28, exact timing to be TDD to be super junction MOSFETs. So this is a device where this thick layer is split into 3 or 4 thinner layers. So each of them about 1/5 or 1/4 thick of the initial one. And it's not just one big epi, but the wafer would be put into a tool 4 times. So you make 1 thin layer, then you do some device processing and then the wafer returns to the silicon carbide epi tool comes the next thin layer and so on multiple times. And this super junction technology shifts the operating point from one thick layer, which, let's say, has in the past been deposited, let's say, in about 1 hour to 2 hour processing time, now into multiple thinner layers and depending on which type of equipment, let's say, it now takes 15, 20, 30 minutes instead of 1 or 2 hours. So the wafer gets into the equipment multiple times. And with that, the complete dynamics about the productivity of the tool, the key KPIs and so on is shifting because essentially, it's a very different operating point. You can buy -- in an analogy, you can buy a car which is perfect as a city car, small and nice and fits into parking lots, but doesn't drive very fast, you don't care. And a perfect travel car for long-distance travel or a nice sports car for going up the mountain pathways or driving races, right? And each of the operating points has a different optimum. And this new operating point about thin layers to our calculations and also to the feedback we receive from customers is very beneficial for the batch tool which we are offering. This is the reason why we've made these positive earlier statements. With that, let me come to the second part of your question. The other part of the market, which may provide further growth, I think it's still a little further out than '27, '28 is the market for industrial applications. That market could probably towards the end of the decade grow very big. What we are talking here is about the following. Today, we use the silicon carbide devices mainly in switch mode power supplies or like power devices for the car in the main inverter and in voltages, 650 to 1,200 volts. We can also make silicon carbide devices, which have 3,000 volt or 6,000 volt or 10,000 volts, much, much higher voltage classes. And the industry is working on. That was, for example, one of the elements in the NVIDIA power architecture. I think everybody here in this call has the chart of the architecture. If you look at the chart of NVIDIA, on the very front end, you come from the grid and you enter the grid into the data center at voltages around 14 kilovolts, and that's 14,000 volts. And this down conversion from over 10,000 volts eventually down to 1,000, this is done by silicon carbide and then from 1,000 to 1 is done by gallium nitride. Now you cannot only use the silicon carbide in the data center for these high voltages, but in the entire grid. And we all know as more and more renewables are being used worldwide, I think China leads the pack with driving down the cost of solar and wind, but the whole world is following. And we need much more active grid stabilization, load management, active management and so on and so forth. So the grid, the worldwide power grid will experience over the next 2 decades, massive investments into switching infrastructure. Today, this is all being done by transformers. I think everybody knows next to the highway like these transformer stations standing. In the future, many of those will be done by active switching, and this will all be done by silicon carbide power devices. So all the leading grid suppliers, whether this is Siemens and ABB, Schneider Electric, General Electric in the U.S. are working on such devices. And it's a nice end segment for silicon carbide to come. However, I think this is a longer-term trend. I would not put the years '27, '28 on it. I would rather put '29 onwards as a nice trend for the turning of the decades on this trend. Ruben Devos: Just my second question related to optoelectronics, basically. I think you've called co-packaged optics as a key driver for indium phosphide adoption. How quickly would you expect the market to move there from pilot into volume co-packaged optic deployment? And you've very helpfully framed the tool market size for silicon carbide and gallium nitride in your slide deck. So may I opportunistically ask whether you've done a similar exercise for the G10 arsenide phosphide platform. Felix Grawert: Thanks a lot. I take the suggestion. It's a good one. Let's take that on our action item list that he smiles around me here in the room, yes. It's a good one. We don't have it yet for today, so I cannot give it to you maybe in the next earnings call. Now to your question about the sizing and what we see. For the optoelectronics market, unfortunately, it is much more difficult to predict than for the GaN and for the silicon carbide market. Let me try to illustrate to you why. In GaN and SiC, we talk at least for the low volume segment for pretty standardized segments and types of devices, right? For GaN, we talk 20 volt, 100 volt, 650 and then exotic 1,200. Silicon carbide, 650, 1,200 and now I was talking a bit about the very high voltages. So you can put it into 2 or 3 classes. Unfortunately, the optoelectronic market is extremely fragmented. We both see that in the number of players. I don't know there may be a couple of hundred optoelectronics producers and companies, while in power electronics, we talk probably about like maybe a dozen or 2 dozen, 3 dozen maybe at most, yes. So it's extremely fragmented. And such are the different technologies, which is competing with each other. The good thing is this is physics. They all have in common. As of today, they need a wide band gap semiconductor, gallium arsenide or indium phosphide for generating the light. But then the way the light is being processed, whether this is on an indium phosphide or gallium arsenide-based photonic integrated circuit or whether the light coming on is put into a silicon photonics. You can use silicon -- silicon dioxide waveguides and switching devices. This is extremely diverse and therefore, very difficult to predict. I wouldn't dare at this point to make a prediction where it goes. We are aware that all the guys who are working on the leading-edge CMOS nodes and also doing heterogeneous integration, all of them work on multiple technologies because even for the big guys in the industry, things at TSMC, it's difficult to really say, well, this technology is winning out against the others. Operator: Next up is Andrew Gardiner from Citi. Andrew Gardiner: I just had one on the margin outlook into next year that you provided us, Felix, saying that you thought EBIT margin next year would be in line, perhaps better year-on-year. Can you just sort of give us some of the drivers there in terms of gross margin? I mean, obviously, you've given us the mix in terms of Opto and GaN up and SiC down. How would you sort of quantify that in terms of magnitude of gross margin change next year? And also, you've done a sort of a workforce reduction earlier this year. Given the still slow market in SiC, do you see any need to continue to reduce OpEx? Or are we far enough through this down cycle now where you just sort of have to -- you weather it because you can see the long-term opportunity. So really there's not much change -- incremental change in terms of OpEx into next year? Felix Grawert: Yes. Thanks a lot for the question. I think part of the answer you've given, let me try to give an end-to-end consistent picture. So we were referring to EBIT margins really to bottom line. I have not given indication on the gross margin, no quantitative, right? So I was really mean EBIT margin. And I think there's three drivers behind our indication towards. So we wanted to give you a very clear indication that the margins is not getting worse despite the top line suffering probably a bit. And I think there's three drivers behind it. On the one hand, we see margin-wise, a bit stronger product mix. I indicated the gain of Opto, that helps a lot. And secondly, we will see the full year effects of the headcount reduction, which we conducted early in '25. '25, there's also cost and restructuring costs. In '26, we get the benefits of that. And the third topic is we use the slow period of the cycle right now for some operational improvements, be it working on our storage topics, be it working on logistics topics, be it currently working on our operational efficiency. So we have quite a bunch of these things ongoing, which are just making our operations more fluent, which reduce the external spend that's going out the door all the time. And we expect some of those effects to kick in. And based on those 3 effects altogether, we expect, yes, in terms of absolute terms and a stable bottom line or percentage-wise, stable or even improved bottom line despite the probably slightly weaker top line. But I think that's important in the end for you guys also then to everybody here in this call to give an indication where does it lead on the profitability. Operator: The next question comes from Adithya Metuku from HSBC. Adithya Metuku: Firstly, I just wondered if you could give us some clarity on what drove the push out this year, which end market drove the reduction in outlook for the year? Felix Grawert: Sorry, I didn't -- acoustically, the line was very bad. I didn't get the question. Could you repeat it, please? Adithya Metuku: Sorry, apologies. I was just wondering if you could give us any color on what drove the reduction in guide in 2025? Where did you see this push out, which end market? Felix Grawert: Okay. Sorry, I get it. Honestly, this was all across the board, except for the laser market. I think the laser market we've indicated is strong and continues to be strong and this is growing into next year, as we have just discussed. We have seen a weaker-than-expected GaN in silicon carbide. Initially, as we started into the year, it's always very difficult, right, to predict the full range. And we have put the full guidance range accounting early in February '25. So looking now 7 months back. In our full guidance range, we have accounted for both a slow market scenario, which now is unfolding. So therefore, we now look at the lower half of the guidance. And early in '25 with the upper end of the guidance, we have also taken into account a more positive market environment. As we all see, the more positive market environment for power semis for electric vehicles is not yet unfolding. So the upper half, therefore, had to be corrected now down to the lower half. We are narrowing down at the lower half of the guidance. Adithya Metuku: Then just on the LED and the micro LED market, you talked about seeing signals of improvement. I just wondered if you could give us a bit more color on what exactly you're seeing, especially on the LED side? Is it driven by China? Is it anything construction related? Just any color you can give us on these two end markets in terms of the signals of improvement. Felix Grawert: Yes. Thanks a lot. So on the LED market, this is typically almost exclusively China-only market. I think we can say, because of cost and volume effects. We all know, right, China is very, very strong these days on the display making. It used to be, as you have indicated in your question, historically, there used to be a lot of the LEDs going into construction, right? In China, they put these big, big walls on the skyscrapers. But as we all know, the China housing bubble has collapsed, right? That was also the reason why the segment was bad for us for 2 years. Now we are seeing the classical LED market coming back with, we call it fine pitch displays means and especially display backlighting. Local dimming, local backlighting of display, you can achieve magnificent effect by either having white LEDs behind your LED display, you can create a beautiful black or you can produce quite some nice bright colors on it with that one, and that's even going now into -- turning into RGB. The good news is it is revenue already today. The bad news is it makes it much more difficult for micro LED to gain ground in the televisions because the normal displays are already getting much improved quality. So let's see what it means for the micro LEDs. The other point, which I was indicating, we still see that on micro LED, research work is ongoing. We've seen some first devices. I was relating in my prepared notes to the Garmin watches, which is the first micro LED watch coming out at quite high prices and unfortunately, with low battery lifetime. So we are seeing that coming. And we see a lot of companies currently doing work on AR glasses and VR glasses. You may have seen the glasses launched by Meta. There's much more stuff in the preparation. I think this is a new device category, which will really come into the market quite soon. And yes, we see some moderate demand for that also next year, as I've indicated in my prepared notes. But again, it's far away, to be clear, it's far away from the micro LED massive investment wave that all of us 2, 3 years we were expecting where we would expect that micro LEDs are penetrating everything from smart watches to notebook displays and televisions, right? That one we are not seeing yet. We still see the research ongoing. So some -- many companies are still working on it, but we don't have a clear in our view when exactly that's coming. Adithya Metuku: Just one last question. With TSMC getting out of the GaN market, I just wondered, do you see a market for secondhand tools for your GaN epitaxy tools? And would that affect demand maybe next year or the year after? How do you see the implications of TSMC getting out of the GaN market? Felix Grawert: Honestly, I see it as a bit of a reshuffle, which happens normally in all the markets where there's a bit of a slowdown in the market. I think we see the same in silicon carbide, some players are exiting, some others use the opportunity to buy some used tools to get a hold of in or to get used tool and then newly to enter the market, I think it's a normal play that happens in a softer market environment. For the overall market and for us, this has essentially no implication because whether a used tool is installed or whether a tool is installed at company A or changes the ownership and is later on installed within the factory of company B, it doesn't change the overall installed capacity in the market or doesn't change the market dynamics. So for us as an equipment maker, we are -- we support customers when they need help in either way, sometimes for moving tools, for reinstalling tools, but it doesn't change or doesn't impact the market. Operator: The next question comes from Michael Kuhn from Deutsche Bank. Michael Kuhn: I'll start with, let's say, the usual update on 300-millimeter GaN. I think it's quite well known that Infineon is quite advanced in that context. And obviously, no big surprise there, cooperating closely with you in that regard. So when should we expect tool orders to arrive and, let's say, outside Infineon, what's your view? How many companies are currently working on the transition and preparing orders? Felix Grawert: So I think with 300-millimeter GaN, the market unfolds pretty much as we have expected. If you recall, we stated earlier that we see the 300-millimeter GaN as a subsegment of the overall GaN market, initially targeting the lower voltage classes means 100 volt, 20 volt, maybe 200 volt. Maybe at a later time, also 650, but really starting at the lower voltage classes. And we get confirmation from many customers what we had expected early on that customers are really targeting to switch and to reuse existing silicon MOSFET or silicon IGBT capacities and to rededicate existing fabs for gallium nitride. Of course, customers need to buy new epi tool because the silicon epi tool is a completely different tool from a gallium nitride epi tool. So in any case, there's a new tool demand for gallium nitride tools. However, the market adoption and the customer decision to the largest part depends on the installed base of factories. So customers who have today their silicon MOSFETs running in a 200-millimeter silicon fab are likely to switch to a 200-millimeter GaN tool. Customers who today are running their silicon MOSFETs in a 300-millimeter fab will want to switch and rededicate their 300-millimeter fab to a 300-millimeter GaN fab. So that is the market dynamic. And I think based on that dynamic, we never comment on customers unless we have a joint press release with customers. So allow me to describe the trend without names as we always try to do. So we really see customers who have installed 300-millimeter silicon capacity are switching now and starting to switch and have plans. There are many, many, many other customers who have 200-millimeter silicon fabs continue to work on gallium nitride 200-millimeter. And as a result of that, our strategy going forward is that we will support both groups of customers. So GaN 300 is not displacing GaN 200. We have our GaN 300-millimeter road map. We are very happy with the results that the 300-millimeter tool is giving. But at the same time, we also maintain an active 200-millimeter GaN road map where we also work on improvements. We have multiple very close customer collaborations on 200-millimeter tool improvements or even next-generation tools for 200 millimeters. Michael Kuhn: Then on cash flow and working capital, given that you don't expect top line growth next year, how much more would you think you can further optimize working capital? Because I think you mentioned you see further potential also into 2026. Christian Danninger: Let's focus maybe on the inventories because the rest of the working capital is always a little bit arbitrary, the receivables and the down payments. But on the inventories, our key ambition is to drive them down further. It's a little bit difficult yet to predict, not knowing the exact product mix and so on, but like at first, like high level expectation would be another 20% down. Felix Grawert: I would be more ambitious. Let's check. So I would say by the end of this year, I would expect inventory EUR 275 million, plus/minus EUR 15 million. To give you a number, let's see how close we come. Maybe next year, EUR 200 million. Let's see, something like this. Christian Danninger: Let's see. Michael Kuhn: Looking forward to it. Maybe you can do a little bet between the 2 of you who comes closer. Operator: There are no further questions. Felix Grawert: Good. Perfect. And I think we had a lively discussion. We very much appreciate as you see. And yes, stay tuned. I think this is a good exchange. And I think we all see each other latest in the February call for the full year results. Christian Danninger: Exactly. We will be on the road at various conferences. So I guess a lot of you at one of the conferences. And for those we don't catch before end of the year already in Merry Christmas. Felix Grawert: In October. Okay. Cheers, guys. Christian Danninger: Thank you. Bye-bye.
Operator: Greetings. Welcome to the Columbia Sportswear Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Andrew Burns. You may begin. Andrew Burns: Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's third quarter results. In addition to the earnings release, we furnished an 8-K containing a detailed CFO commentary and financial review presentation explaining our results. This document is also available on our Investor Relations website, investor.columbia.com. With me today on the call are Chairman, President and Chief Executive Officer, Tim Boyle; Executive Vice President and Chief Financial Officer, Jim Swanson; and Executive Vice President and Chief Administrative Officer and General Counsel, Peter Bragdon. This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations or beliefs about the future. These statements are expressed in good faith and are believed to have a reasonable basis. However, each forward-looking statement is subject to many risks and uncertainties, and actual results may differ materially from what is projected. Many of these risks and uncertainties are described in Columbia's SEC filings. We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in our expectations. I'd also like to point out that during the call, we may reference certain non-GAAP financial measures, including constant currency net sales. For further information about non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures and an explanation of management's rationale for referencing these non-GAAP measures, please refer to the supplemental financial information section and financial tables included in our earnings release and the appendix of our CFO commentary and financial review. Following our prepared remarks, we will host a Q&A period during which we will limit each caller to 2 questions so we can get to everyone by the end of the hour. Now I'll turn the call over to Tim. Timothy Boyle: Thanks, Andrew, and good afternoon. Overall, third quarter results reflect sustained momentum in international markets, led by double-digit percent sales growth in our Europe direct business. Our strong financial performance in these markets demonstrates our ability to effectively reach younger and more active consumers and highlights the growth potential of the Columbia brand. In the U.S., we're working to restore growth and revitalize the Columbia brand through our ACCELERATE Growth Strategy. The third quarter was an important milestone in this journey. In August, we launched our new global brand platform, Engineered for Whatever, which celebrates the extremes of outdoor adventures and harkens back to the brand's irreverent spirit of the '80s and '90s. It revives the humor and gritty gear testing that made Columbia a beloved brand around the world. The early response to this campaign has been overwhelmingly positive with millions of consumers already engaged since the launch. We intend to build upon this momentum with an always-on marketing strategy, including a robust pipeline of differentiated activities planned for the months ahead. Revitalizing the brand in the U.S. will take time, but I'm encouraged by the brand energy that we're just beginning to create. Turning to the topic of tariffs. We estimate the 2025 direct impact of the incremental tariff rates will be approximately $35 million to $40 million prior to any mitigation actions. Please note that we did not make meaningful price changes to our fall '25 product line and still expect to absorb much of the incremental tariff cost this year. Applying the new tariff rates on an annualized basis, we estimate the unmitigated impact would be approximately $160 million. For 2026, we continue to take actions to mitigate the financial impact through a combination of price increases, vendor negotiations, resourcing production and other mitigation tactics. We will balance these actions with our growth strategy, seeking to minimize the impact to consumer demand. For spring '26, we increased U.S. pricing by a high single-digit percent, and we are maintaining similar price increases for the fall. When combined with our other mitigation tactics, our goal in 2026 is to offset the dollar impact of higher tariffs. Longer term, our goal is to restore our product margin percentages to historic levels. I will now quickly review third quarter financial performance. Net sales increased 1% year-over-year to $943 million. This was ahead of our outlook, driven by earlier-than-planned shipments of fall '25 wholesale orders. Overall, wholesale net sales increased 5%, while direct-to-consumer was down 5%. Gross margin declined 20 basis points to 50% as higher tariff expenses and foreign exchange headwinds were partially offset by lower clearance and promotional activity. SG&A expense increased 5%, including investments in demand creation to launch Columbia's new brand platform Engineered for Whatever. During the third quarter, we incurred $29 million in noncash impairment charges related to prAna and Mountain Hardwear. The impairment was largely attributable to the impact of tariffs, and I remain confident in both brands' growth strategies. We are committed to unlocking their full potential. Including the impairments, which impacted earnings by $0.46, third quarter diluted earnings per share were $0.95. Looking at net sales by geography. U.S. net sales decreased 4%. The U.S. wholesale business was flat as earlier timing of fall wholesale shipments offset the impact of lower fall wholesale orders. U.S. DTC net sales declined high single-digit percent in the quarter. Brick-and-mortar was down high single-digit percent, reflecting the closure of temporary clearance locations and lower sales productivity, partially offset by contributions from new stores. We exited the quarter with 8 temporary clearance locations compared to 42 exiting third quarter of last year. E-commerce was down low double-digit percent, primarily reflecting soft traffic and demand trends. Results were partially impacted by ongoing efforts to refine and evolve our online promotions and marketing investments. Overall, U.S. Columbia brand Fall '25 sell-through has started slowly as we await the arrival of cold weather. The sell-through challenges we are facing reinforce our focus on reenergizing the Columbia brand through the ACCELERATE Growth Strategy. While overall trends are tough, we are encouraged by initial sell-through of new product lines such as the Amaze Puff jacket and ROC pants. For my review of third quarter year-over-year net sales growth in international geographies, I will reference constant currency growth rates to illustrate underlying performance in each market. LAAP net sales increased 6%. China net sales increased mid-single-digit percent. Sales in the quarter were impacted by a warm September, which reduced demand for fall season products. Our team in China continues to do an exceptional job bringing young active consumers into the brand by celebrating iconic styles like the Interchange Jacket and premium localized product offerings like the Transit and Hike 365 collections. During the quarter, Columbia hosted Hike Party 2.0, a well-attended hiking and music event. In addition to thousands of participants, over 100 Columbia brand influencers were in attendance. Their online content generated millions of impressions. I'm pleased to announce that Columbia China received an award from the prestigious ROI Festival as one of the most creative and influential businesses in the Asia region. The ROI Festival is known as the Oscars of the marketing and creativity Industries in China. Great job China team. Japan net sales decreased low single-digit percent as DTC growth was offset by later shipments of fall '25 wholesale orders, which shifted into the fourth quarter. Our team in Japan continues to deliver a compelling mix of localized product offerings and global franchises like Omni-MAX, which was the top-selling footwear style in the quarter. Korea net sales were flat year-over-year. Our team in Korea is making progress, stabilizing the business and revitalizing the marketplace. The team's focus on accelerating digital sales, elevating the brand presentation in DTC and reenergizing marketing is building a healthy foundation for growth. During the quarter, the Korea team launched the Engineered for Whatever campaign with localized creative content that resonated with the Korean consumer. LAAP distributor markets delivered mid-teens percent growth. Healthy growth across both our distributor regions underscores the enduring strength of the Columbia brand in these markets. Our distributor teams are successfully engaging young active consumers through localized marketing activities and elevated brand retail experiences that showcase our best products and innovations. EMEA net sales increased 10%. Europe-direct net sales increased low double-digit percent with strength across both DTC and wholesale. We're thrilled that our European team continues to deliver above-market performance, driven by the expansion of our DTC business and growing wholesale through strategic retail partners and brand authenticators. We have immense market share opportunities in Europe, and our team has been unlocking this potential each and every season. Our EMEA distributor business was down slightly as healthy order book growth was offset by earlier shipments of fall '25 orders, which shifted into the second quarter. Canada net sales increased 7% in the quarter, driven by earlier shipment of fall '25 wholesale orders, partially offset by a decline in DTC sales, reflecting a soft consumer environment. Looking at third quarter performance by brand. Columbia net sales increased 1% as international growth offset ongoing challenges in the U.S. As we've discussed in prior calls, elevating the style of Columbia's product is an important aspect of the ACCELERATE Growth Strategy. This fall, we took a major step forward with the introduction of the new Amaze Puff women's insulated jacket and men's and women's ROC pant. We supported these launches with elevated in-store presentations, enhanced photo and video assets and breakthrough influencer campaigns. I'm encouraged by early sell-through, and I believe we are well positioned to continue growing these franchises in the seasons ahead. Columbia is also celebrating iconic styles with the rerelease of its first-ever footwear product the Bugaboot 1. The original Bugaboot was the result of landmark collaboration between Columbia Founder, Gert Boyle, myself and legendary footwear designer, Peter Moore, who created the original Nike Dunk and Jordan One silhouettes. The rereleased Bugaboot 1 honors the original 1993 design with its iconic retro style and pairs it with our latest innovations such as Omni-Grip traction and TechLite cushioning. This limited edition boot was only available to select specialty retailers and online at columbia.com, selling out in hours on the website. During the quarter, we launched our newly redesigned columbia.com website. This freshly enhanced site mirrors our evolving brand, allowing us to tell compelling stories about our products while offering unique and personalized experiences for our consumers. We've significantly enhanced product discovery with search and merchandising features, upgraded product photography and our reverent voice. The feedback from our consumers has been very positive, and we are already witnessing early signs of increased engagement. On the ambassador front, Columbia announced a new partnership with rising global icon, Robert Irwin, son of legendary wildlife conservationist Steve Irwin. Robert continues the legacy of his dad as a passionate wildlife warrior. He also has a deep connection with the Columbia brand. Robert's mother is from Oregon, and he still remembers meeting Gert Boyle when he visited our headquarters as a young child. Through his work as a TV presenter, producer, author and photographer, Robert aims to act as a global advocate for the natural world. We are also cheering him as he takes the stage in the current season of dancing with the stars. We are absolutely thrilled to be officially joining forces with Robert and look forward to sharing his adventures in the outdoors with Columbia Gear. As part of our Engineered for Whatever launch, we have executed several unique brand activations this fall that are getting people talking about Columbia again in the U.S. Advertising takeovers across digital, social and Thursday Night Football on Amazon remind consumers of Columbia's irreverent roots and superior product quality. This new advertising spotlights outlandish outdoor product tests and celebrity cameos in situations featuring crocodiles, human snowballs and even the grim reaper. These stories are being shared online, in-store and out of home, and we're seeing increases in organic brand search since the launch. We recently activated a breakthrough guerilla marketing stunt in New York City. We launched a scavenger hunt inviting New Yorkers to find our extreme mannequins hidden in hundreds of locations across the city, picture a mannequin wrestling a bear in Bryant Park or an angler catching a shark in the Hudson River. Each mannequin had a QR code that consumers could scan to enter to win an outdoor adventure for 2. Over 3,000 New Yorkers participated in our scavenger hunt, and we created buzz in the city, reaching over 3 million New Yorkers across earned media and social. In this crowded and competitive environment, Engineered for Whatever stands out. We're showing people that our products are made to handle the extreme and unpredictable with a healthy dose of humor and joy. Turning to our emerging brands. SOREL net sales increased 10%, aided by earlier timing of fall '25 wholesale shipments. This fall, the SOREL team is building product and brand momentum through new collections and refreshed marketing. The new Callsign Horizon and Daystrom Horizon collections infused the iconic CARIBOU boot design language into new categories and silhouettes. The team is also creating brand heat through highly successful collabs with London-based streetwear brand, Aries and Japanese streetwear brand, NEIGHBORHOOD. prAna net sales increased 6% in the quarter, reflecting growth across DTC and wholesale. The prAna team's brand refresh is well underway, and we're seeing positive momentum. New customer acquisition trends are improving and consumers are responding to the new marketing and product collections. Mountain Hardwear net sales decreased 5%, driven by lower clearance activity compared to elevated levels in the prior year. Healthy full price sales growth during the quarter reflects underlying business momentum. The brand is seeing a notable sell-through lift with specialty retailers where we've invested in brand in-store environments. On the product front, Mountain Hardwear introduced its most capable snow sport kit to date. The new Mythogen kit pinnacle of the brand snow sport line built for max durability, mobility and style in demanding Alpine environments. I'll now discuss our fourth quarter and full year financial outlook. This outlook and commentary include forward-looking statements. Please see our CFO commentary and financial review presentations for additional details and disclosures related to these statements. For the fourth quarter, we expect net sales to decline 5% to 8% year-over-year and diluted earnings per share to be in the range of $1.04 to $1.34. This brings our full year net sales outlook to $3.3 billion to $3.4 billion or flat to down 1% year-over-year. Full year diluted earnings per share is expected to be $2.55 to $2.85, including the $0.46 impact from impairments in this quarter. Looking to 2026, we have concluded our spring season order taking. Our forecast is for flat to low single-digit wholesale growth in the first half of '26, and it's unchanged from our last call. This forecast contemplates sustained international growth across our direct and distributor markets, partially offset by a decline in the U.S. We are planning to share more on our 2026 outlook when we report our fourth quarter results in February. Overall, I'm excited to see our ACCELERATE Growth Strategy come to life. Consumers are responding to new product collections with more on the way. Engineered for Whatever has reenergized our unique brand voice, helping to set us apart in a competitive environment. I know that elevating consumers' perception of the Columbia brand will take time, but I'm confident we have the right strategy in place to unlock the significant long-term growth opportunities ahead. We remain committed to investing in our strategic priorities to accelerate profitable growth; create iconic products that are differentiated, functional and innovative; drive brand engagement with increased focused demand creation investments, enhance our consumer experiences by investing in capabilities to delight and retain consumers, amplify marketplace excellence that's digitally led omnichannel and global; and empower talent that is driven by our core values. That concludes my prepared remarks. We welcome your questions for the remainder of the hour. Operator, can you help us with that? Operator: At this time we will be conducting a question and answer session. [Operator Instructions] The first question comes from Bob Drbul with BTIG. Robert Drbul: Just have a couple of questions. I guess, first, on the product side, you talked about the sell-through or the sellout of the Bugaboots rerelease. Did you or your mother have more of an impact on that boot when you worked on it with Peter Moore, Who gets the credit for that one? Timothy Boyle: Well, I can tell you, I did the work on the product. My mom did the work on the name. Robert Drbul: That's a good collaboration. I guess a couple of other questions around product, Tim. Just on the Amaze Puff and with this like Bugaboot 1, do you have more products lined up for sort of into next year? When you think about the success that you're seeing with both of these products, can you just talk about the pipeline on the product side a little bit more? Timothy Boyle: Certainly. Yes, the thing about the Amaze Puff first of all, is that it's one of the most expensive items we've ever offered for sale. And the velocity is just incredible. So we've got more products in that Amaze family, including we're going to be offering men's version. This was a women's-only launch for fall '25, and that will be just an incredible opportunity. And based on the velocity that we're selling these things today, we're expecting really great things. And then as it relates to footwear, we've got more of the original Peter Moore designs that we're going to be launching over time, which will be really good as well as some other early '90s product that was so successful for the company that we're going to be offering in a way that sort of out of the archives opportunity. And this is going to really be, I think, part of how we differentiate ourselves from others when we're talking about the Engineered for Whatever launch and the way our products are uniquely differentiated from others. Robert Drbul: Sounds good. And I guess the other question I have, I know it's early, and I know it's going to take time, but the Engineered for Whatever campaign, when you think about any of the early feedback that you've got that the company has received. Can you just talk about what you've learned so far, any takeaways and sort of what your thoughts are as you sort of continue this? Timothy Boyle: Yes, certainly. Well, it's -- when we first began discussing the Engineered for Whatever launch, it was really a function of 2 parts. One was to get us back to the historical irreverent way that we approached ourselves not taking ourselves too seriously. Our products are made to have a good time outside and our advertising should reflect how much fun it is to be outdoors. Secondarily, there's really no other brand that can pull this off. There are many brands that are so serious and perhaps rightly so. But when we're talking about being different and separating ourselves from others, it's all about how we approach what we're doing and how we want to be heard. So it's been really gratifying that both our consumers and wholesale customers are talking about how different it is and how refreshing it is to see us sort of back in the -- having a good time. Operator: The next question comes from John Kernan with [ EB ] (sic) [ TD ] John Kernan: Tim, $160 million unmitigated tariff impact next year is a big multiple of the unmitigated impact this year. Obviously, some of the higher cost inventory is going to start flowing through the model more next year, but just your confidence in the ability to offset that and with your confidence in the high single-digit price increases as we look into spring. Timothy Boyle: Yes. I guess I would suggest that the company -- if the company has one strength, it's ability to navigate tariff environments. So just as some background, in 2024, the company was the 81st largest duty payer in the United States of all companies. And that's because our commodities are so heavily tariffed, not only in the U.S. but globally. So we have a large team that does nothing but help us make products in locations that can be advantaged from a duty standpoint, that can have the characteristics, that can allow for a reduced tariff to be built with particular characteristics that can help us navigate this stuff. We are quite good at it. I mean this is a daunting task, But we think we're up for it, and we think we'll be able to navigate it. We have some significant strengths in our balance sheet that will allow us to navigate this stuff in really a proper way. So I'm convinced we can grow the business and grow our profitability as well. Jim Swanson: John, not only are there the price increases that are being implemented in the marketplace, but there are other mitigation factors as well, not the least of which is discussions that we've had with our strategic factory partners. And we believe that, that will help deliver and mitigate part of the cost here. And then in addition to that, there are certain instances where we'll be successful in resourcing part of our production. So the combination of those things is really what gives us the confidence that we'll at least be able to mitigate the absolute dollar impact of the incremental tariffs. John Kernan: That's helpful, Jim. Just one quick follow-up. Obviously, the SG&A rate has been a source of deleverage for a few years now. And it looks like most of the deleverage in Q3 was the increase in the marketing rate year-over-year. How long do you -- can you just describe the timing and the magnitude of the SG&A rate recovery and the top line type growth you need to lower that rate? It's obviously been the biggest source of the operating margin pressure the last few years. Jim Swanson: Yes. Well, certainly, one of the most significant factors that we've had consistently throughout this year is the strategic investment that we've made behind the Columbia ACCELERATE strategy. So I would just emphasize that point. That was a step function increase in our overall SG&A to fund that. And our intent at this early stage would be that we're sustaining that investment over time. But to put that in order of magnitude, I think our marketing spend last year was just under 6% and will probably be at or just above 6.5% this year. So it's a pretty meaningful portion of that SG&A deleverage that we're seeing this year. I think as we approach next year, and certainly, we're not providing earnings guidance here today. But our goal going into next year would be to get the business growing and achieve leverage and SG&A leverage, in particular, if not operating margin leverage knowing that we've got to overcome the impact of the tariffs. So we're hard at that. We've been working over the course of the last several months and quarters on our profit improvement plan. We've implemented a series of cost reductions that will yield benefit over time here. Operator: The next question comes from Paul Lejuez with Citigroup. Paul Lejuez: Curious if you could talk about the lower promotions that you saw during the quarter. Curious if you saw that across both DTC and your wholesale partners. Maybe talk also promotional levels across regions? And what do you build in, in terms of year-over-year promos in the fourth quarter guidance? Jim Swanson: As it relates to promotions, I keep in mind on this, Paul, we're lapping last year in which we were heavily liquidating inventory coming off of the excess inventory levels that we had, combined with -- you'll recall that with [ PFAS ] chemistry that we were also transitioning out of our product line from a year ago. So the combination of those 2 things led to a fair amount of liquidation effort within our own DTC business, including outlet stores and clearance stores, which we believe to be a more profitable mechanism. And then likewise, wholesale customers needed to move through that same inventory. So a lot of this is effectively lapping that. And essentially, what we're seeing here in the third quarter and then going into the fourth quarter as we're most of the way through October, is the overall margins out in the marketplace are pretty healthy. When we look at overall dealer margins in the U.S., they're up on a year-on-year basis. And as it pertains to how we're thinking about that in the fourth quarter, it will still be a tailwind for us just given the magnitude of kind of that continued liquidation effort in the fourth quarter last year. So nothing meaningful to call out. And I think, by and large, from what we see thus far early in the holiday season, retailers, there's not an overexcitement or an overload on being promotional and discounting at this point in the season. Paul Lejuez: Got it. And then within the comments about your order book being flat to up for spring, was that -- I just want to confirm that, that is in dollars? And then curious if those order books already include the high single-digit price increases that you mentioned. Timothy Boyle: Yes. The price increases are included in the order books, specifically in the U.S. We didn't raise prices very significantly in the markets outside the U.S. But yes, they do include those price increases. Jim Swanson: Yes. And of course, that will mean that units are down with the flat to up is in revenue dollars. And so with those price increases in the U.S., that is going to result in a decrease in the overall units. Operator: The next question comes from Peter McGoldrick with Stifel. Peter McGoldrick: I wanted to ask on the quarter-to-date performance for U.S. Columbia. You pointed to a slow start due to cold weather, which has taken a while to develop, holding back sell-through. I remember the fall/winter 2024 was also -- had a slow start due to weather. And I was curious if you can make any like-for-like comparisons for the quarter-to-date period and help us think about what's contemplated in guidance as we progress sequentially through the quarter. Timothy Boyle: Well, we build our plans assuming a normal weather year. And normal is an average of January's weather and December's weather and November, et cetera. So we're confident that we've got our plans built in the right area. And we've seen some uptick when weather hits a certain geography. So I think we're in the right spot here. And so it's not abnormal for there to be slight warming in some periods, some years. But generally, winter arrives and we're just assuming we've got a normal winter ahead of us. Jim Swanson: Yes, Peter, I'd just add, demand out in the marketplace has been a bit lumpy. We saw a pretty nice July, August, September softened a little bit. That extends itself a little way into the month of October. Frankly, what we've seen over the better part of the last week or 2 has been pretty encouraging as we've seen a pickup in the demand that's offsetting some of the early season softness that we saw. Peter McGoldrick: Okay. And then on SOREL, I get this is a smaller part of the business, but we did see an inflection to growth after several years of decline. So I was curious if you could help us think about the new collections and refreshed marketing. And as we think back to Investor Day a few years ago, is SOREL again going to become an outsized growth driver as you plan the business on a multiyear basis? I'm just curious on that brand. Timothy Boyle: Yes. So if you remember, going back to the origins of the SOREL brand, it was almost exclusively. In fact, it was an exclusively winter brand. And over time, we've been able to move that from just winter and frankly, just men's to have a very large portion of women's and a growing portion of non-winter product. We've had great successes over time with things like wedges, which have fallen out of favor as during the pandemic and when people were not back in office as much. But what we've seen over the last few weeks -- excuse me, the last season or so is a growth in the sneaker business, which is going to give us the opportunity to be year-round, which is frankly what our international partners want in that brand. They're ready to make investments in that brand in stores and other institutions as long as we can get it to year-round. So the plan is to get -- to spend focus, time and effort on non-winter product while still harvesting the winter business. Operator: The next question comes from Laurent Vasilescu with BNP Paribas. Laurent Vasilescu: Jim, I was hoping to understand just the small tick down on the [indiscernible] guide is about 1%. You mentioned to Peter and the audience that weather has been a slow start in the U.S., but also China has been impacted by China -- by weather, excuse me. Is that the reason why you're taking down the top end of the range for the guide for top line? Jim Swanson: Yes. Let me touch on that, Laurent. So if you look at the third quarter, we had a revenue beat that was in the mid-$20 million range. That was really driven by our wholesale business and earlier shipment of wholesale orders to the tune of nearly $40 million. So you're seeing a little bit of softness in the third quarter in our direct-to-consumer business. That was predominantly in the U.S. And we essentially looked at that trend in Q3 and applied many of those same assumptions to our fourth quarter, and that's the predominant reason for the 1% adjustment in our revenue guide. Far less of a factor in terms of thinking about China. In fact, we've got our China business plan up quite meaningfully in the fourth quarter. We're in the early stages of the Double 11 presales activity and anticipate nice growth in that market. So I think China was a little bit of a blip with some warmer weather. We still have a lot of confidence in the direction of that business. Laurent Vasilescu: Very helpful. And then I was hoping to unpack a little bit more of the commentary about 1H '26 wholesale revenues being slightly up. As you mentioned on the prepared remarks and in your CFO commentary, North America or at least the U.S. will be down and international will be a driver. Can you potentially unpack that a little bit more about just the magnitude of what we should consider for the U.S.? Can it be down mid-single digits? Just to understand a little bit more about elasticity of demand as you're taking pricing up high single digits for 1H '26. Timothy Boyle: Yes. We've had, as you mentioned, great success outside the U.S. where we have a much more predictable business. We've got multiple topics in play here in the U.S., the least of which is the price increases that we've all seen and are passing along to consumers and the uncertainty about how that's going to be accepted. So we have much more confidence in our business outside the U.S. That having been said, our U.S.A. business is a very large component. And our expectation is that we've set the business up in the right way for spring. And our retailers are cautious, but we believe there's great opportunities for us as we get into the business -- into the season. Jim Swanson: Yes. We'll provide more detail on that certainly in February, Laurent. A lot of this is just due to the sell-through season for spring '25 was a bit soft in the U.S. and the order book is more or less reflective of that. Operator: The next question comes from Tom Nikic with Needham. Tom Nikic: I want to ask about gross margin. I'm not sure if you said like how we should think about gross margin versus SG&A in Q4. And when we kind of think the next couple of quarters, obviously, there's tariffs and there's pricing, but are there any other meaningful good guys or bad guys on the gross margin line? Jim Swanson: Yes. As it pertains to the fourth quarter from a gross margin standpoint, no, we've not provided a lot in my CFO commentary. However, you will note that we did provide the estimated tariff impact. So it's a bit north of what we saw in Q3. Q3 was $15 million. We're estimating that at $20 million to $25 million in the fourth quarter. So a bit heavier of an impact. And then the same offsets would come into play, most notably would be the lower closeout and liquidation sales. So I think the gross margin in Q3 was down 20 basis points. I think we'll see it be down a bit more than that in the fourth quarter, but nothing overly meaningful in that regard. And then thinking out to next year, the big offsets certainly are going to be with the incremental tariffs will be what we're doing from a pricing standpoint. That's certainly the most meaningful variable that I would call out at this stage other than that, I can't think of anything offhand. Operator: The next question comes from Jonathan Komp with Baird. Jonathan Komp: I want to ask if you could share a little more insight when you look in the channel and inventory levels. And I know it's a challenging fall here, and you highlighted units ordered down for spring. So could you share any more perspective on what units look like in the channel? And could there be a situation come fall of next year where you see normalization from a positive perspective to get back to more normalized levels? Timothy Boyle: No, I think the channel inventories are actually pretty good right now. If they were building up, we would probably have seen some sort of adjustment in our fall order book, which we have not seen. Retailers are anxious to get merchandise, which is part of why the inventory was shipped a little bit earlier this year than prior periods. But we're -- yes, I think the inventories are in the right spot. And certainly, we've got a couple of items, including the Amaze Puff jacket that's selling very well as well as newly designed and distributed pant program called the ROC pant. So those 2 areas are doing well, and we've had no pushback at all from retailers, right? I think the channels are quite good. Jonathan Komp: Okay. That's helpful. And maybe a broader question on the margin recovery. If I look over the last 3 years or so, it looks like your global revenue is down low single digits over that period and your total SG&A spend is still up roughly mid-teens percentage. So I'm wondering if there's any further opportunity to look for efficiencies. And as we think about exiting 2025 with a 5% operating margin, what's a reasonable time line to get back to more normal or reasonable levels for a healthy brand? Jim Swanson: Well, certainly, our -- like I said to an earlier response, we would target an improvement in our SG&A cost structure looking out to next year. There's a lot of actions that we've taken to date, but you're not necessarily seeing them manifest themselves in the P&L because of other strategic investments, the marketing investments we're making from an ACCELERATE standpoint. There are some onetime costs that we're incurring in the P&L this year as it relates to severance, professional fees related to our profit improvement program and so forth. So as we begin to lap those cost savings combined with certain of these costs, I would certainly expect that we put ourselves in a position to leverage on that line, Jon. It's not lost on us. I do think there's some additional opportunities as we look out to next year, certainly getting our U.S. business back to growth and how do we run that business more efficiently across our wholesale and DTC businesses. So that's an area of focus for us. And then there's other organizational costs that are in consideration for the company. Operator: The next question comes from Mitch Kummetz with Seaport Research. Mitchel Kummetz: Tim, I think it was in your prepared remarks, you mentioned that U.S. DTC was down high single digits on the quarter. I'm curious, is there any way to parse out the negative impact from fewer temporary stores year-over-year versus maybe any early benefits that you're seeing from the new global platform? I would think that, that would hit DTC before it hits wholesale. So any help there? Timothy Boyle: Yes, I was going to just suggest that by far, the largest component is the lack of the temporary clearance stores. And then as it relates to our digital DTC business, we've taken the approach that the #1 method for consumers to get the best visibility for our brands is digitally, and we believe that we were slightly over promotionally active in prior periods. So we've taken an approach that we're going to rein back in the promotional activity and invest heavily in how the products look digitally. So I would think those 2 things would be the largest impacts. Jim Swanson: Yes. I think, Mitch, just a clarifying remark on that stat shape more of detail. That high single-digit decrease in our U.S. D2C brick-and-mortar business, 90-plus percent of that relates to these temporary clearance stores. And then we're not getting a lot of benefit from new stores because if you can look at what we've added in new stores, just 3 new stores year-over-year. And so the productivity side of the existing stores, that's down, but it's down just slightly. Mitchel Kummetz: Okay. That's helpful. And then, Tim, on the ACCELERATE strategy, sounds like from a marketing standpoint, like you guys have the campaign that can really help drive this. But I'm curious, like where do you think you are from a product standpoint? When you look at like fall '25, what inning are you? And how much are you advancing that for spring '26? Timothy Boyle: Yes. I would say the ACCELERATE program as it relates to the marketing, I think, is dramatically different and dramatically larger investment for the company. The fact that we're selling products like the Amaze Puff at prices which we've never been able to sell before is an indication that I think we've got the right equation to really get growing. The company offers a democratic level of product across multiple channels and categories of merchandise. We often don't get -- we don't get no respect for our expensive products, and I think this is going to help us in that area. And I think when you look at what we've done with the ROC pant and with the Amaze Puff in terms of their performance, I think it shows that we can definitely get there. So I'm excited about it. Operator: The next question comes from Mauricio Serna with UBS. Mauricio Serna Vega: Just wanted to ask if you could clarify maybe on the comment on price increases. You mentioned high single digit for price increases for spring '26, and then you mentioned something about fall. So for fall '26, is there an increment like another round of price increase that you're looking at? Just wanted to understand that. Timothy Boyle: Yes. So for spring, we increased our prices perhaps, as we said, in the high single-digit range, about the same for fall. Frankly, inside the U.S., it's -- we don't really know what we're going to be paying for this merchandise based on the capricious nature of how the tariffs have been enforced. So we're taking our best shot at the business. Our prices outside the U.S. are more stable and more predictable. But inside the U.S., we're taking our best shot at what we believe the pricing will be. Jim Swanson: And Mauricio, the pricing is not stacking. Keep in mind, we've got a seasonal business, right? So it's high single digit for each season, but not stacking cumulatively. Mauricio Serna Vega: Okay. Yes. Okay. That's what I wanted to understand. Okay. And then on the shift from wholesale that benefited Q3, is that mostly U.S.? Or how should we think about that shift? Timothy Boyle: I think 80% of it, give or take, is U.S.-based. So it's predominantly there. I think there was also some over in our European direct business as well. Mauricio Serna Vega: Okay. Very helpful. And then just lastly, on SG&A dollar growth in Q3 was like 5%. Like -- is that like an underlying number that we should think into like for the Q4? Or is there also like an impact from the shift in the wholesale that maybe means that could be 3% to 4% or somewhat lower? Jim Swanson: Well, I indicated earlier, our gross margin is going to be down a shade more than what we saw in Q3. And then I think if you back into the SG&A, it's up a low single-digit percent -- low to mid-single-digit percent in the fourth quarter. I would keep in mind, when you think about the rate of SG&A growth in the third quarter at plus 5%, half of that was an investment in demand creation that we believe is absolutely the right thing to do to support the ACCELERATE Growth Strategy is making a difference in elevating and increasing the perception of the brand. So I think it's just incredibly important to keep that in mind as we're looking at the SG&A. Operator: We have reached the end of the question-and-answer session, and I will now turn the call over to Tim Boyle for closing remarks. Timothy Boyle: Well, thanks, everyone, for listening in. It's really, frankly, great to see the ACCELERATE Growth Strategy transition from just planning to activation. The brand platform engineered for whatever is bringing brand-new energy to the marketplace. And frankly, we're just getting started. We'll build on the momentum with new products and marketing activations in the seasons ahead. So I look forward to sharing our progress when we report in February. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Hello, and welcome to the Repsol's Third Quarter 2025 Results Conference Call. Today's conference will be conducted by Mr. Josu Jon Imaz, CEO and a brief introduction will be given by Mr. Pablo Bannatyne, Head of Investor Relations. I would now like to hand the call over to Mr. Bannatyne. Sir, you may begin. Pablo Bannatyne: Thank you, operator, and good morning to all. Welcome to the Repsol's Third Quarter 2025 Results Presentation. Today's conference call will be hosted by Josu Jon Imaz, our Chief Executive Officer with other members of the executive team joining us as well. At the end of the presentation, we will be available for a Q&A session. Before we start, let me draw your attention to our disclaimer. During this presentation, we may make forward-looking statements based on estimates. Actual results may differ materially depending on a number of factors as indicated in the disclaimer. I will now hand the conference call over to Josu. Josu Jon Imaz San Miguel: Thank you, Pablo. Good morning to everyone, and thank you for joining us. Repsol delivered a solid operational and financial performance in the first quarter of 2025, moving ahead on key projects, optimizing the asset portfolio and reinforcing its commitment to shareholder value and capital discipline. The energy landscape continues to be shaped by geopolitical stability and concerns of all our supply. In the U.S., gas prices softened compared to the previous quarter, yet fundamentals still point to a tighter market heading into next year. The Refining business continued to build on a positive momentum in a market characterized by additional supply deficit. Operations at our industrial sites restore activity levels following the disruptions caused by the Iberian outage in the second quarter. On the Commercial side, all business segments delivered a stronger year-over-year contribution. Retail fuel sales remained robust, well supported by seasonal trends. The adjusted income totaled EUR 820 million, 17% above the second quarter and 47% higher than in the same period of 2024. All four divisions improved their results over the third quarter last year. Cash flow from operations amounted to EUR 1.5 billion. The accumulated operating cash flow through September reached EUR 4.3 billion, 15% higher than in the first nine months of 2024. Net CapEx was EUR 0.3 billion in the quarter with a EUR 0.8 billion contribution from disposals, asset rotations and the EUR 0.2 billion received from the sale of tax credits in the Outpost project. The accumulated net CapEx to September was EUR 2.5 billion, including EUR 1.3 billion in proceeds from disposals and rotations. By quarter end, all the transactions announced in 2025 have been fully collected. Net debt stood at EUR 6.9 billion by quarter and an increase of EUR 1.2 billion compared to June, mainly due to integration of the new joint venture established with NEO Energy in the U.K. As part of the agreement, Repsol has retained a funding commitment of the commissioning liabilities related to a portion of its legacy assets. This amount was previously recognized as a nonfinancial liability in our financial statements. Repsol doesn't increase at all, Repsol exposure but it is now classified in a different way, it is classified as financial debt at the consolidated level. So is only, let me say, an accounting procedure and excluding the impact of U.K. integration, net debt would've been flat compared to June. Gearing rose to 20.5% by quarter end and 10.4%, excluding this remaining aligned with our strategic objective of preserving our current credit rating. Looking at the evolution of the main macroeconomic indicators in the quarter. Brent crude averaged $69 per barrel, 2% higher than in the second quarter and 14% lower than the same quarter last year. The Henry Hub averaged $3.1 per million BTU, 9% lower quarter-over-quarter and 41% above the same period driven by strong middle distillate differentials, the refining margin indicator stood at $8.8 per barrel, 49% higher than in the second quarter and 120% higher than the same period in 2024. Finally, the dollar continued to weaken against the euro with an average exchange rate of 1.17. Turning now to the Upstream performance. This division continued to deliver efficient and competitive growth, enhancing returns through new projects and portfolio management. We are improving the business and together with our partner, positioning the company for a potential liquidity event. Third quarter adjusted income was EUR 317 million, 28% below the second quarter and 11% higher year-over-year. Production averaged 551,000 barrels oil equivalent per day, about 1% lower than the previous quarter and probably in line with a year ago. Compared to the third quarter of last year, the impact of divestments and natural decline was offset by higher contributions from Libya and the U.K. In the U.K., the merger with NEO energy was completed in July. The new inventory is projected to produce around 130,000 barrels per day in 2025, increasing Repsol's net production in the country from around 30,000 to 59,000 barrels per day. On an annual basis, the JV is expected to contribute around $700 million of EBITDA for Repsol in 2026. In Indonesia, in September, we agreed the disposal of our stake in Sakakemang, completing our country exit after the disposal of our interest in Corridor announced in the second quarter. After this transaction, Repsol E&P is now present in 11 countries, 10 producing plus an exploratory position in Mexico, consistent with our strategic objective of concentrating operations on geographies where we hold the strongest competitive advantage. In this regard, the U.S. continues to strengthen its position as a strategic growth region within our Upstream portfolio. In the Gulf of America, the joint development of Leon and Castile reached first oil in September. And in Alaska, the first phase of Pikka is expected to start up early 2026. These projects, together with the upcoming startup of Lapa Southwest in Brazil are expected to add around 50,000 barrels of oil equivalent per day of new low emissions, low breakeven production by 2027. In addition, these developments have accounted for a substantial share of the upstream investment effort outlined to 2027 and their completion will allow us to transition to more normalized CapEx levels in the division at around or even below EUR 2 billion per year. Finally, as part of the preparation of our vehicle ahead of a potential liquidity event, Repsol E&P completed last quarter, a $2.5 billion bond offering, the largest in use U.S. dollars in Repsol's history. The offering structure in three tranches attracted a strong demand, underscoring the solid support for our upstream strategy. Continuing with the Industrial division, third quarter performance was driven by the consolidation of the refining up cycle and the solid contribution from the trading business. Following the impact of the Spanish outage on second quarter, operations activity at our industrial complexes returned to normalized levels, enabling us to capture the positive refining scenario. The adjusted income totaled EUR 315 million, 218% higher than in the second quarter and 70% above the same period a year ago. In Refining, our margin indicator climbed to levels not seen since the first quarter of 2024, supported by stronger product spreads, mainly in diesel. The premium of our indicator was $0.7 negatively impacted by the turnaround of Cartagena and planned maintenance at the C43 biofuels unit, and the absence of crude shipments from Venezuela. The C43 plant resumed full capacity operations in October. Distillation capacity utilization was 85%, while conversion units operated at 101% of nameplate capacity. Refining margins have remained robust. In the fourth quarter, with the indicator averaging $9.8 in October and $7.1 year-to-date, the export margin this morning was $13 per barrel. No major refinery turnarounds are planned this quarter, supporting healthy utilization rates. Fuels margins remain also at solid levels, driven by stricter regulatory mandates in Europe and lower imports. In the Chemical business, Market conditions in Europe remain challenging with flat demand and higher costs compared to other geographies. Repsol's petrochemical margin indicator declined by 22% over the previous quarter, driven by lower prices and higher energy costs. Our priority for this business remains lowering breakevens and expanding margins through differentiation. The Sines expansion scheduled to start in 2026 is expected to add around EUR 80 million of EBITDA at the current scenario. And in Puertollano, a new plants dedicated to highly specialized application is also planned to come onstream next year. In the wholesale and gas trading business, we received 5 cargos from Calcasieu Pass last quarter. This is in line with our goal of reaching a total of 11 cargos listed in 2025 contributing around EUR 100 million of incremental EBIT compared to initial plan. In our industrial transformation initiatives, the project to retrofit a former gas oil hydro-skimmer in Puertollano is expected to begin operations in the second quarter of 2026. An additional retrofitting project is currently under evaluation, which will become our third major advanced fuels facility in Spain. In Tarragona, the development of the Ecoplanta is progressing according to plan. Thus we signed our first offtake contract to supply renewable methanol to continue at this facility as part of our long-term agreement for the supply of renewable marine fuels. In hydrogen, during the quarter, we took the FID for our first large scale electrolyzer is going to be constructed in Cartagena, and we are finalizing the analysis for the approval of another two projects. These electrolyzers will constitute the main part of our total capacity in operation by the end of this decade. Moving now to customers. This division delivered the highest quarterly result in the history of Repsol's commercial businesses with all segments delivering higher contributions year-over-year. Third quarter adjusted income reached EUR 241 million, 22% above the second quarter and 34% higher than in the same period of 2024. EBITDA was EUR 434 million, a 25% increase year-over-year, bringing the accumulated figure through September to EUR 1.1 billion. This performance keeps us on track to deliver in 2025, the EUR 1.4 billion EBITDA targeted for 2027 in our plan. So this figure is going to be achieved this year. And all that is supported by resilient demand, efficiency gains, growth in power and gas retail in Spain and Portugal and the growth of aviation fuel sales in Iberia. In Mobility, sales of road transportation fuels grew 14% year-over-year, reaching pre-pandemic levels. The non-oil business delivered robust contribution margin growth in service stations, 10% above the third quarter of 2024. As of today, 56% of our network in Spain offers multi-energy solutions. In October, the range of renewable fuels available at our service station has been expanded with the incorporation of 100% renewable gasoline after our Tarragona refinery achieved the first industrial scale production of this product, a real technological milestone. Finally, in power and gas retail, we add 157,000 new customers last quarter for a total of 2.9 million clients by the end of September, on track to reach our 3 million target before year-end. Turning to low carbon generation. The adjusted income reached EUR 31 million, EUR 24 million higher quarter-over-quarter and EUR 38 million increase year-over-year. These better results were driven by renewables, the main driver, a higher contribution from combined cycles, whose activity increased to ensure system stability following the Spanish outage, the blackout we suffered in April. The average pool price in Spain was EUR 67 per megawatt hour, 71% above the previous quarter and 16% below the same quarter in 2024. The power generated by Repsol reached 3.3 terawatt hour, 39% higher year-over-year. Repsol has reached 5 gigawatts of installed renewable capacity under operation, and we expect to add another 500 megawatts before year-end, mainly driven by the startup of Pinnington Solar in Texas. We keep -- sorry, executing our business model based on building our projects from stretch and divesting in early stages of production to optimize financial structure and maximize returns. In the U.S., the 629-megawatt Outpost solar project achieved commercial operation in September joining Frye and Jicarilla that are already producing in the country. We are now in the process of closing the partial divestment of this development with cash in expected in 2025. In Spain, an additional asset rotation is also under negotiation for a 700-megawatt renewable portfolio, of which and that is an important fact to see in the current market situation, more than 400 are wind. Finally, earlier this month, we acquired an 805-megawatt wind pipeline with the end of hybridizing production at our combined cycle plant in Escatron in the Spanish region of Aragon securing the power supply for the future data center to be built in the area by a third party. Moving now briefly to a summary of the financial results. In this slide, you may find an overview of the figures that we have covered today. For further details, I encourage you to refer to the complete set of documents released this morning. Regarding our update outlook to the end of 2025. The cash flow from operations guidance remains unchanged at around EUR 6 billion, with the benefit of a higher refining margin indicator, as I explained before, and this effect is going to be partially compensated by the lower Henry Hub price and weaker dollar. Net CapEx is unchanged at around EUR 3.5 billion. I have the ambition to put this figure below EUR 3.5 billion by the end of the year, subject to the timing of the divestment processes under execution. Upstream production remains at an estimate of around 550,000 barrels per day. We will allocate EUR 1.8 billion to shareholder remuneration, EUR 1.1 billion for cash dividends and EUR 700 million to share buybacks to reduce capital at the higher end of our strategic cash flow from operation's distribution range. Following July 2 dividend payment, the total EPS distributed in 2025 has been EUR 0.975, an 8.3% increase over 2024. Our first capital reduction was carried out in July through the redemption of shares acquired for an equivalent amount of EUR 350 million and a second capital reduction for the same amount will be executed before year-end. For this, a new buyback program was launched in September of the acquisition of shares for the equivalent of EUR 300 million with the remainder, EUR 50 million coming from the settlement. In conclusion, Repsol is delivering on its commitments and the strength of our business model position us well to manage the uncertainties of the current environment. In the upstream, we are improving the margin of the barrels we produce, bringing forward our growth projects and upgrade in the portfolio. In Industrial, we are capturing the positive momentum in Refining while progressing on the transformation of our sites, building resilience to ensure the long-term sustainability of the business. Customer keeps increasing its cash contribution to the group, helped by a successful multi-energy story and a growing power retail business in Iberia. And in low carbon generation, we continue to deliver along our strategic lines, targeting free cash flow neutrality after factoring the proceeds generated by asset rotation. Ensuring strong distributions to our shareholders remains a key priority in our history of value growth. Always, of course, maintaining a clear commitment to our robust balance sheet and our net CapEx objectives. Next year, after the share capital reduction executed in 2025, our ordinary dividend per share will be around EUR 1.05 per share. I said around because that is going to depend on the exact figure of the shares we are going to redeem at the end of the current share buyback program. In 2026, the same key strategic principles will guide our path. After the release of our full year results in February, and in light of the changes in the macroeconomic, regulatory and business landscape that our industry has gone through our Capital Markets Day will be held in March and were we will provide updated projections to 2028. With this, I will turn it over to Pablo as we move on to the Q&A session. Thank you very much. Pablo Bannatyne: Thank you very much, Josu Jon. [Operator Instructions] As usual, I would like the operator to remind us Of the process to ask a question. Please go ahead, operator. Operator: Thank you. [Operator Instructions] Pablo Bannatyne: Thank you, operator. Let's get started with our first questions coming from Michele Della Vigna at Goldman Sachs. Michele Della Vigna: Thank you very much. And congratulations on the strong results and looking forward to the Capital Markets Day. Two questions, if I may. First, I wanted to focus a bit on biofuel, an area that you're growing very fast but also where we're seeing a tremendous improvement in margins. I was wondering if you could lay out what is the contribution at the moment from that business? And how big that could get next year with potentially further tightening with RED III and also higher volumes in the second half of the year. And then secondly, I wanted to come back to Venezuela. You're building up receivables. They are clearly difficult situations with the U.S. sanctions, I was wondering if there is any ongoing dialogue that could resolve the situation and allow you to take more Venezuelan cargos? Josu Jon Imaz San Miguel: [Foreign Language] Going to your first question, I mean, next year in 2026, taking into account the production we have in the co-process of our industrial activity plus the operation of C43, plus the second half of the year where we are going to have production coming from the retrofitting of Puertollano and adding the trading activity of these biofuels, plus the commercial side because you know that we already have 40% of our service stations commercializing this product. I mean to give you only a reference, not at the current levels of margins. But if we take -- roughly speaking $800, I mean I'm not giving, let me say, a guidance of prices because I don't have a crystal ball. But if we take $800 per ton as HVO minus UCO margin for 2026, with all these concepts, we will capture EUR 125 million of EBITDA. I mean roughly speaking, because that is not exactly -- it could be a rule, but you could add roughly speaking, EUR 30 million, EUR 35 million for every $100 per ton of margin. You have to take into account, Michele, you perfectly know that after investing in Puertollano, we will have a capital employed in this business of around EUR 400 million. So my point is that the business is performing in the right way. And that is -- it's positive. If you ask me if I see the current margins stay for coming months, I mean the normal situation will be to see some kind of going down of the margins because, I mean, we have had a lot of capacity out in turnaround program and so on in Europe. So that will be the most logical. But I mean, there is room to have a pretty good situation in this business. Going to Venezuela. I mean, let me say that as always, we are always to comply and will comply with all laws and regulations applicable for all operations in Venezuela. You know that we are still there. We maintain our presence and production in Venezuela. We are producing gas for the domestic market is our main activity in Venezuela. And I could confirm you that we maintain, and we are shipping going, maintaining a constructive and fully transparent dialogue with the U.S. administration at the moment to try to ensure a stable framework for our activities. I mean, and when I say a stable framework for our activities, this framework, of course, includes viable mechanisms or monetizing our products. So I mean, I'm not going to say that situation is okay because you know the difficulties that -- in political terms, the country is experiencing but let me say that I could confirm that we maintain this constructive and transparent dialogue with all the authorities, of course, including the American authorities. [Foreign language] Pablo Bannatyne: Thank you very much, Michele. Our next question comes from Alejandro Vigil at Banco Santander. Alejandro Vigil: The first one, I'm very curious about this strategic update in March, probably I'll have to wait for March to have more details. But you can elaborate about the reason for this update on potential moving parts of this strategic update. And the second question is about distributions. I agree that you are delivering these distributions in line with your range. But considering the strong cash flow this year and potentially good expectations for next year if there is potential upside in your share buyback program of EUR 700 million? Josu Jon Imaz San Miguel: [Foreign Language] I mean I could confirm that -- I mean, this strategic update, that is a terminology discussion, obviously, it's irrelevant Alejandro, what I'm going to say. But I mean I prefer to talk about the Capital Markets Day because the strategy is defined and the strategy is written on stone and that means that the priority is going to be the shareholder distribution, as we defined in February 2024 plus the strong balance sheet for Repsol because for us, it's very important and a proven CapEx transforming and pushing in the growth process of the company. But that is going to be the priority of the strategy that is going to go on from next March on. So what is going to be the target? So you can't expect, let me say, surprises because these three principles are going to be defined and written on the stone. Saying that the Capital Market Day is going to try to give you because, I mean, things metrics are changing in two years and giving you a clarity about '26, '27 and '28 years, in terms of all kinds of operational and financial metrics. That is the end of the Capital Markets Day we are going to call for March. So -- but again, the strategic principles are written on stone. First, distribution for our shareholders, strong balance sheet and a prudent net CapEx. That's -- I mean, if you allow me, Alejandro probably, and you were right. The consensus of the market six months ago would be that we have problems to deliver this prudent CapEx in net CapEx terms because the perception after 2025 on the first -- sorry, 2024 and the first month of 2025 for the market could be, and you were right that the CapEx effort was very high at the beginning of this strategic plan. That was right because we were, let me say, paving the way for the growth for the projects we were investing in and we were taking advantage of the negligible debt we had at the end of 2023 for launching this view. But as you could see, I mean, at the end of September, net CapEx is at a figure of EUR 2.5 billion. And again, the target we have is EUR 3.5 billion for the end -- by the end, better said, of 2025. But my ambition is to be below this figure this year. And next two years, if you take and that is going to be probably speaking, what I have in mind, a figure close to this EUR 3.5 billion in 2026 and 2027, you can see that we are going to be in the low range of the net CapEx we defined in the range for our strategic plan, EUR 16 million, EUR 19 billion. Today, our view is that we are going to be at around EUR 16 billion in this period. So we are going, let me say, to elaborate a bit more, all these figures that you could see in the figures of this quarter that we are on track of going in this direction. So what you could expect in terms of general framework of distribution and I said, priority we are going to be, of course, in the range of what you said and you could be sure, Alejandro, that in the current program in the current market conditions is going to be delivered also next year. So -- but of course, I prefer to wait and talk about that in March in the Capital Market Day, that we are going to be in the range defined. And if we see a higher cash flow from operations and that could happen in the current environment, what you could expect, of course, is going to be -- in fact is going to go, better set, in that direction. Excuse me, sorry, this year's , Alejandro forgot. I mean, if we take EUR 6 billion of -- and we are in the higher range, 30, 35 of this -- of the range. I mean it's true that we are going to have probably, as I mentioned before, a higher refining margin. What I'm seeing for this fourth quarter in terms of Repsol refining margin is going to be probably in the double digit is how I see the refining margin of Repsol in this fourth quarter at double digit. But if you take this figure, I mean, we could add, let me say, roughly speaking, $200 million more to the expectations we had -- the guidance we had before. It's true that the dollar-euro exchange rate is showing us a weaker dollar. So that is, I mean, reducing a bit also the cash flow from operations for our businesses and slightly weaker Henry Hub comparing with the $4 million BTU of last guidance. I mean, all in all, it could be possible to be above the EUR 6 billion, I mentioned before, as guidance but the figure is going to be negligible. And I mean, you are going to understand that if we are EUR 100 million, EUR 140 million of -- above this figure, I mean, we are going to be open a program of EUR 40 million, EUR 30 million or EUR 50 million. So I mean, we prefer to say that is over this year 2025 and we talk about that in March, but always under the same principle we are applying now. Thank you. Pablo Bannatyne: Thank you very much for you question. Our next question comes from Alessandro Pozzi at Mediobanca. Alessandro Pozzi: The first one is on the Refining margin outlook. You mentioned the spot prices into the double digits. What is your view for the rest of the year and going into 2026? Do you think the current, say, strength is driven more by lack of products? Or is it concerns around the availability of these or maybe in 2026, so more of a panic buying right now. And the second question is on capital allocation, clearly, customer is delivering much better results. As you look at 2026 and 2027, what do you think are the areas of the business that can give you a better return and where you can probably increase CapEx in the next couple of years? Josu Jon Imaz San Miguel: [Foreign language] I mean, starting by your first question related to Refining margin. Of course, let me underline that is evident but I'm going to repeat that I don't have a crystal ball but analyzing from our experience and the facts and the indications we are seeing in the market, I'm going to jump a bit into the unexplored arena of seeing what is going to happen with Refining margins. So First, current evidence. I mean, as of today, this year, we have $7.1 per barrel in our system. This month, in October, this figure is at around $9.8 per barrel. And this week, I mean, what we are seeing is something in between $12, $14 per barrel. That's our facts. What is behind that? My perception is that we have two drivers and both drivers pushing this direction, demand and supply. Supplies are crystal clear. I mean, new refining projects in the Atlantic Basin, they are -- they continue facing delays and operational problems. You know Olmeca in Mexico, my perception is that the problem of Olmeca is not going to be solved in the short term. So that could go on next year. Dangote is having operational problems that is going to be probably solved by 2026. In the midst, we have seen -- I mean, everything we talk about that remember in February, when I said that we were seeing probably speaking 1 million barrels a day of discontinuing activities in the refining in the world. I mean, in Europe, Wesseling in Germany, Lindsay and Grangemouth in the U.K., they are close on track in the case of Lindsay, Houston and Los Angeles also in the U.S., Dalian in China, Osaka in Japan, Kwinana in Australia, I mean all that is going to add more than 1 million barrels a day of less production. We said that new projects this year, they were going to be slightly above 1 million barrels a day. But with the operational problems I mentioned before, in the case of Dangote and Olmeca, this figure is lower. And I mean, there is a new, let me say, a new fact over the last 2, 3 months that due to the attacks on Eastern European refineries, the best approach we could have today, and again, that is not easy to be reported in an accurate way because, I mean, in a war situation, truth is sometimes hidden but probably a figure close to 37%, 38% of the refining capacity in Russia has been attacked and probably a figure close to a 25% of the total capacity could be out of operation. So we are speaking about a very important figure that is 1.5 million barrels a day, fully unexpected. On top of that, we are seeing that over the last 2, 3 years in a very unfair way for competition, refiners from China, India and so on, they were taking advantage of not fulfilling the sanctions against the Russian oil. They were buying cheap Russian oil, refining this oil and putting this product in a very unfair competition way in the European market. Thanks to the policies of the European Union and the Trump administration related to enforce sanctions against this unfair way, all that is going to have an impact in the market. I mean if we go to the demand, I mean, demand is growing, that is also a fact to 0.6 million, 0.7 million barrels a day this year. In our markets, we are experiencing a high demand as you could see in our Commercial businesses. And we have to say that -- I mean, we are still -- we are not already in the European coal season. I mean the European coal season is going to increase pressure on diesel. If we add to that the new ECA regulation in the Mediterranean that are effective from May 1 that are boosting marine gas oil demand. And at the same time, we are seeing that gasoline is also strong because the new hybrids that they consume a lot of gasoline and so on. I mean, again, I don't have a crystal ball but I'm comfortable. It's not a commitment because it's not in my hands, of course, that we are going to see an average of double digit in Repsol this quarter, I mean, a refining margin with double digit. I mean, jumping into the 2026 is more complex. But I could say that the $6 per barrel we saw 1 year ago for 2026, I mean, we are going to be clearly above this figure. Probably the first quarter, we are going to experience a similar situation we are going to experience the fourth quarter of the year. We could see probably in the second half a more normal market in terms of supply. But all in all, I think that -- I mean, seeing margins of, I don't know, $7, $8 per barrel over 2026 is not going to be a surprise for me. Going to the capital allocation on the 2026, 2027, we are going to see, I mean, good results and improvement, clearly speaking in the Upstream, new barrels, Leon-Castile already in operation, Alaska that is going to start the operation at the end of -- or the first part, as I said, of the first quarter. U.K., where the improvement is going to be clear. So better margins, new barrels, more production, 570,000 barrels a day, roughly speaking, we will clarify this figure in the Capital Market Day that we are going to be at around this figure and a clear improvement in the Upstream. Going to the Industrial, as I mentioned before, better by margin, Puertollano, the retrofitting in operation, a higher refining margin, and I mean, I know that there is -- and I have a concern related to the Chemical business because the performance and what we are suffering in the market is very negative. We have a competitiveness program that we are enforcing new margins, reduction of energy cost, cost reduction. On top of that, we are going to see, so the derivative chemical even in this exit margin adding at around EUR 80 million of new EBITDA in a year. We also have the ultra-high molecular weight polyethylene plant in Puertollano. So all in all, the commitment I have with my Board is that next year, in this acid margin scenario, so with no, let me say, tailwind pushing margins, we could be EBITDA neutral in 2026, and we will have in 2027, a positive result in the Chemical business. Again, at the current bad margins environment. Of course, any tailwind coming from the point of view of margins is going to improve this figure. In the customer growth is going to go on because -- I mean, it's not because of market situation, it's structural because we are entering new businesses, retail, power and gas is a new business where we are growing. We already have EUR 200 million of EBITDA and growing 3 million customers this year. Probably next year, we will be at around 3.5 million customers. That is -- we could be close to this figure but we have a clear growth road map. We are growing in lubricants. In aviation, I mean, if you check the figures in Iberia, we are in historical flights. Overcoming year after year, the figures we have. We are growing in the non-oil, as I mentioned before. So this EUR 1.4 billion of this year is going to be a figure close to EUR 1.5 billion of EBITDA in this business by 2026. And I mean, you see in low carbon businesses, I mean, in power generation, you could see that we are improving the result. We will see ups and downs, but there is a clear structural trend. Why? Because we are reducing our cost, our unitary cost because we have a business to operate more gigawatts and month after month, we are adding new production. So the unitary cost is going to be reduced in coming months and in coming years. On top of that, with difficulties at the beginning in the U.S., but the rotation business, the rotation game is going to go in the right direction because the projects we have Outpost has a higher PPA than Frye. Pinnington has a higher PPA than Outpost. That means that things are going in the right direction. These 9 months, if you take the total concepts, you could see that this business is close to be neutral in cash terms. I mean that is not going. It's not structural. We are going to have in coming months, I mean, capital needs for this business. But we are not going to be far in the period of a Capital Market Day defined to see that this business could be able to grow with a minimum capital commitment from Repsol because it's starting to work the model. So my point is that this EUR 3.5 billion is going to be deployed in a prudent way in these businesses, reducing, let me say, slightly default in the E&P because the projects are already on track. In the Industrial business, we will put on track the projects I mentioned before, customer business, I mean, it's investing but the investment level in intensity is lower than in some other businesses. And in the case of renewable power, this effort, let me say, has an asymptotic direction towards being neutral in cash terms. Are we going to achieve this target in 2026? Probably not. But this time, it's not far. So thank you. Pablo Bannatyne: Thank you very much, Alessandro. Our next question comes from Biraj Borkhataria of RBC. Biraj Borkhataria: So first one, just on refining. I might have missed this but I understand you have no maintenance in Q4 but are you able to give a bit more detail on the first half of '26. Just thinking about your ability to capture $13, $14 refining margins over the coming months if that was to persist. And then second question is just on the financials. There is a very significant difference between P&L tax and then the cash tax you pay and the gap seems to be getting wider. Just trying to understand if there's any particular reason why those 2 numbers won't converge over time. So any color there would be helpful. Josu Jon Imaz San Miguel: Thank you, Biraj. I mean, going to your first question, I mean, let me say that this quarter, in 2025, what I have in mind is that we are only to turn around the 1 crude unit in Puertollano and the breaker. I mean, breaker with my whole respect to this unit because its fuel production is negligible in Tarragona. So that is going to be the only turnaround campaign this quarter. If we go to 2026, what we have in the program, I mean, accepting some hydrosulfuration units, some catalyst changes and so on that are negligible in days terms. The only large turnaround campaigns are A Coruña, that is the smallest of our refinery, where we are going to have the conversion units maintenance that is going to stay for something between 40, 50 days in 2026. And in PetroNor, we are going to maintain the coker and the coker stay out of service for 40 days more or less. I mean that is the only -- any kind of significant maintenance campaign neither in Cartagena nor in Tarragona, as I said before, some -- I mean, catalyst changes, a hydrosulfuration unit, but I mean, nothing relevant. And let me say that if we see this historical what is program, a program could happen. I hope that we -- and I expect we could cope with any incidents in this sense. But when we analyze the historical -- in historical terms, the turnaround campaigns, it's going to be a quite soft year in terms of maintenance campaign in coming 15 months. Going to your second question, of course, you could check the figure in a more accurate way with our IR team. But there is no anything relevant to report related to the P&L in tax and in cash. We are, of course, optimizing, as always, credit tax positions. You know that because we are investing hard, we have a lot of tax credits because the investment we are developing in some jurisdictions like I don't know, the U.K. and some others because the losses of the past. And probably in the whole year 2025, we could have a figure close to EUR 800 million at the end of the year. But again, we are trying to optimize these figures and trying to use the credit tax positions we have. So that's clear. Pablo Bannatyne: Thank you, Biraj. Our next question comes from Guilherme Levy at Morgan Stanley. Guilherme Levy: Two questions from me, please. The first one, thinking about the next steps around the listing of the E&P subsidiary in the U.S. You, of course, started to talk about a potential reverse takeover process. So I was wondering if there are any particular features that you would like to see in a potential target to be taken over in the U.S. if exposure to either gas, oil or to any particular basin would be preferred. And then second one, also in the U.S., can you provide us some color in terms of the hedges that you currently have on gas prices over the coming quarters? Josu Jon Imaz San Miguel: Thank you, Guilherme. I mean, we are preparing the company for being ready for a liquidity event in 2026. As I mentioned before, in July, liquidity event could mean first, an IPO, a reverse merge with a company listed in the U.S., a new private investor entering in Repsol. So I mean, that's the broad meaning of liquidity event. And again, for me, here it is more important, the road and the journey at the end. That means that we are putting all the effort first in having a better upstream with better barrels. We are delivering in terms of improving the portfolio. We are in less countries in better jurisdictions with better barrels. When I say better barrels in terms not only of more sustainable barrels but also in terms of higher cash flow from operation per barrel, we are putting on track the projects that is very important. In a period that has been complex in terms of inflation and so on in the market, we have been able to put projects on track that has happened in September with Leon-Castile and it's going to happen in coming 3 months with Alaska. So that is the full focus of the company in this sense. On top of that, we are working internally in all the requirements and reporting and so on to be prepared for any event in this direction. But again, we are not in a hurry. We don't need any proceeds coming from this liquidity event. We are seeing that day after day, we are improving the quality of our upstream. That means that we will be prepared alongside 2026. We are fully aligned with our partner, EIG in this strategy. And of course, we will be ready to take advantage of any opportunity in the market but not being in a rush, not jumping any opportunity that could appear in the horizon and having crystal clear that maintaining the control on the 51% of the stake in this business, so consolidating this business is a line for Repsol. So we are going to own in this way. Going to some color about the gas for -- I mean, in 2025, we have 55% of the volumes hedged already with a collar with no cost, 6.1, so capturing all the value, guarantee the $3 million BTU and capturing all the value up to 6.1. Next year, if we go to the first quarter, we have a 20% of the production in the first quarter in a collar 3.5, 12.3. That is a surprising figure. But I mean, it was done with no cost. That means that we are guaranteeing the $3.5 million BTU and capturing all the price to $12 per million BTU. On top of that, we have a collar over the whole production of 2026, covering 52% of the production with a floor of 3.2 and capturing the value up to $5.1 million BTU, and in 2027, we have already hedged at 12% of the production debt is with a floor of 3 and capturing the price up to $5.8 per million of BTU. So let me say, as I summarize, we are comfortable because we are guaranteeing a minimum that is going to give us the return we expect in the gas production we have. And on top of that, we have plenty of room to capture any upside appearing in the market. Thank you, Guilherme. Pablo Bannatyne: Thank you very much, Guilherme. Our next question comes from Ignacio Doménech at JB Capital. Ignacio Doménech: Just a question on asset rotation, both on Upstream and on Renewables. So starting with Upstream. There was some news regarding potential asset rotation in Pikka and Alaska. So I was wondering if you are comfortable with your stake there or you are planning to dilute part of the exposure to the asset. And then in terms of asset rotation in Spain, just wondering if you've changed any -- if you've seen any change in appetite, just thinking about the 700-megawatt portfolio you're planning to rotate. Josu Jon Imaz San Miguel: Ignacio, thank you. So going to your first question, I don't have any appetite to divest in the Upstream business. We are comfortable with the position we have in the upstream business. We are an oil and gas company. We are adding barrels. We are adding new barrels. And probably, let me say that Alaska is a company maker asset in terms not only because the barrels we are going to start producing in 2026 but because the potential growth that this asset in Pikka 2 in coke and so on could have around the current production in lands and fields that are already in the hands of the JV we have with Santos. So I mean we have always to consider any option because, I mean, the portfolio is -- has to be managed. But today, I don't have any appetite to dispose or divest Alaska, I mean, and I need, let me say, a real very high figure to consider any option for that because, I mean, we are very happy, and we are very close to the first oil. So we are going to start monetizing this asset in 3 months. So we will consider, as always, any option in any asset. But to date, we don't have any target and any appetite to divest any asset in the upstream or Repsol. Going to the renewable asset rotation in Spain, I mean, we are seeing a positive appetite. It's curious because if you analyze Ignacio and you perfectly know Spanish renewable business, we have been able to rotate in a very successful way all the processes we have had over the last 4 years. And remember that the last one happened 8 months ago, roughly speaking, with green coat in a basket of assets that I thought I have in mind was that they were around 400, 500 megawatts in Spain. And we are seeing a very high appetite for these assets because, I mean, you know that today, 400 new operational production in wind in Spain is a quite scarce asset because you know that wind is able to capture the prices over the whole day, capturing also high prices in some parts of the day. And the advantage of the minority part of this basket of assets that is solar is that the PPAs are already there and are very good PPAs because they were negotiated in the -- I mean, 2 years ago, roughly speaking, in the high peak of the crisis, energy crisis in Spain, when there was Spain and Europe, when there was a strong appetite to negotiate PPAs. So very good asset with very good PPAs with very good mix of wind, solar. And I mean, for an investor, it's a real attractive asset. So I'm probably -- in the case of Outpost, I think that we are going to be able to monetize or to cash in, probably we are going to be there before the end of the year. In the case of these assets, we will close with a high probability of the transaction this year in 2025. And I prefer to be prudent because the authorization competition and so on, we need in terms of permits, probably the cash-in could enter in 2026. But in any case, the expectations are very positive. Thank you. Pablo Bannatyne: Thank you very much, Ignacio. Our next question comes from Irene Himona at Bernstein -- Societe Generale. Irene Himona: Just one quick one for me. I understand some of your disposal proceeds are from selling tax credits. And I'm not sure I understand myself how that works. How would it influence, for example, the future economics of those projects, if you can perhaps elaborate a little bit? Josu Jon Imaz San Miguel: Thank you, Irene. I mean you know that all the assets we have in the U.S., they are covered by the IRA, not only the current one but also the rest of the assets we are going to develop because we have in a safe harbor 3 gigawatts more in the country. So that means that we shape, let me say, the much more in terms of the support of the IRA. And in the case of how it works, there are 2 ways to monetize this support the PTC and the ITC. The ITC is some kind of upfront cash coming from the tax administration that is, I mean, in the range of 30%, 40% of the CapEx, even 50% in some places because it depends if there are industrial training areas and so on, the support, the local support is higher. And in some cases, you have what is called the PTC. The PTC is some kind of continuous payment for 10 years in your operation but you could monetize up 50% in upfront payment of this PTC. And in the case of Outpost, this EUR 185 million, something that appear, roughly speaking, are the part fitting with this upfront payment coming from this PTC. So it's quite complex, Irene, because some projects they have the ITC, some others, the PTC take the message that all of them, they are going to have sufficient support in the range, 30% to 50%. And if you need more granularity about these projects, of course, be sure that the team of IR will be ready to give you more clarity about that, Irene. Thank you. Pablo Bannatyne: Thank you, Irene. Our next question comes from Matt Lofting at JPMorgan. Matthew Lofting: First, I wondered if you could add some thoughts and color on what you're seeing in the market on light heavy spreads and the sort of the cost effectively of the feedstock basket in the Refining business. Just thinking about that in the context of the moving parts in the market at the moment. It looks like some debits and credits, more barrels coming from the Middle East, on the other hand, some of the constraints around Venezuela, et cetera, that you talked about earlier and what all that means for the outlook on the premium over the benchmark. And then secondly, just Jon, I wanted to just pick up on the earlier points that you made around CapEx. you talked about the low end of the sort of the range on the 4-year plan. I just wonder whether there's a case and a sort of a need to be more ambitious on medium-term CapEx reduction below that range rather than the low end in the context of moderated upstream prices now versus early 2024 areas of the low carbon value chain and the economics of that being still more challenging and probably greater geopolitical uncertainty in the macro backdrop than was the case when you did the CMD 18 months ago. I appreciate the thoughts there. Josu Jon Imaz San Miguel: Thank you, Matt. I mean, going to the -- it's true that this third quarter and one of the factors impacting a negative way in the premium of the refining margin that -- I mean, it was pretty good at $0.7 per barrel, we expect a bit more was the scarcity of heavy crude oil in the Atlantic Basin. And the main factor was the reduction of the exports of Maya crude oil from Mexico in this summer. The potential, let me say, reasons or problems behind this decision, they were left behind. And this quarter, we are seeing more Maya in the market. So probably we are going to see higher discounts for the heavy crude oil. On top of that, I mean, the rest of the crude oil, I mean, Colombia, Canada, what comes from Middle East, I mean, Basra and so on, they are entering in our system. Also, I mean, a small amount coming from Italy, Albania and so on. So my perception is that this component of our refining diet is going to be better in the fourth quarter than in the third one. In the case of Venezuela, it's clear because, I mean, you perfectly know that the constraints in the market are higher. But what we could see could be a more favorable environment this fourth quarter comparing with the third one, mainly because the Maya crude oil could be the driver that changed. I mean, we will talk about the -- in the Capital Market Day about the CapEx effort and so on. But again, we are comfortable with the figures I mentioned before. If things are worse, there are plenty of room to reduce this figure. In the case of the -- I mean, in case of seeing low oil and gas prices, that is not the case today, and we are not seeing that. We have the unconventional buffer, as you know. So the E&P could reduce default but we are not now there. We don't want now to reduce default because we are seeing good prices and good returns. You see that we have been able not because a CapEx reduction mindset because we prefer to be prudent guaranteeing the returns in the decarbonization of industrial assets. We have reduced the hydrogen ambition in almost 2/3 by 2030 comparing with the figures we have 2 years ago in our ambition. We are also prudent about the future investments in renewable fuels in Spain. We are analyzing a third project, and probably that is going to be done but we want to guarantee that this project is going to have good returns, and we are analyzing this option. You see that we are also being very prudent in the development of guaranteeing the returns of the renewable power generation. So my point is that situation is different. We have reduced our CapEx in a significant way because we want to guarantee returns. And in case of needed, we will be ready to do it. But today, we are comfortable in these figures because, as I mentioned before, the distribution to our shareholders will commit is guaranteed under this scenario. The balance sheet is strong, and we could modulate the CapEx in this effort. Thank you, Matt. Pablo Bannatyne: Thank you very much, Matt. Our next question comes from Naisheng Cui at Barclays. Naisheng Cui: Two questions from me, if that's okay. The first one is on data center in Spain. I understand you also do some data center things as part of your business. I wonder if you can add a bit of color on that. What's your view over there on the sector? Then the second question is just to clarify on the $2 billion divestment target for the year. I understand you mentioned earlier, there's no appetite to divest any upstream asset, but can you get to the $2 billion by just divesting the remaining U.S. and Spanish asset, please, the renewable ones? Josu Jon Imaz San Miguel: Thank you, Naish. I mean, first, I'm not an expert in data centers, my first disclaimer. Secondly, if I have to imagine a place in Europe, where you need to have data centers, computation capacity and so on. And energy is an important driver and renewable energy is an important driver. It seems to me that Spain is the right place to develop this data center. So from this point of view, I'm quite positive about the possibility to develop this data center. We are not a data center operator. So we are not going to invest in this business. What we are doing is because there is an appetite from investors to be in data centers in Spain, we have an asset that is Escatrón a CCGT with 800 megawatts of power in operation. And because the current regulation, we could use the connection permits of this asset to promote around this asset, an equivalent figure, in our case, 800 megawatts of wind hybridization with this CCGT plan. For that reason, we acquired an early pipeline of 800 megawatts of wind assets in Aragon in this region that is going to be developed something between '28, '29. So that means that we have the unique opportunity to develop wind assets in Spain that, as I mentioned before, is a very valuable production. And we could use half of this figure, 400 megawatts to fit with renewable power, combining with the CCGT, a potential investor in the area. And what we have is we have water in the area because you know that this kind of CCGTs, they need the refrigeration cooling processes. We have land. We have good connections, fiber in IT terms in this area. So what we are going is to sell the right to develop a data center in the area to a potential promoter -- and on top of that, we are going to provide this data center with PPAs with self-consumption, combining the wind and the gas. So we are seeing as an opportunity. I mean, we are going to monetize an option we have. And there is -- what we are seeing is that there are a lot of people interested in these assets. So it seems to me that today are a lot of people ready or interested in investing in Spain in this business. But again, Naish, I mean, if you need more clarity, of course, we have our team to -- at your service my comment related to your question. I mean, when we go to the figures, -- as you could see in the first months, we got the figure of EUR 1.3 billion by September. I mean, I'm taking EUR 1 billion of divestments plus the EUR 0.3 billion additional coming from -- I think that EUR 100 million, roughly speaking, from Aguayo Project. Aguayo Project is the first rotation we did in Spain at the beginning of the year. But because we retained the 51% is not in our accounting divestments but you could see the cash entering in our accounting. And on top of that, we have the $200 million coming from the PTC I mentioned before of Outpost. All in all, EUR 1.3 billion by September. We expect EUR 300 million more coming from the rotation of the U.S., I mentioned before, Outpost and the cash-in is going to be -- we have very high probability before the end of the year. All in all, EUR 1.6 billion, that is going to be enough to reach this EUR 3.5 billion net CapEx. And as I mentioned before, what could be out in cash in terms of this year 2025 is the rotation of the 700 megawatts in Spain that because the permit and authorization process and so on could be probably closed but not monetized before the end of the year. In any case, because we have been more prudent in gross CapEx terms, we are going to be below this EUR 3.5 billion -- that is my ambition before this EUR 3.5 billion of net CapEx by the end of this year. Thank you, Naish. Pablo Bannatyne: Thank you very much, Naish. Our next question comes from Henri Patricot at UBS. Henri Patricot: I have 2 questions, please. The first one, I want to come back to the comments you made, Jon, on the customer business. You mentioned on track to reach the EUR 1.4 billion EBITDA this year and maybe close to EUR 1.5 billion in 2026. But actually, you're already very close to EUR 1.5 billion over the past 12 months. So I was wondering if you're just being a bit conservative on the outlook for 2026 or if there was some exceptional performance over the past 12 months in the third quarter, in particular, that will explain why we should expect a slower growth in '26? And then secondly, on the Puertollano advanced power fuels plant, which you now plan to start up in the second quarter and have the first contribution in the second half of '26. If I'm not mistaken, you're previously flagging start-up in early 2026. Wondering why it's taking a little bit longer and if there's a risk of further delay of this project. Josu Jon Imaz San Miguel: [Foreign Language] Going to your first question, I mean, EUR 1.4 billion of EBITDA, that is going to be this year. Cash flow from operations will be at around EUR 1.2 billion, roughly speaking, this year. I mean I think that I'm not conservative. I'm ambitious for 2026 when I say that EUR 1.5 billion of EBITDA is our target. Why I'm, let me say, ambitious because the target we are achieving now for customers in the retail and power business in terms of EBITDA are the targets we had for 2027. So we are anticipating 2 years the delivery of the strategic plan. Is this performance exceptional? I mean, I don't think so. I think that is structural. I mean, if you take what has happened with our customer business over the last 10 years, from 2016, 2017, we have doubled the EBITDA figures of this business. And we are developing this effort year after year. That is not because ups and downs in the market because we have had ups and downs over these 10 years. It's structural. And the reason is, first, new businesses, I mean, an EBITDA that was not there and now is there and is growing when new businesses mainly. I mean, I could talk about power and gas. I talk about lubricants that you know that now we have an international footprint. We will talk about the [ gas ]. I mean, this kind of business developed around the energy efficiency that is also new. On top of that, I mean, we have almost 10 million digital users of our app Waylet. That is a unique position, not only in the energy sector in Spain, in the retail leadership in Spain. So we are becoming a leading retailer in the country with more than 3.5 -- almost 4,000 sales points with 24 million customers, including Spain and Portugal without digital leadership. So it's structural. We are growing this business. Of course, we will have better and worse situation of the market. But let me say that with EUR 1.5 billion of EBITDA, I'm feeling quite comfortable. And in this sense, I think that it is ambitious. I mean, if you take the EBITDA of this business and taking into account the investment level in this business that, I mean, it's also growing because we are growing in the gas and power business and so on, that you could pay almost 60%, 70%, the 2/3 of the cash dividend of Repsol could be paid by the free cash flow of this customer business that is always hidden because we are in all forms always talking about Brent price, Henry Hub price, refining margin. But the reality of this business is there. The retrofitting of Puertollano, I mean, it's going to be in operation at the end of the first quarter. So there are some -- there is -- I mean, no material delay. Perhaps some weeks of commissioning the project, but that is not, let me say, material in a complex industrial project like that. It is on budget. It's going to be finished at the end of the first quarter. And in the second quarter of 2026, it's going to be fully operational. [Foreign Language] Pablo Bannatyne: Thank you very much, Henri. Our next question comes from Paul Redman at BNP Paribas. Paul Redman: Two, please. The first one is just on the EUR 3.5 billion of CapEx you're talking about, I think it's for next year. How much divestment is included in that? And will the cash in from the Spanish sale be included in next year's or this year's divestment target? And then secondly, you mentioned earlier, Jon, about a possible EUR 1.05 dividend for next year. I see that's in between your EUR 1.3 and EUR 1.1 dividend guidance or range for 2026. I just want to understand how you get to that EUR 1.05, what we need to think about. Josu Jon Imaz San Miguel: Thank you, Paul. I mean going to your first question, that is net CapEx, the gross CapEx is going to be higher. What we are seeing, clearly speaking about rotation today are mainly the 700 megawatts of Spanish assets I mentioned before that is going to be cash in, in 2026. Plus probably Pinnington in the U.S. that is going to be partially in operation at the end of this year, 2025 but we are not yet in the process of rotation and so on because you have to prove, let me say, the operation of the asset. So that probably is going to be in 2026. And I don't have in mind any other disposal now, but you know that we always are analyzing our portfolio in a dynamic way. But you are right. This figure is net gross is going to be higher, and we will give you more clarity about that in the Capital Market Day of March. And going to the dividend, I mean, as I mentioned before, and I'm sorry for not having the possibility to be more precise, but you are going to understand why. This year, the dividend has been EUR 0.975. What we have in the strategic plan is that the total amount distributed in cash is going to increase in a 3%. So there is a first effect of a 3% growing of this figure. But on top of that, the absolute amount is growing but we are going to have less shares in 2026 than the shares we had at the beginning of this year. Why? Because we are going to redeem and here is where I can't be more precise because we are still in the process of acquiring the shares in the share buyback process. But probably, I mean, we take the prices and so on, we are going to cancel a figure that is going to be close. And again, disclaimer is going to be close because this math effect to a 4.1%. When I take the 3% plus the 4.1%, we arrive to a figure that is going to be close to EUR 1.05. We will have a full clarity about this figure at the end of this year, knowing exactly the number of shares redeemed but we are going to deliver and we are going to do what we commit in our strategic plan in terms of distribution. Again, that is an important target and what we said on that is going to be delivered. Thank you, Paul. Pablo Bannatyne: Thank you, Paul. That was our last question today. With this, we will bring our third quarter conference call to an end. Thank you very much for your attendance. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good afternoon, and thank you for joining us today for Ryan Specialty Holdings Third Quarter 2025 Earnings Conference Call. In addition to this call, the company filed a press release with the SEC earlier this afternoon, which has also been posted to its website at ryanspecialty.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements. Investors should not place undue reliance on any forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Listeners are encouraged to review the more detailed discussions of these risk factors contained in the company's filings with the SEC. The company assumes no duty to update such forward-looking statements in the future, except as required by law. Additionally, certain non-GAAP financial measures will be discussed on this call and should not be considered in isolation or as a substitute to the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most closely comparable measures prepared in accordance with GAAP are included in the earnings release, which is filed with the SEC and available on the company's website. With that, I'd now like to turn the call over to the Founder and Executive Chairman of Ryan Specialty, Pat Ryan. Patrick Ryan: Good afternoon, and thank you for joining us to discuss our third quarter results. With me on today's call is our CEO, Tim Turner; our CFO, Janice Hamilton; our CEO of Underwriting Managers, Miles Wuller; and our Head of Investor Relations, Nick Mezick. We had a strong third quarter and are pleased with our ability to continuously deliver value for our clients across our businesses. For the quarter, we grew total revenue 25%, driven by organic revenue growth of 15% and M&A, which added nearly 10 percentage points to the top line. Adjusted EBITDAC grew 23.8% to $236 million. Adjusted EBITDAC margin was 31.2% compared to 31.5% in the prior year. Adjusted earnings per share grew 14.6% to $0.47. We remained active in M&A this quarter and have a robust pipeline, positioning us well to execute on our disciplined long-term inorganic growth strategy. Our excellent growth was driven by strength in casualty across all 3 of our specialties and modest growth in property. We generated strong new business and had high renewal retention even in the face of a complex and evolving insurance and macro environment. This achievement reflects the unmatched expertise, execution and commitment of our world-class team. Our ability to execute at this level continues to set Ryan Specialty apart and strengthens our position as one of the most formidable forces in specialty lines insurance. Moving to our recently announced initiatives this quarter. We successfully onboarded key talent across Ryan Re and alternative risk and brought innovative products to market through the launch of our flagship collateralized sidecar, Ryan Alternative Capital Re or RAC Re. Separate from those initiatives, we continue to entrench Ryan Specialty as the destination of choice for top talent. We believe we have entered into a unique and potentially transformative period within the specialty and E&S market. As the industry reacts to a transitioning market, we are attracting more talented professionals that are looking for a platform that not only withstands market cycles, but powers through them. Over the last 15 years, we built a culture and business model that stands apart from our competitors. Throughout the quarter, we saw a significant opportunity to ramp up our recruitment efforts. As a result, we added a significant number of experienced professionals to our world-class team. We expect this momentum to continue in the quarters ahead. Growth and long-term value creation are in our DNA, and we will remain true to that by continuing to prioritize strategic investments, especially as it relates to talent, de novo formations, innovative products and solutions, M&A and technology. These are all key areas that will further reinforce our commitment to our clients and our leadership in specialty insurance solutions. We believe these investments will accelerate our ability to relentlessly capture market opportunities, enhance our competitive position and deliver durable value for our shareholders over the long term. As we've noted repeatedly, our recruitment, training, development and retaining of talent is the best and most accretive investment we can make as it will continue to drive our organic growth engine for years to come. These efforts are fundamental to our strategy as a leading high-growth company and will enable our long-term success. Stepping back, our performance through these first 9 months reinforces our confidence in delivering yet another year of double-digit organic growth in 2025, marking the 15th consecutive year of achieving this increasingly remarkable accomplishment. Additionally, we are well positioned to sustain similar levels of full year organic growth into 2026. Looking beyond that, we believe we will continue delivering industry-leading organic growth, a topic Tim will address in more detail shortly. Lastly, before turning to Tim, I want to congratulate both Steve Keogh and Brendan Mulshine on their promotions to Co-Presidents of Ryan Specialty. Steve and Brendan will continue in their roles as Chief Operating Officer and Chief Revenue Officer, respectively. While stepping into this expanded leadership position following Jeremiah Bickham's transition to serving as strategic adviser through the end of the year. Steve will be focused on driving operational excellence and advancing our technology and innovation efforts, while Brendan will lead across our 3 specialties to enhance alignment and continue to maximize client impact. This announcement reflects the strength of our roster and the versatility of our leadership team built for durability and continuity. I also want to thank Jeremiah for his nearly 14 years of distinguished service to Ryan Specialty and for his support as we transition our leadership team. His dedication has been instrumental to the growth and success of our platform, and we wish him the best of luck with his future endeavors. As we wrap up 2025, we remain confident in our ability to innovate and thoughtfully invest in our business. Through relentless execution and winning new business, combined with strategic investments in growth initiatives, transformative acquisitions over the last few years, numerous additions of top talent and accelerated investments in the high-growth areas, we have built a foundation that positions us exceptionally well for the future. As the culture of this terrific team, I want to reemphasize how proud I am of the team's ability to deliver exceptional total revenue growth of 25%, driven by 15% organic growth and 10% inorganic growth. I'm even more impressed with our ability to drive adjusted EBITDAC growth of 24%, especially considering the unique opportunity to attract top broking and underwriting talent and continued investments in technology throughout the quarter. Now I'm pleased to turn the call over to our CEO, Tim Turner. Tim? Timothy Turner: Thank you very much, Pat. Ryan Specialty had an outstanding third quarter as we once again delivered industry-leading results for our clients in the face of a very challenging property rate environment. As I mentioned on our prior call, we remain hyper-focused on successfully executing on what we can control and delivering an organic revenue growth rate of 15% for the quarter is clear validation that our strategy is working. Further, while the strong secular conditions have endured, it is our Ryan-specific growth drivers that are resonating. Most notably, our specialized intellectual capital, unique trading relationships at scale and an ability to innovate, evolve and stay ahead of the market. Ryan Specialty was built on a simple philosophy to skate where the puck is going. This is the opportunity Pat and I saw back in 2010. And in every instance where we have invested ahead of the curve, we have been rewarded. To that extent, as Pat highlighted, we are currently operating in the early stages of a unique and potentially transformative period within the specialty and E&S environment. We made substantial progress on this opportunity towards the end of the third quarter, capitalizing on the influx of world-class specialty talent. This type of strategic hiring provides us with an unmatched ability to position ourselves as the clear leader in the specialty lines industry over the long term, a trend we anticipate continuing in the quarters ahead as the industry's top talent continues to knock on our door. Additionally, as it relates to technology, the pace of change has been remarkable, driven primarily by advancements in AI and machine learning. These developments are reshaping our industry and the world around us, and we are committed to staying ahead of the curve. Of course, leveraging these opportunities requires meaningful investment. And as a result, we now expect full year 2025 margins to be roughly flat to modestly down when compared to the prior year. However, these are without a doubt the most impactful and most accretive investments we can make to ensure the long-term success and durability of the Ryan Specialty platform. Looking ahead, we remain committed to margin expansion over time while preserving the flexibility to prioritize strategic investments and capitalize on the opportunities when they arise. such as the current talent environment and also de novo formations, innovative products and solutions, M&A and technology. We believe this is the right approach to ensure continued industry-leading growth. In light of everything I've outlined, we are deferring the 2027 time line for our previously communicated 35% adjusted EBITDAC margin target. This reflects our commitment to capitalizing our growth opportunities like the ones we're seeing today and prioritizing long-term value creation over short-term benchmarks. As we've noted in the past, our strategy is designed to anticipate and address the evolving needs of our clients and trading partners. And we remain diligent on expanding our talent base and capabilities to satisfy these growing needs. We believe this is the best way to ensure that our value proposition remains dynamic, differentiated and most importantly, indispensable. We also understand the importance of the commitment we make to our teammates, equipping them with the most advanced tools to ensure innovation and top-tier service to our clients and trading partners has been and will remain an area of heightened focus going forward. These investments are fundamental to our strategy as a leading high-growth company and serve as sustainable fuel to our growth engine. Turning to growth. As Pat mentioned, we are increasingly confident in our ability to deliver yet another year of double-digit organic growth in 2025 and are in a great position to sustain a similar level of organic growth into 2026. Beyond that, we believe we can consistently deliver industry-leading organic growth on an annual basis in the years to come. Important drivers of our growth going forward are our expectation to continue capitalizing on the unique opportunity to recruit and onboard top-tier talent in the quarters ahead, while also training, developing and retaining the exceptional team we've built over the past 15 years. Continued growth in our casualty business, driven by solid flow into the E&S channel and our expertise in high hazard classes, our ability to offset another year of soft property pricing as was evident this year. Through Ryan Re, our reinsurance underwriting MGU for which we've thoughtfully staffed in anticipation of 1/1 renewals following the nationwide and Markel renewal rights deal. ongoing innovation through new product launches and investments in geographic expansion broadly across the underwriting platform, which includes alternative risk, Ryan Re as well as our newly announced sidecar, RAC Re. Contributions from recent M&A as well as the continued pursuit of future transactions as this year's M&A is next year's organic growth. And lastly, our confidence in continued growth across all 3 of our specialties. It is a very exciting time at Ryan Specialty, and we are taking advantage of the multiple pathways to strengthen our position as the global leader in specialty lines, while staying focused on creating long-term sustainable value for our shareholders. Turning to our results by specialty. Our wholesale brokerage specialty had a great quarter. In property, we returned to growth through our relentless execution, winning a high percentage of new business and head-to-head competition, supported by high renewal retention, continued steady flow into the E&S channel, partially offset by the rapid decline in property pricing in Q3. We expect the fourth quarter to face continued deterioration of property pricing given what looks like another benign hurricane season. However, our longer-term outlook remains optimistic given the frequency and severity of cat events, notwithstanding recent experience and the increasing population in cat-affected areas, creating an increased demand for E&S property solutions. With our deep capabilities, we will continue to deliver value for our trading partners and offer innovative products and solutions for the most complex issues our clients face, irrespective of the market cycle. We continue to expect property to be an important contributor to our growth over the long term. Meanwhile, our casualty practice continues to deliver very strong results, driven by excellent new business and high renewal retention. We were particularly pleased to see pockets of growth in our Construction segment in the quarter, aided by an increasing demand for the build-out of data centers. Further, we also saw strength in a number of other lines, most notably transportation, habitational risks, public entities, sports and entertainment, healthcare, social and human services and consumer product liability. Our professional lines brokers remain resilient and resourceful in identifying new opportunities. And despite ongoing pricing pressure, they too have seen solid growth this quarter. More broadly in casualty, loss trends driven by both economic and social inflation continue to influence carriers to increase rates, refine their appetite and in some cases, step back from certain products. As many of these risks move into the specialty and E&S markets, we continue to see the E&S market respond in a disciplined manner. We believe that the need for the specialized industry and product level expertise that Ryan Specialty offers has never been greater, and our value proposition has never been stronger. With typical loss trends likely to continue, we see a long runway for sustained casualty pricing in the non-admitted market. We remain confident that casualty will continue to be a strong driver of our growth moving forward and believe we will remain a leader in casualty solutions for years to come. Now turning to our delegated authority specialties, which include both binding and underwriting management. Our binding authority specialty continues to perform well, driven by our top-tier talent and expanding product set for small, tough-to-place commercial P&C risks. We continue to believe that panel consolidation and binding authority remains a long-term growth opportunity, and we are well positioned to serve our clients as this trend persists. Our underwriting management specialty also had a great quarter, driven by excellent results in transactional liability, reinsurance and casualty. We had significant contributions from recent acquisitions, which added over 30 percentage points to the top line growth of underwriting management. Our recent cohort of acquisitions continues to deliver meaningful contributions to our long-term delegated authority strategy, reinforcing the value of our broader strategic approach. Further within RSUM, we recently launched RAC Re, our flagship collateralized sidecar that adds meaningful diversified capacity to our underwriting platform. This innovative structure brings a large amount of committed capital, which we will deploy over a 2-year period. RAC Re strengthens our ability to accelerate growth, enhance flexibility through increased diversification of capital and respond swiftly to market opportunities, further demonstrating our ability to adapt to the ever-changing needs of the industry. Stepping back, our skill and discipline to manage these businesses through the current insurance cycle bolsters our ability to deliver consistently profitable underwriting results, growth and scale over the long term. We remain well positioned to capitalize on both organic and inorganic delegated authority growth opportunities. Now turning to price and flow. We have repeatedly noted that in any cycle, as certain lines are perceived to reach pricing adequacy, admitted markets have historically reentered select placements. In this cycle, however, that dynamic has not materialized in any meaningful way and the standard market has had little impact on overall rate or flow. As we've consistently said, we continue to expect the flow of business into the specialty and E&S market more so than rate to be a significant driver of Ryan Specialty's growth over the long term. This was once again demonstrated in Q3 as the flow of business into the E&S channel remains steady across all lines, helping us deliver industry-leading organic growth, notwithstanding continued property pricing headwinds. Turning to M&A. This quarter, we closed on the acquisition of JM Wilson, which is an excellent addition to our binding authority and transportation offering. Earlier this week, we announced the acquisition of Stewart Specialty Risk Underwriting, or SSRU. With approximately $13 million annual revenue, SSRU enhances our Canadian capabilities in key sectors, including construction, transportation and natural resources. Further on the M&A front, our near-term pipeline remains robust, including both tuck-ins as well as large deals. That said, we will only move forward when all of our criteria for M&A are met, most notably a strong cultural fit, strategic and accretive to the overall platform. To sum it all up, this was an outstanding quarter for Ryan Specialty, which is a testament to our day 1 philosophy, our enduring value proposition and the overall durability of this platform. When we first started, we had the vision to align RT Specialty with the deep product expertise and skill set at Ryan Specialty underwriting managers. Today, as we continue building out our business through strategic investments in world-class talent, that vision is translating into meaningful results. As the destination of choice for the best talent in the industry, our winning and empowering culture and nonstop focus on innovation continues to attract the best of the best and helps ensure our long-term success. Our scale, scope and intellectual capital built over the past 15 years remains the foundation of our ability to continue winning and expanding our market share over time. Our platform is exceedingly difficult to replicate as we built a competitive moat, and we will continue to invest further in our platform to widen the gap in our long-term competitive advantages that clearly set us apart from the rest of the specialty industry. With that, I will now turn the call over to our CFO, Janice Hamilton. Thank you. Janice Hamilton: Thanks, Tim. In Q3, total revenue grew 25% period-over-period to $755 million. This strong performance was driven by organic revenue growth of 15% and substantial contributions from M&A, which added nearly 10 percentage points to our top line. Adjusted EBITDAC grew 23.8% to $236 million. Adjusted EBITDAC margin was 31.2% compared to 31.5% in the prior year period. Our strong revenue growth was more than offset by the significant investments made in talent, including the colleagues that recently joined Ryan Re as a result of our expanded strategic relationship with Nationwide. In addition, we continue to execute on thoughtful strategic investments in recruiting at scale and in technology, further positioning us for sustained strong growth going forward. Adjusted earnings per share grew 14.6% to $0.47. Our adjusted effective tax rate was 26% for the quarter. Based on the current environment, we expect a similar tax rate for the fourth quarter of 2025. Turning to our capital allocation. M&A remains our top priority now and for the foreseeable future. We ended the quarter at 3.4x total net leverage on a credit basis and remain well positioned within our strategic framework. We remain willing to temporarily go above our comfort corridor of 3 to 4x for compelling M&A opportunities that meet our criteria that Tim outlined earlier. Our robust free cash flow generation and strong balance sheet provide us with the flexibility to continue executing on strategic M&A opportunities. Based on the current interest rate environment, we expect to record GAAP interest expense net of interest income on our operating funds of approximately $223 million in 2025, with $54 million to be expensed in the fourth quarter. As a reminder, the interest rate cap, which helped generate significant savings over the last few years, expires at the end of the year. Based on the current view of rates and at current debt levels, we'd expect interest expense to be roughly flat in 2026, more driven by the declining rate environment and the pace of M&A. Turning to guidance. As we mature as a public company, we want to provide clarity on 2 key elements of our medium-term financial guidance. On organic growth, we are confident in our ability to deliver yet again another year of double-digit organic growth for the full year 2025. As Tim outlined, we are in a great position to sustain this level of full year organic growth into 2026, and we believe we will consistently deliver industry-leading organic growth on an annual basis moving forward. On adjusted EBITDAC margin for the full year 2025, we are now guiding to an adjusted EBITDAC margin that could be flat to modestly down as compared to the prior year, which reflects our recent execution to capitalize on the unique opportunities Pat and Tim outlined earlier. With that said, this could move modestly based on our recruiting efforts over the next few months. While these initiatives will continue to create near- to medium-term margin pressure, we want to emphasize that recruiting, training, developing and retaining talent is the most impactful and most accretive investment we can make. As a result of our progress in Q3 and in light of the significant opportunities outlined by Tim, we are deferring the 2027 time line for our previously communicated 35% adjusted EBITDAC margin target. This exemplifies our commitment to long-term value creation over adherence to short-term benchmarks. However, looking ahead, we anticipate modest margin expansion in most years while maintaining the flexibility to prioritize strategic investments, particularly those in talent, de novo formations, innovative products and solutions, M&A and technology. Our overarching focus moving forward is on continuing to swiftly grow our business to enhance our position as a global leader in specialty lines. We believe this is the best way to ultimately drive and create additional long-term value for our shareholders. As we close out 2025, we expect to see a continued decline in property pricing, coupled with the potential for heightened competition during the fourth quarter, our second largest property quarter. Yet in the face of these challenging market conditions, we are extremely proud of the resilience of our team as we pursue our 15th consecutive year of double-digit organic growth. Looking ahead, we see significant opportunity to continue establishing ourselves as the destination of choice for the industry's best talent, further differentiating ourselves as a preeminent firm in the specialty lines insurance sector for decades to come. With that, we thank you for your time and would like to open up the call for Q&A. Operator? Operator: [Operator Instructions] Our first question will come from Elyse Greenspan from Wells Fargo. Elyse Greenspan: I was hoping to spend more time unpacking the 15% organic growth, especially like you guys had revised down guidance last quarter. So it seems like the 15% was probably above what you guys had expected when you connected a few months ago. So can you just like help me break it down between how much came on that 15% from submissions versus rates versus new initiatives? And anything that you can -- was there anything one-off relative to the 15% that you guys printed in the quarter? Janice Hamilton: Elyse, this is Janice. So -- thanks for the question. We had a great quarter, as everyone has said, already, top line growth of 25%, the adjusted EBITDA growth of 24%. We think that, that really does reflect the investment that we've made in the platform that we've set ourselves up to perform exceptionally well going forward. And you could really see the evidence of that this quarter. You alluded to the fact that last quarter, I mentioned that we anticipated that between the third and fourth quarters, fourth quarter would be lower effectively than our guide range and Q3 would be higher, largely just based on the business mix that we experienced. And that was part of the reason we also don't guide by quarter. If you look to what happened in the first half of the year when Q1 relative to Q2, we anticipated a similar dynamic in the third and fourth quarters this year. Overall, though, we grew significantly from a casualty perspective across all of our specialties. Tim can talk a little bit about what the drivers of that were, but largely submission growth and new business as well as high renewal retention across the board. Property, Tim also mentioned in the discussion that we actually grew this quarter, and that was driven by new business and high renewal retention as well as continued steady flow into the E&S channel. We also saw pockets of growth within construction, largely based on the build-outs of data centers. Those can be large and lumpy. So to your point earlier, that's an area that we do expect to continue the opportunity for growth, but it may not always be consistent. We've also seen significant and great underwriting results across transactional liability, driven by increased capital markets activity, structured solutions, reinsurance as well as from all of our acquisitions. we believe we're really well placed to continue to win across the board, and that was evident this quarter. Tim, is there anything you'd want to add on casualty or property? Timothy Turner: No, I think that says it all. Thank you. Elyse Greenspan: And then I guess just to expand on that, like I'm looking at the revenue breakdown, right? And I know that, that's an all-in basis. But wholesale -- it looks like wholesale grew by 9%, and there was pretty 17% in binding authority, but underwriting management, right, grew 66%. So I'm just trying -- was some of that construction stuff that you're pointing to, was that more on the binding and underwriting side that that's what drove the outside revenue growth in those 2 businesses in the quarter? Janice Hamilton: Yes, Elyse, I'd say underwriting growth in the third quarter actually isn't drastically different than what we've seen in prior quarters there. We continue to see really strong underwriting growth just based on continued investment there. I called out structured solutions, reinsurance and our acquisitions, but largely transactional-based business such as transactional liability, where we had the influx from all of the capital markets activity this quarter. Construction from the build-outs, that's primarily within the wholesale book of business. But again, I mentioned that casualty was strong also across the board, across all 3. Miles Wuller: And Elyse, it's Miles here. We appreciate -- sorry. I mean just to decompose those numbers are obviously total. And so they are representing the annualization of a very successful and material M&A campaign in the last 18 months. But they also below that, they do represent sustained increases in PC collection representative of our profitable underwriting across the cycle. And then as Janice said, strong organic growth that we remain really proud of. Elyse Greenspan: And then my last question, you guys changed -- it looks like you might have changed how you're talking about guidance. Like is it double digits for this year? Is that to mean that you think you will come in at 10%, right? So the fourth quarter will be a decent decel from like the 11% year-to-date? Or is that just setting like kind of a low bar for the full year? Janice Hamilton: Elyse, you're absolutely right. We are adjusting the way in which we're talking about guidance going forward to align more with the common industry practice. So the double digits from where we were guiding last quarter, 9% to 11%. Obviously, the reference to double digits brings the floor up to 10%. When we think about the fourth quarter, as I mentioned earlier, we anticipated that the property headwinds and the business mix that we're expecting to see in the fourth quarter would drive relatively lower organic growth compared to Q3. Some of the headwinds that I mentioned, so property, we're continuing to expect 20% to 30% rate reductions as well as increased market competition just as we get closer to the end of the fourth quarter, a phenomenon that we saw last year, and we expect will still prevail this quarter this year. We also expect just based on what we've seen to date in construction or how much the additional interest rate cut that was announced yesterday will do to get more shovels in the ground on that business. So it could be a headwind, but there's also the potential for additional of the data center build-outs that I called out earlier. In addition to that, just broader economic uncertainty around the government shutdown, transactional liability for us could be a headwind. But you're absolutely right that thinking about the double digits and the 10% effectively is the 4 is what we're calling out. But just overall, we would expect the fourth quarter to have lower organic growth than the third. Operator: Our next question will come from Alex Scott from Barclays. Taylor Scott: First one I had for you is on the margins. And just thinking through the back part of the year, it totally makes sense that there will be some pressure related to building out a team for the nationwide transaction in particular because you don't have revenue yet, but you got the expenses. I get that. Are there things like that where you have to build out sort of maybe ahead of when you actually begin getting revenue with other types of business as we kind of go into next year? And the reason I ask is if you don't have like a similar setup, then would you still expect to get some margin improvement in '26? Or is it something that's just going to get pushed out here further? Janice Hamilton: Yes. So I'll start that one. And then, Tim, I think you can maybe talk a little bit about how the investment in the teams work that we've been talking about on the call. So Alex, you certainly called out the reference to the fact that building out from the Markel renewal rights deal that Nationwide did that we've been appointed to underwrite for. We brought on a number of teammates from Markel over the last quarter that is part of the margin headwind. We've talked about that in the last quarter and then in this quarter. The other call out was just starting to build out more from an alternative risks perspective. That is an area where we are anticipating revenue growth in the future, but we are seeing those employees starting to build out new products and solutions. So that's why we mentioned that on the call. And then as it relates to other talent, Tim mentioned this in his prepared remarks, that we have had a significant opportunity to invest in and under, which at this point, as they begin to come online, we often see that they're not accretive until the second or third year. And so that is where a lot of the near- to medium-term margin pressures are coming from that we called out. Tim, do you want to talk a little bit more about that opportunity? Timothy Turner: Sure. From the very beginning, we built the business by investing strategically, whether in talent, de novos, acquisitions or technology. You've seen us do this in many different aspects over the last few years. We've constantly anticipated where the market is going, and we benefited immensely from those investments. We're also focused on operational excellence. We can always become more efficient. We know that. Very excited about the business alignment and operational alignment that we have with our new co-Presidents. They'll be working across the business throughout the system in a collaborative way. We're happy to make that trade off on margins over the near term or when the balance shifts in favor of larger growth opportunities. So we're very focused on margin, and we're optimistic through '26 in the future. Janice Hamilton: Yes. I would just clarify, for 2026, because of the timing of when a lot of these new hires will be coming on, 2026 will again, for us, be a significant or a big investment year. So we would still anticipate those margin pressures going into 2026. I mentioned the 2- to 3-year kind of 2 to 3 years to start to become margin accretive. So 2026 -- and will depend also on how successful we are on the continuation of our recruitment efforts for the remainder of the year. But I just want to make sure that it's clear, going forward, absent a significant investment year like we've talked about this year that will continue to play through into '26 and early 2027, we would expect to see modest margin improvement, but we want to make sure that we're still giving ourselves the flexibility to prioritize these strategic investments. Taylor Scott: Got it. That's all clear. Second one I had for you is on the construction part of your business. I mean it sounds like this quarter was good because you had some lumpy win or wins there. But I guess when I think about it more broadly, is that going from being a headwind to beginning to open up? Was that just a one-off? I'm just trying to understand how to think about construction, particularly with the newly acquired business coming online, what that looks like in 4Q in terms of year-over-year comps and so forth. Miles Wuller: Absolutely. Well, Miles, I'll start with the underwriting side, which is predominantly property side of construction, and I'll hand it over to Tim. But I think my message is going to be relatively consistent from the prior quarter. So there are headwinds persisting that we want to acknowledge. So borrowing costs remain elevated. The tariffs are real, high inflationary costs remain around building inputs. And there is an emerging labor shortage likely emanating from a more robust stance on immigration. All that said, though, we're seeing great flow in the space still. We have exceptional products set to win, both large, mid and small. I'd want to emphasize, I think we highlighted on the last call, U.S. Assure was our acquisition into the SME specialty space. Technical risk underwriting was a long-standing de novo in the large and complex. We utilize the best components of both those practices to launch a mid-market solution that's been effective for about a month that's accelerating growth. And so as Jan has touched on, we absolutely feel we're winning. There's just not enough groundbreaking going on right now. So the average time between quote and groundbreaking is protracted. That said, we're deeply committed to the space. The 5 million-plus structural shortfall in available housing units in the U.S. persists. And we do believe that the 2 rate cuts so far this year are going to help flow into end of the year. Timothy Turner: And I would just add that we know from several metrics that we receive from our clients and the markets that we're industry-leading in construction in both property and casualty. And so what new projects come into the pipeline, we're getting a high percentage of the opportunities. They're quoted, they're waiting for the trigger, and we're optimistic that we'll be finding more of those. But again, that uncertainty is lurking. It's important to know that a big part of our construction practice group is renewable property and casualty. We have a very significant book of general contractors, subcontractors and artisan contractors at every level, some of the largest in the country, middle market and of course, our small commercial is loaded with construction business. So we keep a very close eye on it, and we believe this environment could very well improve, and we look forward to finding some of these larger projects. Operator: Our next question will come from Brian Meredith from UBS. Brian Meredith: A couple of them here. First one, Tim, I think I heard you correctly about 30 percentage-plus points in your underwriting management business of M&A. That would kind of imply like a 35% organic revenue growth rate in that business. Is that right? And how sustainable is that type of organic revenue growth in that business? Janice Hamilton: So I think what we've said before, Brian, and I'll start this one if Miles wants to add on as well. But I think we've always said that each of our specialties was built for double-digit organic growth. We certainly saw the opportunities within underwriting managers this quarter. There were a number of areas that were fueled by capital markets activity and other -- the construction piece and some of the items that Tim talked about. I mentioned structured solutions and reinsurance. So we're continuing to expect that underwriting managers will continue to contribute double-digit organic growth. But I would also call out that there are other reconciling items between the comments that Tim made about M&A and also organic growth, just being that around profit commissions. Timothy Turner: And I would add, we have some tremendous growth in areas like transportation, social and human services, renewable construction, as I mentioned, habitational, sports and entertainment, public entity and municipalities, classes of business that are firming by the day, loss leaders in the reinsurance world and segments of the business where our strategy has been highly effective. We believe we have the best brokers, and we've built facilities behind it to strengthen our value proposition with the client. So there's a lot of movement in that business and great growth opportunities. Brian Meredith: Makes sense. And then second question, I'm just curious, does the market environment, meaning the pricing environment at all influence your, call it, talent investment decisions like if we're in a softening kind of property market, are you less likely to lean into that area? Timothy Turner: Yes, it certainly influences our decisions in those areas. And obviously, things that are ultrasoft like public D&O and cyber, we backed off that build-out over the last couple of years, but accelerated in professional liability in health care, social and human services. We've mentioned our professional liability brokers who are industry-leading, pivoted and went deep into health care and social services, and that's paid off for us in a big way. Operator: Our next question will come from Meyer Shields from KBW. Meyer Shields: Great. Hopefully, I'm coming through. Janice, you mentioned a couple of times the typical 2- to 3-year time horizon for full productivity. And I'm wondering whether -- or maybe differently why the current situation that I think is underpinning the investment approach, wouldn't that translate into faster productivity basically if retailers are looking for an alternative wholesale broker? Janice Hamilton: Tim, do you want to talk a little bit about the dynamics of bringing on this additional talent? I've mentioned before that it takes sometimes 2 to 3 years for them to become fully accretive. Timothy Turner: It does. And Meyer, we're always recruiting. We're always training and developing opportunistic on hiring competitors and other talented professionals around the industry, but it does take a couple of years for them to be accretive. So there's a little bit of a hangover. We pointed that out. But again, we're very much opportunistic on that. The timing of that isn't always perfect, but it's all about A-rated talent, the highest caliber talent. We're constantly looking for it. We know it's differentiating. And when it's available and they're knocking on our door, we seize the moment. Meyer Shields: Okay. I think I get it. Second question, I'm just curious of industry operations. We've heard a number of people, including you folks talk about maybe increasing competition for business to hit full year 2025 budgets. Does that offer any opportunity for higher broker compensation? Timothy Turner: No, I would say not. It's -- most of it is formulaic and very predictable. Miles Wuller: Yes. We're quite disciplined as an industry, Meyer, when -- regardless of rate drifting up or down. It's -- we've -- if you look back over our published history, our net retains in both underwriting and brokerage have remained pretty consistent. Operator: Our next question will come from Andrew Kligerman from TD Cowen. Andrew Kligerman: I wanted to build out a little bit on some of the prior questions, notably the recruitment and hiring of talent because that seems like the only constant to help gauge one of the drivers of growth. So I'm kind of hoping that, a, you can kind of help frame what was the growth in organic hires, not acquired hires, but the growth in organic hires over the last couple of years. Could you kind of help frame that? And the part B of it is looking into the fourth quarter and looking at your double-digit guidance, the math would be that you could do 5% or 6% organic growth and still hit the 10% for the year. So the part B of the question is, are you feeling like you'll be on the north side of the 10% in the fourth quarter or the lower side? I mean we're a month into the fourth quarter. How are you thinking about that? Timothy Turner: Well, I'll take part A, Andrew. We know historically, the most accretive thing we can do is to recruit talent and to train and develop our own. And so you know about the Ryan University, our internship program. We're putting several hundred kids through that a year, and we've been doing that for several years now. We can see the clear pathway to the most accretive profitable thing we can do is weave that into recruiting existing talent and building out these teams so that we can have the industry-leading breadth and depth in niches of business that get firm. We follow these niche firming phenomenons and can accelerate with deep bench strength. And that's really the key to capturing this business when the flow increases significantly. Janice Hamilton: And then I'll take Part B from that, Andrew. So yes, you mentioned the fourth quarter. I said earlier, we always anticipated that the fourth quarter would have lower relative organic growth. The math checks out for that to be around 6%. I mentioned that there were a number of different potential headwinds the macroeconomic uncertainty associated with construction and also capital markets activity for transactional liabilities. So there's an opportunity there for lumpy good guys, lumpy bad guys effectively that we want to make sure that we've had a range around internally. Also, property, we always anticipated that assuming a benign hurricane season, which looks to be the case that we would continue to see that 20 to 30 basis points -- sorry, 20% to 30% rate reduction continue. And it's hard for us to put a number on the impact specifically for what that's going to look like in the fourth quarter when we've got additional market competition. So we're comfortable with the increasing certainty around double digits, but I'm not going to put any more specifics around where we might sit at the top or bottom end of what that could look like. Andrew Kligerman: That's a fair response. And I'll just end it with another tough question. Hopefully, you can give me some direction on it. So previously, the way I was thinking about EBITDAC margin was it was 32% in 2024 and the likelihood would be that it kind of came to 35% in 2027. And again, very valid reasons for not getting there in '27. But any way to kind of share your views on where it might go in '27 or when you might get to 35%? Janice Hamilton: It's a fair question, Andrew. When we think about the 35%, the target is achievable. But as we've stated, the fact that this unbelievable opportunity from a talent perspective is something that we want to make sure that we have the opportunity and the capacity to capitalize on, which is going to put us in a position to have margin pressures for '26, some of that continuing into '27. But we believe going forward, a modest amount of margin expansion is still reasonable to anticipate. And so the walk to the 35% will certainly be slower, and we'll take advantage of these opportunities when they come up, whether that's in talent or technology. Right now, the balance is shifting towards the investment as opposed to the margin expansion. But over time, I think it's fair to anticipate margin expansion -- modest margin expansion on an annual basis. Operator: Our next question will come from Rob Cox from Goldman Sachs. Robert Cox: Question on the London operations. Recently, we've been hearing some market commentary around disruptions surrounding the London specialty marketplace and at least one large retail broker discussing starting some operations there. Could those disruptions be a tailwind to your business? And can you talk about how Ryan's offering stands out there and the defensibility of that business? Timothy Turner: Sure, Bob. I'll try to answer that. First and foremost, we always do what's in the best interest of our client when it comes to approaching London. In wholesale, we're there to support the retailers in their most difficult placements, which oftentimes encompasses a full-blown marketing exercise, including London. And we have a 15-year history of finding the best independent broker in London. And as you know, they use us when they need us, and we use them when we need them. And that need continues to grow. But what's happened is there's been a little bit of shifting in London, as we know. And we're revisiting our strategy in London, and we're constantly looking at how we can improve our offerings to our clients. Looking and being sensitive to things like conflicts, channel conflicts and distribution friction. So we're very sensitive to it. We are, again, revisiting our strategy there, and we will keep everyone posted. Robert Cox: That's helpful. And then I just wanted to follow up on shifts from the E&S market to admitted or vice versa. It sounds like it's not happening on a broad basis still. Are there pockets where you are seeing that? And could you share any information on that by product or geography? Timothy Turner: We're really not. We haven't seen any measurable migration back into the admitted standard market. It's been mostly competition within the non-admitted surplus lines world that are driving rates down in property as an example. So it's the secular and structural changes that we've seen over the last 20 years that have developed over 100 non-admitted surplus lines platforms, including MGUs. And many of the large standard admitted big brand companies have either bought or developed non-admitted companies. So the business is tending to stay in that channel. There's no real reason to pull it back into admitted that we can see. So again, the competition is really within the non-admitted market. Operator: Our next question will come from Bob Huang from Morgan Stanley. Jian Huang: So maybe my first question is really a question on your commentary around AI, machine learning. So one of the major issues when we look at M&A roll-ups is that over time, you will end up with multiple redundant systems from the IT side and then data ends up getting siloed and then there are multiple systems, multiple passwords. As you're implementing AI projects, obviously, one of the problem is how to have connected data and also have data governance regulating that. Just curious how you're thinking about aggregating data and as you continue to do more M&As in the market and then how you're thinking about that tech implementation as you're moving towards a more AI-centric platform. Janice Hamilton: Bob, I'm happy to start, Miles, if you want to add anything to that. Yes, Bob, I think we've always -- we've been a very acquisitive company. Technology is an area that sometimes acquisitions come with a very strong platform. Sometimes acquisitions come with the expectation that they're going to move on to the RT Specialty platform. We're very thoughtful about how we approach that integration and the timing of it. We're always continuing to enhance our own technology platforms to be able to utilize data and AI. Obviously, with the transformation that has occurred in the AI industry over the last couple of years, the opportunities continue to evolve very significantly. And so it's always making sure that we're able to identify what the best opportunities are for consolidating our platforms, our data and be able to put AI on top of it. But even in the absence of consolidating all the platforms, there are solutions out there that today utilize AI to get to submissions faster, to be able to clear faster, to be able to elevate the role of the underwriter. And we're very much focused on all of those different use cases today, irrespective of the current technology landscape. Miles Wuller: Okay. Well, I'm just going to chime in, Bob, that everything you said is real and astute and spot on. But I want to highlight a couple of kind of competitive advantages of Ryan Specialty underwriting managers that we've had over the years. So -- over the last 10 years, we've made great strides in putting all of our MGUs onto centralized back-office system, that's policy issuance, that's sub-ledger. And although certainly, these new large acquisitions are currently operating in separate environments. We've got the great benefit of data scientists already on staff, actuaries on staff. That data has been a big part of our ongoing success. We use it to raise new capital. We use it to drive better results to the carriers. So I do -- your comments are spot on, but I do want to highlight some of the investments and structural advantage we have as a firm to manage those integrations. Jian Huang: Okay. The MGU point is very helpful. My second question is around the organic growth. I know a lot of people have talked about that already. So apologies if we went over this. But if we were to think about new client growth and existing client growth, right, is there a way for us to kind of split out within casualty, how much of that growth is new clients and how much of that is existing clients? Is there a way for us to think about that from a casualty perspective? Timothy Turner: Well, I would say that the customer base and the client base has been consistent. There's the top 100 Tier 1 retailers, global, national, regional, the 40-plus private equity roll-ups and then regional brokers. Then there's Tier 2, Tier 3, tens of thousands of retail brokers. So we have marketing approaches and production approaches to all 3 layers of customers, and we target them in different ways. So we're constantly rotating new marketing approaches and solutions to them based on their need profile. And we get measured every year. We're RFP-ing constantly in Tier 1 in the top 100. And they give us data on where we stand with them and like our markets do. So we know where we stand in terms of market share with them. We know much more is available for us to capture. So it's a constant challenge for us to rotate talent in different disciplines in different regions based on most of it driven by niche firming phenomenon. We shift talent into those areas very quickly. So it's a day-to-day, very active approach to the business with our retail customers. Operator: And our final question today will come from Josh Shanker from Bank of America. Joshua Shanker: A year ago, I can imagine you were a kid in the candy store looking at the market opportunity. And you said, you know what, by 2027, we can focus on margins over growth. And here we are a year later. I think you're still that kid in the candy store, but you realize how much opportunity there is. How has the opportunity set changed over the past 9 or 12 months that you're reining in and saying, now is not the time to focus on margins, now is the time to focus on growth. Timothy Turner: Well, the availability of talent is a big driver of that. And there's lots of factors that create those opportunities, changing situations with competitors, professional brokers and underwriters that want to change in their career path. We've been a destination of choice, and we've been very, very fortunate that they knock on our door, and we get opportunities with them. But the timing of that and the opportunities are never consistent. They're lumpy. And when we get those opportunities, we have to move quickly and swiftly. And again, it's the #1 most accretive thing we can do. It's... Joshua Shanker: But what you're seeing is there's just more opportunities now than there were a year ago. It's even better than it was a year ago. Timothy Turner: Absolutely, definitely. Miles Wuller: And it's also the attraction of our platform. So it's the investment we've made in tools, capabilities, products, access to distribution. So we -- I think in past calls, we spent a lot of time highlighting those investments as creating a destination of choice for organic talent as well as it's played into destination of choice as an acquirer. Janice Hamilton: Sorry. I was just going to add a little bit more on we mentioned earlier thoughts question with regard to AI. But just with the changing landscape from a technology and AI perspective, there are certainly more opportunities today to be investing in technology than where we were sitting a year ago. Joshua Shanker: And when partners see what you've done for Markel and what you're going to be doing for AXIS, have you seen a big swelling of the pipeline opportunity for you in reinsurance going forward from new partners? Patrick Ryan: We think that there is. This is Pat, that there are going to be additional opportunities. There are some discussions being held. There are a lot of -- quite a few subscale reinsurers. A lot of people are looking at should they be more focused on their core business. And that was the Markel decision there. We certainly believe that we have a unique ability to fill that need because we have the very strong credit rating and brand value of Nationwide Mutual. And we have an outstanding leadership team, outstanding teammates, underwriters behind that leadership team. So the industry is recognizing that. Reinsurance is becoming a much more important functional contribution to the capacity that needs to be brought into the E&S market. So yes, there's just a lot more focus on reinsurance. We uniquely are positioned with this brand exclusive with Nationwide Mutual fund reinsurance and our talent to seize those opportunities as they unfold. We can't predict when or how many, but clearly, there's interest. Operator: Thank you. That concludes the Q&A session. I will now turn the call over to management for closing remarks. Patrick Ryan: Well, thank you very much for your good questions, your continued support, and we look forward to talking to you again a quarter from now. Thank you.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the SkyWest, Inc. Third Quarter 2025 Results Call. [Operator Instructions] I will now turn the call over to Rob Simmons, Chief Financial Officer. Robert Simmons: Thanks, Colby, and thanks, everyone, for joining us on the call today. As the operator indicated, this is Rob Simmons, SkyWest's Chief Financial Officer. On the call with me today are Chip Childs, President and Chief Executive Officer; Wade Steele, Chief Commercial Officer; and Eric Woodward, Chief Accounting Officer. I'd like to start today by asking Eric to read the safe harbor, then I will turn the time over to Chip for some comments. Following Chip, I will take us through the financial results, then Wade will discuss the fleet and related flying arrangements. Following Wade, we will have the customary Q&A session with our sell-side analysts. Eric? Eric Woodward: Today's discussion contains forward-looking statements that represent our current beliefs, expectations and assumptions regarding future events and are subject to risks and uncertainties. We assume no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. Actual results will likely vary and may vary materially from those anticipated, estimated or projected for a number of reasons. Some of the factors that may cause such differences are included in our most recent Form 10-K and other reports and filings with the Securities and Exchange Commission. And now I'll turn the call over to Chip. Russell A. Childs: Thank you, Rob and Eric. Good afternoon, everyone. Thank you for joining us on the call today. Today, SkyWest reported net income of $116 million or $2.81 per diluted share for the third quarter of 2025. These results reflect a seasonally strong third quarter and ongoing strong demand for our products. Year-to-date through the third quarter, SkyWest has achieved more than 185 days of 100% controllable completion, a significant accomplishment with over 2,500 daily scheduled departures. Our people continue working with focus and teamwork to plan, execute and deliver an exceptional and consistent product. I want to thank our team of nearly 15,000 aviation professionals for their continued teamwork and dedication to excellence. Our teams have delivered well despite the ongoing federal government shutdown in navigating the challenges of a strained ATC system with professionalism and vigilance. We're working with each community we serve and evaluating our capabilities in the event of a longer-term government shutdown. It is our intent to honor our service commitments, including those under the Federal EAS program who rely on SkyWest reliable air service as an essential economic lifeline. Also during the third quarter, the Department of Transportation finalized SkyWest Charter or SWC's commuter authorization. This approval comes after a lengthy review process that took over 3 years, and we look forward to the future opportunities this authorization will provide. SWC is in the midst of busy sports charter season and we are evaluating additional opportunities this commuter authority will provide. You'll recall last quarter, we announced an agreement to purchase and operate 16 new E175s under a multiyear contract with Delta, with deliveries expected to begin in 2027. We also secured firm delivery positions with Embraer for 44 more E175s from 2028 to 2032. As we shared previously, it is our intent to deliver those aircraft. These agreements continue to deliver unparalleled fleet flexibility for the future, and that flexibility has never been more important. With today's announcement to extend CRJ200s with United and our continued deployment of additional CRJ550s for our partners, we expect our existing CRJ fleet to produce accretively well into the next decade. In the near term, we anticipate our remaining Embraer deliveries scheduled for this year will be delivered in fourth quarter or early 2026. Demand for our product is very strong, and SkyWest continues to lead our segment in the industry in service and in the value of our diverse assets. We remain disciplined and steady as we execute on our growth opportunities to: one, restore or bring new service to underserved communities; two, redeploy and fully use our existing fleet; and three, prepare to receive our deliveries in the coming years for a total of nearly 300 E175s by the end of 2028. We have spent several years strengthening our balance sheet and fleet flexibility as well as reinvesting in our future growth. Overall, with our well-positioned fleet operation and our strong partnerships and demand, we remain optimistic about 2026. We continue to play the long game and to invest in our fleet and future to ensure we are in the best possible situation to respond to market demands. Rob will now take us through the financial data. Robert Simmons: Today, we reported a third quarter GAAP net income of $116 million or $2.81 earnings per share. Q3 pretax income was $157 million. Our weighted average share count for Q3 was 41.4 million, and our effective tax rate was 26%. Let's start today with revenue. Total Q3 revenue of $1.1 billion is up from $1 billion in Q2 2025 and up 15% from $913 million in Q3 2024. Q3 revenue includes the contract revenue of $844 million, up from $842 million in Q2 2025 and up from $761 million in Q3 2024. Prorate and charter revenue was $167 million in Q3, up from $145 million in Q2 and up from $123 million in Q3 2024. Leasing and other revenue was $39 million in Q3, down from $48 million in Q2 and up from $29 million in Q3 2024. These Q3 GAAP results include the effect of recognizing $17 million of previously deferred revenue this quarter, down from the $23 million recognized in Q2 2025. As of the end of Q3, we have $269 million of cumulative deferred revenue that will be recognized in future periods. We anticipate recognizing approximately $5 million to $15 million of previously deferred revenue in Q4, subject to production levels and other factors. Now let's discuss the balance sheet. We ended the quarter with cash of $753 million, up from $727 million last quarter and down from $836 million at Q3 2024. The ending cash balance for the quarter included the effects from: one, repaying $112 million in debt; two, buying back 244,000 shares of SkyWest stock in Q3 for $27 million. With the volatility in the equity markets in Q3, we opportunistically repurchased 25% more shares than we bought in Q2. As of September 30, we had $240 million remaining under our current share repurchase authorization. And three, investing $122 million in CapEx, including the purchase of used CRJ aircraft spare engines and other fixed assets. We ended Q3 with debt of $2.4 billion, down from $2.7 billion as of 12/31/2024. Cash flow is obviously an important component of our capital deployment strategy. We generated approximately $500 million in free cash flow in 2024 and deployed it primarily to delever and derisk the balance sheet to the benefit of our partners, our employees and our shareholders. We generated nearly $400 million in free cash flow in the first 3 quarters of 2025, including $144 million in Q3. Our balance sheet and strong liquidity are powerful tools as we pursue a variety of growth and capital deployment opportunities, including acquiring and financing 30 additional E175s to be placed under our flying agreements by the end of 2028 and repaying approximately $500 million in debt in 2025. As we remain focused on improving our return on invested capital, we'd like to highlight the following: both our debt net of cash and leverage ratios continue at favorable levels at their lowest point in over a decade. Our total debt level is $1 billion lower today than it was at the end of 2022 in spite of acquiring and debt financing 9 E175s during that time. We anticipate that total 2025 capital expenditures funding our growth initiatives will be approximately $550 million, including the purchase of 5 new E175s, CRJ900 airframes and aircraft and engines supporting our CRJ550 opportunity. This implies approximately $190 million in CapEx in Q4. We are scheduled to take delivery of 3 E175s in Q4 2025 and 11 E175s during 2026. We expect approximately $575 million to $625 million in CapEx in 2026. Consistent with our policy and practice, we're not giving any specific EPS guidance today, but let me give you some updated color on Q4 and some commentary on 2026. We now anticipate our 2025 block hours to be up approximately 15% over 2024. We now expect our 2025 GAAP EPS could be in the mid-$10 per share area for the year. This implies Q4 EPS in the $2.30 area. For 2026, we expect to see low-single-digit percentage growth in block hours translate into mid-to-high single-digit percentage growth in EPS in the area of $11. For modeling purposes, we anticipate our maintenance activity in 2026 will continue approximately at current rates as we invest in bringing more aircraft back into service. We also anticipate our effective tax rate will be approximately 26% to 27% for Q4 and in the area of 24% for 2026. We are optimistic about our growth possibilities going into 2026, including the following 3 focus areas: First, growth in our ability to increase service to underserved communities, driven partially by the redeployment of approximately 20 parked dual-class CRJ aircraft; second, good demand for our prorate product; and third, placing 14 new E175s into service for United and Alaska by the end of 2026 and 16 new E175s for Delta in 2027 and 2028. We believe that our strong balance sheet, operating leverage, free cash flow and liquidity and the actions we will be taking to deploy our capital against a variety of accretive opportunities will position us well to drive total shareholder returns. Wade? Wade Steel: Thank you, Rob. Last quarter, we announced a new flying agreement with Delta for 16 new E175s under a multiyear flying contract. The 16 new E175s are expected to replace 11 SkyWest-owned CRJ900s and 5 CRJ700s that we are currently operating. We expect the 16 new E175s will be delivered in 2027 and 2028. We expect to redeploy the 16 SkyWest-owned CRJ aircraft with our major partners. We also currently operate 24 Delta-owned CRJ900s. We anticipate most of these aircraft will be returned to Delta over the next couple of years and are preparing to return 4 of them during the fourth quarter of this year. Today, we announced an agreement with United to extend up to 40 CRJ200s into the 2030s. These aircraft were set to expire at the end of this year, and we are pleased that the continued -- we are pleased with the continued strength of our United agreement. As we previously announced, we have a multiyear flying agreement for a total of 50 CRJ550s with United. As of September 30, we had 21 CRJ550s under contract and expect to operate 30 by the end of this year, with the last 20 entering into service during 2026. We also have 20 E175s coming up for contract extension in 2026 with United. We are currently in discussions to extend these aircraft and look forward to enhancing our partnership with United. We also began a prorate agreement with American during the second quarter. We are currently operating 4 aircraft under this agreement with up to 9 anticipated by the middle of next year. We are very excited to expand our relationship with American. We currently have 74 E175 on firm order with Embraer, including 16 for Delta, 13 for United and 1 for Alaska. We expect delivery of 3 aircraft during the fourth quarter and 11 next year. We did not receive any E175s during the third quarter. And as we continue experiencing delivery delays with Embraer, we expect that some of the aircraft previously planned for this year will push into 2026. Let me talk a little bit more about our firm order of 74. Of the 74, 30 are allocated to major partners and 44 have not been assigned yet. Our long-term fleet plan has positioned us well and re-fleeting continues to be an important part of that strategy. This order locks in delivery slots starting in 2027 through 2032. However, the order is structured with good flexibility to defer or terminate the aircraft in the event we don't arrange for a partner to take them. After we finish the Delta deliveries expected in 2028, our E175 fleet total will be nearly 300, continuing to enhance SkyWest's position as the largest Embraer operator in the world. Let me review our production. Q3 block hours were up 2% compared to Q2 2025. Based on our current Q4 schedules from our major partners, we anticipate a 4% decrease in Q4 as compared to Q3. This decrease is due to the normal seasonality we see in our business. For the full year, we anticipate an increase of approximately 15% in 2025 compared to 2024, similar to our 2019 levels. We anticipate that our 2026 block hours will be up low-single-digits compared to 2025. For 2026, we anticipate taking delivery of 11 new E175, placing 20 CRJ550s into service and capitalizing on strong prorate demand. These increases are offset by the return of approximately 24 Delta-owned CRJ900s over the next couple of years. Our revenue seasonality has returned to the model as utilization improves during the strong summer months. We still have approximately 20 parked dual-class CRJ aircraft that will be returned to service. Many of these aircraft are currently under flying agreements and will begin operating in late 2025 and 2026. We also have over 40 parked CRJ200s, further enhancing our overall fleet flexibility. Under a previously announced agreement with another regional carrier, we expect to purchase 30 used CRJ900 airframes for $29 million. We expect to utilize many of these airframes for parts to mitigate any supply chain challenges we may face over the next few years. We do anticipate operating 6 of these aircraft in the future. As of September 30, we had closed on 18 of these aircraft. As far as our prorate business, demand remains extremely strong with great community support. We are seeing opportunities to return SkyWest service to several communities and we will continue to work with the airports we serve in the best way to expand our service. As we discussed last quarter, the increase in our prorate business will reintroduce more seasonality into our model. Consistent with the airline industry, we expect Q2 and Q3 to be strong revenue quarters and Q1 and Q4 are softer. We feel good about our ongoing efforts to reduce risk and enhance fleet flexibility and remain committed to continuing our work with each of our major partners to provide strong solutions to the continued demand for our products. Robert Simmons: Okay. Operator, we're now ready for our Q&A session. Operator: [Operator Instructions] Your first question comes from Tom Fitzgerald from TD Cowen. Thomas Fitzgerald: It seems like a really constructive outlook for 2026. I was just wondering if you'd mind walking us through some of the puts and takes on the fleet and the mix benefit you guys get as you bring on more E175s and then some of the CRJs come out. Wade Steel: Yes. Tom, this is Wade. I can give you a little bit more color on that. As we talked about, we still have CRJ550s that are parked or being transitioned. So we still have -- by the end of the year, we think there'll be additional 20 that we'll put into service during 2026. We have 14 more E175s that need to go in. 3 of them, we believe, will go in, in the third -- or in the fourth quarter of 2025 and then 11 more in 2026. And then we also have strong prorate demand. As we said, we believe there'll be some increase in our prorate flying during 2026. Some of those will be offset -- some of those increases will be offset by some of the Delta-owned CRJ900s that we have that will be going back to Delta, and we've already started returning a few of those, and we think 4 of those will go back by the end of this year. So I hope that helps, Tom. Thomas Fitzgerald: Yes, yes. That's very helpful. And then I guess maybe just on prorate, where -- as a percentage of like where you were pre-pandemic, I just wonder if you'd mind updating us on where prorate stands today? And then I guess maybe unpacking a little bit more like the opportunities you see next year. Wade Steel: Yes. So we're about at 70% of where we were at in 2019 pre-pandemic. We're seeing strong demand throughout the whole country on prorate. There's still a lot of opportunities with small community service, both enhancing frequency and then also restoring dots on the map. And so we are working with each of our major partners on prorate agreements. As I said, we do a lot of that for United. We also have started an agreement with American. We also do that with Delta as well. So all of our major partners, we're working with them on additional dots on the map. And so we're excited about the opportunities that are in front of us and we'll continue to execute on those. Operator: Your next question comes from the line of Mike Linenberg from Deutsche Bank. Michael Linenberg: Chip, can you just update us on the EAS funding? I think the last I heard was that they had found money that would get you into November. Where -- what's the latest on that? They seem to be finding pockets of money from various activities, whether it's the military or whatever. Where do we hit the wall on that? And then what's the mechanism if you continue to fly and serve but not receive a subsidy? What's the recourse for like SkyWest to get -- to ultimately get repaid or maybe not? Russell A. Childs: Yes, Mike, those are outstanding questions and something that's very pertinent to today. The latest that we've heard is that we believe that there's funding for the program through the 18th of November. So that gives us a lot of good leeway for the government to continue to deal with this shutdown. We've said early on since when it started, like we really value the communities that we serve. We know that through the captain shortages and that type of stuff, it's a difficult process to make sure we're executing on our commitments, but we are committed to the communities as much as we possibly can, not knowing how long this is going to go on. And after the 18, I think the message has been pretty clear. It's unsure if we will get reimbursed or not, but it is clearly our intention to continue to fly and execute on some of the commitments that we've made with these communities. And if it continues to go on without funding after November 18, we'll see what we can do to best serve those communities. But it's going to take a conversation likely, because clearly, the essential air service communities do need the subsidies to make it viable. We're trying to develop them to where they can continue to be stronger and stronger, but we still definitely need those subsidies, and we'll work with the communities depending on how long this shutdown goes. So from that perspective, I hope it's clarifying. We're all over working with our partners and the communities and the associated government agencies that we can do under the circumstances. But as of now, we feel pretty good about at least the current short-term time line. Michael Linenberg: Okay. Just my second question to Wade. The multiyear agreement with United on the CRJ200s into -- I heard -- I think I heard the 2030s. So obviously, a much longer time frame than I think anybody has anticipated about these airplanes. You currently have 80 with United, 50 under contract, 30 under prorate. Presumably, the 40 that are extended, are those all contract or is that a mix of contract and prorate? Wade Steel: Yes, Mike, that's a great question. So the 40 that were extended are all contract airplanes. So we'll continue to fly the prorate, expand the prorate. But the 40 contract, as you said, they're extended into the 2030s and we're excited about continuing to enhance our partnership with United on all of that. Michael Linenberg: Okay. I just to follow-up on that, though, you said expand the prorate. So it sounds like you're going to go from maybe a mix of 50-30 potentially to 40-40. Is that a reasonable potential? Wade Steel: Yes. Directionally, I think we'll continue to -- as we said, we have 40 parked CRJ200s still available to us. There's still great opportunities. Small communities need air service. So we will continue to find opportunities. But yes, I like your breakdown. I think it's directionally correct. Michael Linenberg: Okay. And then just my last one. I hate to ask all these questions, but the nuances, there are just so many from this call. The prorates going into American, it looks like they're all CRJ900s, at least, and I want to confirm that. But when I think about your prorate business historically, it was single class with CRJ200s. It now seems like we're moving into a prorate world of dual-class CRJ900s. And as we think about just the upgauging across the industry among all the carriers, it seems like it may be opening up a whole bunch of opportunities in small and medium-sized markets to go in with dual-class on a prorate business. That seems like that's kind of a new angle for you. Can you just clarify or confirm what... Wade Steel: No, Mike, you're -- once again, you're spot on. You're very good at this. So the American agreement, yes, we are flying CRJ900s and prorate for American. As you know, their scope is a little bit unique. They also have the large RJ scope that could fly in 65 seats. And so if they hit their scope caps in their large RJ, we could obviously transition those still into a 65-seat dual-class fleet. We are also flying CRJ550s, as you said, for Delta under prorate. And so there's great opportunities there as well. So we do like it. We like the model. We like the opportunities and it does expand the opportunity into some different markets with the larger gauge airplanes for sure. So we're excited about what's going on. Russell A. Childs: Mike, this is Chip. I'll add on to that just real quick. I think you've heard some conversation from our partners about their premium service. Clearly, there's a strong element of what their models are evaluating and within their network of having good premium service throughout their networks. And I think it's being reflected in some of the deals that we're trying to do even in small communities. So your assessment -- is the momentum there is good. Operator: Your next question comes from the line of Savi Syth from Raymond James. Savanthi Syth: Actually, just following up a little bit on Mike's question. You addressed the EAS side of the government shutdown. I was curious if there's any other impacts that you're seeing or you're watching because you do fly into smaller communities. And just a little bit tied to that, too, just with the -- I think Brazil is still at a 10% tariff and just if there's any kind of meaningful impact on that or that's just something you're observing? Wade Steel: Yes, Savi, good question. Thank you so much. To start with, when it comes to TSA and ATC, we really hats off to the work being done with those groups to continue to show up and work and do the things we need to, to keep the NAS system operational. From our perspective on the small community [ stepping ], I mean, like I think we've said before, we fly to a lot of untowered airports. So from our perspective, a lot of our small community flying is actually not affected. But when you go back into the hub, it's every bit as affected as everything else. So look, we monitor all of the things that we do with our major partners along the same lines. We're in constant conversation with the authorities as well as with our partners to manage these operational challenges with the shutdown. And hats off to our people as well. They're doing a fantastic job. The team is doing a great job. And so far, things are really, really well. Relative to the 10% tariff, Brazil, I think the last time we were talking on the call, it was at 50%, and that was a no-go absolutely for us. We do not like 10%. But nonetheless, we have an environment where we've got to continue to execute on some of the commitments that we have, but also be strategic in how we're continuing to deploy our capital. And so far, we're going to continue to give our opinion about what the tariff is doing to small community service as well as us as a company. But at some point, you still have to continue to move forward and do the best that you can. And so it's not that we've accepted the 10% tariff, but in our strategy as of today, we are dealing with it. And I think that's what we would say is that we're dealing with it. But from our perspective, we do believe that this does have an impact on small community service in the long run. But our job is to be the best in the industry evolving, and we'll continue to evolve with some of these issues. Savanthi Syth: That's helpful. And just actually another follow-up on Mike's question as well. Just on the CRJ200 front, they are getting long in the tooth, but you're also having these opportunities, whether it's SkyWest Charter or continuing to operate them on the kind of the 50-seat side. Could you talk about like just if you look out to like '27, '28 or particular year -- a couple of years down the road, just where could we see that fleet size be considering that some probably have to get retired or maybe they don't. But just curious across the network, like how big do you see the CRJ fleet being or a range for it? Wade Steel: Savi, that's a great question. This is Wade. We just announced today, we extended 40 of those through the early 2030s. The prorate demand is still very strong that we have today in SkyWest Charter, the demand is very strong in all of that. So between all of that, we do anticipate flying somewhere around 100 CRJ200s well into early 2030s. We're investing in maintenance. We've invested in these engines. A few quarters ago, we were talking about 5 million cycles that we have on those engines that we still have. We've obviously reduced that number as we continue to fly, but we have definitely made a lot of investments in that airframe to continue to make that work and continue to have it go. We're also investing in the customer experience and other things on that. So we're -- we think that airplane, the CRJ200, is going to go for well into the 2030s. Operator: Your next question comes from the line of Duane Pfennigwerth with Evercore ISI. Duane Pfennigwerth: Just focus on the contractual capacity purchase business. I wonder if you could speak more comprehensively about net fleet additions for 2026. You noted the 11 E175 deliveries in the table. You talked about 20 additional 550s. I understand there can be movement between now and next year. But based on what you know today, what else will be added? And what will likely be rolling off? How do we think about that net fleet change? Wade Steel: Yes. No, that's a great question. We talked about it a little bit in my prepared remarks. Like you said, we have 20 CRJ550s that are on the books that are coming in next year. We have the 11 E175s. And then we have the 24 Delta-owned airplanes that are coming off over the next couple of years. So net-net, it's flattish to small increases in our capacity purchase flying next year just when you net it all up. So small -- like we said in my prepared remarks, it's low-single-digit growth next year in the block hours. Duane Pfennigwerth: Got it. Got it. And then in the table, I wonder for the deliveries, do those numbers -- like are there options embedded in that 40 or are there options over above the numbers in that table? Wade Steel: You're talking about the CRJ200s, the 40? Duane Pfennigwerth: Sorry, the E175s. Are those firm orders or are there options embedded in the future? This 40 and the 10 for 2028 and the 40 thereafter, do those include options? Wade Steel: Those do not include options. Those are firm orders. Those will be very helpful in fleet replacements and continuing to enhance the fleet. So those are all firm orders. We do have flexibility. They are not allocated to our partners yet. There -- I said in my prepared remarks that there are 44 of those that have not been allocated at this point. And so we'll continue to work with our partners to allocate those, but we do have flexibility if we do not get them allocated to a partner to defer or cancel those. But they are firm orders going through 2032. Duane Pfennigwerth: Great. And then just one last one. Does the mid-to-high single-digit EPS growth guidance for '26, what does that assume around about incremental buyback, if anything? Robert Simmons: Yes, Duane, this is Rob here. So in terms of the EPS denominator, we'll continue to be opportunistic as we have been in the past. As you've seen, this quarter, we bought -- in a fairly volatile market, we bought another 25% more shares than we did the quarter before. So it will depend on the markets, but we'll continue to be opportunistic in how we look at deploying capital against share repurchase. Operator: And with no further questions in queue, I would like to turn the conference back over to Chip Childs, CEO, for closing comments. Russell A. Childs: Thank you, Colby. I appreciate really everybody's interest in the call today in the quarter. We obviously had a very good quarter. We've got some good challenges ahead of us. I want to reiterate that we continue to play the long game and make sure that some of the current effects that are happening to the industry do not affect our long-term strategy. We know that we can evolve with the best aviation professionals in the world, continue to do the things in which we need to, to provide good shareholder value as well to that as our partners. And with that, we will end the call and see you next quarter. Thank you. Operator: This concludes today's conference call. You may now disconnect.
Operator: Thank you for standing by, and welcome to Westwood Holdings Group's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Jill Meyer, Chief Legal Counsel. Please go ahead. Jill Meyer: Thank you, and welcome to our third quarter 2025 earnings conference call. The following discussion will include forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those contemplated by the forward-looking statements. Additional information concerning the factors that could cause such a difference is included in our press release issued earlier today as well as in our Form 10-Q for the quarter ended September 30, 2025, that will be filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to place undue reliance on forward-looking statements. In addition, in accordance with SEC rules concerning non-GAAP financial measures, the reconciliation of our economic earnings and economic earnings per share to the most comparable GAAP measures is included at the end of our press release issued earlier today. On the call today, we have Brian Casey, our Chief Executive Officer; and Terry Forbes, our Chief Financial Officer. I will now turn the call over to Brian Casey. Brian Casey: Good afternoon, and thank you for joining us for Westwood's Third Quarter 2025 Earnings Call. I'm pleased to share this quarter's results and key developments as well as our outlook for the remainder of the year. Before we dive into the details, I'd like to highlight several key points from the quarter. Our enhanced midstream income ETF, MDST, surpassed $150 million in AUM. We recorded positive net flows in energy and real assets. Our private fundraising continues to exceed our annual goal by a significant margin. WEBs launched 11 new sector ETFs. Income Opportunity maintained its top decile since inception ranking and earned a Morningstar Ratings upgrade to four-stars. We've all witnessed a broad market rally this quarter, driven by sustained enthusiasm for artificial intelligence, strong corporate earnings and a pivotal interest rate cut by the Federal Reserve. Strength in cyclical areas like industrials and consumer discretionary all pointed to widespread confidence in economic growth. However, large cap gains remain highly concentrated in a handful of mega cap stocks. For small caps, the long-awaited rotation of leadership from large-cap giants to smaller companies finally showed up. And once the Fed cuts rates in September, the bond market responded by sending treasury yields lower. High-yield and corporate credit outperformed government bonds as recession fears eased and gold broke through $4,000 given the prospect of lower real yields and global U.S. dollar weakness. Turning to our long-term performance. Our investment professionals delivered solid results across multiple strategies and asset classes. In our U.S. value strategies, our SMidCap strategy continues to post strong rankings and is firmly positioned in the top third over trailing 3-year periods. Our multi-asset strategies continue to deliver compelling results. Our income opportunity and multi-asset income funds achieved top third rankings for the trailing 3-year period and top half over the trailing 5-year period in the Morningstar universe. Our Income Opportunity Fund, WHGIX, also recently received a Morningstar Ratings upgrade to four stars. Within our salient strategies, our energy products continue to perform very well. Our MLP SMA strategy remains ahead of the Alerian Midstream Index across trailing 3-year and 5-year periods. Enhanced Midstream Income, MDST and Enhanced Energy Income, WEEI, have delivered solid yields to income-focused investors with MDST maintaining an annualized indicated dividend yield exceeding 10%, while WEEI has an indicated dividend yield of over 13%. As seasoned value investors, we seek to unlock opportunities in mispriced, misunderstood and often less popular names. In times like these, fundamentals are often brushed aside, allowing for emotion and momentum to dominate. But as students of market history know, this stage of the current market cycle typically precedes periods when quality and value regain momentum. On balance, we remain cautiously optimistic with below-trend growth, sticky inflation and elevated market valuations concentrated in a handful of mega cap tech stocks. We believe that investment opportunities are shifting. Undervalued segments, especially small-cap stocks and the broader value style are beginning to look more attractive. As markets evolve and investors rotate away from the most expensive segments, our focus on high-quality businesses with attractive relative valuations positions us well. Quality and attractive relative value have consistently outperformed across market cycles, and we fully expect this dynamic to reassert itself as the market environment matures. Our distribution channels delivered impressive results in the third quarter, building on the momentum we've established throughout the year. Year-to-date net sales through September 30 improved versus last year by 17% and by 57% versus 2023. Our intermediary and institutional channels have contributed equally to this performance. Our institutional channel had negative net flows this quarter, primarily driven by sub-advisory business rebalancing. Our pipeline remains robust across value and energy strategies with several new opportunities added during the quarter. Looking ahead in the institutional space, we anticipate winning more mandates in SMidCap for defined contribution plans, supported by the largest national consultants. We continue to have constructive meetings regarding our managed investment solutions capability, and there's continued interest in our energy offerings for both public and private strategies. We anticipate continued stability with our existing clients as we expand our presence with public plans, OCIOs and single multifamily offices. The intermediary channel had particular success with our private fundraising initiative, which has so far exceeded our 2025 annual goal by 1.5x through September 30. And our private funds have earned approval on several broker-dealer platforms, further expanding our distribution capabilities. Our energy and real asset strategies continue to lead Westwood in both gross and net sales in 2025, and our enhanced midstream income ETF, MDST continues to gain approvals from major national platforms. Putting it all together, the tailwinds in energy, combined with the breadth of Westwood offerings are appealing to intermediary clients, particularly in the family office and RIA space. Our well-rounded offerings within the multi-asset and tactical suite of products are well positioned to ride out equity market volatility. Our Wealth Management business is on track to meet our client retention goals for the calendar year. We've reduced costs versus last year, and this trend will continue throughout the rest of the year. The operational efficiencies we're building will underpin early wins in 2026, and we're continuing to evaluate the best path to enhance our services as we move into 2026. Beyond our core business performance, several transformative initiatives and milestones demonstrate our continued commitment to innovation and strategic growth. Our ETF platform expansion. Our MDST ETF reached a significant milestone, surpassing $150 million in assets under management. MDST was the second best-selling fund compared to peer midstream funds in September, accounting for approximately 30% of midstream product ETF flows. Since inception, MDST has consistently delivered on its objective to provide a steady stream of monthly income with an annualized distribution rate exceeding 10%. The fund's rapid growth and enthusiastic investor engagement underscore the increasing demand for innovative income-generating strategies in today's evolving market environment. WEBs innovation, Westwood and WEBs Investments launched 11 new sector funds during the quarter. The new WEBs defined volatility sector ETFs, a suite of 11 funds, which apply the defined volatility strategy to individual sectors within the S&P 500. By expanding this suite, we can offer investors more precise control over risk and sector exposure using a transparent framework that adjusts portfolio exposure based on real-time market volatility. Each fund tracks a defined volatility index created by Syntax with each index providing investment exposure to an underlying select sector SPDR ETF. The WEBs flagship ETFs, DVSP and DVQQ, which launched late last year, demonstrated the effectiveness of a volatility managed approach this past quarter. These ETFs also implement a rules-based strategy of volatility-adjusted exposure, adding market exposure when volatility is low and reducing market exposure when volatility is high. After underperforming their underlying ETFs, SPY and QQQ during a very choppy first half that experienced elevated market volatility, our defined volatility approach really proved its worth this quarter. As volatility calmed down, DVSP outperformed SPY by 636 basis points and DVQQ outperformed the QQQ by 726 basis points. In summary, we remain confident in our strategic positioning and the value we provide to our clients. Our year-to-date performance demonstrates meaningful progress with net sales improving. Our diversified platform spanning traditional value strategies, innovative ETF products, energy and real asset solutions, custom index solutions, private investments and wealth management services positions us to take advantage quickly of evolving market dynamics. With strong long-term performance rankings across our multi-asset and energy strategies, growing momentum in both institutional and intermediary channels and innovative new products gaining marketplace traction, we believe Westwood is well positioned to deliver value to our clients and shareholders. Thank you for your continued support and confidence in Westwood. I will now turn the call over to CFO, Terry Forbes. Terry Forbes: Thanks, Brian, and good afternoon, everyone. Today, we reported total revenues of $24.3 million for the third quarter of 2025 compared to $23.1 million in the second quarter and $23.7 million in the prior year's third quarter. Revenues were higher than both periods due to higher average assets under management. Our third quarter income of $3.7 million or $0.41 per share compared with $1 million or $0.12 per share in the second quarter on higher revenues and unrealized depreciation on private investments, partially offset by higher income taxes. Non-GAAP economic earnings were $5.7 million or $0.64 per share in the current quarter versus $2.8 million or $0.32 per share in the second quarter. Our third quarter income of $3.7 million or $0.41 per share compared favorably to last year's third quarter income of $0.1 million due to 2025's higher revenues and unrealized depreciation on private investments and changes in the fair value of contingent consideration in 2024, all partially offset by higher income taxes in 2025. Economic earnings for the quarter were $5.7 million or $0.64 per share compared with $1.1 million or $0.13 per share in the third quarter of 2024. Firm-wide assets under management and advisement totaled $18.3 billion at quarter end, consisting of assets under management of $17.3 billion and assets under advisement of $1 billion. Assets under management consisted of institutional assets of $9 billion or 52% of the total, wealth management assets of $4.3 billion or 25% of the total and mutual fund and ETF assets of $4 billion or 23% of the total. Over the quarter, our assets under management experienced net outflows of $0.7 billion and market appreciation of $0.7 billion, and our assets under advisement experienced market appreciation of $30 million and net outflows of $3 million. Our financial position continues to be solid with cash and liquid investments at quarter end totaling $39.2 million and a debt-free balance sheet. Happy to announce that our Board of Directors approved a regular cash dividend of $0.15 per common share payable on January 2, 2026, to stockholders of record on December 1, 2025. That brings our prepared comments to a close. We encourage you to review our investor presentation we have posted on our website, reflecting quarterly highlights as well as a discussion of our business, product development and longer-term trends in revenues and earnings. We thank you for your interest in our company, and we'll open the line to questions. Operator: [Operator Instructions] Our first question comes from the line of Macrae Sykes of GAMCO. Macrae Sykes: Congratulations on the ETF success. That was where my question is. If you could just talk about how you're leaning into the success to leverage it further at this point. It seems like you're accelerating your inflows. So what are you doing to make that even more fruitful? And is there any capacity constraint with respect to the capital coming in and investing it? Brian Casey: Mac, thanks for your question. Yes, so we have worked really hard to grow our ETF business, and we've done it through a lot of the traditional channels. And as you know, each of the various platforms have different thresholds that you have to meet in order to get your ETF onto the platform. And some of them have fairly low bars where you need $25 million in assets and a certain number of shares traded per day. And some have very high bars with a high level of assets and a lot of shares traded per day. So we've been doing it that way. And we've got, of course, our distribution team is out calling on both RIAs and the platforms. So we've had some success there, and I'm really pleased to report that we are very close to gaining access to one of the largest wirehouse platforms in the world. And we've worked really hard to get there, and we feel confident that, that will happen over the next month or 2. Operator: Thank you. I would now like to turn the conference back to Brian Casey for closing remarks. Sir? Brian Casey: All right. Well, thanks, everyone, for listening to our call today. Certainly, the outflows this quarter were disappointing, but fortunately concentrated in our large cap area, which is our lowest fee product. Our pipeline for new business remains very strong at $1.6 billion. We have a one but not yet funded mandate of close to $450 million for our SMidCap product. Our private fundraising is going exceptionally well, and we'll have more to report to you early next year. And we continue to look for opportunities to launch ETFs that are income focused and leverage our broad investment capabilities. And performance for our MIS client in real assets and infrastructure product has been excellent, and our prospect list has really grown, and we feel really close to landing our first institutional client. And then in closing, I do want to acknowledge the passing of our dear friend and colleague, Rolanda Williams. Rolanda joined Westwood 26 years ago as our receptionist. And through her unwavering dedication, sharp intellect and warm spirit, she rose to lead support for our sub-advisory client business and her journey was a testament to her strength, resilience and commitment to excellence, and Rolanda was really more than a colleague. She was a force. Her presence lit up every room, her laughter was contagious and her kindness touched everyone who had the privilege of knowing her. She was deeply loved and her legacy will live on in the hearts of all of us at Westwood, and we extend our heartfelt condolences to her family and loved ones. Rolanda will be profoundly missed but never forgotten. Thanks for listening to our call today. Please reach out to me or Terry, if you need anything. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: " Renee Aguiar-Lucander: " Monika Tornsen: " Richard Philipson: " C. Ballantyne: " Farzin Haque: " Jefferies LLC, Research Division Sushila Hernandez: " Richard Ramirez: " Matthew Phipps: " William Blair & Company L.L.C., Research Division Operator: Good day, and welcome to the Hansa Biopharma Quarter 3 2025 Results Conference Call. Please note this event is being recorded. [Operator Instructions]. I would now like to turn the conference over to Hansa Biopharma's CEO, Renée Aguiar-Lucander. Please go ahead. Renee Aguiar-Lucander: Thank you very much, Operator. Good afternoon, good morning. Welcome to the Hansa Biopharma conference call to review Q3 and results for the first 9 months of 2025. I'm Renee Aguiar-Lucander, CEO for Hansa Biopharma. And joining me today is Evan Ballantyne, CFO; Richard Philipson, Chief Medical Officer; and Maria Tornsen, Chief Operating Officer and President of the U.S. Please turn to Slide 2. Please allow me to just quickly draw your attention to the fact that we will be making forward-looking statements during the presentation, and you should therefore apply appropriate caution. Please turn to Page 3, and today's agenda. Today, we'll discuss the progress we've made in the 9 months of 2025 and review the quarterly performance. I'll also share my reflections and insights based on my first 6 months in the role. The presentation itself should take roughly 20 minutes, after which there will be an opportunity to ask questions during a Q&A session. Please turn to Page 4. Over the past several months, Hansa has been through quite a transformation, including a significant reshaping of the capital structure involving debt restructuring and significant strengthening of the cash position through 2 successful equity raises. In addition, the reporting structure of the company has been changed to provide for enhanced accountability and transparency as well as result in a simpler and leaner organization. We have in parallel added key competencies to the senior team, which are crucial for a successful BLA filing review and prelaunch preparations as well as the requirement for a successful product launch subject to approval in the U.S. I believe that the market opportunity in the U.S. is very substantial, and this brings me to the last but ultimately most important point and key event of this quarter, the successful outcome of the Phase 3 ConfIdeS trial. This trial randomized patients between 2022 and 2024 with a 12-month follow-up period, and we're truly delighted that we could report at such a strong p-value of 0.0001, which I believe reflects the unmet medical need for these highly sensitized patients. And we're now looking forward to submitting the BLA filing before the end of the year. Moving to Europe. This summer quarter reflected lower-than-expected transplant rates, further impacted by the absence of transplants in Germany due to the situation flagged already in Q2 as well as continued challenges related to local reimbursement. I'll comment further on this shortly. Regarding pipeline developments, we were excited to report the very first clinical data from the gene therapy area, which clearly showed imlifidase's ability to successfully reduce antibodies related to AAV vectors by over 95% reduction from baseline and thus enable dosing of patients who otherwise would have been excluded. These data, in conjunction with further clinical data obtained from our collaboration with Généthon, bolsters our view that gene therapy could become a significant future market opportunity for Hansa. Please turn to Page 5. As I already stated in my Q2 address, I was expecting Q3 to be a weak quarter for reasons which should not be a surprise to anyone who's actually tried to obtain a hospital appointment during the summer in many European countries. This actually ranges from difficult to close to impossible, except for reasonably acute situations in many regions. However, this was exacerbated by a variety of country-specific factors already mentioned. As we've now had the opportunity to review the situation in Europe somewhat in more detail over the last couple of months, our conviction regarding the significant growth opportunity has not been diminished, but we do believe that there are several areas which can be improved and strengthened to enhance both performance and predictability. We have identified several of these and intend to start rolling them out in this quarter. However, as a backdrop to these initiatives, I'd like to review some of the key situational facts of the kind of European market. So, as I've already kind of stated previously, at the time of launch in Europe, there was limited clinical data available. There were only 2 sites that were actually in Europe, which participated in the Phase 2 trial. So very few KOLs had any experience of this procedure in Europe at the time of launch. There was also obviously need for drafting and implementation of guidelines. And as we know, Europe has a long and complex reimbursement process to deal with. Due to the fragmentation of the market, obviously, there are different national organ allocation systems, and they do not all kind of operate in the same way. And obviously, at the same time, as the company was really challenged with the kind of limited KOL support and experience and clinical data, there was also a large clinical study initiated at 23 of the European sites, many of them very large academic institutions to recruit 50 patients in a transplant trial. There's also been the strategic decision earlier to go very broad in Europe rather than have a more focused approach. So, what we are going to do since we do believe that there is an extremely large growth potential based on where we are today, is to really review the organizational structure overall. We're looking for accountability, focus and efficiencies, and we've identified some areas that we think would benefit to be strengthened. We're also going to invest in Europe in terms of systems, clarifying KPIs, reporting lines and provide additional education and training. We will obviously focus on dissemination of the clinical data that we now have in terms of the Phase 3, I do think that this kind of Phase 3 trial and the clinical data that stems from that will become extremely important in conversations with European KOLs and transplant surgeons. And we'll focus on all of that in terms of best practice and peer-to-peer interactions. So, in summary, we will be refining and implementing these activities over the next 3 months, and we'll keep you updated as we move through this process. Please turn to the next page. Following the strong Phase 3 data, I just wanted to provide a brief overview of the U.S. market opportunity, where there are several key differentiating factors from Europe, which we believe will impact both the potential size of the overall opportunity as well as the adoption rate compared to what we've experienced in Europe. So, a large, a significant differential is obviously that we have a large and robust clinical trial that just read out with data that's going to be available to the community prelaunch. As part of that, we also have a lot of KOL engagement and experience as part of the very large trial that's being conducted in the U.S. In terms of pricing, if we look at kind of reimbursement, obviously, the price that can be managed by the company will be based on research and the clinical and payer studies. There is a national organ allocation system which is centralized with clear guidelines for how these matches are being made and with also a specific kind of focus on highly sensitized patients. In terms of this we are going to focus on the 25 sites we were part of the Phase 3, which represent about 25% of all transplants in the U.S., where these transplant surgeons will be familiar with the procedure, and we'll have a subsequent rollout plan with an initial target of about 100 clinics. In addition, the data that will read out from the European-based PAES study will also be available; as will real-world data from Europe, which we hope will also in the near future, we will see in form of some publications. We have a well-researched, externally validated and structured launch plan, and we have very strong market analytics capabilities internally. There is an active patient advocacy in the U.S., strong kidney organizations and a clear physician demand for the product. So, in conclusion, we're extremely excited about the upcoming regulatory process and look forward to engaging with the FDA with a purpose and focus of bringing imlifidase to patients in the U.S. With that, I'll hand over to Maria, who will provide some more details on these topics. Monika Tornsen: Thank you very much, Renee. Next slide, please. Our Q3 performance was, as Renee mentioned just earlier, impacted by the seasonality and the pause of the German prioritized program for highly sensitized patients. As mentioned in our Q2 report, Germany paused participation in the Eurotransplant prioritized program earlier in the year. And as a result, we did not recognize any sales in Germany in Q3. The prioritized program continues in the other smaller countries in the Eurotransplant zone. While German physicians can still use IDEFIRIX in the normal ETKAS program, it will require publication and adaptation of new guidelines for broad adoption. And we, therefore, expect this to continue to have a negative impact in the near to midterm on our sales performance in Germany. We continue to work with physicians to understand the timing of these new guidelines, and we have also initiated various public affairs efforts to better understand how and when the prioritized program can be reinstated in Germany. In addition to Germany, our sales were also negatively impacted by regional dynamics in the Spanish market where the lack of transplant protocols in the region of Andalusia is limiting usage of IDEFIRIX. From a market access perspective, we have been very successful in gaining national reimbursement in 21 European and international markets. Over 90% of the European population are covered by national reimbursement. However, in some European markets, we also need regional reimbursement to enable IDEFIRIX usage. We still have some key regions in Europe where this reimbursement is lacking. And one such example is the Catalonia region in Spain, where the overall health care budget has been blocked at the regional level, impacting IDEFIRIX negatively. As Catalonia and Andalusia are two of the largest regions in Spain, our Spanish sales were lower than expected in Q3. Despite some of these market challenges, we have a strong support in many European and international markets with one example being France, a country where there are clear guidelines for IDEFIRIX usage, strong support from key opinion leaders, significant positive clinical experience over several years and a clear path to reimbursement. We are building on these positive experiences as we look at how we can optimize performance across Europe. As Renee mentioned earlier, Europe represents a significant growth opportunity and as such, we are implementing multiple activities to address the European performance. We are reinforcing our peer-to-peer education on guidelines and delisting practices, and we are arranging multiple educational events with one example being a large scientific event in November with around 80 European key opinion leaders. We're also, as mentioned earlier, reinforcing our public affairs efforts to address some of the systemic barriers we are observing in some key regions and markets. And finally, our market access team are working on addressing the regional access challenges mentioned earlier. Please turn to Slide 9. Let's now turn our focus to the U.S. market, which represents a significant opportunity for Hansa. As Renee mentioned, a few weeks ago, we presented positive top line data from ConfIdeS, our Phase 3 trial in highly sensitized kidney transplant patients. When we look at the U.S. market, it is important to remember that these highly sensitized patients have no approved desensitization therapy available today and the unmet need is therefore significant. There are approximately 15,000 highly sensitized patients with a cPRA over 80% in the U.S. today and more than 7,000 with a cPRA over 98% and 3,500 patients in the most sensitized group with a cPRA at 99.9% or above. In total, 100,000 patients are in the U.S. transplant waitlist. And each year, 45,000 patients are added to the waitlist with highly sensitized patients representing 20%. Unfortunately, due to the long wait list, each year, there are 10,000 patients who pass away or become too sick to transplant while waiting for an organ and the median wait time for an organ for these highly sensitized patients is seven years. Please turn to the next slide. With the recent announcement of the positive Phase 3 ConfIdeS data, our U.S. organization is focused on preparing for a potential launch in the second half of 2026, subject to FDA approval. As mentioned, the U.S. market represents a significant opportunity. And while there are important learnings from the European launch, there are also obvious reasons why the U.S. launch will be different. The market opportunity is significantly larger than in Europe. As you saw on the previous slide, there are today 15,000 highly sensitized patients in the U.S. wait list, and this list is growing each year. Unfortunately, 2,500 highly sensitized patients pass away while waiting for a matching organ or they become too sick to transplant each year. If we look strictly at the ConfIdeS criteria, cPRA over 99.9%, there are today 3,500 patients on this waitlist. Half of them have waited over seven years for a suitable organ, which is a sign of the tremendous unmet need that exists for these patients. The burden of being on dialysis should also not be underestimated. These patients need to undergo dialysis for several hours, multiple times a week, and the cost for Medicare is approximately $100,000 per patient per year for dialysis. For those patients who are fortunate to find a matching transplant, they will have a significantly better outcome, with more than 80% being alive after 5 years, compared to 40% on dialysis. The recent patient preference study also shows that these patients are waiting for an approved desensitization therapy, with 61% of U.S. patients today practically discussing this with their physician. While our European launch has been impacted by the regional market dynamics described earlier, the U.S. market is vastly different, and we should, therefore, expect a stronger launch. In the U.S., there is a national organ allocation system where highly sensitized patients are prioritized. As you heard earlier, this is one of the challenges we're facing in some European markets. There is also significant efforts from the current U.S. administration to improve transplant care and ensure better outcomes for patients and better usage of organs. From a market access perspective, we know that kidney transplants are covered by Medicare. Our market access team will work with various stakeholders to ensure adequate reimbursement through both outlier payments and NTAP, New Technology Add-On Payment. It is also worth noting that Hansa will enter the U.S. market with significantly more clinical experience and data compared to the situation we're launching in Europe. The ConfIdeS centers are collectively responsible for 25% of all transplants taking place in the U.S. each year. This puts us in a much better situation compared to the European launch, as these centers already have clinical experience using imlifidase and have seen the benefit of desensitizing their highly sensitized patients with imlifidase. As the U.S. market is highly concentrated, with 200 adult kidney transplant centers and 100 of these representing 80% of the transplant volume, this is a launch we can manage successfully ourselves with a small footprint. We expect to hire around 20 field-based key account managers who will be responsible for the sales of imlifidase. Finally, already today, we have a very experienced team leading this exciting launch. Current team members all bring significant therapeutic area experience and launch experience. Over the coming 12 months, we will also add to this team to ensure we are ready to launch Imlifidase successfully, assuming FDA approval. And with that, I would like to hand it over to our Chief Medical Officer, Richard Philipson, to discuss our pipeline. Richard? Richard Philipson: Thanks, Maria. So, I'm going to start by presenting a short summary of the efficacy and safety outcomes of the ConfIdeS study, which is a Phase 3 open-label randomized controlled study evaluating kidney function at 12 months as measured by estimated Glomerular Filtration Rate, or eGFR, in highly sensitized kidney transplant patients treated with imlifidase prior to transplantation compared to a control group. I'll begin with a brief summary of the study design. Patients considered potential candidates for the study were consented and entered the prescreening period. One or more unacceptable antigens were delisted from the patient's HLA profile to increase the likelihood of the patient receiving an organ offer. When an organ offer was received, patients entered screening and underwent a final evaluation of eligibility. Eligible patients were then randomized to the imlifidase arm or the control arm in a 1:1 ratio. The period of follow-up in the study was 12 months from the time of randomization. Patients randomized to the imlifidase arm accepted the organ offer and were treated with imlifidase. If treatment resulted in crossmatch conversion from positive to negative, and patients were transplanted and entered follow-up. Patients randomized to the control arm either accepted the organ offer, were treated with non-approved desensitization and then proceeded to transplant, or the organ offer was rejected and the patient waited for a more compatible organ offer or offers later in the 12-month follow-up period. Next slide. A total of 64 patients were randomized in equal numbers to either treatment with imlifidase or the control arm. So, there were 32 patients in each arm of the study. Two patients randomized to the imlifidase arm did not proceed to treatment. In one case, the organ offer was refused. In the other case, the patient withdrew consent to be treated with imlifidase. The overall rate of completion of the study was excellent; a total of 58 patients, or just over 90% in the study completed the 12-month follow-up period. The treatment groups were balanced with respect to sex and age. Overall, there are almost equal numbers of males and females in the study and the mean age of the study population was 45.3 years. The treatment groups were also balanced with respect to race and ethnicity and representative of our highly sensitized kidney transplant waitlist population. So with respect to the primary efficacy outcome at 12 months, mean eGFR was 51.5 mls per minute in the imlifidase arm compared to 19.3 mls per minute in the control arm, with a statistically significant and clinically meaningful difference between the 2 groups of patients of 32.2 mls per minute with a p-value less than 0.0001. This outcome reflects the excellent graft survival that was observed in the imlifidase treatment arm. So, looking at of the supportive analyses of the primary endpoint, these provide outcomes consistent with the primary analysis. So, when we performed an analysis of 12-month eGFR using a nonparametric test, which doesn't assume normally distributed data, the outcome remains statistically significant. Similarly, when we look at 12-month eGFR in patients transplanted based on organ offer randomization, again, the outcome remains statistically significant. These supportive analyses of the primary endpoint give us additional confidence in the robustness of the primary outcome. Also of note, a key secondary endpoint of dialysis [Break] significant with a p-value of 0.0007 in favor of imlifidase. Turning to safety. The tolerability of imlifidase was good. It was a low instance of infusion reactions and no infusions were interrupted due to infusion reactions. Infections observed in imlifidase-treated patients were typically not related to treatment. And the AE and serious adverse event profile of imlifidase reflected a population of patients undergoing kidney transplantation, and most serious adverse events were considered unrelated to imlifidase treatment. So in conclusion, with respect to the outcomes of the ConfIdeS study, the treatment arms were well balanced at baseline, and the demographic characteristics reflected a highly sensitized dialysis-dependent population waitlisted for transplantation. Retention in the study was excellent. Just over 90% of patients completed the study. The primary endpoint was statistically significant and showed a clinically relevant difference, where at 12 months, mean eGFR was 51.5 ml per minute in the imlifidase arm versus 19.3 ml per minute in the control arm. The tolerability of imlifidase was good and the safety profile was consistent with previous clinical trial experience, reflecting a population of patients undergoing kidney transplantation. Next slide. I want to turn now to our Phase 3 clinical trial in patients with anti-Glomerular Basement Membrane disease, also known as Goodpasture syndrome or Goodpasture disease. Hereafter, I'll call the condition anti-GBM. We have previously conducted an investigator-sponsored single-arm Phase 2a clinical trial in Europe in which a single dose of 0.25 milligrams per kilogram of imlifidase was given to 15 adults with circulating anti-GBM antibodies and an eGFR less than 15 ml per minute. All patients received standard of care treatment with cyclophosphamide and corticosteroids, but plasma exchange was only administered if anti-GBM autoantibodies rebounded. The primary outcomes in this study were safety and dialysis independency at 6 months. The study population comprised 9 men and 6 women with a median age of 61 years who were enrolled at sites in 5 countries in Europe. At the time of enrollment, 10 patients needed dialysis with 5 of these patients being anuric or oliguric. The remaining 5 patients had eGFR levels between 7 and 14 mls per minute at the time of enrollment. At 6 months, 67% of patients were dialysis independent, which is significantly higher when compared with an outcome of 18% at the corresponding endpoint in a historical control cohort. So based on the outcomes of this previously conducted Phase 2a study, we have now conducted a randomized open-label Phase 3 trial in 50 patients with anti-GBM in the U.S., U.K. and Europe, in which the primary endpoint is eGFR at 6 months, and the key secondary endpoint is the proportion of patients with functioning kidneys at 6 months. Patients randomized to the imlifidase arm received this treatment on top of standard of care, which is compared to a control arm of Standard of Care alone. In this study, Standard of Care comprises a combination of immunosuppressives, glucocorticoids and plasma exchange. We expect top line data from this study by the end of this quarter. So I'd now like to hand over to our Chief Financial Officer, Evan Ballantyne. C. Ballantyne: Thank you very much, Richard. Let's walk through the company's financial performance for Q3 and the year-to-date 2025 results. Next slide. Total revenue for Q3 2025 was SEK 31 million and was SEK 17.9 million or 37% below the same period a year ago of SEK 48.7 million. Contract revenues from Sarepta, which have been fully recognized, totaled approximately SEK 8 million in 2024 and accounted for a portion of this difference. IDEFIRIX product sales for Q3 2025 were SEK 30.1 million, which is 24% below Q3 2024 of SEK 39.8 million. Year-to-date, Q3 2025 product sales totaled SEK 143.6 million reflecting a 25% increase compared to the same period a year ago of SEK 114.5 million. As Maria mentioned, sales were negatively impacted in Germany by regional dynamics and in Spain by the lack of transplant protocols. Quarterly volatility reflects the unpredictability of the organ allocation market in Europe. We expect quarterly fluctuations to diminish over time once the post-approval efficacy study is completed and Hansa expands its market footprint. Next slide, Slide 21. For Q3 2025, SG&A expenses totaled approximately SEK 88.4 million, which is SEK 12.6 million or SEK 16.6 million unfavorable compared to Q3 2024. R&D expenses in Q3 2025 totaled approximately SEK 7.2 million and were SEK 9.4 million or 11.8% favorable compared to Q3 2025, '24. The Q3 2025 quarter-over-quarter changes in financial income and expense net compared to the same period a year ago were immaterial. Year-to-date, changes in financial income expense compared to the same period a year ago were primarily driven by favorable changes in the U.S. dollar exchange rate against the Swedish krona of SEK 141.6 million, noncash interest expense related to the NovaQuest note and a SEK 59.4 million charge taken by the company to reflect the NovaQuest loan restructuring modification. The company's Q3 2025 operating loss was approximately SEK 147.6 million and was SEK 30.7 million or 20.8% unfavorable compared to Q3 2024 of SEK 116.9 million. The year-to-date Q3 2025 operating loss of SEK 395.8 million was 17% favorable compared to the same period a year ago. On a year-to-date basis, Hansa's cost of sales was approximately SEK 10 million favorable compared to the same period a year ago. The company's gross margin for the 9 months ended September 30, 2025, was 60% compared to 50% for the same period in 2024. Slide 22, please. On a year-to-date basis, cash used in operations at Q3 2025 totaled approximately SEK 353.3 million, an improvement of SEK 173.8 million compared to the same period a year ago. For the period ended September 30, 2025, cash and cash equivalents totaled SEK 252.1 million. However, on a pro forma basis, cash and cash equivalents, including net proceeds from the October 1 capital raise amounted to SEK 888 million. Headcount at Q3 2025 totaled 133 employees. On a pro forma basis, headcount is 116, including 17 FTEs currently serving notice periods related to the Q2 restructuring actions. And now I'd like to turn the presentation back to Renee for closing remarks and Q&A. Renee Aguiar-Lucander: Thank you, Evan. Please turn the page. So, in summary, the business is in significantly better shape than it was 6 months ago with a strong balance sheet, clear organizational structure and focus, excellent Phase 3 data from ConfideS supporting a BLA filing with the FDA and an exceptionally strong and experienced senior team. Everybody on the team that you see on this slide has done this before. And that, in my view, is crucial for any successful execution in a complex environment. The European commercial business was continuing to show healthy growth on an annual basis, will fluctuate quarterly. However, based on the recent Phase 3 clinical data and the readout of the PAES study in combination with some key areas of investment improvement, we strongly believe that 2026 will provide improved visibility, performance and start to reflect the innate potential of the European opportunity. Finally, I just want to remind you all that we will host a KOL event on the 12th of November with 2 highly distinguished U.S. transplant surgeons, namely Professor Montgomery and Professor Cooper, who will share their view of the top line data of the Phase 3 and provide insights into clinical practice and the medical needs of highly sensitized patients in the U.S. That concludes the presentation, and we can open up for questions. Operator: [Operator Instructions] The first question comes from Farzin Haque with Jefferies. Farzin Haque: So what are your expectations for the U.S. FDA review process? You noted that you will request priority review, but do you expect an AdCom? I mean the data is pretty robust, but are there specific areas where FDA may be more focused on? Renee Aguiar-Lucander: So, we are not expecting an AdCom, but we are expecting to ask for priority review. The issues, obviously, with the FDA at this point in time are a little bit inscrutable, more than usual because obviously, as we know, there is a government shutdown in the U.S. And so it is unclear, obviously, when the FDA will reopen and what the backlog at that point in time will look like. However, I completely agree with you with all of the kind of strong data, the unmet medical need, the fact that it's an orphan indication, we have Fast Track designation. I believe that I had high hopes of the fact that we should get priority review. However, with the existing situation in the FDA, there's obviously nothing that we can see as a guarantee. So, we obviously also have to assume that there is a chance for us to get standard review. Farzin Haque: Got it. And quickly, where are you at with the CMC aspects for the U.S. launch? Renee Aguiar-Lucander: I'm sorry, can you repeat that? Farzin Haque: For the CMC aspects for the U.S. launch? the status of that. Renee Aguiar-Lucander: Yes. So, there's not going to be any change in terms of our CMC setup or manufacturing setup for the U.S. launch compared to the European commercial production. So from a manufacturing perspective, we're going to stay with the same providers. And those providers are at the moment, both located in Europe. We do not have a U.S.-based manufacturing site at this point, but we are as confident as we can be with regards to being able to kind of get through kind of also on the CMC and manufacturing side. But I'm sure there will be review issues. There always are review issues with regards to CMC, but we feel reasonably confident with where we are. Operator: The next question comes from Sushila Hernandez with Van Lanschot Kempen. Sushila Hernandez: So on the challenging situation in Germany, do you foresee that this could have an impact on the rest of Europe? Are other countries revising their prioritized kidney allocation system? And do you already have visibility on when the situation in Spain could be improving? Renee Aguiar-Lucander: Maria, do you want to take this? Monika Tornsen: Yes, happy to take the question. So, when it comes to Germany, this is a very local issue in Germany. The highly sensitized program that we're talking about was implemented a few years ago across the Eurotransplant zone. Germany have recently looked at that program and really sort of asked the question, is this providing health equity for all patients independent of their CPRA score. So, it's more of a health equity sort of moral ethical question in the German health care system. There is no whatsoever spillover to the Eurotransplant zone or to other countries at all. So, it's very specific to Germany. And as I mentioned, we have, I would say, strong support from the key opinion leaders who are looking at revising guidelines to enable transplants for these patients through the typical ETKAS program. And we're also initiating some public affairs initiatives to really see what we can do from a corporate perspective in terms of raising the unmet need for these highly sensitized patients and see if there's anything we can do to impact so that this program gets implemented again. And I think your second question relates to Spain. And I think what is worth noting for Spain is that Spain is compromised of many regions. And in these regions, you have various numbers of hospitals. And the challenge in Spain relates to regional reimbursement in Catalonia, where the health care budget as a whole is, I guess, stuck at the regional level. So it's not unique to Imlifidase at all. But obviously, it impacts the hospital's ability to get paid. So, we need to have sort of some funds released from that regional budget. So that's the Catalonia situation. Andalusia is somewhat different because they have a local allocation system for organs. So, you need some guidelines to be implemented in that region to enable the reimbursement and enable the physicians to order Imlifidase for their patients. I would say that in Spain, we have also very strong support from the key opinion leaders. So that is worth noting. So, these are sort of structural policy issues that we're dealing with in Spain. Sushila Hernandez: Okay. And then just one more question, if I may. What kind of top line data will you be releasing from the NT-GBM study later this quarter? Richard Philipson: Yes, sure. So, as I think I mentioned in the presentation, the primary endpoint is eGFR at 6 months. and we'll be looking at dialysis dependency. And then beyond that, there's a whole range of secondary endpoints relating to outcomes relating to anti-GBM antibody levels, eGFR at other time points, et cetera. And then, of course, there is, there will be safety. But I imagine what we will talk about when we release results at the end of the year will really be focused on the primary outcome, the key secondary outcome and comments on safety. Operator: The next question comes from Richard Ramirez with Fidelity. Please go ahead. [Audio Gap] Richard Ramirez: Yes. So, I think they said the wrong name. My name is Richard Ramis, and I'm calling from Redeye. Never mind. I have a few questions. Let's start with a financial one. Could you specify what cost of revenues made up if there are any fixed parts? And also what you would expect for a long-term gross margin? Renee Aguiar-Lucander: Evan? C. Ballantyne: Yes. So cost of revenues at the current time are obviously made up of drug substance, drug product and finished product. However, currently, we have manufacturing agreements that require us to manufacture more product than we actually sell. As we bring additional markets online and as the U.S. comes online, we expect our gross margin to increase because we won't have to write off unused or excess product into cost of goods sold. So I think gross margins will improve significantly. Richard Ramirez: Yes, that's what I expected. And I have a market question on European sales. Could you discuss a bit which countries in Europe have generated most of your revenue thus far? And where do you see growth in 2026? Renee Aguiar-Lucander: Maria? Monika Tornsen: Sure. So we don't specify our sales per country. But what I can say is we noted that our Q3 performance was impacted by Germany. We had 0 sales in Germany, and this is related to this highly sensitized program being paused, as I mentioned. When it comes to growth potential, I mean, we have looked for the last several months at the business, and we see significant growth potential. I mean there's been a lot of work done in Europe in terms of getting guidelines in place, getting reimbursement at national level, working on the regional reimbursement, getting physicians and their teams ready to use imlifidase. And we have many centers that have significant experience and very positive experience. So, we think that all of these things have set us up for future growth in Europe. And when it comes to where that will come from, I mean, it is a typical market. I mean the big 5 markets bring the majority of sales that's where you have the most patients and the most transplant centers. So, I hope that answers your questions. But I think in general, we're very optimistic about the potential in Europe despite sort of these structural barriers that we are dealing with currently. Richard Ramirez: Yes, sure. Then I wanted to ask you about the, any potential future clinical studies with imlifidase in the U.S. after the U.S. approval. And also if there are any, rather what are the further studies you need to do in gene therapy before you can start selling the product? Renee Aguiar-Lucander: So in terms of imlifidase clinical trials, I don't think that we have any kind of real plans for additional clinical trials with imlifidase in the U.S. market. So obviously, that will then hopefully obviously be an approved product and commercially available. In terms of additional or other kind of clinical trials, that is something that we would potentially undertake with our second enzyme. And that is with regards to any kind of thoughts with regards to clinical trial development with 5487, that is something that we've done a fair amount of work on internally and externally to arrive at an answer, and we should be in a position to announce that later this quarter. But at this point in time, there's still some pieces missing in order for me to kind of announce that on this call. And with that, maybe if you go back in the queue, and we can allow someone else also to ask some questions. Thank you. Richard Ramirez: Yeah sure. Thanks. Operator: [Operator Instructions] The next question comes from Matt Phipps with William Blair. Please go ahead. Matthew Phipps: This is Madeline on for Matt Phipps. Do you have any updated thoughts on the next steps for development in GBS, potentially any details on study design for a potential Phase 3 study? Thanks for taking the question. Renee Aguiar-Lucander: Yes, I think that's kind of all part of the review that we have been conducting over the last several months. I include that in the kind of overall pipeline assessment that we've been doing both externally and internally. And so we will comment on that as well in the next couple of weeks or so, hopefully, when we have these kind of last bits and pieces in place. So it's a very timely question, unfortunately. It will be a little bit longer until I can be addressing that as well. Matthew Phipps: Thanks Operator: We have a follow-up from Richard Ramirez. Please go ahead. Richard Ramirez: I also wanted to ask about the antibody-mediated rejection - AMR indication. What are your plans there? Renee Aguiar-Lucander: I think at this point in time, we don't have any further plans for AMR. I think that, again, this is something that we're going to have to, we can discuss or kind of take into account potentially when the product is commercially available. There may obviously be investigator-led interest in terms of studying this in a variety of different indications, but we will probably deal with that within the context of the medical affairs and the investigator-led request that we might get once the product is on the market. So that is probably how we're going to be dealing with any kind of related or other kind of transplant-related potential kind of unmet medical needs that relates to imlifidase use. Richard Ramirez: Thanks. That's all from me. Renee Aguiar-Lucander: Great. Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to CEO, Renee Aguiar-Lucander for any closing remarks. Renee Aguiar-Lucander: Thank you for listening to this quarterly report. We hope that you will join our KOL event on the 12th of November or catch us at some of the upcoming November investor conferences in either New York, London or Stockholm. I look forward to speaking to you again to review our Q4 and full year results. Thank you. [Audio Gap] Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 Skyward Specialty Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Kevin Reed. Please go ahead. Kevin Reed: Thank you, Lisa. Good afternoon, everyone, and welcome to our third quarter 2025 earnings conference call. Today, I am joined by Chairman and Chief Executive Officer, Andrew Robinson; and Chief Financial Officer, Mark Haushill. We will begin the call today with our prepared remarks, and then we will open the lines for questions. Our comments today may include forward-looking statements, which by their nature, involve a number of risk factors and uncertainties, which may affect future financial performance. Such risk factors may cause actual results to differ materially from those contained in our projections or forward-looking statements. These types of factors are discussed in our press release as well as in our 10-K that was previously filed with the Securities and Exchange Commission. Financial schedules containing reconciliations of certain non-GAAP measures, along with other supplemental financial schedules are included as part of our press release, and available on our website under the Investors section. With that, I turn the call over to Andrew. Andrew Robinson: Thank you, Kevin. Good afternoon, and thank you for joining us. Our third quarter results were exceptional, extending our outstanding and consistent track record of profitable growth and double-digit returns. We achieved a number of company-best, including $44 million in operating income, $38 million in underwriting income, and 89.2% combined ratio, and 52% growth in gross written premiums. Aside from these company records, we also grew earnings by over 40% and delivered an annualized return on equity of 19.7%. Our results highlight the strength, durability and execution excellence of our Rule Our Niche strategy. Also, our results again demonstrate our very intentional construction of our diversified portfolio of top-notch underwriting businesses, in particular, the sizable portion of our portfolio that is a less exposed to the P&C cycles. In this quarter, 5 of 9 divisions grew by over 25%, with our Agriculture unit as the largest contributor, which I will discuss later in this call. This quarter also underscored our prudence to walk away from business where necessary. Market conditions across much of the P&C market are now showing signs of increased competition. As always, our teams are responding with discipline, leaning in where market dynamics support our return thresholds, and stepping back where they do not. Lastly, before I turn the call over to Mark, I want to welcome Kevin Reed, our new Vice President of Investor Relations, who opened this call. Kevin is a deeply experienced IR professional, and we're pleased to have him lead this function, allowing Natalie, who has been outstanding, taking on double duty since our IPO, to fully focus on our other financial leadership responsibilities. With that, I'll turn the call over to Mark to discuss our financial results in greater detail. Mark? Mark Haushill: Thank you, Andrew. We had an exceptional quarter, reporting adjusted operating income of $44 million or $1.05 per diluted share and net income of $45.9 million or $1.10 per diluted share. Gross written premiums grew by 52% in the quarter versus the prior year. One significant driver of our growth was our Agricultural unit, and more specifically, the growth of our product in the U.S. dairy and livestock industry. Setting aside Agriculture, gross written premiums grew at a strong mid-teens rate in aggregate compared to the prior year, driven by A&H, Captives, Surety, and Specialty programs with all 4 of these divisions growing by over 25%. Going forward, we expect quarterly growth to be somewhat uneven, as some of the divisions and units such as Ag, Captives, Specialty programs and A&H have very concentrated renewal cycles, driving meaningful quarterly differences as seen this quarter. There will be quarters where growth is lower than what we have reported in each of the first 3 quarters this year. Net written premiums grew by 64% and our net retention through 9 months of 65.1%, increased over 62.9% in the prior year. Turning to our underwriting results. Our combined ratio of 89.2% was driven by strong underlying results and a modest catastrophe quarter. The non-cat loss ratio of 60.2% improved 0.4 points compared to 2024. We continue to observe specific pockets of increased auto liability severity inflation, and -- to a lesser extent, auto exposed excess severity inflation, particularly in our construction unit. More broadly, given the wider loss inflation severity backdrop, we continue to maintain a selective position on growing our exposure in occurrence liability lines. Our shorter tail lines, including Property, Surety and Ag continue to emerge favorably as does our professional, Energy and E&S liability portfolio. Our reserve position continues to be strong if IBNR makes up 73% of our net reserves, while the duration of our liabilities continues to shorten. As a reminder, our ground-up review of our loss reserves will be completed in the fourth quarter. The expense ratio of 28.4% improved 0.5 points over the prior year quarter due to economies of scale, and was in line with our expectation of sub-30s. The $2.7 million increase in net investment income over the prior quarter was due to $5.3 million increase in income from our fixed income portfolio, resulting from higher yield, and a significant increase in the invested asset base. This was partially offset by losses in our alternative and strategic investments. Underlying marks on the private credit holdings and our alternative asset portfolio continued to generate some volatility in net investment income in the quarter. This portfolio now represents approximately 4% of our investment portfolio at September 30. Through 9 months, $32 million of capital was returned, and reinvested in our fixed income portfolio. During the quarter, we completed the monetization of our equity portfolio, and realized gains of $16.3 million. We redeployed the proceeds into fixed income securities. This repositioning aligns our portfolio with our long-term risk and return objectives, enhances predictability of investment income, and provides further flexibility to support future growth. In the third quarter, we put $62 million to work at 5.6%. Our embedded yield was 5.3% at September 30, up from 5% a year ago. Our financial leverage is modest, as we finished the quarter under a 11% debt-to-capital ratio. Finally, we continue to prepare for the Apollo acquisition, which we expect to close in the early first quarter of 2026, subject to regulatory approvals. Deal financing is progressing well and remains on track. And post close, we expect our leverage to be approximately 28%. We recognize that the equity research and investor community are working to model the impact of the Apollo acquisition. Once we are further along in the approval process likely in early December, we anticipate providing guidance on Apollo's 2026 financial metrics. During our fourth quarter call in February, we will provide additional guidance on the Skyward business. Our teams are engaged in a thoughtful plan of execution once the transaction closes. The combination will expand our specialty capabilities, deepen our bench of underwriting talent, and strengthen our ability to deliver superior long-term returns. Now I will turn the call back over to Andrew. Andrew Robinson: Thank you, Mark. The third quarter once again highlights the distinctiveness, strength, and consistency of our business and execution of our strategy. We continue to not only deliver excellent underwriting results and shareholder returns, but our top line growth and resulting earnings growth continue to stand out. These financial metrics clearly showcase that we are different from the rest of the P&C industry, and how we approach the market and the portfolio of businesses we have built. Given the unusually robust growth this quarter, I want to take a moment to discuss how we are managing through this changing market. This quarter, we grew by over 25% in 5 of our 9 divisions. That said, we also reduced our writings again in Global Property and in the construction unit of our Construction and Energy Solutions division as well as parts of our Professional Lines division. In these areas, opportunities to write business at pricing terms that meet our high return thresholds are simply challenged. Within those divisions, however, we've had excellent success growing specific units, such as healthcare professional liability and professional lines, and the energy unit in our Construction and Energy Solutions division. More broadly, Global Property and -- to a lesser extent, E&S Property and inland marine are becoming increasingly competitive. And in Casualty, we're being very selective given the loss inflation backdrop. And yet we still see opportunities in E&S Liability, and Captives, both of which are growing steadily as is our energy unit, which I noted a moment ago. Turning to our Ag unit, our success this year is the result of 3 years of effort to build a product that is unique, and to put in place a strategy to manage potential volatility. Demand for reinsurance capacity in dairy and livestock revenue protection has surged as producers and approved insurance providers have sought stable risk transfer solutions, amid price volatility in the market. The rewards for our creativity and innovation are now fully materializing. Our success story in Ag follows other divisions. In A&H, we have grown by 45% in the quarter and year-to-date. As we discussed in the past, we focus on the small employer market and medical cost management. We use AI predictive analytics in risk qualification and selection. Our pursued before pay claims approach has high impact for our customers, and we built captive capabilities that sit side-by-side with our single company stop-loss products. And our performance as per the recent NAIC A&H policy experience report on the 2024 calendar year highlights, we are 15 points better than the industry. In Surety this quarter, we resumed a stronger growth trajectory and continue to gain market share as federal funds began to flow. And yet we're not resting on our laurels. We launched an industry-first product called EndWell, which is an amortized, collateralized product for decommissioning obligations for the oil and gas industry. This launch comes amid challenges to find quality Surety solutions given the dislocation that has resulted from a handful of high-profile bankruptcy-driven losses over the past few years. Undoubtedly, like our prior launches in Surety, and in other divisions, we build a strong and profitable book around this product. Clearly, our innovation to Rule Our Niche and execution stands out, and is showing in both our growth and profitability, and allows us to navigate the more challenging P&C market in ways that others cannot. While our profitable growth is certainly externally differentiating, I continue to believe we're leading in how we're using technology to win. SkyView, which is short for Skyward Visual Underwriting Experience, our award-winning underwriting workstation allows us to multiply with great alacrity the deployment of new capabilities to our underwriters. We continue to make huge leaps forward in using bots to automate submission ingestion through generating high-impact narratives that summarize the key risk vectors of each account. And we're making strides in using GPTs to allow our underwriters and leaders to interrogate, investigate aspects of an account such as summarizing claims or more broadly summarizing performance insights on a book of business. We believe this continues to be a first mover and learning curve advantage that inures to us. And as long as we stay ahead of the AI arms race, we'll continue to lead and win. Finally, our operational metrics remain positive. Renewal pricing bounced up a tick from the prior quarter to mid-single digits plus peer rate. And again, we realized mid-digit exposure growth, both excluding Global Property. New business pricing continued to be in line with our in-force book. Retention remained in the mid-70s for the quarter, driven by business mix and intentional actions on auto, within our construction unit. And lastly, submission growth was consistent, growing in the mid-teens this quarter. We also remain incredibly excited about closing the Apollo acquisition and beginning to tackle the market together with our new colleagues, while we continue to operate independently until the transaction does close. The combination of our companies represents a significant step forward in our ability to innovate, lead with talent and technology, and build winning positions across the specialty insurance market. In summary, this was another excellent quarter for Skyward Specialty. We continue to drive top quartile underwriting results, and leverage the diversity of our portfolio to continue our impressive growth and earnings, while the broader P&C market becomes more challenging. With that, I'd now like to turn the call back over to the operator to open up for Q&A. Operator? Operator: [Operator Instructions] The first question that I have today will be coming from the line of C. Gregory Peters of Raymond James. Charles Peters: I guess the logical place to start will be with your top line results. If we can put the Agricultural opportunity aside, just curious about some of the numbers we're seeing, Accident & Health, it has been strong all year, and the Captives are doing quite well, too. So maybe give us some perspective on where you're having some success in some of those other segments of your business is a good starting point? Mark Haushill: Well, look, I think that as I said in the prepared remarks, I think we're just -- I'd start by saying we're being appropriately cautious, thoughtful. Describe it how you want in large chunks of what I would describe as the more traditional parts of the P&C market. It's just -- it's becoming more competitive and certainly more nuanced. I think the places we're writing business in those other divisions are done on smart terms and conditions. That said, look, I think that we just simply have connected in other parts of our business. You saw Surety has bounced back 26% growth this past quarter. And a lot of that really was we were still maintaining strong growth as compared to the industry on Surety, for the first half of the year, just it bounced back to an -- sort of a much more impressive level once the federal funds began to flow. And I highlighted a new product launch where we've had some really good success already. We're very bullish about the outlook on that, and that's sort of in the commercial Surety part of our business. On A&H, I think we've talked at length about, I did highlight the loss ratio number just to provide an external reference point. Again, I think it's the small account market, medical cost management focus, and the fact that we built an operating model that I think is really quite distinctive. And we're seeing that come through both in sort of traditional single company stop-loss accounts as well as on the group Captive side. Within Captives, on the P&C side, a lot of that really is just continuing to grow with the Captives we have in place. We -- it's been some number of quarters since we launched a new Captive, but the ones that we have seem to be continuing to add members. Of course, we're -- I think, more insulated to the market in total in terms of the price that we're able to put into the Captives, that's really much more sort of like a -- I would describe it as a stable, you're always keeping price up against loss trend, your Captive members understand that, and that seems to work really well. And so I think each one is unique, but I think the reasons are a lot about how we basically have built our business and our product? And the fact that through 9 months this year, nearly 50% of our business is in those categories that are not P&C cycle exposed. And I think that it's hard for me to sort of identify any other company who's got a portfolio that looks like ours. Charles Peters: I appreciate, Mark, your comments about holding back on providing '26 guidance on Apollo. But in the context of, Andrew, what you said about your business being somewhat better positioned for cycle management. Maybe you could spend a minute and talk about how the Apollo third quarter results look? And how they're positioned in the context of cycle management? Andrew Robinson: Yes, I mean, Greg, there really -- there's not a lot I can say, because to be honest, we do not have regulatory approval, and I -- there's like boundaries where -- well, I would be feel comfortable, I think others, including my General Counsel sitting my left, probably wouldn't. So, what I will say to you, Greg, is that no different than when we announced the transaction. We really, really like everything that the Apollo team has done. And I would say that on the sort of 1969 more specialty-focused syndicate, they're weighted pretty heavily towards specialty classes, and while they too are not immune to the market cycle, in many of their classes, they're definitely not seeing sort of some of the macro concerns, and certainly aren't heavily weighted towards property cat and things like that. As we've talked about, '71 is an entirely different business and is actually tied much more closely to the exposure growth of sort of digital economy emerging industries. And in that regard, it feels like that that's rather disconnected from the P&C market largely because that business is not being competed across the market. There's very, very few -- and I would dare say one, which is 1971 and the things that they do, real competitors in that category. So I think not unlike ours, there's aspects about their business that are somewhat insulated from some of the macro concerns that you all are asking about on your interactions with other companies. Operator: [Operator Instructions] Next question coming from the line of Tracy Benguigui of Wolfe Research. Tracy Benguigui: Most of the P&C insurers right now are sitting on too much excess capital, so much so, that it's too much to deploy for underwriting opportunities. So we've seen more muted growth, and Skyward is definitely more growthy, and we've clearly seen that this quarter. I would argue that maybe you're sitting on like lower levels of capital in a way that might be a good thing, because that means you will have a lot of discipline given more is at stake. So my question is, if we see more growth continuing at these more elevated levels going forward, I get it, it might be uneven by quarter. Where would this capital be coming from? I mean it feels like you don't have a lot of debt headroom. So would you access the equity markets? Or do you think the capital growth through retained earnings could sustain your growth ambitions? Andrew Robinson: I love the positivity relative to our growth outlook. Look, I think the first thing I'd say is through 3 quarters, in every one of the 3 quarters, I would argue we were differentiated on growth by a material level compared to maybe the companies you might regularly compare us to. Yes, I would acknowledge that this quarter is kind of an eye-popping number, 27% growth through the first 3 quarters this year, I will just say straight up is more growth than we expected. So that's a good thing. That just says that the things that we're doing have sensibly positioned us against the market opportunities. That said, look, I don't think that -- I think it's impractical to think that something like a 27% growth is kind of a reference number as we look out into the future. But should we find a situation where we are capital constrained, I'll highlight to you something that I said when we announced the Apollo transaction, which is one of the really interesting dimensions of Apollo is that they are a capital-light business. Their capital stack is effectively made up of 25% of their own capital, and 75% of other people's capital with clear alignment between them and their other capital providers. And we think that, that is always an interesting option that potentially could move not our business, but our economic model to have a greater portion that are fee-based. And I'm not saying that in any way, we are concerned about our capital. We don't think that investors give us enough credit for the fact that we are an incredibly capital-efficient organization, driven by the fact that we've intentionally constructed our business portfolio the way we have. I mean we are very capital efficient. But that said, we don't necessarily see any capital constraints. But that doesn't sort of set aside this potential point that we will be evaluating whether some portion of our underwriting income should be recaptured through fees over time. Tracy Benguigui: I appreciate hearing the commentary about A&H, Surety, Captives and Agriculture growth. But could you touch on the 52% growth in specialty programs? I believe the segment includes Property, GL, Commercial Auto, Excess Liability and Workers' Comp. So among those lines, where were the growth standouts? Andrew Robinson: Yes. Great question. And I think let me just start with one notable point, which is through 9 months, if you look at our Specialty Programs premium as a percentage of our premium overall, it's 13.4%, right? And I'd remind you that a meaningful portion of that is through relationships where we have a meaningful ownership position. So I think we're doing this in a very sort of intentional, very thoughtful way. That said, the last few quarters, we've seen a lot of growth in programs. And as I've explained in the past, we added two programs. One was a Warranty Indemnity program, and that is one where we own a position in that entity. And the other is a long-standing personal relationship that I have, and that program is in Brownwater and Greenwater Marine. And those two programs, we started having some of the business come on to our books in -- I believe, around March of this year. And so by the time that we get through the first quarter here, we're going to continue to see growth on a relative basis in programs, that's going to be not inconsiderable through this quarter and through the next quarter. But by the time we get to the second quarter of next year, we're going to be lapping ourselves, and I don't think you're going to see that kind of growth numbers. As I've mentioned, like when you add a program, it can be chunky, and it can make your numbers look different or unique. But in this case, it's really quite controlled around two very important relationships for us. Operator: [Operator Instructions] Our next question will be coming from the line of Matt Carletti of Citizens Capital Markets. Matthew Carletti: A lot of what I had has been asked and answered, but maybe just one if I can. Mark, you -- I think, Mark, it was you that mentioned how there's going to be more volatility quarter-to-quarter in the growth rates kind of around, which kind of lines of business have big renewal periods. Can you help us with that at all? Is there -- and should we think about certain quarters of the year is being kind of we're going to have our strongest growth in this quarter typically because of the big renewal books? And then there's another quarter that will be lighter? Or is it a little more -- you kind of see what you get as the renewals come? Mark Haushill: I mean, look, the -- what we saw this quarter with the Ag, that's heavily a Q3 quarter, clearly. In terms of other businesses, A&H is weighted more towards the first quarter, Property towards the first half of the year. What else am I missing, Andrew? That's -- those are the three. Andrew Robinson: Yes, those are three that stand out. And then obviously, the Specialty programs is lumpy as well, based on when programs renew. What I'd say to you, Matt, is that -- because as I mentioned, I think, in response to Tracy's questions, like we ourselves are -- we're pretty elated with 27% growth through 9 months, it was more than we expected. I think as we come around to our guidance for next year, I think we'll try to be more specific in helping you better understand as we've digested all this and harmonizing. But Mark is right. I think that, look, in general, there's nothing particularly exciting happening in the fourth quarter, and by the way, there's a bunch of companies that are way behind plan, that are leaning in maybe a little bit even more competitively than otherwise they are. And that's not me sort of saying to you our fourth quarter is not going to be a strong fourth quarter or any of those things. But there's nothing unusual happening in the fourth quarter one way or another, and it is a more competitive quarter always as companies try to fill out their full year. So -- but once we get beyond that and we get to our guidance that we'll provide you in the new year, we'll say something about that to help you make sure that you're accounting for that in your plans on written premium as opposed to earned premium. Operator: [Operator Instructions] Our next question is coming from the line of Meyer Shields of Keefe, Bruyette, & Woods. Meyer Shields: Sort of stay on this topic, but I wanted to get a sense as to whether the Ag premium that you wrote in this quarter, does that have even earnings patterns over the course of the year? Or is it like the crop side of things where a lot of it's earned as written? Mark Haushill: Meyer, it's Mark. Yes, we'll earn it ratably over the next 12 months for what we wrote this quarter. We don't exposure measure or exposure account for where there's lumpy premium recognition. You'll see it in the growth. But in terms of earnings, just assume it's flat through the rest of the next 12 months. Does that help? Meyer Shields: It helps a tremendous amount. Mark Haushill: That's true for our entire Ag book and other businesses that have kind of unique features like that like Surety and so forth, we apply that same approach consistently. Meyer Shields: Related question, I just want to make sure I understood the comments about the lumpiness. You're just talking about the fact that these different niches have different renewal calendar dates, not that there's anything nonrecurring or fundamentally nonrecurring in the third quarter premium? Mark Haushill: No, there's no -- there's no nonrecurring items here at all. If something comes up that's nonrecurring or we pull a policy forward or push back that's sizable, we would highlight that. But no, there's nothing unusual. Look, I think it's our way of basically just saying, look, we delivered 27% growth through the first 3 quarters. I'm sure across the universe of each of the companies that you cover, there's maybe one, if any, companies that look like that. And this quarter at 51%, 52% growth is just -- it kind of stands out. And we just -- we're simply just trying to make sure that you as research analysts and our investors understand that there is real lumpiness here, and it's evident through the first 3 quarters. Meyer Shields: 100%. You are very clear. I just wanted to make sure that I wasn't misinterpreting stuff. Last question, I guess, there was -- it's clearly understandable step-up in operating and general expenses on a year-over-year basis. And I assume that, that relates to the growth in gross written premium. Is this a good starting point going forward? The $52 million that we saw in the quarter? Mark Haushill: Yes, Meyer, there's not going to be much movement quarter-over-quarter. So yes, I think that's a pretty good baseline. I missed the first part of the question. Meyer Shields: I was just -- I'm assuming, and please correct me if I'm wrong, that the reason you had this like few step-up from $41 million to $52 million from the second quarter to the third, it's just associated with the gross written premiums. Obviously, we see it an acquisition expenses. So I just wanted to confirm that it's the right baseline for G&A expense as well? Mark Haushill: Bear with me one second. Andrew Robinson: Yes, I think, Meyer, to try to make sure we're looking at what you're looking at, we -- I would suggest let's call -- can we take that off-line and make sure that we understand and give you an explanation. I will just highlight that we're -- our other underwriting expense is going down period-on-period. So as a -- on a ratio basis, so we're getting leveraged away from acquisition expense period-on-period. So I want to make sure that we're looking at what you're looking at. Operator: [Operator Instructions] Our next question is coming from the line of Michael Zaremski of BMO Capital Markets. Michael Zaremski: Just on the overall retention levels that you all give us, which are helpful. I guess, in mid-70s, and I guess just at a high level, when we think of E&S business, we think of E&S kind of being in the 70s and more traditional being in the mid-80s, maybe higher. So I guess the fact that you guys are mid-70s, I guess I just want to make sure just means that the non-E&S portion of your book, just -- Specialty portion is just runs at a naturally lower retention level? Andrew Robinson: Yes, Mike, this is Andrew. Just to step back on this and remind you something that we've talked about in the past, there are three big drivers of our gross to net that make us look a little bit different than maybe others, and those three that we've always reminded of are one; our Global Property business. Remember, we have a very large line, and we have a strong long-standing quota share participation that allows us to have that large line. And that's one big part. The second is Captives, which is structurally that way. And then the third is A&H, where we've had historically on the stand-alone stop-loss business, a very sizable quota share support with a very attractive seed that allows us to effectively lock in a portion of our underwriting results. And then similarly, on the A&H Captives, the same dynamic happening. That said, in the other businesses, as things grow like Ag and so forth, there's very little reinsurance or in that case retrocessional reinsurance used. And so some of this is just straight up mix. And I wouldn't look at this quarter, I would look at the year-to-date, where I think we're sitting at about 65-ish percent, I believe, year-to-date. And I think as we get to the end of the year, that sort of end of year number will be a good proxy for your models for next year. Michael Zaremski: Pivoting to some of the comments Mark made on just kind of the overall reserve puts and takes. It seemed like nothing new there. Commercial Auto, and Construction were kind of called out as continuing to be as the industries also sees under pressure. But you also mentioned a 4Q review. So I just want to make sure there's probably nothing there. Are you saying that there might be a deeper dive in 4Q on some of these items? Mark Haushill: Mike, it's Mark. It's just part of our process where -- and we've talked about this a lot in terms of our philosophy. Look, we do look and review our reserves each and every quarter. Our business doesn't move that quickly, where I think it's appropriate to respond every single quarter to what we see. All I'm just trying to foreshadow is that's when we will all -- we will do the deep dive review and any adjustments that we see, we'll make them in the fourth quarter. To your point, I feel great about where we are in terms of reserves. Our philosophy has not changed. We continue to be conservative, and that will continue. The industry, and you noted auto liability, yes, that's something that we've been looking at a lot. But the other part of what I said in my comments is what we've seen in terms of favorable emergence elsewhere. So short story, Mike, I feel great about where we are, but we'll update you in the fourth quarter with what happens. Michael Zaremski: Lastly, just a follow-up to Tracy's question on the premium growth versus equity levels. So -- loud and clear what you said there. I just want to -- just with the Apollo deal coming on, there's the financing terms and the timeline that you had given us in the past. Is there -- would you guys -- would you all tinker with any of the financing or timeline based on just this much better-than-expected growth or nothing to think through there? Mark Haushill: No, nothing to shift through that, Mike. There's nothing about this quarter that changes how we're approaching things timeline. We still expect very early in the first quarter of next year -- very early in the first quarter of next year, and really nothing has changed. The financing has gone really well. We're in a great position. And yes, we're -- there's nothing about the execution that's noteworthy. We're in a great spot. Operator: [Operator Instructions] Our next question will be coming from the line of Andrew Andersen of Jefferies. Andrew Andersen: Maybe kind of back on reserves and just loss inflation. I think the construction inflation comment was new. And we've heard from some other specialty companies of some construction defect claims, but maybe you could just expand a bit on what you were trying to get across with the construction inflation comment? Andrew Robinson: Yes. So Andrew, this is Andrew, and Mark may add to that. I think more of what we're seeing, to be honest, is I don't know how to be sort of too vivid about this, but we basically see the kind of severity that you might see in heavy auto now making its way into F-150 accidents. Construction, some of our book, the trades basically leading the site, an accident occurring. And what we're seeing is severity inflation that, to be honest, is just -- listen, I feel like I've been one of the earliest and most consistent protagonists on this, because this is not new. The way I know this isn't new, is because through 9 months this year, 11% of our book is auto. And we took the company public, it was 25%. And that 11% has probably gone about 80% rate since then. And so we're probably down on an exposure basis, well less than the 60% from a premium basis -- 40% from a premium basis. It's just that we keep seeing the loss inflationary dimensions emerge in areas that we're surprised by. And I don't mean like we're surprised like we're not responsible, prudent professionals about how we're looking at our business, like you're just simply surprised that, that a claim of this size and an injury of this could result in that kind of loss. And yet I have full confidence in our claims folks the way that they're executing. And it's really nothing much more complex than that. And I think that it should give everybody pause for -- even if you believe that you have ring-fenced the inflationary areas, I believe that anything that is personal injury exposed occurrence liability is further ground for considerable inflation. And you have to be incredibly thoughtful about how you're constructing your occurrence liability book. And I wouldn't read into anything more than what I just said, because that really is kind of the dimension. And you are right that we've been talking about construction now for a couple of quarters, but it has been auto-focused thing. And -- but that's been a theme that's been consistent for us for some number of quarters. Andrew Andersen: Then just on kind of the overall rate commentary, I think I heard mid-single-digit plus peer rate, and mid-single-digit exposure, both excluding Property. The mid-single digit -- Andrew Robinson: Excluding Global Property, just Global Property, Andrew. Andrew Andersen: The exposure piece sounds fairly sizable. Could you maybe just help us frame how that stands relative to the first half of the year, the [ Global Property ] exposure? Andrew Robinson: Yes, great question. I highlighted in the last quarter as well. We ourselves were -- listen, I think we're all sort of trying to figure out what the economy -- what's happening in the economy. And I think in the second quarter, we similarly had a really surprisingly positive result on exposure growth. If you kind of look out over the past, I don't know, maybe 2 to 3 years, we've been bouncing between kind of like 2% and 4% on any quarter. And then the last couple of quarters, it's ticked up a bit. That's positive. I don't know if it tells us anything other than in some of our businesses, we recapture a tiny little bit of rate in exposure. I talked about Surety is somewhat unique as it relates to exposure. But we're just reporting out on what we're seeing. So I think that's a positive sign, right? I guess, certainly, you want to be able to grow premiums and exposure growth is a good way to grow premiums as long as you're priced properly. Operator: [Operator Instructions] Our next question will be coming from the line of Paul Newsome of Piper Sandler. Jon Paul Newsome: Great. Just a couple of follow-ups. One was just a clarification. The debt-to-cap 21%, I assume that's -- I believe that's a decent amount above where you want it to be long term. Is it a fair assumption that after the deal, you'd be looking at basically retaining capital until that falls down into your more comfortable range? Andrew Robinson: Well, actually, Paul, I'm not uncomfortable at 28%, 28.5% at all, actually. We intentionally were under-levered, if you will to provide us with this flexibility. So yes, I'm not uncomfortable with it at all. The organic capital growth itself, as you just pointed out, will reduce the leverage and it will over time. So yes, a -- I'm not uncomfortable with the 28% and the organic capital generation over the next 12 months to 18 months will serve to reduce the deleverage ratio. Jon Paul Newsome: Then unrelated question, but a little bit of follow-up on reinsurance usage. It's looking like reinsurance is amongst the most competitive places. Can that be an advantage for you folks given the structure of your company? And what you've talked about previously? Andrew Robinson: Yes. This is Andrew. Look, I mean, I think if you go from top to bottom, our sort of purchase of reinsurance is pretty fairly spread. Our cat program, as you know, is not a monster cat program. Our spend is kind of mid-single digits plus kind of millions of dollars on cat. It's like, yes, the reinsurance markets becoming obviously more favorable to cedents. But I don't know if that -- listen, I think that it can be helpful, but it's not going to be a big [Technical Difficulty] improvement year-over-year. Operator: Our next question will be coming from the line of Michael Phillips of Oppenheimer. Michael Phillips: Andrew, maybe more of a theoretical question. How strong do you think the correlation is, if it even exists between the P&C pricing cycle and demand for captive formation? Andrew Robinson: That's a -- that's a really great question. So before we really kind of leaned in on Captives, we looked at this. And during -- if you allow us, I can follow up and try to dig out some of the information. But during the sort of the soft market period leading up to kind of, let's just call it 2019, 2020 kind of timeframe, Captive growth still was quite robust, and relative to the P&C market, very robust. There is no question to your point that a hard market environment appropriately should force -- in our case, we're talking group Captives, so mid-market kinds of risk, a company that really wants to have more direct financial connection to their cost of risk. Certainly, that becomes an impetus. But on the flip side, the retention in the Captives is very sticky, because you generally construct them in a way that is quite sort of measured and controlled renewal cycle to renewal cycle. And you're not -- you're already sort of self-selecting in risk that have an attention towards risk management, and have capabilities that the wider market on average doesn't have. And so we also think that in a softer market, you're more immune. This is the point about sort of its less cycle exposed, you're more immune to the P&C cycle than otherwise you would be even if you're riding P&C lines, which we are in our CapEx number. Michael Phillips: You're saying you're more immune because of the retention piece? Andrew Robinson: Yes, because of the retention, and because the Captive members themselves are directly involved in seeing the experience, and so in that experience tends to be a much more stable, consistent, here's what's happening with exposure growth. Here's what's happening with losses. Here's what's happening with loss inflation, because they're eating their own cooking, right? I mean it's like they're risk managers and if they're good, they get the benefits. And if they're not good, they see the cost. And if they're just very consistent, which many of them are in our case, then you get a much more stable period-over-period kind of renewal. Michael Phillips: Perfect, perfect. Helpful. I guess, one of the reason why I was asking the category? Mark Haushill: It's one of the reasons we love the category. It's just -- we don't have the benefits of being travelers or Hartford writing small commercial. This is our version of kind of like stick to your writs kind of ballast for the business. Michael Phillips: So it sounds like -- one of the reasons for the question is, should we get into a softer market, does that mean any kind of slight headwind to your growth in Captives? It sounds like that's not something you'd be concerned about? Mark Haushill: We'll know when the time comes, but it's certainly not my top concern as compared to other things I'd be concerned about in the soft market. Operator: Our next question will be coming from the line of Mark Hughes of Truist. Mark Hughes: Andrew, the transactional E&S business, that's been a little slower growth. I think you talked about E&S liability being a good area for you. Does that fall under the transactional bucket or heading? Andrew Robinson: Yes. Mark Hughes: And yes, what if -- Andrew Robinson: We write -- as I think we've mentioned in the past, we -- our book there is -- it's a small, medium business, average premium between $40,000 to $50,000, on the property side, 50% to 60% of what we write, our primary and full limits and 40% to 50%, we're writing usually the primary and somebody else is writing the excess. And then on the liability side, it's a lot of million-dollar primaries and some supported and unsupported excess. Very little of what we write there has auto exposure. And that's the book. That's -- and so we talked about it, the property side, I just -- I'll just say it straight up, because we've listened to some other companies talk about this. Anybody who is presenting a case, and a few are presenting a case that property in the E&S market, even on the smaller side of it is -- from a rate perspective is going in a positive direction isn't starting from a position of good prudential pricing. And there's a couple out there with those commentary. On the liabilities side, I think consistent with what others have said, the sort of the primary million, primary GL is pretty competitive out there, some silliness from MGAs and so forth. And the excess is a better market. And for our part, our excess is either supported over our primary, if we're writing unsupported, the thing that we're generally writing is business that has very little auto exposure to it, and we're very thoughtful about sort of the personal injury, how heavy that personal injury, loss inflation profile of exposure looks, but the market is still pretty good. Mark Hughes: Yes. What's been the -- just a very recent trend in property, is it kind of stepped down, and therefore, your -- you've adjusted your appetite? Or is it just continuing to drift downward? Andrew Robinson: Yes. Listen, I think that there's just -- I think Tracy might have made this point. They're just -- there's way too much capacity knocking around the property market. If you're writing cat and it doesn't have to be big limit cat, it doesn't be shared and layered. It's just -- if you're writing Tier 1 cat, you're writing against -- there's some just crazy stupidity out there, like just stuff that doesn't make any sense, and anybody who believes it makes sense is fooling themselves. And what happens is that good smart underwriters will say, and I've heard this from some of the other CEOs in the calls that they're saying there's just not opportunity there, so they go to the next thing, and they go to the next thing. So what happens as you -- you get an erosion in the market that just starts to find its way into other areas. To the point where, as I've mentioned in the past, for example, in our property book, we write fires our principal peril. We write really, really, really tough risk. We write the stuff that's in the E&S market for a reason. But when you start to see silly competition come to that part of the market, there's a price where we will write the business, and there's a price where we won't. And we're one of the best at it. I just -- I'll say straight up, we make a lot of money on the property side, we're super smart. And we're very sensible, we deliver a good product for our customers, but we charge an appropriate price for the exposure. And when the guys who come in, and don't know what they're doing in that, that's just problematic. And what's happening is that's happening in more and more categories across the property market. Yes, I still feel very good about our business, and our ability to navigate. So I wouldn't want to be anybody else other than us. Operator: We now have a follow-up question coming from the line of Tracy Benguigui of Wolfe Research. Tracy Benguigui: I'm just curious, given the uneven growth by segment, which should lead to some mix shift. I'm wondering how we should be thinking about your underlying loss ratio and expense ratio? Like, for instance, Surety is a low loss ratio, high expense ratio product and other products have different profiles. Andrew Robinson: Yes. It's an outstanding question, because we have it all in the book, right? We have examples like Surety, which is incredibly high acquisition expense, very low loss ratio. We have A&H, which is low acquisition expense, and low expense overall and high loss ratio, similar profile on the Ag side. And what I'd say is, is that, again, what we'll do is we'll come back in our guidance. But I think that through the first 3 quarters, you're seeing the earnings of that mix change coming through. But obviously, given, for example, the volume of Ag, how that sort of manifests itself on acquisition cost versus operating expense versus loss ratio, we'll come back in the guidance -- when we give our full year guidance early in the new year, Tracy. And until then, I don't think we really want to or are prepared to say much more. Operator: This does conclude today's Q&A session. I would now like to turn the call back over to Kevin, for closing remarks. Please go ahead, Kevin. Kevin Reed: Thanks, Lisa, and thanks everyone, for your questions, for participating in our conference call, and for your continued interest in, and support of Skyward Specialty. I am available after the call to answer any additional questions you may have. We look forward to speaking with you again on our fourth quarter earnings call. Thank you, and have a wonderful day. Operator: This concludes today's program. You may all disconnect.
Operator: Good afternoon, and welcome to the Travere Therapeutics' Third Quarter 2025 Financial Results Conference Call. Today's call is being recorded. At this time, I would like to turn the conference call over to Nivi Nehra, Vice President, Corporate Communications and Investor Relations. Please go ahead, Nivi. Nivi Nehra: Thank you, operator. Good afternoon, and welcome to Travere Therapeutics' Third Quarter 2025 Financial Results and Corporate Update Call. Thank you, all, for joining. Today's call will be led by Dr. Eric Dube, our President and Chief Executive Officer. Eric joined in the prepared remarks by Dr. Jula Inrig, our Chief Medical Officer; Peter Heerma, our Chief Commercial Officer; and Chris Cline, our Chief Financial Officer. Dr. Bill Rote, our Chief Research Officer, will join us for the Q&A. Before we begin, I'd like to remind everyone that statements made during this call regarding matters that are not historical facts are forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, performance and achievements to differ materially from those expressed or implied by the statement. Please see the forward-looking statement disclaimer on the company's press release issued earlier today, as well as the Risk Factors section in our Forms 10-Q and 10-K, filed with the SEC. In addition, any forward-looking statements represent our views only as of the date such statements are made, October 30, 2025, and Travere specifically disclaims any obligation to update such statements to reflect future information, events or circumstances. With that, let me now turn the call over to Eric. Eric Dube: Thank you, Nivi, and good afternoon, everyone. The third quarter marked exceptional progress across our three key priorities: delivering strong commercial execution in IgA nephropathy, preparing for a potential FDA approval in FSGS, and successfully advancing the manufacturing scale-up of pegtibatinase to support restarting enrollment in the pivotal HARMONY study in 2026. The core driver of our performance is FILSPARI's continued growth in IgA nephropathy, where we delivered sustained commercial excellence in the third quarter. Physicians continue to confidently adopt FILSPARI as a foundational nephroprotective therapy for their patients. This confidence reflects consistent real-world outcomes, robust long-term data reinforcing FILSPARI's differentiated profile and its recent inclusion in the KDIGO guidelines for earlier first-line use to optimize nephroprotection in IgAN. Additionally, in August, the FDA approved a modification to the FILSPARI REMS program, removing the embryo-fetal toxicity REMS and reducing the liver monitoring frequency to quarterly, which aligns with routine clinical practice and our clinical trial experience. This change not only simplifies care for physicians and patients, but also reinforces FILSPARI's long-term safety profile. Our U.S. performance continues to be complemented by strong progress from our partners globally. In Europe and the U.K., CSL Vifor is expanding access, following full regulatory approvals and the progress has been culminated in the recent achievement of a meaningful market access milestone. In Japan, Renalys completed enrollment in its registrational trial in IgAN and remains on track to deliver top line data in quarter 4. The company also reached an agreement with the PMDA of Japan to initiate 2 Phase III trials for sparsentan in FSGS and Alport syndrome and recently announced its planned acquisition by Chugai, a leading innovator in renal and rare disease research in Japan. Together, these milestones underscore FILSPARI's expanding global footprint and the growing excitement around its long-term potential to transform care for renal rare kidney diseases. Beyond our progress in IgAN, addressing the urgent need for an approved medication in FSGS is both central to our mission and represents the next pillar of growth for Travere. Today, there are no FDA-approved medicines for this disease. Patients often experience rapid disease progression with many reaching kidney failure within just a few years of diagnosis, often requiring a transplant. Even then, the disease recurs in approximately half of transplant recipients. The consequences are devastating for patients and their families. Earlier and more effective treatment is desperately needed, which is why the opportunity to bring FILSPARI forward in FSGS is so meaningful for this community who have waited far too long. In September, the FDA communicated that an advisory committee is no longer needed for our sNDA in FSGS. We have been pleased with the progress of our review and our ongoing engagement with the agency to date. Pending approval, FILSPARI will become the first and only approved medication for FSGS, representing a landmark moment for this community, and given the urgent need for an effective approved medication, a transformational opportunity for Travere. Our teams are fully prepared to execute a rapid launch upon approval, building upon the commercial foundation we've established in IgA nephropathy. Beyond FILSPARI, we have successfully manufactured the first commercial scale batches of pegtibatinase and are looking forward to an expected restart of the pivotal HARMONY study of pegtibatinase in classical HCU next year. PEG-t remains a promising potentially disease-modifying investigational therapy that could address a substantial gap for patients living with this rare metabolic disorder. I'll now turn the call over to Jula for a clinical update. Jula? Jula Inrig: Thank you, Eric. One of the most significant milestones this quarter was the inclusion of dual endothelin angiotensin receptor antagonism in the updated KDIGO guidelines for IgA nephropathy, a strong external validation of FILSPARI's role as foundational treatment. KDIGO includes FILSPARI as a first-line option for patients who are at risk of IgA nephropathy progression, recognizing it as the only therapy with proven efficacy versus optimized RAS inhibition. The guidelines also recommend simultaneous treatment of the 2 drivers of IgA nephropathy progression, targeting both the upstream immune activation that causes pathogenic IgA deposition and the downstream glomerular injury that leads to nephron loss. This holistic framing of disease management aligns with FILSPARI's mechanism of action as the only fully approved non-immunosuppressive nephroprotective treatment, which can be combined with immune-targeted medications to optimize long-term outcomes for patients living with IgA nephropathy. Across our KOL engagements following the publication of the guidelines, nephrologists have described the new KDIGO framework as a true paradigm shift that validates early and comprehensive intervention. We believe this recognition cements FILSPARI's position as foundational care in IgA nephropathy, guiding a new era of evidence-based treatment sequencing. A further testament to our leadership in rare kidney disease is our focus on data generation and dissemination, as exemplified by numerous scientific presentations and engagements at recent congresses, including our 11 upcoming presentations at ASN Kidney Week. A few highlights of this data include the Phase II SPARTAN trial in RAS inhibitor naive patients with IgA nephropathy, demonstrating that irrespective of baseline proteinuria levels. FILSPARI consistently reduced proteinuria and led to significant reductions in urinary biomarkers of disease activity, including reductions in immune system and complement activation markers, indicating potential disease-modifying qualities of FILSPARI. We also have two new presentations from the Phase III PROTECT trial in IgA nephropathy. One, evaluating efficacy across historical histopathology from kidney biopsies and another assessing outcomes based on time from IgA nephropathy diagnosis. Both presentations reinforce the SPARTAN findings and align with the KDIGO recommendations, showing that earlier treatment of patients with FILSPARI can lead to greater nephroprotection. We also continue to generate and present real-world and long-term data across a broad spectrum of IgA nephropathy disease severity, demonstrating FILSPARI's consistent benefit in reducing proteinuria and preserving kidney function. In FSGS, as Eric highlighted in his opening remarks, we are pleased with the progress of our review. The agency remains engaged on our submission. And from our perspective, the process continues to be similar to our experience during the IgAN NDA review. Ahead of a potential approval in January 2026, our Medical Affairs teams are deeply engaged, expanding disease education, strengthening nephrologist awareness around the importance of proteinuria in FSGS disease progression and responding to queries regarding how the DUPLEX data could translate into real-world benefit for this underserved patient population. At ASN, we are presenting several new analyses from the DUPLEX study, including a late-breaking analysis that demonstrates that patients treated with FILSPARI achieved proteinuria levels of less than 0.7 grams per gram more frequently versus maximum labeled dose irbesartan. And patients who achieved this threshold had a lower risk of kidney failure, irrespective of treatment arm. This analysis demonstrates further alignment and supports the conclusions of the PARASOL working group that lower levels of proteinuria translate into meaningful improvements in kidney outcomes. We also have data that extrapolates the antiproteinuric treatment effect of FILSPARI versus irbesartan seen in the 2-year DUPLEX trial into longer term kidney failure outcomes from the U.K. Rare Disease Renal Registry or RaDaR. And we also have subgroup analyses of pediatric patients and patients with collagen 4 genetic mutations, demonstrating a consistent antiproteinuric treatment effect with FILSPARI versus irbesartan in these 2 high-risk difficult-to-treat patient populations. With no approved medicine for patients with FSGS today, the opportunity to bring FILSPARI forward is both urgent and transformative. The supportive data from DUPLEX and our regulatory momentum give us confidence in the path ahead. With our goal to provide FILSPARI as a foundational treatment for patients with IgA nephropathy and ultimately those with FSGS, we are pleased that the FDA approved modifications to our REMS program, removing the embryo fetal REMS and reducing the frequency of liver monitoring to quarterly. The feedback we have heard from nephrologists is that these changes are welcomed. The monitoring frequency aligns with how they care for their patients in clinical practice. And these changes can help increase access for the subset of patients for whom monthly testing was an impediment. Turning to our pegtibatinase development program for the treatment of classical HCU. We recently presented long-term data at the ICIEM Congress from Cohort 6 in our Phase I/II COMPOSE open-label extension. At the 2.5 milligrams per kilogram twice weekly target dose, patients treated with pegtibatinase achieved sustained and clinically meaningful reductions in total homocysteine and methionine over an additional year of follow-up, remarkable results in the context of an open-label study. Importantly, we have successfully manufactured the first commercial scale batches of pegtibatinase and have generated data to support FDA interactions. This progress positions us for an expected restart of enrollment in the pivotal Phase III HARMONY study next year, reinforcing our commitment to advancing the only investigational therapy with disease-modifying potential for patients with classical HCU. I will now turn the call over to Peter for a commercial update. Peter? Peter Heerma: Thank you, Jula. I am very pleased to share that the third quarter marked another period of strong commercial performance and continued momentum for FILSPARI in IgA nephropathy, reinforcing its position as a foundational therapy. FILSPARI net product sales reached approximately $91 million in the third quarter, representing another quarter of strong growth, driven by consistent demand and deepening engagement among new and experienced prescribers. Demand for FILSPARI remains robust with 731 new patient start forms received during the quarter despite experiencing summer seasonality as is typical in the summer months. In fact, in September, we recorded our highest daily patient start form rate since launch and we are seeing that trend continue into October. Throughout the quarter, we saw durable utilization among existing nephrologists and a continuation of new prescribers. Importantly, we are seeing a steady increase in the number of practices treating multiple patients with FILSPARI, which highlights growing confidence in the therapy's profile and real-world performance. As the IgA nephropathy treatment landscape evolves, we continue to hear consistent feedback from the nephrology community, reinforcing that physicians view FILSPARI as the preferred novel therapy, not only because of its proteinuria efficacy. But because it delivers a meaningful long-term improvement in kidney outcomes while allowing patients to maintain a normal lifestyle through a once-daily oral regimen. And we are encouraged by the response of the nephrology community to the modification of our REMS program. This simplification makes FILSPARI treatment even more convenient, particularly for newly diagnosed or lower-risk patients as quarterly monitoring is consistent to nephrology clinical practice. We are pleased to see continued uptake of FILSPARI among patients with lower proteinuria levels, reflecting growing recognition that patients above 0.5 gram per gram remain at risk of progression in alignment with our broader label and the KDIGO guidelines. Patient satisfaction is strong as evidenced by consistently high compliance and persistence. As we continue to expand FILSPARI's reach, our patient services and fulfillment programs remain an important contributor. We have maintained broad payer coverage with easing of prior authorization requirements to reflect FILSPARI's broader label, long-term evidence and positioning in the guidelines. Turning to FSGS. If approved, FILSPARI will become the first approved medicine for FSGS, a leading cause of kidney failure. Given the high degree of overlap between the FSGS and the IgA nephropathy prescriber base, we will be able to build upon strong brand awareness and familiarity of FILSPARI with many physicians that have already had experience with the product. Given the high unmet need for an approved medication and the progressive nature of FSGS, we believe this could be an even bigger opportunity with a more rapid uptake versus our launch in IgA nephropathy. We know the FSGS community is eagerly awaiting an effective medicine. And we will be ready to launch in January, if approved. In summary, the third quarter represents another quarter of exquisite execution and continued growth for FILSPARI in IgA nephropathy. The combination of clinical product differentiation, early intervention, strong prescriber confidence and a consistent patient experience continues to drive momentum and position FILSPARI as a foundational and nephroprotective choice among IgA nephropathy therapies. With our strong commercial foundation and expanding real-world experience, we remain confident in FILSPARI's ability to deliver sustainable growth and long-term leadership in rare kidney disease care. I am sincerely proud of the continued performance of our commercial teams and the dedication they bring every day to support patients and physicians. Their success in establishing FILSPARI in IgA nephropathy gives us great confidence in our ability to execute effectively in FSGS, and we will be ready if approved. Let me now turn the call over to Chris for the financial update. Chris? Chris Cline: Thank you, Peter, and good afternoon. This quarter, we delivered another strong set of financial results with continued significant revenue growth and disciplined financial investments. As Peter mentioned, our top line expansion reflects the strength of our underlying FILSPARI business and the consistent execution across our key commercial initiatives, momentum that we believe sets us up for durable growth ahead. We also further strengthened our financial foundation by repaying our remaining 2025 convertible notes and significant value was generated from our partnerships, including the recently achieved $40 million market access milestone from CSL Vifor and the announced acquisition of Renalys by Chugai, both great examples of how our collaborations continue to create value and validate the potential of FILSPARI globally. Starting with revenue. In the third quarter, we generated U.S. net product sales of $113.2 million. FILSPARI continued to grow significantly in the third quarter, generating $90.9 million in U.S. net product sales, which represents an increase of more than 155% year-over-year. From a gross to net perspective, FILSPARI had a onetime benefit of less than $2 million during the quarter. And we continue to anticipate higher discounts in the fourth quarter. Elsewhere, DILI contributed $22.3 million in U.S. net product sales. And we also recognized $51.7 million of license and collaboration revenue, which results in total revenue of $164.9 million for the quarter. Included in the license and collaboration revenue line this quarter is a $40 million market access milestone that was achieved by CSL Vifor. We recently received payment, which will be reflected in our cash balance in the fourth quarter. Also included in the license and collaboration this quarter is $9.3 million in noncash revenue that resulted from the relinquishment of our option to acquire Renalys in anticipation of their agreement to be acquired by Chugai. Moving to operating expenses. Our research and development expenses for the third quarter of 2025 were $51.9 million compared to $51.7 million for the same period in 2024. On a non-GAAP adjusted basis, R&D expenses were $47.8 million compared to $48.4 million for the same period in 2024. Selling, general and administrative expenses for the third quarter were $86.5 million compared to $65.6 million for the same period in 2024. On a non-GAAP adjusted basis, SG&A expenses were $63.5 million for the third quarter compared to $49.7 million for the same period in 2024. The increase in SG&A is primarily attributable to investments in preparations for a potential launch in FSGS in January, increased amortization expense related to FILSPARI royalties as well as an increased investment in supporting commercial efforts for FILSPARI in IgA nephropathy following full approval. Total other income net for the third quarter of 2025 was less than $1 million compared to $1.3 million for the same period in 2024. Net income for the third quarter of 2025 was $25.7 million or $0.29 per basic share compared to a net loss of $54.8 million or $0.70 per basic share for the same period in 2024. On a non-GAAP adjusted basis, net income for the third quarter of 2025 was $52.8 million or $0.59 per basic share compared to a net loss of $35.6 million or $0.46 per basic share for the same period 2024. As of September 30, 2025, we had cash, cash equivalents and marketable securities totaling approximately $254.5 million. This balance reflects our repayment of the remaining $69 million in 2025 convertible notes. And as I highlighted earlier, it does not yet reflect the proceeds of the $40 million milestone payment from Vifor and it also does not yet include any proceeds from the recently announced acquisition of Renalys by Chugai. As we move forward, we are well positioned to sustain our momentum in IgA nephropathy, execute a successful launch in FSGS if approved and advance the reinitiation of enrollment in our pegtibatinase Phase III study next year. Importantly, we're doing all of this from a position of financial strength with no near-term need for additional capital to execute on our core objectives. This foundation gives us confidence in our ability to execute on our key priorities and continue advancing our mission for patients. I'll now turn it over to Eric for his closing comments. Eric? Eric Dube: Thank you, Chris. In Q3, we made tremendous strides across all of our programs. And I am proud of how every employee shows up with passion and focus to advance our mission. One great example is our pegtibatinase team, who has diligently solved scale-up challenges so that we are positioned to restart the HARMONY trial next year. October is HCU awareness month. And it is a fitting reminder of how much work is still needed to allow families affected by HCU to live with a little less worry and a bit more hope. We've entered the final months of 2025 confident in our ability to sustain FILSPARI's growth in IgAN to successfully execute on a potential approval and launch in FSGS and to advance our pipeline with focus. We have the right people, a strong financial foundation and the momentum to bring incredible innovation to the rare disease communities that have been waiting far too long. I'll now turn the call over to Nivi for Q&A. Nivi? Nivi Nehra: Thank you, Eric. Operator, we can now open up the line for Q&A. Operator: [Operator Instructions] We will now take the first question from the line of Joe Schwartz from Leerink Partners. Joseph Schwartz: Congrats on another strong quarter of execution. With the new label approved in August, can you quantify either qualitatively or quantitatively the early impact of the REMS adjustment? Are you seeing new prescribers or a new patient base that might have been more reluctant previously. It seems like with such a strong beat this quarter, you might not be seeing any competitive impacts? Or are you seeing any at all and it was just offset by the updated label? Any color you could provide would be great. Eric Dube: Thanks, Joe. Peter, why don't you take that question? Peter Heerma: Yes. Thanks, Joe. It's a good question. I think you're asking two questions. One is what is the impact of the REMS modification so far? And two, are you seeing any impact of competitive dynamics? I think overall, I would say we see very consistent demand since we had our full approval last year. And that consistency have not been impacted by launches of new products that came into the marketplace. So I think very robust continuation of growth. I think to your first question with regards to the REMS modification, I think that is certainly a tailwind that we are having and that has been very positively received by the nephrology community. What we are seeing is that we have a continuation of new prescribers, while we also continue to expand within experienced prescribers. And I think especially the REMS modification from a monthly base to a quarterly base in the first year really helps for those patients that are not as sick at the higher proteinuria levels, but still are at significant risk of progression of disease. Those patients may not see the physician on a monthly base or may not do traditional testing on a monthly base, but certainly do it at a quarterly base. So I think the timing of the REMS modification fits very nicely in the expansion of the patient population that we are seeing. Joseph Schwartz: Any insight into any competitive pressures at all? Or have you not detected any? Peter Heerma: Yes. As I mentioned, we have seen very consistent demand. I would say Q3, we saw less of an impact of seasonality than we saw last year and that in a more competitive landscape. So I would say that gives you a color of our execution and performance in Q3. Eric Dube: Yes. That's great, Peter. And the only thing that I would offer in addition, Joe, is that not only did we see the modification of REMS, as you alluded to, which makes it just that much easier for physicians and patients. But we also saw the publication of the KDIGO guidelines that further reinforce the positioning of FILSPARI. And I think both of those in combination, of course, with the phenomenal execution of Peter's team continues to reinforce our strong position within this market. Operator: Laura Chico from Wedbush. Laura Chico: Just two quick ones for me. First, with respect to FILSPARI at this point, do you have a sense as to what the typical baseline proteinuria level is at start of prescribing? I think Peter made a comment about perhaps some patients coming in now with a lower level. Second, are you detecting any off-label use in the FSGS setting at this point? Eric Dube: Thanks, Laura, for those questions. I'll take the second one regarding FSGS. We do see some limited prescribing and use in FSGS. We, of course, do nothing to promote that. But we are seeing some physicians make that choice. I will turn it over to Peter to ask your question or answer your question about baseline UPC. Peter Heerma: Yes. Thanks, Laura. So what we have seen since we had a full approval last year in September is that we have seen consistently the baseline proteinuria levels are well below 1.5 gram per gram. And it's what you would expect. I mean, the larger patient population, about 65% of the patient population have proteinuria levels below 1.5. And we're making good inroads in penetrating that market segment. And what you would expect is that you will see a continuation of lower proteinuria levels at initiation. Operator: Anupam Rama from JPMorgan. Anupam Rama: Congrats on the quarter. Just in the context of the beat that you guys had here with FILSPARI, how do we think about sort of the quarter-over-quarter declines in patient start forms? I know you mentioned some summer seasonality, but there were those tailwinds from guidelines and REMS. What are the considerations there? Anything to note on gross to net or inventory? Eric Dube: Yes. Maybe I can frame this and then have Peter and Chris offer anything further. I think the strong performance in demand in Q3 really reflects that underlying expectation. And I'll have Peter talk about some of the trends within the quarter that we saw. But it really is about the seasonality. While we didn't see as much impact this year as we did last year, we certainly did see some of that in terms of the slower months. Peter, maybe you can allude to that. And Chris, you can talk about the gross to net impact in Q3. Peter Heerma: Yes. Happy to comment on that, Anupam, and thanks for that question. I'm actually really pleased with the performance and the demand we saw in Q3. In particular, what I outlined during the call, September, we had the strongest daily patient start form generation and that trend has continued in October. So I think very strong demand. And as I mentioned earlier, we have seen less of an impact of seasonality in a more competitive environment. So I think the performance is really strong. And yes, I couldn't be more proud of the team to continue to execute in the way they do. Chris Cline: Anupam, on the gross to net factor for this quarter, we did highlight that there was less than $2 million benefit. And really, that's just working through the first year here in Part D and having the true-ups as we go throughout the year. Looking ahead, we've guided to throughout the year that the back half may have higher gross to net. That remains the same for the fourth quarter. But we're still right around that guidance of around 20% for the year. And the fundamentals, as Eric and Peter highlighted, very strong. So we're looking forward to the end of the year here. Operator: Tyler Van Buren from TD Cowen. Unknown Analyst: This is Francis on for Tyler. What can we expect in terms of communication leading up to the FSGS PDUFA date in January? Is it possible that you'll disclose if and when you're in labeling discussions? Eric Dube: Francis, thanks for the question. It's been our practice not to comment on ongoing FDA interactions. And like we did during our IgAN review, we'll be entering a quiet period as we approach the PDUFA date. So you wouldn't expect any updates from us during that time. But we will provide and look forward to providing updates on January 13. Operator: Yigal Nochomovitz from Citigroup. Yigal Nochomovitz: So I wanted to ask about REMS and KDIGO. I'm just curious, when you're in the field now with the new message around the reduced REMS and the better KDIGO guidelines, how many of the practitioners are sort of aware of these changes or were informed outside of the channels through Travere? Or is it really that the information is coming from Travere in terms of learning about the better REMS and the KDIGO? Just how is that information flowing? It would be interesting to understand a little better. Eric Dube: Yes, Peter, do you want to take that? And then, Jula, do you have anything further from your engagement with KOLs? Peter? Peter Heerma: Happy to take that one. I mean it was a year ago that KDIGO disclosed the draft guidelines. And I think familiar, the key opinion leaders and the thought leaders, they were well familiar with the KDIGO guidelines. But what we are seeing now is the full publication that it really trickles down to the community nephrologists as well. And so that publication really helps there. And our team is certainly -- it fits nicely in our educational efforts with physicians. With regards to the REMS modification, that is really up to us to communicate to physicians. And like I said in the prepared remarks, I'm really pleased with the reaction and the response we got from physicians of that modification in the first year and how this fits very nicely with their clinical practice, not having to have that monthly monitoring, but doing it at a quarterly base from the get-go. And like I said -- I mean, this is something that they are doing on a quarterly basis anyway. So there is no additional burden for the physician, neither for the patient. Yigal Nochomovitz: Then on pegtibatinase, just very quickly, is the scale-up basically a completed project now? Or is there any more work to do to make sure you have enough supply for the whole HCU market? Eric Dube: Thanks, Yigal. Bill, why don't you take that one? William Rote: Certainly. Well, we're very pleased to have completed our first commercial batches. This enables us to engage with the FDA as was planned, which enables the restart of the study in the next year. We will continue additional manufacturing campaigns in parallel with the study running to do the further characterization work that's required for the BLA and to build stock for launch. But the key milestone is getting to this scale of manufacture, so that we can restart enrollment in the Phase III study. Operator: Gavin Clark-Gartner from Evercore. Gavin Clark-Gartner: I'm sorry to go back to kind of the net price discussion. But even if I take a couple of million out there for the onetime net price boost, I think the revenue was still a little bit higher than some investors were anticipating based on the PSS trajectory. I'm just curious like is this volume of PSS trajectory that you got, like this quarter and last quarter, which is fairly consistent. Is the revenue growth you're seeing based on that something we should be extrapolating going forward? And like how much is the Q4 gross to net impact? Eric Dube: Thanks, Gavin. Chris, why don't you take that? Chris Cline: Sure. So I think one of the things that Peter has mentioned along the way is that we've continued to refine our pull-through process and we've really made good progress there. So I think that's part of what's driving the revenue growth that has been able to outpace the PSS growth over time. We've also seen very strong compliance and persistence. I think, again, that's another testament to the overall profile for FILSPARI. On the gross to net front, we haven't broken it down specifically by quarter. But the third quarter was similar to the second quarter, slightly lower. We would expect that to increase in the fourth quarter. And overall for the year, we're expecting to come out right around the 20% mark. So that's about as much of the guidance as we can provide at this point. But hopefully, that gives you a better sense for how to model that out, Gavin. Operator: Mohit Bansal from Wells Fargo. Mohit Bansal: Congrats on the progress. So in FSGS, I think we might see some data from Novartis soon with atrasentan from their basket trial. Can you talk about advantages you see with a dual ERA mechanism in this indication compared with an agent like atrasentan, which doesn't have the RAS inhibitor component, especially this being an indication where there is not as high background use of RAS inhibitors compared with IgAN? Eric Dube: Thanks for the question. Jula, why don't we have you answer that? Jula Inrig: Certainly, it is quite important in FSGS, which is a true podocytopathy that's at the heart of the disease to target it with both endothelin and angiotensin II together to have the greatest nephroprotective potential. And we also see that with the magnitude of proteinuria reduction we see in this patient population of FILSPARI being used. We see about a 50% reduction in proteinuria that's durable out to 2 years. And that's where we have the confidence that this is the right way to target these patients to provide them long-term kidney protection. I understand there might be some use of single agents. I won't comment on the lack of data that we have regarding atrasentan. We really haven't seen anything to date. So I can't comment on what that gap might leave behind when you don't target both mechanisms. We know when we target both mechanisms, we have -- we get more patients into complete remission as well as greater reductions in proteinuria and FSGS, and that's what really matters. Operator: Prakhar Agrawal from Cantor. Prakhar Agrawal: So Novartis during their earnings said that they have 20% NBRx share, 10% of that is coming from Venrefa and the rest is from Fibralta. So maybe if you can expand on where you are seeing Venrefa and Fibralta as gaining share? And then another follow-up on IgAN. You said September was the strongest month, and October you're also seeing good consistent demand. So should we expect the new patient start forms to increase sequentially in 4Q? Eric Dube: Thank you for the questions. Peter, why don't you take those? Peter Heerma: Yes, I'm happy to take that question. I mean what we have seen -- and I mentioned that before, is that we see very consistent and steadily growing demand since we had our full approval in September last year. And the launch of atrasentan or iptacopan has not really changed that. I mean, iptacopan was launched basically at the same time as we have full approval. Atrasentan was launched like 6 months ago. But it hasn't really changed our trajectory and our continuation of the momentum. So I couldn't be more pleased with the execution and what we are seeing. And I think now with the REMS modification as well as the KDIGO guidelines, I think those are additional momentum builders for us. And so I remain very confident in a more competitive landscape. Eric Dube: Yes. And just to add with regard to whether you can expect sequential increase we've not provided guidance. What Peter shared in the past is, I think, two really important components of that. One is we expect that demand to be above 700 in terms of that quarterly demand. We certainly have seen that as he talked about. But also we think about the large opportunity to be able to have these patients move from RAS inhibition to dual inhibition with something like FILSPARI or the addition of ERA. Most of these patients still are on only RAS. So there is a tremendous opportunity for growth. We're clearly making that progress. We're seeing those occur. And I don't want to speak about other companies' performance. They're clearly helping to be able to increase the shift from RAS inhibition. But as you can see, we've not really seen an impact from their launches. Operator: Maurice Raycroft from Jefferies. Maurice Raycroft: Congrats on the quarter. You mentioned that your increased SG&A for the third quarter includes additional investment in preparation for a potential FSGS launch. Can you talk more about how you're prepping for the launch and how we should think about SG&A expectations going forward? Eric Dube: Sure. Peter, why don't you take the question with regard to how your team is preparing for the approval? And Chris, you can talk about SG&A. Peter Heerma: Yes, Maurice, first of all, I think it's good to realize that this is basically the same prescriber base in FSGS as what we have seen for IgA nephropathy. Basically, the only nephrology segment that we haven't called upon is the pediatric nephrologists. But overall, there's a high level of overlap. So we build upon strength and high brand familiarity. We will have an incremental increase in our commercial footprint to really continue that momentum in IgA nephropathy while also enabling the early uptake that we are envisioning for FILSPARI. So we are building upon strength. And like I said, we have that incremental increase of our commercial footprint. Chris Cline: Maurice, as you can take from Peter's comments, with bringing on some additional sales team members and some other support services here, we do expect to see an incremental increase in SG&A. We started to onboard a number of those people this quarter. But really, you'll see more of that effect in 4Q and going forward. And then around the time of launch, you would also anticipate that we'll have an increase in investment level as we're really making sure that we're providing the right resources to have a very strong start out of the gate early next year. So incremental increases as we go, but we are building from a very strong base. And we're going to be able to leverage a lot of synergies from Peter's team that's performing quite well right now. Operator: Jason Zemansky from Bank of America. Jason Zemansky: Congrats on the great progress. I wanted to revisit the efforts to now completely remove the REMS. I guess, first, given the acceleration in patient starts here and therefore, overall exposure to FILSPARI, have your time lines changed at all? And then I guess, any other updates on this front now that the original REMS modification has occurred? Eric Dube: Thanks, Jason. Bill, why don't you take that question? William Rote: Sure. And we're excited about the REMS modification that was granted in August. And I think we've seen the tailwinds that that provides and the positive feedback from physicians and patients. Our strategy has always been for ultimate removal of the REMS. And with our prior interactions with the agency, we've approached it with a 2-step process with seeing the frequency change first and then removal second. As we've noted in the past, the FDA has been anchored on our PMR study, which requires exposure across about 3,000 patients for 2 years. So our process really hasn't changed. Consistent with our approach, we'll continue to engage with the agency and align with them on our next steps. Operator: Alex Thompson from Stifel. Alexander Thompson: Maybe a follow-up on the commentary on some off-label FSGS use. I wonder if you could comment as to whether those patients are coming in at about 2x the IgAN dose or if they're still early in their treatment course and maybe not titrate up fully yet. Eric Dube: Alex, thanks for the question. So we do have limited insight into some of that information. And I would not want to generalize around the dosing at this point. I think what's important is that upon an approval, we would make sure that physicians are appropriately educated on the label, on the target dose. And of course, as we have with IgAN, we've got strong patient services support for the patients and their offices to ensure that they're at the appropriate dose. Operator: Joe Pantginis from H.C. Wainwright. Joseph Pantginis: So first, I want to talk more about the expenses that you mentioned earlier, but to the totality of the expenses going forward. I won't ask you to project profitability timing. But I guess, can you directionally speak to especially R&D going forward as you're going to bringing PEG back into the clinic and how we should sort of view that offset by FILSPARI revenues? Secondly, I'm just curious with regard to Renalys and Chugai, any change in time lines for development of sparsentan in Japan, South Korea and Taiwan? Eric Dube: Joe, thanks for the questions. I'll quickly address the last one and then turn it over to Chris to answer the questions on expenses. No change in time lines. We've been incredibly impressed with the speed and quality of work from Renalys and we have a high regard for Chugai Pharmaceuticals. We would expect that they would be just as focused when they initiate the FSGS and Alport syndrome programs. We can't speak for them. But what I can say is what we've seen thus far has been very impressive. Chris? Chris Cline: Joe, on the R&D front for operating expenses, we're in the midst of the budgeting process now. So I'll be able to come back with a little bit more clarity on that post 4Q. But you are right that we do expect to have additional investments for pegtibatinase as that clinical operation really ramps up once we restart. And we're looking at investments there to have that be the fastest enrollment and time line to top line data while maintaining quality that we can. For sparsentan, there are -- as you might imagine, with DUPLEX and PROTECT, we do see a ramp down in activity in that. But there are also other evidence generation efforts that could potentially be helpful both in IgA nephropathy, but then also in FSGS pending approval here where we believe we can help generate even more value. The last thing I'll highlight with FILSPARI that's still going to be an investment is going to be the transplant studies that recently kicked off and are in the recruiting phase now. So there are still investments that we need to make on the R&D front. But to your point or question around the context of the revenue, we expect revenue to continue to grow very nicely and be able to support our efforts here. Operator: Ladies and gentlemen, this concludes the question-and-answer session of today's conference call. I'll hand the call back over to Nivi. Nivi Nehra: Thank you, everyone, for joining today's call. Have a great rest of your day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the Axos Financial, Inc. First Quarter 2026 Earnings Call and Webcast. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Johnny Lai. Please go ahead. Johnny Lai: Thanks, Carrie. Good afternoon, everyone, and thanks for your interest in Axos. Joining us today for Axos Financial, Inc.'s First Quarter 2026 Financial Results Conference Call are the company's President and Chief Executive Officer, Greg Garrabrants; and Executive Vice President and Chief Financial Officer, Derrick Walsh. Greg and Derrick will review and comment on the financial and operational results for the quarter ended September 30, 2025, and we will be available to answer questions after the prepared remarks. Before I begin, I would like to remind listeners that prepared remarks made on this call may contain forward-looking statements that are subject to risks and uncertainties and that management may make additional forward-looking statements in response to your questions. Please refer to the safe harbor statement found in today's earnings press release and in our investor presentation for additional details. This call is being webcast, and there will be an audio replay available in the Investor Relations section of the company's website located at axosfinancial.com for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release. Before handing the call over to Greg, I'd like to remind our listeners that in addition to the earnings press release, we also issued an earnings supplement and 10-Q for this call. All of the documents can be found on axosfinancial.com. With that, I'd like to turn the call over to Greg. Gregory Garrabrants: Thank you, Johnny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the first quarter of fiscal 2026 ended September 30, 2025. I thank you for your interest in Axos Financial. We had a strong start to our fiscal 2026, generating $1.6 billion of net loan growth linked quarter, including $1 billion of loans and leases and on-balance sheet securitizations acquired in the Verdant acquisition, which closed on September 30, 2025. A 5 basis point linked quarter reduction in net charge-offs and a 17% year-over-year increase in book value per share. We continue to generate high returns as evidenced by the nearly 16% return on average common equity and the 1.8% return on average assets in the 3 months ended September 30, 2025. Other highlights in the quarter include net interest income was $291 million for the 3 months ended September 30, 2025, increasing by approximately $11 million linked quarter or 15.6% annualized. Net interest income growth benefited from balanced growth across single-family mortgage warehouse, commercial specialty real estate and auto lending. Net interest income in the prior year's comparable quarter ending September 30, 2024, included a benefit of approximately $17 million from the prepayment of 3 FDIC purchased loans. Excluding that onetime benefit, net interest income was up $16 million or 5.8% from fiscal Q1 of 2025 to fiscal Q1 of 2026. Net interest margin was 4.75% for the quarter ended September 30, 2025, down 9 basis points from 4.84% in the quarter ended June 30, 2025. Excluding the impact from holding excess liquidity, our net interest margin was roughly flat quarter-over-quarter. Since the Verdant acquisition closed on 9/30/2025, the transaction did not have any impact on our net interest income or net interest margin in this quarter end. We continue to maintain a best-in-class net interest margin with or without the benefit of the accretion from purchased loans from the FDIC. Noninterest income increased by approximately 13% year-over-year due to higher banking service fees, mortgage banking income and prepayment penalty fees. Total on-balance sheet deposits increased 6.9% year-over-year to $22.3 billion. Our diverse and granular deposit base across consumer and commercial banking and our securities businesses continues to support our growth and are expected to provide relatively lower cost of funding sources for the loans and leases acquired from Verdant relative to their prior capital structure. Total nonaccrual loans to total loans declined 5 basis points linked quarter, resulting in our nonaccrual loans to total loans improving from 79 basis points as of June 30, 2025 to 74 basis points as of September 30, 2025. Net income was approximately $112.4 million in the quarter ended September 30, 2025, up from $110.7 million in the quarter ended June 30, 2025. Diluted EPS was $1.94 for the quarter ended September 30 compared to $1.92 in the June quarter. Excluding the onetime deal-related expenses and allowance for credit loss adjustment for the Verdant acquisition, adjusted net income and adjusted EPS were $119 million and a $2.06 per share, respectively, for the quarter ended September 30, a 7.3% increase from the linked quarter and almost 30% annually. Total originations for investment, excluding single-family warehouse lending, were over $4.2 billion for the 3 months ended September 30, representing an increase of 11% linked quarter or 44% annualized. Commercial real estate specialty lending, auto lending and single-family warehouse had strong originations and net loan growth this quarter. Average loan yields for the 3 months ended September 30 were 7.99%, in line with the prior quarter. Average loan yields for non-purchased loans were 7.66%, and average yields for purchased loans were 15.81%, which includes the accretion of our purchase price discount. The FDIC purchased loans continue to perform and all loans in that portfolio remain current. New loan interest rates for the September quarter were 7.2% in both the multifamily and C&I portfolios, and 7.3% in single-family, and 8.25% in our auto portfolio. Ending deposit balances of $22.3 billion were up 6.9% linked quarter and up 11.5% year-over-year. Demand money market and savings accounts representing 94% of total deposits at September 30 increased by 9% year-over-year. We have a diverse mix of funding across a variety of business verticals with consumer and small business representing 57% of total deposits, commercial cash, treasury management and institutional representing 22%, commercial specialty representing 11%, Axos Fiduciary Services representing 5% and Axos Securities, which is our custody and clearing business representing 5%. Ending noninterest-bearing deposits were approximately $3.4 billion at the September end -- quarter end, up by approximately $350 million from the prior quarter. Noninterest-bearing deposit balances benefited from continued growth of our treasury management business and from a large increase in cash sorting deposits that came in toward the end of the quarter. Client cash sorting deposits ended the quarter at around $1.1 billion, up by $95 million from the June quarter. In addition to our Axos Securities deposits on our balance sheet, we had approximately $460 million of deposits off balance sheet at partner banks. We remain focused on adding noninterest-bearing deposits from our custody, clearing, fiduciary services and commercial cash and treasury management verticals. Our consolidated net interest margin was 4.75% for the quarter ended September 30 compared to 4.84% in the quarter ended June 30. We had more excess liquidity in the quarter ended September 30 with average cash balances of approximately $2.5 billion compared to $2.15 billion of average cash balances in the prior quarter. This excess liquidity was a 7 basis point drag on our net interest margin. Additionally, we issued approximately $200 million of subordinated debt in September of 2025, which has a fixed annual interest rate of 7% for the first 5 years. We used part of the proceeds from the $200 million subordinated debt offering to pay off approximately $160 million of existing subordinated debt that was scheduled to move from a fixed annual interest rate of 4.875% to approximately 9% in October. The new subordinated debt issuance reduced our net interest margin by 1 basis point in the quarter ended September 30, 2025. We expect our consolidated net interest margin ex FDIC loan purchase accretion to stay at the high end of the 4.25% to 4.35% range we have targeted over the past year. While new loan yields are coming in slightly lower in certain lending categories due to recent Fed actions, our goal is to offset lower loan yields with reduced cost of funds. Our loan pipelines have improved over the past few quarters as a result of successfully expanding our distribution channels across commercial lending categories and increased contributions from teams we onboarded over the past few quarters. The floor plan lending team has a nice pipeline. We also believe we've moved past peak levels of prepayment in our multifamily loan portfolio, which have been a significant headwind to net loan growth over the past several quarters. We expect the Verdant acquisition to add an incremental $150 million to $200 million of net new loans and operating leases per quarter at attractive spreads starting in the second quarter of this fiscal year ending December 31. Taking all these factors into consideration, we expect loan growth to come in at the low to mid-teens range on an annual basis in the remaining 9 months of our fiscal year 2026. The credit quality of our loan book continues to be solid and our historical and current net charge-offs remain low. Total nonperforming assets remained flat linked quarter, representing 64 basis points of total assets compared to 71 basis points in the quarter ended June 30, 2025. Nonperforming assets declined by approximately $17 million in multifamily and commercial mortgages and by $7.4 million in commercial real estate, partially offset by increases in nonperforming assets in single-family mortgages due to a handful of loans with a weighted average loan-to-value of 57%. No new C&I loans were placed on nonaccrual this quarter and a few larger C&I loans currently on nonaccrual are still paying as agreed. We do not anticipate a material loss from loans currently classified as nonperforming in our single-family, multifamily or commercial real estate loan portfolios. Net charge-offs to total assets were down 5 basis points linked quarter and 6 basis points year-over-year to 11 basis points for the 3 months ended September 30. Axos Clearing, which includes our corresponding clearing and RIA custody business had a good quarter. Total assets under custody or administration increased from $39.4 billion at June 30 to $43 billion at September 30. Net new assets for our custody business were $1.1 billion in the September quarter, an acceleration in the net new asset momentum we have experienced over the past several quarters. This marks the first time that assets in Axos Clearing's custody and clearing business have exceeded $40 billion. The pipeline for new custody clients remains healthy. We continue to evaluate M&A opportunities to augment growth from existing businesses and team lift-outs. We successfully completed the acquisition of Verdant Commercial Capital, a vendor-based equipment leasing company at the end of September. Verdant's focus on originating small and mid-ticket leases nationally in 6 specialty verticals is a great enhancement to our commercial lending franchise. Their risk-adjusted returns, history of low credit losses, tech-enabled service model and the entrepreneurial spirit of the team members are a great strategic fit for Axos. Additionally, these long-duration fixed rate loans and leases complement our existing floating and hybrid loans in our single-family mortgage and commercial specialty lending businesses. In addition to having access to lower cost of capital and funding, we believe the Verdant team will benefit from our operations and tech support. After meeting with the management sales, operations and credit team post close, we are confident that we'll be able to generate meaningful growth from existing and new vendors and dealers in our 6 existing verticals. Over the medium to long term, we see additional opportunities to generate incremental growth from entering new verticals as well as cross-selling deposits and floor plan lending to larger strategic dealers and original equipment manufacturers. From a deal perspective, we paid a modest 10% premium on the roughly $40 million of book value of Verdant at September 30. The seller will also have an opportunity to earn up to $50 million over the next 4 years if the business generates a greater than 15% return on equity on an annual and cumulative basis. The transaction added approximately $1.2 billion in loan, leases and equipment operating leases, which include $1 billion of loans and leases and $213 million of equipment operating leases, which are recorded in other assets. We paid off $87 million of subordinated debt and $242 million of warehouse borrowings at closing and assumed $754 million of long-term securitization financing. From an income perspective, we recorded approximately $1.3 million in deal-related expenses in this quarter and added $7.8 million to allowances for loan loss, including the roughly $7.8 million additional CECL reserves that we realized at closing, the total allowance for credit losses for the acquired loans and leases was approximately $15.6 million or roughly 1.5% of the total outstanding loan and lease balances at September 30, which we added despite a loss history for Verdant well below 50 basis points annually. Our expectation is this acquisition will be accretive to our earnings per share by 2% to 3% in the fiscal year 2026 and by 5% to 6% in fiscal 2027. The current regulatory environment provides a favorable backdrop for additional accretive and strategic M&A transactions. Our strong capital, liquidity and profitability allow us to be disciplined and opportunistic in where we deploy excess capital. We remain hyper-focused on increasing productivity and implementing additional operational improvements to help us become more profitable and scalable. We have rapidly expanded the scope of workflows and use cases for artificial intelligence across the enterprise, including risk and compliance, credit, operations, technology, legal, marketing, finance and accounting and believe that further AI implementations will enable us to create greater operating leverage and improve the speed, quality and cost of software development projects and accelerate new product development. AI is having an impact on our efficiency and software development. We are in development on exciting products and technologies across our consumer, commercial and securities businesses. We are continually enhancing our all-in-one consumer and small business experience with an aggressive and exciting road map. This consumer platform is utilized by retail and end clients in our institutional custody and clearing business. We have begun the rollout of our recently developed Axos Professional Workstation to selected broker-dealer clients. This Professional Workstation is a centerpiece of a technological modernization strategy in our securities business that will allow us to integrate banking products in a seamless way for RIAs and brokers to more holistically serve their clients and provide a much more flexible and modern system than many of our large competitors' legacy systems. In closing, I'm excited about the opportunities we have to maintain our positive momentum in fiscal 2026 and beyond. With the Verdant team and other team hires we have made this last year, producing both loans and deposits, we feel more certain in our ability to grow loans in the low to mid-teen range annually, maintain margin in our forecasted range and other than the costs we added through the acquisition, accomplish our objective to gain operating leverage. Now I'll turn the call over to Derrick, who will provide additional details on our financial results. Derrick Walsh: Thanks, Greg. A quick reminder that in addition to our press release, our 10-Q was filed with the SEC today and is available online through EDGAR or through our website at axosfinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details. Noninterest expenses were approximately $156 million for the 3 months ended September 30, 2025, up by $5.6 million from the 3 months ended June 30, 2025. Excluding approximately $1.3 million of deal-related expenses from the Verdant acquisition in September, total noninterest expenses were up by approximately $4.3 million on the linked quarter. Salaries and benefit expenses were $76.6 million, up by $1.6 million from the prior quarter ended June 30, 2025. The primary drivers of the quarter-over-quarter increase in salaries and benefits expenses were the addition of the floor plan lending team and a partial quarter of our annual merit compensation increase. Data and operating processing expenses were $22.1 million compared to $20.4 million in fiscal Q4 2025. The sequential increase in data processing expense was attributed to a handful of projects across different business units. Since we closed the Verdant acquisition on September 30, 2025, it did not have any impact on our operating noninterest expenses. Going forward, we expect the Verdant acquisition to add approximately $8.5 million per quarter in noninterest expenses. We remain focused on optimizing our operating expenses with a specific focus on AI implementation while making prudent investments to deliver positive operating leverage. As Greg mentioned earlier, we acquired approximately $1 billion of loans and leases and $213 million of fixed asset operating leases in the Verdant acquisition. Of the $1.2 billion of total Verdant loan and leases, approximately $762 million are on-balance sheet securitizations with a weighted average remaining life of 3.7 years. The net loan yield on these assets is between 3.75% to 4.5% above the 90-day SOFR rate. And the net spread of the on-balance sheet securitizations is between 2.57% and 3.07%. The interest income from the $1 billion of loans and leases will be recorded in interest income and the income from the operating leases will be recorded in noninterest income. For all new loans and leases, we expect to record an allowance for loan loss of approximately 1.5%. Next, our income tax rate was 25% for the 3 months ended June 30, 2025, compared to 29.4% in the corresponding year ago period. The quarter ended September 30 was the first quarter that benefited from the impact of the new California budget, which included a change in our tax calculation methodology. Additionally, we had approximately a 1.9% benefit in our tax rate from RSU vesting in the September period. Going forward, we still expect our corporate tax rate to be approximately 26% to 27%, consistent with what we have guided previously. I'll wrap up with our loan pipeline and growth outlook. Our pipeline remains healthy at approximately $2.2 billion worth of loans as of October 24, 2025, consisting of $605 million of single-family residential jumbo mortgage, $78 million of gain on sale mortgage, $352 million of multifamily and small balance commercial loans, $76 million of auto and consumer, and $1.1 billion across our commercial verticals. We expect the combination of strong originations from our commercial lending businesses, growing contributions from incubator businesses such as floor plan lending, slowing prepayments in our multifamily lending business and incremental contributions from the Verdant equipment finance business to drive loan growth in the low to mid-teens year-over-year growth over the next 12 months, excluding the impact of the loan portfolio purchased from the FDIC or any other potential loan or asset acquisitions. With that, I'll turn the call back over to Johnny. Johnny Lai: Thanks, Derrick. We are ready to take questions. Operator: [Operator Instructions] And our first question will come from Kyle Peterson with Needham & Company. Kyle Peterson: I wanted to start off on credit. Obviously, there's been some fairly high-profile headlines of late. Everything in your book looks pretty good. But I guess maybe any context of what you guys are seeing, particularly like in any -- whether it's pipeline deals or anything that is looks a little like spookier or unattractive to you guys? Or I guess, kind of how are you guys thinking about new deals and structure and competition in your approach to credit right now? Gregory Garrabrants: Sure. Thanks for the question, Kyle. Good to talk to you. Yes, the -- so just in speaking about the 3 deals that got a lot of press, we had seen those deals and turn those down for a variety of different reasons. We think there was some decent indicators there just based on structure that were problematic. I think that in late stages of credit cycles, people sometimes get pretty sloppy on structure. And frankly, you see that in some of the syndicated deals where the sort of lender-on-lender violence language wasn't as strong as it should have been in certain cases. We're very careful and watchful of that because we believe that, that can be a problem on syndicated deals. We turned down deals for that. We pushed back. That's an area that is less recognized, but a problem. You don't need -- I personally view it as almost a form of fraud, but you have to just be very thoughtful about that because guys are reading things into this. And it's -- at a minimum, it's extraordinarily aggressive. The other types of more blatant fraud that went on there, like with respect to 1 of the 3 deals was that people are actually forging documents and title insurance and telling banks that they have first liens on assets when they don't. There's always ways of going about trying to stop fraud. And those -- there were ways in what we do that would not have allowed that to happen because we get certain documents directly from title insurers and things that would stop that from happening. But yes, I mean, look, I think that it's always something that you have to look out for. I've always said I think fraud is one of the most dangerous potential issues that any lender has, particularly when they're secured in the manner that we are. And so in each and every segment, there are different types of risks and opportunities to mitigate those risks. And I think we do a good job with it, but we're continually on guard because people come up with new and interesting ways of doing bad things. Kyle Peterson: Okay. I appreciate the detailed color there. And then I guess just a follow-up on fee income came in pretty strong this quarter, at least what we had modeled. Just wanted to see, were there any one-timers or like whether it was like a loan sales or anything like I know you guys said last quarter. But I guess anything onetime? And then I guess, just a refresher on any of the fee income potential contributions from Verdant, like if there's any operating leases or anything and how we should be mindful of like the run rate on that from here on out would be great. Derrick Walsh: Yes, nothing from the fee income that was a one-timer in this past quarter from the Verdant profile. The expectation is a few million dollars will come through in that noninterest income line item as we look forward. Gregory Garrabrants: Yes. I think the one thing... Kyle Peterson: Do you mean per quarter or... Derrick Walsh: Correct. Yes, per quarter. Kyle Peterson: Per quarter. Gregory Garrabrants: And one thing you do have to just be thoughtful about is I think the team has done a good job on the securities side of growing out of the negative impact that hits their P&L when they -- when rates go down. So that -- there's only some of that's off balance sheet like $500 million or whatever, but that's still out there. It's not massive, but you just should think about it. I mean I think they're going to be able to grow out of it. They did grow out of it. But that's out there. So that's one element that you -- and then obviously, mortgage banking picks up, but there's probably a dead zone in there where somewhere mortgage bank has not picked up, but you end up with lower benefit from the 0 cost deposits through the sweeps. Operator: And moving next to Gary Tenner with D.A. Davidson. Gary Tenner: I had a follow-up on VCC. It was my assumption at least that the funding for the loans put on -- or the assets put on balance sheet wasn't to come from your excess cash, but you flagged the secured financing at quarter end. Is there a period of time that you have to keep that? Is it attractive price for you? Can you kind of walk us through that? Gregory Garrabrants: Yes. So we would love to take all that out and utilize the excess cash, and it would be a very wonderful day for us and our shareholders. But these are term securitizations. They were done to match fund particular leases. There is -- there are cleanup calls that I think are all at 10%, right Derrick? Yes, they're all at 10%. So they -- as soon as we can clean these up, we will because it would be cheaper to use our own deposits. But yes, they're on balance sheet, they're term financing. We can't do anything with them. I mean, obviously... Derrick Walsh: We'll monitor them and see if any pricing comes in kind of through Bloomberg and through the markets in the same way that we picked up some of our sub debt at a cheaper rate. We'll do the same thing with the secured financings. If they're trading out there at a discount, we'll be jumping on that. Gregory Garrabrants: I don't think that's going to happen. Just frankly, look, it's possible that the performance of the leases have been very, very strong. So there's no credit component to kind of get anyone excited about that. But you never know. I mean maybe somebody owns a small piece and they want to get rid of it or something like that. So we can always look at that. But unfortunately, but they're going to be out. But I do think that Verdant has a nice pipeline. They're going to be growing. We put that $150 million to $200 million growth target out there. I think they can exceed that and I think they might this quarter. So that also means that there'll be the opportunity to fund those loans with our deposits. And we kind of -- deposits just ended up overshooting this quarter, not only from operational activity, but we were -- we obviously had a big quarter of growth coming. And there was another component is that the timing of the acquisition sort of got delayed, and so they did another securitization. It was a pretty nice and tight spreads. So we talked about it and I said, well, I don't really have an objection to it because there was a bunch of moving pieces to get the deal done. But so yes, but the good news is we're well set up for strong loan growth. And I think with this deal and everything else we've done, we raised our guidance on loan growth because we had that. Even though we are certainly not hoping to be there that high single digits to low teens, and now we have low teens to mid-single digits or something, but it's mid-teens, right? But in any event, it's better. Gary Tenner: Got it. And just to go back to the secured financing, what's the -- just for modeling purposes, kind of what's the carrying cost of this? Gregory Garrabrants: Do you have that? Derrick Walsh: It's a little north or about 5.5%, and they have a 3.7% weighted average in years. Gary Tenner: Okay. Great. And then I just did have a follow-up in terms of the purchase loans. It looks like a pretty steep drop in the balance of average purchase loans in the quarter, but it didn't look like any kind of real outsized interest income or accretion benefit. So could you just comment on that? And then if you have it available, what the period end FDIC purchase loans are? Derrick Walsh: Yes. The -- it was really from the prior quarter. So if you recall, we had a big bump of $12 million in the gain on sale in the mortgage banking last quarter. So that sale occurred in the latter half of June. And so that's why the average balance was much higher for your purchase loans in the June quarter. And so I think that was the only big one that we've had to pay off during the September -- or I mean, in the June and September quarter. But that loan was a little over $100 million. So I think this quarter's average is relatively reflective of what the ending period figure is. Operator: [Operator Instructions] We'll go next to Kelly Motta with KBW. Kelly Motta: The balance sheet growth was remarkable, both organically as well as with the deal that you got. It looks like capital ratios have come down a bit. Greg, can you refresh us on how you're thinking about capital and your comfort here with being able to support potentially mid-teens loan growth, where those capital ratios you're comfortable with letting them go? Gregory Garrabrants: Yes. And we've been accumulating capital and discussing that we believe we have excess relative to what we need. So we feel very good about the capital ratios where they are and even having them go down a bit. But the reality for us is we're making over a 15% ROE. So any loan growth that's sub that essentially allows us to stay roughly equal. I mean, obviously, there's some dividends to the holding company, things like that. But within that range, I feel very good about the profitability. And I think just given if you look at the linked quarter income benefit that didn't even include the $1 billion of the Verdant loans, that was nice growth. So I think that strong income growth and the strong capital accretion is going to work well there. And I think we've done a really good job of bringing our loan loss reserve to a very strong place, including even with Verdant, where I think it was a prudent but conservative decision to bring it to 1.5% given that they've been averaging 25 and 30 basis points of loss over their period. And they've been around 5 years. So that doesn't mean you can guarantee that, but certainly bringing that to 150 is good. So we feel very good about where we are in loan loss. I feel good about where we're seeing the NPL sort of stuff shake out. I feel like the commercial real estate thing, which everybody had their -- was sort of agitated about has certainly not come to fruition in any respect with respect to us. So yes, I think it's good. And we had much higher capital ratios than, frankly, we've ever had. And so it was built for doing just what we did. And so we felt good about that deal and our ability to do it. Kelly Motta: Awesome. You guys certainly make a lot to help replenish those. So in terms of -- Greg, we got the Verdant deal. And in your prepared remarks, it sounds like there might be some more opportunities on the acquisition side. Is there anything you can share with us in terms of types of deals that look attractive, how that's shaping up and kind of the outlook from here? Gregory Garrabrants: Yes. Obviously, as I'm sure you well know and have to cover as these banks get together like kids at a frat party. There's a lot of talk about all those things. I mean we're always active in looking and trying to understand what works and what doesn't. We -- in the case of Verdant, for example, it filled this particular niche. It was a good national specialty vertical with bank quality management in an area that we didn't have. So there's a few other of those type of verticals that we always continue to look for and find the right partners. On the bank side, there's a lot of different ways to look at bank acquisitions and see what works and what doesn't. It has to be obviously the right cultural strategic fit or it has to be an incredible financial bargain. So we're very active in looking, and we'll continue to do that and see what makes sense. Operator: And moving on to David Feaster with Raymond James. David Feaster: I wanted to talk on this NDFI issue. I mean this has now become a dirty word. And I appreciate your commentary a bit talking about it. But I was just hoping you could elaborate maybe a bit on where -- obviously, there's been some fraud, but where are you seeing the pressure points in the industry, maybe compare and contrast a bit with what you do, the exposures that you've got and how you monitor and manage collateral and the cash flows just to protect yourself because that seems like an incredibly important part about that. Gregory Garrabrants: Right, right. Well, so yes, it's a broad category. So if you just sort of go through this logically, single-family mortgage warehouse, right? You have MERS for that. So there was some pretty I mean, obviously, you've been around a long time. I'm not calling you old. I'm just saying you've been around a really, really, really, really long time, David. But you remember like Taylor, Bean & Whitaker and all those kind of things and Colonial and all that sort of stuff where essentially you showed up one day and your loans are pledged to someone else, right? So that issue, I think, is more solved with MERS than others with respect to the types of loans that go through there. That's the single-family warehouse side now. Then if you think about real estate lender finance, where you have facilities that have crossed assets, what happened with respect to those other institutions was that essentially they were told they had first mortgages because they receive title policies from the borrower themselves and essentially 3 different banks, I think, thought they all had first liens or the first liens that were created by the NDFI, 3 different banks thought they had first liens on those first liens, right? So there's some pretty clear ways that you can figure that out. One way is not to get the information from the NDFI, right? So at a fundamental level, there's always this question of what do you trust? What do you don't trust? How do you get it? How do you check it, right? And so that is -- there's some pretty clear ways to do that. I'm not going to paint them all out for all my competitors, but just to say that there's ways of making sure that doesn't happen. Now there's obviously an element of how you monitor that and how you think about that with respect to the timing of it because some lenders cloud title like we do by recording a notice of assignment. So if somebody else tries to lien that particular property, then there's a notice of assignment there, title company won't work through that. Others take the word of their partners for that, right? So you always have these kind of things depending on how you think about it. But frankly, I think it's always interesting to me in banking because it's kind of beautiful to some extent because you get like one thing that happens that's idiosyncratic in a particular problem. And I remember what it was like single-family lending after 2008, '09, and all these people comes to me and say, "Well, I can't believe you're doing single-family mortgages in Florida." And I'm like, "Yes, we weren't doing them when the prices were super high, but now that they've fallen by -- the prices have fallen by 60%, we're now doing it at 40% LTVs." And of course, no, we never lost a single penny on that, and we got higher rates, right? So I think you have to just ask yourself what specifically are you talking about, right? So there's -- so that collateral is there. Now the type of "NDFI" type of risk associated with non-real estate lender finance, if you actually think about it for even a small amount of time, is a very similar risk to a regular straight ABL deal, right? Like somebody can make up invoices or a factoring. They can make up invoices, they can do all that kind of stuff. And whether you have an NDFI involved or not, if a borrower is committing fraud, the borrower can be committing fraud on the NDFI and on you, right? By like there's banks that finance factor receivable companies, right? So there's an NDFI that's a factor receivable and you're financing that factor receivable. Well, you could have the NDFI to fraud you, you could also have end clients to fraud you. So we had a small client, a direct borrower where we had a full banking relationship typical middle market [indiscernible] like small business style. And one of the guys made up an invoice, right? And there's different ways to catch them doing that. So I don't -- if you're thinking about capital call lines, then there's a whole different array of risks associated with that because often the LPs are very large funds. And so you're getting them -- the question is how many of those do you get to sign waivers of defenses, right? So there's all kinds of different things like that. I mean I think if you step back and you say, is -- each of these areas have obviously their own benefits and disadvantages. On one hand, you could -- if you put an NDFI between you and a client, if the NDFI is full of bad actors, which by far, the vast majority of them are not, they're highly professional individuals who've worked at some of the biggest and most prestigious institutions in country, their whole life. I mean, I'm not saying that doesn't mean they can't turn out to be a bad guy and be willing to commit to a life in San Quentin or something, but it's not -- that's not really what happens normally. I think, frankly, you're more likely to -- much more likely to have fraud in small business and direct borrower loans on things like factoring and ABL, potentially than you are in these large cross facilities. And those large cross facilities protect you because any individual idiosyncrasies is there as well as the NDFI capital also protects you from those sorts of things. So life banking, it's full of trade-offs, right? And you just have to understand the nuances. So that's what it is. David Feaster: Yes. That's helpful. And I wanted to get a sense on the expansion in that floor plan space with the new team. Just kind of how that build-out and integration has been? It sounds like they've got a nice pipeline. I know we're still in the early stages there, but was just hoping to kind of get an update on that business line and any expectations you might have. Gregory Garrabrants: Yes. So they've got some accepted term sheets for some nice lines with some really strong borrowers. The nature of that business requires that for any of the floor plan lines, you have to go out and get MBRAs, which are essentially repurchase obligations of the manufacturers, which is obviously an awesome thing because if somehow the asset doesn't sell, then you can have the manufacturer take it back and pay you off. So we have a lot of those executed in these areas, facilitated by those things. And so I think we'll -- I think we'll have several hundred million dollars, let's say, by March 31, I would guess. Maybe that's a little aggressive of assets and lines funded in that business. David Feaster: That's great. And then just last one for me. Just wanted to get an update on the securities business and the white labeling within there of some banking products. I know this is still in the early stages, I believe, still in beta testing. But just kind of curious, maybe the build-out of the tech infrastructure in the securities segment broadly. And then when do you think we can roll out some of that white labeling of the banking products across the platform? Gregory Garrabrants: Right, right. So there's really 2 main components to our tech modernization effort in the custody and clearing business. And the team has named it Axos Complete, which is their marketing name for it. What it is, is it's an Axos Professional Workstation. So right now, the workstations that are utilized by the -- particularly the clearing team are truly antiquated FIS and those sort of things. And they're just -- they're not flexible. They're not modern so that they can integrate through API, everything or do they have all the bank's products that we want to be able to have through there. So that has been a really big push in the development side. It's benefited from AI. It is out now to multiple test, broker-dealers, and we're getting feedback and we have a rollout schedule there. So what's the benefit of that, just specifically with respect to banking, there are a lot of other benefits is that the banking products can be proxy enrolled, enrolled by the RIA. The RIA can get access to SBLOC lending products, secured credit cards, all those kind of things that would be available as they become available at the bank, they can be made available to the RIA and the client and sold through to that client with recommendations to do that, right? So that's one piece of it. That piece is being rolled out. It will be a 6- to 7-month rollout because we have to train a bunch of folks, and this is really the core system that they were using internally to do all their trading and everything else. And so -- and then the other component of it is really it's one tech build with different ways of looking at it. But essentially, there's the retail platform, which used to call Universal Digital Bank, but as it becomes more and more available to doing a lot of other things besides banking. We're calling it the Axos Client Portal now, and that will allow the end clients of the RIAs and broker-dealers to be able not only to have access to a bunch of workflow to enhance their operations, but also access to products. So that actually does work and the RIAs are adopting it. The platform that the RIAs use is actually something different. And so over time, we'll bring all of them together on it. There's a few things we have to develop on Axos Professional Workstation to make it be the one workstation for everything, and so that's ongoing. But I think at the end of all of this, I think we're really going to have an extremely modern tech stack that will be able to be quickly modified and flexible for our institutional and end clients, and really allow a very seamless way of interacting to cross-sell banking products or crypto or whatever we decide to do there. So I think it's really exciting. Everybody is excited about it. And I really -- I do see it even if it's an outsourcing bid or what we're doing internally, how much faster it is to develop. So it's a pretty big project, but it's also going well. Operator: And we'll go next to Tim Coffey with Janney Montgomery Scott. Timothy Coffey: I'm trying to get my arms around expenses going forward. Obviously, a lot of moving pieces. None of it was... Gregory Garrabrants: So am I. Tim, so am I. So am I, Tim. Timothy Coffey: Okay. Let’s figure this out then. Is my North Star an efficiency ratio? Or is it expenses to average assets? Gregory Garrabrants: Well, so what we've been saying as a hard cap, which I am sticking to and I have stuck to, and the Verdant deal throws it a little bit into a little bit into we'll readjust to that with Verdant, rebaseline it. But that our personnel expense and professional services growth will be -- the growth will be below 30% of the net interest income and noninterest income growth. So in other words, if we grow $1 in net interest and noninterest income, we will not grow more than $0.30 in our personnel and our professional services expense. Now there might be onetime things every now and then or something, but that's a pretty strong rail that we're managing to. And we've been able to do that well. I think AI is helping. We would expect to be able to do that with Verdant too. But we've given you the cost. I mean, Derrick gave you the cost directly of what Verdant is going to add. And then you should just model that in and then expect that, that growth is going to be underneath that. That doesn't give it to you perfectly because obviously, there's other categories of growth besides professional services and personnel, but that's 70-plus percent of it, there's not like there's going to be a ton of occupancy and other things. And so we're -- we believe we're managing it pretty well. But it's a little bit tough to do it on an efficiency ratio basis because there's obviously movements around margin and onetime payoffs of FDIC loans and all that kind of stuff. I think that's kind of more a way. So if you model in that kind of growth because everybody is watching their Ps and Qs and trying to figure out what they can afford to get to that number, then that's not a bad way to do it. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to Johnny Lai for closing comments. Johnny Lai: Great. Thanks for everyone's time, and we will talk to you next quarter. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good morning, and welcome to Columbus McKinnon's Second Quarter Fiscal 2026 Earnings Conference Call. My name is Ludy, and I will be your conference operator today. As a reminder, this call is being recorded. I would now like to turn the conference over to Kristy Moser, Vice President of Investor Relations and Treasurer. Please go ahead. Kristine Moser: Thank you, and welcome, everyone, to our call. On today's call, we will be covering our second quarter fiscal 2026 financial and operational results. On the call with me today are David Wilson, our President and Chief Executive Officer; and Greg Rustowicz, our Chief Financial Officer. In a moment, Greg and David will walk you through our financial and operating performance for the quarter. The earnings release and presentation to supplement today's call are available for download on our Investor Relations website at investors.cmco.com. Before we begin our remarks, please let me remind you that we have our safe harbor statement on Slide 2. During the course of this call, management may make forward-looking statements in regards to our current plans, beliefs and expectations. These statements are not guarantees for future performance and are subject to a number of risks and uncertainties and other factors that can cause actual results and events to differ materially from the results and events contemplated by these forward-looking statements. I'd also like to remind you that management will refer to certain non-GAAP financial measures. You can find the reconciliations of the most directly comparable GAAP financial measures on the company's Investor Relations website and in its filings with the Securities and Exchange Commission. Please see our earnings release and our filings with the Securities and Exchange Commission for more information. Today's prepared remarks will be followed by a question-and-answer session. We respectfully ask that you limit yourself to one question and one follow-up. With that, I'll turn the call over to David. David Wilson: Thank you, Kristy, and good morning, everyone. Our team delivered results in the second quarter that were ahead of expectations as we capitalized on record backlog and saw stabilization in U.S. short-cycle order activity. We also made meaningful progress on our operational improvement, tariff mitigation and integration preparedness initiatives. I would like to thank our entire Columbus McKinnon team for their dedication and continued focus on performance and execution. Net sales increased 8% year-over-year to $261 million with growth across all product platforms as short-cycle demand stabilized, and we accelerated deliveries from Q3 to meet evolving customer delivery requirements. Sales were up broadly, and we delivered volume growth in both the U.S. and EMEA, our 2 largest regions. Adjusted EPS improved $0.12 sequentially to $0.62 in the second quarter, reflecting higher sales, margin expansion and continued cost management. Margins improved sequentially, driven by improved absorption on higher volumes and the early translation of tariff mitigation actions. As expected, year-over-year adjusted margins were down due to tariffs and sales mix impacts in addition to an incentive compensation accrual release in the prior year. Last quarter, we estimated the net tariff impact in Q1 was approximately $4.2 million. As price increases begin to replace tariff surcharges, it is becoming more difficult to calculate net tariff-specific impacts. Nonetheless, we estimate that our Q2 net tariff impact moderated slightly from Q1 levels. Despite the constantly evolving tariff landscape, we continue to expect tariffs to be a net $10 million headwind to operating profit in the fiscal year. Given latest developments, however, we now expect this impact to spill over into this quarter, and we are now targeting the achievement of tariff cost neutrality by the end of fiscal '26. We still expect to achieve margin neutrality in fiscal '27. Orders were $254 million, down 3% year-over-year as the prior year benefited from 3 significant project orders totaling over $20 million within our precision conveyance and rail businesses. While our pipeline of quotation activity remains healthy, the weaker economic landscape in EMEA and APAC is resulting in slower conversion for project orders. In the U.S., we saw order growth of 11% with strong performance in both project-related and short-cycle categories, reflecting a strengthening demand environment, the stabilization of U.S. short-cycle volumes and the implementation of price increases to offset tariffs. Over time, we expect lower interest rates and megatrends, including reshoring, automation and scarcity of labor to drive incremental demand. We are capitalizing on our leadership positions in end markets with notable tailwinds such as aerospace, energy, rail and transportation, metals, heavy equipment and defense. We also remain focused on the vertical end markets benefiting from secular growth trends where we have been building a leadership position such as battery production, e-commerce, life sciences and food and beverage. Our backlog is a healthy $352 million, up $34 million or 11% versus the prior year, with increases in all platforms as we've continued to execute on our commercial initiatives. Strong execution to meet evolving customer delivery requirements resulted in the accelerated conversion of Q3 backlog into Q2 shipments. As a result, current quarter backlog came down 4% year-over-year, which is expected to impact Q3 sales volume. While we remain laser-focused on the performance of our core business, we continue to advance integration preparedness for the pending acquisition of Kito Crosby. We have established an Integration Management Office, or IMO, that is executive-led and reports into me as well as a Board subcommittee that will provide governance and oversight related to integration initiatives and our performance versus plan. The IMO will be comprised of dedicated executive and cross-functional leaders from both companies to ensure the realization of our combined company integration and synergy objectives. This will enable core business leaders and teams to focus on ongoing business activity, operational performance and improving customer experience. We remain enthusiastic about the strategic combination of our companies, which will scale the business, enable synergies, expand customer capabilities and accelerate our Intelligent Motion strategy over time. Following integration, we'll be over $2 billion in sales, delivering top-tier industrial margins and strong cash flow performance that enables reinvestment in our business after deleveraging. Our team continues to prepare for the closing of the acquisition as quickly as the regulatory process will allow, and we now expect the transaction to close by the end of our current fiscal year. I will now turn the call over to Greg to review the details of our second quarter financial results and full year guidance. Gregory Rustowicz: Thank you, David, and good morning, everyone. As David shared, Columbus McKinnon delivered strong results in the second quarter even as we navigated ever-changing tariff policies in a volatile macroeconomic environment. We delivered the second highest quarter for sales in our history of $261 million, up 8% from the prior year, driven by higher volume, pricing and a favorable currency translation. We drove sales growth across all platforms, led by our lifting and linear motion platforms. We saw pricing accelerate in the quarter and expect previously announced price increases to ramp over the next few quarters as we continue to work through our backlog. Short-cycle sales increased 7% as we benefited from higher U.S. short-cycle orders as the market stabilized after the uncertainty caused by tariffs. Project-related sales increased 8% as we converted backlog to revenue on some larger projects in our U.S. precision conveyance and rail businesses. Gross profit of $90.2 million increased by $15.4 million or 21% versus the prior year on a GAAP basis, driven by the benefit of higher sales as well as a significant year-over-year reduction of $11.1 million in factory consolidation and new factory start-up costs. On a GAAP basis, our gross margin was 34.5%. And on an adjusted basis, our gross margin was 35.3%. Adjusted gross margin contracted 100 basis points year-over-year due to the previously discussed impact of tariffs. While our SG&A expenses increased $13.9 million to $70.3 million on a GAAP basis, this included $9.9 million in acquisition-related costs incurred for the pending Kito Crosby transaction and $1.1 million in business realignment costs. Excluding these items, adjusted RSG&A was up by $5.8 million to $59.2 million on higher sales volume and incentive compensation accrual release in the prior year as well as the impact of foreign currency translation, which was $1.1 million of the increase. As a percentage of sales, adjusted RSG&A increased 60 basis points to 22.7%. However, normalizing for the change in incentive compensation costs, adjusted RSG&A would have improved as a percentage of sales. As a result, we generated operating income of $12.2 million in the quarter on a GAAP basis and adjusted operating income of $25.2 million. Adjusted operating margin was 9.7% in the quarter. This resulted in adjusted EBITDA of $37.4 million in Q2 with an adjusted EBITDA margin of 14.3%. GAAP income per diluted share for the quarter was $0.16, and adjusted earnings per share was $0.62. Adjusted earnings per share decreased $0.08 versus the prior year, driven by the impact of tariffs. Free cash flow in the quarter was $15.1 million, reflecting growth in earnings and working capital improvement even as we paid $2.5 million of acquisition-related deal costs. Finally, we are updating our full year guidance for fiscal 2026. We are increasing our expectations for net sales and now expect growth of low to mid-single digits for the year, up from the previous guidance of flat to slightly up year-over-year. We are also reaffirming our adjusted EPS guidance of flat to slightly up year-over-year. As a reminder, our fiscal third quarter is our seasonal low for both sales and margins given fewer workdays due to the holiday season. Our guidance assumes approximately $10 million of tariff-related cost impacts to the business in fiscal 2026. Fiscal Q3 will see residual cost impacts due to the timing of tariff recovery initiatives and recent changes increasing Section 232 tariffs. We expect to be profit dollar neutral on tariffs by the end of fiscal '26 as we implement our mitigation strategies. As a reminder, our guidance does not include the impact of the pending Kito Crosby acquisition. We remain enthusiastic about the pending acquisition and our ability to achieve our stated long-term objectives, including synergy realization and de-levering. While we continue to navigate a volatile macroeconomic environment, we remain focused on our controllables, including operational execution, cost control and driving our commercial initiatives. Operator, we are now ready to take questions. Operator: [Operator Instructions] With that, our first question comes from the line of Matt Summerville with D.A. Davidson. Matt Summerville: A couple of questions. You obviously ported the sales goodness you saw in the quarter through the guide for the remainder of the year, but you didn't do the same for earnings. Can you talk about kind of the pluses and minuses that didn't allow that sales goodness to kind of flow through? And maybe the answer is the magnitude of pull forward, it sounds like you may have had into the quarter. And if that would be the case, can you help us kind of understand and quantify that? And then I have a follow-up. David Wilson: Sure. Yes, Matt. And you kind of hit the nail on the head. We had revenues that were pulled forward from Q3 into Q2. And as you know, Q3 tends to be a seasonally low quarter and then Q4 a seasonally high quarter. And so typically, first half, second half tends to approximate one another in terms of top line, but we do have the tariff total of $10 million that we talked about as a net impact to the year still being the amount that we anticipate for the year and a portion of that, probably a few million dollars translating into Q3. And so the combination of the pull forward, the tariff impact in Q3 and the roughly 20% increase in second half versus first half EPS kind of is why we didn't raise the EPS guide on the slightly higher revenue. And so while we anticipate that we continue to make progress throughout the year, and certainly, we're laser-focused on doing so, realizing those improvements and then making that progress, we thought it was prudent to de-risk the second half of the year with the beat in the first half and focus on executing to deliver on the full year guide. Gregory Rustowicz: Matt, this is Greg. There's also another factor to it as well, and that's foreign currency translation. So we're certainly benefiting on the top line from a foreign currency translation, and it was roughly $8 million year-to-date, and it will be probably a similar number in the second half of the year. And the margin on a foreign currency change is essentially your operating margin times the change in sales. So it's going to have less of an impact on the overall bottom line. Matt Summerville: Got it. So there's definitely some moving parts there. So I want to understand 34.3% was a gross margin in Q1. 35.3%, I believe, is what it was in Q2 on an adjusted basis, realizing seasonal factors, realizing timing of how pricing is rolling through and tariff mitigation, there's a lot of moving parts in the back half of the year. Is there a way that you guys can help us kind of triangulate on what the margin sort of cadence looks like from here through year-end? David Wilson: Yes, sure. And I'm happy -- we'll obviously be able to catch up offline and clarify any questions. But I do want to say that in the second half of the year, if you think about margin performance and you think about our full year guide, the year-over-year gross margin impact, if you compare prior year to this year, would be approximated by the tariff impact of $10 million. $10 million on $1 billion is roughly 100 basis points of margin erosion from a year-over-year perspective. There's a little bit of a mix impact in there as well, given the fact that we are ramping our linear motion factory in Mexico that provides very higher-margin product into the mix. Also, as we ramp our montratec volumes, those are providing higher volumes, same in automation. But we are also managing through a heavy backlog of lower-margin crane-related solutions that we are providing. And so the combination of those factors, it's a mix impact as well as the headwind associated with the full year tariff impact that results in the gross margin outlook that we have for the business. Gregory Rustowicz: And Matt, I'd like to also point out, as you know, that our fiscal third quarter is typically our seasonally slowest. There's less workdays. We have the holidays impact that around the world. And we typically see margins flat to slightly down in the third quarter because of that as there's less absorption in our factories. Operator: And your next question comes from the line of Jon Tanwanteng with CJS Securities. Unknown Analyst: This is Willem on for Jon. Can you talk to the sustainability of the improved short order activity in the U.S.? David Wilson: Sure. We were pleased to see that activity come back as we were forecasting. We knew that we had some disruption in our fourth and first quarters as I think our channel partners leaned on their inventory and the kind of unsettled trade relation scenarios played out. But we did see the rebound happen in this quarter. It was robust, and we were pleased with that. And we do anticipate that, that will continue as we advance through the third and fourth quarters. We don't see any reason at this point that, that would go in a wrong direction. We do have some seasonal impacts in that in the fourth quarter with a lot of customers having year-ends that are measured in December. They may manage inventory in a way that manages that down towards the end of the year. But if you look at the second half, first half scenarios, I think that we'd see reasonable and continued level of demand for short cycle through the balance of the year. Unknown Analyst: And can you add some color around the project backlog and pipeline and conversion rate trends, both in the legacy business and the precision business? David Wilson: Yes. I mean really encouraged by the funnel of opportunities that we have. We have record-level funnels in most categories of products. We're in very active and engaged conversations with multiple customers about pretty interesting and significant opportunities. Those decisions around letting or making decisions around awarding those contracts have taken a little bit longer than we would have anticipated entering our second quarter. And so the timing of those projects being awarded is something that plays out over time. But we're encouraged by the project backlog that we have. As you could see that in the $352 million or $351 million worth of backlog that we have and at the end of the quarter. But we are even more encouraged by what we see in the funnel and how those projects are playing out right now. We are seeing conversion rates notably in Europe, given some of the deteriorating macro forecast there taking a little bit longer to close if you look at it geographically than those in the Americas. But still, we remain encouraged about what lies ahead. Operator: And your next question comes from the line of Steve Ferazani with Sidoti. Steve Ferazani: I did want to ask about the timing of the Kito Crosby closing. It sounds like you now think it's going to be 3 months later. You've pushed it off before. I think all you had was HSR to clear. Any reason to be concerned here? Any thoughts on the delay? David Wilson: Right. Yes. No reason to be concerned. We've substantially complied with the DOJ's second request, and we're working towards closing. We're trying to do so as expeditiously as possible, and we've made progress from a financing, integration planning and regulatory standpoint. As you know, we've secured fully committed financing and completed the syndication of the bridge facility, including the $500 million revolver, and we'll pursue permanent financing as we advance toward closing. And we're taking full advantage of the time that we have between now and close to make sure that we're preparing for day 1 readiness. And so we've established a full-time dedicated integration management office. We've established a governance structure with our Board around oversight. And we're working with a group of external resources to make sure that we're wrapping the expertise around this that is necessary to allow for us to accelerate delivery of synergies and de-lever rapidly post close, but also to make sure that we have good business continuity, and we don't disrupt the core business and enable the resources that are focusing there to remain as focused there as can be possible during this transition. So nothing to be worried about there, just working through the process and anticipate closing by the end of our fiscal year. Steve Ferazani: Fantastic. I'm going to kind of combine a couple of my follow-up, a couple of different questions, but they do link. Strong cash flow this quarter. Typically, second half is much stronger than first half on the reversal on working capital. Just want to think about, one, how you're thinking about CapEx and cash flow for this year based on your earnings guidance? And two, given that you're pushing out the deal close -- not you aren't, but the deal closed by a quarter and you've had the strong cash flow, are you changing where you think your leverage will be post close? Gregory Rustowicz: Yes. So let me start off with the first piece of it, which is where we expect CapEx, and that will be in the 10-Q that gets filed this evening. And we're expecting with where we sit today, roughly $15 million to $20 million of CapEx for the full year. And we are quite pleased with the progress we've made from a cash flow perspective. And from a leverage perspective, we're talking about big numbers here from a financing perspective. And so even though we expect to drive substantial free cash flow in the second half of the year, we're comfortable that with what we've said earlier that it's going to be in the high-4s roughly when we close. But clearly, there's -- that can move 0.1 point. Operator: And your next question comes from the line of James Kirby with JPMorgan. James Kirby: Most of my guidance questions have already been asked. But just following up on some of the questions on the U.S. Obviously, a really strong quarter with orders and sales up double digits. You mentioned some industries in the prepared remarks, David, aerospace, energy, but just wanted to dig deeper there. Are there any subsectors you're seeing particular strength or weakness in the U.S.? And how are we looking into September and October here? David Wilson: Yes, James, we're seeing robust demand across most end markets as we look at the U.S. Certainly, heavy equipment, steel playing a significant role in driving demand. Aerospace is strong. The Department of Defense is strong. And even automotive is picking up, I think, as there's a little bit of rebalancing in terms of ICE engine versus e-vehicle as well as tariff-impacted production plans. And so we provide solutions into that space that are picking up as well. So feeling good about the level of demand that we're seeing here and anticipate that as we go forward, the tailwinds around labor scarcity, the need for improved production or productivity, automation as well as some of the trade-related impacts will play a benefit, play a role in helping drive demand in the U.S. James Kirby: Okay. That's helpful. And then maybe for our second question, maybe a high-level one on what you're seeing in lifting in North America and especially as it relates to the competitive environment. Just broadly speaking, I assume peers are doing the same things you guys are doing with price surcharges. So maybe you could just speak high level on the dynamic in the U.S. in the lifting space. David Wilson: Yes. Certainly, we are obviously focused on executing our strategy, and we have been disciplined about improving customer experience, improving our operational performance to meet customer expectations. We continue to make progress there, and we'll continue to do so through the balance of our year and as we head into combining with Kito Crosby. The competitive landscape is one where our competitors are disciplined, and they tend to follow a similar path to the path that we're following. We try to be leaders in the space. But obviously, we compete against good companies. And they're taking similar actions, as you had indicated, relative to tariff mitigation plans, relative to making sure that we're looking at our supply chains. We're looking at tariff codes. We're looking at the opportunities to rebalance production where we can. And I think that we're in a position where we're clearly focused on doing what we can to execute well, earn more of our customers' business and grow our share in the space. And we continue to remain focused on that as we head into the balance of the year. Operator: Thank you. And that concludes the question-and-answer session of today's call. I will now turn it over to David for final remarks. David Wilson: Great. Thank you, Ludy, and thank you to all for joining us today. In summary, we delivered a solid Q2 with 8% sales growth as we execute on record backlog. Our tariff mitigation actions are beginning to take effect, and we are confident in our ability to offset impacts over time. Our performance gives us the confidence to increase our full year revenue outlook and reiterate guidance for adjusted EPS. Our demand pipeline remains healthy, and we are focused on executing our commercial and operational initiatives to deliver results for our customers. That focus, combined with effective cost management and strong cash flow generation positions us to deliver shareholder value over time. We also continue to make progress towards the closing of the Kito Crosby acquisition and remain enthusiastic about the value this strategic combination will unlock for all stakeholders as we more than double revenue, deliver top-tier industrial margins and generate strong cash flow, enabling rapid de-levering. Thanks for investing your time with us today. As always, please reach out to Kristy with any questions. Thank you. Operator: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Greetings, and welcome to the Algoma Steel Group, Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] [Technical Difficulty] being recorded. It is now my pleasure to introduce Michael Moraca, Vice President and Corporate Development and Treasurer. Please go ahead, sir. Michael Moraca: Good morning, everyone, and welcome to Algoma Steel Group, Inc.'s Third Quarter 2025 Earnings Conference Call. Leading today's call are Michael Garcia, our Chief Executive [Technical Difficulty] is being recorded and will be made available for replay later today in the Investors section of Algoma Steel's corporate website at www.algoma.com. I'd like to remind everyone that comments made on today's call may contain forward-looking statements within the meaning of applicable securities laws, which involve assumptions and inherent risks and uncertainties. Actual results may differ materially from statements made today. In addition, our financial statements are prepared in accordance with IFRS, which differs from U.S. GAAP, and our discussion today includes references to certain non-IFRS financial measures. Last evening, we posted an earnings presentation to accompany today's prepared remarks. The slides for today's call can be found in the Investors section of our corporate website. With that in mind, I would ask everyone on today's call to read the legal disclaimers on Slide 2 of the accompanying earnings presentation and to also refer to the risks and assumptions outlined in Algoma's third quarter 2025 management's discussion and analysis. Our financial statements are prepared using the U.S. dollar as our functional currency and the Canadian dollar as our presentation currency. All amounts referred to on today's call are in Canadian dollars unless otherwise noted. Following our prepared remarks, we will conduct a Q&A session. I will now turn the call over to Chief Executive Officer, Michael Garcia. Mike? Michael Garcia: Good morning, everyone, and thank you for joining us today. As we do each quarter, I'll begin with safety. Our commitment to workplace safety remains at the core of everything we do. I'm pleased to report that we maintained our strong safety performance this quarter, building on the improvements we achieved throughout 2024. With EAF Unit 1 ramping up and our accelerated transition to electric arc furnace steelmaking underway, we continue to prioritize the health and well-being of our workforce during this pivotal transformation. Before diving into the details, I want to highlight 3 important themes. First, the U.S. 50% tariffs have effectively closed that market to us, driving lower shipments and higher production costs as we've pivoted our entire go-to-market strategy. Second, we've secured the capital to strengthen our liquidity through $500 million in government support and an expanded USD 375 million ABL facility, extending our liquidity runway so that we can develop opportunities to diversify the business. Third, we have embarked on an operational pivot, accelerating our EAF transformation and focusing on products for the domestic market with the goal of significantly reducing our cash burn. The steel industry is experiencing significant disruption. The 50% U.S. tariffs implemented in June have effectively made that market no longer viable for Canadian steel producers, completely undermining our historically successful cross-border business model. These trade disruptions are reverberating globally, forcing producers worldwide to seek alternative markets, while macroeconomic uncertainty compounds the headwinds facing our industry. Our third quarter performance was in line with our previously disclosed guidance across both shipment volumes and adjusted EBITDA metrics. As expected, we experienced lower shipment volumes and realized pricing as well as elevated cost pressures, resulting in year-over-year declines in both revenues and adjusted EBITDA. A bright spot continues to be our fully modernized plate mill. Plate shipments totaled approximately 97,000 tons, roughly in line with the 103,000 tons in the prior quarter despite taking a planned 2-week outage during the quarter. We expect Q4 plate production to increase sequentially as we capitalize on our position as Canada's only discrete plate producer. Turning to our electric arc furnace project, the foundation of our future. I'm pleased to report continued progress. Since achieving first arc and first steel production in early July, commissioning and ramp-up activities for Unit 1 have progressed in line with expectations. The furnace and associated melt shop assets have demonstrated stable and reliable performance, achieving quality metrics across a broad range of plate and hot-rolled coil product grades. The Q1 power system and other critical process components continue to perform as designed, supporting consistent metallurgical quality and process control. As of September 30th, 2025, cumulative investment for the EAF project was $910 million, including $30 million during the third quarter. All material aspects of the project have been contracted, and we continue to expect final aggregate cost of completion will be approximately $987 million. We have announced a number of decisive actions to strengthen our balance sheet and liquidity, including $500 million of federal and provincial loan facilities. Rather than covering each in detail, I'll ask Rajat to take you through the specific steps and their impact on our financial flexibility later in the call. This government support directly addresses the sustained tariff environment that has forced us to reimagine our operating strategy. We are accelerating retirement of our blast furnace and coke oven operations as we ramp up EAF production through 2025 and 2026. We're strategically refocusing production on as-rolled and heat-treated plate products, along with select coil products primarily for sale in the Canadian market. We are uniquely positioned as Canada's only discrete plate producer, and this strategy aligns our production with domestic demand, while reducing exposure to volatile and oversupplied coil markets. Our focus aligns with infrastructure, construction and renewable energy growth sectors, preserving Algoma's relevance by supporting national industrial priorities. We remain focused on extending our liquidity runway to develop new opportunities, including advancing our energy strategy and pursuing product diversification initiatives. Rather than competing as a commodity producer in a tariff-distorted global market, we are positioning Algoma as a premium Canadian supplier of essential steel products. This repositioning achieves 3 outcomes. We supply Canadian industries with high-quality plate products needed for infrastructure, manufacturing and defense. We create operational stability that supports continued investment aligned with Canada's industrial needs. And we reinforce our role as a critical partner in Canada's industrial and defense capabilities. By concentrating on higher-value specialized products, we can strengthen customer partnerships and optimize margins. Combined with government support, this strategy positions Algoma not just to withstand current conditions, but to emerge as a stronger, more focused company. In short, we are evolving from a cross-border commodity producer to a Canadian-focused steel supplier with lower cost, lower emissions and greater resiliency. This transformation strengthens both Algoma and Canada's industrial future. Now I'd like to take a moment on a more personal note. As announced last evening, I will be retiring at the end of this year from Algoma Steel, concluding what has been an extraordinary journey with Algoma. I want to congratulate Rajat Marwah on his appointment as CEO effective January 1st, 2026, and Michael Moraca on his promotion to Chief Financial Officer. Rajat has been a trusted partner throughout our transformation. His leadership in finance, strategy and stakeholder engagement has been instrumental in securing the foundation we've built together. And I know Michael will bring the same discipline and strategic insight to the CFO role as he has demonstrated leading our integrated business planning and capital markets efforts. I'm proud of how far this company has come and confident that the management team under Rajat's leadership will continue to strengthen Algoma's position as a Canadian leader in sustainable steelmaking. I would like to pass it over to you, Rajat, to cover the financials and for closing remarks. Rajat Marwah: Thanks, Mike. Good morning, everyone. First, I want to express my deep appreciation for Mike's leadership. His vision and discipline have guided Algoma through one of the most significant transformations in our history. The foundation he built strategically, operationally and culturally positions us for long-term success. Talking about the results for the third quarter, adjusted EBITDA was a loss of $87.1 million. For the quarter, tariffs expense totaled $90 million, and we estimate Canadian sales prices were approximately 40% lower on account of tariffs, resulting in lower revenue of approximately $32 million. Cash used in operating activities was $117.3 million. We finished the quarter with $337 million of liquidity. We shipped 419,000 net tons in the quarter, a decline of 12.7% versus the prior year quarter. Lower steel shipment was the result of weakening market conditions, particularly due to Section 232 tariffs, which impacted the company's export sales and resulted in oversupply of the Canadian market at reduced transactional pricing. Net sales realization averaged $1,129 per ton compared to $1,036 per ton in the prior year period. The increase versus the prior year level reflects improvements in value-added product mix as a proportion of sales, which more than offset weaker market conditions. Plate prices continues to enjoy a premium relative to hot-rolled coils during the quarter. This resulted in steel revenue of $473 million in the quarter, down 12.2% versus the prior year period. On the cost side, Algoma's cost per ton of steel products sold averaged $1,282 in the quarter, up 24.2% versus the prior year period. Starting March 12, the company was subject to 25% tariff on outbound steel shipments to the United States, which increased to 50% in June. For the third quarter, tariffs costs were $90 million or $214 per ton, which was included in cost of sales. Excluding the impact of tariff cost of sales was only 3.6% higher versus the prior year period despite a 20% lower shipping volume and a higher mix of plate sales for the period. We will continue to focus and drive down the cost of sales as we make our strategic pivot to focus primarily on plate and selected coil products. Net loss in the third quarter was $485.1 million compared to a net loss of $106.6 million in the prior year quarter. The increase in net loss was driven primarily by the $503 million noncash impairment loss. As of September 30th, 2025, the company identified 2 impairment indicators, its market capitalization falling below the carrying value of its net assets and the impact of U.S. Section 232 tariffs. Accordingly, an impairment test was performed to assess whether the recoverable amount of the cash-generating unit exceeded its carrying value, which resulted in the noncash impairment loss. Cash used in operations totaled $117 million for the quarter compared to cash generated by operations of $26 million in the prior year period. Inventories ended the quarter at $790 million, up approximately $54 million from the second quarter, reflecting a physical build in raw materials and finished goods, partially offset by a $14.8 million noncash write-down of inventories to net realizable value. Looking ahead, we expect a significant inventory drawdown beginning in the fourth quarter and accelerating through 2026 as we exit the blast furnace and coke oven operations and transition to a far more efficient EAF-based supply chain. As Mike mentioned, we have announced a number of decisive actions to strengthen our balance sheet and liquidity. We increased our ABL credit facility from USD 300 million to USD 375 million with Export Development Canada joining as a new lender. More significantly, late last month, we announced binding term sheets securing $500 million in liquidity support from the governments of Canada and Ontario. We want to thank the government for their efforts in supporting Canadian industry, and we feel this package reflects their confidence in Algoma's strategic importance to Canada's industrial base. The financing includes $400 million from the federal large enterprise tariff loan facility and $100 million from the province of Ontario, consisting of a $100 million third lien secured tranche and a $400 million unsecured tranche with 6.77 million share purchase warrants at $11.08 per share. The facility carries a 7-year term at CORRA plus 200 basis points, stepping up after year 3 by 200 basis points annually. A combination of our strategic operational pivot, liquidity support, working capital efficiency improvements and continued effort on driving down cost is expected to extend our liquidity runway well into the future as we look to capture opportunities and diversify the business. In closing, as we look ahead, our direction is clear: complete the EAF ramp-up, pursue diversification opportunities and continue building on the strength of our exceptional team. The past several months have brought unprecedented trade disruption. But through it all, our people have maintained exemplary safety performance and advanced the commissioning of EAF Unit 1. We have taken decisive action to secure our future. The $500 million in government liquidity facilities, together with our expanded USD 375 million ABL facility, provide the resources and flexibility to complete this transformation with confidence. These arrangements reflect a shared commitment between Algoma and our government partners to preserve critical domestic steel capacity and industry resilience. By pivoting to become a domestically focused high-value steel producer anchored in plate and specialty products, we are creating a stronger, more resilient enterprise aligned with Canada's long-term economic and defense priorities. Our accelerated EAF transition is central to that vision, positioning Algoma as one of the North America's lowest cost and most sustainable producers. While near-term trade uncertainty will remain, we are building a company that is leaner, more focused and more competitive. When markets normalize, we expect to emerge stronger with improved margins and advanced cost structure and deeper alignment with national priorities. To our employees, thank you for your dedication and adaptability. To our government and financial partners, thank you for your confidence. And to our shareholders and customers, thank you for your continued support as we execute this pivotal transformation. The work we are doing today is preserving and modernizing a strategic national asset and laying the foundation for enduring value creation. We remain focused, disciplined and confident in the path ahead. Thank you very much for your continued interest in Algoma Steel. At this point, we would be happy to take your questions. Operator, please give the instructions for Q&A. Operator: [Operator Instructions] And our first question we will hear from Ian Gillies with Stifel. Ian Gillies: In the event we remain in this tariff environment, i.e., 50%, could you maybe just outline where you think the production profile ends up in 2026 and whether you think you can be at EBITDA breakeven in that scenario? And I think that would be helpful. Michael Garcia: Sure. This is Mike. I'll start and then hand it over to Rajat. Obviously, our original intention was to get to full production on the EAFs at the end of 2026, initial part of 2027. Because of what's happened to our business model with the 50% tariffs and the market dynamics, we've seen clearly that the right choice in front of us now is to execute a transition to full EAF production basically a year early. That's going to give us the best ability to deal with the current environment. So we are accelerating and pushing on that transition as we speak, and we need to execute it in the coming months and ramp up EAF as quick as possible because that will put us at the lowest cost, most flexible cost position, and it matches the available business we have right now. So as far as the specifics to your question of the ramp-up and where we would reach EBITDA positive or EBITDA neutral, I'll let Rajat address that. Rajat Marwah: Thanks, Mike. So as Mike mentioned, now we are looking at accelerating it. Our market in the U.S. is practically close to us closed. And what remains is in Canada, we have our plate mill being the only plate producer in Canada, we are taking advantage of that and trying to ship as much plate as we can in Canada. The market on the plate side itself is weaker with all the projects being announced, that definitely will help the market to get stronger. So from the way we look at it for next year, we will not be selling our 50% portion into the U.S., and we'll be maintaining our share in Canada for plate and coil. So that from a numbers perspective, could be as close as 1 million to 1.2 million tons for the year, if situation remains the way it is without taking any upside on investments coming into Canada on the plate side, defense side, infrastructure side. So that's where we see it going. And from an EBITDA perspective, once all the -- once the transition is fully complete, which probably will take 3 to 6 months after the shutdown of the blast furnace with all the cost moving into the P&L, we see that we start getting pretty close to EBITDA breakeven in those volumes. We will be making money on the plate side. Coil is still stretched with 50% tariff and the market in Canada is broken from that perspective because coil is being sold at 40% lower than the CRU, which is not making money for anybody. So that's how we see it, Ian, at a very high level. Ian Gillies: That's helpful. And just one quick one on the plate before I follow on to one other separate question. The plate production was down a little bit sequentially from Q2 to Q3. Is that just a function of reorienting demand and you expect that to maybe start rising, whether it be in Q4 or Q1 next year? Rajat Marwah: I think that's a big part of it, Ian. Another part of it is we did have more maintenance days in the outage I mean, in the quarter. So taking the maintenance -- the difference in the amount of maintenance days in the 2 quarters, they were roughly the same. But practically speaking, we're running our plate mill at full production other than the days we need to take for maintenance and the actual mix of the different type of plate products, how much heat treat is in there will affect the total volume numbers. Ian Gillies: Understood. And -- next question. I'm just curious what, I guess, capital infusions you'd expect to get in the next year or so as it pertains to insurance proceeds, where I believe there's still a bit left to come, government grants. And then I'm just curious if there's anything that could potentially come in on the tax side as well, just given losses incurred. Rajat Marwah: Sure. I'll ask Mike Moraca to take that question. Michael Moraca: Ian, look, on the insurance side, we do expect to somewhere between $30 million and $50 million more to come as we adjudicate through the claim. And then there is some other related cash flow items that you hit on. We will have a significant working capital release over the next 12 months, as we move to the EAF supply chain. It will be quite significant. I think we'll see something north of $100 million, $150 million, some in that range on the working capital side. And then as you alluded to, we will see some tax refunds as we really start to collect on the taxes that we paid in 2022 and have had obviously some net operating losses through the last little bit. So those are the big movers on the cash flow front. Rajat Marwah: Yes. And that's -- we see most of it coming next year, some of it in the first half, some in the second half depending upon timing. But there will be a big amount of inflow that will happen both on all 3 fronts, but big coming from working capital release as well as taxes coming in. And from a working capital perspective, we did mention earlier that there will be $100 million release happening this next year as we transition to EAF, we expect that to happen and more than that because we'll be running at lower levels. So we should see, as Mike mentioned, $150-odd million of reduction from the working capital and over $100 million or so coming from taxes. Operator: And our next question we will hear from James McGarragle with RBC Capital Markets. James McGarragle: Wish you all the best going forward. And then Rajat and Mike, congrats on the new roles. I just wanted to follow up on the -- some of the commentary you made on cash flow. So those numbers were into 2026, I believe. But then can you just give us an updated CapEx number and an updated net working capital number for what we can expect into Q4? Rajat Marwah: Sure. So on the working capital side, we normally build working capital in the last quarter, and it's primarily on the inventory side. So we will not see any build happening on the inventory side in the last quarter. We'll probably see some release coming on the inventories. And there will be other movements happening between receivables and others. But the big part of our change normally quarter-over-quarter in the last quarter, calendar quarter is inventories. So the release that we are saying of $100 million, $150 million will include some release coming in the last quarter. And on the CapEx side, we will see the CapEx coming down as we go into next year as the blast furnace and coke batteries shut down. We normally spend around $40-odd million in those facilities. So that in the maintenance CapEx will come down and will get further optimized during next year and year after. James McGarragle: And then I just wanted to follow up on one of the initial comments and the initial questions that were asked. You've given previously some targets, cost -- scrap plus targets on the cost side with regards to the new furnace that you're bringing on. So can you kind of give us an updated view on how you're thinking about that scrap plus cost targets given the impact from tariffs and that you might not be running that furnace at full capacity initially. So just how we can expect that to evolve into 2026 and then how you're thinking about those targets longer term? Rajat Marwah: So on the cost side, what we said is that it's scrap plus USD 220 roughly for sheet products and that will be slightly higher. It will be in the range of [ 220 to 250 ] for the initial period as we will be running the EAF at lower capacity than 1 EAF at full capacity. So we'll see that slightly higher. And then it won't be double, but it will be slightly higher. And then we see that coming down to around [ 220-odd ] once we have -- once we are running at least 2 million, 2.5 million tonnes. So that's how we see the change on the cost side. On the plate will be -- plate from a conversion perspective will be very similar, just that the variable cost will be higher. You have alloys and there is a little bit more processing that comes through. James McGarragle: And then I guess, in the current environment, do you think the Canadian market can support that 2.5 million tonnes that you think is necessary in order to achieve that cost-plus target? Or do you think something would have to change in terms of tariffs for the Canadian market to be able to support that 2.5 million tonnes? Michael Garcia: James, this is Mike. I think critical, part of this, the future of Algoma Steel is to be the foundation steel company for the future of the Canadian nation building agenda, if you will. We have the lowest cost, most flexible liquid steel base in the industry in Canada or we will soon be there once the transition to EAF is complete and we've ramped up in the next year. But I would say that, that market has not -- is not yet fully developed as we sit here in November -- almost November of 2025. So the market continues and will continue to develop. The nation building agenda that the new government has laid out is pretty clear in terms of everything that wants to be pursued around defense projects, infrastructure projects, shipbuilding, energy, manufacturing, reshoring, and this is all without kind of a return to a somewhat normal trade relationship with the U.S. This is all kind of future development and evolution of the Canadian market. So my answer is if all that comes to fruition and even just a portion of it comes to fruition, Algoma Steel will be far and away the most advantageous and the best position to take advantage of it. So I think the market is going to be there for us. If in the meantime or as part of that, there's a return to an improved trade relationship to the U.S., which gives us more access to the historical U.S. market, that will put wind in the sails of everything that we've talked about. It will open up the ability to get -- to take advantage of U.S. business. It will lift the margin across all of our business on both sides of the border. We still believe and are committed to being a strategic part of Canada's nation building agenda. So I don't think it would immediately mean and certainly not for Algoma Steel, it wouldn't mean a return of business as usual where we're just a commodity steel supplier looking for the best business, whether it's in the U.S. or Canada, we would be mindful of the strategic risk of just going back to the old business model. I know it's a little bit long-winded answer to your question. But yes, we believe in the future of the Canadian market built on the nation-building agenda that the government of Canada has laid out and our unique position as Algoma Steel to take advantage of that. Operator: And next, we'll hear from Ian Gillies with Stifel. Ian Gillies: Just in the Canadian market, are you seeing any positive implications yet from some of the trade barriers that have been instituted by the Canadian government? Or do they need to -- I guess, do the walls need to be taken up a bit higher? Michael Garcia: Yes. I think we've shared our frank views around -- with the government around opportunities we see for them to put those walls higher and put more teeth into moves that would strengthen the health of the Canadian market. Obviously, the government has a lot to think through when they hear feedback from the steel industry in terms of are there any other consequences to doing something like that, which they may not see as positive. But certainly, from a steel perspective, we think that there's more that they could do, and we've been very vocal about that with them. I will say what we are seeing is a tremendous amount of interest in understanding Algoma Steel's capabilities, both current and potential future capabilities. From every sector of the country, every sector of the economy, we've gotten phone calls, visits, inquiries in terms of what do you make? How can you make something for my steel uses? And if you can't make it today, what type of investment or how soon could you make it? And that's all very positive. Some of it is for business that's actually being made right now. Some of it is for future business that may be still a few years away. But the visibility, the intention and the interest in Algoma Steel and what role we can and will play in the future of Canada's nation building is definitely there, and we've already seen that for the last several months. Ian Gillies: I suspect this question is unanswerable, but do you have any sense of what you think the incremental plate demand could be or broader steel demand could be from these initiatives, maybe even just on projects announced or potential projects? Michael Garcia: You're right. That's hard to -- it's hard to give you a big number. I know that a lot of these -- for instance, the shipbuilding, we've had visits from major shipbuilders who are looking at the -- just the defense shipbuilding agenda over the next several years. And we can make all the ship needed in 10 -- Canadian war ships we could make the amount of plate needed for those 10 ships in 2 days. So it's not going to be one major program, which moves the needle. It's going to be a lot of demand throughout the entire economy and all types of projects. Certainly, the defense spending and ice breakers and pipelines will get a lot of visibility, but we need multiple projects. The plate market in Canada is roughly 600,000 tonnes to 700,000 tonnes right now. We're easily capturing 50% of that. And so it's a relatively small market, and it doesn't take hundreds of projects to start building that market up north of 1 million tonnes. It takes more than a handful, but it doesn't take hundreds. So we feel pretty bullish about the future prospects in plate, but it's hard to give you a specific number. Ian Gillies: And then last one for me, and this is probably for Rajat. Could you maybe provide a view on how you intend to start using the credit facilities as you start moving into a bit more cash burn given the implications, some could be picked, some of dilution, some carry interest. It's just -- I think that would be useful. Rajat Marwah: Yes, sure. So the way the facilities have been put together, we have a secured line that doesn't have any warrants attached to it. So the intention will be to draw that line first and then go into the unsecured line, where warrants are there. So that helps us to manage that. Most of it is [ spec ] for 2 years, and we will pick it, which makes sense, and then it goes to cash payments. The -- and from a use perspective, we have the ABL, which we want to keep as much as possible from working capital and other perspective and start using the other line. So we will be looking at it as we draw on what's the most and the best optimum use of cash is and which cash and based on our plan for next year and keep drawing. So we'll be quite mindful of how we are drawing it from that perspective. Operator: There are no further questions at this time. I would like to turn the floor back to Michael Moraca for closing remarks. Michael Moraca: Thank you, again for your participation in our third quarter 2025 earnings conference call and your continued interest in Algoma Steel. We look forward to updating you on our results and progress when we report our fourth quarter and full year results early next year. Thank you. Operator: And that does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.
Operator: " Adhir Kadve: " Louis Tetu: " Laurent Simoneau: " Brandon Nussey: " Richard Tse: " National Bank Financial, Inc., Research Division Thanos Moschopoulos: " BMO Capital Markets Equity Research Paul Treiber: " RBC Capital Markets, Research Division David Kwan: " TD Cowen, Research Division Suthan Sukumar: " Stifel Nicolaus Canada Inc., Research Division Operator: Good afternoon, ladies and gentlemen, and welcome to the Coveo Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded on October 30, 2025. I would now like to turn the conference over to Adhir Kadve, Head of Investor Relations. Please go ahead. Adhir Kadve: Good afternoon, everyone, and thank you for joining us. With me to discuss Coveo's Fiscal second quarter 2026 results are Laurent Simoneau, Coveo's Co-Founder and Chief Executive Officer; Louis Têtu, Coveo's Executive Chairman; and Brandon Nussey, Coveo's Chief Financial Officer. A reminder that some remarks made today will be forward-looking statements within the meaning of applicable securities laws, including those regarding our plans, objectives, expected performance and our outlook for the third fiscal quarter and full year fiscal 2026. These are forward-looking statements given as of October 30, 2025. And while we believe any statements we make are reasonable, they are based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from those expressed or implied. Coveo disclaims any intent or obligation to update our forward-looking statements, whether as a result of new information, future events or otherwise. Further information on factors that could affect the company's financial results is included in filings we make with Canadian securities regulators, including in the Risk Factors section of the company's most recently filed annual information form as well as the key factors affecting our performance section of the company's most recently filed MD&A, both of which are available on our SEDAR+ profile at sedarplus.ca and on ir.coveo.com. Additionally, some of the financial measures and ratios discussed on this call are either non-IFRS measures, ratios or operating metrics used in our industry. A discussion on why we use these metrics and where applicable, reconciliation schedules showing IFRS versus non-IFRS results are available in our press release and our MD&A issued today. Finally, please note that unless otherwise stated, all references and financial figures made today are in U.S. dollars. Our presentation slides accompanying this conference call can be accessed on our IR website under the News and Events section. I will now turn the call over to Louis to review our platform and strategy, followed by Laurent, taking us through our operational and strategic highlights of our second quarter, and we'll end off with Brandon, taking you through the financial details and provide our outlook for Q3 and fiscal 2026. We will then open the line to your questions. With that, over to you, Louis. Louis Tetu: Thanks, Adhir, and thanks to everyone joining us this evening. I'm pleased with our results this quarter. Our SaaS revenue, total revenue and adjusted EBITDA all came ahead of our guidance, and we delivered another quarter of revenue growth acceleration. Generative AI, agent AI and AI-powered experiences represent the most significant opportunities of our time. And while most enterprises are still chasing tangible results, Coveo's customers and partners are already realizing meaningful ROI from our platform, and our results this quarter really show that. Laurent and Brandon will comment on these results. I want to focus on helping investors understand our views on the fast-evolving dynamics of the AI, Gen AI and agent tech market backdrop, in particular, why we believe that this continues to build an important opportunity ahead of us and why we believe Coveo will continue to stand out, thanks to unique technology and real results. First, a reminder of the fundamental thesis around which Coveo is built. powering every point of experience with AI grounded in enterprise data. The importance of AI and digital cannot be understated. It changes everything because it enables digital experiences to become hyper-personalized, prescriptive and now thanks to generative AI, conversational, insightful and advisory. Think of it this way. When buyers, customers, employees or citizens can go online, express their detailed context and then obtain powerful recommendations and advice that is relevant to them. They buy more, they learn faster, they solve issues on their own and become more proficient and productive. In addition, on the business side, when AI models can deliver these experiences while at the same time optimizing business metrics such as revenue, cost or margins, you get quantum leap in business performance. If online, my brand can sell you something that delights you while simultaneously getting rid of my excess inventory, pushing my campaign or maximizing my margin. And then if I can do this for 1 million other consumers on that same day, I'm redefining my business. If I can answer your very intricate customer question, even the most complex one and do this for 1 million other customers on that same day, I'm redefining my business. This is what the Coveo AI platform can do grounded in your secure enterprise data. For our customers, most of which are leading brands and enterprises across the world, the debate is not whether they want to adopt AI in their digital experiences. Their debate is that they're convinced they never want to compete against any business who does. And so it really becomes a question of what it takes and who can deliver now. We've seen many such stories recently where our customers have been able to quantify significant improvements in revenue, self-service or cost reductions and fast. In particular, I want to highlight a story published in Forbes just 3 weeks ago on October 5 about the deployment of Coveo at SAP Worldwide. SAP reports measuring a reduction of 1.6 million cases annually in their global support organization, thanks to Coveo's ability to make generative AI work at high precision on their secure data. The data Coveo stitches in context for millions of users comes from dozens of secure internal sources at SAP and more than 10 million documents across the world. Coveo grounded generative AI provides direct responses to questions while showing exactly which SAP document sources the information came from, similar to how GPT works, but trained on SAP's specific knowledge. According to their calculations, this accounts to more than EUR 100 million in annual savings. And SAP isn't stopping a cost reduction. The company is now using behavioral analytics to intervene before customers encounter problems. Such results are not only impressive, but more importantly, few companies such as Coveo can deploy and measure. And this kind of capability is what will fuel our growth. What we're seeing in the market is extremely encouraging. First, enterprises are awash in AI talk. They are drowning experiments. They're parsed for results. Boards are now asking harder questions about AI, looking for measured outcomes on the P&L. And at the same time, every company fears not being at the forefront of AI innovation. In such an environment, showing results in a practical easy platform to deploy has become immensely valuable. We've said it before. The launch of ChatGPT almost 3 years ago was more than the launch of generative AI. It was the true catalyst that woke up the world on the power of AI, but both the nature of it and the hype confused the business world. What our customers have realized after trusting their own IT to figure out how and where to deploy AI is that the intuitiveness of ChatGPT in particular, masks the complexity of deploying it successfully on their own secure enterprise data. That's precisely the plumbing and intelligence that Coveo provides. For most companies, it's been a journey of experimentation with innovation and also a journey of education. Today, we're talking to market more proficient about the necessary capabilities much more appreciative of the importance of a platform such as Coveo that can connect to any data, not confined to a specific data platform, an AI stack that can deliver the highest levels of relevance precision enterprises need into any application, whether it's website, commerce, contact center, Internet, portals and now into any agency framework, but also an ability to deliver using your own trained LLM. While this may sound perhaps quite technical, making AI models work at high relevance precision on enterprise data is the primary differentiation that Coveo brings, a decade-long cumulative innovation that is tough to replicate at maturity and the difference between delivering results versus claiming you will or failing to deploy in production. This is the reason why today, several of the leading global technology companies use Coveo and why some of the largest commerce brands use our platform. And Laurent will discuss transactions with some of these leading brands. The other good news is that this same need around data grounding precision and relevance is unfolding in agent tech. I want to refer you to our recent announcement of how Coveo unlocks custom actions for AI agents and how, for example, Coveo for Salesforce Agentforce sends queries to the Coveo AI platform to return higher precision results but from all connected content sources. We basically enable any AI agent to operate within the guardrails of all secure and governed enterprise content shaped by the user's reality. This announcement is important and was personally endorsed by the President and GM of Applications and Industries at Salesforce. We believe that the market will continue to move towards us as we chase real-world results, that it's only a matter of time and that maturing buyer knowledge plays in our favor. We've said many times on previous earnings calls that we believe Coveo will be a market taker in this industry. We started applying AI to large-scale search relevance and personalization problems in 2012, building on our history of leadership in enterprise search. And we have built arguably the industry's deepest technology platform to ground AI models and broad enterprise data. And that's why we can deliver on the extreme relevance, precision and scale that enterprises require, something others have underestimated and can't deliver on. With that, Laurent, take it away. Laurent Simoneau: Thanks, Louis, and hello, everyone. To quickly summarize our key results. Subscription revenue for the Coveo Core Platform was ahead of guidance, accelerated to 17% and represented the highest growth rate we have seen in nearly 5 quarters. Adjusted EBITDA was also above our guidance range at $0.6 million. The results we delivered this quarter, along with the accelerated growth we have achieved, underscore Coveo's pivotal role in the era of agentic and generative AI. They reaffirm that our platform and solutions are not only highly relevant, but foundational for this new wave of innovation. Throughout the quarter, my discussions with customers, partners and the demand signals we're seeing from some of the world's most forward-thinking organizations have reconfirmed that search remains a fundamental enabler of any reliable ROI-generating agentic or generative experience. As a platform that powers search with the most relevant content, Coveo continues to be mission-critical to our customers' ability to deploy agentic and generative AI solutions that deliver tangible business outcomes and solve real-world problems like we highlighted earlier on with SAP and the impact we're driving with many others. That said, I'd like to address upfront why our Coveo Core net expansion rate was 105% this quarter compared to 108% last quarter. The difference is primarily due to a renegotiated customer contract with Salesforce, representing approximately 3% of our ARR. This onetime renewal adjustment by Salesforce simply reflected their internal mandate to run Salesforce on Salesforce and Data Cloud. We view this as a unique situation, and I want to emphasize that this does not reflect the solid underlying momentum we're seeing with our customers. Our customers are large global enterprises that operate with content across a diverse technology stack. And while it may be feasible for Salesforce to run at Salesforce, this is not the case for the vast majority of our customers. So net-net, we view this as an isolated event. Salesforce does remain a customer and a strategic partner for Coveo. This was highlighted in our October 14 press release featuring Illumio, an early adopter of Coveo for Agentforce. By leveraging the strengths of Coveo, Illumio has improved content retrieval accuracy, enabling more relevant answers, better agent actions and ultimately a stronger self-service outcome. Illumio measured 95% success rate with Coveo in their formal evaluation, resulting in an accelerated go-live. Illumio is just one example. Others, including Xero Software, Palo Alto Networks, CrowdStrike, Workday and Intel have not only extended their engagement with us, but are also leveraging Coveo to drive generative search and support their agentic road maps. These customer stories give me confidence that we're on the right path and have a great future ahead. Commerce remains our fastest-growing segment and drove nearly 50% of new business bookings this quarter. Within commerce, our SAP partnership continues to show momentum, influencing 50% of commerce bookings. Customer wins in commerce included the European DIY retailer, HORNBACH, Solar, Carlton One and several others. We're quite excited about commerce moving forward, and we continue to anticipate this will be our fastest-growing use case, where we see significant opportunity ahead. This segment is benefiting from multiple tailwinds, including our leadership position in B2B commerce and the accelerating convergence of commerce and knowledge into a single integrated capability. Let me expand with a customer example. Today's commerce platforms simply are not optimized to handle the inherent complexities of B2B commerce. They struggle to index the countless combinations and permutations that arise from a B2B merchants unique pricing models, customer entitlements and real-time inventory data query time. What starts as a modest SKU catalog can quickly multiply in size and complexity. The Coveo platform is designed to operate at this scale. Good example is Cardinal Health, a global leader in health care services and products. Cardinal Health manages a vast portfolio with several hundred thousand SKUs and more than 100,000 different pricing structures. This dynamic environment results in an effective record count in the tens of billions and a level of complexity that few, if any, platforms can manage efficiently. Cardinal Health chose Coveo platform for its ability to deliver fast, personalized and relevant results at scale. Another tailwind is one where Coveo's deep knowledge expertise is now unlocking powerful new value in commerce as the line between commerce and service queries blurs. A good example of this would be Bunnings Warehouse, a leading Australia-based home improvement retailer where Coveo powers both product discovery and support experiences through one unified AI platform. This convergence creates a major opportunity for enterprises, and Coveo is uniquely equipped to lead the way. Our generative AI solutions, which represented more than 35% of new business bookings this quarter reflected continued strong momentum. I am encouraged by the progress we are making. This was one of our best quarters for customer adoption and revenue growth since launching the product. We welcomed several new customers, including Halliburton, one of the world's largest oil and gas equipment manufacturers as well as Deckers Outdoors, Intermountain Healthcare and the BMR Group. We also saw meaningful expansions from existing customers such as NVIDIA, Intel, GE, UKG, HP Enterprise, and Freedom Furniture who continue to increase their investments in our generative AI solutions. We're especially proud of these expansions. They come from customers who have experienced the value of Coveo's generative AI firsthand and continue to deepen their adoption, clearly validating the ROI our solution deliver. On the innovation front, we've been testing, validating our agentic RAG and conversational capability with some of our closest customers and continue to make excellent progress. Within our commerce use case, we're moving forward with key capabilities such as conversational commerce, content intelligence and more. These areas will help drive next wave of differentiation for Coveo. Finally, at an operational level, as we regularly do, we're making sure our investments are directed at the best areas of return. We're moving quickly to optimize our go-to-market investments in light of some of the recent dynamics to ensure we continue to build momentum. In this respect, we're pleased to welcome Pranshu Tewari, who will be joining Coveo as Chief Marketing Officer, effective November 10. Pranshu brings extensive experience in enterprise SaaS, having held senior executive positions at Mendix and Dell Software Group. Improving Coveo's market awareness and presence is an important objective of the company, and I welcome Pranshu’s expertise in helping in this area, among others. Lastly, John Grosshans will be departing from Coveo effective November 1. We thank John for his contributions, and we wish him continued success in his future endeavors. To wrap up, our market is dynamic, and I continue to be confident in our path ahead. Based on our innovation, the strong results we are delivering to our customers and partners and a healthy pipeline of future business. With that, I will pass it to Brandon, who will discuss our financial performance. Brandon? Brandon Nussey: Thanks, Laurent. I'm pleased to report that our Core Coveo Platform grew 17% year-over-year, driven by continued momentum of our generative AI solutions, commerce use cases and expansion within our base. Before we get into details, I will quickly summarize our Q2 fiscal '26 results. SaaS subscription revenue was $35.9 million and grew 15%. Within this, revenue for our Coveo Core Platform was $35.0 million and was up 17%. Revenue from the Qubit Platform was $0.9 million in the quarter and was down 24% year-over-year. We continue to expect that this revenue will fully churn by the end of our fiscal year. Total revenue was $37.3 million, up 14% over last year. And our NER for the quarter on the Coveo Core was 105% -- up from 104% a year ago, but down sequentially for reasons discussed shortly. Gross margin and product gross margin were 79% and 82%, respectively, similar to the prior period. Adjusted EBITDA was slightly ahead of our guidance range at $0.6 million versus $1.5 million a year ago. Cash flow from operating activities were negative $10.8 million versus a positive $1.4 million last year due mainly to the timing of working capital. We ended the quarter with $108 million in cash and no debt. Digging into the quarter in further detail, we saw success in our long-term growth drivers again this quarter. Generative AI solutions saw another record quarter with both customer and revenue growth of approximately 150% compared to the prior year. Importantly, we continue to maintain near perfect retention rates with NER from these solutions at more than 150%. This means customers are adopting, getting value and expanding their usage, which is a great long-term signal for us. In commerce, which once again was our fastest-growing use case, we delivered one of our best quarters ever for new business bookings. Commerce momentum continues to accelerate, driven in part from our ongoing successful partnership with SAP, and we remain confident it will be a key driver of our growth going forward. We continue to see encouraging signs from our existing customers and capturing the white space in our customer base remains an important growth driver for us. Our investments in our account management function continue to show a positive impact, and the results are generally tracking to our plans. This is also having a positive impact to our revenue retention rates, broadly speaking. While the quarter contained many positives, we navigated a couple of near-term dynamics as well. The renegotiated contract with Salesforce that Laurent spoke to will serve to reduce our NER and ARR growth rates by approximately 3% with the effect on recognized revenue spread over the next 4 quarters. This is an isolated customer-specific item and importantly, excluding this customer, churn was the lowest we've seen in the past 7 quarters. Additionally, after several quarters of record new business, in Q2, we saw some deals that were forecasted to close move to our Q3 and beyond. The good news is that some of these deals have already closed in October, getting Q3 off to a good start. With others, however, we observed that additional stakeholder approvals were required as our solutions become more strategic for these customers. I'd like to emphasize, we haven't seen these go to competitors. They simply require more time. In light of this, we're taking a prudent approach to our second half bookings assumptions. So bringing this together, we now expect to land at the low end of our previously issued guidance range for revenue for the fiscal year and are bringing down the top end of the guidance range accordingly. In Q3, we expect SaaS subscription revenue of between $35.7 million to $36.2 million and total revenue of between $37.1 million and $37.6 million. For the full year of fiscal '26, we expect SaaS subscription revenue of $141.5 million to $142.5 million, adjusted from $141.5 million to $144.5 million. And total revenue of $147.5 million to $148.5 million, adjusted from $147.5 million to $150.5 million. With roughly 3% impact from the renegotiated customer contract, along with measured second half bookings expectations in mind, we now expect to exit the year with roughly mid-teens ARR growth. Improving our rule of metrics remains a top priority, and we're committed to doing so. As you've seen from us historically, we will remain disciplined operators, and we'll continue to be diligent about deploying our capital. To that end, we're making proactive targeted investment adjustments within our go-to-market organization to ensure resources are aligned with our highest return opportunities and to quickly adapt to the dynamics we saw in the quarter. We continue to see strong performance in several of our key growth drivers, and we're focused on giving those the investment they need to scale efficiently. Consequently, despite lower revenue expectations, we're maintaining our adjusted EBITDA guidance of approximately breakeven for both the third quarter and the full fiscal year. We still expect to deliver positive operating cash flow for the full year, adjusted from approximately $10 million as we incorporate the impact of the renegotiated customer contract, assumptions around second half bookings and some onetime costs associated with the go-to-market adjustments we discussed above. In summary, our reported revenue growth rate of 17%, which was improved from 11% a year ago, was driven by the building momentum we're seeing in our long-term growth drivers. We continue to see many positive signs surrounding those growth drivers, and we have many things to be proud of this quarter. Despite the short-term challenges encountered in the quarter, we continue to see many opportunities ahead. And with that, operator, you may open the line to questions. Operator: [Operator Instructions] We'll take our first question at this time from Richard Tse with National Bank Capital Markets. Richard Tse: I was wondering if you could update us on any plans to shift to a sort of consumption-based pricing model that would potentially create a revenue lift. And I ask that because Louis, when you talked about SAP, it sounds like it's a substantial kind of savings that they're getting from your sort of Coveo. And are you kind of harvesting sort of full value from these relationships? Louis Tetu: Richard, so here's what's happening. In our business, those are obviously massive customers. And so we're very proud that we're now -- we have multiple examples where we're completing the cycle of essentially selling to the customer, deploying on a global basis. I mean, SAP is a massive deployment on a worldwide basis. And then completing the cycle of measuring. As we said about the SAP announcement, SAP measured, and it's -- you can find it in the Forbes article, measured a reduction of 1.6 million cases annually. And the number they measured was more than $100 million of savings. So I understand the gist of your question that when you think about this, the value that we provide is, in a way, for now, still somewhat in commensurate with the price we charge. We view that as a positive tailwind moving in the future. The more we bring and measure those proof points, Richard, the more we gain price power for our solutions. Our solutions today are consumption-based pricing. You can see that, obviously, as we said, they generate much more value. And as we accumulate these proof points, and we have many more that you can -- some of which you can see on our website, I think that bodes well for, again, price power progression. Richard Tse: I just have one other question. So in your MD&A on Page 8, you sort of talked about incorporating AI into some of your products. So can you maybe help me understand the divide in terms of where your IP is versus the use of external IP when it comes to AI with respect to that comment in the MD&A? Laurent Simoneau: Yes, Richard, this is Laurent here. So, we are an AI platform company here. We have multiple models that we build ourselves, that we manage, that we maintain, that are targeted towards relevance. We also include large language models when required in multiple use cases. And -- because we're built with interoperability in mind, we have the ability to either use our own models or leverage something that is best-of-breed or that in certain use cases that is that run at lower cost, and that may be what's used here. So we have a wide variety of AI usage. A lot of this is based on our IP. But as always said, we're pragmatic and we're leveraging what's the best for our customers. Operator: Our next question comes from Thanos Moschopoulos with BMO Capital Markets. Thanos Moschopoulos: Regarding the commentary on some deals that have been delayed, are there any common themes there, be it with respect to the verticals where you're seeing that, the geographies, the type of use case? Is it driven by budgetary scrutiny initiatives? Or is it more about the client deciding strategic approach of whether to custom build internally versus a platform like yours? And any common themes you'd call out in that regard? Louis Tetu: Yes. Great question, Thanos. I don't think there's any vertical themes or anything like that that was common. What we are finding, and maybe it relates a bit to Louis's comments earlier that as we deploy and -- initially deploy and start to measure what ends up happening is customers will come back and look to buy more from us. And that will tend to be then a transaction size that's above what we historically have been doing on average. And as it gets further and further deployed, it's -- we found in some cases that we're bumping into additional stakeholder groups inside of these customers that increasingly where we need those approvals. So, it's really a function of us becoming a little more strategic at our customers is what we're seeing in many of these instances. And with that comes a few more steps in the sales process. So, as I said on the prepared comments, these are deals we continue to work. They're still in our pipeline. They're just taking us a little bit more time to get them done. Thanos Moschopoulos: Just to clarify, so is this primarily impacting then expansion deals? Or in some cases, you brought in to do proof of concept, but then when people see the savings and how that expands, it goes to a bigger deal than initially contemplated for new logo? Louis Tetu: Yes. I mean, not to say we don't see it on some of the new opportunities as well. I do think we've always taken a proof-of-concept type approach to winning new logos. And so, we do see just the stuff we do is strategic to these folks. So, we might see a little bit of it there, but yes, definitely on the expansion side as well. Thanos Moschopoulos: Last one for me. Do you have plans to backfill the COO role? Or will the responsibilities be reallocated amongst existing executives? Laurent Simoneau: Yes. So, first of all, we have a great team of leaders today that are running the operations with a lot of maturity and stability. And yes, we expect to fill a CRO role in the coming months. Operator: [Operator Instructions] Our next question comes from Paul Treiber with RBC. Paul Treiber: I was just hoping you could elaborate a bit further on the change in the relationship with the contract with Salesforce. What drove the change in terms of -- like is it specific use cases that they felt they could use internally developed software versus using Coveo? Or is it something else that drove the change? Laurent Simoneau: Thank you, Paul, for the question. So look, it's really a commercial imperative from their side to run as much as they can Salesforce on Salesforce. We are disappointed, but we believe it's isolated. We have not heard that from other prospects or customers because, quite frankly, it's hard to consolidate everything on one single platform, right? It's very hard. So Salesforce remains a customer of Coveo. Our partnership remains unaffected by this. You've seen PR and endorsement from the President of Applications at Salesforce. So we expect this to be an isolated event. Paul Treiber: Just another question, the AWS outage, did that have an impact on your business in October when that happened? Do you expect any impact? Or were you resilient to it? Laurent Simoneau: So thank you for this question. So, the short answer is we have 0 downtime on what matters, which is search and queries because we built a resilient platform understanding that while rare, these events may happen once in a while. Our customers select us for a long period of time. They love the fact that we are resilient to a lot of these events that may happen and that may have a big impact, especially our commerce customers. So yes, thank you for your question. We were proud of the team and the architecture to support this situation. Operator: Our next question comes from David Kwan with TD Cowen. David Kwan: I was wondering just more on the Salesforce, I guess, renegotiation. Can you comment when, I guess, the renewal hit? I assume it was -- it sounds like -- I'm guessing the second half of the quarter. And then of the $2 million reduction in the high end of the guidance range, how much of that was related to Salesforce versus the adjustment in terms of your booking’s assumptions? Brandon Nussey: David, yes, look, it was a September 30 renewal. And as you can probably appreciate, there's lots of discussions in the back half of the month that got us to that point. So, it was a late in the quarter renewal. And as it pertains to the guidance, look, it's -- you can do the math, 3% of the ARR. The good news is we're still within our guided range. I think that speaks to some of the underlying momentum we have had that we can absorb this. But at the same time, second half revenues are impacted primarily by this event. David Kwan: That's helpful. And as it related to the, I guess, the EBITDA guidance, you guys have talked about, I guess, trying to make up for some of that lost revenue just on better cost optimization. I just wanted to clarify, I guess, it sounds like -- it doesn't sound like there's much of an impact as some of the growth investments that you're planning to make this year to help drive an acceleration in growth. Is that correct? Brandon Nussey: Yes. Look, that's a constant exercise to optimize your spend, especially as we've been building our go-to-market function up to increase presence and coverage and so on. So that's a constant exercise of making sure we've got the chips on the right spot on the table. And so, there's a little bit of that happening. But to your point, it's not going to impact the big picture. We have been building on that line. We're in a good spot now. It's just making some tweaks here and there to make sure that we are optimizing that investment and getting the unit economics we expect out of it. David Kwan: Just one last question. Just wanted to get a sense for the commerce business, just trying to compare the opportunity in the B2B market versus the B2C. Laurent Simoneau: Yes, David, Laurent here. So, what's very interesting in the B2B market first of all, is the scale of a lot of our customers from a combination of catalog size and entitlements, think about pricing and think about availability of products and so on. So, you start with that foundational -- so that's a foundational challenge that we address at a scale that is quite unique in the market. And then what is -- was quite exciting for us is that now these customers are starting to experiment with convergence between classic commerce and also some knowledge functions. So we're seeing their own customers, their own shoppers starting to ask queries that maybe commerce, maybe support and having the convergence of those 2 together opens up a lot of possibility from an experience standpoint. And we believe that we're uniquely positioned to address both sides at the same time. Operator: [Operator Instructions] Our next question comes from Suthan Sukumar with Stifel. Suthan Sukumar: For first question, I want to touch on the sales front. What would you call out as having changed the most sequentially with respect to your customer conversations for new deals with respect to initial scope, use case adoption? And can you provide an update on the ongoing ramp-up and efficiency of your recent sales hires? Laurent Simoneau: So thank you for your question, Suthan. I think that we're seeing -- one of the things that we're seeing is that deals are becoming larger and therefore, sometimes more complex. And as Brandon said, now happens that they take a little bit more time in some cases. So that's something that overall, I think it's positive, but has changed a little bit the texture of the deals that we're seeing. And of course, commerce is quite robust, and we are seeing these -- again, this convergence of commerce and knowledge as a next step of initial commerce deal potentially that is something that we are seeing as something that is evolving. Brandon Nussey: Yes. Susanne, on the efficiency question, look, as you can probably guess, pleased with some areas, work to do in others. I think that's natural as on the journey we are on. And so we're reacting to the data as we see it and making the adjustments you'd expect us to. But overall, headed in the right direction and pleased with the progress. Suthan Sukumar: Great. For second question, I wanted to touch on the SAP relationship. This -- to me, it sounds like this is humming quite well. Can you provide an update on sort of their broader agentic AI strategy with Joule? And what's your level of exposure there and how you expect to be working with them on that? I'm just kind of curious if the model here will be similar to what you guys have in place with Agentforce? Or could this be a different model altogether? Laurent Simoneau: Yes. So, we have a relationship -- multiple relationships with SAP. SAP is a very important customer of Coveo. As you saw with the with the Forbes article and the amazing case study on their SAP for Me portal. So, there's SAP the customer. There's SAP to partner with I would say, a focus on e-commerce, but it's now expanding into the other dimensions of CX starting with customer service. So, we have a partnership also with them on that. So, SAP's strategy is to bring Joule as the front end from a copilot/agentic perspective on top of those different properties that they have from a product portfolio perspective, but they also want their own customers to use Joule on top of their own customer-facing assets such as SAP for Me. It is planned that Coveo will play a pivotal role into this Joule version on top of SAP for Me of the agentic version. Coveo will bring the consistent relevant content that we're bringing on the SAP for Me classic portal available also into this Joule interaction point, so customers will be able to ask a question on Joule that is consistent with what they saw on the SAP for Me portal. So that's something that is happening right now that is being built and optimized. And we expect that once we have that, it will be hopefully an amazing example for SAP customers to adopt in the future. Operator: That appears to be our last question. I'll turn the conference back to Laurent Simoneau, Co-Founder and Chief Executive Officer, for any additional remarks. Laurent Simoneau: All right. So, thank you again, everyone, for joining and to our shareholders for your continued support. We look forward to updating you at our next earnings call after our Q3 results. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to TotalEnergies' Third Quarter 2025 Results Conference Call. I now hand over to Patrick Pouyanne, Chairman and CEO; and Jean-Pierre Sbraire, CFO, who will lead you through this call. Sir, please go ahead. Patrick Pouyanné: Good afternoon, good morning, everyone. Before Jean-Pierre goes through the details of the third quarter results, I would like to make a few opening comments. Almost exactly 1 month ago, we updated you our strategy during our Capital Markets Day in New York, and we had 4 key messages: consistency and resilience of our 2-pillar strategy, strong and secure production growth in our Oil and Gas business, accretive cash flow generation and capital discipline. I believe that this company strong results -- for third quarter results, but again, Jean-Pierre will detail with you, perfectly illustrates these key catalysts and highlights the value proposition of our consistent and profitable growth model. Strategy is clearly in motion and is translating into more cash flow even in a more challenging environment. Indeed, despite oil pricing dropping by more than $10 per barrel year-on-year, the cash flow for the third quarter increased by 4% and adjusted net income for the third quarter held steady. Why? Primarily for 2 reasons. First, the hydrocarbon growth -- production growth is a reality and is highly accretive. The new project barrels coming online, such as Mero Fields in Brazil, deepwater projects in the U.S. offshore, going for oil, Tura and Phoenix for gas have an average cash flow margin, which is roughly twice higher than the base portfolio, and they have contributed 170,000 barrels per day during the first 9 months of 2025 compared to 2024. These new barrels have generated around $400 million of additional cash flow year-on-year. So growth volume around $200 million and higher margin, another $200 million. And so they have contributed to absorb the equivalent of $6 per barrel of decrease in the Brent in terms of cash flow. So that's, I think, a strong demonstration that of disciplined investment framework that includes strict sanctioning criteria, less than $20 per barrel, technical cost of $30 per barrel breakeven for E&P projects is delivering its fruits. And we expect, of course, that this cash flow tailwind from new high-margin barrels will continue as we work our way through our deep project queue. As a reminder, starting from '25, continuing in '26, the company is growing upstream production by 3% per year through 2030. And what is the differentiation factor that the standout of our business model is clearly that more than 95% of this production by 2030 is already either online or under construction and largely under lump sum EPC contracts, which seems to significantly derisks the cost. So our projects are in hand, and we are executing them. And again, this year and this last quarter demonstrate that we are well in the delivery mode. Some people think we are borrowing, but we are borrowing for the good. Cash is growing. The second pillar of these good results have been the recovery of the downstream, which contributed to the company's resiliency with cash flow up by almost $500 million. It is true that the refining margin were better. It's also true that we managed to capture them, thanks to a good availability of our assets. We -- and in particular, there were several turnarounds during the quarter, but they were executed in time, in schedule and in budget, and it allows us to reach our objective. And of course, Marketing and Services continue to deliver consistent results and demonstrated by the priority given to value over volume in this segment is the right approach. In addition to highlighting the strength of our consistent strategy, this third quarter demonstrates as well that we are delivering in the short term, specifically on the second half of 2025 plan that we laid out during the July earnings call, which included 4 key elements. Again, the accretive production growth, giving more cash flows, the downward inflection in our net investments coming back to the capital discipline, which decreased by $3.5 billion quarter-over-quarter, a reversal of the seasonal working capital as we have released this quarter of $1.3 billion. And lastly, of course, all these elements improved the gearing that is now close to 17% compared to next to 18%. So the end result is that during the third quarter at $69 per barrel, the company generated excess free cash flow. With cash flow, including working capital variation, more than covering net investment plus $4.5 billion of shareholder returns in the form of dividends and buyback. It's leading me to shareholder returns. The company, of course, continues its strong track record of dividend growth. The Board of Directors decided to increase the first interim dividend of close to 8% in euro and more than 10% in dollars as compared to 2024. On the buyback side, as announced on September 24, the Board of Directors authorized up to $1.5 billion of share buyback for the fourth quarter of 2025. And therefore, assuming annual cash flow between $27.5 billion and $28 billion, in particular, supported by the better refining margin that we observe currently, the 2025 payout ratio is expected to remain around 56%. Looking forward, we expect to maintain a strong momentum for the fourth quarter. Upstream production is anticipated to grow more than 4% year-on-year like this quarter. The net investments are expected to decrease quarter-over-quarter, in particular, because we will deliver the disposal proceeds, $2 billion are expected. And at the end, the net of acquisition will represent $1.5 billion of inflow -- cash inflow in the balance sheet. And that with another anticipated positive contribution from the seasonal working capital, we anticipate to continue to strengthen the balance sheet with gearing forecasted further decline to 15%, 16% at year-end. Last but not least, we have -- Board of Directors has approved the road map to transform our ADRs into ordinary shares. And we're happy to announce that we ordered today, JPMorgan, to launch the termination process of the ADR program with the objective that ordinary shares are expected to begin trading on the New York Stock Exchange from December 8. This is, of course, an important milestone for the company as it will allow for a single class of TotalEnergies shares to trade with extended hours. It will be essentially a continuous listing from Paris 9:00 a.m. to New York 4 p.m., 10:00 p.m. Paris time. And we hope that this ordinary shares listing will be a clear catalyst for the stock in 2026 in both Paris and New York markets, and we intend to market these ordinary shares on the U.S. market even more actively than today. I will now turn the call over to Jean-Pierre, who will go through the details of the third quarter financials. Jean-Pierre Sbraire: Thank you, Patrick. I will start by commenting on the price environment in the third quarter versus the second quarter. Brent averaged $69 per barrel during the third quarter versus $68 per barrel in the second quarter, up 2%, but down more than $10 per barrel compared to the third quarter of '24. ETF averaged $11.3 per MMBtu versus $11.9 per MMBtu, down 5% and the average LNG price decreased to $8.9 per MMBtu versus $9.1 per MMBtu, down 2%. On the other side, for refining, the European refining margin significantly improved to $63 per ton compared to $35 per ton during the second quarter, up close to 80%. In this price environment, the company reported strong financial results with third quarter '25 cash flow increasing by 7% compared to the second quarter and adjusted net income increasing by 11%, thanks to the continued positive impact of the new attractive upstream barriers and strong downstream results that reflect the company's ability to capture higher refining margins in Europe. Overall, profitability remains strong with return on equity for the 12 months ending September 30 at 14.2% and ROACE close to 12.5%. Moving now to the business segments, starting with hydrocarbons. On a year-on-year basis, third quarter hydrocarbons production exceeded expectations and increased by more than 4%, making it the company's highest growth quarter so far this year. We anticipate that this trend will continue with fourth quarter hydrocarbon production expected to grow more than 4% compared to the fourth quarter of '24, notably benefiting from the restart of Ichthys LNG in Australia. Turning to the quarterly results and starting with Exploration and Production. This segment generated during the third quarter of '25, an adjusted net income of $2.2 billion, up 10% quarter-over-quarter in a similar price environment and outpacing quarter-over-quarter E&P production growth of around 4%. Similarly, cash flow growth was strong at $4 billion, up 6% quarter-over-quarter. Importantly, our project portfolio is delivering new low-cost, low-emission oil and gas production that is accretive with an average upstream CFFO per barrel that is roughly 2x the base portfolio. Regarding the E&P projects, we are progressing on all fronts. On the project side, we achieved first oil at the Begonia and CLOV 3 offshore fields in Angola, and we sanctioned Phase 2 of the redevelopment of the Ratawi oil field in Iraq, which is part of the GGIP project. As we have now launched all phases of GGIP, we are looking forward to the first oil for Phase 1 of the redevelopment early '26. On M&A, the company is consistently high-grading its portfolio. During the last earnings call, we mentioned that we are expecting several E&P divestments in the second half of the year. And during the third quarter, we divested 2 international blocks in Vaca Muerta in Argentina, which closed this quarter and 3 satellite fields in Ekofisk in Norway, out of our strict investment criteria, which is expected to close in the fourth quarter. And lastly, on exploration, we continue to reload the hopper to complement existing opportunities. And this quarter, we announced new license awards in Nigeria, in Republic of the Congo and in Liberia. Moving to integrated LNGs. Third quarter LNG sales of 10.4 million tons were essentially flat quarter-over-quarter as third-party purchases offset lower sales from equity production. Cash flow of $1.1 billion was in line with the second quarter in a stable price environment with an average LNG price of around $9 per MMBtu. Adjusted net operating income of $0.9 billion was down 18% quarter-over-quarter, primarily due to the planned turnarounds at Ichthys LNG in Australia that impacted production by around 50,000 barrels of oil equivalent per day for the quarter. On the price outlook, forward European gas prices continue to be sustained at around $11 per MMBtu for the first quarter of '25 and winter of '25, '26 due to anticipated winter demand. Given the evolution of oil and gas prices in the recent months and the lag effect on pricing formulas, the company anticipates an average LNG selling price of around $8.5 per MMBtu for the first quarter of '25. On the advancement of our LNG strategy, we are pleased to continue to grow our U.S. presence with the recent FID on Rio Grande LNG Train 4 in South Texas, and we enhanced resilience in our LNG and gas to power strategy by acquiring interest in shale gas assets from Continental Resources in the Anadarko Basin in the U.S. Turning to Integrated Power. Net power generation increased 9% quarter-over-quarter to 12.6 terawatt hour due to increased output from flexible generation capacity in Europe. The value of TotalEnergies unique integrated model is illustrated in the third quarter financials. Total cash flow from operations was $0.6 billion, up 9% quarter-over-quarter and in line with annual guidance. To provide more granularity in the Integrated Power financial performance, this quarter, we disclosed the split in cash flow between production assets, renewable and gas-fired power plants on one side and sales activity, B2B, B2C and trading on the other side, showing that each contributed equally this quarter. During Q3, Q4, sorry, sorry, during the third quarter, the company has executed well on the farm-down side of its integrated power business model, which contributes capital recycling and will generate a tailwind for free cash flow in the fourth quarter. The company signed an agreement for the sale of 50% of the 1.4 gigawatt renewable portfolio in North America and closed the sale of 50% of 270 megawatts renewable portfolio in France. These deals have a combined cash impact of around $1.5 billion. And in this deal, TotalEnergies retains a 50% stake in the assets and will continue to be the operator after closing and to offtake 100% of the [indiscernible]. This is in line with our business model. As an important reminder, our attractive upstream growth is not the only contributor to the company's resilience. Integrated Power will take the key role in this too, since it is differentiated and growing cash flow stream that is outside of crude cycles and with strong demand fundamentals. Moving to Downstream. As Patrick mentioned, during the third quarter, Downstream efficiently captured the high refining margins in Europe and contributed to the company's resilient financials. Third quarter adjusted net operating income of $1.1 billion, was up more than 30% quarter-over-quarter. Cash flow of $1.7 billion was up 11% quarter-over-quarter, thanks to good availability of assets that allowed us to successfully capture improved European margins. In terms of free cash flow during the third quarter, downstream cash flow from operating activities exceeded net investment by over $2.5 billion. In Refining, the European Refining Margin Marker strengthened during the third quarter due to the tension on the diesel supply chain in the context of low inventories. Utilization was 84%, which was towards the high end of the guidance range of 80% to 85%, and it reflects efficient operations and planned turnarounds at Port Arthur in the U.S. and HTC in Korea. In Marketing & Services, results remain consistently strong with high-margin activities, offsetting lower volumes. Looking ahead, we anticipate refining utilization of 80% to 84% in the fourth quarter, which accounts for scheduled turnarounds at Antwerp and SATORP. Moving now to the company level and starting with working capital. As expected, we benefited from the working cap release during the third quarter, which was a $1.3 billion positive contribution to cash. Furthermore, for the fourth quarter, we anticipate another positive contribution. On net investments, they meaningfully decreased to $3.1 billion in the third quarter, which includes $0.4 billion of divestments, net of acquisitions. In the fourth quarter, as mentioned by Patrick, disposal are estimated to total $2 billion, including the closing of Nigeria and Norway divestment for exploration and production as well as farm-down of renewable assets in North America and Greece for Integrated Power, and we reiterate full year of '25 net investment guidance of $17 billion to $17.5 billion. Based on anticipated net investments and working cap, we expect gearing to decrease to 15% to 16% at year-end compared to 17.3% at the end of the third quarter. With that, Patrick and I are now available to answer your questions. And the operator, so please open up the line for questions. Operator: [Operator Instructions] The first question is from Lydia Rainforth, Barclays. Lydia Rainforth: Two questions, if I could. The first one, can I just get your clarification on where we are on the tax issues in France. I've seen headlines this morning about tax on share buybacks, what that actually means? And then the second one, I think, Patrick, this comes back to your point around the growth in production is obviously doing quite well, but also the growth in cash flow numbers. So when you're thinking about 2026, can you just -- can you give us an indication as to how much more cash flow might grow than production for next year? And just remind us of that. Patrick Pouyanné: Okay. Good morning, good afternoon, Lydia. Well, first, as you observed, there is quite a huge -- quite a big fiscal creativity in the French parliament these last days. And clearly, the full recipe will not work, and we don't know, and so be careful not to overreact to the night news. There was a super tax on multinationals, which is completely out of the rule of law. France has signed 125 fiscal agreements with many countries. The principle is no double taxation, and this is very anchored, and as the government reminded to the parliament, this is the right rule. So we will not be touched by that. And there is also in the constitution some already decision when you want to tax above what is reasonable, then there is this type of taxations are not approved or canceled. So honestly, the situation -- political situation in France is not very stable. There is a huge debate, making a lot of noise. But I trust that at the end of the day, we will land to a reasonable avenue. And as you all know as well, we -- TotalEnergies does not make a lot of benefit in France, so I would say we'll follow this debate. But again, I'm comfortable with the fact that at the end of the day, government will take the right decisions to maintain, in fact, which is fundamental, what we call the supply policy to you know if you want -- before you redistribute in a country, you need to create wealth. You need to produce. You need to create results, revenues and then you can speak about distribution, and we will come back to that. So I understand that -- and I think, by the way, that this situation in France is weighing on the share price of TotalEnergies, but I remind you as well that we are a global company. And that again, largely 90%, 95%, I think, of our cash flows and our results are not coming from our country where we have the headquarters. So again, I think we -- from this perspective, the profile of TotalEnergies is quite different from other French companies, and that market should integrate it. For 2026, honestly, Lydia, you are asking me a question to which I will answer more precisely in February. As we know, we have a meeting for annual results, and what is the plan for '26. So I mean, my -- as I told you, in New York, we anticipate a growth of 3%, more than 3% for '26 again. For the cash flows, I don't have all figures. Of course, it's related to the new production coming on stream. But part of the, I would say, new production of '25 like the Brazilian production will have the full effect in '26. So I anticipate another accretive effect on our -- accretive effect, the size of it, I mean, you have to be a little patient. But again, clearly, we are in a delivery mode. We delivered the production growth more than 3, then this year, probably it will be next to 4, in fact, at the end of the year 3, 3.5 to 4 for '25, next year, at least 3. And then let's deliver the, okay, the accretive cash. But this is a road map, not only '25, '26 for the next 5 years. And if they miss, we reminded you and we, I think, gave you comfort during the New York presentation that we will deliver this $10 billion of additional free cash from all our segments from -- in the next 5 years. Operator: The next question is Michele Della Vigna, Goldman Sachs. Michele Della Vigna: Congratulations on the strong growth. Two questions, if I may. First, I was wondering if you feel like you're able at the moment to capture the extraordinary refining margins we are seeing, and how the improvements to your Port Arthur and Donges refineries are progressing? And then secondly, I was just wondering what you're seeing in terms of disruptions of the Russian volumes following the latest sanctions and if you start to see an impact on the physical market through your trading and optimization division? Patrick Pouyanné: Thank you for this question, Michele. To be honest, when I read again our press release, I think we are a little bearish on the oil price and the refining margins. The refining margins that we captured since the beginning of October for the last month is around $75 per ton. So when we guided you it's above $50, I think we are a little shy. And in fact, it's fundamentally linked because we begin to see real impact in the market of these last Russian sanctions. I think the market is underestimating what it means when you have U.S. sanctions, 2 large Russian company, which are at the core of trading Russian oil, by the way. And when Europe say that we are targeting countries which are considered, I would say, dangerous like India, Turkey and China. But if you trade oil or products from these countries, you could be under sanction. The reaction today in the market, and I shared some views with some of my colleagues, including in -- I was in Riyadh last 2 days, I can -- clearly today, trading hours as well are more cautious. And we see that everybody is taking this risk very seriously, including secondary sanctions, which might become. And so I see some impact. And I think clearly, the refining margins today instantly is more around $100 per ton than the $75 as an average. And it is linked clearly to, in fact, this sanction will oblige to reroute some volumes and to find a way to bring, I would say, products and crude oil more expensively to the different locations of the planet. So I think this is clear. That also could have an impact, by the way, on the oil price. I mean, the crude oil price. We've seen a reaction whatever announced today, it's still $65, but $65, I think, is a good assumption for this quarter, maybe a little more. So I would say, more bullish, that's what we wrote a few days ago because I begin to realize that these sanctions will have a real impact in this market. And most of the players are becoming -- are taking them seriously, which is good, by the way. TotalEnergies, we stopped trading any Russian oil for -- since end of '22, somewhere we penalized ourselves compared to other practice. But I think it was the right way to comply and to be strict on the Russian sanctions. So capturing the refining margins, for sure, the good news of the third quarter is that we managed to do it. We had a turnaround in Port Arthur, which is done. So it's fully back online now. Donges as well is running. So let's not fully -- not the last equipment we are waiting for by the end of the year, but it's running. So we deliver results. The third quarter -- fourth quarter, we have 2 turnarounds, one in Antwerp, one in SATORP, which are 2 big machines in our results. But I expect -- I would -- I expect that this will be, I would say, compensated again by the other assets and by the fact that the margins are higher. So I'm positive. And when I gave you a guidance of $27.5 billion or $28 billion, I was maybe too bearish by stating $27 billion in New York. It's because as well, I integrate these elements, which again and the duty and all the organization of refining chemicals and rest of Total are dedicated to capture these margins, which are good. So this is where we are, and I'm bullish on that. Operator: The next question is from Doug Leggate of Wolfe. Douglas George Blyth Leggate: I wonder if I could start with your upstream margin. The volume guidance is, again, pretty strong for Q4. But what we're -- I guess what we're observing is that your upstream margin seems to be moving up as well as the volumes. And I'm trying to understand what happens as the mix changes going forward. So for example, Iraq never historically had great margins. So how do you see the margin mix continuing as the growth trajectory sustains over the next several years? That's my first question. And my second question, if I may, is a quick one. Oil appears still to be in a very technical market. So we all see the oversupply, but it seems to keep bouncing around that 60 level. I guess my question is, if you ended up with better cash flow than you thought when you reset the buyback, what would be the first call on cash? Would it go to the balance sheet to continue deleveraging? Or would it go to the higher end of the buybacks? Patrick Pouyanné: The second question is clear. It will go to the balance sheet. So the second answer, I would say, is clear, will go to balance sheet. It will go to the balance sheet because I observed that -- and I have spent quite a lot of time with investors in the last month and clearly, I would say, long-term investor, deleveraging balance sheet is important for all of us. And if you want to be -- the best buyback policy would be to countercyclical. To be countercyclical, you need to have a strong balance sheet. So that's the position I would take and give you. So consider the guidance we gave you, we gave you quite a good guidance, and we told you [ $0.75 billion to $1.5 billion ] between $60 and $70, $2 billion at $80. But -- and I'm answering for '26, to be clear. If we continue and we see the plan to deliver more and more free cash on the road map to $10 billion, then we might revisit this scheme. But today, in '26, if it's coming, in your case, if we are above $60 in '26 or above $70, then we will continue to deleverage. Upstream margins, no, Iraq is a good contract. So I know historically, but it's not at all the case. As we always -- I mean, as I told you, we are far away from the historical service contract. We have -- when we came back in Iraq, it was clear that either we had a good contract, a strong contract, it was a matter of risk and reward and in particular, the Iraqi contract is quite reactive to the oil price. We capture some upside on it, which, of course, is important. We benefit in Iraq from quite low-cost production. So the breakeven is low. And so it will contribute. The Iraqi barrels, don't make a mistake, are contributing to the increase, are accretive. And again, I can give you -- but I think we gave you in New York and in fact, the base barrels at an average around $19, $20 per barrel. And today, these new barrels are more between $30 and $40 per barrel. So it's why we have an excessive growth in upstream. So I think you will continue to see, again, the free cash flow from upstream will move quicker than the growth of production. Operator: The next question is Biraj Borkhataria, RBC. Biraj Borkhataria: Firstly, nice to see that production growth being -- the accretion coming through. That really is a differentiator. Two questions. The first one is on the divestments for the year. I know you mentioned Nigeria in the $2 billion. I believe there was -- there were 2 deals that you're planning to do, one of which wasn't approved. So could you just outline whether the SPDC side, that sale was -- is that in the $2 billion, or is that on top of the $2 billion? And then secondly, recently, you signed a letter with a number of other CEOs around European competitiveness. I was just wondering if you could talk about whether that letter has actually catalyzed any kind of response on the policy front? Any color there would be helpful. Patrick Pouyanné: What is the second question? Sorry, I didn't catch it well. Oh, okay, I understood. I know, I know, I know. Okay, understood. European competitiveness. Okay. First, on divestments, I will be very precise with you. The $2 billion, I will give you where it's coming from. We intend to close, and we have already closed some of them, but we are intending to close. And all I think we have signed, and we are in the process, and it's a matter of closure. The Bonga divestment in Nigeria, Norway, the satellite Ekofisk field, some renewable assets in the U.S., renewable assets, which we announced in Greece and as well, we have another project where we will -- but I cannot yet disclose to you guys, another $300 million, which will be announced soon. So it's a $2 billion. This but does not include to be precise, the SPDC JV divestment, not only because of what was approved, but because we -- in fact, we were not able to close. There were some conditions precedent on our side. And we consider that it was not reasonable to close with, I would say, the supposed buyer. So we have relaunched -- not relaunch, we are discussing today. We have advanced discussions with 2 additional -- 2 new buyers, which are, I think, serious ones. And so -- but we will not be able to be clear to answer your question, to close it before this quarter. So it's for next year. By the way, it's good because it's part of the plan for next year. So from this perspective, what we have observed is that divestments of E&P assets generally takes time. It takes more time even if we have demonstrated with our divestment in Argentina that we were able to sign and to close in the same quarter. So sometimes it's going quicker. But -- so the plan is clear. We will -- and we have some interested buyers and serious buyers on it. So we are working on this one. There are others, like I mentioned to you, other IDs for this year and next year that I mentioned in New York on which we work as well. On the European Competition letter, the answer you probably follow that some tweets are linked in. European leaders are not really -- I mean, are listening to our request. They have been, I would say, we had some calls, we had some discussions with some European commissioners who took the letter seriously from 40 CEOs, to say, look, probably understood. I think we are maybe asking them too much, but I think it's a sort of wake-up call from these 40 CEOs. We, myself and the Siemens CEO, we are the spokesperson. Let's be clear, we were just reflecting what people expressed during our meetings between French and German CEOs. I've seen that on some topics, which are, I would say, more -- giving some more poly mix. There have been some calls that were not only from European CEOs, but from U.S. Energy Secretary and Qatar Energy Minister to call to revisit some of this legislation, which seems to be, in fact, against competitiveness. And again, for some of them putting at stake the security of supply of Europe. So I think this is something which is serious. And we are European CEOs, and we, of course, want to continue to contribute to Europe development and growth. But to do it, I think it's also our job to speak up when we consider that conditions are changing and it might be difficult for us to contribute to European prosperity. So it's a moving -- it's a continuous, I would say, fight, but let's contribute to it. Operator: The next question is from Martijn Rats, Morgan Stanley. Martijn Rats: I've got 2, if I may. First of all, what I thought has been sort of really surprising this year is the strength of new LNG FIDs. Already 1 year, 1.5 years ago, many of us were writing reports about the surplus in the LNG market in the second half of the decade, and yet 2025 has been a near-record year of new LNG capacity to be commissioned. And Total still has a few projects that needs to decide on. I was wondering if you perhaps could share with us your thoughts on despite the outlook, the number of new FIDs being as strong as they are and also how it impacts your own decisions in terms of future LNG FIDs? And the second one I wanted to ask is about the shares and the equivalence between sort of the Paris shares and sort of U.S. shares and so consolidating this into one single class of shares. I was wondering if this could impact the execution of your buyback program in the sense that I was wondering if this is in place from December 8 onwards, as I now understand it, if some of the buyback program could be executed in sort of New York listed shares. And of course, the context behind the question is then also like if that could then be a way to avoid some of the proposals that have creatively been floated as I think you put it in the French parliament over the last couple of days. Patrick Pouyanné: Okay. The second question on ADR. No, it does not impact at all the execution of the buyback program. I remind you that the ADR conversion is about around 9%, 10% of our shares. So obviously, the buyback program will be executed on the Paris Stock Market to be clear and so -- and not on the New York listed because it will be strange for us to buy back from New York where we want on the contrary to give more life to the New York market. So I prefer more activity and finding more -- we will buy back shares in New York when we will see we'll have much more active shares on this side of the Atlantic, I would say, so first point. And honestly, no, it will not -- by the way, it would not avoid in any way tax proposals. And again, the tax proposals are funny proposals. Again, there are some principles. When the President, Aurelien tried to impose -- by the way, he tried to impose a 3% tax -- extra tax on dividend, which was canceled by the European Union and by the French Constitutional Group. And all of us have recouped the money they took during 3, 4 years. So again, there are some principles. We are in a rule of blue continent and a rule of blue country. And this is the reality. So you must make a split between the political debates which are quite vigorous, I would say, and very creative and the reality of the rule of law, and we know that there is some limit. And when I see the figures, and I will tell you what I'm thinking, the higher it is, the better it is because then I'm sure it will not go through the system. So I mean I'm -- that's the reality. And there is -- you can -- in the constitution of -- French constitution, you cannot deprive people unreasonably to their -- rest of their profits and the results. And buybacks are not at all a profit. Buyback, it's just a matter of distribution. And by the way of investment in the company. We invest in the company. So I mean, I'm ready -- again, I think it's a topic on which I'm ready to continue to explain to parliament members with our buybacks. But I think we'll -- again, don't overreact to this type of, I would say, news. And I'm afraid we'll have all the news during the next 30 days coming from the parliament. At the end of the day, I trust the government. Martijn Rats: And on FID? Patrick Pouyanné: First question, FID, sorry, FIDs. Okay. I mean I'm not sure. I mean, there was a lot of announcements. I'm not sure about how many FIDs exactly because between the announcements and you have a flows of news of projects being revived because they get the permitting, or they get the approvals for non-FDA countries export from the U.S. administration. So you have a news flow coming. Then FID, I know Train 4 and 5 in next decade, yes, I know them. I know that 1 or 2 competitors are serious and are progressing because as I said in New York, all these projects, they need to find the financing. To find the financing -- and again, an acceptable -- a good financing, a good financing, not an expensive one. Otherwise, you will destroy the value on Train 4. We managed to put in place a project financing at Rio Grande 6.4% around 6.5%, which was good -- good project financing, which has the leverage on it. Other projects does not have the same good finance, I would say, Rio Grande and Rio Grande LNG. So then, of course, I agree that we need to take that into consideration. We have a strong policy, a clear view. We decided to transfer most of our exposure on the GKM, I would say, LNG spot market to the Brent formulas, and we have been active. I think we are very right to do it. I'm more bullish on the oil price, as I explained that on this one by the end of the decade. So of course, then we need to assess and to take into account that we postponed Cameron '24 because the CapEx were too high. It's not the time to run again on Cameron '24. And the other decision we have, in fact, in our portfolio is Papua and New Guinea. You know that we are working on the CapEx, to lower the CapEx. And it's clear that lowering the CapEx is of utmost importance in a market which could be from this perspective, weaker when we launch the project. So that's a topic on which we will have to work. And we have demonstrated already that we now have to be disciplined in that market, giving priority to, I would say, first and second quartile projects in our portfolio. And that's an element of -- which will have to be taken in consideration. By the way, we have announced that we lifted the force majeure on Mozambique. There is a funny figure, which is in some press news agencies, which speak about $25 billion. We are not at all, and I want to be clear and strong on this news, I don't know people are playing games, which is not acceptable. They have access to -- some people have relinquished a letter that I sent to the President of Mozambique. It's clear, it's written $20 billion in the letter, out of which $4.5 billion came from the -- what we spent in the last 4 years. So the budget in '20, when we left in 2021 was around, it was approved $15 billion, $16 billion. You add $4.5 billion, you are down to $20 billion, $20.5 billion. That's the reality of this budget. And by the way, this cost -- real cost, what we've done is that we spent -- we've done all the detailed engineering and all the procurement has been done. And so today, when we -- as soon as we fully remobilize everybody, we are purely in a construction mode. And that's why we said we are able to deliver the project by 2029. And so I've discovered some people were surprised. But in fact, we spent some money in order to, I would say, recapture part of the time, which was under force majeure. So the budget is not a total $25 billion, and I want to be strong, it's $20 billion, $20.5 billion as we will restart. And again, I can confirm it because we had long discussions, of course, with contractors. And so we have put all these figures together with them. And so -- and including on the delivery in '29, we have strong commitment. So we have realigned the whole system in order to be able to execute properly this project. Operator: Our next question is from Kim Fustier, HSBC. Kim Fustier: A couple of weeks ago at an industry conference, you mentioned that the LNG market is getting more competitive and it's harder to make money in trading. I guess that's not exactly a secret, but I was wondering if you could provide any more color on this. And I was wondering how much of the decline in LNG trading profits would you ascribe to heightened competition versus the more normalized conditions, lower volatility, lower spreads, et cetera? And then I also wanted to come back to the EU sustainability rules. I mean, I suppose let's see if the EU rules could be amended, but if they broadly stick, then how would you ensure compliance with the CSDDD rules in practice? And then hypothetically, what would be your options if some LNG supply is deemed to be noncompliant, would you be able to redirect it? Patrick Pouyanné: Okay. First question. I mean, to be clear, I think we made a demonstration in New York, the message is not that we have a decline of LNG trading. We told you that there were exceptional trading profits in '21, '22, '23 and that we are back to a normal environment with lower volatility. And that by the way, the results of '25 on integrated LNG are in line with '24. So I'm just that we don't benefit from the growth on this part at this stage. Later, we'll have a growth of volume, but this stage is stable. And in fact, they are quite related to the results of 2019 before this crisis. So I cannot -- what is also true is that you have observed, like me, that there are more trading hours, which came to this LNG business because maybe we were considering we were making good money. But today, answering your question, no, it's just -- my view is that today, we have to -- we came back to, I would say, more standard revenues. And I hope, of course, the main growth for LNG trading profits from TotalEnergies will come from the growth of volume of assets. So we have a volume impact on our trading business, which will generate additional profits. And we made a mistake when we were planning 2025 because we were thinking that we could replicate the last quarter '24 in full '25, which is not the case. So I have to -- and again, because that's clear that the volatility in '25 from the gas, the European gas price moved between $11 and $12 MMBtu. So it's not a big volatility. By the way, I'm not unhappy because $11 or $12 per MMBtu from my Norwegian gas and my British gas and my Danish gas, it's a very good price. So I'm maybe -- so I mean, people -- we should not give an overweight to the trading business. Trading business is adding value, but the base business is in fact, our upstream and our production. So I'm happy to -- I prefer to gain $12 per MMBtu of profits on my North Sea gas and maybe a little lower volatility on the trading. So let's be -- we never -- we -- maybe because there was exceptional years, incredible years, '22, '23, again, '21, '23, you consider it was the new normal. We never said it was a new normal. We even told you, be careful. There are exceptional results each time we -- exceptional means exceptional. So that's what I want to comment. And again, I remind you and why I'm linking back to our growth volume is that the trading within TotalEnergies is trading around assets. It's an asset-based trading. It's not -- we don't take casino. No, it's not the case. So that's the base of what we do. There are more competitors. But again, we have more assets than others. So it will help our trading business. And I think this is the idea. This is fundamental idea of integration. It's because we have more assets, more volumes, but we have more medium and long-term contracts with Asia. This -- what we signed in the last year, these brand-related medium- and long-term contracts offer some optionalities to our traders. And the optionalities that we included in these contracts have a value. And this is why I'm linking that to my assets and my business. This is the base of it. And some competitors do not have the same assets and contracts. Then about the competitive sustainability rules, I mean, the question is not to have energy noncompliant has not been -- the CS3D does not define the compliance. The CS3D is a matter of putting in place some rules, but you have to have a duty of vigilance on the way on the supply chain. Some countries have been strong in the letter. I invite you to read the letter of the Secretary, Wright and Minister, Al-Kaabi, if you didn't read it, they sent a letter to the European leaders telling them if you keep that in place, we will not deliver -- we will not take the risk to deliver LNG to Europe. I would say, it's -- if we don't have LNG coming neither from the U.S. nor from Qatar, we have -- my European North Sea assets are taking a lot of value. So I'd say it's not. I mean -- so it's not a matter of compliance, a matter of legal risk because, in fact, while you may be compliant is that in this CS3D if you were found guilty by a judge, your penalty could be up to 5% of your worldwide turnover, which is just crazy. So the sanction size is completely disproportionate to, in fact, a rule which is against, of course, basically, we are all -- we are for human rights, but you can ask efforts to company to control the supply chain, but we don't control everything. But if you transform, supposed not enough vigilance in such penalty risk, then it's completely disproportionate. And this is a call coming from these 2 countries. So for me, so again, we'll -- and I consider to be honest, that what we -- when we produce LNG in the U.S. as we are the largest exporter of U.S. LNG, we are fully compliant with the duty of vigilance law with all what we produce in the U.S., in Qatar as well, by the way. Operator: The next question is from Matt Lofting, JPMorgan. Matthew Lofting: I wanted to follow up on your earlier comments on the refining portfolio, 80% to 84% utilization in the fourth quarter looks towards the lower half of the historical range. Obviously, from a near-term perspective, planned turnarounds and maintenance need to be done and undertaken. But when you look forward into 2026, how do you see the normalized throughput of the business now? And has there been any deterioration in that normalized level versus what you saw and how you saw it, say, 2, 3 years ago? Patrick Pouyanné: Yes. I think -- so maybe we are cautious. Again, we were cautious on the $50 per ton. Maybe the 80%, 84% is just as I told you, we have Antwerp and SATORP, which are 2 big machines we have entered into a large planned turnaround, so they execute. But of course, it has an impact on the global, I would say, delivery from our portfolio. Let's say, you can keep -- if you take 82% this quarter, I think we were at 84%. Maybe the 82% is probably the mid average of the guidance, probably the right one to take into account. But I told you that it will be more than compensated with capturing better margins on all the other assets. For next year, we are more in the range of 84%, 86%, I think, for our budget. But again, I don't -- I didn't begin to look to what our colleagues are planning. So I'm waiting to see, but I think there are less turnarounds next year. So we should have -- from this perspective, it should be a better year. And as well -- and again, as we mentioned to you, there were some, I would say, difficulties before the turnaround on Port Arthur, turnaround is done. So we expect to have a better survivability. And on Donges again, we intend to put into service these new units, which will enhance the margins on Donges by beginning of 2026. So from this perspective, the perspective, if the refining margins remain at quite a good level, we will be able to capture even more than this year. Operator: The next question is from Irene Himona, Bernstein. Irene Himona: My first question is on marketing, if I may, because your unit margins were up this quarter. And I wonder if you can talk around the drivers of that margin improvement, whether it is structural or temporary? And then my second question, I noted this quarter, you signed some partnerships on the deployment of AI and a global data platform. I obviously don't have the context of your ongoing digitalization effort. I wanted to ask whether it is correct to look at these partnerships perhaps as an effort to speed up and widen the digitalization you have been working on for a number of years. Patrick Pouyanné: Yes. I'll take the second question, first. As I told you -- we told you, yes, we have -- and I think it will be a topic on which we could focus more on what we are doing. In fact, since 2020, we put in place a digital factory in a bottom-up approach with 300, I would say, data experts or data scientists and at a very high level, a good team. But what we observed is that if we want to deploy these new technologies, which are speeding up on a worldwide basis, going from a bottom-up to scale up is difficult. So we decided that it's time now to have a broad effort, a worldwide effort on organizing all these data because there are plenty of data on platforms in refineries, but all that is not connected. And if you want to really, for example, enhance your linear program in refineries, it's the best would be to have access to all these data to develop new tools in order to enhance another additional percent of, I would say, use of the refinery and better margins. So we have engaged with 2 large programs, which are quite an investment, an investment on the platform with Emerson, which is called, I don't remember the name now -- with Emerson in order to -- Inmation - in order to connect all these physical data to, I would say, a large database all physically, and it will take 2.5 years, 3 years to deploy because we need to go on all the sites. We know where the data is, but we need to connect them and then they will be available. And we have also engaged in a very large worldwide program on the E&P side with Cognite, which is, in advance, I would say, from digitalization, and we have made some different pilots with them. Now we are all convinced. So another big program to equip, to deploy this Cognite software, which obviously will help us to really accelerate the use of AI. So for me, 2025 will be the year where we have really decided to scale and to go from a scale and to take some large worldwide program to give us the capacity to take the most of these new AI tools. It will take a few years to install all of that. But if we want to be efficient, and I'm sure -- and it's not cost cutting in our case. It's more additional revenues. If we -- if I can with advanced process control tools, thanks to AI, produce 1% more of all my oil fields and my refineries, I can tell you, it's quite a lot of free cash. So it's worth making the investments, and this is where -- what we have done. On marketing, so I think there is different drivers. But again, fundamentally, the strategy which is put in place in marketing is value over volume, which means not chasing the additional growth, even it's difficult for marketers. They love to show you more tons. But what we discovered is that it's quite mature markets. They are mature markets. Whatever in European market, it is mature, the lubricant market is mature. So it's very difficult to gain market share. The only way to do it is to do it at the expense of margins. And what we have decided is to enter into a policy, which is a bit higher margins and not less volumes, but not to sacrifice, I would say, the margins at the expense of the volume. And this is why, by the way, if you observe our results, we have sold our network in Germany and Netherlands and half of Belgium. There is not much impact. In fact, because we have managed to absorb it, I would say -- so it's also because fundamentally, in marketing, we have decided to divest or to stop when -- not divest, but to stop a business, which was very low margin, which was, I would say, sharing some logistics assets with which we were creating a lot of pass-through volumes, but with a minimum margin. So this has been reduced because it was not really adding money. It was quite using a lot of people. So structurally -- so answer to your question is that structurally, we are in a mode to enhance the margin on Marketing and Services. That's where we are. And this will continue. I hope I am clear. Operator: The next question is from Christopher Kuplent, Bank of America. Christopher Kuplent: Patrick, I wonder whether we could talk about another area of French creativity. There is an idea floating around that we should remunerate electricity or wholesale power prices differently. What can you tell us, is current appetite for signing new PPAs? How has that market evolved considering that rather interesting regulatory backdrop? You've recently signed a project deal with RWE in France, but also have some considerable CapEx left to go in Germany on the offshore wind front. So maybe you can put things into context and give us the risk reward behind taking that regulatory risk. And then you've mentioned it already. I just wondered whether you could give us an update on how quickly we should expect news from Mozambique on the ground now that the force majeure has been lifted. Patrick Pouyanné: On Mozambique, as you -- again, we have lifted the force majeure. We are now expecting the government to approve our new plan and budget, and we are remobilizing the contractors in order to be able to execute the project within this schedule with time work -- time table of 2029, and that's where we are. So I think, consider we are moving on. On the first question, it's a complex question because I'm not sure to have fully understood. Let me be clear, I'm not in favor of regulations and regulatory approach. We are more merchant people. We like the market. So for us, that means that signing PPAs is the best way to commercialize, I would say, our assets. And so -- and we know that we need -- in Europe, you need to sign when you develop, I think you were referring to offshore wind. We signed a contract in France at $65 or $66 kilowatt or megawatt hour, which is a contract, by the way, which the price can be adapted if the CapEx are higher. So the price, the CapEx risk is, in fact, covered because we could -- we have -- not only we have given the price, but the CapEx linked to the price. So that's a protection. It's also partly inflated through the OpEx. So -- and at this level, honestly, we can develop an offshore wind project in Europe because it is projects where, in fact, the connection is developed and paid by the TSO, not by us. So we are only in charge of the plant itself. But again, we follow that. I think today, there are many creativity there again in different circles. All that we are in a European market, European market, is a unique European market, which are some -- fundamentally driven by some market rules, in fact, -- and when I discuss with European authorities, I see little appetite from -- in the commission to put into, I would say, even in some countries like Germany, we believe in the market to change the rule of this, I would say, electricity market. So again, that's a debate. But I'm -- and you know, by the way, in France, the same people who were complaining about the famous system of nuclear commercialization, which was called RN 2 years ago, now are complaining of the new system. So people will never be happy. What they want is electricity for free, but that's difficult. At the end, we need to invest. And if everything is too much regulated, it will be against investment and Europe desperately needs to invest more in renewable gas-fired power plants, grids if we want to ensure security of supply, but the reality, so you cannot get both. So I think I would say I trust there again the political leaders, which are spending a lot of time on this energy story to take the right decision and not to be complacent. Operator: The next question is from Lucas Herrmann, BNP. Lucas Herrmann: And another slightly generic question, but I just wanted to ask for your sort of thoughts on the one part of the complex, which is really having a difficult time, chemicals and the extent to which when you talk within -- when you look at the industry, look at where margins are, you're starting to see better signs of movement to try and restructure not necessarily your own business, but business across the industry so that we might actually move to a place where profits start to improve. And as ever, I mean, if you could give us some indication of the extent to which the associates line within -- well, the profit within the Refining and Chemicals business, what proportion of profit actually comes from chemicals now given just how difficult the environment is? Patrick Pouyanné: Okay. I'm not a chemical company. We are refining and petrochemical company, and we make crack ethylene and polyethylene basics of... Lucas Herrmann: Sorry Patrick, that's what I'm referring to. Patrick Pouyanné: No, no. But just to tell you, the truth is that you know the situation. The situation is that, in fact, in terms of cracking capacity, ethylene capacity, China in the last 5 years went from 50 million tons of cracker to 100 million tons of cracker. And so they have, in fact, almost self-sufficient. So if they were moving from a large importing country to almost self-sufficient, even exporting. So of course, that changed the world patterns. By the way, Chinese companies also suffer from the situation, but other places suffer from the situation. For me, I've always been very clear with you. If you want to invest in petrochemicals, you have the fundamental matter or fundamental competitive factor is feedstock. Either you are an ethane, cheap LPGs in the U.S. or in the Middle East, or you will face difficulties. So that's the situation. So we know that our naphtha crackers in Europe are facing competition, which is super difficult, either from the U.S. crackers or from Middle East. By the way, TotalEnergies, since I'm CEO, we have invested in 2 crackers, one in Port Arthur, with [indiscernible] one with Amiral in Saudi Arabia. So consistent with that's what we -- I think fundamentally. And we are shutting down some crackers like the one we have just decided in Hamburg. So that's my view. To come back on the proportion, I don't know, it's not big. It's not good. I have no miracle recipe compared to my competitors on this one. But again, it's not a major part of our downstream results and cash flow. So most is coming from refining and trading rather than -- more than chemicals. But again, it's part of the integration. When the margins are good, we are happy to capture them. But again, the fundamentals, let's invest in the U.S. and in the Middle East. That's all. Operator: The next question is from Peter Low, Rothschild & Co. Redburn. Peter Low: The first was just on integrated power. The ROACE has been below 10% for a few quarters now. How confident are you of hitting your 12% target? And really, what are the steps to get it kind of up to that level over the coming years? And then perhaps just a follow-up on the kind of proposed EU ban on Russian LNG imports from 2027. I think you said in the past, you'd expect, you'd be able to divert your Yamal cargoes to alternative markets outside of the EU. Is that still the base case? And what you expect to happen? Patrick Pouyanné: First question, I think Stephane Michele in New York gave you some answers to that. We never told you we will hit 12% tomorrow, we told you it's a 5-year plan going by the way, from 10% to 11% from 11% to 12%. Part of it, as I told you, is that today, we have a sort of burden on our capital employed because we have, I mean, acquired a large pipeline of projects, which are, of course, nonproductive, I would say, capital employed assets, which will be because we continue to grow. We have a growth of 20% per year, and we will execute, which will, of course, as we don't intend to make large M&A on this part, not which will transform, I would say, nonproductive assets into productive assets. So part of it is that. Then the second part, that's 1%, the other percent will come from, I would say, rationalization, better use of the assets, industrialization, and this is what we are doing. We also, I think, framed, in New York, a clear road map by concentrating most of the investments of Integrated Power on some major markets, the oil and gas countries, which are in E&P. And then the rest, we are clear, but where we don't see potential to contribute above 12%, there is no future for them in the portfolio. I mean, so that's -- I would say, in a way, what we told you, it is a recipe to go to 12%. So honestly, today, we are a little lower than 10%, but we will recover from it. And don't forget that the contribution from farm-downs, they will come in fourth quarter. So all that will give you color. But I would say I'm there for -- we will raise the 10%, and it's a 5-year journey, but I'm happy with the development of this business. The next target is to be for me net cash positive. As soon as we are net cash positive, I'm sure that the valuation of this part of the business will be better because when I will tell you, this business is contributing to your dividend, it's a way to have a better leverage on this business. And we plan 28. If we can do 27, we are working on that. EU ban on Russian LNG, honestly, there have been a new regulation, which needs to have some clarification because there is some language there we need to understand what it means exactly. Like by the way, when EU banned oil in 2022, '23, it was the exact situation. There was a regulation and the LNG regulation is copy-paste of the old one. There was what they call FAQ where you need to have answers to clarify what is the real scope of ban. For sure, the ban is not going any more Russian LNG in Europe, but we want to be sure that the ban is not larger than that. So before to answer your question. And otherwise, yes, in this case, we have a commitment. If there is no further, I would say, ban, I cannot choose a force majeure to cancel the contract. If I don't have force majeure, I am committed to offtake some cargoes. We are looking to that, precisely today, our lawyers are working, to be honest. We have -- which -- because, of course, for us, the rule is to be sanction-compliant to be clear. So our lawyers are working on it. It's a fresh regulation, so I don't have the full clarity. And I don't want to make more answering longer because I could say something which could become wrong if the lawyers -- and again, if we have to be -- we are always at the Executive Committee on the cautiousness side, I would say, from this perspective. And so I'm waiting to see the report and to understand exactly the scope of the new EU regulatory. Operator: The next question is from Paul Cheng of Scotiabank. Paul Cheng: Two questions. I want to go back, Patrick, in your answer to the question of adoption of AI, you think that is fairly sizable investment. Can you quantify how big is the investment over the next couple of years and whether you have sufficient talent within your organization to really adopt or that you need to go out to hire? And at this point, it seems like it's pretty difficult to get the good talent in the AI adoption area. And what is your target in that what you aim to get from AI over the next, say, call it, 5 years? The second question is Yes. The second question is on Iraq. Patrick Pouyanné: Move on with your second question, sorry. Paul Cheng: Okay. Sorry, Patrick. Second question is Iraq. Can you tell us that how is the situation on the ground? I suppose that the security is good enough for you to deploy your people. So what's the bottleneck or the barrier for Iraq to significantly increase their production at this point? You and some of your peers that are rushing in and signing contracts. And if you think that those contracts, the terms are good. Is there a concern that Iraq could turn into a major production growth area, which in turn is going to depress oil prices over the next several years. So just want to hear how you think about that. Patrick Pouyanné: First question, AI is the program I mentioned when I -- represent more or less EUR 300 million, so $350 million, I would say, worldwide. So it's quite an investment in these data platforms at the worldwide level, first comment. Second comment in terms of people, we have some assistance from the Emerson guys, AspenTech or from Cognite. But remember that we have 300 -- digital factory with 300 people. And of course, we are using part of these people to help to deploy the program. They are there, they are available. They know about it. We have built these competencies in the last 5 years, the second answer. The third answer is that there is a nice country in order to get access to good, very high competencies with not so high cost, which is called India. So it's also a way for us to, in fact, grow in the digital. For us, we are looking today to -- we need to grow, I would say, our technical competencies and in terms of people to have more resources in the side of electricity of power and in the area of digital. And today, we are seriously thinking to enhance or to grow our presence there, and we speak about -- we are discussing about competence center in India. It's part, by the way, of our way as well to contribute to the, I would say, cash saving program that we mentioned. So this is the area. So I know it's a point. But in fact, what I've observed is that we have been able to attract people in this field with a reasonable price. We are -- because we offer them some real, I would say, use case. We have very interesting use case. In the field of energy, you can use AI in many areas, so it's good. Iraq on the ground, it's okay. Otherwise, I mean, we just signed the full contract -- EPC contracts. If we were in doubt, we will not have done it. honestly, in the Basra area, the situation is good. I don't -- I can speak only for the areas where we are. And we have deliberately located our teams in the south of the country, in the Basra area because it's a more, I would say, united area, unified area from, I would say, in terms of Iraq. There are other areas that I would be more careful to be clear. But in our area, we are fine and no barrier. But the barrier partly is still security because you cannot -- what I say for Basra is maybe not true for the whole country, to be honest, and it's not true. And second, in fact, you need investment. And investments, you know the issue for Iraq, and again, I'm happy to have been the big company which came back first. But we went there in '21. We finalized the contract in '23. We will FID all the phases in '25, and we'll produce in '28, '29. So the cycle is 8 years. So I think we are maybe a little slow. I'm not sure because I can tell you it's -- all that is, in fact, from my point of view as a CEO, quite a remarkable journey in a new country. So I'm very happy with all the work the teams have done. I contributed myself by supporting them many times there. And I can -- but -- so when people think today that, yes, there is a potential in Iraq, it's clear, but it will not depress oil prices before many years. So it's good for the country. And again, the country -- and I know what will happen if there is more companies to come, the temptation will be to decrease the margins. And then again, it will not work. So that's the history. I hope the country has taken some lessons of what happened from 2010 to 2020. If we don't have the right reward for the risk we take, there is no investment. So that's a question of capital allocation. So yes, and that's why, by the way, to answer to your question, to be clear, if we decided to move to come back in Iraq in 2021, but we see quite a long perspective. And in my plan, in my view, Iraq will be a growth area for TotalEnergies beyond 2030, and we will work on other projects. So that's what I'm thinking. So I don't see an impact on the short term or short medium term. Thus potentially... Operator: The next question is from Henri Patricot, UBS. Henri Patricot: Just 2 on the topic of exploration. I think you have a new Head of Exploration since the start of the month. And I was wondering if we should expect any changes in your approach, exploration? And also on that topic, can you give us an update on the latest plans for exploration in Namibia and South Africa in the next few months? Patrick Pouyanné: Okay. Exploration. I've been consistent since I'm CEO, I think there is one thing which did not change, which is the budget for exploration. It was $800 million to $1 billion. I put it as a sort of rule of the game when I became CEO because strongly, I think it was -- it's not because you spend more but you find more. At a certain point, you need to be efficient and oblige your exploration team to take searching. I'm happy, by the way, that the way Kevin has led this team during the last 10 years. He became Exploration Team Manager and Vice President almost the same time. He has, I would say, developed some ideas. The thing is, it is a long cycle in exploration. So when he told us one year ago that he has tried to do something else, it was fine for us because we thought it was the right time to renew, in fact, having the proper approach because, again, exploration is different business. Again, it's not a matter of dollars, it's a matter of IDs of which to approach. I'm very happy to have welcome in a company, Nicolas Mavilla, which is coming from a successful exploration company. He has, of course, had different -- himself has been educating in different environments of new ideas. He will have -- I told him that he's free to do and to let the team. It's not a one-man show exploration. It's a team building, quite a lot of people. You need to take the risk to explore, you need to build some consensus, but you can drive your people in different, I would say, directions in terms of concepts and being creative. So I think it's very good. I hope and I'm convinced that Nicolas will be able to have the same success that we had with Kevin in the last 10 years. But it's not a matter of money. It's a matter of ideas and then to make choices. And by the way, you noticed that in the last quarter, we have been active on taking some licenses back in Nigeria, which has been unexplored for more than 10 years. It's a pity. It's probably the most potential delta, it's probably the most prolific Delta in Africa. So no license were awarded. We are happy to have the first ones, 2 IOCs. We went as well to a country like Liberia. It's a new one. Congo is more mature, but we managed to get a license on which our explorers were excited. I hope they were fine. We'll have a nice gift for Christmas, we'll see. And again, we'll continue to explore in other countries. And so exploration, I heard during the [indiscernible] that it seems that some companies are rediscovering exploration. For Total, we never give up on exploration. I always consider it as part of the value creation. And again, listen to my colleague, not because you spend more, when you will find more. If you spend more, you actually take more risk. And if you take more risk, you have more disappointing wells. So it's a question of finding the right metrics. And I think it's good for an IOC, a major like us when we can drill 20, 25 wells per year, that's good. That's enough to find some nice wells. Namibia, South Africa; Namibia, that we have some exploration to continue to do, and we look to priorities also to develop business. And South Africa, you follow, like me, the news. There is a legal context, which seems to be more complex than in other countries. Each time we want to drill, we need to go to court. It's a little difficult. So we want -- but I think that the South African government has made some public statements that they want to find a way to go to ease the exploration. So we hope we will manage because, of course, for us, it's important. We cannot explore, we cannot spend money in a geography, if we have to face permanently courts and being -- and the permitting become really too complex. And because it's not only drilling 1 or 2 or 3 exploration wells, when it will be to develop. And we explore to develop. We don't explore just to find oil. So we need honestly, on the South Africa side, I hope the government will take the right decision as soon as possible. Operator: The next question is from Jason Gabelman at TD Cowen. Jason Gabelman: I wanted to ask firstly on CapEx trajectory. And it looks like organic CapEx has been a bit volatile the past few quarters. I'm wondering what's driving that quarter-to-quarter volatility. We've seen some other peers that have more stable CapEx that kind of peaks in 4Q. So wondering, moving forward, is this level that you're at now a better go-forward pace to consider? Or should we expect more volatility quarter-to-quarter? And then my second one is just on the ramp-up in production next year. You've previously guided to a reduction in reinvestment rates in 2027, which I suppose, implies higher cash flow ramping at some point next year along with new production coming online. So how should we think about that production and cash flow ramp next year and into '27? Is it back half weighted? Is it 4Q weighted? Just looking for kind of the arc of that growth. Patrick Pouyanné: Jason, you are very quarterly driven there in your questions. But my commitment to you is the commitment of the company is the annual budget of CapEx. And by the way, it's an annual budget of net CapEx. It's organic CapEx plus acquisition minus sales, minus divestments. I think we have a long strong track record of being complying -- compliant with our budget -- annual budget of CapEx. I think since I've been CEO, I think, 10 years in a row, you don't see that we have not respected the CapEx budget, the annual CapEx budget. And again, what we told you today, and what we said at the beginning of the year, it will be $17 billion, $17.5 billion. And I can tell you, we'll land in $17 billion, $17.5 billion. As we told you that the net acquisition is expected to be at $1.5 billion. You can calculate yourself the organic CapEx for the fourth quarter. I don't follow honestly the stability of the organic CapEx 2 quarters. It depends on some projects when you put into production as we have done this year, all Mero in Brazil, Tura in Denmark, Ballymore in the U.S. Ballymore -- yes, Ballymore. That this means that this quarter, there was a lot of CapEx and then it's decreasing because you have put into production and some of our CapEx, some of our projects are ramping up. So it just -- so I'm not at all -- I have no KPIs to have a stable quarterly organic CapEx, to be honest. At the end of the day, my KPI is to be sure that we are within the annual budget. And if we can be a little lower, I'm happy. But it's -- but not so much I'm not happy because sometimes it means that some projects are late. So I prefer to really be in our budget. So first point. So sorry to disappoint, but it's not a major issue. I'm not in a -- I mean, to be clear, we are not in a company which makes short-cycle CapEx permanently, where you make -- you can maybe make more -- less volatility. The second one, I think the same answer to Lydia, if I remember the first -- beginning of the first question I have. You have to wait for 2026. Let's keep -- you have to be a little patient until February. We'll give you more color. It's clear that, again, we gave you a point, I think, in the chart of 2027 when we speak about reinvestment rate. So we told you that in '27, yes, I remember, the reinvestment rate will go down from 70% to something like 50%. It was a chart which was in the New York package and slide deck, sorry. And that's the reality. So that's -- and it's coming from whom? It's coming from, on one side, higher cash flows because we are delivering along the 3 years. So let's be clear, the figure of '27 means by end of '27. So it's a 3-year decrease. It's not beginning, I don't know which quarter. And it's an annual one. So it's at the end, to be clear. It doesn't mean that all the growth is backloaded. It just means that it's an average of the year '27. And it's coming as well from the discipline of the CapEx because we have your guidance is $16 billion. So it's both, will contribute to this reinvestment rate, which is lower by 20%. So if you have 20% -- if you are lowering reinvestment rate, it's good and it's consistent with the free cash flow per share increase that we have announced. So that's a way to explain why we will be able to increase the free cash flow per share because we have more cash and less CapEx. And that's what we want to -- where we want to embark all our investors who trust TotalEnergies. I think it was the last question. Yes? Operator: There are no more questions registered at this time. Patrick Pouyanné: Okay. So thank you to all of you for your attendance. I hope that all the analysis you've done will be reflected in the stock price. It was not the case this morning. But again, we are delivering. This is the message. We are delivering. We have a consistent strategy. We are just executing in. We deliver. And frankly, Board of Directors and myself as CEO, we are quite pleased with the results of this quarter because that demonstrates and again, that all what we explained you quarter and year after year is on the delivery mode and that free cash flow will increase. Thank you for your attendance. Operator: Ladies and gentlemen, this concludes the conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's Third Quarter 2025 Investor Call. This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited. [Operator Instructions] Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at libertyglobal.com. [Operator Instructions] Page 2 of the slides details the company's safe harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical fact. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed Forms 10-Q and 10-K as amended. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based. I would now like to turn the call over to Mr. Mike Fries. Michael Fries: All right. Welcome, everyone, and thanks for dialing in to our Q3 results call today. After Charlie and I run through our prepared remarks, we'll open it up for what we hope is a lively Q&A. And as usual, I've got my core leadership team on the call with me. And before I jump into the presentation, I just want to acknowledge and be sure that everybody has seen the press release we put out yesterday regarding John Malone, who has decided to step off the Board and move to a Chairman Emeritus role at the end of the year. Of course, he's making a similar move at Liberty Media. I won't repeat all the key messages that we put in the public statement, you can read that, and I encourage you to do that, except perhaps to emphasize how important, impactful and enjoyable my relationship with John has been over the last 25 to 30 years and how pleased I am that as he implies in the release, he intends to stay very engaged with me and the Board as we execute our strategic plans. And knowing John as I do, he will surely do just that. Of course, I'm happy to take any questions on this as well at the end. Now getting back to our results, let me kick it off with some key highlights from the quarter. If you're going to breeze through these slides later, these first 2 are perhaps the most critical in my opinion. I believe everyone is familiar with how we're organized today in order to create greater transparency around strategy, capital allocation and value creation, everything we do falls into 1 of 3 core platforms at Liberty Global. These include, of course, Liberty Telecom, where we're focused on driving commercial momentum in our broadband and mobile businesses and most importantly, finding ways to unlock the intrinsic value of these companies for the benefit of shareholders, and I'll get into that a bit more in the next slide. Of course, that starts with operating performance. And as you'll see, despite intense competition, we had a strong third quarter with sequential improvement in broadband net adds across all 4 markets, for example. Importantly, our networks are proving to be critical sources of both competitive differentiation like our 5G expansion in the U.K. that's being fueled by the recent spectrum purchases and value creation, like our agreement with Proximus to rationalize fixed networks in Belgium, which I'll cover off in just a moment. Now a theme you will hear a few times today is lowering leverage and strengthening our balance sheet at Liberty Telecom. And Charlie and his team have worked tirelessly this year to strengthen the balance sheet, beginning with refinancing over $9 billion of 2028 maturities, particularly in the U.K. and NL at very reasonable credit spreads. And that includes the debt financing we just announced that funds the fiber rollout in Belgium while deleveraging Telenet, our serveco in the market, and Charlie will dig into that. Now turning to Liberty Growth, which includes our investments in media, infrastructure and tech that today totaled $3.4 billion and by the way, provide a source of capital to drive future value creation. This is a highly concentrated portfolio where the top 6 investments comprise over 80% of the value. We're still targeting $500 million to $750 million of noncore asset sales from the portfolio. And as I mentioned on our last call, we're not going to rush this and price bad deals in the process, but we have generated proceeds of $300 million year-to-date when you include the partial sale of our ITV stake last week. So we are well on our way. Of course, one of the bigger portfolio companies is Formula E, which heads into season 12 in December with significant tailwinds, including double-digit growth in revenue, fans and viewers last year, a knockout calendar of 18 races and the public reveal of the Gen 4 car, which debuts a year from now and doubles the max power of what is rapidly becoming the coolest car in racing. And we'll highlight in just a few slides our data center investments. With the boom in AI infrastructure, we believe we have a tiger by the tail, as I say, with over $1 billion in assets today and growing. And finally, the quarter brought some great progress at Liberty Services, where we manage large and profitable tech and financial platforms and at our corporate level, where we are in the midst of reshaping the operating model. I think the big news here is that we are improving for the second time this year our guidance for net corporate costs in 2025. We started the year forecasting around $200 million of net corporate cost. In the second quarter, we improved that to $175 million, and now we're improving it further to $150 million for this year. Perhaps even more importantly, we see visibility in 2026 to just $100 million of net corporate costs. Now this is a hot button for us as most analysts reduced their target price for our stock by, I think, $8 to $10 per share, just related to that $200 million net corporate spend. These announcements today should dramatically improve our valuation narrative, and you can bet we'll be pounding the table on it starting right after this call. I think Charlie will also address it. Lastly, on this slide, we note that we're forecasting $2.2 billion of cash at the holding company at year-end, assuming just the $300 million of asset sales year-to-date. Now the next slide provides an update on our strategic plan to unlock value for shareholders. And I guess this is the key takeaway today. First, let me reiterate what we laid out on our second quarter call back in August. Following the continued success of the Sunrise spin-off about a year ago, we remain committed to pursuing similar transactions that would further unlock value for shareholders. This may include the separation of one or a combination of core operating businesses you see on this slide actually through a spin-off, tracking stock, listing or similar equity capital markets transaction. I imagine many of you still own or follow Sunrise. The stock has performed well and trades around 8x EBITDA with an 8% dividend yield today. And looking back on that deal, I think 4 key factors laid the groundwork for its success. Number one, Switzerland is a largely rational telecom market. Number two, Sunrise had a less levered balance sheet, thanks to our capital contribution at around 4.5x on the date of the spin-off. Number three, Sunrise has a clear network strategy and CapEx profile. And number four, Sunrise has a solid free cash flow story that supports a progressive dividend policy. That was the formula. Strong balance sheet, a rational market and a predictable path to stable or growing free cash flow. I won't surprise you to learn that this looks a lot like the things we are working on in the Benelux. For example, at VodafoneZiggo, we've installed a new team with a winning plan that is built around generating long-term free cash flow in a largely 3-player market. We have now refinanced something like 80% of the 2028 maturities with the remainder targeted for this quarter or early next year. In Belgium, we are even further along. Our recently announced agreement with Proximus, which is currently being market tested by the regulator, rationalizes the build-out and wholesale monetization of fiber in a large part of Flanders with really only one network in 65% of the market. On the back of this, we just announced a EUR 4.35 billion financing for our netco there, which we call Wyre, which fully funds the build-out of fiber and allows us to reduce leverage at the Telenet servco, including all 2028 maturities. Even more exciting, we're in the early marketing stages of selling a significant stake in Wyre. This is an increasingly common value creation strategy in Europe, as you know, with the proceeds used to further deleverage our Telenet servco to about 4.5x. That's going to take a quarter or 2 to finalize all of these steps, but we're feeling more and more encouraged about the possibilities in this region for a value unlock in the time frame that we articulated. Now of course, we continue to work on other ideas, which we'll update you on in time. And as I said last quarter, all of the operating businesses or assets you see on this slide and some that aren't even shown can be singled out or combined with one another to achieve a value unlock transaction. So stay tuned. Now as I said, a key enabler of that strategic road map is ensuring that our operating companies are driving commercial momentum in what are increasingly competitive markets, right? And the long-term goal here is generating meaningful free cash flow. Now towards that end, each OpCo has been implementing a series of commercial initiatives and network improvements that are starting to impact results positively. This next slide summarizes a handful of those initiatives, which provide important context for the results that follow. Starting in the U.K., where Lutz and the team have been busy across a number of fronts, including the recent rollout of our new pay TV and broadband bundles, which now include Netflix for free that further differentiates us from the competition, in particular, AltNets. VMO2 is also redefining the flanker brand segment with the introduction of Giffgaff broadband services that complement Giffgaff mobile leadership. And we're rapidly transforming the O2 mobile network using the recently acquired spectrum to launch our first 5G gigabyte, plus we announced the U.K.'s first direct-to-cell satellite service with Starlink for what we call rural hotspot. So a lot happening in the U.K. Stephen and the VodafoneZiggo team have completely reversed trend in the Dutch market, delivering the lowest broadband churn we've seen since early 2023 and positive mobile net adds in the quarter. Lots of things are working right here, including being the first to roll out 2 gigabit speeds nationwide with upgrades underway for a DOCSIS 4.8 gig launch next year. We're also investing in the Vodafone brand on the back of the iPhone 17 launch. So the how we will win plan that Stephen has developed is quickly becoming the why we are winning plan, which is exactly what we needed in this otherwise rational telecom market. John Porter and the Telenet team have gone from strength to strength in Belgium in the last 3 quarters, supported by doubling of broadband speeds for nearly 1 million customers, their rollout in the South and a multi-brand strategy in mobile. And the fiber upgrade in Ireland is proceeding at pace with over 650,000 premises built now, and Tony and the Virgin team are ramping up our wholesale business with Vodafone and Sky and expanding their own reach to new off-footprint territories with fiber. And just to put a marker out there, with CapEx set to fall by 50% in the coming 2 years, we're planning for significant free cash flow out of the Irish business as well. Now the results on the following slide illustrate this improvement. Don't get me wrong, we are in a dog fight everywhere, but we are fighting right back and differentiating our products and services, attacking vulnerable competitors and driving better results each quarter. In fact, 3 out of our 4 markets, we've demonstrated improved sequential fixed and mobile subscriber results throughout the year and in Holland over the last 2 quarters. Again, at VMO2, our fixed churn initiatives, things like proactive management of the base and one-touch switching activity are gaining traction and improving broadband performance in a very competitive market. Meanwhile, postpaid mobile subscriber performance has consistently improved quarter-after-quarter this year, including ARPU growth supported by pre to postpaid migrations and our loyalty plans. VodafoneZiggo reported its third straight quarterly improvement in broadband losses with another strong ARPU result and postpaid mobile adds were positive again, driven by the initiative described just a moment ago. Telenet maintained positive broadband net add momentum for the second quarter running, driven by successful cross-sell campaigns, including back-to-school, while fixed ARPU growth was supported by price adjustments that they implemented during the second quarter. Postpaid net adds in Belgium were negative despite a strong performance on the base brand, while mobile postpaid ARPU continues to show pressure from the competitive environment. And in Ireland, Virgin Media's broadband base was largely flat with aggressive fiber offers in the market driving higher churn and impacting fixed ARPU. Postpaid net adds on the other hand, remained strong, and that's supported by a EUR 15 for life offer launched in May, boosting gross adds. So Charlie will walk through our financial results that are tied to these numbers in just a moment. Let me first turn to Liberty Growth. And by now, you're hopefully more familiar with the components of our portfolio, which, as I mentioned, increased in value to $3.4 billion at Q3. That's around $10 per share. As you can see here, 45% of the value or about $1.5 billion consists of premium media, sports and live events businesses, which we and most everyone else these days see as great long-term investment strategies. Another 40% is in digital infrastructure, which I'll dig into a bit more on the next slide. And then most of the balance resides in our tech portfolio, which consists largely of venture capital investments in companies, many that are leading the way in AI, cloud and cybersecurity. Now while it might appear like a complicated and diversified mix of investments from the outside, as I said earlier, it's important to remember that 6 of these deals comprise over 80% of the portfolio's value today. You can see them listed at the bottom of the page. Things like a controlling interest in Formula E, which I spoke about, and our remaining 5% of ITV, for example, and the 2 largest assets in our digital infrastructure vertical, which I'm going to highlight on the next slide. Now both of these infrastructure investments are substantial, adding up to over $1 billion of value for us today, and they performed extremely well, especially in the current environment where the development of AI infrastructure seems to have exploded. We're thrilled to own a minority interest in Edgeconnex. It's a global data center platform controlled by EQT and focused on hyperscalers across over 60 Tier 1 markets in 20 countries around the world. And we first invested in this company back in 2015. It was much smaller, and we have a net $150 million invested today. And the good news is that we've already taken $50 million off the table and our residual stake is conservatively valued at over $500 million. That equates to a 30% IRR over the last decade. On the right, you'll see our 50-50 JV called AtlasEdge, which is a regional data center provider focused on Tier 2 markets. The company has strong positions in Germany, Austria and Iberia and is seeking to expand capacity to 180 megawatts. We have a net investment here of about $345 million, and we've had our interest valued by third parties at around $600 million today. Again, both of these companies find themselves in the middle of multiple AI infrastructure and data sovereignty projects, and we are focused on driving continued growth right now in what is an increasingly hot space. So I look forward to your questions on all of this, but let me first turn it over to Charlie to walk through Liberty Services and our numbers. Charlie? Charles Bracken: Thanks, Mike. Turning now to Liberty Services and Corporate. On the left-hand side of the slide is an overview of our central services, which focus on 3 core activities: our corporate group provides strategic management and advisory services in operating and managing financial and human capital as well as technology strategies and investment. Liberty Tech focuses on the delivery of scaled tech solutions, particularly in entertainment and connectivity platforms as well as cybersecurity for our telecoms companies. And Liberty Blume develops and provides tech-enabled back-office solutions, not just to companies within the Liberty Global family, but also increasingly to third parties. We are reinvesting these tech-enabled efficiencies within Liberty Blume to drive 20% plus organic revenue growth in 2025. During the third quarter, we undertook a significant reshaping exercise around both Liberty Corporate and Liberty Tech to drive cost efficiencies going forward and make both organizations more agile and well positioned for the future. Starting with Liberty Corporate, we undertook both voluntary and involuntary redundancy schemes, which have reduced headcount by around 40%, with 90% of those leaving by year-end. And in Liberty Tech, we can continue to leverage our successful Infosys partnership with 4 years of proven track record to help secure additional efficiencies and simplification savings. We expect both the corporate and Liberty Tech initiatives to drive around $100 million of annualized cost savings. Bringing all this together, you will recall that we began the year guiding to less than $200 million of negative adjusted EBITDA, and we've already upgraded this to around $175 million of EBITDA at Q2. Now we're pleased to reduce this further for 2025 to around $150 million of negative adjusted EBITDA, supported by the in-year benefits of our corporate reshaping programs. Now perhaps more importantly, turning to the fully annualized impact. Once we see the benefits of this reshaping annualized from 2026, we expect our corporate adjusted EBITDA to broadly halve to around $100 million. And from there, we still see scope for further improvement as we evolve our operating model through additional third-party revenues, advisory fees and management services agreements alongside the scope for further cost optimization. So to put this in context, at the beginning of the year and the average analyst sum of the parts valuation, there was around $10 per share negative impact based on the capitalization of these corporate costs, which was typically at around 12x to 14x enterprise value to operating free cash flow. We now expect the run rate of negative corporate costs to essentially halve versus the start of the year going forward, which would drive a significant reduction around half of this discount in our analyst valuation. And we would also argue that an EBITDA multiple more in line with the telco comparables, which is much lower, is the right way to value these costs, which would further reduce the impact. Moving to the treasury slide. We've been extremely proactive year-to-date and through Q3 in dealing with our 2028 maturities in what has been a favorable overall high-yield market, in particular in the bond market. Overall, we've successfully refinanced close to $6 billion across our credit silos year-to-date, and this actually increases to $9 billion if you include the underwritten Wyre financing that Mike has already discussed. At Virgin Media O2, using existing benchmark financings, we were able to complete mainly private tap transactions amounting to $1.4 billion, bringing to total refinancing year-to-date at Virgin Media O2 to over $3 billion, which leaves us only with around $100 million of outstanding 2028 maturities. VodafoneZiggo, we issued just under $1 billion of senior secured notes during Q3, leaving us with around $500 million of outstanding 2028 maturities. And at Telenet, we've already completed $600 million of financings year-to-date and have recently secured a EUR 4.35 billion underwritten facility for Wyre. Now this will allow us to significantly refinance Telenet overall and formally separate the Wyre and Telenet servco capital structures and in the process, repay all the 2028 maturities. Now all of this proactive refinancing activity has significantly reduced our 2028 maturities and has actually maintained our average life of our debt at close to 5 years and broadly comparable credit spreads versus our historic levels. Turning to the next slide. We remain committed to our capital allocation model and strategy to both replenish our cash balance while also rotating capital into higher growth investments and strategic transactions. Starting with cash generation, we continue to see free cash flow in line with our expectations as set out for the year across our opcos and JVs. As has been the case in previous years, we expect the JV dividends to be largely paid in Q4 given the free cash flow phasing of Virgin Media O2 and VodafoneZiggo. Across all the OpCos, CapEx remains elevated, primarily driven by extensive 5G rollouts in the U.K., Belgium and Holland. And also fiber investment is ramping in Belgium, and we continue to invest in Virgin Media O2's fiber up and Virgin Media Islands fiber-to-the-home program. And this is along with our DOCSIS upgrade path in Holland. Turning to our cash walk on the bottom right. Our consolidated cash balance was $1.8 billion at the end of Q3 with an additional $180 million received since then with a partial ITV stake disposal in October. During Q3, we saw modest investments into Liberty Growth of $77 million, which was primarily Formula E and AtlasEdge and spent $56 million on our buyback program. We're currently tracking towards a buyback of around 5% of shares outstanding for 2025. Moving to the Liberty Growth walk. The fair market value of our Liberty Growth portfolio remained stable versus Q2 at $3.4 billion. This was primarily driven by the investments in Formula E and AtlasEdge, offset by the partial disposal of our Airalo stake and a small fair market value reduction in our Liberty Tech portfolio. Turning to the key financials on the next slide. Virgin Media O2 delivered a modest revenue decline of 1%, excluding the impact of handset sales, nexfibre construction revenues and 2 months of Daisy contribution. This was driven by declines in our B2B revenues, which were offset by growth in our consumer businesses. Adjusted EBITDA at Virgin Media O2 continued to grow at 2.7%, supported by cost discipline and lower cost to capture year-on-year. Moving to VodafoneZiggo. We saw a revenue decline of 4%, largely driven by the decline in ongoing repricing of our fixed customer base. Adjusted EBITDA was impacted by the revenue declines and commercial initiatives supporting the new strategic plan. Telenet revenue and adjusted EBITDA growth were both impacted by a positive deferred revenue benefit in the prior year of $18 million. In addition, revenue growth was also impacted by the decision not to renew Belgium sports rights, which was more than offset by associated lower programming costs. Turning to our guidance slide. We're updating 2 items of guidance. Firstly, Virgin Media O2 revenue guidance, where we are confirming growth in the consumer and wholesale revenues. But given the Daisy transaction, which completed during the third quarter and the creation of O2 Daisy, we're currently reviewing the impact of Daisy on B2B reporting, but can confirm our previous guided M&A impact from Daisy of around GBP 125 million of revenue in 2025. And secondly, as discussed previously, we're improving our Liberty Global Services and Corporate adjusted EBITDA guide to $150 million in 2025. All other OpCo guidance remains unchanged. Now that concludes our prepared remarks for Q3, and I'd like to hand over to the operator for the questions and answers. Operator: [Operator Instructions] The first question comes from the line of Maurice Patrick with Barclays. Maurice Patrick: Congrats Mike, on the new role. Just maybe a question given the topical FC article this morning around [indiscernible] in the U.K. I wouldn't expect you to comment on that transaction. But maybe a good opportunity, Mike, ahead of Telefonica's CMD next week to talk a little bit about your outlook and view on investments in the U.K., specifically around the fiber side, whether you -- the NetCo sale plan could still be resurrected,our view around buy versus build and the cost. You've always said you'd consider buying if the cost was comparable to your own build cost. How your thoughts are evolving there would be very helpful. Michael Fries: Sure. And we're not sure what Telefonica will be addressing next week, obviously. We'll all find out. But I think we've been consistent on the fiber point, at least through the course of this year, which is that we'll continue to upgrade our own fiber, and we're now reaching Lutz and his team have access to 8 million fiber homes through a combination of our own upgrade of the Virgin Media network and, of course, the next fiber footprint. So we continue to, at least with our own homes at the Virgin Media side, continue to upgrade fiber and increase the footprint and the reach of that technology. That's point one. Point two is we've always stated and if you -- we are actually now deal down with the up deal we did about a year or so ago, we've always stated that the market requires rationalization that AltNets, most of them will find it difficult to continue doing what they're doing in the manner in which they're doing it, and we're supportive of opportunities to consolidate and rationalize the fixed network environment, period. So I'm not commenting, as you suggested, on any particular deal. I would simply say, if you look at our history, where we used nexfibre in the case of up to begin the process of rationalizing, we're open-minded and open for business, if you will, for opportunities that would achieve just that. So I think it's still a bit of a moving target everywhere, but we're hopeful that in the next 6 months, things will start to settle, and we may or may not be part of those transactions that precipitate that settling. Operator: The next question is from the line of Polo Tang with UBS. Polo Tang: I've got a question about the Dutch market and the improvement in terms of broadband that you're seeing there. So can you maybe just talk about competitive dynamics, both in the broadband market, but also in terms of mobile? And how confident are you that you can stabilize the broadband base in 2026? And will this come at the expense of further declines in terms of ARPU? And can you maybe also comment in terms of whether FWA is having any impact on the broadband market? Michael Fries: Sure. That's a great question for you, Stephen. Stephen van Rooyen: Yes. Thank you, Mike. So like 3 questions. Can you hear me. Michael Fries: Yes. Stephen van Rooyen: Yes, can you hear me? So I think 3 questions. So first is stabilizing broadband adds. We see the market is pretty competitive, although rational. We've set out a plan, which we've spoken to you about at length over the last 12 months, which is working. The heart of the plan is to get us back to broadband growth. That will take us, I think, the balance of next year, but that's what we're pushing towards. It's an uncertain journey because we can't predict what the competition will do, but certainly, we are pushing our plan forward. The heart of that plan is bringing down churn. You'll have seen and we are pleased with how much we've been able to deal with the churn in our base, and we'll continue to push on with that through the next year. In mobile, I think it actually was. I think there's a lot of activity like most European markets in the value segment. We're well positioned there with hollandsnieuwe, which has done pretty well for us. We think that there's more we can do in that space, and we'll continue to pursue that through 2026. And then on fixed wireless, look, I think it's a variable in the marketplace. It's probably a question more for Odido than for us. We're focusing on our plan, reducing our broadband losses, getting our broadband back to growth, and we've accommodated for that within our plan. So I don't really have much to say about what's happening on fixed wireless there. Operator: The next question is from the line of Joshua Mills with BNP Paribas. Joshua Mills: My question is on the U.K. market and the competitiveness we're seeing. So wondering if you could give us a bit more color on what you're seeing on the ground. I note that the ARPU development this quarter for fixed line was negative, which may be expected, but perhaps disappointing following the 7.5% price increase in April. And then on B2B, I understand that there's some moving parts with the Daisy acquisition. But could you just give us an idea of what the underlying B2B growth would have been this quarter and whether that's running ahead, below, in line with expectations, that would be great. Michael Fries: Lutz, why don't you take the broadband and ARPU question and Charlie, you can address the B2B question. Lutz Schüler: Yes. I mean the market is -- the broadband market is very competitive as we speak. On one hand side, you see offers already around GBP 20 for 1 gig from AltNets in the market per month. And then Openreach came with 2 promotions. I don't know if you're aware, but for copper to fiber migrated customer, you are paying to Openreach for the next 24 months, GBP 16 for 1 gig. So this one promotion, the other one is you don't pay anything when you migrate a fixed wireless access customer onto the fiber network of Openreach, which leads to the fact that you see a very price-driven market. You see in the affiliate market, which is the most price-sensitive market prices from Sky also in Vodafone around GBP 21 for 1 gig. How are we doing in this? I think we are doing pretty well here because as you all know, we have the highest ARPU in the market. We have the customers who have the demand for the highest speed in the market. And yes, on one hand side, to now lower churn of our customers, we have offered prevention offers with some dip on ARPU. And also, obviously, we have to get our fair share of acquisition, which leads to lower ARPU. But in the scheme of things, losing only 28,000 customers and having only a dip of 1% of ARPU, we personally think it's pretty good outcome within a pretty competitive market. But let's wait for the announcements of our competitors. Michael Fries: Charlie, do you want to address the B2B. Charles Bracken: Yes. So look, as you know, we closed those O2 Daisy in the quarter, we've got a lot of work to do to try and reconcile accounting policies, the revised plans because things like a clean room. So what we've been trying to do is say, look, the businesses that remain outside that perimeter, we still expect to see growth and have had growth year-to-date. The business that we've actually contributed into O2 Daisy, which is our fixed and mobile B2B connectivity business, that has declined this year. You're right. We haven't actually broken that out and how we take that offline. But I think what we need to do is now we've got this not a joint venture, but a partnership. But in the Q4 results, we'll give you the separate financials and obviously explain how the impact of that business is and how we think it's going to grow in the future as we finalize the integration plans. Operator: The next question is from the line of Robert Grindle with Deutsche Bank. Robert Grindle: Congratulations, John, as well as Mike for his new position. I'd like to pick up on the central costs and valuation point, if I may. I suppose that's for Charlie. What would you say the costs are to drive the EUR 100 million annualized savings at the center? Do you reckon it's like a 1-year payback period or longer? Is there any stock impact at all from all these redundancies and any CapEx which goes to offset the savings? Or is effectively the EUR 100 million a straight drop through? Charles Bracken: Sorry, it's a pretty good payback. I mean it's de minimis CapEx. Yes, sorry, it's a pretty good payback. There's de minimis CapEx, which is one of the reasons why I think an EBITDA multiple is perhaps a more appropriate way to look at it. If you do take the view that these are costs necessary to run a telco and we just scale them across the portfolio and indeed across our growth assets. So I think whether it's the telco multiple, what that is, but it's certainly along those lines in my mind. In terms of the cost to achieve it, there is some degree of restructuring, but broadly speaking, pays back within, I would say, less than 12 months. So very little frictional cost. Operator: The next question is from the line of Nick Lyall with Berenberg. Nicholas Lyall: Just a very quick one, please, Mike. On Slide 4, I'm just interested why you picked the Benelux markets first and maybe not VMO 2 in the U.K. market. Is it simply just because of size? Or are there any one of those 4 criteria that you just don't think it ticks the box on yet and maybe others are far closer to? Could you just maybe describe why that might be, please? Michael Fries: Sure. Yes, I think we're -- we want to trend towards a Sunrise type framework everywhere we operate. And I think there is a pathway to do that everywhere we operate. We seem to be making and are making meaningful progress in the Benelux for all kinds of reasons, both Dutch market and the Belgian market are highly rational markets, closer to Switzerland than anything else, I would say. They have their own unique peculiarities around competition, but largely rational 3-player markets. We've been able to attack the balance sheet, specifically in Belgium, where we've successfully created a netco and the servco there and have done the -- are in the process of executing the classic move of putting more debt on the netco as it builds out. It's a higher quality credit. I'm not allowed to tell you what the credit rating is of this EUR 4.35 billion financing, but it's the first time we've ever seen one. I can promise you that. And using the proceeds and the financing capabilities of a netco to delever the servco, which is the remaining core commercial business. And those combination of steps have been in the works for quite some time. And now we did and have attempted to do similar things in the U.K. as somebody mentioned just a moment ago and not suggesting we can't get to the same place in the U.K. at some point. But it does appear like, in particular, in Belgium, we are on our way to executing on those 4 key measures. And so that, to us, is worthy of highlighting and letting you know we're busy, very busy in this part of the platform and the portfolio and that if we made a commitment to make some decisions around these things, and I think more likely than not, we'll be making some decisions around this part of our business in the relatively near term, certainly within the time frame that we've outlined. We hope in all of these markets. Ireland, I mentioned, is going to have a massive reduction in CapEx. It's going to start generating free cash, but it's small. But certainly, Virgin Media Ireland looks and will tick the box on many of these particular metrics. The U.K. is -- look at a trophy business for us, certainly something we are committed to for the long term and is an increasingly important investment. And we are by no means suggesting that we can't achieve similar results or benefits in the U.K. We're simply saying there, we have a partner, and we have to align with our partner on the best next move. We have a market that's a bit fragmented today. And as we discussed a moment ago, it's going to require some form of rationalization. And so these are things that we work on with our partner. So I'm not suggesting for a second, we can't achieve similar things in the other assets or markets identified on that slide. I'm simply saying we're making good progress here. We'd like you to know about it. Operator: The next question is from the line of David Wright with Bank of America. David Wright: Congratulations, Mike, on the new role. It's obviously quite a significant event to see John stepping away after such a significant impact on the industry. A couple of questions, please. And the first is just on the U.K. guidance and maybe my colleagues are better at this than me, but I'm trying to understand whether there seems to be a change in perimeter here. And I'm looking at the numbers, I'm inclined to think that the same perimeter with the shift in B2B could have forced you to possibly push the revenue guidance lower. This is like-for-like without Daisy. It does feel like you could have had to push the revenue guidance lower. I'm just wondering if that's the case. I'm just struggling to reconcile that. And then the second question I had, it's just your language you used before, Mike, which I just found a little surprising, which was you sort of said we'll have to see what Telefonica wants to do. Now I might have expected you to sort of say we'll announce our plans jointly next week. Does Telefonica have any sort of strategic rights or priority around the U.K. business in the shareholder agreement? Maybe I've just read this incorrectly, that might be the case. I appreciate that. Michael Fries: No, David, I'm glad you asked that question. Yes. I appreciate that second question because as I spoke those words, I occurred to me those probably didn't come out very clearly. No, first of all, no, this is a 50-50 joint venture. We make decisions jointly, and I have a very good dialogue and working relationship with Mark, we are 100% aligned on everything that's happening in the U.K. So that is not what I intended to say. There was a reference to their Capital Markets Day and I'm just pointing out that we're not part of that. They have a lot of things to talk about to the market, and they will surely talk about those. But we don't expect any surprises, if you will, around the U.K. market. We're aligned and talk every week about what we're going to do together. So thank you for asking that. I'm glad I could clarify that. On the guidance, listen, I'll let Charlie dig into it. The way I see it is we're providing greater transparency at a time where it's probably needed for analysts to understand what's growing and what's not and what are we getting our arms around. So Charlie, do you want to address that? Charles Bracken: Yes. So look, I'm sorry if it's confusing. And you're right. The difficulty is that we've now got this company called O2 Daisy, and we own 70% of it. 30% of it we don't own. And therefore, at some point, hopefully very soon at the end of Q4, we're going to give you the key financials of that. And as we align that company, it is tricky because there's different accounting policies, as I'm sure you'd d and blah blah. So we're trying to do is confirm what we can't tell you. So we can tell you that the businesses, excluding the ones that went in there are growing and we expect to grow. And we have told you that to date, the B2B connectivity business, mobile and fixed that we have put into O2 Daisy is in decline. Now if that means you would interpret that as the combination of O2 Daisy would have meant that the business would have not been growing, maybe that's right. But it's somewhat academic because we've got to work through what the O2 Daisy combination is going to develop. And the whole idea was the 2 companies are very synergistic and not just in costs, there's a material cost saving there but also with some revenue growth. So I mean, I apologize if that's not clear enough and having to take it offline, but certainly how we see it. David Wright: Super, Charlie. Could I just add a quick one? Are there any puts and calls around that 30%? Or is that just the ownership at Infinite right now? Andrea Salvato: Charlie, do you want me to take that. It's Andrea. Charles Bracken: Yes. Yes, Andrea. Sorry, yes, you should answer. Andrea Salvato: Yes. No, there are no puts and calls, David. Operator: The next question is from the line of Ulrich Rathe with Bernstein Societe Generale Group. Ulrich Rathe: My question is about the refinancing, obviously very impressive. Question to Charlie. Are all of these financings, can you confirm fully swapped in the usual policies that you used to have in terms of into the local currencies of the operating units and also in terms of fixed rate swaps? Because I do think -- I do remember you did some refinancings where you actually didn't implement these older policies. So just wanted to confirm that the refis now are back to the old policies? Charles Bracken: Yes. To be honest, I don't think we've changed our policies. The bonds, we've all swapped at our fixed rate at the rate we issued at, which in some cases is actually higher. So just to confirm the 2 questions. One is all currencies are matched. So everything in the U.K. is sterling. We're not taking dollar or euro risk. So that's a tick on all the policies. On the interest rates, all bonds are fixed by nature. And on any bank debt, we haven't done a ton of bank debt because the bond market has been so strong, to be honest. We have maintained the swaps. Remember, the swaps are independent of the original bank financings. So we are monetizing or riding those low interest rates until '28, '29, '30. But thereafter, we would have to come in at higher rates, and we are gradually pushing out those hedges. So we are maintaining a pretty good 3-, 4-, 5-year sort of fixed profile depending on which market it is. I hope that sort of answers the question. Operator: The next question is from the line of James Ratzer with New Street Research. James Ratzer: I was going to ask one question. I mean tough to keep it to one. But on Virgin Media, in their release, they are saying they're planning to bring to 4x to 5x in the medium term. I was wondering if you can kind of talk us through the plans to get there. I mean does that require some inorganic steps like a kind of dividend removal, you in Telefonica injecting capital into VMO2? Or do you expect to get there organically through EBITDA growth? Michael Fries: James, that was a little hard to hear. I want to be sure we got the question right. I think you're asking about leverage expectations at VMO2 staying within the 4x to 5x range. And I think that is our objective, and I think that is achieved in a number of ways. But one you didn't mention, which is organic EBITDA growth, which Lutz and the team have been able to deliver consistently. So organically, the business should delever over time. I don't think we're in a position today to talk about dividends or asset sales or things of that nature, although we do have tower -- residual tower interests that could be used in that regard, and we're always open-minded about it. But getting within the range that we've maintained historically is always our underlying goal. Charlie, I don't think there's much to add to that, but go ahead if you think there is. Charles Bracken: No, no, I think that's absolutely right. Look, listen, we are 4x to 5x levered. We're definitely through that in the U.K. So some good synergies potentially from the O2 Daisy deal, which we've talked quite a bit about today. And as Mike said, we expect some organic growth, and let's see how we go. Operator: The next question is from the line of Matthew Harrigan with The Benchmark Company. Matthew Harrigan: I'll just ask one question right out of the blocks. I mean I think when you look at the U.S. and the U.K., it's kind of competing dysfunction on the political side. But that look was recently quoted on Starmer's infrastructure tax. And I don't think there'll be any implications this year, but what might be the longer-term implications? I was on the comcast Q&A, so I apologize if you talked about this in the main discussion, but I'd rather suspect you didn't get to the topic. Michael Fries: Matt, you're asking -- that's a big question, politics in Europe vis-a-vis our business. I mean, I'll step back a minute to say that I think we are approaching -- hopefully approaching a bit of an inflection point here where our industry, for example, the mobile industry just put a letter out to Von der Leyen, I think, 2 days ago, 3 days ago, making it clear to her that change is critical, necessary, needed if Europe is to maintain any sort of path to leadership in digital, industrially, really any category productivity. So we continue to make our case as an industry, as a sector that we're not just critical infrastructure. We are necessary for pretty much every aspect of growth and productivity that regulators and politicians are searching for. So maybe get off our throats. And that is, I think, being received positively. In the U.K., in particular, I think the government has had a growth initiative, a growth-minded approach to regulation. Recent changes at the CMA, for example, the Competition Commission there are positive in that they seem to be reflecting a much more growth-minded approach to M&A and to industry consolidation. So I think there's green shoots across the markets we operate in. There are still pain points, broadband taxes and things of this nature that are unnecessary, and we continue to fight those on a regular basis. But I think more broadly, I would say it's more of a tailwind these days than not. And whether it's sovereignty, where governments are realizing that their -- the critical infrastructure of telco is part of the solution for broader sovereignty and independence or whether it's just good economics that you need healthy telecom infrastructure to compete in the global marketplace. All of those things, I think, are coming together a bit, and I'm more encouraged now than I've been in a long time. Operator: This will conclude the question-and-answer portion of today's call. And I would like to hand back to Mr. Mike Fries for any additional remarks. Michael Fries: Great. Well, thanks, everybody. I appreciate you joining as always, and we look forward to getting back on the phone for our year-end call probably in the February time frame, hopefully, with updates on the strategic road map on how we're driving commercial momentum and more importantly, also how we're reshaping or continuing to reshape our corporate operating model. So I appreciate your listening in today, and we'll speak to you all very soon. Take care. Operator: Ladies and gentlemen, this concludes Liberty Global's Third Quarter 2025 Investor Call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website. There, you can also find a copy of today's presentation materials.
Operator: Ladies and gentlemen, welcome to the Analyst and Investor Update Call Q3 2025. I'm Serge, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Rob Smith. Please go ahead. You can go ahead, Mr. Smith. Richard Smith: Serge, It's Rob. I lost your introduction. Maybe you've you got to switch line now? Operator: You can go ahead, Mr. Smith. Richard Smith: Operator? Operator: Can you hear us, Mr. Smith? We lost connection to the speakers. Please stay on the line. Richard Smith: [Technical Difficulty] Shanghai, China, where KION is at the CeMAT trade fair, which is currently taking place here in Shanghai. But I'll tell you more about that later. Please look for our update presentation on the IR website for today's call. I'm going to start with a summary of our third quarter 2025 results and several exciting business highlights. And then, Christian will update you on the efficiency program before taking you through the detailed Q3 financials and our updated outlook for 2025. And then, I'll be back for our key takeaways before we open the line for questions and answers. Starting, please, on Page 3. The third quarter was another solid quarter, in line with our expectations. Group order intake was EUR 2.7 billion, a 10% increase compared to the prior year. Revenue was flat at the KION level with the increase in Supply Chain Solutions compensating for the anticipated decline in the ITS segment. Adjusted EBIT was EUR 190 million, corresponding to an adjusted EBIT margin of 7%. Year-over-year, while the SCS continued to improve its profitability, profitability in ITS reflected the expected negative impact of lower volumes. Both operating segments improved their adjusted EBIT margin sequentially. Free cash flow was a strong positive EUR 231 million. And earnings per share was EUR 0.87, an increase of nearly 60%. On Page 4, I'll share with you some recent business highlights. In September, Linde Material Handling announced its partnership with the European aircraft manufacturer, Airbus, for the deployment of automated logistics solutions on the Jean-Luc Lagardere site in Toulouse, where the aircrafts of the A320 family are assembled. A range of robotic solutions designed to help optimize the efficiency and safety of Airbus' logistics processes have been commissioned. These innovations include the R-MATIC trucks, retractable mast autonomous guided vehicles, or AGVs, for a much more reliable material flow management and improved working conditions, helping Airbus build the 320 family. Also in September, KION Group received the highest award, which is a Platinum rating, from EcoVadis for the first time. This places KION among the top 1% of the more than 150,000 companies rated by EcoVadis. KION joined its well-established brands, Linde Material Handling and STILL, which were awarded the Platinum award from EcoVadis again in 2025. This positive group-wide development highlights KION's steadfast commitment to our sustainability strategy. And here at the CeMAT in Shanghai, China, KION is showcasing an advanced physical AI-powered Omniverse solution as part of the large-scale collaboration with NVIDIA and Accenture to reinvent industrial automation. CeMAT fair visitors are experiencing how AI-driven industrial trucks and digital twins can transform supply chain operations. The showcase is a milestone on KION's path to an adaptive autonomous material handling standard for customers worldwide. And Dematic unveiled the first demonstration of the FD system, showcasing its end-to-end workflow and innovative evolution of Dematic's multi-shuttle technology. It's ideal for a wide range of industries, including third-party logistics, supermarkets, e-commerce, apparel, pharmaceuticals and electronics. CeMAT is a truly inspiring experience for us: for me, personally inspiring, for our Board members, for our teams. I'd like to share with you our mutual impression of an atmosphere that's very powerful here. Our supply chain solutions industry is an industry of the future, and we are all in the middle of the beginning of this future at this point with lots of excitement still to come. CeMAT is a strong manifestation of the trends we at KION identified that are driving our business and our own innovation, especially electrification, the increased demand for warehouse trucks, e-commerce, automation and robotics. Yesterday, at the CeMAT, we signed 7 ecosystem strategic partnerships with highly innovative players that are outstanding in their respective fields of the supply chain solutions industry. With win-win partnerships like these, KION is enhancing its ecosystem focus on innovation, advanced robotics and automation technologies. With all what we've seen during these recent days, I'm very convinced KION is well positioned to shape the supply chains of the future. I'll hand now over to Christian, and he will take you through an update on the efficiency program, our detailed Q3 financials and our updated outlook for 2025. Christian Harm: Yes. Thank you, Rob. As promised over the last months, we are providing you now with an update on the efficiency program that we announced in February of this year to achieve a sustainable annual cost saving of around EUR 140 million to EUR 160 million from 2026 onwards. For the implementation of those cost-saving measures, nonrecurring items of approximately minus EUR 240 million to minus EUR 260 million were initially expected. I'm sure, you have all seen our announcement last week. Following the constructive and effective teamwork with our works council labor representatives, we have made substantial progress in the negotiations in most jurisdictions, particularly in Germany, giving us a better view on program instruments, financials and timings. We still have some jurisdictions in which we are still negotiating, which is why we don't have a final number yet. But we can now more precisely quantify the expected expenses, and we are now able to lower them to between EUR 170 million and EUR 190 million in 2025. The savings target remains largely unchanged at between EUR 140 million and EUR 150 million. We are able to achieve almost the same savings with much lower expenses, mainly because many employees accepted our voluntary redundancy package. As a consequence, we don't need additional redundancy schemes. We expect the savings to start impacting the bottom line already in the fourth quarter '25 with a small amount and anticipate the majority of the savings to become effective in 2026 and the remaining will then support earnings in outer years. Of the EUR 197 million efficiency program-related expenses recorded in the first half of 2025, we were able to release approximately EUR 34 million in the third quarter. Many leavers have, for personal tax reasons, opted for the severance payment to be paid out in the first quarter '26 rather than at the end of this year. Accordingly, this will shift a significant portion of the lower-than-initially-expected cash out for the efficiency program from the fourth quarter to the first quarter of next year. Let's go now to Slide 7 for the key financials of the ITS segment. Order intake reached 60,000 units in the third quarter, which is a sequential decrease of 14%, a pretty normal seasonal development in the third quarter. Year-over-year, the increase was 17%, an acceleration of the growth rate seen in the first 2 quarters, which is also due to the lower prior year base. New orders in value terms increased 8% year-on-year, driven by a 17% increase in the new truck business. The service business also showed continued growth at 1%. The order book reflects ongoing lead time normalization, and its margin quality is in line with our expectations, as reflected in our outlook. Revenue declined by 3% year-over-year to EUR 1.9 billion. The 3% growth in service partially compensated for the expected 9% decline in the new truck business. Again, remember that in 2024, the new truck business revenue significantly benefited from the tailwind of a high order backlog. Adjusted EBIT at EUR 171 million and the corresponding adjusted EBIT margin at 8.8% reflected the expected impact from lower volumes, resulting in lower fixed cost absorption in a year-over-year comparison. The sequential improvement in the adjusted EBIT margin, despite the usually weaker summer quarter, is supported by a slightly higher gross margin. We will now continue on Page 8, which summarizes the key financials for SCS. Following the record order intake in the second quarter, which was also impacted by the favorable timing of some order signings, orders in the third quarter declined by approximately 50% sequentially but still representing a 16% increase year-over-year. This year-over-year growth was once again driven by a 46% increase in business solutions orders, while the order intake in customer services was down 12% on a strong prior year quarter. Remember, we had flagged in the second quarter update call to not extrapolate the record order number for every quarter going forward. While we may have passed the trough, we are still in a lumpy recovery trajectory, and we are also likely to see the next quarter below the EUR 1 billion mark again. While last quarter's increase in order intake was very much driven by the pure-play e-commerce vertical, their share in this quarter's business solutions orders was 24%, meaning that the growth was fueled by customer in other verticals. As a result of the growth in order intake, the order book increased 16% year-over-year, and that year-over-year increase would have shown an even higher growth rate of 22% without the adverse foreign exchange translation effects. Overall, revenue increased both sequentially and year-on-year and is starting to benefit from the recovery in the order intake, which increased the business solutions revenue by 15% year-over-year in the quarter. The adjusted EBIT improved strongly year-on-year to EUR 48 million, with adjusted EBIT margin increasing to 6.2%, following higher revenues and improved project execution. Let's quickly run through the key financials for the group now on Page 9. Order intake benefited from the improvement in demand in the new business in both operating segments. The order book reflects the increased demand in SCS, partially offset by the continued lead time normalization in ITS and FX translation losses in SCS. Revenue in SCS is starting to benefit from the order intake recovery since the beginning of 2025, offset by the expected revenue decline in the ITS new truck business. Adjusted EBIT at EUR 190 million and the adjusted EBIT margin at 7% was impacted mainly by the lower fixed cost absorption in ITS and the normalized EBIT in the Corporate Services Consolidation segment, which was partially compensated by the strong earnings improvement in SCS. Now Page 10 shows the reconciliation from the adjusted EBITDA to group net income. Nonrecurring items in the quarter included approximately EUR 34 million release of provisions for the efficiency program. Please note that due to the overall lower-than-initially-expected expenses for the efficiency program, we have revised our full year 2025 expectations for nonrecurring items to between minus EUR 210 million and minus EUR 230 million from between minus EUR 240 million and minus EUR 275 million. You will find this information on the housekeeping slide in the appendix. In this quarter, [ PPA ] items were at the usual quarterly level. Net financial expenses improved year-over-year, mainly due to the positive impact from the fair value of interest derivatives and the lower net interest expenses from lease and short-term rental business. We have also adjusted our expectations for full year 2025 net financial expenses to between minus EUR 140 million and EUR 160 million from previously between minus EUR 170 million and EUR 190 million. Pretax earnings grew 9% to EUR 142 million in the quarter. Tax expenses of only EUR 23 million in the quarter corresponded to a tax rate of 16%, significantly lower than in the prior year quarter. The main driver for the lower tax expenses in the quarter resulted from a revaluation of the deferred tax liabilities amounting to EUR 38 million, following a June 2025 resolution of the German government on the lowering of the federal corporate tax rate from 2028 onwards. And then, the net income attributable to shareholders increased disproportionately by 58% to EUR 114 million, corresponding to earnings per share of EUR 0.87. Now, let's continue with the free cash flow statement on Page 11. Free cash flow in the quarter reached positive EUR 231 million, substantially driven by an improvement in net working capital in ITS. In contrast to the prior 2 years, we had a EUR 50 million cash out in -- sorry, where we had a EUR 50 million cash out in the fourth quarter for additional pension funding, we funded [ EUR 50 million ] in the second quarter and EUR 35 million in the third quarter. Page 12 shows the development of net financial debt and our leverage ratios. We had a solid decrease in net debt to EUR 818 million at the end of the third quarter 2025. Consequently, the leverage ratios improved across both net debt definitions by 0.1x compared to the end of June 2025. Our leverage ratios continue to remain slightly lower than the level last seen post our December 2020 capital increase. But this time, we achieved the improvement entirely through self-help measures. Slide 14 now lays out our updated guidance for the fiscal year 2025. I will quickly walk you through it. Based on the 3 solid quarters -- the first 3 solid quarters and our visibility for the fourth quarter, we have narrowed the guidance range for ITS. For SCS, the good year-to-date performance, including the growth in order intake since the beginning of the year, allows us to increase the lower end of both the revenue and adjusted EBIT guidance. In addition to the above, the narrowed group guidance range reflects our expectations of more negative adjusted EBIT contribution from the Corporate [ Services ] Consolidation line. This difference is around EUR 10 million in the midpoint, driven by higher expenses for long-term incentive programs, resulting from the increased share price and for strategic projects. And finally, as outlined earlier in this presentation, we expect lower expenses and related cash out for the efficiency program in addition to a significant portion of that cash out shifting from the fourth quarter '25 to the first quarter '26. Accordingly, our free cash flow guidance increased substantially to between EUR 600 million and EUR 700 million from previously EUR 400 million to EUR 550 million. As always, you will find the slide on the housekeeping items in the appendix. And with that, now, I hand back to Rob for our key takeaways. Richard Smith: Thank you, Christian. Let's move to Page 15, where we have our key takeaways. KION achieved another solid quarter, completing the first 9 months of 2025 in line with our expectations. Both the industrial truck market, as well as the warehouse automation market, have passed through their troughs and are on a recovery path amongst geopolitical challenges. KION is growing order intake in both operating segments. Following the constructive and effective teamwork with our works council labor representatives, we have made significant progress in implementing the efficiency program. With most jurisdictions having completed their negotiations, we're able to reduce our expected costs for the efficiency program meaningfully, while delivering the targeted savings. A significant portion of the associated cash out is shifting from the fourth quarter of '25 to the first quarter of '26, preserving cash in 2025. With 9 months of 2025 behind us and increased visibility on the fourth quarter, we have narrowed our guidance ranges for revenue and adjusted EBIT. We've also increased our outlook on free cash flow for fiscal year 2025 due to the lower expenses for the efficiency program and the shift of the related cash out. Our outlook remains subject to no significant disruptions to supply chains as a result of trade barriers, especially tariffs and restrictions on access to critical commodities. This does conclude our presentation. Thank you for your interest so far. We look forward to taking your good questions. Back to you, Serge. Let's open the line. Operator: Thank you, Mr. Smith. Can you hear me? [Operator Instructions] Richard Smith: Serge, we can't hear you. Operator: Can you hear me, Mr. Smith? Richard Smith: Nor can we hear [indiscernible]. Operator: [Technical Difficulty] Ladies and gentlemen, please hold the line. We will continue with the Q&A shortly. Richard Smith: I trust everyone has heard Christian and me for the last 15 minutes, but we don't hear any... Operator: Can you hear me, Mr. Smith? Richard Smith: [ Haven't ] put on the other line yet. Operator: Do you hear me now, Mr. Smith? Christian Harm: Okay. Raj is writing us the question and we're answering to that. Richard Smith: It's an outstanding solution. Operator: Okay. We'll start with the Q&A. The first question comes from Sven Weier. Sven Weier: I hope you can hear me, Rob and Christian. Operator: Please ask the question. We will forward it, Sven. It will take a bit. Richard Smith: Actually, now, I do hear you. Sven Weier: You can hear me? Okay. Great. So I have 2 questions, please. The first one is a more short-term question. And obviously, you had a great order intake development on the truck side in Q3 against what were, I guess, tough economic circumstances in Europe. So wondering if you could see a continuation of that also in the fourth quarter so far? That's the first one. Richard Smith: I'm sorry, I hear your voice, and there was some feedback on the line. If you would be so kind just to repeat that, maybe we'll get a better chance the second time. Sven Weier: Of course. Yes. I hope you can... Christian Harm: [indiscernible] will order intake continue like this in the fourth quarter? Richard Smith: Yes, sure. Let's talk about that, Sven. I mean, maybe we look at both segments. Historically, the fourth quarter is a very strong segment, probably the strongest segment for order intake in the ITS segment. Seasonally, the third quarter is usually a little lighter and the fourth quarter is a strong fourth quarter. I anticipate that will be a similar situation this year, no reason not to think it would. And as we say in both segments, we're past the trough. We're in a growing -- we're back into growth mode in the markets, and our order intake is certainly in growth mode. We have expected we got a better third quarter this year than we did last year in SCS. And as we described, we expect certainly a stronger second half this year than the second half last year. And we're looking for a good fourth quarter here. Sven, I trust that answers your first question. Sven Weier: Yes, and I could hear you really well. So that's fine. The second question is a little bit more looking forward on the... Richard Smith: So, you had a second question as well, Sven? Sven Weier: Yes. Can you hear me? Can you hear me, Rob? Operator, can you pass it on? Operator: Please ask your second question, and we will forward it to Mr. Smith. Sven Weier: Yes. So the second question is around the general sentiment among your clients, both in ITS and in SCS, in terms of their investment plans going forward. Do you sense they want to grow CapEx and it's just politics preventing them to do so, meaning that if there was any clearance on the political side, that this investment is released? Or what's the kind of general investment sentiment among both client segments? Richard Smith: The general sentiment, Sven? There we go. How about that? General sentiment among clients in ITS and SCS. Do we sense they want to grow CapEx and our geo -- let's talk about that. I think it's pretty exciting. I think everybody thinks it's exciting that President Xi and Trump came together today, shook hands, and it looks like there's a significant de-escalation of tensions there. And no one has seen any effect of that yet, but I do feel that that's a very good step in the right direction, and I think all our customers are going to feel that way, too, in all markets. I think it was positive. I think it was already priced into the markets, but I think it will be a positive thing for our customers, especially on the SCS side. The Fed has reduced the rates now again. So with 2% in Europe and the lowest rate in America over the last 3 years, that has to be a positive thing. And our customers have been very active with us in the pipeline. And it's just a matter of going through and converting those into orders now. We've talked about that being lumpy. But the trough is behind us. We're in an upward slope. And we're expecting to have a second half stronger than the second half last year. And we think we'll have a seasonal adjusted good fourth quarter as usual on the ITS side. So I think the sentiment is clearly much more positive post the meeting with Trump and Xi today than has been in the lead up to that over the last several months. Operator: Ladines and gentlemen, please shorten a bit your questions since we're forwarding them to Mr. Smith. The next question comes from Akash Gupta from JPMorgan. Akash Gupta: I have 2 as well. My first one is on the phasing of savings. So I think if you look at the savings, it translates to EUR 35 million to EUR 37 million per quarter, and you want to achieve fully in 2026. So maybe if you can give us some indication on how we shall think about phasing and by when do you expect the full run rate to be achieved? The second question is on lower interest rates from lease and short-term rentals. Christian Harm: Okay. So the question was on the phasing of the savings for the efficiency program, right? Let me take this one. So, as I said, right, we will have a small part of the savings already in the fourth quarter of this year, and then the far majority of the savings then in 2026 and actually very much sort of forward-loaded in the year. And there will be a small remainder potentially in the following year. So we will have a small part right now and the majority in the beginning of 2026. Akash Gupta: And my second question is on lower interest rates -- lower interest from lease and short-term rentals. I mean, your rental revenues were up 2% in the quarter. So maybe if you can elaborate what is driving this lower interest from lease and short term. Is this due to lower interest rates, or something changed in the way how you do business? And what shall we expect going forward in terms of the sustainable interest from lease and short-term rentals? Christian Harm: That's actually a consequence of the lower negative interest that we had against the prior year. We don't change the way we do the lease business. There is no structural change in how we perform the lease business or the short-term rental business. We have actually just a lower negative -- a lower interest against the prior year, and that's the consequence of that. Well, I mean, that will -- so, that sort of will potentially continue in the fourth quarter as a development. But then, sort of over next year, that effect will then actually disappear as the rates actually align themselves again. Operator: Next question comes from Tore Fangmann from Bank of America. Tore Fangmann: Perfect. Trust, operator, you can hear me. One question would just be what is the reason for cutting down the upper end of the savings range from EUR 160 million to EUR 150 million? And I'll take the second question afterwards. Christian Harm: Okay. Yes. Well, okay. So I think cutting down the upper end is a pretty harsh wording actually on the adjustment, right? When we defined the efficiency program, we basically targeted the entire EMEA region and all the countries in the setup. Now, the EMEA region actually has not a consistent level of personnel costs, nor do sort of individual jobs and functions have all the same personnel costs. So, on the implementation, now, as we are sort of finishing sort of the execution of the program, the mix that we have between countries and between functions, as we have come to the end of that, is slightly different to the mix that we had planned initially. So that's the background of that slight adjustment, I would call that rather. Tore Fangmann: Understood. Second question would be on the higher gross margin in IT&S. Is this a question of mix? Or is there some pricing in there? Or is it just more efficient production? Christian Harm: So the question on the gross margin in ITS, it's basically a mix. I mean, we did not have issues in production throughout the year. We have been reporting in the past that production is actually running overall quite well. So there was no impact on that. So when we look at the gross margin impact there, that's mainly mix. Operator: The next question comes from Martin Wilkie from Citi. Martin Wilkie: It's Martin from Citi. My question was on the pipeline in Supply Chain Solutions. There's a lot of debate across the industry as to whether the interest rate environment has prevented some projects going ahead, and we are now seeing rates coming down. Richard Smith: I appreciate the question. And you're asking on what's the pipeline in our Dematic business, our Supply Chain Solutions business. Very healthy pipeline, continued very active discussion with our customers. And I've been sharing that. It's stayed healthy. It stayed quite active pipeline. And now, as we've been talking for the last couple of quarters, customers are coming in and starting those projects. So the difference, I think, now to previous times is, we see ourselves and the market is clearly with the trough behind us and on an upwards order intake trajectory now. So the pipeline is good. The pipelines continue to be good, and it's very active with our customers. Operator: The next question comes from Gael de-Bray from Deutsche Bank. Gael de-Bray: My question relates to SCS. And I was wondering why the gross margin was down so much sequentially in Q3? I think it was down 300 bps. Christian Harm: So the question was on SCS. Why is the gross margin down sequentially? So as we -- I mean, we have been talking about closing out the legacy projects over the recent months, right? Closing out legacy projects, as we close them, still comes with the cost, right? We had some costs in the third quarter that we had to reflect for the legacy projects in the business solutions margin, right? And that's reflected here in the gross margin development sequentially for SCS. Now, on the legacy projects, maybe just overall, right, we are -- as I've said, we are continuously closing out those projects. Also in the fourth quarter, we will have a further closing out of legacy projects. There will be a very small number remaining for the next year. And again, as a reminder, that's also not new. There will be one large project that we have that will last into 2027. But we are closing the legacy projects out as we speak. And at times, that comes with costs. We had to reflect some in the third quarter. Gael de-Bray: Could you perhaps quantify this cost in -- I mean, in Q3 and maybe in the first 9 months so far? Christian Harm: Quantify the cost of the -- separate out the legacy cost development in the first 9 months. Operator: The next question comes from Lasse Stueben from Berenberg. Lasse Stueben: Could you please share the verticals and regions in SCS that are driving the orders from the non-e-commerce side? Richard Smith: Sure, Lasse. Let me -- why don't I try it a little bit differently because orders are up well year-on-year in all 3 regions. What I'd call out is, if you want to talk verticals, the order intake in SCS, some good growth in the non-e-commerce verticals of third-party logistics, also food and beverage. And we also had [Audio Gap] in durable manufacturing. So those 3 really stood out. Operator: [Technical Difficulty] Ladies and gentlemen, please hold the line. We lost the connection with the speakers. We'll shortly continue with the conference. Ladies and gentlemen, please hold the line. The conference will shortly continue. Richard Smith: Can you hear us now? Operator: Mr. Lasse , you can ask your question now. Richard Smith: [indiscernible] answering your question again. You were asking where are the pickup year-on-year in non-e-commerce. A matter of fact, all 3 regions are having good growth on a year-on-year basis. The strongest is in the Americas, but all 3 are making good year-on-year growth. And the verticals that are non-e-commerce pure-play verticals that are picking up in a good way would be the third party, the 3PL vertical. Food and beverage has a good pickup and durable manufacturing as well. I hope you caught all that. Operator: The next question comes from Timothy Lee from Barclays. Timothy Lee: So I just want to ask about the guidance for ITS. So the full year guidance is reduced in terms of range. And if we look at the midpoint of the guidance for the revenue number for ITS, that would imply, in the fourth quarter, revenue number could be down quite a bit, something like 8% if we take the midpoint of the full year guidance as a reference. That is a bigger decline compared to the previous quarter. Is that something you see to be fair? Or you're probably a bit conservative on your guidance for ITS revenue? Christian Harm: So the question is, whether the midpoint Q4 for ITS implies lower year-on-year, is that fair? Well, I mean, we had this development for 3 quarters now in a year, right? Also the fourth quarter will not be an exception to that, right? I said we will have small impacts from the efficiency program kicking in the fourth quarter, but that will not be sufficient to reverse that trend -- that will not be sufficient to reverse the trend already. So therefore, the fourth quarter, in that respect, has to be seen in the context of the entire year. And so, yes, we consider that actually fair. Operator: The last question comes from Alexander Hauenstein from DZ Bank. Ladies and gentlemen, there are no more questions at this time. I would now like to turn the conference back over to Rob Smith for any closing remarks. Richard Smith: Serge, thank you for helping us do the best that we could in the Q&A session and thank everyone for your patience during the Q&A session and your interest during our call. We're looking forward to continuing this dialogue with our investor conferences in November and early December. We'll be back in February for our full year results and our guidance for 2026 at the end of February. Obviously, the Q&A session wasn't as easy as we expected it would be and as it normally is. And so, our IR team will be clearly available to everybody that has a question they'd like to get a little bit more detail and depth on in rest of today and the days to come to make sure that the messages that we've got are well understood and the results that we've brought are well appreciated. So thank you for your interest, and we wish you all a good weekend. Goodbye now. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.