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Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2025 L3Harris Technologies Earnings Call. [Operator Instructions] I would now like to turn the call over to Dan Gittsovich, Vice President, Investor Relations and Corporate Development. Dan, please go ahead. Daniel Gittsovich: Thank you, Tiffany, and good morning, everyone. Joining me are Chris and Ken. Earlier this morning, we issued our third quarter earnings release outlining our results and our increased 2025 guidance, along with a detailed presentation available on our website. We'll also be filing our 10-Q later today. Before we begin, please note that today's discussion will include forward-looking statements subject to risks, assumptions and uncertainties that could cause actual results to differ materially. For more information, please refer to our earnings release and the SEC filings. We will also discuss non-GAAP financial measures, which are reconciled to GAAP measures in the earnings release. With that, let me turn it over to Chris. Christopher Kubasik: Thank you, Dan, and good morning. Our position as a leading defense innovator has never been stronger. The pace of change across the ecosystem is accelerating, and we're transforming to respond with speed and agility. Our purpose-built portfolio sits at the center of a mission-critical modernization efforts, supporting war fighters across every domain for the U.S. and its allies. As the Department of War has made clear, the nation needs to transform its acquisition processes to enable an innovative, fast-moving industrial base. The goal is to shorten decision cycles, eliminate bureaucracy, deepen collaboration and deliver more resilient, rapidly deployable solutions to meet increasing demand. These dynamics underscore the essential role of a trusted, disruptive defense partner, and L3Harris is delivering innovation when and where it matters most. We are the company that has the scale and the speed of relevance, and the right mix between established primes and new technology entrants. We continue to execute well, staying tightly aligned with customer priorities and delivering solutions rapidly. That focus is translating into results. This quarter, we delivered double-digit organic growth, 15.9% margins, and a book-to-bill of 1.2, proof that our strategy is working. Our business growth is accelerating, and we are confident in achieving our increased 2025 guidance, exceeding our original 2026 financial framework and positioning L3Harris for durable, profitable growth well beyond 2026. We are fully aligned with the administration's priorities for developing a next-generation missile defense architecture. Our actions to date advancing our missile warning and tracking franchise, and investing ahead of demand, demonstrate that L3Harris is ready to lead. With satellites in orbit, in production and in backlog, we are building on our proven record of designing and delivering missile warning and tracking systems across multiple FDA tranches. As new contracts are awarded, we're positioned to accelerate production and integration with work on additional satellites expected to begin soon. This progress reinforces our role as a trusted proven partner in advancing the nation's layered next-generation homeland defense network. These efforts are the product of deliberate forward-looking investments when we have conviction and customer demand. We've expanded capacity across our space portfolio from Palm Bay, Florida to Fort Wayne, Indiana, strengthening our ability to execute as new missions are awarded. The foundation is in place. The teams are ready and when called upon, L3Harris will deliver with speed, precision and the resilience our nation demands. Equally important in our strength is the missile and propulsion domain. Our Aerojet Rocketdyne business continues to see exceptional demand, a reflection of both near-term restocking requirements and longer-term investments in deterrence. In particular, the demand for interceptors is exceedingly strong. We are on every major interceptor program. Standard Missile, PAC-3, FAD, as well as next-gen interceptor and glide phase interceptor. We are looking forward to continuing to work with the Department of War to address this need. We are also on critical strategic missile program such as Sentinel, as well as certain classified programs and see those growing for decades to come. This quarter, AR reached a record financial backlog of $8.3 billion, the majority of which is to support the increased demand for solid rocket motors. An example of expanded production in response to growing demand is for the PAC-3 missile, where we are increasing capacity. As the sole manufacturer of solid rocket motors for PAC-3, we understand our critical role in scaling capacity across our facilities to meet the heightened and sustained demand for both U.S. and allied customers. This is a positive first step as the nation looks to significantly increase missile production in the years ahead. Reconciliation spending is pending and awards are expected soon. Against the backdrop of the continuing government shutdown, ongoing budget challenges, and the potential for a prolonged continuing resolution, we're staying focused on what we can control. Execution and readiness. We have the right portfolio, the right leadership and the right investments in place. When funding is released, we're prepared to continue to invest and move swiftly to deliver for our customers and our nation. We agree with Treasury Secretary Bessent's push for a new wave of industrial investment. We're already executing our plan aligned with that vision. Over the past year, we've expanded our domestic manufacturing footprint in Alabama, Arkansas, Virginia, Indiana and Florida, investing in new space and solid rocket motor manufacturing capacity to meet national defense demand. We've increased capital expenditures and continue to direct a substantial portion of free cash flow towards IRAD, expansion and modernization. But to fully realize this national reindustrialization effort, what's needed now is to convert clear demand signals into multiyear contracts that give industry the confidence to invest in scale. Our facilities, workforce and supply chain are ready. And when these demand signals are formalized, we'll move immediately to the next tier of investment and capacity expansion. At the same time, we share Army Secretary Driscoll's sense of urgency around modernization. This call to win with silicon and software perfectly captures the transformation already underway across L3Harris. We're moving faster than ever, partnering with emerging technology companies, codeveloping AI-enabled mission systems, and fielding software-defined resilient communication equipment that can be updated as threats evolve. This is not a theoretical capability, or one that we need to validate in technology demos. It is proven and happening real-time in Ukraine, by our allies in the face of advanced Russian EW threats. This technology is integral to soldiers' survival and mission success. Our advantage is speed and adaptability. We combine deep mission understanding with a network of agile partners from Silicon Valley to the defense tech ecosystem. As the services modernize their acquisition process, we see that as an opportunity to expand our role as a trusted integrator of choice, delivering open, software-defined, resilient capabilities at the pace of relevance. Our approach remains balanced and disciplined. Returning capital responsibly, while reinvesting in growth infrastructure that directly supports national security. We're fully aligned with the country's reindustrialization and modernization agenda, and we're ready to deliver once that demand is formalized. With that, I'll turn it over to Ken. Kenneth Bedingfield: Thanks, Chris, and good morning, everybody. As we continue to execute on critical national security priorities, it's clear that our investments, manufacturing capacity and disciplined execution are enabling us to deliver real impact for our customers. With that momentum as our foundation, let's talk about consolidated results for the quarter. We had $6.6 billion in orders this quarter, resulting in a book-to-bill of 1.2. Revenue was $5.7 billion, reflecting strong organic growth of 10%. This growth was across all 4 segments with 2 growing double digits, and driven by higher volume on existing programs, new programs ramping, and increased international demand. Segment operating margin was 15.9%, up 20 bps. This marks our eighth consecutive quarter of sequential margin expansion, underscoring our consistent execution. Margin expansion this quarter was driven by LHX NeXt cost savings, across all 4 segments, and improved program performance. Margin was slightly offset by the impacts from the higher margin cash divestiture in Q1 '25. Non-GAAP EPS was $2.70, up 10% year-over-year. On a pension-adjusted basis, EPS was up 15%. Free cash flow was about $450 million, reflecting temporary customer-related delays in payment. We remain confident in achieving our 2025 cash flow guidance. Q4 reflects anticipated milestone-based payments and the timing of a tax refund now expected in the fourth quarter. Consistent with prior years, cash generation will be back-end weighted as we manage performance on a full year basis. Turning to our segment's third quarter results. CS delivered revenue of $1.5 billion, up 6% and driven by increased international deliveries for a resilient software-defined communication equipment and Next Generation Jammer program ramp. Operating margin increased to 26.1%. CS margin benefited from international deliveries and LHX NeXt driven cost savings. IMS revenue was $1.7 billion, up 17%, organically due to multiple ISR classified programs ramping. Operating margin was 12%, a pro forma increase of 40 bps, excluding the CAS divestiture. SAS revenue was $1.8 billion, up 7%, primarily driven by increased FAA volume in Mission Networks and higher volume in Airborne Combat Systems and space. Operating margin increased to 12.1%, reflecting improved program performance on classified development programs in space, a $20 million gain recognized in connection with monetization of legacy end-of-life assets, and LHX NeXt driven cost savings. Aerojet Rocketdyne delivered another strong quarter with organic growth of 15%, marking its second consecutive quarter of double-digit growth and record revenue. Performance was driven by higher production volumes across key missile and munitions programs and the continued ramp of new awards. This progress reflects meaningful increases in capacity and deliveries, highlighted by the Mark 72 motor, where quarterly deliveries have increased more than 400% since acquisition. Operating margin expanded 130 basis points to 12.7%, driven by improved program performance and cost efficiencies from LHX NeXt initiatives. Now let me turn it back to Chris. Christopher Kubasik: Thanks, Ken. We are continuing to gain momentum, and this quarter underscores the strength of our long-term strategy and portfolio. A prime example is the $2.2 billion award from South Korea secured shortly after the quarter close. It delivered a fleet of next-generation airborne early warning business jets using the Bombardier Global 6500 airplane. This landmark international award is significant not only for its scale, but also because it reinforces our position as the world's premier integrator of missionized business jets with more than 100 aircraft delivered across multiple platforms. L3Harris is platform-agnostic, having successfully partnered with multiple OEMs, including Gulfstream, Bombardier and Dassault. We are the world's leading mission system integrator with the ability to combine advanced radar, secured communications and electronic warfare, coupled with our deep civil and military aviation certification pedigree. More than a single contract, this win lays the foundation for a long-term franchise with opportunities for sustainment, upgrade missionized variants worldwide. While it will be reflected in our fourth quarter bookings, it also signals the strong and sustained global demand for our capabilities. Furthering our missionization franchise in August, L3Harris and Joby Aviation announced an agreement to explore a new aircraft class for defense applications. We are rapidly evolving from concepts to physical hardware in direct support of the U.S. Army's acquisition strategy, with ground testing of the prototype hybrid aircraft already underway in preparation for a 2026 demonstration. We also secured award to provide Poland with our Viper Shield electronic warfare system for the country's F-16 aircraft upgrade program. This selection demonstrates the growing international demand for our advanced EW capabilities and strengthens our position across European defense market where this product suite has been selected by 8 countries. It's another clear example of how our innovation and ability to scale continue to differentiate L3Harris as a trusted partner to U.S. allies. Earlier this month, we announced our award supporting NGC2, the NGC2 Manpack, the latest evolution of the Army's software-defined radio platform, delivers high data throughput and multiple transport options, ensuring resilience and interoperability across NATO and Homeland Security Networks. Our expertise is critical to this effort. By winning this award, we have an important stake in shaping the communication systems architecture. Together, these and other recent wins, both domestic and international, demonstrate the breadth and competitiveness of our portfolio. They validate the strength of our strategy, the discipline of our execution, and our ability to convert technology leadership into high-value programs that deliver profitable growth. Of course, winning new business is only part of the equation. Execution is what ultimately drives value for our customers. A great example is the successful launch of the Navigation Technology Satellite 3. NTS-3 is an experimental navigation satellite designed to test advancements beyond today's GPS system. This milestone underscores our ability to deliver complex high-stake systems on time and on budget. Programs like NTS-3 reinforce the confidence our customers place in us and the pride our employees take in delivering for them. One of the key enablers of that execution excellence is our Program Digital Cockpit, a one-of-the-kind innovative, integrated enterprise-wide program management platform built on Palantir's foundry infrastructure. The Program Digital Cockpit aggregates data from hundreds of sources across L3Harris' complex enterprise, providing program teams with real-time access to their most critical metrics. By leveraging automation and artificial intelligence, the platform accelerates decision-making, strengthens program execution and drives favorable program performance. Launched in March of this year, we have completed the pilot phase and are now onboarding our first tranche of programs across all segments through the end of 2025. Our strategic partnership with Palantir continues to deliver value and the Program Digital Cockpit is a clear example of how we're investing in tools that improve execution and outcomes for our customers. Back to you, Ken. Kenneth Bedingfield: Thanks, Chris. Turning to guidance updates for 2025. For the total company, we are increasing revenue guidance to $22 billion, representing full year organic growth of 6%. Just a quick comment on 2026. We'll update guidance in January, but we do expect sales for '26 to exceed our current financial framework. We are increasing segment operating margin guidance to high 15%, driven by ongoing LHX NeXt cost savings and continued confidence in strong program execution. We now expect non-GAAP EPS in the range of $10.50 to $10.70 per share. We are reiterating our free cash flow guidance of $2.65 billion. While cash generation through the third quarter was softer than expected, we remain confident in the government reopening and delivering our full year cash flow commitments. We expect strong fourth quarter cash performance above prior years. At the segment level, we are increasing our CS revenue guidance to $5.7 billion driven by continued strong international demand, while reaffirming our operating margin of about 25%. IMS revenue is now expected to be approximately $6.5 billion, driven by strong demand and performance in ISR. We are increasing operating margin to the low to mid-12% range. We are increasing our Aerojet Rocketdyne revenue guidance to $2.8 billion to $2.9 billion, supported by higher production volumes with operating margins expected to remain in the mid-12% range. And we are reaffirming SAS prior guidance. With that, I'll turn it back to Chris. Christopher Kubasik: At the start of the year, there were understandable questions about what success would look like for the defense industry and for L3Harris, especially in such a dynamic environment. As we close the third quarter, that conversation has shifted. The focus is now on potential upside and a trajectory that extends well past our 2026 financial framework. That change in tone reflects our disciplined execution and the strength of our strategy. We are turning opportunity into tangible results, both domestically and internationally, and we expect more to come as reconciliation and missile defense-related funding begins to flow. Across the company, our leaders and employees understand the high stakes as we are transforming and acting with urgency. Our strategy is deliberate, well calibrated and delivering measurable results. It strengthens our position in the global defense market, and drives the kind of sustained growth and value creation that underpins our long-term vision for L3Harris. Tiffany, let's open up the line for questions. Operator: [Operator Instructions] Our first question today comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Congrats guys on a good quarter. Maybe just I could start off on ISR, Chris, because I think that's the segment that's been improving the most. If you could just talk about some of your recent wins in South Korea being put in, ramp on multiple classified ISR programs you saw in the quarter. How do we think about the outlook for that segment and just runway for the business given capacity? Christopher Kubasik: Thanks, Sheila. Yes, ISR, which is part of our IMS segment, historically, was having some challenges. We made significant changes at the leadership level and we redoubled our focus on execution, and we're finally seeing it pay off. The backlog has doubled in 12 months, and the outlook is very positive. You mentioned the classified growth on multiple programs. We see that for the foreseeable future, especially as the threats continue to grow. Armed Overwatch a program that we've had for several years, we're starting to see some interest for that program internationally. We recently announced the C-130 up award in Morocco. So that line of business is gaining momentum. In Canada, there's a Strategic Tanker award that's competitive that's coming out here in the near future. We feel confident about our position there. Our business in Canada has also been selected for the F-35 depot support. And we're excited about the opportunity with Joby. We are platform-agnostic. We've historically focused on manned aircraft, but I think there could be some pretty interesting opportunities in the short term with the Army partnering with another new entrants. So I feel really good about the business. The future looks bright and the team is executing, and that leads to more business. Operator: Our next question comes from the line of Ron Epstein with Bank of America. Please go ahead. Ronald Epstein: So just -- maybe a bigger picture kind of management question. So when you have an organization that's kind of the size of yours and the scope of yours, big company, and you're working with smaller companies that tend to be -- have the advantages are just being small, right? They can kind of move fast, make decisions quickly, that sort of thing. How do you manage that, that when you're working with them, A, your organization can maybe benefit from their nimbleness, but your organization isn't stifling their nimbleness because by the nature of just being a big organization? That makes sense? Christopher Kubasik: Yes, it does make sense, and it's a great question. And I think we're unique in what we've been focusing on over the last several years is empowering the leadership team, eliminating bureaucracy, streamlining the layers and levels, and really getting that sense of entrepreneurship. I think it goes back several years with the Shield Capital where we currently own 10s -- I think, in excess of 40 different companies, or parts of those companies. And that really helped with the culture change because we usually have 24 or 48 hours to turn it around. So we feel we're pretty agile. I interact and my segment presidents interact with the founders, CEOs, Chairman. We put teams together and we work rather quickly. So we've been pretty successful. And the interesting part is a fair amount of these new entrants and technology companies actually reach out to us to initiate the conversation. So I feel like we're the company of choice. And the list goes on from Shield AI to Anduril to Amazon Kuiper, Palantir, the 40 or 50 Shield capital companies. And it's working. It's part of the DNA. And I would admit it was a cultural change years ago, but people get excited and like to go fast and see the results. So far so good and maybe even better than I would have expected. Operator: Our next question comes from the line of Myles Walton with Wolfe Research. Myles Walton: Chris, I was wondering if you could touch on your outlook for the Golden Dome space-based competitions that you're looking at from HBTSS to space-based Interceptor to Tranche 2 Tracking Layer, and sort of maybe cadence those over the course of the year? And then the second part of it is on the SAS business itself and the underlying margin performance. I know you've struggled a bit with some of the earlier programs. Are we through the woods on those programs? And should we take the fourth quarter margin rate as an exit rate into next year? Christopher Kubasik: Yes. Let me start with your first question, and then I'll ask Ken to comment, specifically on the margins. As we've said for several years, we feel very confident in our capabilities for, what was formerly known as Golden Dome, the missile defense architecture. HBTSS as we said, was a success, and we're waiting for the government to reopen. And I'm confident that there's a scenario where maybe we could get an award, or a competition here in the fourth quarter. SDA Tranche 3. In that particular one, we submitted -- the RFP came out in April. There have been many back and forth modifications. We turned in again, the best and final in early October. And there's another example where I think we need the government to open up and get back to work and make an award. You've heard us say before, we've been on all 3 tranches. We're performing well. We think our past performance puts us in a position to win that program. I was just at our new factory yesterday. We've already moved the Tranche 1 and Tranche 2 satellites in state-of-the-art factory of the future. We have the room, we have the equipment and the tools, and we're ready to go. So we feel really good about the space business. We've kind of held that out as the symbol of our trusted disruptor strategy, opening new markets, clearly some growing pains as we've grown from a supplier, or a subcontractor, to a prime. But we have the tools, the team and feel really good about what we've done so far and what we're going to do in the future. Ken? Kenneth Bedingfield: Sure. Yes. On the second part of the question with respect to SAS margin performance. I would just say, as we've talked about the couple of the programs that we've seen some performance challenges on through the year. Those programs are maturing. I think as we've mentioned, nearing completion on some of those legacy programs. Importantly, they are opening up new continued award opportunities for us. So from an SAS margin performance perspective, I think we expect some stability looking into 2026. I don't know that I would want to give segment guidance on what SAS margin would be for '26 at this point. But I do feel good that I think the performance is really starting to settle down, obviously, until we get some of the final integration stages behind us on a few of these programs. You don't want to declare victory, but I think we're making good progress and I look forward to continued solid performance in '26. Operator: Our next question comes from the line of Seth Seifman with JPMorgan. Seth Seifman: I wanted to ask, Ken, when we think about next year and kind of the margin expansion that you're expecting, and some of the gains that have happened this year, is that a difficult headwind to overcome for 2026? Kenneth Bedingfield: Thanks for the question, Seth. No, I don't think so. Feeling good about our program performance opportunity in '26. I think that -- look, we make sure we find ways to deliver on our commitments. First half of '25. We had a little bit of negative EACs. I think our negative EAC performance was negative in the first half of the year. We've turned that positive here in the third quarter. And I think just good solid performance on our programs, getting our net EACs turning back to positive. I think that should more than offset, which I wouldn't say it's noise in the system, but I don't think they're difficult to outgrow the gains here and there from nonstrategic product line or IP sales. Again, we're focused on what we're focused on. Really trying to grow the core areas of the business. And if there's a few things here and there, we can monetize, we do it. But I think that's, to your point, mostly going to be behind us, and now it's just going to be about performing on our programs, kind of left foot, right foot, just get it done, and I think we're in a good position to do that. Operator: Our next question comes from the line of Scott Mikus with Melius Research. Scott Mikus: Just a quick question. The administration seems to want contractors to have more skin in the game. From 2022 at least through 2024, your IRAD spend as a percentage of sales, I think, declined from 3.5% to 2.4%. So next year, should we expect that IRAD spend to step up? Christopher Kubasik: Yes. The way I look at it is we have various buckets of IRAD and -- or R&D. IRAD would be one. We have contracts, known as CRAD contractor R&D. We have our Shield capital and other strategic investments that all fuel R&D. And we focus at the -- we focus on the portfolio, where we think the market is going and we double down and invest in those areas. So I don't really look at it as a percent of revenue. We look at what the opportunities are, where we want to invest. And we've had significant investments in the past. We've opened new markets and new portfolios. And once you get that situation, you don't need to continue to invest in R&D. You moved into production, and you rely on the production contracts to deliver the product to customer needs. So it's a dialogue. We think when I look back over the last couple of years, what we've made in investments broadly, IRAD, CapEx, acquisitions, we are clearly spending the money to position this company for future growth. And I think today's results and the results year-to-date and even last year prove that it's working. Operator: Our next question comes from the line of Michael Ciarmoli with Truist Securities. Michael Ciarmoli: Chris, maybe just thinking about Golden Dome and space-based interceptors. Is this going to be your first foray into potentially competing as a prime for missiles? I know way back at the Investor Day after the Aerojet acquisition, you've got a lot of that in-house capability. But should we start thinking about you guys going after some of these newer programs as a prime, just given the amount of missile demand, new low-cost missiles and capacity that's needed out there? Christopher Kubasik: Yes, I'll just make a few comments and ask Ken to fill in the gaps here. But we stick with our approach of looking at the opportunity and seeing where the best value is for our customers and shareholders, whether that's priming, subbing or being a merchant supplier. The demand that we have at Aerojet Rocketdyne is significant, as I mentioned, record financial backlog, huge opportunities that you hear about every day to increase production. So we have to maybe to the earlier question, keep the company focused, where can we move the needle, where our capabilities best aligned? But we spend a lot of time talking about SBI. So Ken, do you want to update? Kenneth Bedingfield: Yes. I would just add that from a kind of market perspective at Aerojet Rocketdyne, we have significant opportunity in front of us to Chris' point. Not only in the solid rocket motor portfolio, but we've got significant backlog in the space propulsion area as well. And we're currently significantly focused on delivering the capacity that is needed by our customers. And right now, kind of that's job #1 and #2, we will certainly be evaluating how we best, to Chris' point, are positioned across space-based interceptors, and where we partner, and who we partner with and how we look at that opportunity. But at the current time, there is significant demand for our product. We've got -- we've probably seen a number of groundbreakings, ribbon cuttings, factories, production lines accelerating opening. And that's what we're focused on at the moment. But as we look forward, we'll certainly be continuing to firm up those partnerships around space-based interceptors. Operator: Our next question comes from the line of Noah Poponak with Goldman Sachs. Noah Poponak: I wondered if you guys could talk more about growth at Aerojet Rocketdyne over the medium term. Chris, you mentioned where the backlog is now, I'm curious how many years of backlog you want to keep? And I guess the guidance for this year, midpoint would land you around 10% growth for the year. Can that actually -- can you actually grow faster than that over the medium term, just when we speak to your customers, the types of change in production rates that they're talking about are pretty significant? And then last piece of that, Chris, what are you expecting for new competition in solid rocket motors? Christopher Kubasik: Yes. Maybe I'll go first. Look, the opportunities at Aerojet Rocketdyne and the revenue growth that we're seeing is significantly more than the business case that we evaluated a couple of years ago when we made the acquisition. There's clearly a huge demand for these existing programs in solid rocket motors. It's all about capacity. That's always been the challenge. Ken will give you a little more detail. We are opening facilities. I was just in Camden last week. We're building new buildings. We're getting new equipment. The lead time on this sometimes is 12 to 18 months. We're investing. We're talking to the customer to formalize, as I said, the demand signal into actual multiyear contracts, but we feel really good about our portfolio. As I said, we're on every major interceptor program. And the advancements we've made with some of the tools and the technology is going to allow us to significantly increase production in the years ahead. We're going as fast as we can. I think in many programs, we're ahead of contractual commitments. So we're going to get as many orders as we can. And we're going to deliver as quick as we can to keep that financial backlog wherever it happens to fall. But I think the next couple of years are critical as we continue to invest, working closely with the OEMs and the Department of War to prioritize which programs they want, which investments they want? I think in Camden, we have over 150 buildings. We could probably build another 50. We have more than enough land and we just need to formalize the actual contractual arrangements to accelerate. Ken. Kenneth Bedingfield: Yes. I'll just add. I think, Noah, it's important to remember that Aerojet Rocketdyne is not just solid rocket motors for missiles. It's also got the space propulsion business, as well as a very well-positioned in-space propulsion business that I think is poised for growth also as we look '26 and forward. So confident that we can grow Aerojet Rocketdyne for the foreseeable future at double digits. I think that, that is absolutely something that we can do. I think if you look at Missile solutions, so the solid rocket motor business today, I think we said 17% growth in the second quarter, and it's a solid mid-teens this quarter as well. And again, if you look at the entire portfolio, I think it's a solid double-digit grower. We've certainly been leaning on, I would say, maybe a little bit of ingenuity and kind of student body left in terms of how we've been driving the capacity expansion at the moment. But to Chris' point, as some of the new production lines, and new facilities come online, it'll be a much kind of smoother delivery of that continued capacity. So we're very satisfied with the acquisition, very, very satisfied with how it's going at the moment and look forward to continued growing business. And then importantly, delivering product to our customers so that they can get it into the war fighters' hands. Operator: Our next question comes from the line of Peter Arment with Baird. Peter Arment: Nice results. Chris, you gave some comments about the international business, continue to see strong NATO support. Wonder if you could just give us an update on kind of whether you're seeing more teaming operations. I know that there's a lot of talk around they want countries in Europe want their own indigenous capabilities. Just how are you able to kind of execute that and still expand your share internationally? Christopher Kubasik: Yes. Thanks, Peter. Clearly, the international budgets have increased significantly. So those countries are working on getting the best capability they can for their war fighters, resilient interoperability are critical where a lot of our portfolio aligns with that demand, and then also supporting their indigenous industrial base. We've been partnering around the globe for decades. We have local production capabilities in all of the key countries where it makes business sense. And again, going back to our philosophy, of being indifferent as to whether it's a prime sub merchant supply relationship, we haven't seen this to be a challenge at all. It's being open to the dialogue and creativity, and the leadership team has been traveling the globe pretty much every week for the last several months. So huge opportunities we see in Europe. We have a segment President going over there Saturday for a week or so. I just came back from the Mid-East and another one is in Korea as we speak. So we're all over the globe. I think we're the partner of choice because of our receptivity in either technology transfer, expanding the footprint, executing and delivering on our offset obligation. So we're about 22% international and we're headed towards 25% of our base. So a good opportunity. Operator: Our next question comes from the line of Gavin Parsons with UBS. Gavin Parsons: What's a good baseline for the Aerojet margin? I mean, do you still have legacy contracts that are dragging on that and better capacity utilization as you go forward? Or is that strong growth outlook that you talked about are going to kind of weigh on the margin? Kenneth Bedingfield: Yes. I don't necessarily expect that strong growth outlook will weigh on the margin. We're still working through some of the legacy contracts. It is a long-cycle business, takes, sometimes 18, 24 months to deliver on a contract. So yes, we are absolutely working through some of the legacy production. But we are transitioning into the kind of the newer signed contracts. But I'll remind you, Aerojet is a portfolio not unlike L3Harris overall. And we have important development programs that are in the mix as well. And that's, I think, the biggest piece that kind of keeps that margin in the mid-12s, hopefully ramping as we look forward, '26 and beyond. But it's got important development cost type programs like a Next Generation Interceptor, like Sentinel Glide Phase Interceptor, really that seed corn for the future production and the future growth. And I think that portfolio kind of keeps it, I think, a very solid margin rate. And importantly, as we get these new lease signed contracts in, really starting to deliver kind of the economic margins that are important for us to be able to fund and support the investments that are needed to drive this capacity expansion that we see in order to be able to address the significant demand for the product. So I think that's the way to think about it. But Aerojet Rocketdyne is really performing very well on the programs. I think across the board between deliveries for our customers between delivering financial results, and not just capacity delivery, but also quality product safely, that's critically important as well. Operator: Our next question comes from the line of Kristine Liwag with Morgan Stanley. Kristine Liwag: I guess, Chris, you had called out in your prepared remarks that there's very strong demand signals and your strong book-to-bill actually reflects some of this. But it seems like there's still a schism between what these signals actually indicate, and what should have been a much higher contract award environment. Can you talk more about what you're seeing in that gap? What would need to happen for that to close? Is this more on the government shutdown? Is it clarity regarding government priorities? Is it visibility into the supply chain? It would just be really helpful to understand where we could see another acceleration of what's already a strong book-to-bill environment? Christopher Kubasik: Yes, Kristine, good to hear from you. We missed that quarter end point with Korea, that would have got us a 1.6 book-to-bill. We're really doing a great job on the front end of the business over the last year or 2. So I'm more than satisfied with our win rates and our results in head-to-head competition. But the government shutdown is clearly the challenge. I mean, it's disappointing where we are. And we need Congress to get together and resolve this situation. As I look at it, there's clearly incongruency within the government. The DOW wants to go fast. They meet with us all the time. We got to go quicker, and then Congress can't fund the DOW. So we're kind of stuck between those 2 situations. So it's always baffling to me that these issues are unique to the U.S. because we all know our adversaries don't have this same challenge. Anyway, notwithstanding that, I like our portfolio. The team is performing. We're ready to move with speed. But in the meantime, the shutdown is definitely impacting the timing of awards, and we have a handful that we just need the government to open up and have the decisions made. I think some of our export licenses for international are being slowed down and the cash collections are impacted. People are working with DFAST, but I think with all the headcount reductions and such, there's just more work than there is people to execute. So the government needs to open. We're a government contractor. 80% of our customer isn't coming to work. It's a challenge. And we're assuming they open in November, and then we'll have a busy December to catch up on everything. Operator: Our next question comes from the line of Richard Safran with Seaport Research. Richard Safran: First, Chris, it went quickly, but I think you mentioned something about the need for multiyear contracts in your opening remarks. And I have a 2-part question on that. First, if you consider the contracting environment and because you've been talking about like you're constantly meeting with the customers and stuff. Is this something that the government seems amenable to? Because it seems it's been reluctant to execute multiyears in the past. And second part is multiyears typically allow you to get better pricing from suppliers. And then at least at the very least share that savings with the government. So is this change in the contracting environment might impact margins? If so, how do you think that might impact? Christopher Kubasik: No, great question. It was a sentence that I slid in there. And this deals with capacity and the need to significantly ramp up, and in some cases double, triple, quadruple production. I think I have been consistent for years that the challenge in the defense industrial base, which is why we need to reinvigorate manufacturing in America is there just is not enough manufacturing capability in the U.S. for defense products. We need more buildings, we need more equipment, and these are substantial investments, which we are willing to make. But it's a simple business case. Ken and I are not going to spend significant amount of capital without a commitment in the form of a multiyear contract from the government. So you're right. It does give the supply chain more visibility and even allows them the potential to make investments. But if we're going to double, triple or quadruple production on certain programs, let's sign up to a 5-year, 7-year multiyear contract. And I think the entire ecosystem will look at making the investments and amortizing the cost of those investments in the form of depreciation into the products, getting the benefit of increased production and kind of see where the money lies out. But I think we're getting close. And to your first question, I think the customers absolutely 110% behind this concept. What happened in the past in all these prior administrations and decisions are really irrelevant. And I like the new administration. They bring in a fresh -- breath of fresh air, and they kind of say, what do we need to do? They're business people, we're business people. We're in regular conversations, and we just need to get pencil to paper here and move to the next step. So I'm optimistic about the future, but that's clearly what needs to happen. And I don't see why we wouldn't get to that point. But Ken, you've been in those meetings with me. What do you think? Kenneth Bedingfield: Yes. I'll just add that, Rich, to your question about multiyears, I think this is a little different than what kind of traditional multiyears. This isn't for nuclear submarines or aircraft carriers. We're talking about largely missile production for which we produce the solid rocket motors and other components. And in that business, there's a pretty dynamic portfolio of products. And unfortunately, you can't just one morning produce PAC-3 motors and then flip a switch and produce standard missile motors in the afternoon. There's pretty specific production line, and we are working to kind of build some amount of common production and common capacity early in the process. But it takes some time. And so as we invest, as we work with the suppliers, as we work to modernize and open new facilities and production lines, we really need to know what are we producing. Which products, at which rate and to what delivery schedule? And that's really what we're trying to firm up to is really aligning our investments, aligning our suppliers and their investments to our customers' needs and delivery dates so that we're all on the same page. Kind of hand in glove so to speak, in delivering what needs to occur. And so that's what we're really trying to get down to is firming up the investments rather than kind of a more traditional platform multiyear award. Daniel Gittsovich: Tiffany, let's take the last question. Operator: Our last question comes from the line of Ron Epstein with Bank of America. Ronald Epstein: I just wanted to follow up on some of the NASA work you're doing. There's talk of kind of restructuring some of the civil NASA work. And what kind of opportunity does that present for you? Kenneth Bedingfield: Thanks, Ron. Yes. From our perspective, NASA certainly is an important customer for us, in particular, at Aerojet Rocketdyne. The RS-25 engines for the SLS system is the biggest component of our space propulsion business. We're excited that the government has provided some additional funding for SLS as a part of reconciliation and firmed up through Flight 5. We're producing engines through, I think, it's through 9 systems there. And I think supporting not only NASA, but the government in terms of not just defense but also space exploration, and importantly, getting back to the moon and ultimately to Mars, I think, has not just exploration value but also strategic value. And we're proud to be a partner on that. And we expect it to be a solid part of that space propulsion business for a number of years to come. I think we've got multiple years of backlog in there for production of RS-25 engines, as well as other parts of the SLS program portfolio. Christopher Kubasik: All right. Let me wrap it up. As we close today's call, I want to thank all of our L3Harris employees for their commitment, resilience and passion for excellence. In today's environment, changing dynamics and challenges contest even the strongest organizations. Our teams aren't just adapting, they are embracing change while anticipating planning and executing with a focus on controlling what they can control, while I and my senior team engage with the customers globally as the evolving budgetary and threat dynamics continue. As a direct result of their dedication and readiness, we're delivering for our customers when and how it matters most. Thank you all for joining us today. We appreciate your continued interest in L3Harris, and we look forward to future discussions. Have a great rest of the day. Thank you.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Real Estate Finance Q3 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Kristen Griffith, Investor Relations. Please go ahead. Kristen Thomas: Thank you. Good day, everyone, and welcome to NexPoint Real Estate Finance conference call to review the company's results for the third quarter ended September 30, 2025. On the call today are Paul Richards, Executive Vice President and Chief Financial Officer; and Matt McGraner, Executive Vice President and Chief Investment Officer. As a reminder, this call is being webcast through the company's website at nref.nexpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions and beliefs. Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's annual report on Form 10-K and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect the forward-looking statements. The statements made during this conference call speak only as of today's date, and except as required by law, NREF does not undertake any obligation to publicly update or revise any forward-looking statements. This conference call also includes an analysis of non-GAAP financial measures. For a more complete discussion of these non-GAAP financial measures, see the company's presentation that was filed earlier today. I would now like to turn the call over to Paul Richards. Please go ahead, Paul. Paul Richards: Thanks, Kristen, and welcome, everyone, joining us this morning. I'm going to briefly discuss our quarterly results, move to our balance sheet and lastly, provide guidance for the next quarter before turning it over to Matt for a detailed commentary on the portfolio and the macro lending environment. Third quarter results are as follows: for the third quarter, we reported a net income of $1.12 per diluted share compared to net income of $0.74 per diluted share for the third quarter of 2024. The increase in net income for the quarter was due to an increase in unrealized gains on preferred stock and stock warrant investments between the third quarter 2025 and the third quarter 2024. Earnings available for distribution was $0.51 per diluted share in Q3 compared to $0.75 per diluted share in the same period of 2024. Cash available for distribution was $0.53 per diluted share in Q3 compared to $0.67 per diluted share in the same period of 2024. We paid a regular dividend of $0.50 per share in the third quarter, and the Board has declared a dividend of $0.50 per share payable for the fourth quarter of 2025. Our dividend in the third quarter was 1.06x covered by cash available for distribution. Book value per share increased 8% from Q2 2025 to $18.79 per diluted share, with the increase being primarily due to unrealized gain on our preferred stock investment and stock warrants. During the quarter, we funded $42.5 million on a life science preferred. During the quarter, the company funded $6.5 million on the loan that pays a monthly coupon of SOFR plus 900 basis points. The company sold a multifamily property for $60 million that resulted in a $3.7 million gain and raised $65.7 million in gross proceeds from the Series B preferred stock raise. On October 27, 2025, NREF announced a fourth quarter dividend of $0.50 per common share. Moving to the portfolio and balance sheet. Our portfolio is comprised of 88 investments with a total outstanding balance of $1.1 billion. Our investments are allocated across sectors as follows: 47.3% multifamily, 33.9% life sciences, 15.9% single-family rental, 1.8% storage and 1.1% marina. Our fixed income portfolio is allocated across investments as follows: 27% CMBS B-Pieces, 26.5% mezz loans, 18.6% preferred equity investments, 12.4% revolving credit facilities, 10% senior loans, 4.2% IO strips and 1.3% promissory notes. The assets collateralizing our investments are allocated geographically as follows: 28.1% Massachusetts, 15.5% Texas, 8% Georgia, 5.3% California, 4.2% Maryland, 4% Florida, with the remainder across states with less than 4% exposure, reflecting our heavy preference for Sunbelt markets with Massachusetts and California exposure heavily weighted towards life science. The collateral on our portfolio is 87.4% stabilized with 54.9% loan-to-value and a weighted average DSCR of 1.41x. We have $720.9 million of debt outstanding with a weighted average cost of 5.3%. Our debt is collateralized by $633.2 million of collateral with a weighted average maturity of 3.9 years and a debt-to-equity ratio of 0.93x. After the quarter, we paid off our $36.5 million senior unsecured notes with a new senior unsecured note offering of $45 million. The coupon on the new notes is 7.875%, a slight increase to the 7.5% notes we issued in October of 2020 when interest rates were near 0%. The new notes carry a term of 2 years with the prepayment options, providing flexibility in this declining rate environment. We're pleased with this execution and look forward to terming out the remaining senior unsecured notes in the first half of '26. Lastly, we have been making great strides in our Series B preferred raise, which has almost hit the $400 million offering limit. Given the heightened demand, we are now in the process of launching a Series C preferred, which will be a $200 million offering at an 8% coupon, where we will continue to deploy capital at 400 basis point plus spreads at the cost of this capital. Moving to guidance for the fourth quarter. We are guiding an earnings available for distribution and cash available for distribution as follows: earnings available for distribution of $0.48 per diluted share at a midpoint with a range of $0.43 on the low end and $0.53 on the high end. Cash available for distribution of $0.50 per diluted share at the midpoint with a range of $0.45 on the low end and $0.55 on the high end. Now I would like to turn it over to Matt for a detailed discussion of the portfolio and markets. Matthew McGraner: Thank you, Paul, and appreciate all the team's hard work here on the asset management and sourcing front as we close out another successful quarter. I'd like to spend a few minutes discussing what we're seeing in our key verticals and then talk about our pipeline. On the residential front, we're close to the end of a record national new multifamily supply cycle. CoStar issued annual net deliveries having peaked at 695,000 units in the trailing 12-month period ending fourth quarter of 2024. This compares to annual net delivered units of 351,000 units on average in the prior 5 years from 2014 to 2019, and then 282,000 units on average since 2001. CoStar forecasts net deliveries reached 697,000 units in 2024 and expected to be 508,000 units in 2025 before falling significantly year-over-year in 2026 by 49% and then another 20% in 2027. Q3 '25 deliveries are down 17% quarter-over-quarter and it is the last quarter with more than 100,000 units delivered. An increased expectation for the third quarter deliveries is followed by a significant drop-off to Q4 2025 that is now forecasted at just 69,000 units, down 52% year-over-year and 41% quarter-over-quarter. This ushers in a start of a lengthy period where deliveries are expected to be below the long-run national average. For 2027 and 2028 delivery forecasts have also fallen. CoStar now expects 27 deliveries of 234,000 units, which compares to a forecast from December of last year of 283,000 units or a revision down by 17% and then 230,000 units for 2028, and that compares to a prior forecast of 308,000 units, which is down 27%. On the whole, cautious optimism best fits our rental market outlook and believe 2026 will usher in a positive revenue for the first time in several years. On the storage front, second quarter earnings for the REITs were consistent with guidance and more or less in line with sell-side estimates. Expectation is that Q3 same-store revenue will be flat year-over-year and same-store NOI will be slightly down. That is the expectation for the full year for the sector, flattish revenue and 50 to 150 basis points decline in NOI. The peak leasing season was again a little shorter and choppier than in the pre-COVID era. April and May were great months, and June and July were a little less great. As stated in past reports, the sector has been negatively impacted by the lack of movement in the housing sector, which is a large demand driver for self-storage. The news is a lot better on the rate front. After 8 or so quarters of falling rates with some rates down as much as 20% from COVID era highs, rates have begun to move up again. John Good, our CEO of our storage platform, attended EXR's Partners Conference last week, during which they informed us that across their 4,000 store universe, rates universally rose in each of June through September. There is a lag effect on rising rates, but this trend should provide optimism that 2026 revenue growth will be healthier than 2025 and NOI growth should resume. Supply remains muted. Facilities under construction according to Yardi are less than 3% of existing supply, which is the benchmark for equilibrium. Yardi predicts that deliveries for the next couple of years could be as low as 1% of new supply, which should bring pricing power back to the industry and allow revenue and NOI growth to return to the 3% to 5% range within which it has traditionally operated. Anecdotally, in talking to experienced developers, bank financing is still very difficult to find and as expensive as land continues to be expensive also. There's been continued inflation in materials costs, all of which has negatively affected prospective returns and has deterred some developers from moving forward with new supply. Interest rates continue to be much higher than they were during the 2015 to 2020 development cycle, again, supporting revenue growth into '26. On the life science front, our Alewife project did land the flagship pioneering-backed AI and life science company, Lila Sciences on a long-term lease for 245,000 square feet with options to take more space in the future. The Lila lease stabilizes the project and gives it a powerful base from which to drive leasing momentum and catalyze a new AI cluster at the broader Alewife project. This lease creates additional capital market optionality for both NREF and the borrower as is the first of many green shoots we're seeing in our opportunistic base life science investments. I'm also very pleased with our pipeline today and menu of capital options available to us to capitalize on these opportunities. Today, the pipeline consists of over $350 million of investments in $120 million of multifamily, $75 million of BTR, $45 million of small bay industrial storage and $80 million of life sciences and advanced manufacturing loans. In closing, our underlying credit profile -- portfolio remains very strong at top of the commercial mortgage REIT sector. Moreover, we continue to have some of the lowest leverage profile of any commercial mortgage REIT, which allows us a variety of capital options to pursue accretive growth to fund our exciting pipeline of investments. Given our healthy dividend coverage, very low leverage, stable book value and capital options available to us, you can expect that we will also buy back stock opportunistically while pursuing these new investments. Indeed, we're excited about our growth in particular and cautiously optimistic about the overall market dynamics going into 2026. As always, I want to thank this team for their hard work. And now we'd like to turn the call over to the operator to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Jason Sabshon with KBW. Jason Sabshon: It would be helpful to hear just your updated view on the life science sector. We're seeing soft tenant demand and oversupply in some markets. And then specifically, as it relates to NREF's exposure, just your thoughts there. And if there's any color you can provide on leasing at the asset, that would be helpful. Matthew McGraner: Yes, you bet. I think that the good news about our life sciences book is we didn't start making life science loans until 2024. Most of the distress within the sector was for projects that were capitalized shortly after COVID during the extreme liquidity that was there and all the rage. Where you do see weakness, like, for example, in Alexandria's reports is more or less in their -- and they said this, their core -- or excuse me, their B assets in their noncore markets. Where they are showing strength in leasing and having good tenant demand is in the gateway markets of San Diego, San Francisco and their master planned communities or campuses in Cambridge and Boston. And that's where our exposure is. We're highly focused on first-to-fill assets, including the Alewife project, which again is roughly a 30% loan to cost. And that's the majority of our life sciences exposure. The good news is this first lease with Lila backed by Mag 7 style investors is going to create the cluster, if you will, at the project. We're already getting more looks at the project for leasing. And as the project stabilized being 2/3 now occupied and the tenant taking space towards the end of the year, we can do a number of things to take advantage of the liquidity that the lease provides. We could A note it, we can be refi out. We could sell the loan given that it's SOFR 900, which is mispriced now at a stabilized life science project. So I think this lease just solidifies our precision-based investments, taking advantage opportunistically at a time when there was no liquidity in the space and very proud to see that the first of -- kind of one of the first investments that we made in life science is bearing fruit for the company and the shareholders. Jason Sabshon: Great. And then just to shift to multifamily. Now pretty clear from your remarks that you see the supply backdrop as improving. So -- but at the same time, we have seen some pressure in the bridge lending space. So I guess as it turns -- as it relates to deployment, where would you preference deploying capital into senior loans versus mezzanine or preferred versus equity ownership? And kind of just your view on some of the softness that we've seen in the bridge space? Matthew McGraner: Yes, you bet. I think most of the softness in the bridge space was the floating rate bridge loans that were originated in '21, '22 with 2-, 3-year maturities that can't be refied out today. So there's been a lot of folks extending and pretending, which I think is the right -- which is the right thing to do as my comments, my prepared remarks stated. There is light at the end of the tunnel. It's not a question of if, it's just when. In the recent months, August and September across the multifamily sector were a little bit weaker than expected, but there is now new lease growth inflecting across most of the major top 50 MSAs. Particularly, you're starting to see new lease growth inflecting in the markets where supply is always constrained, such as San Francisco, New York and Chicago. Sunbelt is still tough, but there's infinite job growth demand for multifamily in the Sunbelt Smile. It will take a little bit longer to work its way through the system into, I think, the second quarter, third quarter of 2026, where we believe we'll start seeing new lease growth inflect higher in the Sunbelt market. So that's the reason for optimism. And if you do have a bridge loan and you can wait it out, whether you're a borrower or a lender, you want to give yourself the opportunity to take advantage of that new lease growth. So there is a little bit of pressure, but I think it's workable. It's not -- this is an office or hotel or anything with extreme heavy CapEx. The multifamily and the residential market will correct. It's dramatically undersupplied. And then once you do see new lease growth come and inflect next year, capital will follow. Equity cost of capital will become key again, and I expect transaction volumes to pick up dramatically in 2026. So you're right, it's still a little bit tough, but there are reasons for Supreme optimism going forward. Operator: I will now turn the call back to management team for closing remarks. Matthew McGraner: Thank you all for your participation today, and look forward to speaking next quarter. Thanks again here for the team at NexPoint, and good day. Operator: Ladies and gentlemen, that concludes today's call. You may now disconnect. Thank you, and have a great day.
Operator: Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Medical Properties Trust Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Charles Lambert, Senior Vice President. Please go ahead. Charles Lambert: Good morning. Welcome to the Medical Properties Trust conference call to discuss our third quarter 2025 financial results. With me today are Edward K. Aldag, Jr., Chairman, President and Chief Executive Officer of the company; Steven Hamner, Executive Vice President and Chief Financial Officer; Kevin Hanna, Senior Vice President, Controller and Chief Accounting Officer; Rosa Williams, Senior Vice President of Operations and Secretary; and Jason Frey, Managing Director, Asset Management and Underwriting. Our press release was distributed this morning and furnished on Form 8-K with the Securities and Exchange Commission. If you did not receive a copy, it is available on our website at medicalpropertiestrust.com in the Investor Relations section. Additionally, we're hosting a live webcast of today's call, which you can access in that same section. During the course of this call, we will make projections and certain other statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed in or underlying such forward-looking statements. We refer you to the company's reports filed with the Securities and Exchange Commission for a discussion of the factors that could cause the company's actual results or future events to differ materially from those expressed in this call. The information being provided today is as of this date only, and except as required by the federal securities laws, the company does not undertake a duty to update any such information. In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release, Medical Properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to our website at medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliations. I will now turn the call over to our Chief Executive Officer, Ed Aldag. Edward Aldag: Thank you, Charles, and thanks to all of you for joining us this morning on our third quarter 2025 earnings call. Before you hear from the rest of the team, I'll spend a few minutes discussing recent strategic updates, including a few notable developments during the quarter in the Prospect bankruptcy process. First, across all asset types, our tenants are delivering exceptional performance. General acute care operators reported a more than $200 million increase in EBITDARM year-over-year with tenants such as LifePoint Health and ScionHealth delivering double-digit percentage revenue increases during the quarter. Post-acute operators reported a $50 million EBITDARM increase versus the same quarter last year. That includes Ernest Health, up 17%, Vibra up 33% and MEDIAN up 7%. Finally, in our behavioral health portfolio, EBITDARM increased $10 million year-over-year. Rosa will share more details on this performance trends across our portfolio shortly. In August, NOR Healthcare Systems in California was named the successful bidder for Prospect's 6 California facilities. We promptly agreed to a new lease agreement with NOR, the terms of which are broadly similar to those agreed to with other operators in our transitional portfolio. All rent will be deferred for the first 6 months, ramping to 50% for an additional 6 months and then reaching total stabilized annual rent of $45 million per year thereafter. More recently, we reached a settlement agreement with Yale New Haven and Prospect, whereby Prospect will receive $45 million from Yale. This payment from Yale will be additive to the ultimate proceeds that Prospect receives for these properties. Prospect has already entered into an agreement to sell 2 of its Connecticut facilities to another operator and is actively engaged in negotiation with buyers around the third hospital. Finally, our portfolio of new tenants continues to ramp monthly rent on schedule. With a few exceptions that are mentioned in our press release. We have collected all rent due from these operators through October, including 100% of rent from HSA. In August, we sold 2 facilities from this portfolio in Phoenix, Arizona to a tenant for approximately $50 million pursuant to a purchase option in the lease. We continue to own approximately 15 acres of land in the area. We are increasingly confident in our ability to generate total annualized cash rent of more than $1 billion by year-end 2026. Notably, this $1 billion target does not reflect any rent contributions from any of the California Prospect properties. Reflecting this confidence as well as our strong belief that our share price remains significantly undervalued, our Board of Directors has authorized a new $150 million share repurchase program that we intend to deploy opportunistically. Furthermore, I want to call your attention to a comprehensive reaffirmation of our business model presentation posted to our website earlier this week. In this presentation, we directly address a range of false narratives that critics have been spreading about our business model. We believe it is important that shareholders, operators, journalists and lawmakers all have a complete understanding of the truth around MPT. There remains a dynamic macro policy environment, making the permanent and flexible capital solutions that MPT offers more important now than ever. Rosa? Rosa Hooper: Thank you, Ed. As always, I will cover some highlights from the quarter across our diverse global portfolio beginning with Europe. As a reminder, international operators comprise approximately 50% of our total portfolio, and we continue to be pleased with the consistency of coverages exceeding 2x across this portfolio. This performance reflects these operators' strategic focus on high-quality patient care as well as continuous expansion of access to care within their communities. In the U.K., Circle repeatedly ranks among the highest of all health care operators in patient satisfaction, maintaining a reputation score well above its next closest competitor. Circle continues to make significant investments in advanced technologies, including AI and robotics, strengthening its competitive advantages and reinforcing its position as one of the leading health care providers in the U.K. market. Our Sulis Bath Hospital (sic) [ Sulis Hospital Bath ] in the U.K. is the first independent hospital to receive accreditation as an elective surgical hub deemed by the NHS and the Royal College of Surgeons of England. This recognition highlights the hospital's high standards in clinical performance, operational efficiency and patient care. With coverages consistently above 2x, Priory has demonstrated its ability to adapt its service lines to the needs of each market, allowing for flexibility as the NHS' mental health model evolves. Priory continues to explore technological opportunities such as its partnership with Psyomics to launch an innovative digital pathway that aims to revolutionize access to personalized mental health care. In Germany, MEDIAN continues to report strong negotiated reimbursement rates and occupancy trends, enabling them to meaningfully outperform prior year revenue and earnings. In Switzerland, Swiss Medical has launched integrated care models in each of the French, German and Italian-speaking regions. With these new platforms successfully supplementing Swiss Medical's strong organic growth, EBITDAR grew more than 10% trailing 12 months year-over-year. In Spain, IMED continues to progress construction on new hospitals in Alicante and Barcelona with scheduled openings during 2026 with over 70% of construction completed. Turning to our U.S. portfolio. Ernest Health has continued increasing consolidated coverage every quarter over the past year with legacy IRFs reporting strong results and new developments rapidly ramping. As such, consolidated EBITDARM coverage is now approaching 2.4x. LifePoint Health continues to deliver high-margin growth at a steady, stable rate versus the rapid acceleration observed in 2024. Conemaugh Memorial continues to be the most significant growth driver within LifePoint -- MPT's LifePoint portfolio with trailing 12-month admissions increasing 15% year-over-year. Surgery Partners 3 facilities delivered another quarter of strong performance with consolidated EBITDARM coverage above 6x. Our hospital in Wisconsin recently completed a much anticipated expansion to their operating suite to accommodate additional surgeons wanting to bring cases to this respective facility. HSA continues to improve operations and staffing across markets with Q2 and Q3 EBITDARM coverage approaching 1x on fully ramped rent, which, as a reminder, does not fully ramp until September of 2026. Summer seasonality drove softer volumes in the third quarter, but revenue remained strong due to a higher patient acuity mix. MPT has committed to funding approximately $40 million over the next 2 years for necessary infrastructure and other capital improvement projects, including HVAC and elevator replacements. The vast majority of this amount is for a newly constructed 7-story parking deck. These costs will be added to the lease space upon which the tenants will owe rent. HonorHealth launched its rebranding in Arizona by renaming Mountain Vista to Four Peaks Medical Center. In addition, Honor remains focused on physician recruitment, executing its self-funded CapEx strategy and upgrading facilities ahead of anticipated volume recovery. Quorum Health's Odessa facility continues to improve performance with stronger-than-expected admissions and surgical volumes. In August, Odessa Regional announced that it achieved Silver certification as a Cribs for Kids National Safe Sleep Hospital, demonstrating adherence to rigorous guidelines established by the Cribs for Kids National Safe Sleep Hospital Certification program. Insight Health reopened ER services at Trumbull, Ohio earlier this month with plans to slowly open more services as volumes come back along with physicians and staff. Prime Healthcare's MPT facilities continue to show improved performance with EBITDARM coverage over 2x as volumes and ER conversion rates have increased across the portfolio. Prime received credit rating upgrades from Fitch, Moody's and S&P during the third quarter. Pipeline Health continues to demonstrate growth with EBITDARM coverage over 2x. Additionally, they are opening new service lines for patients at all 4 hospitals. In summary, we are very encouraged by performance trends across our portfolio. Our portfolio of new tenants continues to ramp monthly rent payments, and we remain well positioned to generate significant cash flow from our 388 properties and approximately 39,000 licensed beds around the world, enabling us to create value for shareholders moving forward. Kevin? James Hanna: Thank you, Rosa. Today, we reported normalized FFO of $0.13 per share for the third quarter of 2025. The normalized FFO result would have been $0.01 higher if not for the payment of September rent by cash basis HSA on October 1. These results fully reflect the full quarter dilutive impact of not only our first quarter secured bonds, the second quarter MEDIAN joint venture refinancing. Higher G&A expense versus the second quarter also impacted GAAP results, primarily driven by higher stock compensation expense resulting from the change in the fair market value of 2024 and 2025 performance-based equity compensation, of which no shares have been earned or vested as of September 30, 2025. Our earnings from equity interest were higher in the quarter as changes in German tax policy resulted in a net deferred tax benefit to our German JV and as the value of the underlying real estate in the CommonSpirit joint venture continues to adjust upwards. Neither of these items are included in our normalized FFO results. We recorded approximately $82 million in net impairments, the majority of which related to Prospect and the decline in expected proceeds of certain Pennsylvania and Rhode Island assets. We continue to expect that cash proceeds from both the settlement with Yale and Connecticut and the sale of the Connecticut facilities will be more than sufficient to repay MPT's outstanding DIP loan balances. Despite this expectation, accounting rules require that we record impairments to our Prospect carrying values. There are other immaterial adjustments to carrying values during the quarter, including routine adjustments to marketable securities that were disclosed as noncash fair value adjustments in our reporting. I will now hand the call over to Steve to discuss our liquidity and capital strategy moving forward. Steve? R. Hamner: Thank you, Kevin. I'll wrap up quickly with just a few points, none of which will be surprising, and then we can take any questions. First, a quick summary of the strategies we have been executing for repaying and otherwise addressing future maturities. We've sold at significant gains and financed at above book values many billions of dollars in highly attractive hospital assets. Almost without exception, these transactions have provided clear validation of our underwriting rigor and the resulting asset values. Access to these values has given us the assurance and flexibility to repay and refinance several billion dollars of debt in 2025 alone. The secured notes we issued in February are now trading at significant premiums. And our most recent transaction financed more than $2 billion of German rehabilitation hospitals at a 5.1% coupon. This access to capital has also given us the ability to re-tenant and begin collecting what is now scheduled to be an incremental $200 million plus in annual cash rent from new operators, resolve the issues around Prospect bankruptcies and address debt maturing in 2027 and beyond, all of which we are doing successfully. Along with our clear visibility into rent ramping to a scheduled incremental $200-plus million, the upcoming 2026 annual escalations, cash payment of our roughly $100 million DIP loan and periodic asset sales similar to what we have reported in the last few quarters, we also have reason to expect even more liquidity. Specifically, and while there is no certainty, Prospect is expected to generate proceeds in excess of the $100 million balance of our DIP loan. A substantial majority of any such proceeds will flow to MPT. We are evaluating the sale or lease of several assets, which are not currently yielding meaningful returns. And we also continue to evaluate sales of earning assets and portfolios for attractive gains. For example, Aevis Victoria, our co-owner of Infracore and the parent of Infracore's Swiss Medical Network lessee, is currently exploring various strategic options for its affiliates, including Infracore, to support their long-term development. Infracore is considering various opportunities to open up its capital or even list on a stock market in order to meet the growing demand for sale and leaseback solutions in the public and private hospital market in Switzerland. As this and other market indicators demonstrate, demand for hospital real estate is strong across virtually all geographies. Our cost of capital is still higher than we expect it will be. But as we have previously said, we may make modest acquisitions when strategically important. But as Ed pointed out, repurchasing our own common stock is among our very best and most accretive uses of capital. And for that reason, we announced this morning that we have implemented a $150 million strategic stock repurchase plan that will make available some of this expected growing liquidity to capture that permanent value. This announcement demonstrates our conviction that recent prices of our common stock do not reflect our assets' underlying value, and we have, therefore, not issued any shares under our recently implemented at-the-market offering program. We reestablished that program and the long-term opportunistic flexibility it provides us in August, shortly after the effectiveness of our new 3-year shelf registration statement. Importantly, some of our unsecured notes outstanding still trade at discounts in today's markets. And nothing we may consider with respect to share repurchase or ATM programs rules out continuation of possible debt refinancing or redemption strategies. We've conclusively demonstrated that we have the asset values to accomplish these strategies. Moreover, as you would expect, we carefully monitor and plan for the maintenance of all debt covenants as we look into possible future capital transactions. We consciously designed and negotiated these covenants to provide us the opportunistic flexibility to execute these strategies, and we are confident that we will do so. And with that, I will turn the call back to the operator to queue any questions. Kayla? Operator: [Operator Instructions] Your first question comes from the line of Mike Mueller with JPMorgan. Michael Mueller: I guess on the buyback, the question here. I mean, how do you weigh looking at a buyback versus using the capital to either pay down debt, buy back other debt, just given where the leverage level is today and even on a pro forma basis, where it will be? And I guess the follow-up to that is in terms of funding a buyback, would you only use asset sales? Or would you use cash on hand or tap the credit line? Can you just put that whole buyback into perspective for us? R. Hamner: Sure, Mike. We, first of all, have a number of opportunities, and we've been talking about these for several quarters, and that's reinvest in the business with, as I mentioned, and as we've done on a very limited basis, strategically buying new assets. We certainly recognize the trading volumes and levels of some of the unsecured bonds that could provide attractive opportunities for tendering or repurchasing on either small or large scale. And we recognize, as we've just conceded that we think our shares are significantly undervalued. So we have all of those options. We have resources available. We will continue to evaluate the opportunities and the timing of those opportunities and the sources of that capital. I can't say I doubt we're going to borrow money -- incremental money in order to fund the buyback. And we've mentioned a few of the increasing -- possibly increasing cash resources that we'll have, including some assets that are currently not earning much, if anything, and possibly some of the well-received earning assets that we've demonstrated just as in the last several billion dollars of asset sales, we expect any additional asset sale, earning asset sales would also be at very attractive profitable gains. So all of that is available. And as we've been doing for a couple of years now, we evaluate periodically, constantly, in fact, what's the best use of the available capital that we have. Operator: And your next question comes from the line of Michael Carroll with RBC Capital Markets. Michael Carroll: I just want to follow up on Mike's questions related to the buyback. I mean is this -- can you kind of highlight the timing of this of when some of these purchases could occur? I mean I know you have a big debt maturity in 2027. You still are pulling money on the line of credit for -- to meet some of the debt covenants. You're still kind of cash flow negative, at least in terms of some of the investments you made, I guess, post that. I mean, do we need to have all that kind of resolved before you start to buy back stock? Or are you willing to do that in the near term? Edward Aldag: Yes, Mike, I think you should assume it will start immediately. Michael Carroll: Okay. And then, Ed, can you give us an update on HSA? I know you were -- you had some positive commentaries on their progress and the ramp-up that they've been doing. Maybe provide some details on what drove the late September rent payment? And is that a concern that -- like does that cause you any concerns of their ability to pay the ramped up rent over time? Can you provide some color on that? Edward Aldag: Sure. They continue to perform very well. The biggest improvements in Florida come from recruiting the doctors back to the facilities that left during the Steward debacle. They also have been extremely successful, probably exceeding even our expectations in Texas. From the standpoint of their cash delay in October -- in September -- excuse me, it was the -- we believe, the final steps of getting the TSA in order, getting the money repaid to the lender that they had for the DIP money in Florida, and we do not expect any additional issues. R. Hamner: And I'll just point out one last thing. And you remember, September, the rent actually doubled. And so they paid twice in September, actually on October 1 and what they had been paying. And again, I think we made clear in the press release, they've already paid October rent. Operator: And your next question comes from the line of Farrell Granath with Bank of America. Farrell Granath: I was just wondering if you could add a little commentary around the Yale New Haven hospitals. I saw the update with having at least 2 with greater line of sight of a potential close. Is there anything else that you can share and also the potential third if there's any further interest? Edward Aldag: So Farrell, I think you're going to need to repeat that. No one around the table heard the first part of your question. Farrell Granath: So sorry about that. I was just asking about the Yale New Haven hospitals and the progress on having those either re-leased or sold under the binding agreements? Or is that involved as well as the third property? Edward Aldag: Yes, sure. So the 2 facilities are under binding agreement. We expect those to close hopefully before year-end, if not shortly thereafter. The other one, we hope to have a binding agreement imminently with another buyer. Farrell Granath: Okay. And also, I saw a little bit of commentary on the NHS restructuring and impacting of the referral on the behavioral providers. Does that grant you any concern on the future health of that sector for Priory for their EBITDARM coverage? Or does that maybe add a little target if that could be something to dispose of and use for capital funding? Rosa Hooper: So we've talked about this in the last quarter, I know, perhaps the one before, too. So NHS, as they have did with acute care a few years back, they want to try to keep as much of their mix of patients in their own hospitals, and now they're doing the same thing with behavioral. It's our belief that they ultimately will realize the benefit of having independent hospitals to treat some of those patients because they're just -- the resources are needed in the independent sector to assist with getting the volume of patients treated. So no, we think it's short term and will come back around. And in the meantime, Priory has, as evidenced by their 2x coverage, been able to put operational items in place to continue to perform very well. Edward Aldag: The operator there does not expect to see a significant decrease in their coverage. Operator: And your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: In terms of the rent collections in the quarter, I think in the press release, you did mention that there was maybe not as much of collection as you expected in Pennsylvania and Ohio. Curious if that relates to Insight in particular? And if you could just kind of give us an update on that asset transition. Edward Aldag: Yes. Tayo, it's almost exclusively the Ohio facility, as you probably know, probably read, they were delayed in reopening the facility that's up and -- has gotten open. Senator Moreno has been very helpful in that. So we expect that to change. We have delayed when we expect their actual full rent to begin, and I believe that's in -- moved to January. And then the -- in Pennsylvania, that's a very, very small amount of money. The facility continues to improve and not exactly sure when that one will start paying rent. R. Hamner: That's a $30,000 a month rent payment, Tayo. Omotayo Okusanya: Got you. Okay. That's helpful. And then just kind of looking through the sub, it looks like there was some additional about $20 million of new loans in the quarter. Just kind of curious if you could kind of talk us through who that was to, if it's to any of the kind of operators of the assets in transition? Edward Aldag: There were 2 loans to operators, one being insight, and that was for CapEx and for reopening cost. And then there was a loan to the facility in Pennsylvania, Tenor, and that too was for CapEx. Omotayo Okusanya: Got you. That's helpful. And then another one for me. The 8 assets, I mean, you took about 23 assets, 15 were leased, 8 were kind of out there and you kind of were kind of looking at what to ultimately do with those 8 assets, including some other developments. Could you just walk us through kind of the status of those 8 and kind of what's happening? Edward Aldag: Tayo, I'm not sure exactly the 8. I guess the 2 big ones would be the one in Massachusetts in Norwood and then the other one in Texas in Texarkana. Both of those facilities remain under construction. And other than about all I can say at this particular point because of various NDAs, we are in negotiations with people about those facilities. Operator: I will now turn the call back over to Ed Aldag for closing remarks. Edward Aldag: Thank you very much, and thank you all for joining us. As always, if you have any questions, please don't hesitate to reach out to Drew, and we'll get back with you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, welcome to Clariant's Third Quarter, 9 Months Figures 2025 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Andreas Schwarzwaelder, Head of Investor Relations. Please go ahead, sir. Andreas Schwarzwaelder: Thank you, Sandra. Ladies and gentlemen, good afternoon. It's my pleasure to welcome you to this call. Joining me today are Conrad Keijzer, Clariant's CEO; and Oliver Rittgen, who joined Clariant as Clariant's CFO on August 1 and participating in his first results call today. Welcome, Oliver. Oliver Rittgen: Thank you. Andreas Schwarzwaelder: Conrad will start today's call by providing a summary of the third quarter developments, followed by Oliver, who will guide us through the business unit results and savings program. Conrad will then conclude with the outlook for the full year 2025. There will be a Q&A session following our presentation. [Operator Instructions] I would like to remind all participants that the presentation includes forward-looking statements, which are subject to risks and uncertainties. Listeners and readers are therefore encouraged to refer to the disclaimer on Slide 2 of today's presentation. As a reminder, the conference call is being recorded. A replay and transcript of this call will be available on the Investor Relations section of the Clariant website. Let me now hand over to Conrad to begin the presentation. Conrad Keijzer: Thank you, Andreas. I'm pleased to report that Clariant achieved significant growth in EBITDA before exceptional items in the third quarter of 2025 showcasing the success of our performance improvement programs and effective price and cost management in a continued challenging market environment for our sector. We delivered sales of CHF 906 million. This represents a 3% decrease in local currencies and a 9% decrease in Swiss francs. Our EBITDA before exceptional items increased by 5% in absolute terms to CHF 162 million. We delivered a significant margin improvement of 230 basis points to 17.9%, driven by our performance improvement programs as well as price and cost management across all of our business units. Our savings program continued to support our performance in Q3. We achieved savings of CHF 19 million and booked CHF 3 million of restructuring charges in the quarter, taking our total savings to CHF 31 million in the first 9 months of 2025. As a reminder, this program is set to deliver CHF 80 million by 2027 with a significant contribution expected this year. We expect to book the total CHF 75 million of restructuring charges related to this program in 2025. Now turning to our 2025 guidance. We anticipate local currency sales growth at the lower end of our guided 1% to 3% range due to weaker industrial production and weaker consumer sentiment. We also confirm our 2025 profitability guidance of 17% to 18% EBITDA margin before exceptional items, underscoring our confidence in sustaining our improved levels of profitability. Last Friday, Clariant's Board of Directors decided to reduce its size from 11 to 8 members. This will be reflected in the nominations for the upcoming AGM 2026 on April 1 next year. Supporting these changes, 5 current directors will not stand for reelection and 2 new independent members will be nominated as appropriate ahead of the 2026 AGM. With this proposal, the Board aligns with Clariant's rightsized organizational setup, and it optimizes independence, tenure and gender diversity. The management team thanks the departing directors for their trustful collaboration over many years. Now moving on to more details relating to our financial performance in the third quarter of 2025. We delivered sales of CHF 906 million. In local currency, this represents a 3% decrease with the reported figure impacted by a 6% negative currency translation effect. We maintained pricing discipline across our portfolio with a year-on-year increase in Adsorbents and Additives and flat pricing in Care Chemicals and Catalysts. Volumes decreased at a low single-digit percentage rate in Care Chemicals and Absorbents and Additives, while Catalysts volumes decreased by 8% as the weak economic environment and utilization rates continue to trade below long-term averages, impacting refill timing. Turning to profitability. As I already noted, we had a strong overall performance with a 230 basis point improvement in EBITDA margins before exceptional items versus the third quarter of 2024. In total, the business units drove a 130 basis point improvement mainly from our performance improvement programs, price and cost management. The remaining 100 basis points was in corporate, with the majority related to phasing of provisions. In Care Chemicals, lower volumes were more than offset by a positive mix effect and contribution from Lucas Meyer Cosmetics. In Catalysts, lower volumes were partly compensated by price and cost management. In Adsorbents and Additives, profitability was positively impacted by pricing and mix effect despite slightly lower volumes. Reported EBITDA increased by 14% to CHF 159 million, representing a reported margin of 17.5%, including CHF 3 million restructuring charges booked in the quarter. With that, I now hand over to Oliver for further details on our business performance in the third quarter. Oliver Rittgen: Thank you, Conrad, and good afternoon, everyone. It's great to join the call today and present the first set of quarterly results as the CFO of Clariant. I look forward to fruitful discussions with our investors and the analyst community going forward. Let us now dive into the third quarter development by business unit, starting with Care Chemicals, where we recorded a strong margin uplift despite a weak industrial market environment. Sales declined by 3% in local currency, entirely due to lower volumes. We recorded high single-digit organic growth in Mining Solutions as we were able to cater for increased demand and compare against prior year, which was impacted by destocking. Sales in Oil Services increased at a mid-single-digit percentage rate, recovering from shut-ins in the first half of this year. As mentioned, the weak industrial market environment also impacted our industrial applications and base chemicals businesses, both recording a high single-digit decline suffering from tariff uncertainties. Finally, Personal and Home Care and Crop Solutions both declined at a low single-digit percentage rate. Regionally, sales in EMEA as well as the Americas decreased by a mid-single-digit percentage rate as destocking led to lower order volumes. Sales in Asia Pacific increased at a low single-digit percentage rate as the capacity expansion in Daya Bay, China drove local volume growth. We recorded an EBITDA before exceptional items of CHF 92 million, representing a stable performance compared to the prior year. This translated into a margin of 18.9%, representing 150 basis points improvement. Profitability was positively impacted by the strong operational performance of Lucas Meyer Cosmetic as well as positive mix effect and contribution from the performance improvement programs. In Catalysts, we were able to drive a margin improvement in a weak demand environment. Sales decreased by 8% in local currency, entirely as a result of lower volumes versus the prior year period. Low double-digit sales growth in Specialties did not offset declines in the other segments. The weak environment and utilization rates continuing to trade below long-term averages, impacting refill timings for Propylene and Catalysts in China in particular, leading to a high double-digit percentage rate decline. Sales in Syngas & Fuels as well as Ethylene were down by a mid-single-digit percentage rate versus a strong comparable in the case of Syngas & Fuels. Regional dynamics were driven by the refill delivery schedules of the business with sales in the Americas increasing at a high double-digit percentage rate, driven by deliveries in Propylene and Ethylene catalysts. In both EMEA and Asia Pacific, sales decreased at a high single-digit percentage rate, driven by lower sales in Ethylene catalysts in EMEA and lower Propylene catalysts in China. In the third quarter, EBITDA before exceptional items decreased by 13% to CHF 33 million, representing a margin of 19.3% versus 18.7% in the prior year. This was driven by gross margin improvement and contributions from performance improvement programs, which more than offset the impact of lower volumes. Moving to Absorbents and Additives, where we also drove a margin improvement of 130 basis points versus prior year, supported by our continued additives growth. Sales increased by 1% in local currency with pricing up 3%, while volumes decreased by 2%. By segment, Adsorbents sales decreased by a mid-single-digit percentage rate, while Additives increased by a high single-digit percentage rate. Regionally, we recorded sales growth in EMEA at a low single-digit percentage rate, driven by pricing. In the Americas, sales decreased at a high single-digit percentage rate as growth in Additives did not fully offset the decline in Adsorbents. Sales increased at a low double-digit percentage rate in Asia Pacific, driven by volume growth in both Adsorbents and Additives. EBITDA before exceptional items increased by 5% to CHF 42 million, with a margin of 17.2% versus 15.9% in the prior year. Profitability was driven by growth and mix effects in Additives as well as benefits from the performance improvement programs. Cost efficiencies and raw materials of 5% also contributed positively. Now turning to our Investor Day savings program. As a reminder, we expect full run rate savings of CHF 80 million from business unit and corporate actions to be delivered by end of 2027 for the savings program that we announced in November of last year. As Conrad mentioned earlier, savings achieved in the first 9 months totaled CHF 31 million with CHF 19 million delivered in the third quarter. Key measures aimed at helping us to deliver these savings are being implemented. These include headcount reduction of approximately 340 full-time equivalents as of 30th of September 2025 across the businesses and corporate functions. The closure of 2 production lines and 2 sites globally as part of our footprint optimization and procurement savings of CHF 15 million related to structural changes in qualifying alternative suppliers and best practice contract management. In the first 9 months of 2025, we booked CHF 63 million of the expected CHF 75 million in restructuring. And with this, I close my remarks and hand back to you, Conrad. Conrad Keijzer: Thank you, Oliver. Let me conclude with our outlook for 2025. There remains an increased level of risk and uncertainty due to tariffs and trade tensions, which has a negative impact on global industrial growth expectations and consumer sentiment. According to the latest assessment of Oxford Economics, the global GDP is mainly driven by AI investments and services, while industrial production is still lagging. In addition, the uncertainty created by tariffs and trade tensions is impacting consumer demand for durable and semi-durable goods. Oxford Economics global GDP growth projection for 2025 has slightly increased from 2.5% after H1 to 2.8% in October, driven by the AI boom in the U.S. On the other hand, the chemicals industry forecast further declined to 2.1% growth from 2.2% growth after the first half year in 2025 and from 2.9% at the beginning of this year. This weakened market environment assumption in the U.S. and Europe, in particular, aligns with our own experience, and we, therefore, expect local currency sales growth to be at the lower end of the 1% to 3% range for 2025. We expect slight local currency growth in Care Chemicals and in Adsorbents and Additives, with sales in Catalysts expected to be slightly below those of 2024. We continue to expect to deliver an EBITDA margin before exceptional items of between 17% and 18%. The continued profitability improvement in prior years and in the first 9 months of this year shows the effectiveness of the structural changes we implemented under our performance improvement programs. We also aim to further improve cash conversion towards our 40% target. Despite these current impacts, we remain committed to delivering our medium-term targets, supported by the continued execution of our targeted initiatives. With that, I turn the call back over to you, Andreas. Andreas Schwarzwaelder: Thank you, Conrad and Oliver. Ladies and gentlemen, we are now opening the floor for questions. [Operator Instructions]. Sandra, please go ahead. Operator: [Operator Instructions] Our first question comes from Thea Badaro from BNP Exane. Thea Badaro: Two questions from me, please. I'll start with the obvious one. You've clearly booked lower exceptionals in the quarter than most people expected. Are you still anticipating the full CHE 75 million to be booked this year? Or do you maybe expect some of it to be pushed into next year? And then my second one is on CapEx. I've noticed that you're now guiding to CHE 180 million versus 10% higher Q2 and 20% higher at the beginning of the year. Where is most of the cost coming from? And how should we think about it through to 2027? Conrad Keijzer: Yes. So I'll let Oliver comment on the one-offs, and I'm sure he also has some comments to be made on CapEx. But basically, if you look high level at CapEx, we're actually very pleased with, I think, a structurally lower level of CapEx when you look at Clariant compared to historic levels. The key reason is that after the opening, in fact, the opening next week of our new Care Chemicals plant, which was an CHE 80 million investment in China. And after the opening of the second line of the Additives line in China, which was a CHE 40 million investment, most of the CapEx, the gross CapEx is actually behind us. So you see now a switch towards more maintenance-oriented CapEx. And that is actually structural because if you look at capacities, we're actually quite happy now with the global footprint, and we don't target any sort of new greenfield plants in the foreseeable future. Maybe Oliver can comment on one-offs in the quarter and moving forward as well as maybe some more detailed comments if you have them on CapEx. Oliver Rittgen: Sure. Yes, I mean, you're right. We booked so far like CHE 63 million of one-offs year-to-date. Q3 was a bit of a smaller one with the CHE 3 million. But we still foresee, as we communicated before, that we're going to hit the CHE 75 million for the full year. And with that, obviously, delivering on the CHE 80 million savings that we envisioned. As we said, CHE 31 million of that we have seen in the first 9 months, and we still have the confidence that more than half of that will be delivered by the end of the year. Maybe one additional comment on CapEx. Yes, indeed, the guidance that we have given with the CHE 180 million is now lower than what we have seen in previous years and also beginning of the year. And additionally, to Conrad's comments, of course, that is also a function of the business dynamics that we're seeing right now and our commitment to deliver on our cash flow commitments that we have given with managing towards the 40% cash conversion that we have been communicating before. Operator: The next question comes from Katie Richards from Barclays. Katie Richards: I've got one on Care Chemicals, please, and then one on Adsorbents and Additives, if I may. So on Care Chemicals, could you just talk us through the margin bridge, please? If I take the 1% raw materials decline and higher energy costs, this looks to have been a slight tailwind for the quarter, maybe about CHE 1 million. And obviously, we have CHE 5 million add back, I think, from the inventory revaluation of Lucas Meyer not occurring this quarter. And then taking into account the volume headwind, it looks like the positive mix effect or the cost savings coming through must have been pretty significant this quarter. So just any color on the bridge here and how significant the positive mix effect would have been outside of Lucas Meyer and then on Adsorbents and Additives, I was quite intrigued by your comments that the Americas decreased high single-digit percentage rates driven by Adsorbents with volumes impacted by the U.S. renewable fuels regulation. I was under the understanding that the EPA was increased in the blending mandate and this would be a benefit for Clariant. So can you explain what's going on here? Is it just full utilization or regulatory uncertainty? Conrad Keijzer: Okay, Katie. Yes, thank you for those questions. I'll make some high-level comments on margins on Care Chemicals, but let Oliver also provide here some additional details, and I also will comment on the Adsorbents, slow demand right now in the U.S. So first of all, on Care Chemicals, we were extremely pleased actually with the step-up in EBITDA margin from basically before exceptional items from 17.4% last year to 18.9%. That is a combination of high level of pricing where actually we've been able to hold prices in an environment where raw materials were actually down by 1%. That is very consistent with our strategy. We are seeing some competitors sort of going out for volume, but we are actually able to hold prices in an environment where there's weak demand. And I think that's a testimony to the strength of our products, but also, I think, a big complement to our frontline sales leaders. Positive effect from pricing on margins, positive effect from mix where you see weakness in the sort of lower-margin segments like industrial applications and base chemicals. And finally, performance improvement programs that are contributing here. Adsorbents, the weakness in renewables in the U.S., yes, there is clearly a weakness right now. If you look at basically biodiesel where we do the purification with our Adsorbents, but also SAF where we do the purification. There were incentive packages that temporarily were taken away by the new Trump administrations. But under the new big and beautiful tax bill, there is actually incentives. There are incentives again. The challenge here is that these still need to be approved by Congress and the current shutdown of the government hasn't helped here. So it is not a structurally lower growth market, but there is a temporary weakness in markets for biodiesel and SAF, but we expect this to pick up actually early next year, yes. Katie Richards: And just one follow-up because you mentioned people going for volume. Some of your competitors have commented on increased agent competition, particularly in surfactants. Do you think you are making volume concessions to protect margins there? Conrad Keijzer: We're not making any concessions. We just are basically holding price. There's no need for us to lower the price on products that are differentiated enough that they add a lot of value to our customers. That's one effect. I think the other effect is the continued repositioning towards more premium, more specialty, more consumer-facing segments in Care Chemicals. Operator: The next question comes from Christian Faitz from Kepler Cheuvreux. Christian Faitz: Two questions, please, from my side. In your Catalysts business, is there any visibility into 2026, i.e., customers flagging, for example, that mothballed plants might be back and might need a Catalysts refill? And then the second question is actually on Lucas Meyer. I mean, well noted that this business continues to contribute nicely to the profit development of your Care Chemicals business. Can you please elucidate a bit if the business kept its high operating margins when it entered Clariant, I believe it was in the 40 -- actually in the higher 40% EBITDA? Or is consumer hesitancy also impacting the Lucas Meyer business a bit? Conrad Keijzer: Yes. Thank you very much, Christian, for these 2 questions. Well, first of all, yes, we're not giving an outlook yet for next year 2026 nor for Catalysts, but maybe I can maybe reference some of the industry data where basically, if you look at chemical production volumes this year, we're heading for, let's say, 2%, 2.5% growth overall globally in chemical production. That is actually a mix between flat growth in Europe, slightly up in the U.S. and, let's say, around a 5% growth in China. If you look, however, for next year, there is an anticipation of further slowing down in chemical production growth. So if you look at next year, the industry outlooks are more like a 1.5% growth for chemical production globally, which basically is an outlook that's based on, again, flat production volumes in Europe. Volumes turning slightly negative actually in the U.S. next year as a result of tariffs and people expect a further slowdown in China from currently, let's say, 5% growth to very low single-digit growth. So in terms of bottoming out, we're certainly not bottoming out this year for our Catalysts business, as you've seen in our numbers. We think though that next year with these outlooks, that is actually a bottom. And on a positive note, in '27, you should see a recovery actually, and that is for all of our businesses, a positive. At some point in time, consumers will start to buy durable and semi-durable goods again, people will start to buy new furniture, new electronics products, et cetera. And that means a recovery will come in chemicals, but it's delayed. Finally, on Lucas Meyer, yes, we're very pleased with the performance inside Clariant, and I can confirm that margins still are, let's say, mid- to high 40s in terms of EBITDA. Operator: The next question comes from Christian Bell from UBS. Christian Bell: Well done on the result. I just have 2 questions. My first question relates to your guidance, which I think I'll ask in 2 parts, if I can. So part of that, to meet your sales guidance, you'll need about 5% organic growth in Q4 to offset foreign exchange of about negative 5%, and that's coming off organic growth of negative 3% in the quarter just been. So just curious, where is that strength coming from by segment? It looks like you'll need a big fourth quarter for both Care and Catalysts. So is that market driven, keeping in mind, you've already indicated that, it doesn't seem likely. So -- or is it sort of specific projects? And then part B to that question is, after narrowing your sales guidance, you've left Q4 EBITDA margin range quite wide by my estimate sort of 14% to 18%. So what's behind that variability? And then I'll wait to ask my second question. Conrad Keijzer: Yes, Christian, the sound was not so great. Could you repeat high level the question in very crisp language because we couldn't hear it very well. Christian Bell: Okay. Yes. So it's about your guidance, what it implies for the fourth quarter, what you need to do to reach your guidance. On sales, it implies that you need to do about 5% organic growth. And I'm wondering where that strength is coming from. It looks like you need to do -- it looks like you need to have big quarters from Care and Catalysts, which seems difficult in the current environment. Conrad Keijzer: Yes. No, clear. Now let me comment on revenue, and I'll let Oliver comment on the profitability on the EBITDA guidance. If you look at revenue guidance for us to land at the low end of the 1% to 3% local currency growth, what we're guiding for. Indeed, you're correct, we need a pickup in the final quarter, not only sequentially, but also relative to prior year. Where we see mainly that happening is in Care Chemicals, where we actually had last year an unusual weak season for de-icing that was entirely weather related. This year, based on a normalized sort of pattern in terms of the weather, we should see a big pickup in Care Chemicals relative to prior year and also sequentially. On top of that, we actually see a strong pipeline in mining. You see that in our numbers, our Q3 numbers as well as in oil services. And both of these increases in Q3 were market share related, which should continue as a positive momentum in the fourth quarter. And finally, the Lucas Meyer business continues to do well, both in terms of revenue and margins. Catalysts is against a very strong Q4 last year. But based on the order book, we expect a solid quarter in Catalysts, both for PDH, propane to propylene orders in the book from China again as well as for ethylene. And finally, Adsorbents and Additives is slowing, as mentioned, but we expect there -- the pattern to continue consistent with prior quarters. But all in all, we do indeed expect a pickup from prior year, which should land us somewhere close to the bottom end of this guidance range. Maybe Oliver, some comments on EBITDA margins. Oliver Rittgen: Yes. Christian, maybe one addition to the top line, which also explains a little bit the bottom line performance. I mean you have seen the Catalysts volume decline of 8% in Q3. There was indeed a bit of a move from some of the orders from Q3 into Q4. This is why you see a softer Q3 in Catalysts. And then obviously, that will be part of that driver for the Q4 performance that we are expecting. And with that, based on the top line picture that Conrad was painting here, the growth in Catalysts, the growth in Care is going to drive margins in the fourth quarter. And then we have 2 counter effects. One is that we slowed down on production in Additives and Adsorbents as a measure also of optimizing our net working capital and staying committed on the cash flow performance. And the second one is the corporate cost phasing that we were mentioning in Q3, which is a different phasing of incentive provisions this year versus previous year. And you see that one coming back -- those costs coming back in Q4 then. And that's going to drive the margin performance and we expect, obviously, to land the margin in the guidance range that we have provided. Christian Bell: I think my question was slightly more simple in a way in that how come you've narrowed your sales guidance, but you haven't sort of narrowed your margin guidance for the fourth quarter. Why is the sort of margin guidance so wide in the fourth quarter alone? Oliver Rittgen: I mean we haven't really adjusted our guidance overall, as you know. I mean, the sales guidance is since second quarter, the 1% to 3% and the margin guidance is also still 17% to 18%. We didn't adjust any of the guidance ranges. So there's no particular reason behind that. Christian Bell: Okay. Cool. And sorry, if I could just squeeze in my second question. I think that sort of follows on from one of the previous ones, some of the commentary around -- from your peers in Care Chemicals segment. Just curious, is there sort of increased competition from Chinese players, a more recent development? Like -- and how do you sort of see that dynamic evolving in the near to medium term? Conrad Keijzer: Yes, increasing competition from Chinese players. We are actually seeing little of that in our segments. So Catalysts is a true specialty business, which requires a lot of IP and technology. We see very limited competition there from Chinese players. In Care Chemicals, certainly in the segments where we are playing, we also see very limited competition. Where we are seeing actually quite some activity is in the Additives area. And that is actually for local players, for example, for UV stabilizers, but even some local players for flame retardants. Now some of these are, frankly, the so-called copycats that are infringing our IP, and we're going obviously against that. But we are well positioned with local manufacturing for flame retardants there. But one of the things that we did see was for the UV stabilizers that we were no longer competitive with the plant out of Muttenz in Switzerland. And this is actually part of the recent restructuring line that we will actually transfer that production from Switzerland to India to become more competitive for these UV stabilizers. But in all of these segments, we have differentiated technology, but local manufacturing in China has become really a prerequisite to be competitive. Operator: The next question comes from James Hooper from Bernstein. James Hooper: The first one is around the Board changes. Can you give us a little bit more background on why you wanted to cut the numbers on the Board? And then also a little bit more on what you're looking for from the new Board members and what you're expecting the Board to do? And then the second one is a little bit about capital allocation. I think it was referenced earlier in the CapEx question that you've been taking CapEx down a little bit in order to protect cash flows. And given the low growth environment we find ourselves in and protected 2026, not a high year of chemical production, is there an extent that you need to trade off your kind of 2027 medium-term targets? You're making great progress on the margins, but are you going to have to choose a little bit between making growth investments in this macro environment or protecting cash flows? Conrad Keijzer: Yes. Thank you very much, James. I'll take the first question on the Board changes, and then Oliver will make some comments on capital allocation and CapEx specifically. Yes, if you look at the Board changes, what we have done recently over the years in the company is actually to right-size the company in terms of -- yes, delayering, in terms of taking out duplication in management. We used to have the decision-making metrics with functional directors, country directors, BU directors. We basically implement full P&Ls and 3 business units. But the Board basically in size has not adjusted. And the consistent feedback from proxy advisers recently has been that they perceive the Board of Clariant -- they perceived the Board of Clariant, I should say, as too large. The feedback from proxy advisers also has been that on gender diversity, we are currently not meeting the 30% target for a minimum representation of females on the Board. And finally, in terms of independent Board members, some of our Board members had a tenure above 12 years, and then they are no longer seen as independent. So it is these 3 elements that consistently have been brought up by the proxy advisers, the size of the Board, the diversity of the Board, the independence of the Board that actually are now being addressed with the reduction of the Board to 8 and by bringing in 2 new independent -- outside Board members. So it's not that we're lacking or we're lacking certain expertise to your question, it's really very much building on the feedback by proxy advisers. Oliver Rittgen: Okay. James, on your capital allocation question and without maybe hitting too much on the '27 because as we said before, we're not looking at specific numbers now for '27, but maybe more in general, how we will look at capital allocation. How we approach it is very much from focusing on a triangle of growth, margin and cash. And the decisions around capital allocation is pretty much balancing this off across the portfolio and the segments that we are having. And capital allocation, of course, is the strategy that we're having here is to fund innovation to drive the growth for the future. And with that also driving that, obviously, the cash generation of the company. In terms of capacity availability for a potential growth, then growth pickup in '27, this is what the industry indicates at the moment. There's capacity available for us. So therefore, we are also well prepared for a potential pickup in that time window. Operator: The next question comes from Tristan Lamotte from Deutsche Bank. Tristan Lamotte: A couple, which are kind of linked and high level. In Chemicals, I was wondering, is your view that something has changed structurally in Europe in H2 '25? Or is this kind of a global and cyclical weakness? I'm just trying to figure out if this weak Q3 level is kind of the new run rate or if there's something kind of exceptional in the H2 that will revert? And then the second part to that question is, I'm just wondering what your current views are on the levels of support that chemicals is getting in Europe and whether this needs to increase and what practically could be done in that regard? It seems there's been a lot of discussion on what needs to happen, but the follow-through to this state has been quite limited. Conrad Keijzer: Thank you, Tristan. Yes. So as far as your question, what has changed, if anything, structurally in H2? Well, I think we need to take a look a little bit back further. So what structurally changed for Europe is actually 2022, and we have no longer access to cheap gas from Russia. That is actually the reason that European production levels in chemicals in Europe are still about 20% below the last year before corona, whereas it has recovered basically in the U.S. and Asia is well ahead of pre-corona levels. So this is the structural change. It is affecting primarily the chemical industry that is high energy intense, which we're clearly not. And it is also affecting parts of the chemical industry that use gas as a footprint, as a feedstock, which we're also not. So, for us, we have a global footprint. We have 65% of our revenue outside Europe. And what we see is a shift of some production and consumption away from Europe, but we pick that then up elsewhere. So, for us, this as being truly specialty is all manageable, but it's fair to say that a good part of the industry is affected by this. To your change, what's Europe doing, I think there are some positive signs. So we had, first of all, the green deal, which was primarily a package of legislation and commitments to carbon neutrality in 2050. What you now see is the new European Commission has this clean industrial deal which is much more focused on the competitiveness of the industry. So Europe needs obviously a competitive industry to deliver the green deal. And I think there are some positive signs here. But in all fairness, there's still some ways to go. And the carbon taxation is obviously something that at the time that this came up was absolutely seen as the right instrument. There was, however, the assumption that other regions in the world will follow. That's one thing. And at the time, the industry was making money. I think 2 things have changed. The other regions have not followed with carbon taxation and the industry right now is struggling to a large extent and can then itself much more difficult it is then to fund this energy transition. So this is -- I think this is on the radar for the European Commission, but still some more work needs to be done here, I think. Operator: The last question is from Walter Bamert from Zürcher Kantonalbank. Walter Bamert: The first question is regarding the Board changes. And there it is mentioned that the 2 new Board members will be independent. Does this apply that these are not from SABIC, so the SABIC members will be reduced from 4 to 2. Conrad Keijzer: Yes, that's correct, Walter. The SABIC representatives have been reduced from 4 to 2. And I will also say that the German shareholders have representation of 2 Board members that also has been reduced from 2 to 1. And indeed, the 2 new Board members coming in from the outside will be independent Board members. Walter Bamert: Okay. And then can you please help me with the headquarter cost, which was very low in the third quarter. Should that be for the full second half be at the level of the previous year, so a reversal? Or should it -- is it rather that the fourth quarter only is at previous year level? Oliver Rittgen: Yes, Walter, indeed, this is a phasing between the 2 quarters, Q3 and Q4. So that cost will come back in Q4. We have a bit of a different phasing of incentives provision from previous year to this year. Walter Bamert: Okay. But I hope for you that the incentives will be at the same level as previous year. [Audio Gap] Operator: Ms. Glazova, your line is open. Angelina Glazova: I think I just have one left at this stage. Could you comment in a bit more detail of what developments you are seeing in the Crop Solutions end market? You have mentioned somewhat softer performance in Q3, but in part due to stronger comparable. How do you see that developing maybe into next year? Because again, some of your peers mentioned somewhat slowing momentum in the end market. Conrad Keijzer: Yes. In terms of Crop, Angelina, we basically compare against a much weaker prior year where there was still destocking. So for the full year, we still see high single-digit growth in Crop Protection. We indeed had -- in the third quarter, we basically had sort of low single-digit negative in Crop Solutions, but that was against actually a strong sort of restocking quarter last year. So underlying, we see good demand. There's nothing here to worry. We actually think for the year, we will end up high single digits. So yes, we -- it's actually a strong segment for us. Operator: We have a question from Ranulf Orr from Citi. Ranulf Orr: I'm just wondering about how you view Clariant's portfolio overall as a kind of combination of fairly discrete businesses. And in the context of a weak -- another weak year in 2026 and frankly, who knows for 2027, I mean, is now maybe the time to start thinking about whether there's value to be had in breaking Clariant up or doing asset swaps to improve your scale in some of the businesses and make the individual units more competitive on a global scale. Conrad Keijzer: Yes. Thank you, Ranulf. So if you look at the portfolio, high level, where we came from was a hybrid between, on the one hand, commodity chemicals and on the other hand, specialty chemicals. Over the years, we have successfully repositioned the business towards purely specialty chemicals. As you are aware, we divested our Masterbatch business. We divested more recently the Pigment business, even more recently, the North America Oil Land business. And what we have now is really a portfolio that really is truly specialty in nature, and we're actually very pleased with the businesses there. To your point, limited growth in '26, limited growth this year. There may, at some point, be a certain level of industry consolidation. That is certainly what most people are predicting. We obviously want to play an active role in that, but you've also seen that we've been very disciplined with the acquisitions that we've made in recent years. All of these have actually strengthened our core businesses and we have no intent to bring in businesses that sort of do not bring true synergy to the existing portfolio. Operator: We have now a question from Chris Counihan from Jefferies. Chris Counihan: I just wanted to come back to the Board changes and the reduction because I'm just sort of thinking back to a few years ago and the accounting investigation that happened, I think, in 2022. And as part of the investigations, you talked about more controls, financial controls over financial reporting, procedures, a lot in the finance side, but I also remember you at that stage talking about more active Board control and involvement in terms of controls at Clariant. So I'm just trying to marry the statements from a few years ago versus now the way forward of reducing the Board size because it almost feels to me like the Board's role in such controls is maybe reducing as well. Conrad Keijzer: Yes. No, Chris, this is totally unrelated. So we basically are in 2025 now. We had the accounting challenge that was actually very early on in my assignment. That was about the 2021 numbers and even 2020 numbers. Then indeed, you're right, Chris, and we discussed it at the time. We identified a number of serious gaps. We brought in a new CFO. We really strengthened our checks and balances and controls, including more appropriate involvement by including our Board members at the time. But no, this is in place now -- solidly in place for a number of years, and these recent announced Board changes are unrelated to that. Andreas Schwarzwaelder: So ladies and gentlemen, before we close today's call, we would like to ask for your feedback by scanning the QR code on the presentation or using the link, www.clariant.com investor/feedback, you will be guided to our feedback tool operated by Quantifier. We appreciate your views and your assessment and sincerely thank you for your support. So this concludes then our today's conference call. As I said, the transcript of the call will be available on the Clariant website in due course. The Investor Relations team is available for any further questions you might have. Once again, thank you for joining the call today, and good afternoon. 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.
Operator: Good morning, ladies and gentlemen, and welcome to the Real Brokerage Third Quarter Earnings Call. I will now turn the call over to Ms. Alix Lumpkin, Chief Legal Officer at the Real Brokerage. Alix, the floor is yours. Alix Lumpkin: Thanks, and good morning. Thank you for standing by, and welcome to the Real Brokerage Conference Call and Webcast for the third quarter ended September 30, 2025. We appreciate everyone for joining us today. With me on the call today are Tamir Poleg, our Chairman and Chief Executive Officer; Jenna Rozenblat, our Chief Operating Officer; and Ravi Jani, our Chief Financial Officer. This morning, Real published an earnings press release, including results for the third quarter ended September 30, 2025. The press release, along with the unaudited consolidated financial statements and related management's discussion and analysis for the quarter have been filed with the U.S. Securities and Exchange Commission on EDGAR and with the Canadian securities regulators on SEDAR. Before we get started, I'd like to remind everyone that statements made on this conference call that are not historical facts, including statements about future time periods, may be deemed to constitute forward-looking statements. Our actual results may differ materially from these forward-looking statements, and the risk factors that could cause these differences are detailed in our Canadian continuous disclosure documents and SEC reports. Real disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law. With that, I'd like to turn the call over to Chairman and Chief Executive Officer, Tamir Poleg. Tamir, please proceed. Tamir Poleg: Thank you, Alix, and good morning, everyone. Real is a real estate technology company that is differentiated in our industry. Unlike traditional real estate brokerage firms, we provide real estate agents with a compelling combination of financial incentives, a proprietary software-based platform that eliminates the need for an agent's physical office space and a collaborative culture that we believe is unique in our industry. Our vision is to simplify life's most complex transaction, the purchase or sale of a home by providing agents with the tools, technology and resources they need to grow both their businesses and themselves while delivering a seamless experience for clients. In the short term, this vision includes the rollout of a consumer-facing product designed to streamline the client experience and enhance attachment of our higher-margin ancillary services. Over the long term, we see Real evolving into a holistic financial ecosystem for agents, providing them with an avenue to build long-term wealth within a single platform. Our goal is to redefine the role of a real estate brokerage in the lives of our agents and in the broader housing industry. That's why we will remain relentless in our focus on delivering long-term value for our agents, for their clients and for our shareholders. Turning to our results. Q3 was another quarter of exceptional organic growth for Real. We continue to materially outperform the broader housing market, gaining share, expanding our agent base and scaling our platform in a disciplined way. While industry transaction volumes grew modestly, Real's closed transactions increased nearly 50% year-over-year, and we surpassed 30,000 agents on our platform for the first time. A few financial highlights. Revenue in the third quarter grew 53% to $569 million. Gross profit increased 40% to $45 million and outpaced a 31% increase in operating expenses, which also totaled $45 million. Net loss was approximately breakeven at negative $0.3 million. Meanwhile, adjusted EBITDA was positive $20.4 million, a 54% improvement from last year and contributed to operating cash flow from operations of approximately $9 million. Let me spend a moment on how each of our businesses performed. Brokerage revenue grew 53% to $565 million, driven by both agent growth and higher productivity. We ended the quarter with over 30,100 agents, up 39% from a year ago, and as of today, our agent count stands at approximately 30,700. Real agents closed more than 53,500 transactions totaling over $21 billion, up 49%. That performance speaks to the strength of our attraction flywheel and the quality of the agents who continue to choose Real. Our brokerage business was once again profitable on a net income basis, and we continue to reinvest these earnings back into our ancillary businesses, which typically generate gross margins that are 5x to 8x higher than brokerage. In One Real Title, revenue was $1.3 million as we continued transitioning from team-based to state-based joint ventures, a shift designed to enhance scalability and long-term profitability. Under our new title leadership, we expect this structure to begin contributing more meaningfully in the quarters ahead, and we are encouraged that attach rates among our JV partners exceeded 35% in the quarter. One Real Mortgage delivered another strong quarter with revenue up 47% year-over-year to $1.8 million. Growth was driven by the addition of productive loan officers and the launch of our inside sales team earlier this year. As of now, the business included approximately 100 loan officers, more than 60 of whom are participating in our Real originate program. Lastly, Real Wallet, our financial technology platform continues to scale quickly and is deepening engagement with our agents. Quarterly revenue reflects the launch of our Real Wallet Rewards program, a new benefit that we believe will further accelerate adoption. As of today, more than 4,600 agents now use Real Wallet business checking accounts with total deposits exceeding $20 million, up from approximately $40 million at the time of our last earnings call. Earlier this month, we launched Real Wallet Capital across 28 U.S. states, providing agents with fast access to liquidity, allowing them to invest in their business and help manage cash flow between transactions. For agents, income can often be highly variable. In some cases, months can pass between closings and traditional lenders simply aren't equipped to underwrite that type of earnings profile. With Real Wallet Capital, we can extend credit based on an agent's production history and projected income with Real, offering financing that many banks could not. We believe Real is the only major brokerage offering agents this kind of embedded access to capital and doing so often same day. Beyond the financial opportunity, we view Real Wallet Capital as both a differentiated attraction and retention mechanism, a solution that helps agents remain engaged on our platform. While we're still in the early innings, we see this as a meaningful differentiator for agents choosing where to build their business. Today, Real Wallet is currently operating at an annualized revenue run rate of over $1.2 million, and we remain encouraged by the momentum. Now for more detail on our operational performance, I'll turn it over to our COO, Jenna Rozenblat. Jenna Rozenblat: Thanks, Tamir, and good morning. During the third quarter, our operations organization made meaningful progress in leveraging AI and automation to streamline workflows, enhance service metrics and improve our ability and overall cost to serve. I'll give a few examples. In September, we launched Real's dedicated AI automation team focused on using AI and workflow automation to reduce manual or low-value processes across the organization. In just the first few weeks, the team delivered more than a dozen live automations, collectively saving the business more than 10,000 hours annually, equivalent to multiple full-time roles. Those hours represent capacity we've been able to reallocate toward higher-value activities, improving agent support, quality assurance and product development without adding additional headcount. For example, an automation of our pro team migration process allowed us to complete the migration of all of our existing teams into our pro team infrastructure months ahead of schedule. At the same time, we're continuing to scale our agent-facing AI tools through Leo CoPilot, our proprietary intelligent assistant integrated within the reZEN app. As a reminder, in Q2, we rolled out Leo as the first line of agent support for phone calls in reZEN, answering questions instantly, routing requests and resolving issues before they reach our human support team. In Q3, we expanded Leo's reach to also be the first line of support for agent e-mails. In the second quarter, Leo handled about 28% of all calls initiated through reZEN. By the end of the third quarter, that figure had grown to approximately 47%, handling more than 10,000 agent phone and e-mail interactions autonomously. Overall, even as our agent base grew nearly 40% year-over-year, response and resolution times declined and agent satisfaction remained above 90%. Importantly, these improvements are translating into stronger agent retention, evidenced by our revenue churn, which declined to 1.4% in the third quarter, the lowest level in more than 2 years. Each of these initiatives, while small individually, compound to create significant productivity gains over time. They enable us to handle higher transaction volume and agent growth with limited incremental cost, directly contributing to Real's improving operating expense per transaction and overall operating leverage. Now before I hand it over to Ravi, I want to highlight 2 additional developments impacting our agent community. First, next week, we'll host our annual RISE Agent Conference in Orlando, where 2,000 agents and industry partners will gather to share best practices, collaborate in person and celebrate the culture that makes Real so unique. We'll also showcase several new initiatives designed to further power our agents' businesses and enhance their ability to win in today's market, so stay tuned. Second, this month, we officially expanded our operations into Saskatchewan, our fifth Canadian province. Canada continues to be a meaningful growth opportunity for Real, and we expect this expansion to unlock additional agent and transaction growth as we strengthen our presence across the country. In short, we're executing on the operational foundation that enables Real to grow faster than the market, while continuously improving efficiency, scalability and engagement. Now I'll turn it over to Ravi to walk through the financial impact in more detail. Ravi Jani: Thank you, Jenna, and good morning, everyone. Our third quarter results demonstrate the continued strength of Real's model, high organic growth, disciplined expense management and improving operating margin. Total revenue for the third quarter rose 53% to $568.5 million compared to $372.5 million in the same period last year. Growth was driven primarily by our North American Brokerage segment, which saw a 49% increase in closed transactions to more than 53,000 in the quarter. Our ancillary businesses generated $3.2 million in revenue, up 25% year-over-year, led by One Real Mortgage and Real Wallet, while One Real Title was impacted by the shift from team-based to state-based joint ventures. Gross profit increased 40% to $44.9 million compared to $32.1 million a year ago, with gross margin of 7.9% versus 8.6% in the prior year period. The year-over-year change primarily reflects a higher proportion of transactions completed by agents who have reached their annual cap. For reference, the percentage of total transactions closed that were post cap increased by approximately 500 basis points relative to last year. As a reminder, once an agent caps, they stop paying Real the standard 15% split and instead pay a $285 per transaction fee, which results in lower gross margin on those post-cap transactions. While this mix shift creates near-term pressure, it also reflects the maturity and productivity of our agent base. We do expect this to normalize as market activity improves and transaction growth becomes more evenly distributed between cap and non-cap agents. Of course, over time, continued growth in our ancillary businesses should support overall gross margin expansion. Operating expenses, including G&A, marketing and R&D, totaled $45.3 million, up 31% from $34.6 million last year. The largest driver was revenue share expense, which rose 35% to $15.6 million, up from $11.7 million in the prior year, consistent with our strong agent production. The remainder reflects investments to support growth, including expanding our operations and R&D teams and further enhancing our technology platform. Operating expenses represented 8% of revenue in the third quarter, an improvement of 130 basis points from 9.3% a year ago, reflecting strong cost discipline. Adjusted operating expense, what we view as our fixed cash cost was $21.7 million or 3.8% of revenue, down from 4.5% in the third quarter of 2024. On a per transaction basis, adjusted operating expense declined 13% year-over-year to $405 compared to $468 in the third quarter of 2024. For the third quarter, we reported an operating loss of negative $0.5 million compared with a $2.5 million loss in the third quarter of 2024. Operating margin improved to negative 0.1% from negative 0.7% in the prior year period. Our core brokerage segment remained profitable, generating $0.8 million of operating income, while we continue to reinvest in One Real Mortgage, One Real Title and Real Wallet, which collectively generated an operating loss of $1.3 million as they scale. On a non-GAAP basis, adjusted EBITDA rose 54% to $20.4 million, up from $13.3 million last year, reflecting growth in gross profit outpacing growth in operating expenses. Total stock-based compensation was $19.9 million, with $12.6 million related to the agent stock purchase program recorded in cost of sales, $3.9 million in agent equity awards recorded in marketing and $3.4 million in employee-related stock compensation. We generated cash flow from operating activities of $8.8 million in the quarter and returned capital to shareholders by repurchasing 3.2 million shares for $15.5 million under our existing buyback authorization. We ended the quarter with nearly $56 million in unrestricted cash and short-term investments, an all-time high and continue to carry no debt, giving us ample flexibility to fund growth and future share repurchases. To close, a few key operating metrics. Our median sale price was $390,000, a 2% year-over-year increase and our headcount efficiency ratio, which reflects the number of full-time employees, excluding Title and Mortgage employees divided by the number of agents on our platform was 1:89, compared to 1: 87 last quarter, still among the most efficient in the industry. While we don't provide formal guidance, consistent with typical industry seasonality, we expect fourth quarter revenue to decline compared to the third quarter and for lower gross margin year-over-year, in line with trends we've seen throughout 2025. From an OpEx standpoint, we expect an increase in our non-variable OpEx in the fourth quarter. This reflects both planned headcount additions to support future growth as we prepare for an even stronger 2026 as well as costs associated with our annual RISE Agent Conference, which takes place in the fourth quarter each year. More details on our results and key operating metrics can be found in the earnings press release and investor presentation that accompany this call. I will now turn it back to Tamir. Tamir Poleg: Thank you, Ravi, and thank you, Jenna. In closing, our continued outperformance is not the result of any one initiative, but of a system working together at scale. A differentiated business model, a powerful technology platform and a culture that attracts productive agents who want to build their businesses at Real, not just hang their license. From my perspective, 3 key themes defined our performance this quarter. First, our model continues to win in any market environment. Our growth has been broad-based and entirely organic, driven by word-of-mouth, productive agent networks and the strength of our value proposition. Agents come to Real because our economics are aligned with theirs, our platform simplifies their workflows and our culture enables collaboration over competition. Second, we are scaling with discipline. Once again, we grew revenue and gross profit faster than our operating expense base. That operational discipline paired with automation, AI adoption and a culture that thrives on doing more with less, continues to strengthen our path towards sustained profitability and margin expansion. Third, we are transforming what a modern real estate platform can be. Our vision extends beyond brokerage. Instead, we're building an integrated ecosystem that simplifies the transaction, better serves consumers and increases agent productivity while expanding new higher-margin revenue streams. Mortgage, Title and financial products like Real Wallet are still early, but advancing meaningfully and strategically every quarter. We remain deeply confident in our strategy, our people and our opportunity, and we're just getting started. We look forward to updating you on our continued progress in the quarters ahead. Now let's move to the Q&A session. Operator: [Operator Instructions]. The first question today is coming from Stephen Sheldon from William Blair. Stephen Sheldon: Nice results here. First, I wanted to start on the reduction in agent churn. Great to see that kind of pull back sequentially. Can you just talk about some of the factors that drove that so much lower 2Q to 3Q? Then I know it can be a little volatile quarter-to-quarter, but how should investors be thinking about that kind of metric trending as we look forward? Should we expect some stabilization there and/or potentially that continuing to trend a little bit lower? I guess, just generally, how are you thinking about agent churn trends? Tamir Poleg: Yes, as you said, there's volatility in agent churn. Having said that, I do think that the platform delivers more-and-more value as we continue to progress. I think that the lower numbers reflect the value and the fact that the platform just becomes more-and-more sticky. I also think that if agents think about some alternatives out there, I don't think that there's any better alternative in terms of a brokerage. That's probably what those numbers signal. I think that we will continue to work hard on improving the service. I think that everything that Jenna mentioned on the AI front and the fact that we're putting AI to work provides a better level of service to our agents and everything that we're doing with the wallet just makes the platform itself more sticky. I think that as long as we continue to be under 2% revenue churn per quarter as we have been for quite a long time. We'll continue to see those numbers. We're happy with what we're seeing. It's just about execution, delivering great service, great products, great features and just continuing to lead the market and the numbers speak for themselves. Stephen Sheldon: Then on Title, I guess, what have been some of the early takeaways as you've shifted to state-based JVs? Takeaways, I guess, both in terms of the attach rates you're getting and the eventual profitability. I think you mentioned, 35% attach rates for JV partners this quarter. I guess, just generally, how has that been trending throughout the quarter? How long do you think it could take for Title to really start to ramp monetization and gross profit overall? Tamir Poleg: It's a great question because we're putting a lot of emphasis and focus on ancillary services and title primarily, I would say. I actually looked at the data a couple of hours ago, and at the beginning of the year, our attach rates were in the range of 2.4% to 3% overall. Then we transitioned from the team-based JVs to state-based JVs, and that transition created headwinds of about minus 50% for us as a business. September, we had -- in September, we had attach rates of 3.7%. I think that we're doing -- we're making some progress in terms of attach rates. As Ravi mentioned, the attach rates on the new JVs are at around 35%. I think that we can get much higher, but we're seeing great momentum in some states and just to remind everybody, this is still early on in this new strategy of state-based JVs. I think that just in order to put things in perspective overall, on the brokerage side, we started the company back in 2014. During the first 6 years of the company, we added about 800 agents. Between 2014 and 2020, we ended -- we had about 800 agents in 2020. The following 5 years, we added 30,000 agents. I think that we were able to do that through a lot of trial and error and tech innovation and listening to our agents. I think that the same will happen with Title. I think that we are approaching a point where we have a critical mass of features and incentives and alignment with our agents in order to drive massive adoption to our ancillary services. One more thing. Next week, we have our annual RISE Conference, where we will be announcing what I believe is the biggest tech innovation that we have announced since starting the company, and that innovation will have massive impact on our ability to attach Title, Mortgage, Wallet and Insurance later on. I think that we're very close to seeing a meaningful change in the adoption of our ancillary services. Stephen Sheldon: Good to hear. I look forward to hearing more about that next week. Maybe just one last one. There have been some large M&A announced that will drive some brokerage consolidation. Just generally, when something like that happens, does it usually drive opportunities to pick up churn from agents that aren't happy at those firms that aren't happy about the change? Have you started to see any of that following recent announcements? Tamir Poleg: If we look at our numbers over the past few years, we're seeing that we are taking market share from everybody else. I'm not sure that those recent announcement about M&A intentions are really making a big impact on the market as we speak. I think that once that transaction closes, we will likely see a little bit more interest from people who are kind of searching for a new path, but we're not counting on that. We're counting on our organic growth and our ability to attract agents based on our value proposition, and we're not capitalizing on anybody else's troubles or discomfort in order to fuel our growth. For us, it will be just a cherry on top of the cake, but we continue to grow regardless. Operator: The next question will be from Naved Khan from B. Riley Securities. Naved Khan: Maybe just to touch on this Leo CoPilot. It looks like usage is up, but just talk about adoption in terms of the percentage of agents that have -- that are using it more versus those who might not have or might be early on in that? Where are you in terms of training and onboarding people to just kind of be more effective with the use of CoPilot? Then I have a follow-up. Jenna Rozenblat: Actually, when we think about the usage of Leo, it's 100% usage because all of our support goes through those channels. Whenever an agent actually reaches out to our support team, that's all done through Leo. Naturally, they are going to be using Leo when they get support. It's something that we go over with them when they come on to the company. We have training sessions to go through how to utilize Leo. From an adoption standpoint, there's 100% adoption from agents needing support. Naved Khan: Then when it comes to Mortgage, I guess you talked about having 100 loan officers, around 60% of those are unreal. What are some of the levers you can pull to kind of drive the attach for Mortgage higher from here? How many states are you in currently? How do you plan to expand that offering? Tamir Poleg: Yes. We're trying to go deeper into the states we're already operating in, and we operate in about 15 states. I think that the biggest lever that we can pull is on the technology integration side, and it goes back to what I said about this announcement that we're going to make next week. I think that making the entire process easier, both for our agents and for their clients and having everything on the app and everything integrated so that they can receive real-time updates, they have full visibility into the process. The agent is fully aware of what's going on, on the mortgage side. The buyer is fully aware. I think that, that could drive meaningful adoption, and we will talk about it a little bit more on the RISE conference. Naved Khan: If I have to think about -- and this is last question, but if I have to think about capped versus uncapped mix of agents, how does -- how did it compare in the last quarter versus prior periods, prior third quarter periods? Is that going higher? It seems like the mix of transactions through the more people who are uncapped is higher, and that's why your gross margins are lower. How should we think about that stabilizing at certain levels around here? Just give us your thoughts on the mix. Ravi Jani: Yes. Naved, thanks for the question. The agent mix, it's typically anywhere between 10% and 12% of agents hit their cap at any moment in time. That's the percentage of agents who are capped. I think the more operative stat, though, is this quarter, approximately 500 basis points of our total revenue mix increase relative to last year that was driven by post-cap transactions. Rough order of magnitude, if 40% of our transactions were post cap last Q3, this year, it was closer to 45%, and so that's really what drove that margin mix shift that we discussed. Operator: [Operator Instructions]. The next question is coming from Matthew Erdner from Jones Trading. Matthew Erdner: Congrats on another solid quarter. Most of the questions that I had have been taken, but I kind of want to follow-up on what you touched on earlier as it relates to non-variable operating expenses. It looks like there was a pretty good sequential increase in R&D expenses. Should we treat 3Q as kind of a go-forward run rate as it relates to R&D? Ravi Jani: Yes. Matt, good question. I would say, if you look at the R&D line over time, it has been increasing, and that's really a function of the investments we're making in technology across the business. This quarter, in particular, though, does reflect the addition of the folks from Flyhomes' and the Flyhomes' assets we acquired at the beginning of the quarter. You will continue to see R&D grow year-over-year. It's the fastest growing portion of our fixed OpEx base, but we do view that as a good and necessary investment. That's one of the things that will also tick up sequentially, particularly as we launch some of these AI features. As you know, there are costs associated with investing in AI, both on the personnel side as well as just the cost to serve. Yes. I mean, as always, if you look across our fixed cost base, in general, our OpEx base grew 31% versus the 40% increase in gross profit. We will continue to be disciplined and focus on growing overall OpEx at a slower pace than gross profit, but R&D will continue to be a focus area for us to continue to invest for the future. Matthew Erdner: Then in prior quarters, you guys have kind of talked a little bit on the M&A front. Then you just mentioned Flyhomes' there. Do you guys kind of expect to do anything or still looking in the market? Or at this point, is it just investing in your own businesses, the ancillary services and building from within rather than acquiring a piece and adding it on? Ravi Jani: Sure. Tamir, do you want to take that one? Tamir Poleg: Yes, I'll take it. Matt, we believe we have all of the components and the technology that we need in order to build what we plan to build in the coming years and just accomplish our vision. Having said that, we are looking at several M&A opportunities. I don't think that it will be on the technology front. We also -- as you know, we have grown organically, and we haven't really ever made any brokerage-related acquisition. I think that it could be interesting for us to look at some small acquisitions when it comes to title companies just to create some local presence, strengthen our local presence, and this is something that we're looking at, at the moment, but even if this will not materialize, I think that we have everything we need from an M&A perspective. Operator: The next question is coming from Nick McAndrew from Zelman & Associates. Nick McAndrew: Congrats on another strong quarter. I think the 2,000-plus agent additions is pretty encouraging to see. Maybe just as we think about the sustainability of agent growth into 2026, anything to call out and just the levers that are driving that continued momentum? Maybe if you could also just expand on what gives you the confidence that this pace of net additions can be maintained as the agent base just grows beyond 30,000? Tamir Poleg: Nick, so yes, we're currently at a little bit over 30,800 agents, and we have a very strong pipeline, hopefully, to finish the year with. We have some large opportunities, larger than ever before. I feel very confident about our growth in coming months and actually coming years. I think that the confidence is coming out of the understanding that we have built a platform that is extremely compelling for agents. We have to remember that all of the growth is organic and about 85% of the growth is coming from our agents attracting other agents. We have a very small growth team consisting of 4 people. We're not doing too much of an outbound even though we started now kind of implementing some outbound strategy. I think that just the market potential is there. As we look into the next 5 to 10 years and everything that is changing within the traditional brokerage world, I think that more-and-more agents, more-and-more teams and more-and-more independent brokerages will be looking for alternatives that are similar to what we offer, and we are very well positioned to capture a meaningful part of that churn that will be happening on the traditional model side. We feel confident. We have what it takes, and we rely on our efforts and on our agents' efforts in order to attract other agents. As I said, we have a strong pipeline that supports that. Nick McAndrew: Jenna, apologies if you touched on any of this already, but I think adjusted OpEx per transaction was down 13% year-over-year. I'm just wondering if there's anything to call out and just what's driving that leverage? Because I think last quarter, you mentioned that roughly half of transactions could be processed automatically through reZEN with pretty limited human oversight. I'm just wondering where does that figure stand today? Are there still remaining workflows that you see as kind of the next opportunity for automation? Jenna Rozenblat: Yes, absolutely. As I mentioned in my section, we've really been investing in this AI and automation team and really just getting started. Even things that maybe we didn't think possible before, we're diving head first into. There's a lot of great updates that I'll be providing most likely on our next call, recapping Q4, but yes, you're correct. We're working on automating those 50% of the transactions and also a number of other areas for reviewing contracts automatically through our automated broker review. There's a number of different initiatives that we're working on that are just going to continue to push the needle there and make us even more efficient month-over-month. Operator: There were no further questions from analysts in the queue. I will now hand the floor over to CFO, Ravi Jani, for questions from retail investors. Ravi Jani: Great. Thank you, Paul. Now that we conclude the analyst portion, we wanted to address some of the questions received from shareholders on the Say Technologies Q&A portal. We received a number of excellent questions. Thank you to all who participated. I think some of them were actually addressed in the analyst portion. I'll just address 2 that haven't been. First one for Tamir. How has the Real Wallet growth progressed? What revenue numbers can we expect from the Real Wallet? Tamir Poleg: Sure. First of all, the Real Wallet is a very exciting product, and we're really proud of how quickly the wallet has scaled. In less than a year since launching it, we now have over 4,600 agents using Real Wallet business checking accounts with deposits totaling around $20 million, and those deposits number are growing. As you remember, last call, it was around $14 million. The product is already generating over $1 million in annualized high-margin revenue, and that does not include the incremental opportunity from Real Wallet Capital, which we launched in the U.S. this month. The early adoption and engagement rates are very, very strong. It deepens the relationship we have with our agents and provides meaningful day-to-day value beyond just brokerage economics. I think that looking at the numbers of Real Wallet Capital, that makes me extremely optimistic as to the opportunity of Real Wallet and how well it was received by our agent community in the U.S. since launch. Ravi Jani: Thanks, Tamir. The last question was, how is the company planning to expand profit margins? What are expected margins in 3 to 5 years? I'll take this question. It's a great question. Obviously, we are focused on margin expansion that will come from both gross margin improvement and OpEx leverage. It's obviously difficult to have a crystal ball and predict 5 years out. I think directionally, we see the path to adding a few hundred basis points of margin expansion over that time through that combination of higher mix shift and better expense leverage. I think with that, -- if you have any additional questions on today's earnings release, please feel free to contact me directly. Otherwise, Paul, would you please give the conference call replay instructions again? Operator: Certainly. Thank you, everyone. This does conclude today's conference call. Today's conference will be available for replay from 11:00 a.m. today. The replay phone number is (877) 481-4010 and the replay code is 52933. Once again, the replay phone number is (877) 481-4010 and the replay code is 52933. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
Operator: Good day, and welcome to the Howmet Aerospace Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Paul Luther, Vice President of Investor Relations. Please go ahead. Paul Luther: Thank you, Drew. Good morning, and welcome to the Howmet Aerospace Third Quarter 2025 Results Conference Call. I'm joined by John Plant, Executive Chairman and Chief Executive Officer; and Ken Giacobbe, Executive Vice President and Chief Financial Officer. After comments by John and Ken, we will have a question-and-answer session. I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation and earnings press release and in our most recent SEC filings. In today's presentation references to EBITDA, operating income and EPS mean adjusted EBITDA, excluding special items, adjusted operating income, excluding special items and adjusted EPS, excluding special items. These measures are among the non-GAAP financial measures that we've included in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix in today's presentation. In addition, unless otherwise stated, all comparisons are on a year-over-year basis. With that, I'd like to turn the call over to John. John Plant: Thank you, PT, and welcome to the Howmet Q3 call. Let's start with the company highlights on Slide 4. Q3 was a very strong quarter for Howmet. Revenue growth continues to accelerate and was up 14% compared to 8% in the first half. Within this revenue growth, Commercial Aerospace increased 15% and within this number, commercial aero part sales increased by 38% for a total spares increase of 31%. EBITDA was up 26% and operating income up 29%. Cash flow was also healthy at $423 million after capital expenditure of $108 million. Year-to-date capital expenditure is approximately $330 million. Regarding share buyback, $200 million of cash was deployed to buybacks in Q3 with an additional $100 million buyback in October. October year-to-date buyback is now $600 million, which is $100 million higher than the 2024 full year. We also paid off the balance of $63 million of the U.S. term loan early, which was due in November 2026 and with the resulting net leverage now stands at 1.1x net debt-to-EBITDA. Dividend payments were also increased in August by a further 20% versus the prior quarter and earnings per share increased by just over 34%. Other commentary, which may be helpful is that working capital days improved year-over-year, allowing for the increased capital expenditure for future growth and all within the free cash flow number previously referenced. Headcount did increase by a further 265 people, mainly within the engines business as we staff our new manufacturing plants. As planned, the increase in headcount has slowed as we go into the second half, although we envisage hiring again as we pick up in early 2026. Now let me turn the call over to Ken to cover the markets and segment performance. Ken Giacobbe: Okay. Thank you, John. Let's move to Slide 5. So end markets continue to be strong, with total revenue up 14%. Commercial Aerospace was up 15%, exceeding $1.1 billion in the quarter. Commercial Aerospace growth is driven by accelerating demand for engine spares and a record backlog for new, more fuel-efficient aircraft with reduced carbon emissions. Defense Aerospace growth continued to be robust at 24%. Growth was driven by engine spares, which increased 33% and new F-35 aircraft builds. As expected, commercial transportation was challenging, with revenue down 3% in the third quarter, including the pass-through of higher aluminum costs and tariffs. On a volume basis, wheels volume was down 16%. Finally, the industrial and other markets were up a healthy 18% driven by oil and gas, up 33% and IGT up 23%. In the future, it's likely that we will combine oil and gas and IGT when reporting revenue by market. The definition of oil and gas versus mid- to small IGT has become somewhat blurred since many turbines now have increasing end use for data centers. So in summary, continued strong performance in Commercial Aerospace, Defense Aerospace and Industrial, partially offset by commercial transportation. Within Howmet's markets, the combination of spares for Commercial Aero, Defense Aero, IGT and oil and gas was up 31% in the third quarter. Now let's move to Slide 6. So starting with the P&L. Q3 revenue, EBITDA, EBITDA margin and earnings per share were all records and exceeded the high end of guidance. Revenue was up 14%, EBITDA exceeded $600 million as it outpaced revenue growth and was up 26%. EBITDA margin increased 290 basis points to 29.4% while absorbing the cost of approximately 265 net headcount additions. Earnings per share was $0.95, which was up a solid 34%. Moving to the balance sheet and free cash flow. The balance sheet continues to strengthen. Free cash flow was excellent at $423 million. Free cash flow included the acceleration of capital expenditures with $108 million invested in the quarter and approximately $330 million year-to-date, which is higher than the full year 2024 capital expenditures. About 70% of the capital expenditures year-to-date is for our engines business as we continue to invest for growth in Commercial Aerospace and IGT. Investments are backed by customer contracts. Quarter-end cash was a healthy $660 million. Year-to-date, debt has been reduced by $140 million as we paid off at par the U.S. term loan, which was due in November of 2026. The early prepayments will reduce annualized interest expense drag by approximately $8 million. Net debt to trailing EBITDA continues to improve to a record low of 1.1x. All long-term debt is unsecured and at fixed rates. Howmet's improved financial leverage and strong cash generation were reflected in S&P's Q3 rating upgrade from BBB to BBB+, which is 3 notches into investment grade. Liquidity remains strong with a healthy cash balance and a $1 billion undrawn revolver, complemented by the flexibility of a $1 billion commercial paper program, both of which have not been utilized. Regarding capital deployment, we deployed approximately $770 million of cash, common stock repurchases, debt paydown and quarterly dividends year-to-date through September. In the quarter, we repurchased $200 million of common stock at an average price of approximately $182 per share. Q3 was the 18th consecutive quarter of common stock repurchases. The average diluted share count improved to a Q3 exit rate of 405 million shares. Additionally, in October, we repurchased $100 million of common stock at an average price of approximately $192 per share. October year-to-date common stock repurchases are $600 million at an average price of approximately $156 per share. Remaining authorization from the Board of Directors for share repurchases is approximately $1.6 billion as of the end of October. Finally, we continue to be confident in free cash flow. We increased the quarterly dividend by 20% in the third quarter to $0.12 per share, which is up 50% higher than Q3 of last year. Now let's move to Slide 7 to cover the segment results for the third quarter. The Engines products team delivered another record quarter for revenue, EBITDA and EBITDA margin. Quarterly revenue increased 17% to $1.1 billion. Commercial Aerospace was up 13%. Defense Aerospace was up 23%. Oil and gas was up 33% and IGT was up 23%. Demand continues to be strong across all of our engines markets with strong engine spares volume. EBITDA outpaced revenue growth with an increase of 20% to $368 million. EBITDA margin increased 80 basis points year-over-year to 33.3% while absorbing approximately 265 net new employees in the quarter. Year-to-date, engines have invested in approximately 1,125 incremental headcount, which has a near-term margin drag, but positions us well for future growth. Now let's move to Slide 8. The Fastening Systems team also delivered a record quarter for revenue, EBITDA and EBITDA margin. Revenue increased 14% to $448 million. Commercial Aerospace was up 27%, Defense Aerospace was up 2%, General Industrial was up 3% and Commercial Transportation, which represents approximately 12% of Faster's revenue was down 17%. EBITDA continues to outpace revenue growth with an increase of 35% to $138 million, despite the sluggish recovery of wide-body aircraft builds along with weakness in commercial transportation. EBITDA margin increased a robust 480 basis points year-over-year to 30.8% as the team has continued to expand margins through commercial and operational performance. Now let's move to Slide 9. Engineered Structures had a solid quarter. Revenue increased 14% to $289 million. Commercial Aero was up 7% and Defense Aerospace was up 42%, primarily driven by the end of the destocking of the F-35 program. EBITDA outpaced revenue growth with an increase of 53% to $58 million. EBITDA margin increased 510 basis points to 20.1% as we continue to optimize the structures manufacturing footprint and rationalize the product mix to maximize profitability. Finally, let's move to Slide 10. Forged Wheels revenue was essentially flat as a 16% decrease in volume was largely offset by higher aluminum costs, tariff pass-through and favorable foreign currency. EBITDA was strong at $73 million, an increase of 14% despite a challenging market. EBITDA margin increased 350 basis points to 29.6%. The unfavorable margin impact of lower volumes and higher pass-throughs were more than offset by flexing of costs, favorable product mix driven by our premium products and favorable foreign currency. The Wheels team has continued to expand margins despite market metal cost and tariff uncertainty. Now let me turn it back over to John. John Plant: Thank you, Ken. Let's move to Slide 11 to discuss the outlook. In summary, before I go into details, the outlook is solid. Air travel continues to grow year-over-year after a solid summer period. The backlog of commercial aircraft extends for many years, even after assuming increases in build rates throughout the next 5 years. The current aircraft fleet has aged. These factors combined to provide both healthy OE demand and the growing demand for aircraft aftermarket parts, especially in the engine for wearing parts, namely the turbine blades in the hot gas pass section of the engine. Defense sales continued to be strong with steady F-35 OE sales, plus some increase in legacy fighter jets, namely the F-15 and the F-16. This is also combined with growth in defense spare sales. In oil and gas, the demand is steady, while growth in IGT is extremely strong, again in both OE and aftermarket sectors. The part of the market, which I have not previously made much commentary on is the midsized turbines of up to 45 megawatts where growth of both aero-derivative engines and dedicated midsized turbines is expected to grow for many years. This is mainly the result of data center build-outs and the need to supply these data centers with either independent fundamental electricity supply or with very fast-acting turbine response to ensure uninterrupted supply from the grid and from utilities. It is increasingly difficult for us to separate the end market for these turbines between oil and gas compared to IGT. Commercial truck volumes continue to struggle with smaller fleets, in particular, not buying trucks due to the low freight rates and also combine this with a large price increases for Class 8 trucks, principally due to tariffs. The tariff changes continue to produce uncertainty for Howmet. However, the net tariff drag continues to be small at around $5 million plus or minus as discussed in the last earnings call. The revenue outlook for the balance of 2025 has increased compared to the prior guide, benefiting from the stronger Boeing 737 builds and also engine spares. The build-out of our footprint with the 5 new manufacturing plants or extensions continues. The most vital immediate part of our expansion going into 2026 is the new Michigan Aero Engine core and casting plant, which is on track with the machines now building some parts. There remains a lot more equipment to be installed during the next 6 months, but everything is currently as it should be. The new plant we've installed for tooling is now equipped and staffing well underway. Being a little bit more specific regarding the 2026 outlook, we see revenues of $9 billion plus or minus, which is an increase of about 10% year-on-year. This number will be further refined in our February 2026 earnings call, where we will also provide more detailed guidance. Moving to the fourth quarter of 2025. We see revenue to be $2.1 billion, plus or minus $10 million, EBITDA of $610 million, plus or minus $5 million, earnings per share, $0.95 plus or minus $0.01. And for the year, the numbers are -- revenue is $8.15 billion plus or minus $10 million, EBITDA at $2.375 billion, plus or minus $5 million; earnings per share of $3.67 plus or minus $0.01 and free cash flow of $1.3 billion, plus or minus $25 million. In summary, 2025 is another good year for Howmet with free cash flow guided substantially higher than the last earnings call, even after the higher capital expenditure, which is there for future growth in the company. Before moving to Q&A, I did want to thank Ken Giacobbe for his years of dedicated service. It's been quite the journey for Ken and him being my partner in all of this from his days at Alcoa to Howmet, which interestingly, as 1 of the 3 parts of former Alcoa is now worth more than the single Alcoa company ever was. All the very best to Ken in his well-earned retirement. Ken Giacobbe: Thank you, John. John Plant: I just want to offer you the opportunity of adding any comments. Ken Giacobbe: Yes John, appreciate the kind words and appreciate the partnership. It's been a privilege and a pleasure to work with you, the Board of Directors and the Howmet team. Results have been remarkable. I think a lot of that is driven by the positive culture that you had built over the years. That culture is one that we talk about quite a bit, one of focus, innovation in terms of everything we do, empowerment, accountability, shared purpose and winning, which is quite refreshing. As I look forward, I believe Howmet is well positioned for the future with a clear, clear path forward and an exceptional leadership team at the helm. So as I conclude my 20-year -- 21-year tenure with immense gratitude and also confidence in Howmet's future, I want to thank you for the opportunity to be part of such a remarkable organization. So wishing you and the team continued success. So I guess, Drew, we could move to Q&A. Operator: [Operator Instructions] The first question comes from Kristine Liwag with Morgan Stanley. Kristine Liwag: Ken, congratulations on your retirement. Thank you for all the thoughtful insights over the years and hope you've got something very fun planned. So maybe, John, the investments in technology you've made in Aerospace has yielded in Howmet being a clear leader in this area, especially for the hot section of the jet engine. Now pivoting to this data center build, we're starting to see this industry really gain a lot of traction. You've called out CapEx increases last quarter and also this quarter. Can you just take a step back and provide us more color on what the competitive landscape is like for turbines and IGT? How differentiated is your technology, the pricing environment? And what's your expected returns in this sector and how that compares with aerospace? John Plant: Okay. So that's a very broad question. It gives me the opportunity to talk now for at least an hour... Kristine Liwag: I'll keep it to that question though, John. John Plant: Yes. This is only one question. So first of all, clearly, this build-out of data centers and the requirement for electricity to not only, I'll say, drive the processing and the microchips that for these advanced microchips that are being installed, but also the electricity required to call them is producing an extraordinary level of demand, which I think we know that the utility companies themselves and the grid is struggling to cope with and how can that be satisfied. It did change again with the new incoming administration in the early part of this year when there's a greater emphasis on fossil fuels and really the natural gas being the technology of choice compared to renewables. And so that has caused us to think again regarding the investment profile for this business. So the back class of the fundamentals appear to be well set. Certainly, you look for the next few years, the build-out and the requirements are extraordinary and the question remains, of course, what would it look like at the turn of the decade in terms of each future growth. But having said that, I do think these data centers, which are there not just for the introduction and use of AI, but also just fundamental requirement from storage means that, that electricity demand will be there and so solid and gives us a lot of confidence to invest albeit we don't have the same clarity regarding backlog numbers that we have in the Commercial Aerospace market. So you don't quite have that same, I'll say, clarity and visibility into the back orders. So it's caused us to keep rethinking our investments, and we've picked it up again this year. And you've seen with our guided capital expenditure increases in investments that we are making. And we expect that CapEx in 2026 and indeed going into 2027 will be also at high levels while not disturbing what our fundamental aim is, which is to convert 90% of our net income into free cash flow. And so it's a tall order at the same time, we're excited to be part of this growth opportunity. When I think about sort of what's happening, there is growth in both the large industrial gas turbines that you see bought by utilities, which provide the electricity, which is transmitted over the grid. But now given the large demand is that there are gas turbines being installed at the data center sites or clusters of data center sites in a centralized facility to provide that underlying electricity. And then beyond that, is that there's backup to all this or in the case of where you just can't guess a large gas turbine at the moment because they're quite scarce and orders are now going out. If you place a new order, you're not going to get that big land-based gas turbine until probably into the 2030 or beyond is that as a case where a lot of midsized turbines are now being installed, not just for the fundamental production of electricity, but also because they are very fast reacting is that it ensures that the supply of electricity to the data center is uninterrupted. And therefore, it's providing a lot of stimulated demand for the aero derivatives. And in fact, if you look at the -- I think results this week of Caterpillar, they are seeing that, and they're one of our major customers in those midsized turbines. So it's quite exciting. And then in terms of technology, it's going very much along the same lines that we have in -- had done in aerospace where we have moved or are moving from turbine blades, which are solid to turbine blades, which are increasingly core. And what I mean my core is that you have air paths through those turbine blades to provide them with cooling air such that those turbines can be run at higher temperatures. So it's very much going along the evolution path that we've had in the aerospace world. And so as we move forward over the next, let's say, 2, 3, 4, 5 years, and is happening right now is that we're installing additional capabilities to be able to produce the sophisticated fine tolerance cores that enable that next level of technology to be achieved and that's both for the midsized turbines and indeed for the very large turbines that utilities tend to buy. If you look at the most recent development, without giving you specific market numbers or customers, some of those now initial turbine blades are as sophisticated as they possibly most sophisticated commercial, not necessarily military but commercial aerospace use in terms of the numbers of, I'll say, certain time air pathways through those turbine blades. So -- and of course, with that goes content and value because it again is producing the level of capability and electricity generation well above what you could have achieved with turbines in, let's say, 5 years ago or 10 years ago. So it's a pretty exciting landscape in terms of playing to our strength of the more sophisticated technology. It's causing us to expand. And you've heard me talk about the new manufacturing plant that we have or are building, in fact, at the end of this year, the structure will be complete to enable us to put new capabilities and, for example, new casting machines into that plant in the early part of 2026 to bring capacity on, not just for our customers in Japan, like Mitsubishi Heavy but also other customers like Siemens and GE and Ansaldo, et cetera. So -- and we're doing that, plus we're also expanding our plant in Europe significantly and also placing new capital in the existing footprint of our U.S. facility. So we're expanding in each of our 3 major sites where we produce gas turbine parts and really excited to be part of this journey which really is evolving very much in the same way as aerospace business, not only for those midsized turbines but also now for the very large gas turbines. And so it's a pretty exciting time for us. to be able to build out this business to be a very significant contributor for the company. So I'll stop there just in case I'm now getting too carried away with it. But I just want to make sure it hit the point of your question, Kristine. Operator: The next question comes from Myles Walton with Wolfe Research. Myles Walton: John, I'll try to ask a question that won't let you go on too long. But the end market implied growth in your $9 billion, could you share that as well as perhaps you've been running, obviously, well ahead of long-term incrementals the 30% to 40% that you had previously spoken of long been blown past. Is '26 another year of very high incrementals as we've seen in the last couple of years? John Plant: Let me deal with your latter point first, regarding margins and incrementals. I think as you know, I don't really give color on that at this time of the year, that's more for the February call. So I'll certainly reserve any profit guidance for February. I note that in Q3, our incrementals were, again, quite healthy at 50%. Obviously, we've given you a guide already for Q4. So I think it's a similar number for Q4, but Ken could always correct me on that. So it's pretty strong for this year. Next year, I guess, when we come up with a number, I mean it will probably underwhelm you because it always does. We don't seem to be able to satisfy your expectations. At the same time, I think that whatever we come up with will be a very satisfactory in 2026. So it's a long way of talking about the subject for a minute or 2 without actually saying much at all. In terms of the first part of your question, which was where did we see end market growth. So my sense is that getting too deep into the guide at this point it's an approximation. I think Commercial Aerospace will be stronger in 2026. So I think the build-out of narrow bodies, both for Airbus and for Boeing will be stronger in 2026 than it has been in 2025. And also the likelihood of the widebodies, particularly the Airbus A350 and the Boeing 787. I think both of those are going to be at a higher build rate than this year. So I'm pretty optimistic about Commercial Aero. So I see that being a few percentage points as an absolute higher than in 2025. In defense, coming off this year, which is pretty strong at plus 20%, I can see us having a mid-single digits increase again on top of that into 2026. I'm pretty confident about our positioning on the defense side. And on the -- I was going to call it the industrial segment, which will wrap up 3 segments, which is the gas turbine one, which I think you can sense is going to be at the high end, the oil and gas which would be in the middle and then general industrial, which should be at the lower end. I'll combine all of that and say, basically just getting into double digits as an increase. So that will be the sense I have for the underlying big segment commentary for next year. But while I'm on a role, I'll just talk about inside Commercial Aero because I know you've got a follow-up with the question like what's the underlying assumptions. So I think Boeing 737 will be higher. So, I'll say, I use 40 or getting into the 40s as an approximation, the A320 into the early 60s or maybe, I don't know, 62, 63, 787, I'll use 7.5 and the A350, maybe 6.5, could be 7. So it's in those sort of areas. So it's giving you directionally what I think you want without getting too specific because, again, I'd like to see how people close out, our customers close out this year, what the stated inventory is, as you know, certain of our airframe customers have been taking the inventory down. And I have to think about the robustness of their build while they've been taking inventory down and the consistency. And hopefully, we're going to see improved consistency into 2026 in the same way we've seen it for the last 2 or 3 quarters, where it's become somewhat -- a little bit more predictable. Operator: The next question comes from Ronald Epstein with Bank of America. Mariana Perez Mora: This is Mariana Perez Mora for Ron today. First of all, congratulations, Ken, on the retirement, and congratulations on your contribution to the company and the industry in general. I'd like to follow up on -- try to dive deeper as we think about next year into 2 things. Number one, how we think about, I'll say, on the commercial aero part, destocking trends and aftermarket trends or spare engine trends despite like this ramp that we are all expecting on OE. And the second one is when you think about IGT, how dependent the guidance is on the capacity that will be coming online end of this year and mid next year? How sensitive is guidance to the timing of that like incremental capacity? John Plant: Okay. Let's deal with the IGT part first and then go back to commercial aero. This year, we've seen the benefits of both small increases in gas turbine build at the large land-based turbines, probably a slightly higher build in terms of those midsized turbines in percentage of increase. But this year has also featured an increase in spares as the existing fleet of both types of turbines and maybe the midsized turbines being very strong in terms of their space requirements because those fleets are working harder. So that gives you a picture there for this year. When we move into 2026 and into '26 and '27, again, we're going to be -- we're going to see fundamental demand and this demand in turbine builds are expected to increase again into '27 beyond '26. On the OE side, it's going to be obviously a factor of are all the turbines going to be actually be built that are planned and how we are able to step up to those builds. And so I see that as -- whereas this year, I'd say, been slightly stronger on the spares and -- but still solid on the OE side. And next year, I think we're probably going to see a higher vector compared to this year on the OE demand but still strong spares demand. So again, I'm feeling pretty positive about those segments. It's difficult to judge exactly yet which one we will win in terms of those 2, if there was a race between them. Moving back to the commercial aero question. I've already given you a commentary regarding what I think build rates are, I think destocking essentially is finished this quarter, and I don't really see much evidence of that remaining if anything, it could only be a little bit left in the titanium area where people build up stocks because of either lack of build or trying to provide security stocks in the case of what happened after the Russian invasion on Ukraine and the supply issues out of BSMPO. In terms of spares and engine spares, I think the 2026 is going to be another very strong year for that. If you deal with CFM first, then I envisage that it's going to be strong on the CFM56 because the existing fleets continue to work hard. There's still a backlog of parts and the engines are going to be put back on wing and into the air. And similarly -- and maybe even a higher area for those B2500 and the GTF engine. So spares demand is going to be very strong. And as these jet engines transition to the new, I'll say, versions of them, so the new parts, which have got into the LEAP-1A and the ones which should go into the 1B next year and then into the GTFA then there'll be not only the OE demand but also the retrofit requirements for improving the robustness of those engines and to get a lot of engines back on wing. So I think I covered it. Mariana Perez Mora: Yes. And if I may squeeze another one. It looks like Asian history now because of how hectic the year is, but it wasn't long ago that you guys have to call for force majeure on the tariffs and raw materials. Could you mind like giving us some color around like how is that today? And how you think about risks on raw materials and pricing and pass-throughs going into next year? John Plant: Well, I think we're pretty solid in terms of pass-through capabilities, either under existing contracts or with new agreements that we've made with our customers for each of our end markets. And so what was the gross effect that we could see, I think, originally, it was up to $100 million that with the delayed implementation and certain exemptions that have been provided maybe that number came down. And then recently, we've seen some of the tariffs increase again, thinking now on the Class 8 area. So it's been moving around and still continues to move around even as recently as yesterday. But the net effect is still sub $5 million for the year, and that essentially is the drag that's just in terms of timing of recovery. So as an issue for Howmet, it really is, I'll call it a nonissue, sub-$5 million, and therefore, hopefully, it disappears into the woodwork in 2026. Operator: The next question comes from Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Congrats, John, on great results and Ken, on your retirement, although I'd argue with Kristine that working with John is plenty of fun. So I don't know what you'll do in retirement, that's even better. Can I... Ken Giacobbe: I can agree with that, because you say stop there and Ken what are you thinking. Sheila Kahyaoglu: Ken, I'm going to actually put this one on you. Just given, I thought the comments on Howmet being more valuable then the 3 pieces was very interesting. So over the next few years, where do you see Howmet's end state just given where the balance sheet is, leverage is at record lows, margins in each segment are terrific. So lots of areas of expansion. How do you think about Howmet over the next few years? Ken Giacobbe: Yes, Sheila, I think I'm going to have to let John answer that one. I don't want to get fired this late, right? John Plant: So I think the -- if you look at the journey that we've made over the recent years, from trying to install a performance culture through, I'll say, more difficult times of COVID. It came upon us fairly quickly and then trying to really invest in our technology and then really address growing the company. And I think the growth trajectory is very encouraging. And so while we've been like what I call -- walking on chewing gum or doing the -- and it's not at all, we've been growing and improving our margin. And my thought is that we'll continue to do that. But of the value equation, then I think maybe the growth will be a more significant factor over the next 5 years than the margin factor, and that's not to say that the margin won't improve, that's what we come to work for every day to try to achieve that. I think there's lots of things yet to further expand in terms of whether it's increased automation capacities that we have or capabilities that we have in the company. There's the thing which we've been talking a lot about recently about how we can use the artificial intelligence and machine learning in our manufacturing plants. So it isn't just basic automation, it is data collection at extremes that we've never seen before. And when we have the opportunity next March, where we're planning on an Investor Day or Investor Technology Day, but basing it at [indiscernible] plant again and we'll showcase the new manufacturing plants that we have there. And beyond just the fundamental increase in robotics, which I think people have seen. it's also at a high level. It's another stage beyond that. But for me, probably even more important than that is that the what we've termed the digital thread that we've been building throughout the manufacturing process from the chemical compounding right the way through core prep and then into shell and casting and being able to provide data and individual traceability right back to which fundamental elements for each of our parts that we're manufacturing. And then with that huge amount of data that we deal, we are positioning ourselves to collect, is that using various techniques to be able to use artificial intelligence because the sheer scale of data we have or we've got to have available to us takes us something beyond any human being could possibly analyze data crunch and do. So I think that's going to lend towards a further improvement in our ability to improve yields and an improved yield, of course, goes with economics. And then with the improvement in the yields, we can take the design tolerances to yet a further level, which will provide again for the next generation of content improvement and fuel efficiency for both, not only our aerospace segment but also the gas turbine segment. So I think all of that coming together and using a combination of automation and AI and all the things we're trying to position for is going to be good for, Sheila. Operator: The next question comes from Noah Poponak with Goldman Sachs. Noah Poponak: Congrats, Ken, on the retirement and the evolution of this financial model. I wanted to come back to incremental margins. Guys, you had this historical framework a few years ago of 30% to 35% on the incremental and you've now created this kind of wall of tough compares, but you've now had 2 quarters in a row where you've had a well above the 30% to 35% despite comparing to well above that. And so I was hoping to better understand is price or productivity, the bigger driver at the moment. And then as you move into 2026, can you stay above that historical targeted range despite the tougher compares? John Plant: Yes. I mean, again, I'm going to try to steer away from 2026, Noah, at this time. And any number is always going to be a combination of things. And in our incrementals, we've got obviously some leverage for volume. We've got the benefits of automation. We've got the benefits of yield. We've got the benefits of content and also, we have the benefits of price as well. So we have many individual threads going into that. And the only, I'll say, parts which are currently negative would be the fairly high ingestation of labor, which takes, I think, as you know, a fairly significant trading time, never mind just the cost of recruitment. And there's a slight degradation initially from those employees in terms of yield. And so what do I expect going forward is that hopefully, the drag of that labor becomes a little bit less because the denominator gets higher. But my guess is that we're probably going to have to hire a net higher number of people ultimately as we move through 2026 both for priming the pump again at the start of the year as some of the equipment I talked about comes in, plus the fact that we also envisage having to step up again into 2027. And so if you would ask me to call it today, I'd say we'll probably end up with a higher net number. And so you've got that which will weigh upon us while still hopefully achieving all of the productivity improvements from the threads of automation and the new equipment coming in with a much higher level of, I'll say, again, automation that we had in the past. So there's such a lot of moving parts. It's difficult to pass all of that out. And then the only thing I haven't mentioned is the content on average will improve again as we move into next year because we'll be moving from one generation of technology to the new generation technology at some point during 2026 for the LEAP 1B program as an example. And then, of course, we have the GTF advantage, which is also being made today in fairly small lots. But with that significantly increasing as we go into 2026, we need to get to a much fuller run rate in 2027. So there's so much going on. And with the buildout, it's really difficult to give you. I just feel at this point, we've managed our way through fairly well with really healthy incrementals. And I mean anything above -- I mean, if our EBITDA is at 29%, anything above that is incremental beneficial to the company. So I'm feeling as though we're going to be above that for next year. But without -- I'm not willing to comment yet about whether we're going to be on par with our incrementals this year or not or whether inevitably, there has to be some flattening of that. That it's just -- I don't -- wait till February to comment about that. Operator: The next question comes from Scott Deutsche with Deutsche Bank. Scott Deuschle: John, I think you said CapEx will remain at high levels into 2026 as well as into 2027. So just to put a finer point on that, should we be thinking about flattish CapEx in those years relative to 2025? Or could that increase? And then does the mix of that CapEx shift more toward IGT and midsized turbines? Or is the majority of it still focused on aerospace? John Plant: In terms of absolute numbers, the majority is absolute dollars will still be higher for aerospace. But I think there'll be a percentage as a mix of a total. I think that the investments we're making in both the large and midsized turbines will possibly be a higher relative percentage than it is this year. I think the one question I forgot to answer on the way through the Q&A section was what do the economics look like for these turbines? And essentially, it's the same as for aero. So if you were to pick up both our absolute and our incrementals for either the IGT part of our business, both large and midsize or aero, and they're pretty much the same. So it doesn't really matter what, let's say, the color of CapEx, which segment it goes into because they're both very good. And for me, it's more the fact that we have the opportunities. And it is just -- as I look forward, we, I'll say, more or less framed out, well, I think we're going to do in 2026. But every time we sort of examine or have new conversations with our customers, in fact, I was in Europe for the first part of this week. And thank goodness, I got back last night to be able to do our earnings call is again, is only a conversation about improvement in opportunities which are there before us. And so what causes me to believe that 2027 is also going to be significant number for CapEx. And so I -- this year as we've moved up from what we thought was going to be, I don't know, 350 to 370 or something like that, maybe a bit lower on that side. We're now probably going to burst 400. But as you see in 400 but with actually improving cash flow is that I think the greatest pleasure that I'm going to have next year is being able to deploy that amount of capital or more. And we don't deploy capital just because it's fun to do, it's hard work, but it's going to be backed by clear-eye thinking about customer utilization, customer commitment and economic return. And I think you know we have pretty high hurdle rates for that to deploy that fresh capital. So my view is it's a good thing. If we can spend 2025, I think 2026 and more in 2027 and more, then that's going to be a good thing. And we just see increasing opportunities to build out the business. There's no further questions or Drew [indiscernible]. PT, I think we should close given the fact that less than a minute to get -- we can't ask a question. Operator: Mike, did you have a question, Mr. Ciarmoli? Michael Ciarmoli: Yes. John, not to belabor the point, and I'll try and be quick here with the call closing out. But back to these incrementals I mean you're clearly benefiting from spares demand, a combination of legacy utilization, combination of durability issues. I mean, are you overearning on the aerospace spares now? And is that driving the strong incrementals? Does that normalize at some point as maybe some of these light work scopes or different kind of work scopes kind of trend back to normal? John Plant: Well, first of all, in the year, in the short term, pricing into the spares part and that OE part are exactly the same. Over a long-term basis, that are differentiated because of, let's say, parts going to pass model. So no, there's no case of the over-earning in the immediacy. If you go back to previous calls, I have said that what we see is our spares business in total increasing every year for the next 5 years, didn't really want to go beyond 5. We may discuss whether it's always going to be the same angle of increase, but there's no case that I can see where spares don't increase every year through the end of the decade. So that's pretty positive. Thanks, Mike. So it's 11:01. So Drew close the call. Operator: Yes, sir. This concludes our question-and-answer session and the Howmet Aerospace third quarter 2025 Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lincoln Financial Third Quarter 2025 Earnings Webcast. [Operator Instructions] I would now like to turn the call over to Tina Madon, Head of Investor Relations. Tina, please go ahead. Tina Madon: Thank you. Good morning, everyone, and welcome to our third quarter earnings call. We appreciate your interest in Lincoln. Our quarterly earnings press release, earnings supplement and statistical supplement can all be found on the Investor Relations page of our website, www.lincolnfinancial.com. These documents include reconciliations of the non-GAAP measures used on today's call, including adjusted income from operations and adjusted income from operations available to common stockholders or adjusted operating income to the most comparable GAAP measures. Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products, future performance or financial results, including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios, share repurchases, liquidity and capital resources are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2024 annual report on Form 10-K, most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC. These forward-looking statements are made only as of today, and we undertake no obligation to update or revise any of them to reflect events or circumstances that occur after today. Presenting this morning are Ellen Cooper, Chairman, President and CEO; and Chris Neczypor, Chief Financial Officer. After their prepared remarks, we'll address your questions. Let me now turn the call over to Ellen. Ellen? Ellen Cooper: Thank you, Tina, and good morning, everyone. We appreciate you joining us. We delivered strong financial results in the third quarter, marking our fifth consecutive quarter of year-over-year growth in adjusted operating income and underscoring the broad-based momentum and disciplined execution as we accelerate our strategic priorities. We have remained focused and consistent in advancing our vision for Lincoln, and this quarter is another proof point. Each of our 4 businesses continued to make measurable progress against our transformation road map, translating strategy into results and contributing to the strong fundamentals that are reshaping the company into a more agile, scalable and growth-focused enterprise with durable earnings power and a clear path to building long-term shareholder value. The core tenets of foundational capital, enhanced operational efficiency and a strategy for profitable growth are increasingly evident in our results. We're evolving the direction of the organization with a clear focus on increasing our risk-adjusted return on capital, reducing the volatility of our results and growing our franchise. And we're starting to see the benefits of those actions. Our capital position remains well in excess of our 20 percentage point RBC buffer, and we have made significant enhancements to optimize our operating model, creating a more efficient and nimble organization. Our businesses have made notable progress on strategies to shift to products and segments with higher margins, more stable cash flow profiles and greater capital efficiency. We see meaningful opportunity ahead and are continuing to invest for future growth. Our businesses operate in attractive, expanding markets where we compete from a position of strength grounded in our trusted brand, leading franchise and clear competitive advantages in distribution, product manufacturing and customer service. Our trajectory continues to accelerate, our track record is increasingly clear, and while our progress won't always be linear, we're confident in the direction we're heading and excited about the path forward. I'd like to briefly comment on our annual assumption review, which continues to be a rigorous and comprehensive process, encompassing all key assumptions. The outcome this year reflected some puts and takes, resulting in a small favorable impact to adjusted operating income in the quarter, highlighting the continued alignment between our underlying experience and our go-forward expectations. The process provides a strong foundation for disciplined evaluation and well-structured governance of assumptions. Now turning to our third quarter performance, excluding the impact of our annual assumption review. Each of our businesses generated robust year-over-year results, reflecting continued momentum and execution against our strategic priorities. Key highlights included Annuities recording earnings growth driven by higher account balances and strong and diversified sales. Life Insurance posted improved earnings, supported by stable mortality and operational efficiencies while achieving higher sales driven by executive benefits. Group Protection delivered earnings that were in line with its prior year record third quarter, healthy premium growth and broad-based sales growth across market segments and products. Retirement Plan Services delivered higher earnings attributable to increased account balances and produced positive net flows in the quarter. Now turning to our business results, starting with Annuities. Our Annuities business continued to deliver excellent year-over-year and sequential sales growth, reflecting sustained progress in our strategy to diversify our new business mix. Reported sales reached $4.5 billion, our fourth consecutive quarter of increased sales with our spread-based products, including fixed annuities and RILA, representing 63% of the new business total. Each of our 3 core product categories, fixed, RILA and variable annuities exceeded $1 billion in sales, supporting our focus on building and sustaining a more balanced product mix, supporting our strategic and financial goals with strong profitability and capital efficiency and underscoring our differentiated ability to capture customer demand. Our go-to-market strategy, combined with our breadth of products, deep long-standing distribution relationships and consultative wholesaler model enables us to broaden our addressable markets and reach more customers seeking to retire with confidence and financial security. Our distribution partners value our customer-centric approach, which equips producers with the insights, tools and capabilities to deliver the right solutions while enhancing their productivity and ease of doing business. As a holistic solutions provider with a product suite that continues to expand, we are positioning our Annuities business for further growth. As a leading product manufacturer, we are delivering innovative new features that are meeting evolving customer needs across various environments, further distinguishing us in the marketplace. Our fixed annuity sales increased by 36% year-over-year as we leveraged the foundational product and distribution capabilities we built to sustain a consistent and growing presence in the fixed segment. We also continue to invest in our service model to deliver more seamless value-add capabilities to support our customers. Additionally, during the quarter, we transitioned to fully retaining the flows from our fixed sales, which will enhance the growth of our spread-based earnings over time. Our RILA sales increased 21% year-over-year, a sixth consecutive quarter of sequential growth that reflects our ability to differentiate through distinctive and expanded product features and crediting strategies that resonate with customers. Sales volumes of our traditional variable annuities were also up year-over-year. Our variable product suite offers a broad array of features and benefits that meet customer needs and remain integral to our overall offering. VAs remain a valuable contributor to our overall product mix, generating strong free cash flow and attractive risk-adjusted returns. In summary, these results demonstrate the success we are achieving in delivering a diversified product mix that meets customers where they are across different life stages, risk tolerances and economic environments. The strategy to increase the proportion of our spread-based earnings through profitable new business generation translates into more resilient and predictable cash flows over time while meeting our risk-adjusted return targets and balancing the financial contribution across products. We remain confident in the strategic trajectory within our Annuities business and our ability to leverage our competitive strengths to achieve our profitability objectives. Now turning to Life Insurance. As I've mentioned on prior calls, we have taken decisive steps to reposition this business for long-term value creation. We have strategically shifted our new business mix to emphasize products that support our strategic objectives, those with growing addressable markets that offer compelling value propositions for our customers, enable efficient capital deployment and position us for durable profitable growth. This quarter's results reflect the progress we are making as our strategic realignment continues to gain traction. Excluding the impact of our annual assumption review, Life earnings reached $54 million, marking a significant year-over-year improvement. Sales totaled nearly $300 million with executive benefits accounting for 2/3 of that volume, driven by a couple of large cases. In this product category, we have enhanced our competitiveness through targeted product additions and by strengthening our distribution relationships and expanding our service model, enabling us to deliver a strong quarter for executive benefit sales. While we don't expect this level of sales to repeat in the fourth quarter, given the natural variability in large case activity, we have built the foundational capabilities to support a growing presence in this segment. We are continuing to invest to ensure a long-term growth path and are encouraged by the results we're seeing. Our other Life sales were a well-balanced product mix aligned to our targeted strategy. The momentum this quarter reflects the effect of the deliberate actions we've taken over the past several years, optimizing our wholesaler footprint, emphasizing products with more stable cash flows and enhancing the customer experience. We are continuing to invest in modernizing our service model and advancing our digital offerings to deliver a more integrated customer experience. Through expanded technology, we are differentiating our capabilities to provide real-time insights to support faster data-driven decisions and position us for sustained growth. In the Life business, we are seeing the early impact of our repositioning efforts and remain steadfast in our commitment to enhance and grow this business and realize its full long-term potential. Next, turning to our Group Protection business. As mentioned earlier, Group's earnings were in line with its prior year record third quarter, although modestly below our expectations. Importantly, the core fundamentals of this business remain strong. We continue to execute on our targeted strategy of delivering value across 3 unique market segments: local, regional and national with an ongoing strategic focus on repositioning this business for sustainable profitable growth, transforming how we operate and delivering reliable quality customer service. We're seeing tangible results from our actions as reflected in our year-over-year 5% premium growth, driven by robust sales, strong persistency and pricing discipline across both new and renewal business. Our premium expansion was broad-based with increasing results across all market segments and product categories with supplemental health, a strategic area of focus, increasing 33% year-over-year. This growth underscores the execution of our strategy to diversify across market segments, expand and deepen the product portfolio and invest in the people, process and technology to create differentiated capabilities that deliver a simpler, faster and more connected customer experience. While the third quarter is typically a seasonally lighter sales period, Group delivered year-over-year sales growth of nearly 40%, broadly diversified across market segments and products. In this business, servicing our customers with excellence is a strategic differentiator. As we look ahead, we will continue to drive our segment strategy in a profitable and sustainable way by broadening our distribution relationships, expanding our product suite and continuing to expand our digital tools and technology to drive more productivity, efficiency and effectiveness. Grounded in a strong foundation and disciplined execution from pricing to expansion in growing addressable markets, our Group business is well positioned to drive sustainable growth and profitability. While we expect some variability in results from quarter-to-quarter, the fundamentals are strong, and the long-term trajectory is positive. Now turning to Retirement Plan Services or RPS. RPS delivered a strong quarter, achieving 5% year-over-year earnings growth and first year sales of $2.4 billion as the robust new business pipeline we previously communicated materialized this quarter. Additionally, total deposits increased 20% year-over-year and net flows were positive, driven by the strong sales momentum in the quarter. Our offerings and our core recordkeeping and institutional markets continue to drive meaningful customer engagement, reinforcing our long-term growth potential. Looking ahead, we will continue to focus on initiatives that will enhance our operational and service capabilities, broaden our product offerings and drive greater efficiency as we pursue sustainable and profitable growth. In closing, we are moving forward with conviction, intention and collective determination. The progress we have made is evident not only in our financial results, but in the precision of our execution and operating model we are continuing to refine and fortify and the durability of our capital position. We are expanding our strategic advantage by pivoting toward higher-margin, capital-efficient growth, investing in the foundational core that sharpens our competitive edge and evolving into a more agile, scalable and forward-looking enterprise. Through disciplined transformation, we are building a market-leading franchise equipped to thrive in a dynamic environment, align capital with strategic priorities and capture value where we have built scale and momentum. In summary, we are delivering today while advancing the capabilities that will drive tomorrow. With that, I will turn the call over to Chris. Christopher Neczypor: Thank you, Ellen, and good morning, everyone. Our third quarter results represent another quarter of strong execution and meaningful progress on our strategic initiatives, delivering year-over-year adjusted operating income growth for the fifth consecutive quarter. This continued broadening momentum underscores the effectiveness of our strategy, and a disciplined approach consistently demonstrated across our businesses. Importantly, each of our businesses delivered stable or improved year-over-year earnings. Alongside this, we maintain a strong emphasis on free cash flow generation and capital efficiency, reinforcing Lincoln's ability to deliver attractive risk-adjusted returns and positioning the enterprise for durable long-term success. This morning, I'll focus on 3 primary areas. First, I'll discuss our consolidated results for the third quarter, including the outcome of our annual review of reserve assumptions. Second, I'll provide insights into our segment level performance. And third, I'll offer a brief update on our capital position and investment portfolio. Let's begin with a recap of the quarter. This morning, we reported third quarter adjusted operating income available to common stockholders of $397 million or $2.04 per share. This includes the impact of this year's assumption review, which increased adjusted operating income by $2 million or $0.01 per share. Additionally, our alternative investment returns were largely in line with expectations, delivering an annualized return of just under 10% or $101 million. After tax, this was $2 million below our target or $0.01 per diluted share. Turning to net income. We reported net income available to common stockholders of $411 million or $2.12 per diluted share. The difference between the net income and adjusted operating income was predominantly driven by 2 main factors. First, there was a negative after-tax change of $151 million in the fair value of the GAAP embedded derivatives related to the Fortitude Re reinsurance transaction. This change was primarily driven by the impact of lower interest rates on available-for-sale securities in the funds withheld portfolio backing the agreement with the corresponding offset flowing through accumulated other comprehensive income or AOCI. Second, more than offsetting this negative was a favorable after-tax impact of $324 million within nonoperating income, driven primarily by the positive movement in market risk benefits amid a stable interest rate environment and higher equity markets. Of note, our hedge program continues to perform well, in line with expectations. As in prior years, the effectiveness of our hedging strategy allowed us to take a $50 million distribution from LNBAR this quarter. Before turning to our segment results, I want to briefly touch on the impacts of our annual review of reserve assumptions on adjusted operating income. As I noted earlier, the overall impact from the assumption review this quarter was minimal, resulting in a $2 million net benefit to adjusted operating income. While there were some positive and some negative adjustments, none were material relative to the scope of our reserves. Group Protection earnings benefited from a positive adjustment of $39 million this quarter, driven mainly by updated assumptions in our [ LTD and life lines ], reflecting favorable trends we've seen over the past few years. This was offset by modest negative impacts in both our Life and Annuities operating income of $29 million and $8 million, respectively. As it relates to our life assumptions, the impact this quarter stems from slightly elevated mortality experience within our universal life block, which was primarily offset by more favorable mortality experience in our term block, consistent with the drivers of our recent results. Importantly, policyholder behavior remains broadly in line with our expectations. The impacts of our annual assumption review on our segment results for this period and the prior year period are detailed in our earnings release issued this morning. Now turning to our segment results. Excluding the impact of the assumption review, Group Protection operating earnings were $110 million, consistent with the prior year record third quarter, and the margin for the quarter was 8.1%, reflecting a modest decline of 40 basis points year-over-year. The main driver of our result was a moderation in our disability loss ratio, which increased to 76.7% compared to 70.5% in the third quarter of 2024, excluding the impacts of the assumption review. This increase reflected both volatility, specifically 1 month of unfavorable severity in our LTD experience as well as lower LTD recoveries. While we've seen the volatility in severity normalize, the lower LTD recovery rate will likely continue. Over recent years, enhancements in our claims management practices have significantly improved early-stage resolutions. But as these practices mature, incremental benefits naturally moderate. Offsetting this unfavorability during the quarter was continued favorability in LTD incidence and continued favorability in Life results. Group life results, in particular, remained strong year-over-year, delivering the second lowest loss ratio post the pandemic, supported by lower incidence and favorable severity outcomes. Excluding the impact of the assumption review, our life loss ratio improved relative to the favorable prior year quarter, declining to 65.3% compared with 71.8% in the third quarter of 2024. Although quarterly fluctuations in mortality outcomes are expected, this continued strength underscores the effectiveness of our disciplined pricing. As a reminder, we typically experience seasonal pressure from the third to fourth quarter. Looking ahead and incorporating the third quarter trends and these seasonal factors, we expect to end the full year with a margin in the range of mid- to upper 8%, representing a roughly 50 basis point improvement year-over-year. We remain confident in our strategy, disciplined execution and ability to deliver attractive and resilient long-term performance. Now turning to Annuities. Excluding the impact of the assumption review, Annuities delivered operating earnings of $318 million, up $18 million year-over-year, driven by higher average account balances, net of reinsurance and continued growth in spread income. Additionally, this quarter's earnings included a benefit of approximately $10 million from favorable expense dynamics, primarily related to expense timing and certain tax items that were partially offset within Other Operations. Turning to spreads. Spread income continued to grow with spread-based products representing 29% of total annuity account balances, net of reinsurance, reflecting our commitment to diversifying our annuity business. RILA account balances increased 16% over the prior year quarter, representing 22% of total balances, net of reinsurance. Fixed annuity account balances were 11% higher year-over-year as we began retaining all of the fixed business we sold during the quarter. From a net flows perspective, VA net outflows continued at a similar pace as in recent quarters, reflecting the maturity of the block, while net flows into spread-based products exceeded $1 billion, further underscoring the success of our strategic diversification efforts. Overall, our Annuities business delivered strong earnings growth, reflecting our ongoing efforts to diversify and strengthen the stability of our earnings base in this business. We remain confident that our disciplined approach positions us well to deliver stable, attractive returns over the long term. Retirement Plan Services reported operating income of $46 million, up slightly from $44 million in the prior year quarter, driven by higher account balances amid a favorable equity market backdrop and spread expansion. This was partially offset by pressure from stable value outflows over the past 12 months, although the level of stable value outflows has stabilized in recent quarters. Sequentially, earnings improved by $9 million, the result of favorable equity markets and improved spreads. It's worth noting that this quarter benefited from approximately $2 million of nonrecurring items, primarily driven by net investment income favorability, which had an offset in Other Operations. Base spreads were 107 basis points, up from the prior quarter and prior year. The sequential increase reflects normalization following last quarter's onetime administrative adjustment as well as about 2 basis points of benefit from the nonrecurring net investment income dynamic just discussed. On a normalized basis, spreads are broadly consistent with last year's third quarter. Net inflows totaled $755 million, reflecting strong sales momentum and a robust pipeline noted last quarter. As we look ahead to the fourth quarter, we expect flows to be pressured by a few known plan terminations, the majority of which were not meeting our profitability targets. Account balances benefited from equity market performance with average balances increasing nearly 8% year-over-year. End-of-period balances reached $123 billion, up 5% sequentially. Overall, our third quarter results highlight steady improvement and positive momentum within Retirement Plan Services. While we remain focused on disciplined expense management and continue to target efficiencies aligned with our long-term earnings objectives, it's important to remember that the fourth quarter typically brings a seasonal increase in expenses, which we expect to be a modest sequential headwind. Beyond expense discipline, we remain focused on initiatives aimed at delivering underlying growth and enhancing the long-term profitability of Retirement Plan Services. Now turning to Life. Excluding the impact of the assumption review, Life delivered operating earnings of $54 million for the third quarter compared to $14 million in the prior year quarter. The increase was driven by stabilization of our mortality experience, increased investment income and continued expense discipline. Mortality results for the quarter improved compared to the prior year quarter, driven by lower incidence. While severity was slightly higher, overall experience was consistent with our expectations. Turning to expenses. We continue to see year-over-year improvement driven by disciplined expense management. Net G&A expenses declined 4% compared to the prior year quarter, reflecting continued underlying efficiency. Annualized alternative investment returns for the quarter were roughly 10%, essentially in line with our target, but below the 11% return we achieved in the prior year quarter. More broadly, we are beginning to realize the benefits of increased investment income, driven in part by continued growth in alternative investments, which remain well aligned with our life liabilities as well as ongoing enhancements to our overall investment profile, all of which should continue to support earnings going forward. Overall, the strong results this quarter highlight the ongoing progress that we have made in our Life business, further validating the strategic initiatives we've implemented to position this business for sustained profitability. Turning now to expenses. As we've discussed, expense management remains a strategic priority across the organization, and we've made meaningful progress year-to-date. Through the first 3 quarters, we achieved significant improvements in operational efficiency with expenses tracking favorably compared to the prior year. This disciplined approach has been driven both from a total company perspective and through targeted actions such as within our Life business. However, as is typical, we anticipate that expenses will rise sequentially in the fourth quarter in certain areas, largely attributable to higher variable compensation, including the impact of anticipated growth in sales volumes during the quarter. Additionally, certain strategic investments intended to enhance the long-term profitability of our businesses will have a slightly greater impact in the fourth quarter compared to earlier quarters. Despite this expected sequential increase, our full year expenses will reflect the disciplined actions we've executed this year, which we expect will result in relatively flat expenses compared to the prior year despite higher sales and increased volumes. We remain committed to disciplined expense management, ensuring we maintain and build upon our progress in managing the expense base effectively. Now for an update on capital. We again ended the quarter with an estimated RBC ratio well above our 420% buffer, continuing to maintain a strong excess capital position above our target due to the Bain proceeds and growth in retained free cash flow during the year. As we've indicated previously, we expect to deploy this excess capital over the next year as we execute against our strategic objectives. This quarter, we made meaningful progress on 3 specific initiatives. First, we fully transitioned to retaining all of the fixed annuity business we originate with the exiting of our external flow reinsurance agreement. The strategic objective of achieving a more balanced mix of variable and spread annuity earnings will come through various actions with the full retention of existing sales, the important first step. Leveraging our Bermuda-based affiliate and a more fully optimized asset allocation framework will allow us to expand profitability while a portion of the proceeds from the Bain transaction currently sitting in excess capital will be deployed to support this retention. It's worth noting from a GAAP perspective, you'll see slightly higher retained acquisition expenses in the near term, which should translate to higher spread income and profitability over time. Second, we continue to scale our institutional funding agreement program with $1.9 billion in issuance completed year-to-date. As we've discussed previously, FABN and other similar programs are an important growth engine for our spread earnings and will utilize some of our excess capital over the next year or 2. Over the next year, we plan to begin disclosing the specific earnings metrics as we scale the program. Lastly, optimizing our legacy life block has been a critical objective that we've been working on for the last 3 years. And as we discussed, post the Bain transaction, we are evaluating a number of actions that should enhance the long-term free cash flow from this block. We'll have more to say on this in our outlook discussion next quarter. Looking ahead, we remain committed to a disciplined and balanced approach to deploying our excess capital aimed at enhancing our risk-adjusted returns and positioning Lincoln for sustainable long-term success. Turning to investments. Our investment portfolio delivered solid results in the third quarter, reflecting disciplined management, effective diversification and ongoing execution. Portfolio credit quality remained strong with 97% of investments rated investment grade and below investment grade exposure near historic lows. Our partnership with Bain Capital continues to enhance our investment capabilities, and we are already benefiting from increased sourcing flexibility and execution efficiency. Within private credit, we remain comfortable and confident in our long-standing disciplined approach and continue to lean into investment-grade private and structured strategies as we further optimize our investment portfolio while supporting objectives around sales growth, earnings potential and capital generation. Lastly, alternative investments generated roughly a 2.5% return for the quarter, generally consistent with our long-term expectations and reflecting continued strength across strategies. In closing, our third quarter results reflect another period of consistent execution and meaningful progress on our strategic priorities. We delivered strong earnings across all businesses, advanced initiatives to diversify and enhance our earnings base and maintained a healthy capital position. These outcomes underscore the effectiveness of our strategy and a disciplined approach we've taken to enhance capital efficiency, free cash flow generation and long-term profitability. While our results will not always be linear, the broader momentum across the enterprise remains clear. The actions we've taken this year position Lincoln for a strong 2025, and we remain focused and on track to achieve the objectives outlined in our 2026 outlook. Our commitment to disciplined execution and balanced capital deployment continues to reinforce our ability to deliver durable, attractive risk-adjusted returns and long-term shareholder value. With that, let me turn the call back over to Tina. Tina Madon: Thank you, Chris. Let me turn the call over to the operator to begin Q&A. Operator? Operator: [Operator Instructions] Your first question comes from the line of Joel Hurwitz with Dowling & Partners. Joel Hurwitz: I wanted to start on Life. So good to see another quarter of improved earnings. Can you unpack the drivers there? Anything unusual in the quarter? And then there's been volatility over the past several quarters with Life earnings. I believe your '26 guide that you provided a couple of quarters ago suggested earnings may even be above the level we saw in Q3. Any way you could help us understand the earnings power of this business in the near to intermediate term? Christopher Neczypor: Sure, Joel. It's Chris. What I would say is that this quarter was really a reflection of a stable quarter for the life insurance block. If you think about it, there's drivers of volatility that are probably more outsized for that business. As you're well aware, mortality and alternative investment returns as the 2 big ones. And as I said in my prepared remarks, both mortality and alt returns came in basically as expected for this quarter. And so it's actually a really nice quarter because you can see in a stable environment for the big drivers of volatility, what the third quarter earnings power would look like. The reason I emphasize third quarter is because, as I'm sure you know, there is seasonality in that business. And so third quarter and fourth quarter tend to be, call it, $20 million higher than the average second quarter tends to -- would represent a flat quarter and then first quarter, the $40 million worse, just given the drivers of mortality. So you could look at the third quarter as a good run rate once you normalize for seasonality. What I would say as it relates to the drivers because when you do that for this year and last year, you are seeing growth year-over-year, which is positive. It's in line with the expectations that we had set out. And it's driven by the things that we said it would be driven by. Its increased net investment income, part of that is the growth in the alternative investment income portfolio, not necessarily the rate which has stabilized, but the growth in the balances. We've discussed how they are a good long-term fit for the long-duration nature of the liabilities. And most importantly, you continue to see the expense discipline that we've talked about and that's starting to come through in a more fulsome way. So at the end of the day, a number of those drivers should continue as we look out over the next couple of years. We're excited about the growth potential as it relates to the earnings power of that business. And it's just nice to have a really clean quarter so you can see what the underlying earnings power looks like for a third quarter. Joel Hurwitz: Got it. That's helpful. And then just on capital, with leverage essentially back to your 25% target and a much improved capital position, where do you guys stand on resuming a share repurchase program? Christopher Neczypor: Yes, Joel, thanks for the question. I think, as you know, we tend to talk in more detail about our capital plans and free cash flow outlook and so forth as part of our fourth quarter earnings call when we give the outlook. What I would say is that relative to the guidance that we put out 2 years ago and then reiterated at the beginning of this year, we are tracking at expectations, if not better, across almost all the metrics. So we feel really good about the direction of the company, both from a GAAP earnings perspective, sales, free cash flow, RBC. We're obviously working through the deployment of the Bain proceeds over the next year. And at the end of the day, as we've talked about before, when we get the fourth quarter and give a more detailed look as it relates to how we're thinking about capital and deployment, both internally and for return to shareholders, we'll go through that in more detail. Operator: Your next question comes from the line of Ryan Krueger with KBW. Ryan Krueger: I had a question to start on Group. So with this year's margin expected to come in at the mid- to upper 8% range, is that a good starting point when thinking about going forward? Or I mean, because I think you probably still had pretty favorable mortality this year, and it sounds like disability maybe is reverting more to a bit of a lower level. So just trying to think through if that's a good starting point or if we should actually normalize a bit lower going forward, at least in the near term. Christopher Neczypor: Sure. I'll answer your question, and I'll give you more detail maybe than you had asked. But if you step back, let's just start by saying that we're -- we feel really good about the trajectory of Group, right? I mean the business there was a 1% to 3% margin business a couple of years ago. We've improved to over 8% last year. We're going to see another 50 basis points improvement this year. You're seeing premium growth 4% to 5% on average. So the outlook for Group hasn't changed. What's happening this quarter is that some of the normalization that we had expected maybe more in 2026 is just happening a little bit earlier. And I'll unpack all of that. But I just want to reiterate by saying we feel really strong about the trajectory for Group. And at the end of the day, our outlook has not changed. So if you step back and sort of unpack this quarter, and I'll hit on both disability and life to your question. Disability loss ratio, it's up, call it, 6 points. As you know, disability loss ratios are driven by 2 primary things: the incidence, so the new claims being filed and then the resolutions, obviously, the reserves released as claimants return to work. Incidence continues to be very positive. The trend there has been good for a number of years, and we haven't seen any signs of that reverting. It's a positive trend that will revert at some point to a more normalized level. But the incidence trends remain very strong. We would expect that trend to continue into fourth quarter. Resolutions is where we saw less favorability this quarter, and it's really just -- it's driven by 2 things. So if you think about the 6-point change in the disability loss ratio, half of that, we would say, was driven by severity volatility. And so all that means is that during the month of August, the average size of the claim as it relates to resolutions was lower than we would expect. That's volatility that happens. We've already seen that revert in September and October. The other half, though, is a normalization of the resolution rate. And it's still really good compared to historical levels, but it is normalizing off of what was an extremely strong 2024 number. And we would expect that trend to continue. As I mentioned, part of the dynamic that's occurred over the past couple of years is we've invested in our systems and our processes. You were seeing resolutions trend lower than we would expect over the long term, the rate being higher. And so what's -- when we think about our outlook, 2026, 2027 and beyond, we'd always expected that normalization. So at the end of the day, what I would say is third quarter results had a little bit less favorability as it relates to the resolution rate. That was to be expected at some point. We're seeing it start a little bit earlier. But then as you look into next year, our expectation hasn't really changed. On the Life side, I would say 2 things. One, the results have been pretty good over the past 2 years. Part of that, as we emerge further and further away from the pandemic, you're just seeing mortality improvement, and that's reaching a decent steady state. But the other thing that's happened, and we've talked a lot about this is that a good portion of our rate increases or the rate actions in general that we've taken over the past 2 or 3 years have really been executed through the life block. So in 2025, we've seen mortality improvement, and we've seen the impact of the rate actions come through. That's contributing to improved loss ratios. Year-to-date, I think our life loss ratio has improved around 5%. And so that's going to have the favorable mortality in there, the pricing actions. And keep in mind, we also include supp health in the life loss ratio. We'll look to think about incremental disclosures there over time. But at the end of the day, going forward, while we know there will be some volatility quarter-to-quarter, the results this year have been relatively within our expected range. I would say third quarter was probably at the low end of that range. And as we think about fourth quarter, we are continuing to see some of those positive trends. Ellen Cooper: And Ryan, I'll also add that as we think about future growth, we also -- as Chris alluded to and also as you heard in our remarks, we continue to also see premium growth. Now we will always continue to prioritize profitable growth over pure top line growth. But if you look at our overall premium growth, and we talked about the fact that we grew 5% year-over-year. And importantly, we are continuing to lean in, and we see more opportunity in local markets, which is a higher-margin part of this overall business. We've done an awful lot in the last couple of years to invest in the capabilities there to be able to strengthen our overall relationships with brokers that are also leaning in there. And then we see this broadening, expanding opportunity as it relates to supplemental health. And just to give you a sense, when we look at the overall premium growth year-over-year of 5%, 33% growth year-over-year in supplemental health. And in all cases, we see opportunity to just continue to expand lines of coverage in our regional and in national in that space. So we see that there continues to just be future opportunity to grow as it relates to the Group business. Christopher Neczypor: So when you put all that together, Ryan, to answer your question specifically, yes, there will be some normalization of some of the LTD trends that we've talked about. But offsetting that will be the positive impact from the dynamics Ellen just walked through, the growth in supplemental health, continued repricing. So I wouldn't say that we're expecting deterioration in our margin. I think that this quarter, we just saw a little bit of that normalization happen earlier. Ryan Krueger: Great. And I appreciate all those details. One just quick follow-up on disability resolutions. Do you think that -- I mean, do you think that/it has anything to do with the economy? Or do you think it's more just company specific, given how favorable it had been and just normalizing to a more sustainable level? Christopher Neczypor: So I don't know that it really is anything to do with the economy, but I would also say it's more than just company specific, right, Ryan, because there's really 2 dynamics. One has been the increased processes and overall investments in our claims management process. That's certainly -- I can't speak for our peers. That is a very much Lincoln-specific strategic initiative we've talked about. But also as you just think about the fact that incidence rates have been very low over the past 2 years, the composition of your claim inventory has been shifting. And so as you know, late-stage duration -- late duration claims have a lower probability as it relates to being resolved and you work that down. So as the mix of your inventory changes, just to keep it simple, your rate -- the rate itself will normalize over time. And that's not a Lincoln specific thing, that's an industry thing. Operator: Your next question comes from the line of Suneet Kamath with Jefferies. Suneet Kamath: I wanted to start with the assumption review, acknowledging that it was fairly minor. Are there any statutory impacts that we should think about? And is there any kind of ongoing earnings GAAP impacts that we should think about as well? Christopher Neczypor: No, nothing material. We would spike it out if there was anything to note there. Suneet Kamath: Got it. And then I guess on the retention of the fixed annuity business, is that something that we're going to actually see in the earnings in the near term here? Or is that going to take some time to sort of develop? Just curious about the cadence of that. Christopher Neczypor: Yes. Good question. So -- and the answer is both, but for different reasons. So what happens is you'll see the account -- the net retained account balances grow, and you will see increase in investment income and increase in interest credited grow. I will say that one of the things we're looking at is as spread-based account values become a bigger part of the annuities block. We're going to look to get better disclosure next year to more explicitly spike out some of the individual drivers there. But that aside, what you will see is growth in spread income, but that comes in as the assets and liabilities are emerging over the life of the policy. In the near term, what happens is you actually have slightly higher retained acquisition expenses. So this is one of the things that I spiked out in my commentary where because we don't have the flow deal anymore, you don't see the offset as it relates to some of the acquisition expenses. And so that's a slight near-term headwind to Annuities. But then over time, you'll see growth in spread income. Suneet Kamath: Got it. Is there any way to size that drag? Christopher Neczypor: We'll look to give you more color there as it relates to the fourth quarter outlook. I think we've said before that we were ceding 60% to 70% depending on what time period you're looking at as it relates to fixed annuity flow. If you have an estimate for what acquisition expenses are, you could see that. I think in this quarter, we had 1 month of retained -- or actually, I think it was 2 months of retained fixed annuity flow on a 100% basis. So you can look at some of the expense line items there. But we'll get you something more detailed as it relates to the 2026 outlook. Operator: Your next question comes from the line of Alex Scott with Barclays. Taylor Scott: First one I've got for you is just on the topic of private credit. I'd be interested in what your take is on some of the, I guess, one-offs that have kind of popped up recently. And maybe just to add on to that, just your views of potentially growing into private credit as we're looking at the growth in your business, retaining more. I assume that comes with a little more private credit allocation to the Bain partnership. What is your comfort with the stability of that business and the quality of the assets that you're putting on? Christopher Neczypor: Yes. So as it relates to the one-offs, I don't -- we don't have a view. We don't really have exposure or an impact from some of the names in the headlines. What I would say is big picture, I think when you look at our portfolio relative to others, especially relative to others in the annuity space, we've been somewhat underallocated to different parts of the private credit and structured securities asset classes. We certainly have a good healthy allocation over the past 10 years, but it hasn't been a focus of growth the way that it has for others, just given the fact that we haven't been as big in some of the retained spread business historically. So my point is we feel really comfortable with our portfolio. You can look at the investment details that we give each quarter. The credit quality is very stable. Our credit losses this quarter, you can see in the [ investor supp were ], I think one of the lowest quarters of the past quarter -- I mean they're very, very de minimis and in line with the past 2 years, let's say. So we don't see any issues as it relates to the existing portfolio as it relates to growing. Look, we're going to be thoughtful about it, right? We're going to apply the same discipline around portfolio construction and risk management that we've done before. And it's something that we think will be a driver, but it doesn't necessarily mean that we're going to be taking outsized risk. Taylor Scott: Got it. Helpful. Second one I had for you is on the SGUL. You mentioned optimizing that block further. And I just wanted to see if you could provide any extra color around some of the things you're considering. Are we talking about things that are more internal or external reinsurance? Any way you can help dimension that for us? Christopher Neczypor: Sure. And again, I think we'll have more to say next quarter when we give our outlook as we do every year. But Alex, what I would do is probably reiterate what we've said in the past. We think there's a number of ways to continue to optimize that block, some external, some internal. We think that the options as it relates to repositioning the asset portfolio would be a driver to free cash flow and NII over time. We've talked a lot about looking at our historical captive framework and looking for efficiencies there. We've talked about the potential to explore another external deal. So I think we went through this when we announced the Bain transaction, but all of those projects are in the works from an exploration perspective, some we think will have real meaningful impact, some we're still studying. But at the end of the day, part of the capital as it relates to the Bain equity will be deployed to execute on a number of the things that we've discussed. Operator: Your next question comes from the line of Wes Carmichael with Autonomous Research. Wesley Carmichael: I had a question on, Ellen, your comments, just thinking about increasing the risk-adjusted ROE of the company and reducing volatility. Just wondering if there's any kind of new developments in terms of products that you want to lean into there. And I understand you've been growing Group Protection, but are there other kind of product areas you'd point to where ROE and cash flow are more attractive now? Ellen Cooper: So we really -- when we think about overall product, first of all, and expansion of product, everything that we're doing inside of each of our businesses is really to support our overall strategic and financial objectives. So the idea of continuing to really lean into places where we see, first of all, growing expandable markets and also additionally stable cash flow and higher risk-adjusted returns. So we really can take it case by case. So for example, we talked about really strong sales in the quarter in Life Insurance. And one of the places there was related to executive benefits. So I want to call out just a couple of things there. We had historically had a presence in executive benefits. But in the last year or so, as we really have been focusing on pivoting the entire Life franchise, we really strengthened our overall offering. We broadened our capabilities there. We continue to deepen our relationships on the distribution side. And we also built some necessary capabilities, dedicated resources, and you see that we put up a couple of large cases in the quarter. And at the same time, all of the sales that you see in the life portfolio as we continue to build momentum there are all products that we've leaned into that are really emphasizing more accumulation and more limited guarantees that also will produce stable cash flows. So we have repriced and put up completely new products in the IUL space as an example. Accumulation VUL is another example. And we also have a risk-sharing product in our MoneyGuard space. And at the same time, we're building tools that differentiate us from presale and post-sale. We've completely optimized the distribution footprint. In our annuity business, one of the places where we believe that we're winning and one of the reasons why we continue to see strong sales, 32% year-over-year sales growth is that in each of our product categories, we're continuing to expand. And there, we've got unique crediting strategies. We have unique index features. We commented already on Group Protection and really leaning into, as an example, supplemental health. And then I'll just call out in Retirement Plan Services, one of the things that is driving our strong sales in the quarter, our small market sales were up 24%. And there, we're leaning into pooled employer plans, and that has also -- that's some of the higher-margin parts of the Retirement business. And our stable value investment only was up more than 2x. And there, we developed a new product as well that was shorter duration. So -- and we will continue because it's part of our competitive advantage to really lean into new product, product expansion, very much listening to the voice of our customer and what the compelling value propositions are and then testing that alongside what meets our strategic and financial objectives. Wesley Carmichael: Got it. And maybe a more detailed question. But I think, Chris, you mentioned a $50 million dividend out of LNBAR. I think it's been a little while since you executed on taking money from that subsidiary, and I appreciate you may want to share more next quarter with the outlook. But is there an annual expected level of dividends out of that sub? Or -- and how much, I guess, do you think it might fluctuate if we get a little more volatility with the macro? Christopher Neczypor: So Wes, what I would say is the $50 million dividend is consistent with what we took last year. And frankly, to your specific question, we saw a lot of volatility in April and May. And so it's actually a good testament to the effectiveness of the hedge strategy. And the overall dynamics as it relates to the way that we operate our variable annuity risk that we were able to take another $50 million dividend this year. I think longer term, as we build excess capital in different parts of the organization, you would expect to see some growth in dividends. As a reminder, we also have our Bermuda affiliate, which is now over a year in the operational phase. So I would say, over time, I would expect growth in dividends from all of our entities, but the fact is that this year was very in line with last year as it relates to the LNBAR dividend. Operator: Your next question comes from the line of Tom Gallagher with Evercore. Thomas Gallagher: Just a few questions on Group Protection. Chris, if I follow what you were saying, it sounds like you think the higher severity trends in disability should improve, but the lower claim recoveries is probably going to continue. And I think you said it was 50-50 in terms of the impact on the loss ratio between those 2 things. So having said all that, is it reasonable to assume the trend into Q4 that's embedded in your guidance should be improvement in the Group disability loss ratio by -- if we had to pick a number, something like 3 points, but then partly offset by higher group life loss ratio just because that was so favorable. Christopher Neczypor: Yes. So Tom, what I would say is first point, this is just a nit, but I wouldn't really call the severity impact the trend. It was 1 month, and that can happen from time to time. So for what it's worth, I mean, it was more volatility than the trend. But that's right. I mean you have the math right. It was about half of the disability loss ratio growth due to that dynamic and the other half due to trend. So if you move from third quarter to fourth quarter, as I mentioned in the prepared remarks, we would normalize for that volatility, but then you also have seasonality that happens in the fourth quarter relative to third quarter for disability. So just keep that in mind. I would say that a loss ratio that's slightly in line with third quarter to maybe up a little bit depending on the degree of seasonality would be a decent expectation for the disability loss ratio, consistent with what we've seen in the past. Thomas Gallagher: Got you. That's a good point on the seasonality. The -- and then I guess just a follow-up. What are you guys seeing in pricing now? You've clearly had pretty good growth in Group Protection. What are you seeing on '26 renewals for rate? Are things softening a bit? Are they stable, firming? Ellen Cooper: So Tom, we will continue to message what we've said in the past, which is it is very competitive out there. It always has been, and it's also rational at the same time. We are continuing to see a strong cycle as it relates to going into the fourth quarter. We are going to continue to lean into prioritizing profitable growth over top line growth. And so you'll see us really focusing on leaning into the places in particular, where we see further opportunity in local markets, as an example, supplemental health, as we called out earlier. And just in general, we would expect that -- you may recall that last year's annual cycle was particularly strong and active across the entire industry. So I think it's fair to expect that you will likely see less activity as we move into the fourth quarter. Thomas Gallagher: Got you. And Ellen, sorry, one quick follow-up on that. So you would expect maybe not as strong as sales, but then better retention. Is that way to think -- is that a way to think about the trade-off of that? Ellen Cooper: So we have seen much improved persistency while putting rate increases through at the same time. And I think a lot of this really speaks to all of the infrastructure, technology and customer service capabilities that we have invested in along the way. Just to give you an example, if -- when we create the infrastructure so that we are -- we have technology that is now connecting directly into our customers. And we build an infrastructure with them, and we're supporting them in terms of ease and access. We just become much more of a long-term partner. And so we've invested in that. It's supporting us in terms of really being able to have more persistent client base and continuing to build on additional digital tools to enable us to just have longer relationships with our customers. Operator: That concludes our question-and-answer session. I will now turn the call back over to Tina for closing remarks. Tina Madon: Thank you, everyone, for joining our call today. If you have any follow-up questions, please don't hesitate to reach out at investorrelations@lfg.com. Thank you for your time. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon. This is the conference operator. Welcome and thank you for joining the Technip Energies Third Quarter 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Phillip Lindsay, Head of Investor Relations. Please go ahead, sir. Phillip Lindsay: Thank you, Maria. Hello and welcome to Technip Energies financial results for the first 9 months of 2025. On the call today, our CEO, Arnaud Pieton, will discuss our 9-month performance and business highlights. This will be followed by CFO, Bruno Vibert, who will discuss our financials. Arnaud will then return for the outlook and conclusion before opening for questions. Before we start, I would urge you to take note of the forward-looking statements on Slide 3. I will now pass the call over to Arnaud. Arnaud Pieton: Thank you, Phil, and welcome, everyone, to our results presentation for the first 9 months. Let me begin with the key highlights. I am pleased to report that Technip Energies has delivered a solid financial performance for the first 9 months of this year. We recorded year-over-year revenue growth of 9%, we maintained strong profitability and we generated a significant uplift in free cash flow. These results reflect our disciplined execution, the strength of our asset-light business model and the commitment of our teams worldwide. Based on these results, we confirm our full year guidance. On the commercial front, we strengthened our global leadership in LNG and modularization. Notably, we were awarded a major contract in U.S. for Commonwealth LNG using our modular SnapLNG solution, a topic I will expand upon shortly. Finally, in line with our strategy to enhance our Technology, Products and Services segment; we announced the acquisition of Ecovyst's Advanced Materials & Catalysts. The transaction broadens our capabilities across the catalyst value chain and upon completion will be immediately accretive to T.EN's financial profile. Turning now to our theme for 2025 and our foremost priority, execution. On Project Delivery portfolio, it continues to deliver solid progress as evidenced by year-to-date revenue trends and margin resilience. We are transitioning into pre-commissioning activities for the first of our 4 trains on the NFE project. Simultaneously, we are intensifying activities on the adjacent project, NFS, which continues to ramp up. Alongside this progress, we are advancing towards completion of downstream projects, including the Assiut cleaner fuels refinery in Egypt and the Borouge ethylene plant in the UAE. In TPS, we have been achieving important milestones across a range of decarbonization projects. We have successfully started up the first plant deploying our innovative Canopy by T.EN solution for Carbon Centric in Norway. And for the TPS scope of Net Zero Teesside, we are progressing with the CO2 absorber module fabrication at our facility in India. In summary, the third quarter has seen strong execution across important energy and decarbonization contracts. Let me now provide an update on our recent commercial successes, which have further cemented T.EN's global leadership in LNG and modularization. I am delighted to confirm that we signed another major LNG contract in the U.S. with Commonwealth LNG. This milestone follows the execution by T.EN of the front-end engineering and design. The delivery model for Commonwealth LNG leverages SnapLNG by T.EN, our innovative modular pre-engineered and standardized solution. The Commonwealth LNG facility will feature 6 identical liquefaction trains to deliver a total capacity of 9.5 million tons per annum. We have initiated the project under a limited notice to proceed. This allows us to begin preliminary activities such as placing purchase orders for key equipment. It is important to note that the full value of this contract will only be reflected in our order book upon issuance of the full notice to proceed, at which point it will make a significant contribution to the company's backlog. In conclusion, a very positive development for T.EN, one that enables us to enter the U.S. LNG market on our own terms through early engagement, the application of modular solutions and a disciplined contractual approach. Beyond our recent success in the U.S., I would like to draw attention to several other important awards in LNG and circularity markets. First, our position as a leader in deep offshore floating gas liquefaction has once again been reaffirmed. In August, we secured a large contract for Coral Norte, a floating LNG unit in Mozambique for Eni. This initial scope covers preliminary activities with further order intake anticipated upon full contract award. Second, our early engagement approach continues to be a cornerstone of our success. It positions us strongly for future awards and helps derisk project execution. In line with this strategy, we have been awarded 2 FEED contracts for the Abadi LNG development in Indonesia for INPEX. First, for the liquefaction facilities to deliver annualized production of 9.5 million tons and the second is for the modularized floating gas infrastructure. We remain very confident in our medium-term outlook for further LNG awards. Lastly, we have secured a key service role for the Ecoplanta waste-to-methanol project in Spain for Repsol. This award builds on the strategic collaboration between Technip Energies and Enerkem and illustrates the strength of the partnership in accelerating the deployment of circular solutions at scale. Turning now to September's announcement of the acquisition of Ecovyst's Advanced Materials & Catalysts, AM&C. The acquisition supports Technip Energies' strategy for disciplined growth of our TPS segment. It demonstrates our value-driven approach to M&A, it is financially accretive and it benefits from positive long-term market trends. It will bring in differentiated capabilities in catalyst technologies and advanced materials, enhancing our ability to deliver high performance process critical solutions to our clients. It also adds a new dimension to our catalyst business, unlocking avenues for product development and market expansion. Post completion, a talent pool of 330 people will join Technip Energies bringing complementary skills and expertise into the company and we will ensure the entrepreneurial culture and business momentum of AM&C is preserved through the integration process. Now importantly, the deal will have no impact on our investment-grade credit rating. T.EN will retain a substantial net cash position providing capital allocation flexibility for other opportunities. Before passing to Bruno to review our 9-month performance, I'd like to take a moment to outline how the AM&C acquisition will, following completion, materially enhance our TPS offering across the asset life cycle. With catalyst IP at the core of many process technologies, catalysts serve as a key differentiator in process technology development and are highly complementary to our existing offerings. One of the compelling aspects of catalyst is their consumable nature, which opens multiple recurring revenue streams throughout the OpEx phase. Where T.EN would typically sell process technology once per project, catalysts are replenished multiple times throughout the lifespan of a plant. As such, around 70% of AM&C revenues are tied to operating expenditures, which will improve our long-term revenue visibility. In terms of financial impact, the addition of AM&C will increase the technology and product component of our TPS revenues from 40% to over 45% based on 2024 pro forma. Furthermore, AM&C generates EBITDA margins substantially higher than our TPS segment. In summary, the transaction is all about advancing TPS, accelerating its growth, enhancing profitability and providing T.EN with a platform to unlock further value for all stakeholders. I will now pass to Bruno to discuss the financials. Bruno Vibert: Thanks, Arnaud. Good morning and good afternoon, everyone. I am pleased to present the key highlights of our solid financial performance for the first 9 months of 2025 reported on an adjusted IFRS basis. Our revenues increased by 9% year-over-year reaching EUR 5.4 billion. This growth was underpinned by strong activity levels across our LNG portfolio and offshore projects. Recurring EBITDA rose also by 9% to EUR 478 million delivering a healthy margin of 8.8%, which is stable versus last year. The improvement in TPS profitability was notable although it was offset by a rebalancing of the project delivery portfolio towards more early stage work. EPS recorded a modest increase of 2% year-over-year supported by strength in EBITDA. This was partially offset by lower financial income and an increase in nonrecurring costs mainly attributable to planned investment in Reju and other strategic initiatives, which are more capital allocation in nature. Excluding these strategic investment costs, EPS growth would have been double digit. Free cash flow conversion from EBITDA remained robust at 87%. This strong conversion rate supported free cash flow growth in the midteens compared to last year. In summary, a very solid first 9 months and I'm pleased to confirm that we are on track to achieve our full year guidance. Turning to the performance of our segments. Let me begin with Project Delivery. Revenues have grown substantially rising by 16% year-over-year to reach EUR 4.1 billion. This uplift has been driven by strong activity across LNG projects and growth in contribution from recently awarded projects, including GranMorgu and Net Zero Teesside. On profitability metrics, both recurring EBITDA and EBIT have recorded strong increases with growth rates at or approaching double digits. Recurring EBITDA margins experienced a modest contraction of 30 basis points year-over-year. This movement primarily reflects portfolio rebalancing with a higher proportion of early phase projects, which typically contribute limited margin at this stage. We continue to see the full year EBITDA margin to be consistent with the 9-month performance at around 8%. Finally, our backlog remains reassuringly strong at over EUR 15 billion equating to more than 3x our 2024 segment revenue. This resilience persists despite the absence of major awards during the third quarter and the impact of adverse foreign exchange movements. Encouragingly, our commercial pipeline remains well populated with good proximity to major awards in the coming months and quarters. In summary, Project Delivery continues to demonstrate robust momentum underpinned by solid revenue growth, a healthy backlog and very strong positioning for future opportunities. Turning now to our Technology, Products and Services segment, TPS. TPS revenues declined by 9% year-over-year. Strong volumes in consultancy services and studies and ramp-up of assembly on our carbon capture products were more than offset by a lower contribution from our ethylene furnace deliveries. Additionally, foreign exchange movement had a significant impact on our revenues. In fact approximately half of the overall revenue decline can be attributed to these currency effects with the weaker U.S. dollar being a notable factor. Despite the reduction in revenue, recurring EBITDA increased by 6% year-over-year driven by an impressive 200 basis point margin expansion to 14.8%. This improvement was driven by a strong performance in our productivity activities. Furthermore, catalyst supply and strength in project management consultancy also contributed to this margin expansion. Looking at our order intake. The book-to-bill ratio on a trailing 12-month basis remained above 1, which is a positive indicator. Nevertheless, commercial activity through 2025 has been affected by the broader macroeconomic environment leading to some delays in the awarding of several anticipated larger product and services contracts. As a result, TPS backlog has reduced by [ 16% ] since the start of the year standing at EUR 1.7 billion as of period end. Despite these short-term headwinds, our teams are actively engaged with clients and we see healthy pipeline of tangible opportunities across our core markets. Turning to other key financial metrics beginning with the income statement. Corporate cost for the first 9 months of 2025 totaled EUR 46 million with a return to more normalized pattern in Q3 following the specific factors that impacted long-term incentive plans in the first half of the year. Net financial income remained very positive at EUR 70 million, but trending modestly lower compared to the prior year aligned with the broader movement in global interest rates. Finally, on the P&L, nonrecurring expenses has increased year-over-year presenting a headwind to our EPS growth. As I highlighted last quarter, the majority of these costs are associated with capital allocation decisions. Approximately EUR 35 million relates to the investment in adjacent business models, including Reju, as well as strategic initiatives such as M&A activity. Moving on to the balance sheet. Our financial position remains very healthy. Key line items, including cash, debt and net contract liability are stable compared to our year-end position. Before handing back to Arnaud, let's take a closer look at our cash flows. Free cash flow, excluding working capital, totaled EUR 416 million for the first 9 months corresponding to a robust cash conversion from EBITDA of 87%. This strong result underscores our disciplined execution, the strength of our asset-light business model and the favorable contribution from net financial income. Working capital year-to-date is slightly positive. Capital expenditure at EUR 60 million was modestly up compared to last year. The main investments were directed towards the ongoing expansion of our Dahej facility in India as well as the continued modernization of our facilities and labs. Finally, despite a foreign exchange impact of EUR 201 million, cash and cash equivalents at the end of September stood at EUR 4.1 billion, which is consistent with the year-end position. With that, I now hand back the call to Arnaud. Arnaud Pieton: Thank you, Bruno. And turning now to our outlook. Last November at our Capital Markets Day, I spoke about the global megatrends of population expansion, urbanization and rising economic output; all driving demand for more energy and infrastructure. I talked about the need to supply more energy derivatives like fertilizers and plastics and about producing more with less emissions and less waste. In other words, the critical need for a pragmatic decarbonization with greater circularity. Despite the macroeconomic and geopolitical backdrop, these trends are robust and enduring and as T.EN has the solutions to these challenges, we see opportunities across our markets to build upon our growth potential. Traditional energy sources, particularly natural gas, continue to play a vital role in ensuring energy security and affordability for the foreseeable future. This reality is creating compelling opportunities for T.EN in the near, medium and long-term horizons, notably in LNG and selective offshore developments. The chemical sector, especially ethylene where T.EN is a leader, is seeing early signs of recovery. Plans for greenfield projects and retrofit work are firming up with major investments ahead, notably in markets like India. In decarbonization, the blue molecule space is already a source of opportunity for T.EN where carbon capture remains the preeminent solution for decarbonizing many sectors, notably power generation and cement. In summary, T.EN remains opportunity rich, naturally hedged and positioned to thrive in any energy scenario. So to conclude, our performance for the first 9 months delivered solid year-over-year growth in revenue, EBITDA and free cash flow. We have very notable near-term prospects with potential to strengthen our medium-term outlook and we have excellent visibility for 2026 with already close to EUR 7 billion scheduled for execution next year. As we pursue further growth, we remain disciplined in managing the company's capital allocation and our cost base. We are focused on building for the long term, investing to enhance our differentiation and delivering value creation for our shareholders. With that, we can now open for questions. Operator: This is the conference operator. [Operator Instructions] The first question is from Sebastian Erskine of Rothschild & Co Redburn. Sebastian Erskine: The first one just on TPS and the performance so far. So I'm thinking about the full year, it looks towards the bottom end of the EUR 1.8 billion to EUR 2.2 billion. I'd appreciate to get your thoughts on specifically what's kind of disappointed year-to-date versus your expectations. And then I was intrigued to note in the presentation, you mentioned kind of early signs of recovery in ethylene. I'm just thinking kind of given the supply of polyolefins driven by China and some kind of supply consolidation in Europe and North America, it appears a difficult market. So I appreciate some more details on that and what you're seeing so far. Arnaud Pieton: So let's start with the TPS performance. I'll start with making a bit of a statement in a sense that, yes, TPS 2025 is a bit of a blip, we may call it this way, in a sense and I'll remind everyone of a few things. Technip Energies we were creating in 2021 and since our creation, we have dedicated our investment R&D efforts to low carbon solutions. So we have invested with notable successes and continued successes to bring to the market new solutions and new solutions were mostly in future growth markets such as SAF, carbon capture, circularity for example. And it's fair to say that the environment in 2025 hasn't really been supportive of more CapEx in those areas. But when I look at what is coming our way, I must say that the trend is undisputed. So it's a bit of a game of resilience. We, as a company, must find the right solution, make them investable and affordable for our clients and everyone around. So in the short term, this has impacted 2025. You've heard from Bruno that the services part of our TPS segment has remained really strong. The blip or the disappointment is more coming from the amount of CapEx in solutions for decarbonization and SAF and carbon capture in 2025. But we remain extremely confident for the future. Again, the trend is undisputed. So I will take advantage of your question and my answer to your question to also say that in the short term, this CapEx trend for low carbon solution may impact the growth momentum for TPS in 2026 as well. So in the same way as we have been trending towards the bottom end of the 2025 guidance for this year, I think it might be fair to consider that the same trend will apply to 2026. So maybe calling for a bit of a rebaseline for TPS towards the bottom half of the 2025 guidance for 2026 on a pure organic basis. I'll take advantage of your question as well to remind everyone that during our Capital Markets Day, we also said that we needed to continue to invest in our traditional markets. So in 2026 you will see, I would say, a larger share of our R&D investment being directed towards what people may consider more traditional markets so a bit less decarbonization and a bit more ethylene maybe even though even in ethylene, we are innovating through low emission furnaces. And we continue to invest in all markets, hence also the acquisition of AM&C, which covers both the traditional and the future growth markets. So really, look, the important is maybe a little bit of a blip in terms of the top line, but TPS should not be about top line. It should be about bottom line and we are delivering on the bottom line for TPS as well as for the whole company. And it highlights again the benefits of our model, which combines long cycle Project Delivery and a short-cycle TPS. So I think it speaks to the strength of the company overall. In terms of ethylene, yes, indeed, we see an increased visibility on ethylene and we are anticipating order intake in 2026 based on our various discussions with series of clients. This includes green and brownfield opportunities. The key ethylene opportunities with technology and license selections will happen as early as Q4 2025 so in the weeks to come. Of course if it's pure technical license selection, it will not have a significant impact to our order intake just as yet, but it will follow with potential proprietary equipment award in 2026 and this will be more clearly visible in our order intake for TPS next year and the main areas, as indicated, are India, Middle East, China and Africa. The global ethylene industry today has a capacity that is north of 200 million metric ton per annum and again, ethylene is GDP led and with the expansion driven by demand in packaging, construction, automotive, consumer goods sectors. The global growth forecast at 3% to 4% per annum of this GDP would see the industry capacity grow to north of 300 MTPA by 2040. So there's a large volume of work that is required in terms of greenfield and brownfield in the ethylene sector and we are starting to see those early signs of work and recovery coming our way. Operator: The next question is from Bertrand Hodee of Kepler Cheuvreux . Bertrand Hodee: So I have many question on your LNG potential awards. You've been highly successful commercially, but yet there are significant awards that are not yet in the backlog. And probably can you give us some color on U.S. Commonwealth LNG? Specifically, you've been ordered limited notice to proceed. The project is very close to FID, but had a setback 2 weeks ago in terms of permitting in Louisiana. Maybe you can share your view on that and also whether you think that the client could be in a position of taking FID without having these permits on board? And then if you can give us some color also on Coral, why it's not, I'd say, in the backlog as Eni has taken full FID? And then probably the last one to make the world too on Rovuma LNG, it looks like Exxon is targeting now an FID in Q1. Can you confirm that you've performed the FEED and that the FEED is complete? And probably if you can also give us some color on the FEED, whether it is on the SnapLNG concept or not? Arnaud Pieton: So I'll start with stating that our overall environment and commercial pipeline has not really changed. You're right to say that we haven't seen large awards in Q3 or even through 2025 with the exception of our very large -- I mean the largest blue ammonia plant in U.S. that we signed in Q1. But 2025, we always stated that it would be a year of execution and that not controlling the FID, awards could come very late in '25 or could actually be in 2026. But the long-term fundamentals and the medium-term fundamentals of our markets really remain strong. So the commercial pipeline has not weakened at all and it's not the first year in 2025 where we are seeing a bit of a weak order intake until FIDs are coming, in which case, all of a sudden there is a very nice spike of new awards coming to -- making it to our backlog. So specifically on Commonwealth LNG, first of all, the team is mobilized. We are progressing the work through limited notice to proceed and we continue to be very confident with the project. We obviously don't control the FID. Whether it's this quarter or next makes very little difference for us. We continue and our client is very confident that they can address the small concern that was maybe caused by a permit situation and they are very confident that there is no impact whatsoever on their path to FID from this permit vacation. I will also state that earlier this year, the project was really strengthened with Mubadala Energy agreeing to acquire about 25% stake in the project. So it's giving a lot of credibility to this project. And I mean our contract with Commonwealth LNG also allows for, I would say, a next or an extended limit notice to proceed if the FID is not reached in the weeks or months to come or before year-end. Then we will enter into another phase of limit notice to proceed with, I would say, more money being spent and more investment being made into the project and the team continuing to progress the project. So I would say what you're hearing from me is a high level of confidence in this project because of its progress, its stakeholders and the money that is flowing into progressing the work at this stage. On Coral floating LNG, why not in the backlog? There has been a lot of press about this one. FID has been taken. It's not yet in the backlog because there's a bit of an administrative technicality that needs to happen for the full notice to proceed to be provided. In other words, there's a bit of SPV or special purpose vehicle in Mozambique that needs to be formed and we will receive our purchase order, if I may say, from this SPV. It's a pure administrative exercise and we are very confident that it will happen in the early part of next year. So it will come into -- join our backlog by then. On Rovuma LNG, a very exciting project for Exxon in Mozambique. We have indeed executed the FEED and so therefore, following our guiding principles, we are competing for the project execution. It's a competitive process, as you know, it's all over the press. So our association with JGC is competing against another consortium or JV and we are in, I would say, final stage of finalizing our price. That will be submitted to Exxon in the weeks to come. The concept that is selected is, I would say, very similar to SnapLNG even though it's not totally Snap because there are a few variations in technologies, but nothing major. So it's a concept that we like and that we know really well now because we've worked on the field for the past couple of years. Bertrand Hodee: And just a very small follow-up. Obviously there is some market concern on the low level of revenues for TPS in Q3. I noted that you have EUR 480 million something of revenue for execution for TPS in Q4. It looks to me that something around EUR 500 million or even above is likely within reach for Q4 for TPS now? Arnaud Pieton: Yes. And that's why you've heard from Bruno and myself that we are confirming guidance for the year. So we will be within the range that we provided for 2025, absolutely. Operator: The next question is from Alejandra Magana of JPMorgan. Alejandra Magana: Just 2 quick ones from my end. After the Ecovyst AM&C deal, are you seeing other bolt-on opportunities at similarly attractive multiples or does it make more sense to focus on integration before adding more? And my second one, what is the current share of recurring technology and services within TPS currently? Arnaud Pieton: So to start, I'll start with AM&C and then I'll hand over to Bruno on the level of recurring revenue within TPS. So AM&C, it's a super attractive acquisition that we are making. We are focusing in the short term on integration of course; first of all on the closing and then on the integration. Now I want to characterize a little bit AM&C. AM&C is a business that is, first of all, self-sufficient and performing. That's why in my prepared remarks, I really insisted on the fact that we will be focusing on making sure that we are through integration, maintaining AM&C's ability to operate and be, I would say, entrepreneurial and provide them with the means to invest. So there isn't, I would say, too much integration to do and therefore, I think this speaks in favor of preserving nicely AMC's ability to perform. This addition actually opens the door to actually more avenues and things we can now contemplate to complement the AM&C offering. So it's probably not the end of the journey. But with always some prerequisite, as Technip Energies, we want to preserve investment grade. We will remain selective and disciplined and our M&A targets are focusing on techno product and catalyst and maybe opportunistic in services, but the technology is our priority. So we are contemplating adding complementary technologies and solutions to AM&C and our existing portfolio. So yes, we continue to scout like any good and healthy company is probably doing and we feel really good about AM&C in particular as there isn't a massive herculean effort of integration to do. We will preserve the AM&C objective, if I may say, once it is part of the Technip Energies family. Bruno on... Bruno Vibert: Yes, sure. So on the recurring revenue aspect and contribution within TPS to your point. And as Arnaud mentioned in his remarks, one of the attributes for AM&C and the quality of earnings was the fact that this was 70% OpEx related in terms of revenue generation, which is for us something which is interesting because today, we would be far below in terms of this. When it gets to the current TPS portfolio in terms of services, we may have a few master service framework and we may have very limited operation and maintenance services. So the bulk of our services are really associated to new CapEx. And in the variation of revenues that we've seen this year and the 9% reduction of TPS, as I said, part of it -- almost half of it is FX. But a significant component was the fact that over the last couple of years, we've had a low petrochemical cycle so ethylene cycle, which has resulted to some extent in this movement. So as explained in the CMD, the replication of the ethylene model was I think a good way for us to derisk that we were less dependent on the cycle so to have carbon capture, sustainable fuels, circularity. All these are building blocks to make us a little less dependent on one industry cycle. But second, to your point, yes, having a bit more exposure to the OpEx element such as the catalyst and what it brings in terms of proximity to clients, that's an interesting bolt-on and add-on as a platform to our revenues. So that will absolutely increase the quality of earnings of TPS. Operator: The next question is from Richard Dawson of Berenberg. Richard Dawson: Just a couple of follow-ups from my side. So margins in TPS actually have been running above the top end of guidance year-to-date. Clearly, you had a very strong result in Q2. But looking into Q4, do you still see pretty good sort of solid margins there for TPS? And then secondly, just coming back to the U.S. LNG opportunities and particularly Lake Charles. We saw the client delay FID to Q1 2026, which, to your point, doesn't really matter for earnings estimates going forward. But does this have anything to do with the price refresh campaign on that project concluding? Bruno Vibert: Richard, I'll start with the first question and I think Arnaud will cover the second one. So on TPS margin, yes, to your point, we've seen high margin. That's why at the end of H1 in July, we upgraded guidance in terms of EBITDA percentages and we're absolutely on track there. It was the outcome of good performance from the services aspect of TPS that you should absolutely expect this to continue. And the fact that by the delivery of the furnaces and some of that, we had a bit less contribution from the top line, but then more contribution from the bottom line. As Arnaud mentioned, I think the trajectory and the kind of rebaseline, we are around the same track is in continuity. So yes, although revenues are expected to pick up from TPS on Q4 versus Q3 in terms of bottom line, the bottom line of TPS should continue to be strong. And then when the closing of AM&C is done, we will have a further upside coming from the contribution from AM&C, which will be a further improvement of TPS margin. Arnaud Pieton: So on U.S. LNG and your follow-up question. So we have 2 opportunities in the U.S. on LNG. The first one, which I discussed a bit earlier, which is Commonwealth and on which we have a team already mobilized and therefore, working on this limited notice to proceed. By the way, this limited notice to proceed is the same, I would say, avenue or system that is being used by Eni to allow the progress to happen on Coral Norte. So it's not unusual. And there's on Commonwealth again, money spent and there isn't subject around price or budget. The price verification campaign, that was a contractual phase agreed with our client on Lake Charles LNG, was completed. The good news is that you may have heard from Lake Charles LNG themselves, our client, that the price that we came up with was actually well per expectation for the lack of better word. So this price verification done, the ball is in the hands of our clients and no concerns with regard to cost. The price verification results basically to qualify it as per our client was right. So that's super encouraging. And obviously while we don't control FID, we are hopeful and very hopeful that this FID will be taken next year. Operator: The next question is from Victoria McCulloch of RBC. Victoria McCulloch: And just to follow-up on that point about Lake Charles. Does that mean the price verification that you've done lasts until the end of 2026? Is there a time that you can give us that that lasts for? Obviously we've seen lots of delays to the U.S. LNG FIDs and with respect that continues. So it would be helpful to understand when exactly the refresh lasts until. And then we haven't really talked about SAF today. Can you give us a view on the contracting outlook maybe for the next 6 to 12 months? I think there has been discussed a reported opportunity coming up at some point in this year. Has that slipped again to the right into next year? That would be helpful. Arnaud Pieton: So again, on Lake Charles, the price verification comes with, I would say, the mechanism for price adjustments depending on the delay or the time the client takes from the submission of the price refresh and the actual time for FID. So there is a frame and we are absolutely within the frame in a very controlled manner. So everything is accounted for, if I may say, and planned. So the validity remains because the contract allows for the price adjustment depending on the timing between submission of the budget and actual FID. So no exposure for T.EN and I would say, a constant monitoring of the situation there. When it comes to SAF, so indeed, you're right. We had signaled that SAF was and is an opportunity. So I'm happy to report that SAF remains an opportunity for 2025 and 2026, but including for Q4 2025. So yes, let's see. We are well advanced with one, which I won't share too much on right here, but many and good building blocks for potential FID within this quarter. And more generally speaking, when you think about SAF and you need to think about scale, the SAF projects are kind of feedstock constrained and most will be local plants serving local needs. So don't expect big export projects like for LNG for example. SAF is not about that scale, but there's a lot of SAF needed going forward with -- it's a theme for the long term for sure. EU is 6% by blending by 2030 and 20% by 2035. So that's 15 million ton per annum by 2035. So it's a huge investment required. So even if there was to be a bit of a slowdown as policies can be challenged, there's still a massive potential and it's important to know that T.EN is part of it and it remains an opportunity, including for this quarter. Operator: The next question is from Guilherme Levy of Morgan Stanley. Guilherme Levy: I have 2, please. The first one on a topic that we haven't spoken about today, Reju. You talked about the pace of -- you talked about the nonrecurring expenses this quarter related to this one. So I was just curious about the pace of spending there over the coming quarters. And if you can provide us with an update on FID conversations in terms of service [ Reju ] partners, that would be great. And then the second one thinking about your backlog. Can you quantify to us how much of the TPS backlog and how much of the Project Delivery backlog are denominated in euros or U.S. dollars? Arnaud Pieton: So I'll start with the easy part, if I may. So on Reju in particular, before handing over to Bruno, a bit of -- I'm happy to offer a bit of an update on the progress. So we've continued to progress on Reju development and this progress is coinciding with progress on regulation and policies, which is extremely encouraging for our Reju initiative and the brand that we have created. So in this quarter, we've produced from our demo plant in Germany the first batch of yarn made of RPET or recycled polyethylene and this yarn was subsequently converted into fabric. And we have now the first Reju fabric that has been made available to a series of brands for them to conduct their testing and, I would say, the characterization and the qualification of the product. So really super encouraging and good progress on Reju this quarter and more to come. All that progress is taking us closer to FID of course. Now as we've mentioned in the past, FID remains dependent on of course the level of subsidies that we will and we can benefit from and from the countries in which we've applied for subsidies and contemplated the installation of the first plant. So that is work in progress and we are a few months away from, I would say, finding out what and how many subsidies will be coming our way. Bruno? Bruno Vibert: Yes. So on the FX, of course it's a moving element because of project change and so on and they have a bit of a different setup. On project, most of the projects are delivered with what we call multicurrency, which means back-to-back we invoice to the client the cost of our cost base in a specific currency and this is then recharged as part of the selling mechanism. So a lot of USD, but there is a bit of a hedge which is made through these elements. So Project Delivery is slightly less impacted to some extent by FX on a given year. For TPS, and as I said, about half of the year-on-year movement can be assessed to be associated to FX. When we do services in the U.S., in the Middle East; it's very much USD denominated. So that's why year-to-date you would have close to 50%, for instance, of TPS that was run through USD services. Arnaud Pieton: Maybe on Reju and nonrecurring, Bruno Vibert: Yes. Sure. On nonrecurring, so EUR 49 million and what I said about EUR 35 million being Reju, also adjacent business models and also cost for the quarter that we've incurred notably for consulting and so on for the AM&C transaction. I think it was a very good investment. Part of when I recall the question earlier on having good multiples, it's also the very thorough due diligence that we made on all aspects to get to this point and to cover our base. So overall, I think Reju and adjacent business models are well on track. I think we said EUR 50 million max as an expenditure for 2025. That's what we expressed at the time of the CMD. We are actually on a run rate slightly lower than that. I think we are closer to EUR 10 million over the last couple of quarters as a run rate. And the incremental for this quarter, it was a bit of summer, was around the ad hoc expenses associated to the transaction. The rest of nonrecurring is as always some small restructuring and so on, which is as we have our backlog shift and so on, we always slightly addressed. We are not presenting EPS on an adjusted basis so that's why when you have such an increase in EBIT or EBITDA at 9%, you don't see the full -- this doesn't follow through to the bottom line. But as I said, if you take out the EUR 35 million, which are really investments in capital allocation, you will have close to 15% actually of EPS growth year-on-year. So that's where you see the traction. Arnaud Pieton: We are really investing for the future here and I think it's one of the attributes of Technip Energies is that we have the ability to invest for our future and unlock future value creation. Operator: The next question is from Guillaume Delaby of Bernstein. Guillaume Delaby: I have many questions, but I'm going to stick to one. If I understand correctly, since the beginning of the year within TPS, you've been actually surprised by your carbon capture business, but slightly disappointed by your ethylene business. If I understand correctly, this is about to reverse, i.e., over the coming quarters ethylene could accelerate while CCUS may or might slow down a little bit. Just a confirmation that my understanding is correct. And second point, I understand that there are only very early signs, but should we assume that the provision -- the forecast you made for the ethylene market at the Capital Market Day is still valid? Arnaud Pieton: Yes. So first of all, the forecast is still valid as far as we see. Yes, absolutely. So back to TPS. I mean you're right to say that in the year we've seen some acceleration recently in carbon capture and while ethylene was low and it is about to reverse. Very clear early signs of reengagement and new investments in brownfield and greenfield and also decarbonization with the replacement of furnaces by low emission furnaces for existing infrastructure. Now I wouldn't be, I would say, so negative as to say that carbon capture will slow down. Carbon capture, we have some significant opportunities on the horizon with FID in 2026 probably for projects of significant size. So it's still there. For sure, I think where we would have hoped further acceleration, it's in the space of green hydrogen for example where the business plan is not exactly as we would have expected despite the fact that we were successful last year with the largest green ammonia project in the world in India. Well, the momentum is we have those spikes, but I would say it's not a very recurring trend of awards in that space. So a bit of a disappointment in some of those new markets. Now I think the 2035 trajectory is there for decarbonization. It's here to stay. It's happening maybe not at the pace that we would have preferred or we could have hoped, but it's happening. So I think the fundamentals are here and it's important to -- it's a bit of a game of resilience as I explained earlier. Operator: The next question is from Paul Redman of BNP Paribas. Paul Redman: Two questions, please. The first one is I can see some phasing going on in the backlog for TPS so it looks like some phasing forward. There might be other movements. I just wanted to see whether from '27 into '26, whether you can give any guidance on kind of what's going on there? And then secondly, I just want to ask about the conversations you're having with possible LNG customers and whether you're hearing any growing concerns about gas price outlook in the next decade 2030 plus and whether you think that could have an impact on LNG project sanctions from here? Arnaud Pieton: I'll start with LNG and then I'll hand over to Bruno on the phasing of the TPS backlog. So LNG, the sentiment, as you read the press, is indeed on a potential surplus. But as far as we are concerned, what we're observing is that the energy demand and the coal to gas switching will continue to support the long-term demand growth for LNG. A reminder of the fact that LNG is a supply-led market and very long cycle. So while there might be an oversupply in 2028 when the new trains currently under construction are coming on stream or a lot of them are coming on stream. Well, we are not LNG producers and our customers, they take their investment decision not based on an oversupply that will be probably temporary. They take their investment decision based on their Vision 2040 to meet the demand by then. So LNG is a supply-led market long cycle. If prices do soften, then it will attract a new breed of customers and buyers of LNG and therefore, it will trigger another wave of investment. So we continue to see the total liquefaction capacity needing to be around or north of 900 million tons per annum by the middle of the next decade. So a very healthy pipeline for Technip Energies in spite or despite the short-term softening on price of LNG. And this is not exactly what we are subject to at Technip Energies. The investments are really for the long term and when you take investment decision in 2025, you start producing depending on the size of your project in 2030. So you really look beyond the short-term softening of the price and, if anything, it would just attract more customers. And gas would be a good idea to replace coal and displace coal and gas is very needed for all the data centers. And so yes, that's why we've put and we are putting this 900 million ton number out for the middle of the next decade. Bruno? Bruno Vibert: Yes. In terms of TPS and phasing and backlog scheduling, as always, TPS is a shorter cycle. So you will always have more of the TPS backlog incurred over a short period of time. And usually you have basically the backlog, which represents about 1 year of revenues. In terms of services, you may have some services which are spread out for master service agreements or master services. And then we've seen a bit of acceleration for some project management consultancy. Now where you have somewhat an extended backlog in TPS, it's for construction scopes of equipment and here I think, as I said in my remarks and as Arnaud mentioned also, the work done for the TPS scope of Net Zero Teesside has started well notably at our fabrication yard in India. So firming this up meant that we've been able to reassess the backlog scheduling and certainly more on moving it forward versus backwards due to good progress and good execution. Arnaud Pieton: And I know we are reaching the top of the hour, but I want to take maybe 1 more minute to insist again on the quality of the coverage that we have for 2026 Technip Energies and notably in Project Delivery. We have a large and qualitative coverage for 2026 at EUR 7 billion as I stated during my prepared remarks. So it's putting us well ahead of the curve, if I may say, for achieving our 2028 framework that we declared last year at our Capital Markets Day. So it speaks to the strength of the model we have. And it's not the first time that we see delayed FIDs, but this is not a source of anxiety for us. We continue to remain calm and focus on the right opportunities, the derisked one and those that are compatible with the level of financial performance and profitability that we want to achieve as Technip Energies. Operator: Mr. Lindsay, I'll turn the call back to you for closing remarks. Phillip Lindsay: Thank you, Maria. That concludes today's call. Please contact the IR team with any follow-up questions. Thank you and goodbye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good morning, and welcome to the Third Quarter 2025 Earnings Call for FMC Corporation. This event is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Curt Brooks, Director of Investor Relations for FMC Corporation. Please go ahead. Curt Brooks: Good morning, everyone, and welcome to FMC Corporation's Third Quarter Earnings Call. Joining me are Pierre Brondeau, Chairman and Chief Executive Officer; and Andrew Sandifer, Executive Vice President and Chief Financial Officer. Today, Pierre will provide an overview of our third quarter performance as well as an outlook for the fourth quarter. Andrew will provide an overview of select financial results. After our prepared remarks, we will take questions. Our earnings release and today's slide presentation are available on our website, and the prepared remarks from today's discussion will be made available after the call. Let me remind you that today's presentation and discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including, but not limited to, those factors identified in our earnings release and in our filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's understanding. Actual results may vary based on these risks and uncertainties. Today's discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, free cash flow, organic revenue growth and revenue, excluding India, all of which are non-GAAP financial measures. Please note that as used in today's discussion, earnings means adjusted earnings and EBITDA means adjusted EBITDA. A reconciliation and definition of these terms as well as other non-GAAP financial terms to which we may refer during today's conference call are provided on our website. With that, I will now turn the call over to Pierre. Pierre Brondeau: Thanks, Curt, and good morning, everyone. Before we get into the details of our third quarter results, I want to acknowledge that our sales this quarter were below our expectation. Two factors led to these results. The first is constrained credit for our customers in Brazil and Argentina as a result of low liquidity. The second is pricing pressure from generics, mainly in Latin America. These issues became apparent as we neared the end of the quarter and as the planting season was getting underway in Latin America. We expect both dynamics to persist in the fourth quarter. Consequently, we're accelerating planned cost actions similar to what we did with Rynaxypyr in order to keep a less differentiated portfolio of product competitive. Our belief remains that being a pure-play agricultural sciences company is the right focus, and we have a strong pipeline of innovative technologies to support that. Slide 3 through 5 provide details on our third quarter performance. We reported third quarter GAAP net sales of $542 million, which is 49% lower than prior year. The vast majority of the year-over-year decline is attributed to significant onetime actions taken in India to better position the commercial business for sale. During our last earnings calls, I shared that we are not operating a business in India differently, following the designation of that country's commercial business as held for sale. We've also discussed elevated inventory in the India channel many times. Over the course of the third quarter, we made the decision to take back a substantial amount of channel inventory in the form of returns. To further clear inventory from the channel, we offered pricing credits to distributors, encouraging faster movement of products. These actions are intended to support the sale of our India commercial business. The process is moving forward smoothly with strong interest and a high volume of inbound inquiries. Excluding India, from current and prior year sales, third quarter revenue of $961 million, down 4% year-on-year on a like-for-like basis. This was driven by a 6% price decline, half from adjustments in certain cost-plus contracts with specific diamide partners and half from intensified competition in the market. Despite increased competitiveness, volume grew 2%. The company's growth portfolio increased by mid-single-digit percent with sales of new active ingredients nearly doubling versus prior year. This is evidence of the strong demand for this technology. We remain confident in reaching our target of $250 million of new active ingredient sales by the end of the year. Overall, sales were below our expectation. Much of the shortfall was driven by Latin America, where our sales lagged prior year by 8%. The market landscape in that region is more challenging than we expected due to the 2 factors I touched on earlier, low liquidity leading to constrained credit for our customers in Brazil and Argentina and pressure from generics. About half of our sales shortfall in Latin America was driven by an unwillingness on our part to sell full volumes to customers with credit risk. The other half was due to lost sales mainly to mega farmers, where we were not willing to lower price to levels offered by generics for off-patent product. Generics have always been active in this region, but their impact is increasing in large part because of the favorable registration environment. For example, product registration in the EU or the U.S. can cost upwards of $1 million, whereas in Brazil, the cost of registration is approximately $70,000. This, in combination with recent regulatory legislation, make it faster and cheaper for generics to obtain registration. On a positive note, our decision to invest in an additional route to market in Brazil to serve large soybean and corn growers is proving to be worthwhile. Sales are still ramping up, but we're seeing good results with over 300 new customers invoiced to date. The other regions performed more in line with expectations. While not as intense as Latin America, we did observe generic pressure in Asia and to a lesser extent, North America and EMEA. Sales improved in North America and EMEA, driven by higher volumes, including contribution from the recent launch of Isoflex active in Great Britain. We reported adjusted EBITDA of $236 million with EBITDA margin of approximately 25%. Adjusted EBITDA was 17% higher than the prior year on an as-reported basis and 23% higher than prior year on a like-for-like basis, adjusting for India. The $6 million above the midpoint of our guidance, our strong EBITDA performance reflects disciplined cost control and a focused approach to pricing that prioritize margin and credit quality. The year-over-year improvement was driven mainly by cost of goods sold, including lower raw materials, improved fixed cost absorption and restructuring benefits. EBITDA also benefited from higher volumes and a favorable product mix as our new products saw greater demand. This was partially offset by lower price and an FX headwind. Adjusted earnings per share was $0.89, up 30% from prior year and just above the midpoint of our guidance. The year-over-year improvement was driven by higher adjusted EBITDA. Slide 6 and 7 provide detail on our outlook for the remainder of the year. We're anticipating the condition we observed in the third quarter to continue in the fourth quarter. We're now expecting fourth quarter sales, excluding India, to be in the $1.12 billion to $1.22 billion. On a like-for-like basis, that represents a 2% increase at the midpoint after adjusting for India. We're expecting higher volume to be driven by the growth portfolio. Fourth quarter price is expected to be a mid- to high single-digit headwind due to competitive pricing as well as the impact of cost-plus contract to diamide partners. FX is expected to be a low single-digit tailwind. Fourth quarter adjusted EBITDA is expected to be in the $265 million to $305 million, a decline of 16% at the midpoint on an as-reported basis and a decline of 7% on a like-for-like basis. Lower cost, higher volume and a minor FX tailwind are expected to be more than offset by lower price. Adjusted EPS is forecasted to be $1.14 to $1.36, a decline of 30% at the midpoint due to a lower EBITDA and abnormally low tax rate in the prior year. We are adjusting our full year guidance to include third quarter results and updated fourth quarter guidance. Revenue is now expected to be between $3.92 billion and $4.02 billion. Full year adjusted EBITDA is now expected to be $830 million to $870 million with the reduction to prior guidance mainly due to lower sales. Adjusted EPS is now forecasted to be $2.92 to $3.14. As a reminder, these guidance ranges include contribution from the India business for the first half only. Free cash flow guidance has been lowered to a range of negative $200 million to $0, driven by lower cash from operations. The reduction in guidance reflects the increased pricing pressure we are facing in our core portfolio. To address this issue, we are taking cost action to improve the competitiveness of our off-patent ingredients. When I returned as CEO, my focus was on completing several transformation initiatives. These included correcting FMC inventory in the channel to align with customer target levels, implementing a post-patent strategy Rynaxypyr, establishing an additional route to market in Brazil, ensuring the right resources were in place for our growth portfolio to deliver its full potential and initiating the sale of the India business. With those initiatives now complete, we are continuing to evaluate business to ensure alignment with the strategic priorities and long-term objective. Over the last 2 years, we've removed about $250 million in cost from the business to navigate the challenges of destocking and adjust Rynaxypyr costs to prepare for its off-patent life cycle. We now need to apply that same discipline across our core portfolio, particularly for a nondifferentiated product where we are competing directly on price. We are taking 2 key actions. First, we have initiated a strategic review of our manufacturing footprint. Our intent is to exit active ingredients and formulation plants as well as other sources that are too expensive to operate and transition that production to lower-cost sources. This is a major undertaking. We've already begun the work to identify and develop those alternative sources, and we expect to plan to be fully in place by the end of 2026. Earlier this month, we moved production of 2 active ingredients from one of our facility to other manufacturing locations, where lower cost will strengthen FMC's ability to compete in this post-patents market. Second, we're implementing a broader cost reduction plan across Asia to account for a reduced size of the business following the India sale. Our objective is straightforward: become a cost competitive company capable of competing with generic on less differentiated products in the region, while also growing a portfolio of IP-protected products that command higher margin. By 2028, we expect to have 4 new active ingredients in commercialization alongside a growing family of biological products. Some are already launched in select markets such as Isoflex active and fluindapyr, which are tracking in line with expectations. We continue to strongly believe in the power of our new product pipeline. In a world with more generic products and increasing resistance, new active ingredients will become even more of a true differentiator for FMC. I'll now turn the call over to Andrew to provide more detail on our India results for the quarter and on the cash outlook. Andrew Sandifer: Thanks, Pierre. Let me start with some additional details on the impact of the India held for sale business on this quarter's financial statements. As Pierre noted earlier, we reported GAAP revenue of $542 million for the third quarter. This reflects negative revenue of $419 million in our India held for sale business. The substantial channel inventory in the country was reflected in our financial statements, primarily as receivables. During the quarter, we took several onetime actions to prepare the business for sale. These included physical product returns, taking provisions for additional product returns that will be completed in the fourth quarter and granting price credits to customers on the remaining channel inventory to encourage faster clearing of that channel inventory. Each of these actions had the effect of reducing revenue as well as receivables. The net result was negative revenue for India for the quarter. This will also result in a substantial reduction in inventory held in the channel to much more normalized levels with excess inventory to be held directly on FMC India's books as FMC-owned inventory. We are doing this as we believe it is much easier for a buyer to ascribe more certain value to physical inventory being purchased in a business sale than the receivables, which are subject to collection and other risks. Further, rapidly correcting channel inventory reduces risks associated with recent changes in the application of local indirect taxation rules. We intend to manage the India business with a heightened focus on liquidation of inventory in advance of completing the sale of the business. Third quarter GAAP net loss of $569 million reflects approximately $510 million of charges and write-downs for the India held for sale business. Of this, $282 million reflects the channel inventory actions I just described. The remaining $227 million represents an impairment charge to bring the carrying value of the business to its estimated fair market value. The combination of the channel inventory actions and the impairment charge led to a write-down of the net assets identified as held for sale on our September 30 balance sheet to $450 million. As a reminder, third quarter total company adjusted EBITDA of $236 million excludes the results of the India held for sale business. Moving now to some other specific income and statement items. Third quarter revenue, excluding the India held for sale business, was $961 million, which reflects a 1% currency tailwind with benefit primarily coming from strengthening of the Brazilian real and the euro. We now expect the minor FX tailwinds to revenue experienced in the third quarter to continue in the fourth quarter, primarily driven by the Brazilian real and to a lesser degree, by the euro and Mexican peso. For the full year, FX remains a minor headwind to revenue due to the 2% headwind in the first half. Third quarter interest expense of $64.1 million was up $5.4 million, with the impact of the higher rate on our recent subordinated debt offering only partially offset by lower short-term domestic rates and balance. We now expect full year 2025 interest expense to be in the range of $230 million to $240 million, essentially in line with the prior year, but up from our prior guidance, reflecting slightly higher than previously expected interest expense in the third quarter. We continue to expect depreciation and amortization for full year 2025 to be between $170 million and $180 million. The effective tax rate on adjusted earnings in the third quarter was 12%, which brings our year-to-date effective tax rate in line with the midpoint of our updated expected full year effective tax rate of 12% to 14%. Moving next to the balance sheet and leverage. We ended the third quarter with gross debt of approximately $4.5 billion, up $379 million from the prior quarter. Cash on hand increased $60 million to $498 million, resulting in net debt of approximately $4.0 billion, up $319 million from the prior quarter. Gross debt to trailing 12-month EBITDA was 5x at quarter end, while net debt to EBITDA was 4.5x. Relative to our leverage covenant, which includes adjustments to both the numerator and denominator, leverage was 4.94x as compared to a covenant limit of 5.25x. Moving on now to free cash flow on Slide 8. Free cash flow in the third quarter was negative $233 million, $365 million lower than the prior year period. Cash from operations was down significantly due to the absence of working capital release from payables seen in the prior year period as well as due to delays in collections. Free cash flow year-to-date is negative $789 million with the absence of the working capital improvement seen in the prior year being the key driver. Relative to our internal expectations, free cash flow in the third quarter was significantly impacted by collection delays. In Latin America, these delays are a result of both reduced liquidity in the channel as well as delays in growers monetizing the cotton crop. Elsewhere, collection delays are coming primarily from intensified competitive pressures going beyond price competition to include payment terms as well. In light of actual performance year-to-date, our reduced outlook for EBITDA and our expectation of continued working capital pressures in the fourth quarter, we've reduced our outlook for full year free cash flow to a range of negative $200 million to $0. This updated free cash flow outlook, combined with the $291 million in dividends paid thus far this year, suggests an increase in net debt of roughly $400 million at year-end. As such, we are taking 2 immediate actions. First, our Board of Directors has changed the company's dividend policy to establish a new quarterly dividend payout of $0.08 per share effective with the pending declaration of our next dividend payable in January of 2026. This is an over 85% reduction in quarterly dividend, which will reduce the funding need for the dividend by $250 million in 2026. This will allow significantly more of the free cash flow we generate in 2026 to be debt directed to debt reduction. Second, we've begun discussions with our bank group to further amend the financial covenants in our revolving credit facility agreement to provide us with additional flexibility as we navigate these challenges. We anticipate completing this amendment in the fourth quarter, and we'll provide further updates at that time. These actions are in addition to the cost reduction efforts Pierre described earlier in the call, which will also help increase future free cash flow generation, though they will require a use of cash in the short term. And to be abundantly clear, all free cash flow generated beyond the roughly $40 million required annually to fund the reduced dividend will be directed to debt repayment until we return leverage to healthier investment-grade levels. With that, I'll hand the call back to Pierre. Pierre Brondeau: Thank you, Andrew. Normally, at this time of the year, we would provide some directional commentary for the upcoming year. However, as we look ahead to 2026, there are still a number of uncertainties, not at least of which are tariffs for China and India. On our February earnings call, we will be in a better position to provide formal numerical guidance for '26 as well as new multiyear outlook. Taking a step back, FMC's second half guidance is consistent with last year on a like-for-like basis, excluding India, with sales down 1% and EBITDA up 4% at the midpoints of guidance. Despite a challenging market, volume is growing in the second half as the industry recovers. And while growth is below our initial expectations, performance remains solid, and we are taking decisive actions to strengthen our position. We're adapting our strategy. We're redefining our manufacturing footprint. We're reducing cost. We're making the necessary capital allocation decisions. The growth engine of the company, new active ingredients is intact, and we are protecting our ability to invest in the innovation that differentiate us. With that, we're ready to take your questions. Operator: [Operator Instructions] The first question comes from Duffy Fischer with the company, Goldman Sachs. Patrick Fischer: So on the free cash flow guide, at the midpoint, you're down $400 million versus what you expected last quarter. Can you just talk about the buckets of what's eating up that cash flow? I know some of it is working capital. And then do you think you get a onetime release of that back next year? Or is this going to be a new going forward higher commitment of cash needed for your EBITDA delivery? Andrew Sandifer: Thanks, it's Andrew. I'll take this question. Look, in terms of changes got from last guidance to current guidance on free cash flow for '25, look, it starts with a $60 million reduction in full year EBITDA guidance, right? So let's be clear, we've taken down sales by over $200 million and EBITDA by $60 million since our prior guidance. And that has an impact on collections, which bluntly collections are predominance of the move in guidance between the 2 calls. Lower sales in Q3 and Q4 means less that will be collected. Not all would be collected in those quarters by any means, but we would have collected some of those sales. We're also because of liquidity conditions seeing fewer cash sales. There's a portion of our mix that is sold. It's basically immediate payment as cash sales. Liquidity constraints are limiting that part of the collections mix in Q3 and Q4. And we are seeing competitive pressure that's pushing for longer terms. So the biggest part of the bridge between past guidance and current guidance is collections. There are a couple of other factors. There are certainly some noise around our India exit. There were certain amounts of cash that were built into our guidance being collected in the second half into our prior guidance for India. As we've made adjustments and decisions on how we want to operate that business to better prepare for sale, there is some friction there. And we are seeing some higher cash spending than we had previously anticipated. And this is things like higher tariffs. The India tariffs that are currently in place were not a part of our thinking when we last gave cash guidance. We've taken some additional restructuring actions. As Pierre mentioned, we shut down a manufacturing line that has cash cost for the shutdown of that manufacturing line. And we are seeing higher cash interest expense as we're higher -- carrying higher commercial paper balances or higher working capital. But that bridge, again, the primary piece is collections. So as we look ahead to '26, certainly, we would expect to see delayed collections from the cotton crop in Brazil to be caught up in the early part of '26. But we do anticipate continued competitive pressure on terms. So we're still working through as we think through budget for '26, how we see those dynamics playing out. There's also considerable uncertainty around tariffs. And just as a reminder, we pay tariffs upfront. It takes a long time for that to flow through our P&L to be recognized as revenue and profit through the long supply chain that we have, but those tariffs are paid very early in that process. And then we will have further restructuring expenses in 2026 as we reconfigure our manufacturing network and streamline our Asia operations. So I would expect that we'll have meaningful free cash flow, particularly with the lower funding need for the dividend in '26 to allow for significant debt reduction. But bluntly, at this point, it's just too early to give too strong of an indication for 2026 cash flow. Operator: Next question comes from Ben Theurer with the company, Barclays. Benjamin Theurer: Could you give us maybe a little bit of an indication what you expect the sale price for that India business might be and more color on the buyer interest, that would be appreciated. Pierre Brondeau: So right now, as you could see in the way we are presenting the results, the number of the value -- for the value of that business is about $450 million as a total value. The interest level is very high, and I would say, higher than what we were expecting. The number of inbound request is higher than we're expecting. Vast majority of local companies, but still some international companies and sponsors looking into the business. So the business is -- the process is proceeding quite well. Anything, Andrew, you want to add on the value of the business? Andrew Sandifer: Just to note that we did write down the business to its fair market value of $450 million. That reflects the value of the business, which includes substantial value for the brands as well as the existing business infrastructure that would be transferred to a buyer. It also reflects the value of the working capital that is invested in that business. Operator: The next question comes from Matthew DeYoe with the company, Bank of America. Matthew DeYoe: I appreciate there's a lot of uncertainty in the outlook. And I know there's some patent issues, obviously approaching. But just as we think about the credit position and the expectation for working capital headwinds, tailwinds next year, do you remain committed to the IG rating? And like how do you think about backstopping that? Is equity issuance to protect IG on the table or not? Maybe that's too early to talk about. I just wanted to get a sense. Andrew Sandifer: Yes. Thanks, Matt. It's Andrew again. I think it's a bit early to talk about all the potential actions. I think certainly, we've done a number of things that we were taking with the specific intention of supporting the investment-grade rating. We did the hybrid subordinated offering in May. We've just announced a very significant cut in the dividend. I think at this point, we recognize that our metrics are not currently in line with an investment-grade rating. The agencies have been supportive of working with us as we continue to work through our transformation. We've started discussions with them, but it's a bit of a work in progress at this point. So look, I think we're focused on making sure we're doing the right things for the business and the long-term health and returning over a period of time to investment-grade ratings. How the agencies view that, we influence but don't control. But we're going to do the right things in terms of reducing the use of cash to fund the dividend. So it will allow us time to pay down debt and also to support the restructuring costs that we need to get the manufacturing footprint in its right place. So at this point, I think we expect to end the year, if you take the midpoint of our guidance range for EBITDA and for free cash flow and the implied debt that implies net debt at year-end at about 4x net debt. At that point, it will take a couple of years to get that back into more in line with investment-grade ratings. So we're going to continue to do everything we can to manage cash conservatively, effectively, direct all the available cash to debt redeployment and debt reduction, and we'll keep working with the agencies to show them the path that we see to returning to healthier metrics. Operator: Our next question comes from Jeff Zekauskas with the company, JPMorgan. Jeffrey Zekauskas: There are different structural changes going on in the crop chemical industry. Your competitor, Corteva is going to plans to split into a seed business and a crop chemical business. As you think of competing against them, do you think it will be easier to compete against an entity that's a pure crop chemical company? Or do you think that it will be harder? They'll lack the seed component. Do the seeds make any difference in selling crop chemicals? Pierre Brondeau: Of course, it's a question we've been asking ourselves and which is difficult to answer. My initial reaction and once again, until we are in the situation, it will be difficult to say, but it might not change how difficult it is to compete against the crop chemical company as a stand-alone. It might have a benefit for us, and I'm highly speculating here, is that it might open more for us in the future, the Corteva seed hectares to sell our crop chemical products. So not expecting much of a change. I think Corteva crop chemical will be as good in the future as they are today. Could we be in a situation where we have more opportunities on the seed front of Corteva with their crop chemicals being maybe less captive. That is a possibility. Operator: The next question comes from Edlain Rodriguez with the company Mizuho. Edlain Rodriguez: My quick question, Pierre. Like how much of what's going on right now do you think is FMC specific versus how much is like industry issues? And related to that, like when do you think you'll have a good sense of what's really going on with the portfolio? Because it seems like you play in a game of whack-a-mole. Problems keeps resurfing and then you have to put the fire out. Like when do you think you have a better sense of what's going on with the portfolio? And is it like company-specific versus industry specific? Pierre Brondeau: All right. I'm going to try to answer it. It's an important question. We are obviously looking at. First, let me talk about what is, I would say, industries -- let's face it. We still are in a slow market. The market is not worsening. I think we're at the bottom of the cycle, but the market is not improving. So we are facing a situation where the demand is soft and there is ample capacity mostly due to generics increasing their capacity. So there is -- and especially in places where it's easy for generics to get registration like Asia or Latin America, there is an intensified competition on the non-IP protected product with generic and especially for direct sales to customers. So it's a broader industry statement. Now what is more FMC specific? I think there is a positive FMC portfolio. This is our new technologies. Our new technologies are growing very fast, and there is a very strong demand. Unfortunately, it's not growing fast enough because registration in our industry takes time. So as important as those products are and as important as our growth portfolio is, it is not today large enough to impact significantly the performance of the companies. On the negative front, there is 2 events which are happening. Rynaxypyr, and we talked about it. We don't view that as a growth molecule, and it's a molecule for which we have developed a strategy to protect earnings, but not to grow earnings. Now comes the last point we talked about in our remarks. We were hoping about a year ago to see a market ramping up and being able to defend better a non-IP protected product using branding, using service, using mixtures, IP-protected mixtures. It is a fact that we knew that we had a manufacturing cost, which was not very competitive for part of our portfolio. We believe for the next 2, 3 years, we could live with that. It is not happening. I think with the market remaining soft, we are seeing generics being more and more aggressive, and we are forced to do maybe a bit earlier in a more aggressive way, a complete rethinking of our manufacturing portfolio. So I would say there is a part which is industry linked and then on the FMC side, there is a lot of positive, but '26, '27 are a bit early to see those products influencing strongly. And specifically to FMC is the Rynaxypyr situation we've discussed and our manufacturing costs, which need to be addressed. Operator: Our next question comes from Laurence Alexander with the company Jefferies. Laurence Alexander: How much of your portfolio is now in the category of reassessing the production costs and likely bringing prices down in '26 and '27? And then related to that, does the season in Brazil and the generic pressure, is that also leading you to rethink how much of a diamide reset you might have in '26 and '27? Pierre Brondeau: To answer your first question, I want to be careful because we are just starting this work. And changing manufacturing in our world is not only a matter of changing manufacturing. You also have to take into account new sources and registration. So it's a very involved process. I would say, for sure, we will retain in our manufacturing portfolio, Rynaxypyr, Cyazypyr, the 4 new active ingredients. And there is also 2 important molecule today, which are multi-hundred million barrels, which are produced in some of our low-cost plants, which will stay with us. All of the rest in the analysis is candidates for being moved to a different manufacturing location or different sourcing. Regarding diamides, at this stage, we do not believe what we are talking about is changing our strategy or make us believe we should go further in terms of pricing. That dynamic around Rynaxypyr, especially was very much in place, was already happening. There is nothing changing here. So at this stage, we do not believe it will have an impact. That being said, we've developed a strategy. We are starting implementation, and we will be adjusting as we need between cost to take share over other type of insecticide or lower-end market and high-end mixtures to reinforce our position on the high-end market for Rynaxypyr. So we will adjust, but there is nothing jumping at us right now requiring a change in our strategy. Operator: Our next question comes from Joel Jackson with the company BMO Capital Markets. Joel Jackson: Pierre, you're describing a lot going on obviously at the company. You're talking about redoing maybe how you manufacture for a larger portfolio, you're exiting at India. You've got things with [ Maxstar ] going on next year. You made some management changes recently. As you go through all this, are you starting to think about in any fragmented industry in crop chems, does FMC have the right structure? Should it be acquisitive? Should you start looking at if you should partner with others? I mean, tell me about how deep your thoughts are going here into all the scenarios that could happen. Pierre Brondeau: Yes. I think -- we believe we have a clear path on where the company is going. It's evolving in terms of the speed at which we should do it, but we have a clear path. We do believe if we project ourselves by 2028, we have a very high level of comfort in the way the company should be operating because at that time, between biological, the 4 new active ingredients and sales up here, we will have a very significant growth portfolio, which will be generating strong growth and profit. With all of the work we are doing and it's very heavy lifting in 2026, we would be able to protect our core portfolio, including Rynaxypyr to grow at market speed. And I think at that time, by this time in 2028, when our growth portfolio is significant enough, we will be in a position to be a company which will be looking much more like the company we were in 2018, and the model is showing it. The very positive thing is we know how to change the manufacturing process and structure, and we have a very solid demand on the new technologies which are coming at us, including the one which are not commercialized yet, where we have demand from customers to get accelerated registration from authorities. So I think that is fairly straightforward. I have to be completely honest, the difficult period for us is 2026, while we are readjusting the companies to be able to get to the point I just described. Partnership, I think partnership will be more and more. And also on the technology front will be more and more part of the way we do business. We could see, for example, the discussion and partnership we had on fluindapyr with Corteva. This is working very well. And I think it's going to be the name of the game for crop chemical company in the future. Operator: The next question comes from Patrick Cunningham with the company, Citigroup. Patrick Cunningham: What are the cost reduction initiatives you have in Asia following the India sale? And would exiting more countries in the region potentially be on the table for you or perhaps other regions as well? Pierre Brondeau: I didn't get the first part, [ dear ]. I can answer the second part. Right now, India is an isolated case and is the only country for which we intend to take the type of action we are taking. Other countries in Asia or even for that matter, in Latin America are for historical reasons, not performing as well as we would like, but all of them are fixable, and we have a plan for them. So to the second part of your question, India is an isolated case and the only one for which we are intending to have a sale process. First part of the question? Patrick Cunningham: What are some of the cost actions in Asia? Pierre Brondeau: Cost action in Asia. It's quite simple. I mean think about a region where India reached multi-hundred peak sales with quite a large infrastructure to support India, to support manufacturing there to support research and development and was a very significant part of the region. We have not fundamentally changed the way that region is structured with way significant sales. You do not need the same R&D as before. You do not need the same marketing. You do not need the same sales structure, and you don't need the same administration. So we need to resize the region to something which is much smaller than what it used to be. Operator: Our next question comes from Chris Parkinson with the Company Wolfe Research. Christopher Parkinson: Pierre, there's still a lot of things in terms of your R&D pipeline that have significant value. And obviously, we're seeing good things out of Isoflex, fluindapyr. There are a lot of things in '26, '27, I believe, in the pheromones, nematodes. I mean there's a lot of things that are still there that the market perhaps is overlooking. What is your willingness or aversion to potentially try to monetize or partner with some of the value that's there just to alleviate some of the pressures that the company is currently facing. Is that at all on the table? Or is that something that's just not a consideration? Pierre Brondeau: Interesting question, Chris. As you can guess, this is something we talk about. It always depends where the products stand in its development, and it could generate a different type of partnership. At this stage, we are excluding selling any of the active ingredients, which are the closest to commercialization, and you name the 4 of them as well as some which are in the pipeline getting closer to commercialization. But we very much consider partnership with other companies, we had multiple inbounds in terms of interest for those molecules, and it is something we would not ignore. I could not tell what will be the structure of those partnerships, but it's absolutely something which is on the table, but not selling the molecule and us not participating in the growth of those molecules, which represent the future of FMC. Operator: The next question comes from Aleksey Yefremov with the company KeyCorp. Aleksey Yefremov: Pierre, in light of this shifting environment, you had a goal of keeping Rynaxypyr earnings flat next year. What are your latest thoughts on that? Pierre Brondeau: At this stage, we believe it is still a valid strategy. We've been starting the implementation of a strategy at the end of the third quarter not because we are seeing a major change in the way generics are penetrating new territories because we are still patent protected. But we see customers rightfully so putting their purchase of Rynaxypyr on hold until they see what will be happening early '26 when generics will be coming. So for us, it's a prelude to what we will be facing in 2026. Hence, we put in place -- started to put in place our strategic plan for Rynaxypyr. And if you look at the third quarter number, it's demonstrating that what we do and the way we think about it is valid. Sales are flat. Volumes are up and price is down, which is the fundamental of what we want to do when we implement that strategy in 2026. So at this stage, we are staying with the same plan. We have no indication that we should change it. But as I said before, we shall adapt depending upon this is unfolding. Operator: The next question comes from Vincent Andrews with the company, Morgan Stanley. Vincent Andrews: Andrew, could I ask you on the $2.3 billion of non-India receivables. Is there a way you can help us understand what percentage of those have already been consumed by a grower and you're waiting for them to monetize the crop to be paid versus what percentage is maybe still in the supply chain and hasn't been sold yet and could still be subject to some type of price rebate if market prices have moved negatively versus what that inventory is originally sold for? Andrew Sandifer: Interesting question, not something I can directly answer today, Vincent. I think certainly, as we look at where we are with working capital right now, we're building working capital as we sell into the new seasons in Latin America, in particular. We are seeing an increase like-for-like, excluding India, in receivables year-on-year. So we are watching that closely with what's going on with competitive pressure on terms, et cetera. But I'm not able to characterize the receivables in the way that you're asking today. I think just some general proportions, certainly, in this part of the year and as we get to year-end, you should expect that 40% to 50% of our receivables are in Latin America, which is seasonally appropriate as we are growing. We have seen some delays in collection in Latin America, particularly around the monetization of the cotton crop, as we've talked about. That's led to a modest uptick in past dues, but past dues of short duration in that 30- to 60-day window as we're waiting for farmers to get paid by the commodity houses for their crop. So that's a little bit of color there on working capital, but just I certainly would reinforce working capital receivable is something to get an incredible amount of focus from the management team as we navigate what's going on with market dynamics today. Operator: Final question comes from Josh Spector with the company, UBS. Joshua Spector: Two quick ones. One kind of related to the past one slightly, just around fourth quarter cash from ops. I mean, basically, you need about a $700 million uplift, it looks like to hit your guidance. I mean, is that all net working capital reduction and collections? And do you have visibility towards that with high confidence? And then second, kind of related more around inventory dynamics with weaker demand and more generics pressure, are you taking inventory action that's impacting fourth quarter EBITDA? And is there any carryover risk of that into 2026? Andrew Sandifer: So look, Q4 is always a profoundly positive cash flow quarter for us with the seasonality of working capital, including significant prepayments in the U.S. business. So the proportions you're pointing to, yes, I mean, you're looking at a circa $700 million free cash flow fourth quarter. That is in no ways unprecedented and very much our normal seasonality. Certainly, we are watching closely the pressures on terms and particularly the mix of our sales that are sold sort of on a cash basis collected within the quarter that can impact that. To your second question around inventory, we do expect to end the year with a bit more inventory now than what we had originally contemplated because of lower sales. We have a very long supply chain. So a lot of the active ingredient for those sales was already procured and is in inventory. It may not be all the way into formulated product, but we have that material on hand. And that does impact the way we are thinking about the working capital build that's traditional in the first half of the year for us in terms of what production we need to have materials available to meet the sales plan for the first half of next year. So too early to be too specific on that. But certainly, what's happening with inventory right now will influence our production plans is that for product needed in the first half and will impact what the magnitude of the working capital build in the first half will be next year. Operator: This concludes the FMC Corporation conference call. Thank you for attending. You may now disconnect.
Operator: Good morning and welcome to the Amneal Pharmaceuticals Third Quarter 2025 Earnings Call. I will now turn the call over to Amneal's Head of Investor Relations, Tony DiMeo. Please go ahead. Anthony DiMeo: Good morning, and thank you for joining Amneal Pharmaceuticals' third quarter 2025 earnings call. Today we issued a press release reporting Q3 results. The earnings press release and presentation are available at amneal.com. Certain statements made on this call regarding matters that are not historical facts, including, but not limited to, management's outlook or predictions, are forward-looking statements that are based solely on information that is now available to us. Please see the section entitled Cautionary Statements on Forward-Looking Statements for factors that may impact future performance. We also discuss non-GAAP measures. Information on use of these measures and reconciliation to GAAP are in the earnings release and presentation. On the call today are Chirag and Chintu Patel, co-Founders and co-CEOs; Tasos Konidaris, CFO; our commercial leaders, Andy Boyer for Affordable Medicines; and Joe Renda for Specialty. I will now hand the call over to Chirag. Chirag Patel: Thank you, Tony. Good morning, everyone. We are pleased with our strong third quarter performance, which represents another consecutive quarter of growth, with revenues of $785 million and adjusted EBITDA of $160 million. At Amneal, we focus on delivering innovative and affordable medicines that make a difference for patients and providers. Since our founding in 2002, we have strategically expanded from generics into specialty, injectables, biosimilars, GLP-1, and complex medicines. This portfolio diversification has driven significant and sustainable top and bottom line growth. From 2019 through now, Amneal revenues have grown 11% and adjusted EBITDA has grown 13% on a CAGR basis. With growth in each of the last 6 consecutive years, we are very confident our momentum will continue in the years ahead. Today there are multiple growth drivers that are shaping the future of Amneal. First, in Specialty segment, CREXONT for Parkinson's disease continue to outperform expectations. One year post-launch, CREXONT is delivering strong results across all key indicators. Notably, about 80% of prescriptions are coming from IR patients, underscoring the success of our strategy to expand into the broader patient population. We are confident in peak U.S. sales of $300 million to $500 million for CREXONT. Next, our BREKIYA autoinjector for migraine and cluster headache has now launched. This is the first and only product allowing patients to self-administer with the same medication used in hospitals. It addresses an unmet need for patients who have historically had to go to the hospital ER for relief. Second, in GLP-1s, our strategic collaboration with Metsera positions us very well to play a meaningful role in this very large therapeutic category over the time. Metsera's broad portfolio of injectable and oral weight loss programs continue to quickly advance through the clinical Phase. Third, in biosimilars, we are on track to have 6 marketed biosimilar products by 2027, led by our biosimilars to Xolair. With the U.S. market over $4 billion for this key allergy and asthma product, this represents our largest current biosimilar opportunity. Last month we submitted our BLA for Xolair biosimilar, and we are well positioned to be among the first 2 entrants in this growing market. Both in complex genetics and injectables, in our Affordable Medicine segment, we continue to receive approval for meaningful new products, including risperidone injectable, sodium oxybate, and Bimatoprost Ophthalmic Qvar among others. We expect this segment will continue to grow driven by our diversified portfolio of complex products and steady cadence of impactful new launches. Finally, our health care segment continues to provide diversification, stability, and growth, with a broad portfolio for government, distribution, and unit dose channels. In summary, our growing portfolio is creating meaningful value for patients by expanding access and advancing standards of care, and for providers by delivering a broader and more differentiated portfolio and for investors by driving consistent growth and margin expansion. Over time we have strategically evolved from generics to innovative and complex medicines and our current chapter of growth is the most exciting one yet. As we grow and expand our portfolio, we are advancing towards our strategic goal of becoming America's #1 affordable medicines company. I'll turn the call over to Chintu now. Chintu Patel: Thank you, Chirag, and good morning. As always, I will begin by thanking the global Amneal family. Your unwavering dedication and commitment continue to drive our success. The recipe for continued strong performance is clear: operational excellence, robust innovation, and strategic portfolio expansion. First, in operations, our global manufacturing network and leading capabilities remain a core strategic advantage. We continuously strengthen our operational efficiency through digitalization, automation, and cost discipline, while at the same time innovating in new complex dosage forms to expand our reach. Furthermore, with one of the largest U.S. pharmaceutical manufacturing footprints, Made in America remains a key differentiator for Amneal in the industry. In GLP-1s, our collaboration with Metsera is progressing very well. Leveraging our expertise in R&D and manufacturing, we are building 2 state-of-the-art facilities, one for large scale peptide production and another for advanced sterile fill-finish designed to produce prefilled syringes, cartridges, or vials. At the same time, Metsera's injectable and oral clinical programs continue to show strong efficacy and product profiles with timelines bringing us closer to entering this fast-growing market. In Affordable Medicines portfolio, we look to launch 20 to 30 new products each year. So far in 2025 we have launched 17 new products, with approvals for 13 more to launch in the future. Importantly, it is not just the number of new launches but the value of these recent launches and approvals and how they position Amneal for future growth. For years, our focus has been on complex generics innovation, including injectables, ophthalmics, inhalation, and other advanced dosage forms, essentially the most complex drug-device combinations in pharmaceutical. And as a result of years of hard work and strategic focus, we are in the midst of a concentrated wave of Affordable Medicines new product launches coming to market in the near term. To highlight all of these, we have a new slide in the earnings presentation with the list of some of the key launches ongoing now and coming up next. In the third quarter we expanded our portfolio with several important approvals across key therapeutic areas, including our first long-acting injectable risperidone extended-release in the mental health space, sodium oxybate for narcolepsy, and Bimatoprost for glaucoma, as well as new otic and injectable products like multidose epinephrine for hospitals. Just yesterday we were pleased to receive tentative approval for our first metered dose inhalation product beclomethasone dipropionate generic for Qvar. This is the first of several new inhalation products expected in the coming years as inhalation is a new growth vector starting in 2026. For years we have been discussing the strategic portfolio shift towards the complex products, and with so many meaningful launches, we are at an inflection point. Looking ahead, we have 69 ANDAs pending, of which 64% are complex products and 44 additional products in development of which 95% are complex products. We continue to focus our R&D on high-growth, high-impact products across dosage forms such as inhalation, microspheres, liposomes, and 505(b)(2) specialty injectables. With this strategic portfolio expansion and robust pipeline, we are reshaping our Affordable Medicine business and expect our strong momentum to drive meaningful growth and value creation for years to come. In biosimilars, we remain focused on building our leadership position over time. Our most exciting near-term opportunity is our biosimilar to Xolair, where we submitted our BLA in September, ahead of schedule. Alongside Xolair, we are advancing other key programs including denosumab, with multiple new biosimilar launches expected in 2026 and 2027. In Specialty, our CREXONT open-label Phase 4 study is progressing very well. We are very pleased with early results and look forward to sharing additional data later this year on real-world "Good On" time performance that further supports CREXONT's clinical value and differentiation for Parkinson's patients. We continue to work on several specialty R&D initiatives in focus area of CNS and endocrinology, and we look forward to sharing more as these programs advances. In summary, we are driving operational excellence, advancing our innovation agenda, and expanding our portfolio to deliver robust growth and leadership across our business areas. I will hand it over to Tasos. Anastasios Konidaris: Thank you, Chintu, and good morning, everyone. Q3 was another terrific quarter with continued and sustainable strong growth across our 3 business segments. The resilient and consistent growth is a testament to our strategic choices, diversified portfolio, and robust execution. In addition, we further strengthened our balance sheet with strong cash flow generation, reduced net leverage ratio, and increased our expected full year bottom line guidance. So all in all, an excellent quarter. As I usually do, I'll start with our Q3 and year-to-date results, move on to our balance sheet, and our updated 2025 guidance. Starting with the third quarter, total company revenues grew 12% to $785 million. Our Affordable Medicines revenue grew 8% year over year to $461 million, reflecting strong performance across our broad portfolio of more than 280 products. Key contributors to our growth this quarter were products launched in 2024 and 2025, which added $24 million in revenue and included a number of 505(b)(2)s that meet real customer needs. Specialty revenue was again very strong in Q3, up 8% year over year to $125 million, driven by CREXONT and UNITHROID. In the third quarter, as expected, AvKARE revenues grew 24% to $199 million, fueled by strong growth in the [ government channel ]. AvKARE's growth continues to be driven by strong underlying demographics as well as providing substantial savings to the government with timely access to innovative and very often newly available Affordable Medicines products. Moving down the P&L. Q3 adjusted gross margins were 42.7%, down 150 basis points year over year. However, margins on a year-to-date basis are up 130 basis points. We view our year-to-date gross margins growth as indicative of our underlying performance, and we're confident of growing our full year gross margin compared to 2024. The expansion of gross margin is primarily driven by the innovation and strength of new product launches as well as our relentless focus on driving operating expense efficiencies. Third quarter adjusted EBITDA of $160 million grew 1% driven by top line growth, higher gross profit, and higher commercial costs in support of CREXONT and BREKIYA. It is worth noting that our third quarter adjusted EBITDA includes $22.5 million of R&D milestone payment related to the Xolair BLA filing. Lastly, Q3 earnings per share of $0.17 grew 6% versus prior year on the back of lower interest expense. Let me now shift to our year-to-date performance where total revenue increased 7% driven by growth of 5% in Affordable Medicines, 11% growth in specialty, and 8% growth in AvKARE. Adjusted EBITDA grew 9% and adjusted EPS grew 35% year-to-date. The drivers of our year-to-date growth are very similar to those of the third quarter. Turning to the balance sheet. As a reminder, we're very pleased to complete our full debt refinancing in July which reduces interest costs substantially and extends debt maturities from 2028 to 2032. Also, net leverage at the end of Q3 was 3.7x, down from 3.9x at the end of last year. Overall, our capital allocation priorities remain consistent, that is, invest in higher-return organic revenue growth; number two, reducing net leverage below 3x over the course of time; and finally, remain strategic with business development opportunities that enhance our growth profile and value creation. Moving on to our financial guidance. We're pleased for the second consecutive quarter to update our guidance. For revenues, we continue to expect a range of $3 billion to $3.1 billion. We have raised the lower end of our adjusted EBITDA by $10 million to a new range between $675 million and $685 million, and we have raised the full range of adjusted EPS by $0.05 to a new range between $0.75 and $0.80. Lastly, we expect continued strong operating cash flow between $300 million to $330 million this year and further year-over-year debt and net leverage reduction. Looking to 2026 and beyond, we continue to expect top and bottom line growth supported by our diversified portfolio and multiple growth drivers including CREXONT, BREKIYA, new biosimilars such as Xolair, and a very strong wave of new Affordable Medicines and continued growth in AvKARE. Furthermore, our focus on profitable growth, operating expense synergies, and lower Interest costs are strong catalysts for strong shareholder value creation. With that, I'll turn the call back to Chirag. Chirag Patel: Thank you, Tasos. Our strong Q3 results and updated 2025 guidance underscore the continued momentum across our diversified business. We remain confident as we advance this chapter toward becoming America's #1 affordable medicines company. Let's now open the call for Q&A. Operator: [Operator Instructions] We will now take our first question from Matt from Goldman Sachs. Matthew Dellatorre: Congrats on the quarter. Maybe on the Metsera partnership, could you give us your latest thinking on how the acquisition by Pfizer may impact the agreement? I know you said prior you don't expect this to change anything, given there's a Change in Control clause and that you all collaborated with Pfizer in the past. So just curious on your latest thinking there. And then we obviously saw this morning there's another bid for Metsera by Novo at a higher price. So maybe your thoughts on that dynamic as well. And if there's any meaningful difference from an annual perspective in terms of who ultimately acquires the company. And then maybe secondly, FDA came out with new draft guidance yesterday that essentially removes the need for comparative Phase III efficacy studies for biosimilars. Just curious on your thoughts in terms of how this impacts Amneal and the broader industry and market dynamics going forward. Chirag Patel: Matt, I guess we chose the right partner. Metsera is doing well, I guess. And obviously there are 2 bidders now. And for us, it's really great. We've been working with Metsera for last couple of years and have devoted lots of resources from science, engineering, operations, manufacturing. Very close partner, great relationship, great company, and their programs are advancing well. As you know, Matt, I cannot comment on the current events between Pfizer and Novo, and either one of them, Amneal stands to win because of the higher name recognition on both brands with our partnership where Amneal has rights to 18 countries to market the products and agreement for supply, which is very meaningful as well. So stay tuned. And as it progresses, we'll keep you updated. Your second question, it's awesome. We've been experiencing that. We know from our partners what FDA is willing to do now since they have lots of data over last almost more than 12, 13 years, they have seen the biosimilars, the safety data, their biosimilarity data from the clinics as well. So finally, they are in agreement to push for more biosimilar approval, cut down the cost and time by half. And this is where Amneal's vertical integration would play a key role because it still will take 3 to 5 years for competitors to catch up. So it's great for the industry. Most importantly, it's great for the patients. It's going to create great access. And FDA and HHS is behind us, and entire CMS, to call out all the games that are being played by the brand companies and really promote and create a market for biosimilars. And then making those biosimilars in the United States will even further give the advantages for the companies that invest in America. So we're very excited. There are 117 molecules, only 30 are being worked on, 90 are not being worked on. And biologics, as you know, represents half of the value for the entire pharmaceutical spend. And most of those drugs are very expensive. Bringing affordable access, this is our mission, allows Amneal to take the leadership position. And what we've been saying is become America's #1 affordable medicines company, allows us, in the future if we get the vertical integration done as soon as possible, to have bigger, broader portfolio of 20 to 30 biosimilars and keep adding 5 to 7 every year. I hope that answers your question on where the biosimilars are headed. Very exciting. Operator: Next we will have our next question from Leszek Sulewski from Truist Securities. Leszek Sulewski: Just a follow up for each question, actually. On the biosimilars front, how does that change your overall strategy given this draft guidance potentially finalized as it stands. And then on the opposing side to that, do you see potentially for the increased competition where the price erosion curves ultimately resemble the traditional generics? And on Metsera, understand there are clauses in place with the current contract that you have. You're building out the facilities in India. How is your thinking about that sway the new change of control of the company and then potentially your commercialization rights in the emerging markets? Are there any safeguards in place for you to retain those? And I do have a couple of follow-ups. Chirag Patel: Thank you, Les. So let's expand more on overall strategy for biosimilars. So it would expedite the development timing, it would cut down the cost by almost half. And both are very encouraging. But you still need big biologics manufacturing site, you need the [ liters ] of capacity, you need the teams of hundreds of analytical people, manufacturing, engineering to get all these done and with the U.S. standards, so with FDA and then obviously EMA follows European standards are similar. So the companies, for example, Indian companies who are focused on emerging markets in biologics for years -- for 20 years -- they would have to build a brand new infrastructure that is for the United States and develop the products from the beginning for the United States. So if Amneal increases its footprint through the vertical integration, it will give us the advantage over next 5 years. Then your question on the pricing and competitors, yes, competitors will enter. But it's still expensive. We're not talking about $2 million development of complex generics or $5 million, right? We're talking still about $40 million, $50 million, $60 million, based on the molecule. And still it takes a lot of CapEx to have the infrastructure to produce those and science capabilities and engineering. So as you know, it's complicated manufacturing. The pricing of biosimilars are way higher than the small molecule. So even when you hear the tagline of 80% reduction, if your investment is $40 million to $60 million, you're still doing great. As long as you can execute, be there, and select the molecules which are 2 competitors, 3 competitors enter first so you have advantage of insurance coverage, working with private labels, doing buy and build model, all these 3, you have to have marketing setup as well, which Amneal does have. So that is how I see the biosimilar industry blossoming over next 1, 2, 3, 4, 5, I see it up to 10 years. Even with the competition, it's a great marketplace. As dollars are large, complications are very much there, and there are many molecules to go after. Now you can select $500 million molecule, you can select $1 billion molecule, then no need to just keep going after to the $10 billion and $20 billion that would face 10 competitors. So it is a competitive industry. It was supposed to be competitive. And it will create huge value for the patient and providers and complete backing of U.S. government, which is fantastic to push this, rightfully so. And that was the main intent when the law was passed. So we remain very, very big player and will be to win biosimilars for the United States market particularly, and it also allows us to go global as well. Metsera, your second question, it's the same answer, Les, that we cannot discuss much at this point. As you know we have a solid partnership with Metsera, and we look forward to work with whoever the new partner is, and we're very excited, actually. So stay tuned and we'll update you at the right time. Chintu Patel: And Les, just on a biosimilars I'd like to add a point to what Chirag was saying, first of all, this draft guidance is very encouraging for the entire industry. But unlike small molecules, still in large molecules there are multiple barriers of entry. So the speed to market still it's lot longer. Plus the capacity, unlike small molecule where there was a floodgate of people filing 20, 30, 40 ANDAs, it's not possible. There are 112, 115 biologics products where only 20 or 30 are being worked on. So still there are manufacturing, science, analytical is a very strong aspect of development, and the R&D does not allow you to take 5, 10 biosimilars a year. So still next 10 years if you have a head start and have a vertical integration, there's so many opportunities you can do. And with these new draft guidance, still 3 to 4 filing is max for most of the companies. Leszek Sulewski: Maybe just one more if I could squeeze it in for Tasos. SG&A 3Q run rate, a little bit of a pickup. Is this a good proxy as we move forward? And then second maybe high level. As you think about capital allocation, you're getting into that 3x leverage range over the next couple of years. What do you think of in terms of BD? Is it more transformative or continuation of tuck-ins or even on the biosimilars front, but just in general capital allocations priorities over the next couple of years. Anastasios Konidaris: Les, the answer to your first questions about the run rate of the sales and marketing expense, I think Q3 is pretty indicative where we are because it includes full commercialization expense for CREXONT, which was an additive this year compared to last year. It includes a little bit of a getting the market set up for the exciting new launch of BREKIYA. So I think that's a good run rate. Our priorities here have not changed, and that is, how do we balance building capabilities and products and diversification in a thoughtful, doing the right deals, and at the same time structuring the deals in a way that is affordable. So that was the case, for example, you go back to AvKARE. Many years ago, we acquired 65% of that business, did not acquire the whole thing. It was the right, smart thing from a balance sheet perspective. It also kept the management team engaged with a substantial skin in the game. And that allowed us to delever that business quickly. Then you saw the Metsera deal last year. Again, thoughtful deal, where the partner contributed substantial amount of cash. There's substantial grants that we are expected to receive from the India government, and the CapEx is over the course of time. And that's the way we're thinking about this. The right deal comes up. We've been very vocal for probably the last couple of years about our desire to vertically integrate in the biosimilar space. So we continue to look at that, and we'll update folks when there's something to updating about. But you can continue to expect discipline and doing the right deal at the right time. Operator: We will now take our next question from Chris Schott from J.P. Morgan. Ekaterina Knyazkova: This is Ekaterina on for Chris. So first just on RYTARY, any line of sight of when we could see generic entry. Just wondering if you heard anything from the channel on when Teva could potentially launch. And can you just remind us what you're embedding in guidance for the year? And then on CREXONT -- and then on '26 outlook, it's obviously early, but any initial thoughts on pushes and pulls investors should keep in mind for next year? Anastasios Konidaris: Ekaterina, I'll take the first RYTARY question and then if you don't mind repeating your second question on CREXONT. So a couple of things. So on RYTARY, we have no new indication of whatever may or may not happen there. Earlier on this month, we launched our own authorized generics with a partner. So this was part of a well-documented settlement years ago, and we are receiving the majority of potential profits that may come up on that authorized generic. So overall, the delay of Teva has always been a positive for us. And it's going to be positive I believe for both this year and next year. Chirag Patel: Yes. I think the second one, Ekaterina, is the 2026 as we mentioned in our script, momentum is already here. The approvals we listed it on Page 11 of the company presentation, it tells you that the excitement over the new product launches. Current business is performing really well. So we expect continued growth in 2026 and beyond. Operator: We will now take our next question from David Amsellem from Piper Sandler. David Amsellem: So just a couple for me. Wanted to pick your brain on the Xolair biosimilar. It doesn't look like a particularly crowded market potentially. So how are you thinking about that opportunity? So that's number one. Number two, can you just give us a better sense of how many biosimilars you're looking to file annually and specifically how you're thinking about Part B versus say Part D products and where your priorities lie in terms of whether it's a retail pharmacy setting or institutional setting? So just philosophically wanted to get your thoughts on that. And then lastly on the DHE autoinjector, how are you thinking about that opportunity, and what that market looks like, given that it's particularly crowded, acute migraine space? Chirag Patel: David, Xolair biosimilars, we're pleased that we have filed the product. Our partner has manufacturing capabilities right here in the United States, and it will have additional capacity outside of United States as well. So we obviously would maximize the assets. We use our relationship that we have built over 20-plus years to the same groups of buyers and with 300 products. So we have a deep relationship with whether it's CVS, Caremark, Optum, United, Express Script, Cigna. We enjoy very deep relationship as well as Kaisers and Primes and other smaller private labels. So one market we would be exploring is the private label, which could be very significant in 2-player market as the product by itself is growing 32% for the brand. So very excited about that. And then also there is when you are [ first to ], you typically have the bigger coverage from the PBM, so your other potential customers tend to use your products as well. So we'll maximize the market opportunity for Xolair for sure in advance of approval, which is expected in the fourth quarter next year. On your question on -- I'll continue on the market first, the Part B, Part D. So as you know, we've been vocal about the vertical integration is must, the licensing deals are pretty much dead. That business model will not work, and we I've said that 5 years ago, and it's not like I'm a very genius guy. It's just like what happened in generics. As you know, the complex generics or generics, the room for 2 margins in the United States market it makes it harder; harder for to have a real play in biosimilars. So whoever is vertically integrated is going to benefit big time, especially companies having current capabilities of working on 5, 7 biosimilars per year and filing those. Those will be the winner. And those are obviously filed globally. So I don't see any difference whether it's Part B, Part D. We're going to play in broader biosimilars. And obviously, once the vertical integration is done, we would obviously expand the capabilities into bispecific and ADC. If you're in biologics, then you can do more biologics. So that's where we will look forward to. And also FDA is considering a 505(b)(2) pathway for branded biologics. So that could be exciting as well to bring early access to some of these lifesaving drugs or critical drugs, critical medicines. So we're excited on that. We will play on Part B, Part D, private label, the smaller customers, the insurance coverage. We will be everywhere. I don't see any difference for us, Amneal or major competitors, to not be pretty much in all segments of the market. DHE, it is very exciting. You know the market, right. CGRP, the triptans. But there are almost -- our internal analysis we have put it out there. 132,000 patients fail those first- and second-line therapies. So they're being administered with the well-proven DHE autoinjection in the hospital. We made it autoinjectors so they can administer at home avoiding going to emergency rooms, wait time, travel time. So it's a very useful innovation for patients. And so far, we're getting -- it's very early in the inning but getting great feedback. We've got the team all engaged with the key headache centers and key KOLs. So remains -- you'll see our progress. I don't have any prediction. We've been saying the $50 million to $100 million peak sales. So we'll update as we go. Operator: Thank you. There are no questions waiting at this time. I will pass the conference back over to Chirag Patel for any additional remarks. Chirag Patel: Well thank you very much everyone. Have a great day. Thanks. Chintu Patel: Thank you. Operator: That concludes the Amneal Pharmaceuticals Third Quarter 2025 Earnings Call. Thank you for your participation. You may now disconnect from your line.
Operator: Good day, and thank you for standing by. Welcome to CommScope's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Massimo Disabato, VP, Investor Relations. Please go ahead. Massimo Disabato: Good morning, and thank you for joining us today to discuss CommScope's 2025 third quarter results. I'm Massimo Disabato, Vice President of Investor Relations for CommScope. And with me on today's call are Chuck Treadway, President and CEO; and Kyle Lorentzen, Executive Vice President and CFO. You can find the slides that accompany this report on our Investor Relations website. Please note that some of our comments today will contain forward-looking statements based on our current view of our business, and actual future results may differ materially. Please see our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance. Before I turn the call over to Chuck, I have a few housekeeping items to review. Today, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials. Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our website. All references during today's discussion will be on our adjusted results. All quarterly growth rates described during today's presentation are on a year-over-year basis, unless otherwise noted. I'll now turn the call over to our President and CEO, Chuck Treadway. Charles Treadway: Thank you, Massimo. Good morning, everyone. I'll begin on Slide 2. I'm pleased to announce in the third quarter, CommScope delivered net sales of $1.63 billion, a year-over-year increase of 51% and adjusted EBITDA of $402 million, a year-over-year increase of 97%. These very positive results were generated by strong performance in all of our segments. The third quarter also marked the sixth consecutive quarter that we sequentially improved adjusted EBITDA. The adjusted EBITDA as a percentage of revenue of 24.7% was a record for CommScope since the ARRIS acquisition, reaffirming our strategy of managing what we can control and maximizing on favorable market conditions. Our RemainCo business comprised of ANS and RUCKUS delivered net sales of $516 million in the third quarter, which was 49% above the prior year and delivered $91 million of adjusted EBITDA in the quarter, an increase of 95% versus the third quarter of 2024. RemainCo adjusted EBITDA as a percentage of sales was 17.5%, 400 basis points above the prior year. These businesses continue to benefit from the upgrade cycles as well as new product introductions. In addition to our strong EBITDA performance, we ended the quarter with $705 million of cash, an increase of $134 million in the quarter. This further strengthens our liquidity position, and we expect to generate incremental cash in the fourth quarter. With that, now I'd like to give you an update on each of our businesses, starting with the 2 businesses that will make up RemainCo, ANS and RUCKUS. Starting with ANS. Net sales of $338 million were up 77% in the third quarter compared to the prior year, and adjusted EBITDA was up 169%. These increases were primarily driven by our continued deployment of our new DOCSIS 4.0 amplifier and node products. Our FDX amplifier deployment with Comcast continues to go well, and this is reflected in our results. As stated before, we believe ANS is well positioned with decades of knowledge of our customers' ecosystems and our breadth of new products for service providers to take advantage of the latest DOCSIS upgrade cycle as well as evolving their legacy DOCSIS 3.1 networks. Our product range includes all areas of the HFC network, including DOCSIS 3.1, 3.1E and DOCSIS 4.0 solutions. During the third quarter, we announced that CommScope achieved record-breaking speeds at the CableLabs DOCSIS 4.0 at DAA Technology Interop event. Powered by CommScope's Evo virtual CCAP platform, the team achieved unprecedented speeds of 16.25 gigabits per second in the downstream across 2 load balance DOCSIS 4.0 modems for multiple manufacturers using various chipsets. In related test, the CommScope team also achieved downstream speeds of over 9.4 gigabits per second on a single DOCSIS 4.0 modem. These breakthroughs show that a DOCSIS 4.0 network can compete with the fiber-to-the-home speeds. Additionally, over the last quarter, we found traction with our newly released PON portfolio at a major North American service provider, which will deliver multi-gigabit bandwidth and scalable options for growth. We also deployed our virtual broadband network gateway solution with a major MSO. The vBNG solution is a software-based service that serves as a virtualized alternative to traditional gateways. vBNGs provide scalable, agile and cost-effective broadband services. They help manage subscriber sessions, advanced routing and flexible deployment in various architectures like cloud-native and container-based networks for HFC, PON and mobile networks. At the SCTE Tech Expo last month, we showcased our entire suite of products and solutions that help customers upgrade their networks in the most agile ways possible. On display were DOCSIS 4.0 and unified solutions, including the RPDs and smart amplifiers. Coming out of the show, there seems to be some resurgence of excitement for DOCSIS 4.0 and DOCSIS 3.1E. In addition, during the show, we jointly announced with Comcast that the CommScope DOCSIS 4.0 FDX amplifiers feature an AI-driven management core, which auto detects and corrects network events in real time to deliver superior intelligence, performance and reliability across Comcast's access network. CommScope has long been a world leader in network amplifiers with nearly 10 million shipped since the exception of DOCSIS 1.0 in 1997. In 2026, CommScope plans to introduce amplifiers and remote PHY devices that deliver DOCSIS 4.0 unified operation, supporting both the 1.8 gigahertz extended spectrum DOCSIS and FDX networks with a single device. As we have stated in the past, we are the only solution provider offering the full DOCSIS 4.0 access technology ecosystem, including nodes, DAA modules and amplifiers. CommScope is uniquely positioned to support any operator's path to 10G services. We continue to move forward with our new unified products that are now in the lab testing phase and expected to be available in the first half of 2026. We are pleased with the direction that ANS is headed. As the market shifts towards DOCSIS 4.0, we have positioned our product portfolio to take advantage of many upgrade paths. The new products position ANS to maintain performance as the market shifts away from some of our legacy products. Turning to RUCKUS. Revenue was up 15% in the third quarter compared to the prior year. RUCKUS adjusted EBITDA of $36 million was up $10 million or 38% versus Q3 of 2024. In the third quarter, we saw continued strong demand for RUCKUS driven by our Wi-Fi 7 products and subscription services as well as our go-to-market initiatives. During the quarter, we deployed our first T670 outdoor Wi-Fi access points for large private venues. It is a high-density AI-driven Wi-Fi 7 outdoor access point with a unique programmable directional antenna. We received U.S. federal government certification for our ICX 8200 as one of the first companies to achieve the new FIPS 140-3 certification across our ICX product line, enabling sales to U.S. federal customers. RUCKUS switches are designed to handle next-generation wireless and IoT networks, delivering exceptional and reliable performance. Also at the SCTE Tech Expo, we demonstrated our mobile data offload product. This provides MSOs and their mobile customers with higher data speeds, better reliability, seamless roaming and lower data cost to the operator. Enabled with our cloud-based RUCKUS AI, it delivers unmatched network visibility, analytics and troubleshooting to ensure exceptional customer experience. Utilizing our high-density T670 access point, we provide the required reliability and high throughput that is necessary for mobile data offload. This solution is focused on improving data flow, reducing latency and increased gross data offload tonnage. Customers have expressed interest in this technology, and we expect this to scale in 2026. With the strong year-over-year improvements in the pipeline of innovations, we feel that the challenges in 2024 with channel inventory are now well behind us. We continue to benefit from new products and our vertical market strategies. In addition, we are beginning to see the impact of adding incremental selling resources as indicated by our increase in sales funnel opportunities. We have also seen additional traction in North American service provider market as more customers are interested in our RUCKUS One MDU solutions. These solutions take advantage of our RUCKUS One platform and help managed service providers accelerate time to market and reduce operational costs. This fundamentally changes the deployment economics and delivers faster returns on investment. On top of the strong growth in 2025, RUCKUS is well positioned for strong growth in 2026, driven by our Wi-Fi 7 product offering, growing demand and our strategic go-to-market investments. Despite the announced transaction, I will give a brief update on CCS. In the third quarter, CCS revenue was $1.1 billion, an increase of 51% year-over-year. CCS adjusted EBITDA of $312 million or an increase of 79% as a result of revenue growth, mix and cost leverage. The CCS segment will continue to be a strong cash flow generator until the close of the transaction. Based on current views, we're raising our full year CommScope adjusted EBITDA guidance to $1.30 billion to $1.35 I want to give you an update on the divestiture of our CCS businesses to Amphenol. The sale of the CCS business was approved by our shareholders on October 16. Based on current progress, we now expect the sale to close in the first quarter of 2026. The transaction will allow us to return significant capital to our shareholders and immediately improves our leverage situation. The CCS business has found a great home with Amphenol, and we look forward to working with them to close the transaction. RemainCo will consist of the ANS and RUCKUS segments. Both of these businesses are recovering from challenging market conditions over the last 2 years. However, they have seen strong recovery in 2025. Based on the third quarter strength and Q4 visibility, we now expect RemainCo to deliver between $350 million and $375 million of adjusted EBITDA in 2025. As we service our customers, we have the right products, solutions and scale to win new business. We will continue to focus on what we can control with a strategic focus on supporting our customers, innovating for the demands of future advanced networks and increasing equity value. And with that, I'd like to turn things over to Kyle to talk more about our third quarter results. Kyle Lorentzen: Thank you, Chuck, and good morning, everyone. I'll start with an overview of our third quarter results on Slide 3. For CommScope, we reported adjusted EBITDA of $402 million for the third quarter of 2025, which increased 97% from prior year. Third quarter adjusted EBITDA results were up 19% sequentially versus the second quarter of 2025. Our adjusted EBITDA as a percentage of revenues was 24.7%, the best we have seen since the ARRIS acquisition and increased by 580 basis points year-over-year and 40 basis points versus the second quarter of 2025. For the third quarter, CommScope reported net sales of $1.63 billion, an increase of 51% from the prior year, driven by an increase in all segments. Adjusted EPS was $0.62 per share versus a loss of $0.06 per share in the third quarter of 2024. Order rates were down 8% sequentially in the third quarter of 2025, driven by seasonality and project timing. CommScope backlog ended the quarter at $1.32 billion, down $110 million or 8% versus the end of the second quarter 2025. With our CCS transaction announcement, I would like to separately discuss the strong performance of our 2 businesses that will make up RemainCo, ANS and RUCKUS. Third quarter revenue in these 2 businesses was $516 million, up 49% year-over-year. The stronger revenue resulted in adjusted EBITDA in the RemainCo businesses of $91 million, up 95% versus prior year. We are pleased with the RemainCo third quarter results as they came in above our forecast. Turning now to our third quarter segment highlights on Slide 4. Starting with our ANS segment. Net sales of $338 million increased 77% from the prior year as customer inventory levels stabilized and shipments of our DOCSIS 4.0 products have increased. ANS adjusted EBITDA of $54 million was up $34 million or 169% from the prior year, driven by higher revenue. ANS had a very challenging 2024 as customers continue to delay their upgrade cycle and the legacy business continued to decline. In the fourth quarter, we expect revenue to decrease due to project timing. However, we expect adjusted EBITDA to increase slightly. As we have discussed in the past, ANS is a project-driven business with timing of projects driving some volatility in results, both from a revenue and EBITDA perspective. We experienced a strong rebound in revenue and adjusted EBITDA year-to-date as our investments made over the last 3 years on product development have positioned us for the pending upgrade cycle. The business remains well positioned to take advantage of upgrade cycles while offsetting declines in the legacy business. RUCKUS net sales of $179 million increased by 15% versus the third quarter of 2024, driven by normalized inventory in the channel and stronger market demand as well as our go-to-market initiatives. RUCKUS adjusted EBITDA of $36 million increased 38% from the prior year, driven by the increases in revenue and favorable onetime items in the quarter of approximately $3 million, offset by investment in go-to-market. We continue to see strong market conditions driven by the Wi-Fi 7 upgrade cycle. We expect the strong market conditions to remain in 2026. As noted in previous calls, the overhang from channel inventory lasted through the first half of 2024. We are now seeing the benefits of normalized inventory in the channel as well as growing market demand. We continue to drive our go-to-market strategies and RUCKUS new product initiatives. In addition, we are beginning to see the impact of adding incremental selling resources. However, the net benefit of these new resources will not be realized until 2026. With the additional selling resources, new products and vertical market focus, we are well positioned to grow as we move into 2026. Fourth quarter adjusted EBITDA is expected to decline compared to third quarter results due to the elimination of onetime benefits in the third quarter and seasonality. Finishing with CCS, as Chuck mentioned, net sales of $1.1 billion increased 51% from the prior year. CCS adjusted EBITDA of $312 million increased 79% from the prior year. CCS adjusted EBITDA as a percentage of revenue for the quarter remained strong at 28%, driven by favorable mix and cost leverage. The business continues to perform well, and we look forward to continuing to generate strong cash flow ahead of the sale to Amphenol. Turning to Slide 5 for an update on cash flow. During the quarter, we generated cash flow from operations of $151 million and free cash flow of $135 million. Due to strong results and updated adjusted EBITDA guidepost, we now expect cash to be up approximately $250 million from where we started the year. In this guidance, we still project an investment in working capital and capital expenditures of over $200 million, driven by growth in the business. Turning to Slide 6 for an update on our liquidity and capital structure. During the quarter, our cash and liquidity remained strong. We ended the quarter with $705 million in global cash and total available cash and liquidity of $1.28 billion. During the quarter, our cash balance increased by $134 million. In the quarter, we purchased no debt or equity on the open market. However, going forward, we may continue to use cash opportunistically to buy back debt and equity. The company ended the quarter with net leverage ratio of 5.5x. I will conclude my prepared remarks with some commentary around our expectations for the fourth quarter of 2025. We will continue to focus on running the businesses and delivering results while preparing for the closing of the CCS transaction in the first quarter of 2026. As Chuck mentioned earlier, this is a transformational transaction that creates shareholder value by strengthening the balance sheet. With expected net proceeds of approximately $10 billion, we expect to repay all of our existing debt and redeem our preferred equity. With our excess cash and modest new leverage on the remaining company, we plan to distribute the excess cash to our shareholders as a special dividend within 60 to 90 days of the transaction closing. The exact amount of the special dividend will be determined after closing by the Board. On the performance side, we have seen 6 quarters of sequential quarterly adjusted EBITDA improvement. During the third quarter of 2025, we have continued to see strong performance in all of our business segments. The ANS and RUCKUS segments continue to perform well with third quarter adjusted EBITDA of $91 million, up 95% over prior year. As a result of the continued strong results, we are raising our 2025 RemainCo adjusted EBITDA guidepost from $325 million to $350 million, up to $350 million to $375 million. The midpoint of this RemainCo guidance indicates a sequential adjusted EBITDA decline in the fourth quarter, driven by seasonality, particularly in the RUCKUS business. As for CommScope, we are raising our 2025 CommScope adjusted EBITDA guidepost from $1.15 billion to $1.2 billion, up to $1.3 billion to $1.35 billion. And with that, I'd like to give the floor back to Chuck for some closing remarks. Charles Treadway: Thank you, Kyle. In closing, we have delivered another strong quarter driven by strong market conditions and our focus on internal initiatives. The CCS transaction is ahead of schedule and is now expected to close in the first quarter of 2026. This is a transformational transaction for CommScope that unlocks equity value, allows us to return significant cash to our shareholders and strengthens the businesses. Additionally, we are encouraged by both the performance and positioning of the RemainCo businesses, ANS and RUCKUS. Both businesses exceeded our projections in the quarter, and this performance demonstrates the strong positioning of RUCKUS and ANS. The deleveraging that comes with the CCS transactions positions these businesses for success, growth and value creation. Finally, I would like to thank our team for strong execution. The hard work and dedication of our team with strong support of our equity holders, debt holders, customers and suppliers has driven strong results and positioned all of our businesses for future success. And with that, we'll now open the line for questions. Operator: [Operator Instructions] Our first question comes from Simon Leopold with Raymond James. Simon Leopold: First, maybe hopefully, an easier one is, could you -- I understand you can't quantify the special dividend, but could you help us understand the criteria and how the Board may think about it? And then you did offer some, I think, encouraging comments on the RUCKUS outlook for '26. I was less clear how you're thinking about ANS trends specifically for '26. You did mention, I think, down sequentially on some seasonal patterns, but wondering about how that's setting up. Kyle Lorentzen: Yes, I'll take your first one, Simon. Relative to the dividend, as you can expect, when we closed the CCS transaction, which we now are indicating that, that will happen in the first quarter, the Board will take into account all the relevant factors that you would expect them to take into account. What's our cash position at the time, business performance. I don't think there's anything specific. I think it's a combination of things that they'll look at to determine what's the right level of dividend to do at the time. Charles Treadway: And to answer your second part of your question, Simon, is, look, we're seeing some resurgence in DOCSIS upgrade activity. Comcast, as you know, is moving forward with FDX, and they're doing that at expected, I'd say, better-than-expected levels. And I'd say, overall, we're seeing a general uptick in DOCSIS for 2026. And as you -- as we talked about in the call, 2025 was a strong rebound. And we -- moving forward, we see this business with modest growth and strong cash flow generation. We see the growth coming from new products. And as you mentioned, it's a decline in our legacy products. I think that would be the way I'd size it up. Operator: Our next question comes from Samik Chatterjee with JPMorgan. Samik Chatterjee: I have a couple. Maybe just on the DOCSIS upgrades and the record amplifier shipments that you're seeing. I know you talked about sort of customers coming in better than expected at this point. But how should we think about sort of where you are in the cycle? What visibility are customers giving you in terms of their upgrade plans into next year? Just trying to get sort of more bookends around like is this going to be a few quarters? Or do you see a longer cycle just because of also BEAD coming in to sort of support this in 2026? How should we think about that, if you can help? And I have a follow-up. Charles Treadway: Sure. I would say we're in the early innings of the DOCSIS upgrade. And I think this is a multiyear, several year process to put it in perspective, and we're in the very early innings. Samik Chatterjee: Okay. Okay. Great. And in relation to -- maybe just a follow-up on that, you did expect -- you had earlier outlined ANS to moderate a bit into the quarter. I mean the upside surprise that you saw was just overall amplifier shipments? Or was there a software pull-in as well along with it driving the upside? Kyle Lorentzen: Yes. I think in the quarter, there was no real software impact in the quarter. I think we had indicated on a sequential basis that the ANS business was going to be down on an EBITDA basis, driven by a really, really strong second quarter that we had that was impacted by the software. So as we went into Q3, it was more of a hardware mix for us, which drove the sequential decline, albeit still a pretty solid quarter for ANS. Samik Chatterjee: Okay. And maybe if you can let me squeeze one more in here. Just trying to think about the EBITDA for the RemainCo and how should we think about maybe a bit more of a walk between the EBITDA and what should be a more normalized cash flow for the RemainCo business? What would you sort of call out in terms of capital investments to support the business on an ongoing basis? And how should we think about sort of normalized cash flow? Kyle Lorentzen: Yes. I mean we -- obviously, we've provided some indication on what at least the '25 RemainCo EBITDA guidepost would be at the $350 million to $375 million. I think when we look at that -- look at the RemainCo businesses, I think working capital and sort of taxes are sort of -- would be sort of normal. I think the one place where we probably see a little bit of pickup from a cash flow basis versus the total CommScope would be in CapEx. These businesses tend to be less capital intensive than the CCS business. And then ultimately, to get to the actual cash flow number, as we've talked about in our prepared remarks and the proxy, whatever leverage we would put on the business would clearly have some impact on the cash flow, which will determine once we get to the CCS transaction and the leverage of that we'll put on the business. Operator: [Operator Instructions] Our next question comes from Kevin Niederpruem with Bank of America. Kevin Niederpruem: I got a few questions for you. My first question is similar to Samik's, but it's about the Wi-Fi business. Can you explain with us and share with us where you currently view the Wi-Fi 7 cycle? Charles Treadway: Sure, sure. I would say our inventory issues are behind us at this point. I mean, as you see that the Q3 revenue was up 15% year-over-year. What's really driving all this are our new products and solutions. I think we're gaining traction with our RUCKUS ONE product line. And I'd say that includes the subscriptions. We are seeing a Wi-Fi refresh, and I would say we're in the early innings of that. And I would say, in general, strong market conditions, specifically for access points. And the other thing that's going on in our business is we're investing approximately $20 million a year in incremental sales resources, and we started that this year. These resources, combined with our new products, our vertical market initiatives, focus on RUCKUS ONE subscriptions and I would say some channel initiatives are going to support revenue growth. And I believe it's going to be like a 2x market growth rate over the next several years. Kevin Niederpruem: Got it. My next question is more about the ANS segment. This quarter and a little bit of last quarter, you called out more of these FDX smart amplifiers driving growth. Are you able to give us some information on the CMTS, the nodes or any of the other stuff in between, how that performed throughout the quarter? Kyle Lorentzen: Yes. I think as we think about sort of a little bit of a different question. But on the node and RPD side, we see continued strength there as well, particularly the FDX side of the business. I think as Chuck mentioned in one of the earlier answers, on the legacy CMTS side, that is a declining business, and we'll see that slowly decline over time. And then I think on the virtual CMTS side, as we've talked about in the last couple of calls, we're gaining some traction there. We've had a couple of wins, particularly in Europe. Kevin Niederpruem: Got it. And then my last question is more broad based around competition. Can you parse out for us the competition and more of the players that you're seeing in both the ANS side and the RUCKUS side? Charles Treadway: Well, I'd say on the ANS side, I mean, there's a wide range of, let's say, smaller players or niche players. I think you think about like a Telista, you think about a Vecima, when you think about the larger players, more larger than those guys, you think about Harmonics and then you got ATX. Those would be the players in that space. And what was your other question? Kevin Niederpruem: Is the competition on RUCKUS. Charles Treadway: Yes. I mean that would be Cisco, HP, Juniper, Extreme. That would be the ones I'd call out Arista. Kyle Lorentzen: The only thing I would comment around competition is in the ANS business, it's very product specific. We are one of the few companies that supply into the DOCSIS space sort of all the products, and each product has a different set. So like your amplifiers would have different competitors than like your CMTS. And I also think when you look at the RUCKUS business, we are heavily weighted to enterprise. We're more heavily weighted to access points. So even when you get into the businesses, it's -- a lot of it has to do with being product-specific or market specific. But I think generally, on a broad basis, Chuck hit the sort of the major competitors that we're seeing. Operator: Our next question comes from George Notter with Wolfe Research. Brenden Rogers: This is Brenden on for George. I wanted to ask a question about the 2025 EBITDA guide. It looks like you guys raised the guidance for the core RemainCo business, but any color on what you expect for CCS to do next quarter? I think some of the guidance raised in the RemainCo was maybe offset by CCS possibly. Anything there would be awesome. Kyle Lorentzen: Yes. I think we mentioned in our prepared remarks that just based on some seasonality, albeit still a very strong quarter for CCS, the CCS EBITDA at this point in time, we'd call it down a little bit. But again, not necessarily from strength of market, more just from Q4 seasonally being a little bit of a softer quarter for us historically. Operator: I'm showing no further questions at this time. I would now like to turn it back to Chuck Treadway, President and Chief Executive Officer, for closing remarks. Charles Treadway: Yes. Thank you all for your time today. I appreciate your interest in CommScope, and I'd like to wish all of you a great rest of your week. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen and thank you for standing by. Welcome to the Third Quarter 2025 Kite Realty Group Trust Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Bryan McCarthy. Sir, please begin. Bryan McCarthy: Thank you and good morning, everyone. Welcome to Kite Realty Group's Third Quarter Earnings Call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent Form 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for a reconciliation of these non-GAAP performance measures to our GAAP financial results. On the call with me today from Kite Realty Group are Chairman and Chief Executive Officer, John Kite; President and Chief Operating Officer, Tom McGowan; Executive Vice President and Chief Financial Officer, Heath Fear; Senior Vice President and Chief Accounting Officer, Dave Buell; and Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw. [Operator Instructions] I'll now turn the call over to John. John Kite: Thanks, Bryan. Good morning, everyone. The KRG team is executing on all fronts, driving occupancy higher, leasing space at strong spreads, embedding higher rent bumps and optimizing the portfolio. Our outperformance underscores the strength of our operating platform and is allowing us to increase the midpoint of our NAREIT and core FFO per share guidance by $0.02 and our same-property NOI assumption by 50 basis points. Our efforts are positioning us for sustained value creation as we close out 2025. Our lease rate increased 60 basis points sequentially, driven by the continued demand for space across the portfolio. We believe the second quarter represented the low watermark in our leased rate. As we've discussed in the past, we view the recent wave of bankruptcy-driven vacancy as a value creation opportunity to embed better growth, upgrade the tenant mix and derisk our cash flow. Through the re-leasing process, we've maintained our focus on establishing the groundwork for higher organic growth that will continue to pay dividends long after the occupancy stabilizes. Over the last 2 years, we've moved our embedded rent bumps to 178 basis points for the portfolio, which is a 20 basis point increase from only 18 months ago. In the third quarter, we executed 7 new anchor leases with tenants, including Whole Foods, Crate & Barrel, Nordstrom Rack and HomeSense. We've been proactive in diversifying our merchandising mix as 19 of the anchor leases signed year-to-date have included 12 different retail concepts. On the small shop side, we are now within 70 basis points of our previous high watermark of 92.5% and have full confidence in surpassing prior levels. Activity this quarter included leases with CAVA, Kitchen Social, [ Fit Peak, Rockies ] and Free People. Our team's focus on curating a dynamic merchandising mix and driving traffic to our centers continues to elevate the portfolio. We're making meaningful progress on the transactional front, highlighted by the recent sale of Humblewood, a center anchored by Michaels and DSW. This transaction reflects our ongoing commitment to driving organic growth and derisking the portfolio by recycling capital out of noncore large-format assets. Our disposition pipeline totals approximately $500 million across various stages of execution. We aim to complete the majority of these transactions by the end of the year. While there can be no assurances that all sales will close, our capital allocation discipline remains unchanged. Depending on the timing and mix of the assets ultimately sold, we intend to deploy the proceeds into some combination of 1031 acquisitions, debt reduction, share repurchases and/or special dividends. In all instances, our objective will be to minimize any earnings dilution and maintain our leverage within our long-term range of low to mid-5x net debt to EBITDA. Since our last earnings release, we have repurchased 3.4 million shares at an average price of $22.35 for approximately $75 million. The midpoint of our updated core FFO per share guidance implies a 9.2% FFO yield and a 23% discount to our current consensus NAV on this activity, representing compelling arbitrage to recycle capital out of our lower growth assets into our own shares. Roughly half the funds for these buybacks were sourced from completed asset sales, including Humblewood and an outparcel disposition, with the remainder to be funded from future asset sales. Our third quarter performance reinforces the growing strength of our platform and the powerful tenant demand fueling our business. We're energized by the opportunities ahead to generate durable long-term growth. And as we finish the year, we will remain disciplined, leasing space that delivers strong returns, redeploying capital out of lower growth assets and elevating the overall quality of the portfolio. With a focused strategy and a deeply committed team, we are well positioned to deliver sustained value for all of our stakeholders. I'll now turn the call to Heath. Heath Fear: Thank you and good morning. Our third quarter results reflect the collective strength and focus of the entire KRG organization. We've built meaningful momentum, driven by compelling tenant demand, disciplined execution and a team that continues to deliver across every metric. As we turn toward year-end, our goal is simple, finish 2025 strong and carry that same drive and conviction into 2026, where we see tremendous opportunity to further elevate our platform. Turning to our results. KRG earned $0.53 of NAREIT FFO per share and $0.52 of core FFO per share. Both metrics benefited from a $0.03 contribution associated with the sale of an outlot to an apartment developer. As mentioned on our prior earnings call, this transaction was embedded in our original 2025 guidance and represents a strong example of unlocking value from an underutilized portion of one of our centers. Same-property NOI increased 2.1% year-over-year, driven primarily by a 2.6% increase in minimum rent. We recognized $39 million of impairments this quarter, $17 million at City Center and $22 million across the Carillon land and Carillon MOB. City Center is being remarketed and we're close to awarding the deal. The Carillon assets are under contract with different buyers, which shortened our hold period. Collectively, these charges reflect the gap between our carrying values and their respective estimated sale prices. As John mentioned, we are raising the midpoints of our 2025 NAREIT and core FFO per share guidance by $0.02 each. $0.01 of the increase reflects outperformance in same-property NOI, while the other $0.01 is driven by capital allocation activity, namely our recent stock repurchases. We're also increasing the midpoint of our same-property NOI growth assumption by 50 basis points. The outperformance in same-property NOI is primarily attributable to earlier-than-expected rent commencements and stronger specialty leasing income in the back half of 2025. Our general bad debt assumption remains unchanged at 95 basis points of total revenues, representing the blend of actual bad debt experienced year-to-date and a continuing 100 basis point reserve of total fourth quarter revenues. It's important to note that for our full year 2025 guidance contemplates the completion of approximately $500 million of noncore asset sales in the latter part of the fourth quarter. Conversely, our guidance does not assume any deployment of the related proceeds. Given the anticipated timing of these transactions, any earnings impact from either the potential sales or potential redeployment of proceeds would be negligible in 2025. We've consistently emphasized that the strength of our balance sheet provides us with tremendous flexibility in how we allocate capital. The recent share repurchase activity and the potential sale transactions that John mentioned are clear examples of that flexibility in action. Our balance sheet remains one of the strongest in the sector, giving us the capacity to pursue opportunities that enhance shareholder value while maintaining our financial discipline. We remain firmly committed to our long-term leverage target of low to mid 5x net debt-to-EBITDA which continues to position us well for both stability and growth. Lastly, our Board of Trustees has authorized an increase in our dividend to $0.29 per share, which represents a 7.4% increase year-over-year. For many of our long-term investors, the dividend is a critical aspect of REIT investing and we believe KRG's dividend is an extremely attractive risk-adjusted yield. Earlier in the year, we mentioned the possibility of a special dividend to occur in 2025. We still anticipate distributing a special dividend of up to $45 million but the size will ultimately be determined by our fourth quarter both taxable income and the outcome and timing of our current disposition pipeline. Thank you to our team for their relentless efforts to deliver strong results and create long-term value for all stakeholders. We look forward to seeing many of you over the next several weeks on the conference circuit. Operator, this concludes our prepared remarks. Please open the line for questions. Operator: [Operator Instructions] Our first question or comment comes from the line of Cooper Clark from Wells Fargo. Cooper Clark: Hoping you could expand more on your earlier comments on the dispositions. Is it fair to assume that most of the volume is power centers, given your comments on previous calls? Also curious on cap rates and then benefits to the same-store growth profile and underlying tenant credit moving forward. John Kite: Sure. Connor (sic) [ Cooper ], yes, I think it's fair to say that this is in line with the messaging that we've had in the past, which is that we're looking to kind of shrink that middle part of our portfolio, which would be those larger format centers and power centers. So yes, I think that's kind of the direction that we're heading and that is what this particular group of assets is. In terms of pricing, we haven't released that in the past and we've got to get to the closing. But suffice to say, the activity should be well inside of what our implied cap rate is right now, which is what's happened historically. Heath Fear: Does it work for you, Cooper? Cooper, this is Heath. I would also say on the same-store, listen, on a net-net basis, the entire pool would be accretive to same-store but it all depends on which mix of assets we end up closing. So TBD on what it does to the 2025 same-store. Operator: Our next question or comment comes from the line of Andrew Reale from Bank of America. Andrew Reale: I guess just sticking with the dispositions, I guess just curious if you could -- if we could dig a little deeper and you could give us an idea of just where occupancy is and what the exposure to watch list retailers is like within the assets that are in the pipeline? And then how much more volume beyond the $500 million right now could you potentially look to sell? John Kite: Well, let me just start with -- again, we're not -- it's -- the occupancy is probably going to reflect the occupancy in the portfolio and these are stabilized properties. That -- the -- and then you should assume that because we're telling you that it's that kind of middle part of the larger format centers that there is exposure, obviously, to watch list tenants but that's going to be the case in any of those type of assets if they're larger format power centers. So I think -- what was the second part of that question, I'm sorry? Andrew Reale: Just how much more volume beyond $500 million could you potentially look to sell? John Kite: Yes. Right now, I think we're very focused on just getting this closed. As we said, we anticipate a lot of this will happen by year-end. So we're quite busy on getting that done. And then we're going to go from there. We continue to want to improve the portfolio and continue to want to do a lot of work around this embedded rent growth. I mean the fact that we've been able to increase our embedded rents by 20 basis points in 18 months is pretty fabulous, And we're already ticking up towards the higher end of the peer group on embedded growth. So that's really the focus, is to reposition the portfolio to deliver a better growth profile in the years ahead. And that's -- a lot of that is because a lot of the growth that you've seen in this space since COVID is really just catch-up of occupancy. And what we're looking to do is build growth without having to do that. So we'll see how that plays out but we're very -- whatever, we're optimistic about that. Andrew Reale: Okay. That's helpful. And then if I could just ask a follow-up. As we start to really model out '26, could you just go back and remind us of what the onetime items are that have impacted this year and kind of what those are worth on a per share basis? Heath Fear: Yes. It's around -- today, it's around $17 million of what we call recurring but unpredictable items and that's a combination of term fees and land sale gains. Operator: Our next question or comment comes from the line of Todd Thomas from KeyBanc Capital Markets. Todd Thomas: I just wanted to ask about the guidance revision and maybe sort of an early look around '26. The revision this quarter, there was a $0.01 positive contribution from capital allocation activity. Heath, you said that's almost entirely due to stock buybacks, just given the timing of the transactions that you're talking about in the redeployment. But any considerations around 2026, I guess, vis-a-vis your comments around transacting in a manner that minimizes dilution, how we should maybe think about how all of this sort of plays out? Heath Fear: Yes. Todd, I think it's too early. In February, we're going to have a lot more visibility into what we actually do with the proceeds. As John said in his remarks, we have a menu of items. Obviously, one of the attractive ones now is the redeployment of capital into our share price based on where the implied yield is versus the implied yield of these assets that we're selling. So again, it's really going to be depending on, are we going to close these things, what do we do with the proceeds? So we'll have much more visibility in February. So thank you for your patience and we'll talk to you then about '26. John Kite: Yes. Only thing I would add to that, Todd, is you just got to remember that there's complexity in terms of the taxability associated with the sale, the gain or the loss. So I think we have to let that develop and focus on getting this current batch closed. And then as Heath said, we'll be in a much better position. But the real positive here is that there's a lot of opportunity for us to improve the portfolio, improve the growth and there's a real demand for the type of product that we're looking to sell. And again, with the discount to NAV and the implied cap rate where we're at, this has been quite a good time to be doing this. Todd Thomas: Okay. And then is this -- the $500 million number that you mentioned, is this intended to be a gross sales number? Or are you entertaining sort of a contribution to a joint venture vehicle where you might retain an interest in these assets at all? And can you sort of rank order today, sort of the redeployment opportunities that you discussed, whether acquisitions, more share buybacks, how you think about that today? John Kite: Well, for the first part of the question, these would -- this particular pool that we're talking about of approximately $500 million is all 100% sales. These are not any joint venture contributions in this. In terms of force ranking those multiple options, again, it all comes down to the timing, which assets, the taxability of those. And then so that will drive that first decision-making. But the entire objective is to do what we've already done, which is to place the money in something that is either accretive or very, very minimally dilutive as it represents the entire balance sheet. So I think we're going to have to see where that goes. But with the yields that we're able to sell at and redeploy at, that's kind of our focus is, the demand for the centers that we're selling is strong. And as we've said a couple of different times, in terms of redeploying into the stock, it was an easy decision. As we move down the road, that becomes more complex around taxes, et cetera. Operator: Our next question or comment comes from the line of Craig Mailman from Citi. Craig Mailman: Just want to go to the City Center. That one was impaired. And as we think about it, you had mentioned that is one of the assets that you were recycling as part of the Legacy West transaction. I mean, does that -- does the further write-down of that change any of the accretion math that you guys put out in that Legacy West deal? And maybe where should we think about the cap rate for that deal? Is that north of a 10% cap and kind of the Carillon MOB and development land as well? I mean, these prices are coming in below your expectations, it seems like. Can you just talk about where yields are? John Kite: Sure. First part of your question, no, it is not going to impact the yields. I mean, this is a fairly de minimis impact yields as regards to Legacy West. And if you remember, we kind of gave a range of what that sale might be. So this would be de minimis. And it's really a result of kind of pulling the asset off the market, stabilizing some tenants that needed to be stabilized and reput -- putting it out back out there. And so in that regard, not an issue. Heath, do you want to hit the second part of that? Oh, sorry. Can you get the second part of the question again? Todd Thomas: Just what the yields are now on the impaired values for those sales? John Kite: Oh, the cap rate on the asset itself. Heath Fear: I mean one of them is a piece of land, one of them is our MOB, which is lightly occupied and the other is City Center. I'd rather not give you an exact cap rate on City Center but -- needless to say, listen, the good news is on these Carillon sales, this is one of the ways that we're going to help minimize dilution. We're selling one asset potentially that has no NOI attributable at all to it, one which is NOI light. So again, we think these are all good developments and we'll keep you updated. John Kite: Yes. And just to be clear on City Center, it's really not like a going-in cap rate exercise. It's an IRR exercise for the buyer because there's a lot to do there. So it's not really relevant. Todd Thomas: Okay. And then, John, I know you kind of -- to Todd's point, you kind of rank the capital uses for the $500 million. I'm just kind of curious just on buybacks specifically. I know you said it's complicated but like how do you weigh that FFO yield or AFFO yield versus the potential kind of impact of reducing liquidity for the stock and those other kind of nonfinancial issues that can also impact multiple going forward? John Kite: Yes. I mean, obviously, everything we're doing here, we would anticipate that in the end, the multiple would be well above where it is today. And I'm extremely confident that 2 years from now, the stock is going to trade at a much higher both multiple and price than what we're buying the stock at today, Craig. So yes, I mean, there is complexity in the analysis and it's not all math. I mean the math gives you the direction. But yes, you have to look at the market cap, the size of the business. But we're -- these are -- even -- these are relatively small numbers, even if we were to deploy all of that into a buyback, which we're not going to. But I think the reality is, this is a point in time where we're taking advantage of an arbitrage that's very clear that in the future, we'll be -- we'll look back and say it was very smart, in my opinion. But it's also about the thematic around what the composition of our assets are going to be and what the embedded growth rate of our business will be because, again, a lot of companies have benefited in terms of short-term growth in the past 4 years. That's great but you got to think what's this business going to be in the next 10 years and we're going to be positioned to be one of the best companies for sure. And we're going to have one of the best growth profiles and we already have one of the best balance sheets, which will continue. So we will look at all of that and we will be very thoughtful around the impacts of these things. But against the backdrop of the business and the backdrop of the opportunity, this is the perfect time to be doing what we're doing. Todd Thomas: And I know it's a 2-question limit but maybe slip a third one here. I mean you guys are really trying to arb this, other REITs have tried this in the past, selling assets, buying back stock. I mean, at what point do you look to other ways to maximize value if the public markets don't want to recognize kind of the private market value of Kite and maybe even some of your peers? John Kite: Well, let me start with -- we're not doing this to -- it's a result of how we're changing the composition of the portfolio. So it's not as though we said, hey, let's go put a stake in the ground that we want to buy back stock at a certain price to prove a point. That has absolutely nothing to do with it. What's happening here is, we're changing the composition of the portfolio into a better longer-term growth profile asset composition. As part of that, we have proceeds that we have to distribute. This was the obvious thing to do at this point in time with those proceeds because of what we've talked about. The gap -- the difference in the core FFO yield versus the assets that we sold, which we think will continue in the short term. And then also just the extreme discount that happened to be there. But going forward, this is -- we'll see how that plays out. This is about real estate and the results of those sales have to be deployed. It's not vice versa, is the message I'm trying to get to you. So the idea that other people have tried to do this has nothing to do with it. This is a individual exercise for a company improving its portfolio that happens to have an extremely good balance sheet that allows flexibility. I've seen this done in the past with leveraged balance sheets, that does not work. So this is absolutely nothing like that. And again, we'll see where it goes. And because of the structure of a REIT, sometimes you do have to pay out a special dividend. We haven't talked much about that. But we are anticipating doing that and that's just part of being a REIT. That would be on the lower end of what you're really trying to prioritize because of the use of capital. But by the same token, you're looking at a total return to the shareholder on a annual basis. And in the end, we want that to be a model going forward where our total return is a high number that entices shareholders. Right now, there's a lot of money being invested in other areas of the world. But when you look back at what we're doing right now, I think people will come back to the steady cash flow growth of REITs. So I think, again, the timing of this is very good. Operator: Our next question or comment comes from the line of Michael Goldsmith from UBS. Michael Goldsmith: Probably a good sign that we've made it this far and we haven't touched on the watch list for the full portfolio. So it feels like things have gotten a little bit better out there. Just wanted to get your assessment, what you're seeing, what your watch list is and what you're paying attention and how that impacts the kind of the setup for 2026. John Kite: Yes, sure. We think that the watch list is in good shape. And I think most of what's happening now is becoming much more isolated into individual tenant names more so than in the past when you had multiple tenants in trouble. And obviously, the crescendo of that was last year when you had multiple bankruptcies within 60 days. So now we're down to a much more manageable probably situation where there are individual tenants that we're not going to name that we're focused on and we're focused on reducing exposure. And look, part of this entire conversation this morning has been about improving the quality of the portfolio and reducing exposure. And even if you're getting short-term lease-up right now but you're remaining overly exposed, that will eventually come back to be a problem most likely. So this is all one big exercise around improvement, self-improvement and better growth. So I think that's coming. But as it relates to the specifics around tenant credit watch list, we always have them. The industry always has them. It's a natural evolution. And we said, look, when we got all these bankruptcies, there was a lot of people putting out lists and I've leased this many spaces in this period of time, that's not the exercise. The exercise that we engage in is, how do we get the best tenants, the best merchandising mix with the best growth. If that takes 18 months instead of 9 months, fine. This business could be around a long time and it's going to be a very strong business for a long time. Michael Goldsmith: Got it. And so I'll follow that up with probably what you don't want to hear though. Last quarter, you talked about 80% of the boxes recaptured were either leased or in active negotiations. Is there an update on that? And can you just talk about the opportunities of those where you're kind of like holding back as you think about merchandising or finding better economics with a tenant? John Kite: Well, let me just give -- Tom will give you an update on where we are on the progress, even though we just said that, that's not our focus. But he'll give you the update and we can take the second part after that. Thomas McGowan: Yes. No problem. So we always marked up 29 bankruptcy tenants in terms of that original list that we talked about. At this point, we're at about 83% that are leased, assumed in LOI negotiations, et cetera. So we have 5 other properties that are out there. We are meeting on them constantly. They're probably the more challenging of the original list but we have confidence that we'll resolve those in due time and it gets a lot of attention. So no concern there. John Kite: The only thing I would add is, if you pay attention to the names that we're putting out there in terms of the anchor leases that we just -- even just in this quarter, shows you that our focus is on quality and growth as opposed to just filling the space. And I think the fact that we've done this year, 12 different retailers across -- or 12 different brands across 19 leases that we signed. Again, our focus is that diversity, quality and then look at the spreads and the returns on capital. That's why this takes a little more time, right? I mean if you're going to be getting north of 20% returns on capital and same thing on spreads and speaking of spreads, in case nobody asked, I mean, look at our nonoption renewal spreads. I mean, I know we're one of the few guys that gives the detail around that. But I think it was 13% or 12%, 13%. That is a fabulous number, which reflects the strength of our portfolio first and then secondarily, the business that we're in. So those things are important to that, too. Thomas McGowan: Speaker 9 So just to follow up on John, of the 7 boxes that we executed this quarter, our spreads were 37% and return on cost, 23%. So as we look at the remainder of this portfolio, we're setting a high bar and being very, very careful. Operator: Our next question or comment comes from the line of Floris Van Dijkum from Ladenburg Thalmann. Floris Gerbrand Van Dijkum: By the way, congrats on the share buybacks. That was, I think, astute. Just curious on the contemplated $500 million of sales later on this year. The $45 million special dividend, is that partly as a result of that or the $0.20 special dividend, is that a result of those sales? Or is that -- could that number increase based on the closing of those dispositions later on this year? Heath Fear: Yes, Floris, that's related to the prior transactional activity, mostly the GIC transaction. And actually, that number, I said up to $45 million, that's the maximum it could be. If anything, some of the assets that may sell this year may have embedded losses, which would reduce that. So just think about that $45 million being the top side and then potentially going lower depending on the mix of assets that we end up selling. John Kite: Yes. And those -- look, in terms of when Heath says embedded losses, that's on a tax basis, not a book basis, just to be clear. Floris Gerbrand Van Dijkum: Right. Yes. So it gives you potential significant more powder to -- for share buybacks, which is encouraging. One other thing, which I -- we haven't really talked about Legacy West. And I don't want to steal your thunder for the upcoming NAREIT. But as I look, the ABR in place seems to have increased by quite a bit since you first acquired it. Can you talk a little bit about what's happening at that asset in terms of rents and renewals and spreads? John Kite: Yes. It's kind of -- it's magical. It's a fabulous asset that had under market rents, particularly in the retail component. And it was the perfect timing to bring in a platform like ours that can drive those rents, drive value. We have a lot of great things going on there. But obviously, we said it when we bought it, the -- I think the average base rent was like $65, I believe, in the retail. And we are well above that in all the new deals that we're doing. And we had -- as we mentioned, Floris, we had the ability to access about 30% of that over the next 3 years since the acquisition to get to probably about a 20% mark-to-market, right? So it is playing out exactly as we anticipated. It was the perfect combination of us and a fabulous partner that has the same kind of mentality we do and has been extremely supportive and we, of course, look to do more with them. And the other thing, remember that we are a major player in the market, right? So we have things going on that are multi-tiered when we're talking to these tenants in the sense that we have other assets that we can cross lease against. And we have other properties there that tenants want to get into. And so there's this ability to have this virtuous cycle of repositioning and moving people around and different rent levels. So look, we're extremely bullish on the micro, which is the property itself and the macro, which is the market, one of the best in the country. Floris Gerbrand Van Dijkum: John -- just if I -- if you indulge me, one other little thing, maybe, Heath, if you could touch on the impact of those $500 million of sales, what's that going to do to your cruising speed of 178 basis points? How much should -- could that increase by as a result of selling some of these lower growth assets? John Kite: Well, first, I'm glad to hear you say cruising speed versus cruising altitude because that's been a debate in the company, so you just answered it. Go ahead, Heath. Heath Fear: So Floris, the embedded bumps in that pool of assets is around 140 basis points. So it's going to -- it's obviously going to improve our cruising speed but the denominator is so large. So it will be fairly modest. But again, it's all heading in the right direction. And as John said in his comments, I mean, to move our cruising speed by 20 basis points in 18 months is just incredible. And that's basically just being -- that's basically getting better bumps in the small shops to the extent we can get better escalators in the anchors, which we're starting to get a little bit more modest improvement on. We see 2% around the corner. When we hit 2% in embedded bumps, we're going to ask for 2.25%. So we're just going to keep pushing on this. And again, this occupancy-fueled growth that people are experiencing, it will come to an end. And at the end of the day, we'd rather be in a position where our cruising speed, to use your term, is higher than others. And that is part of this entire real estate exercise that we described on this call. John Kite: Yes. I mean that's the real message for us today is that this is a first step in a process of really focusing in on organic growth. And when you have a balance sheet like ours and you have organic growth that's near the top of the space and the balance sheet that we have, then we're able to do other things outside of the organic growth that can even add to that. So that's really the goal. And I think we have, frankly, we have absolutely been, I think, the market leader in focusing in on this embedded growth and fighting the fight that has to be fought in the trenches to get that. And perhaps that's why the occupancy trailed a little bit but then all of a sudden, you see us gain like 60 points, I think, or 60 basis points sequentially. And I think it shows you that the market is coming more to where we want to be. And if you look at the percentage of leases that we're signing in the small shop space at 3.5% and 4% annually, I mean, it's in the 60s percentage, like 60% of the deals we're doing. And then 3% is table stakes, right? So this is an indicator that this is a very good business to be in. There's not a lot of product and there's certainly not a lot of owners that have the ability to deploy all those different goals into what they're doing. Operator: Our next question or comment comes from the line of Alexander Goldfarb from Piper Sandler. Alexander Goldfarb: Two questions. First is on the $500 million of sales, just so I'm clear. I understand that there are different options that you're going to use the proceeds for buybacks, reinvestment, et cetera. But overall in -- over shopping centers' history, whenever we see large asset sales, it usually means that earnings inevitably takes a step back until all of the proceeds are processed and whatever it's reinvested into can start to grow again. So it does sound like this is an impact to '26. Is that a fair way to look at it? Or your view is that this should be flat to '26 and we shouldn't be thinking about the $500 million having an earnings impact? Heath Fear: I mean, Alex, there are so many moving pieces and it depends on where is our share price going to be to the extent we're buying back stock. We're able to actually shield gains or does it have to go out as a special dividend because we're not going to do irresponsible acquisitions if we have a gain to shield. So there are so many moving pieces, Alex. I'll just go back to what John said in his prepared remarks because we're going to do our best to minimize the earnings disruption. So again, we'll have much more information on that in February of next year. John Kite: And I think, Alex, I'd just add, in the past, when we've done things like this, we've been very, very thoughtful around that particular issue. And it really depends on -- everyone has different numbers. We have different numbers, you have different numbers. But in the end, whatever happens in '26 happens in '26. But from that point forward, there is no question that whatever we're doing is going to create much better growth. But in the meantime, we'll do everything we can to minimize that. And unfortunately, some of that is driven by the taxability, right? When you're paying out a special, that's just money going out the door. So the primary goal is to minimize that. But again, look, we're doing one right. We think we're going to do something towards the end of the year here because we just -- that was the optionality of it. But from an NAV and from a future growth perspective, it's absolutely going to be better. Alexander Goldfarb: Okay. And then just as another question along the portfolio lines, as -- it sounds like you've reviewed your portfolio heavily and obviously, we're seeing what's happening in the market in terms of supply/demand and improvement across the industry. Is your view that this is it and that going forward, dispositions will be more targeted in normal course? Or do you think there's a potential for another $0.5 billion plus type portfolio transaction that could occur next year? Meaning, is there more culling on a large scale that you guys think that you need to do? Or you think that this really addresses the assets that you no longer want to have in the Kite portfolio? John Kite: I mean I think it's early right now to give any kind of finality answer to that. We're always reviewing -- as you know, we're always deep diving and reviewing the portfolio. We're going through budgets right now. So there's a lot going on in terms of the idea of what assets do we want to hold long term. But we have been clear that the idea is to derisk our exposure to certain areas of retail and -- but then take that whatever proceeds that might create and have a better growth profile and have a better future growth profile. So too early to say that, Alex, but it's always possible that we would do other dispositions of size. But again, right now, we're just focused on getting this done and figuring out the deployment. Alexander Goldfarb: Okay. And then if I could sneak in a third, that seems to be a trend. Heath, on the -- on the bad debt, you guys have been, I think, around 85, 90 bps year-to-date but you still have that 185 bps, I think, full year. I'm assuming that's just a plug like you don't intend to suddenly have 100 bps of bad debt in the fourth quarter, right John Kite: Yes, that's what's in your numbers that we assume 100 bps in the fourth quarter. But no, it's not -- there's no special item there. It's just continuing the same -- whatever you want to call that. Heath Fear: Yes. It's consistent with the same assumption we have at the beginning of the year and throughout the course of the year. So it's 100 basis points. Alexander Goldfarb: Right. But you're not expecting like a bunch of tenants to suddenly go start. Heath Fear: No. That is just us being conservative and basing it on historical norms of 75 to 100 basis points of revenues. Operator: Our next question or comment comes from the line of Paulina Rojas from Green Street. Paulina Rojas Schmidt: It's great to see you're pursuing that arbitrage opportunity and trying to reshape the growth profile of the company. Looking at your same-property NOI over the last 10 years, it's been around 2% or low 2%. So I know this is a difficult question but painting with broad brushes, if you layer in the initiatives that you have shared in this call plus the strong backdrop, how material do you think the upside to that same-property NOI growth could be relative to that 2%, low 2% range that the company has experienced? Heath Fear: Yes. Paulina, I'm not sure if you attended our Four in '24 event in Naples, in February in Naples. And we have a slide in there where we thought what our sort of organic growth was. And holding occupancy aside, we said it was 2.5% to 3.5% based on bumps and spreads. Certainly, the bumps of the company obviously have improved as we suggested. So looking at it over a 10-year period, we had much lower embedded growth back then. So based on the current progress, we're seeing maybe that getting closer to 2.75% to 3.75% on a forward basis. So again, this is all about trying to improve that cruising speed, this real estate exercise, that's probably the #1 priority is getting better growth. And the 2 parts of the portfolio that we're really migrating towards, we told you, which is the lifestyle and mixed-use, the embedded escalators in that part of the business is anywhere between 2.25% and 2.5%. And then on the smaller format grocery side of the business, which we also really like, that growth is anywhere between 1.75% and 2% based on your composition of shops and anchors. So we're really pushing to sort of divest ourselves of the middle part of the portfolio. I just described to you that, that pool that we're looking at is 1.4%. So it's a great question and we appreciate you looking backward. I will tell you, over the last 3 years, it's been [Technical Difficulty]. But as we mentioned, that was -- some of that was occupancy fueled. So again, the whole point of this exercise is to improve that long-term cruising speed. John Kite: Yes. I mean I would just add, I think that it is important that we look at where we were and that's a real big part of why we want to kind of change the composition as to where we're going to go, which is more important than where we were. And obviously, over the last 4 years, I think it's 4 years where we averaged that kind of close to 4%. And we've had some up and downs in the occupancy over that period of time as well. And I think that, that was the point I was trying to make, Paulina, is that if you look at the entire sector and you look at this kind of short-term focus on same-store NOI growth -- and by the way, everybody -- it is not a ubiquitous equation in the sense that everyone defines it a little bit differently. So it makes it very difficult for you guys, which is why we're more focused on something that you can't [ massage ]. What is your embedded rent growth? And what is your core and NAREIT FFO growth going to stabilize at in the future? And what is your total return to your shareholder on an annual basis, which, by the way, part of that is the dividend yield. And we've continued to raise the dividend pretty healthy. And we've spent a lot of capital in the last 2 years in just TI and LC and continue to produce significant cash even after that fact. So I think we are basically saying that we feel very good about the future. But obviously, there's a few steps in between as we are positioning ourselves for that. Paulina Rojas Schmidt: My second question is, you have in your presentation, you highlight very active -- a very active quarter in terms of leasing activity with grocers. I believe based on your numbers, you're at 79% of ABR coming from grocery-anchored centers. Do you have a target in mind for this figure? Or you don't even think about a target at all? John Kite: No. I mean I don't think there's a target that's driving the decision-making around the leasing side of that. When we add a grocer to a shopping center that previously didn't have one, like many of those examples, it changes the composition of the shopper, right? And it creates more day-to-day activity at the property. One of the key things that we look at in the neighborhood grocery-anchored shopping center is what is the growth rate in that shopping center. And if you're too pivoted towards the grocer in terms of your NOI, it's tough to grow your -- it's tough to get embedded growth better than like less than 2%. It's tough. It's tough to get better than 1.5%. So the composition of the shops and the grocery are a factor. But I think the meaning of that slide is just to show the demand that's out there. And of course, there is a certain segment of the investment community that just only wants grocery. We're not -- that's not our goal because you don't ever want, in my personal opinion, overexpose yourself to one thing because there was a time where people only wanted Kmarts. Well, that didn't work out too good. So I think we're much more focused on this diversity of our portfolio that creates this embedded rent growth that is going to exceed the space, like that's our goal. So it's more meaningful than just trading to a grocer. But obviously, when you can put a Trader Joe's into what was a Bed Bath & Beyond or a Whole Foods into what was a big lots, that's a pretty good day. Operator: Our next question or comment comes from the line of Hongliang Zhang from JPMorgan. Hong Zhang: I think your non -- your -- sorry, your tenant-related capital expenditure spend trended down pretty significantly this quarter. Was that just related to timing? And how should we think about the spend going forward? John Kite: You're talking sequentially? Hong Zhang: Yes, sequentially. John Kite: Yes, yes, yes. It's just timing. It's a timing thing of signing a lease before you spend the money. Hong Zhang: Okay. And how should we think about -- so it sounds like the spend will basically revert back to what it's been earlier this year going forward. John Kite: Yes. I mean I think you should think about it on an annual basis. I would not look at it on a quarterly basis. That's -- there's too much timing factored into that. But if you look at it annually, we spent around $110 million or so on TI and LC in the last couple of years and that's going to probably be slightly higher next year and then go into 2027. And that was the point I was making is that total CapEx in 2025, we probably spent $165 million when you include maintenance CapEx and some development spend. And we're still producing -- we're still paying a dividend with a nice yield and producing free cash flow. And our balance sheet remains fabulous, right? So the combination of being able to produce this cash, self-fund the regrowth of the assets and then self-fund future growth from development is really, really strong. And we're seeing more opportunities on that development side, by the way. And I don't think there's anybody in the publicly traded space that has longer experience than us in the development business. So we know when to lean into that and when to lean out of that. And so we're feeling very good about the free cash flow that we're able to generate out of the business to then redeploy into that growth. Operator: Our next question or comment comes from the line of Alec Feygin from Baird. Alec Feygin: So the anchor opening was a big driver in the third quarter. Just kind of curious what percentage looking into next year and even 2027 of the total anchor leases coming due have renewal options? And what are the expectations for those anchor retentions in 2026? John Kite: Sure. I don't have that percentage in front of me right now. I mean, suffice to say, the great majority of our anchors have options. It comes down to the timing of are they out of options, right? That's generally what happens. There's almost no anchor that doesn't have options. I will say when you compare the nonoption renewal spread to the option renewal spread, it would indicate it'd be better if we gave less options. That's part of the push-pulls of our industry and another area that we lean into probably harder than others and are getting very good success with limiting that. But bottom line is the great -- almost no anchor does a flat term without an option. It just comes down to the percentage of anchors expiring in that particular year and whether or not you're at the end. And in the case of the grocers, frankly, often what happens is, they don't wait for that to happen. You're negotiating something with them prior to that. And a lot of times, you might be rebuilding the store as well, which we're doing in a couple of instances. Thomas McGowan: But we are finding many retailers inquiring with us about when do you have expirations with various boxes. So we're seeing a lot of activity on that front as well. Alec Feygin: Do you expect any change in the retention rate looking into next year? John Kite: Yes. I mean, as I said earlier, we're entering our budget process right now, which is an intense bottoms-up every single property, every single space. And we'll talk to you about that after that. But I think we intend to have a successful season with budgeting. Operator: Our next question or comment comes from the line of Kenneth Billingsley from Compass Point Research & Trading. Kenneth Billingsley: I wanted to follow up, when you talked about the anchors that you signed year-to-date that had new formats. And specifically, just looking at small shop occupancy, it seems like you have more upside opportunity than peers. Is the -- are the 12 new formats that you're looking at, is this a trend across the whole portfolio to help improve and drive better small shop occupancy? And is this a shift to upgrade retailers? Or are you modifying the retail mix at the properties due to shifting consumer demand? John Kite: I just want to be clear, you mentioned anchors but you're talking about small shops. Is there -- I just want to understand the question a little better. Kenneth Billingsley: Essentially, you talked about that 12 of the 19 anchors you signed had new formats. I believe that's what you said at the beginning of the call. Heath Fear: Yes, yes, from different brands. John Kite: Yes. Kenneth Billingsley: So, okay. I was just curious is -- I mean, obviously, you're always trying to upgrade the retailers that are coming in. But is this -- is some of this a reflection of shifting consumer demand of what they expect to see at the properties? And so essentially, are you doing that to help drive an improvement in small shop occupancy? John Kite: No. I think what we're trying to say is that I think this business went through a period of time and then certain people made their lives easier by saying, I'm going to go do -- I've got 15 empty spaces, I'm going to do 7 deals with 1 guy and another 8 deals with another guy just to make your life easier. What we're saying is, we're trying to diversify the anchor tenant mix to do what you said, which is to drive more interest in our shopping centers but also to decouple from any one anchor too much exposure. So -- and then the result of that is it makes a better shopping center, which, of course, does make -- it puts you in a better position to generate higher growth in the small shops because these things are symbiotic. They work together. There is a symmetry there. So it isn't really -- it's really not part and parcel. It's -- you want to have the strongest possible lineup you can have. But you also want to have diversity so that the consumer who we don't talk about enough because that's the ultimate customer, wants to go to our property over somebody else's. Thomas McGowan: Only thing I'd add is, some of this relates to the quality of our assets. And when you think about Southlake, you think about Legacy West, Loudoun and others, the diversity is really coming from a higher quality of tenancy, someone like a Crate & Barrel, a new deal with Adidas. So these are some of the names that we weren't necessarily doing in the past but this diversity is getting buoyed by this strength as well. John Kite: And just to carry on that, that's a great point. And not only does it happen at those individual properties that Tom mentioned but now we're able to spread this deeper pool of retailers across our whole portfolio. And frankly, these retailers want to work with strong landlords that have the ability to work with them in multiple locations, right? So it's kind of a virtuous cycle of tenant demand, if you will. Kenneth Billingsley: Speaker 15 And when you say the new formats, are these new to you or just new into the locations that [indiscernible] John Kite: No, no. These are -- it depends on how you're classifying new format. Just to be clear, what we're talking about are brands, not size of store or anything of that nature. These are just multiple different brands like the difference between a Crate & Barrel and a T.J. Maxx, for example. Those are different brands. And the formats aren't changing. The sizes aren't changing. The space is the space. And our objective is to diversify those brands. Kenneth Billingsley: Okay. Got it. So these are 12 new brands to your mix? John Kite: Correct. Operator: I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. John Kite for any closing remarks. John Kite: Well, I just want to take the time to thank everybody for joining. And as Heath said, we're really looking forward to seeing everybody quite soon, talking more about all the good things happening at KRG. Have a great day. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.
Operator: Good day, and welcome to the Cushman & Wakefield Third Quarter 2025 Earnings Call. [Operator Instructions] please note that this conference is being recorded. I would now like to turn the conference over to Megan McGrath, Head of Investor Relations. Thank you, and over to you. Megan McGrath: Thank you, and welcome to Cushman & Wakefield's Third Quarter 2025 Earnings Conference Call. Earlier today, we issued a press release announcing our financial results for the period. This release, along with today's presentation, can be found on our Investor Relations website at ir.cushmanwakefield.com. Please turn to the page in our presentation labeled Cautionary Note on Forward-Looking Statements. Today's presentation contains forward-looking statements based on our current forecast and estimates of future events. These statements should be considered estimates only, and actual results may differ materially. During today's call, we will refer to non-GAAP financial measures as outlined by SEC guidelines. Reconciliations of GAAP to non-GAAP financial measures, definitions of non-GAAP financial measures and other related information are found within the financial tables of our earnings release and the appendix of today's presentation. Also, please note that throughout the presentation, comparisons and growth rates are to the comparable periods of 2024 and in local currency, unless otherwise stated. All revenue figures refer to fee revenue, unless otherwise noted, and any reference to organic growth excludes the impact of last year's divestiture of our non-core Services business. And with that, I'd like to turn the call over to our CEO, Michelle MacKay. Michelle MacKay: Good morning, everyone, and thank you for joining us today. What you will see in our results is momentum across all areas of the business as our unique runway puts us in a position to continue to grow organically. This quarter, we delivered the largest third quarter leasing revenue in the history of the company. We set a new high watermark for third quarter cash flow generation. We announced an additional $100 million debt prepayment, bringing our total debt paydown to $500 million in a 2-year period. Year-to-date, we have improved adjusted EBITDA margin by 70 basis points compared to last year. We have continued to drive down our cost of capital with our recent term loan repricing achieving the lowest credit spread in the history of the company and the recent amendment of our revolver, which further lowered our borrowing costs. These actions have fueled strong year-to-date earnings growth. And today, we are raising our 2025 adjusted earnings per share guidance for the second consecutive quarter to 30% to 35% growth. And while this is outstanding performance, consider that we have accomplished it while building out our data and AI infrastructure and continuing to invest organically for growth. We have onboarded new institutional capital markets advisers with total average gross revenue more than 200% higher than those recruited in all of 2024, hiring over 45 advisers in key markets to expand our global capital markets platform. We are investing in our services platforms, accelerating our third quarter organic growth to 7%. We are investing in our project management platform, where EMEA revenues surged by 30% this quarter. We are investing and retaining our top leasing talent, driving a year-to-date increase in the number of large and mega deals by over 40%, underscoring our success in penetrating high-value opportunities. The performance is clear evidence of the accelerated pace at which we are executing our strategy, simultaneously expanding earnings and reducing leverage precisely as we committed to at the onset of our journey 2 years ago. Now I'll hand the call over to Neil to provide a more detailed review of our third quarter results. Neil Johnston: Thank you, Michelle, and good morning, everyone. Before I get started, a quick reminder, all comparisons are to the prior year and in local currency and organic figures exclude the impact of last year's divestiture of our non-core Services business. Unless otherwise noted, all revenue figures refer to fee revenue. Our third quarter results highlight 3 key themes. First, we are seeing clear momentum in our business as revenues expanded across our segments. Second, with improved execution, we are translating this accelerated growth into consistent bottom line performance, delivering our fifth consecutive quarter of year-over-year adjusted EPS growth. And third, this momentum and execution have allowed us to accelerate our balance sheet transformation, repaying $250 million of debt since July. Q3 revenue of $1.8 billion increased 8% with organic revenue of 9%. Adjusted EBITDA rose 11% to $160 million and adjusted EBITDA margin expanded 23 basis points to 9%. Our year-to-date adjusted EBITDA margin growth of roughly 70 basis points reflects strong operating leverage and effective expense management aligned with our growth strategy. For the quarter, adjusted EPS grew by 26% year-over-year to $0.29 from $0.23 a year ago. Now turning to revenue performance by service line. Our leasing business, which grew 9% in the quarter, continues to exceed expectations. In the Americas, leasing grew 11%, driven by a flight to quality in office and industrial. In both sectors, flight to quality remains a key theme and continues to lift average revenue per lease. Office activity remained robust and is becoming increasingly broad-based. High occupancy in premium buildings is driving rents higher and prompting tenants to consider the next tier of quality assets. This healthy underlying demand is also creating opportunities in areas such as project management as owners work to make their buildings more competitive. In industrial, demand is higher for modern facilities. For example, newer properties built after 2020 have recorded 196 million square feet of net absorption so far this year, accounting for virtually all of the industrial net absorption. In EMEA, leasing grew 9% as the U.K. and Spain both performed well. In APAC, where leasing revenue declined 6%, strong performance in Singapore and Australia helped mitigate a tough comparison in Greater China. Overall, investment in the APAC region remained steady, and we believe the underlying outsourcing and development trends that have driven the region's success are still intact. Shifting to capital markets. The business continues to scale meaningfully, delivering 20% year-over-year growth. In the Americas, revenue grew 16% with double-digit growth across all asset classes and deal sizes, reflecting the depth and breadth of the market, supported by healthy fundamentals and sustained momentum. Multifamily and office transactions were both particularly active, while industrial benefited from an increase in average deal size. Our work to enhance our capital markets platform has created strong momentum in this business line. Internationally, capital markets also performed well, with EMEA revenue up 14%, driven in large part by the Netherlands, where we executed a large debt financing deal. APAC Capital Markets revenue grew 84% with the largest contributions coming from India and Japan, where transactional markets remain healthy and institutional funds continue to flow. Turning to Services. The Americas posted 6% organic Services revenue growth, driven primarily by the expansion of current mandates in facility services and facilities management. In EMEA, Services grew 17% as we've accelerated growth in our retooled project management business, winning new and expanding existing contracts in France and Italy. APAC recorded 6% Services growth, driven largely by new wins and expansions of existing business in project and facilities management, particularly in India and Greater China. Now I want to briefly address our earnings from equity method investments. In the third quarter, we reported an $8.6 million loss, down from a $12 million contribution a year ago. This year-over-year decline was impacted by 2 factors: first, a roughly $5 million decline in earnings from our Onewo joint venture in China due primarily to quarterly earnings timing. For the full year, we expect Onewo's revenue to be relatively flat versus the prior year. Second, we recorded higher noncash MSR and loan loss provisions in our Greystone joint venture. As we noted last quarter, our adjusted net income and adjusted EBITDA now exclude noncash items related to Greystone to better reflect the JV's underlying performance. Excluding these noncash items, Greystone's core business generated $13 million of EBITDA this quarter, driven by solid underlying production volumes, which were up 18% versus the prior year. Moving to our balance sheet. We ended the quarter with net leverage of 3.4x, the lowest it's been since Q4 2022. Trailing 12-month free cash flow was $165 million, representing an approximately 61% conversion rate. We continue to expect to exit the year within our targeted range of 60% to 80% free cash flow conversion. We've also continued the significant progress we've made in reducing our interest burden. During the third quarter, we prepaid $150 million and repriced approximately $950 million of our 2030 term loan debt, lowering the applicable interest rate by 50 basis points to SOFR plus 275. Shortly after quarter end, we repriced an additional $840 million of 2030 term loan debt, lowering the applicable interest rate by 25 basis points to SOFR plus 250, the most favorable credit spread in our history as a public company. And yesterday, we made an additional $100 million debt repayment, bringing our total debt prepayment in the past 2 years to $500 million, which represents a 15% reduction in our gross debt balance from just 2 years ago. Looking ahead, we now expect full year leasing revenue to grow towards the high end of our 6% to 8% guidance range. We continue to expect mid-single-digit Services revenue growth, and we continue to expect full year capital markets revenue to grow in the mid- to high teens. Finally, we are raising our expectations for adjusted EPS and now anticipate full year 2025 adjusted EPS growth of 30% to 35%, ahead of our previously provided 25% to 35% target range. In summary, we are seeing strong momentum in our business with solid market trends bolstered by our strategic growth investments and improved operational performance. With that, I'll turn the call back over to Michelle. Michelle MacKay: Last quarter, I stated that you should continue to expect more from us on operational execution, cash flow, deleveraging and market share gains, and we have delivered on all fronts. Our teams are working with confidence and purpose, always with the client at the center of the conversation. And I want to thank our employees for everything they do to drive our success. We look forward to sharing our longer-term strategy with many of you at our Investor Day in early December. Let me now hand the call back to the operator for questions. Operator: [Operator Instructions] We have a first question from the line of Julien Blouin from Goldman Sachs. Julien Blouin: Congrats on the quarter. Just looking at the Americas Capital Markets growth, you noted that you hired 45 advisers and gross revenues for those hires was 200% higher than 2024. I just wanted to get a sense, do you feel like you are still early in the process of seeing the flow-through impact from those hires sort of benefit your Americas Capital Markets growth? It just looks like maybe while the growth was strong in sort of the mid-teens range, maybe a touch below what we've seen from some of your peers. Michelle MacKay: Yes. Thanks for the question. We are definitely in the ramp-up stages with regard to our ability to execute in the markets and the capital markets in particular. And there's a lot of runway in front of us. So we anticipate continued growth going into 2026. We're not done building the platform either. And I just want to point out that we're building a global capital markets platform, not a U.S. institutional platform. Julien Blouin: Got it. Okay. That's helpful. And maybe that sort of relates to my next question, which was going to be on EMEA margins. The year-over-year margin expansion in the quarter was quite a bit below what we saw last quarter despite what it sort of looked like similar capital markets and leasing top line growth and even stronger Services growth. Just wondering sort of what drove that on the margin side in terms of maybe incremental margins maybe being lower, does it have to do with some of these hiring initiatives or investments you're making in EMEA? Neil Johnston: Yes. Sure, Julien. I'm happy to take that one. On a year-over-year basis, EMEA margins were up 170 basis points in the quarter, which was a very good result. Last quarter, we did benefit from some FX and incentive compensation timing, which did not recur to the same extent in the third quarter. If we look overall, we're very pleased with the improvement we're seeing in the margins there, both as a result, as you pointed out, of the retooling of our project management business as well as higher brokerage revenue. If we think about EMEA going forward, we do expect to see continued benefits from improving scale in brokerage and our margin profile in Services. Operator: We have the next question from the line of Stephen Sheldon from William Blair. Stephen Sheldon: Nice work here. I just want to -- starting in trends in EMEA, I guess, they were really strong across service lines again. So just curious in your view, how much of that is any change in the backdrop? Has that gotten better at all? So improving backdrop versus better execution? And then just would love some more detail on the factors supporting stronger Services growth there. I think you called out project management in the release and maybe noted a couple of countries in the commentary. But just any more detail on where you're seeing the strength by service line or geography would be helpful. Michelle MacKay: Okay. I'll start on that one, Stephen, and then turn it over to Neil for a little more backup. In terms of momentum in Europe, we're seeing leasing and capital markets observing growing strength across all of Europe from our side. The strong Cushman & Wakefield market performers in Q3 were U.K., Ireland, Netherlands, Spain. They all had strong year-over-year gains in both leasing and capital markets. And in general, when you think about what's driving the leasing fundamentals there, it's supported by good labor market resilience, healthy corporate profits. The office take-up continues to trend higher over there. Vacancy in Europe is the lowest of the 3 global regions. It's now under 10%. And when we talk about what's supporting capital markets, inflation over there returning to target, multiple rate cuts by the European Central Bank contributing to easier financing and stable economies and stronger euro boosting investor confidence. So like the U.S., investors are reengaging and taking advantage of better credit spreads there, improved liquidity and repriced assets. Neil, is there anything else you want to add to that? Neil Johnston: Yes. I think what I thought was quite encouraging in EMEA was the strength of our leasing business, particularly in the U.K. It's our biggest market by far in Europe, and leasing there was up 37%. So certainly, that was a good trend. And then if we look at capital markets, primarily the Netherlands, a little bit of some big deals coming through, but certainly, capital markets was positive. And then on the Services side, you asked what's sort of contributing on the Services side. It's really two things. It is project management, but it's also that design and build business, which we retooled. We're seeing improvements in margin in that business. And certainly, it's a big focus of ours as we go forward. Stephen Sheldon: Very helpful. And then on the transactional lines. Great results there. I guess what trends have you seen so far in October? Any signs of things slowing down at all? Or I guess, have you -- has the momentum kind of continued into the early portion of the fourth quarter? Michelle MacKay: Yes, simply put the momentum is continuing into the fourth quarter. Stephen Sheldon: Got it. And maybe one more then. Just how are you thinking about Cushman & Wakefield's opportunity to support the data center build-out and optimization? Is there more you can do there? Clearly, that has been and likely will continue to be a large area of growth. So how do you think about positioning Cushman to kind of Cushman & Wakefield to kind of capitalize on some of the activity there? Michelle MacKay: Yes, great timely topic here. We've been involved in data centers for a number of years and expect it to become a bigger part of our business going forward. It's been a key area of investment for us. We see data centers as exciting and growing like a lot of people do in the U.S. in particular, global data center capacity and U.S. capacity, as you may know, is expected to at least double over the next 5 years. So we're scaling up our business quickly. One of the interesting things here for a platform like ours in terms of the runway that we have is that it's an asset class that touches so many of our business lines in ways that really speak to our particular strength. And what we're doing really well in data centers is we're bringing the full Cushman platform to bear to the clients. So we have a dedicated data center research team that puts out excellent comprehensive reports. Our advisers are some of the top data center advisers in the country, and they come from within the industry, and that's key. So they really understand the nuances of all the players. And we've been doing for many years, facilities management and services work for some of the top names in the industry and have done project management work in data centers across the globe. And importantly, we're incorporating our own key technology into this process, notably with our proprietary site selection tool. You've seen a lot of discussion around how do you find the right sites, how do you find the right power? What is the right power. Our product is called Athena, which was launched earlier this year and is streamlining the site selection process for our clients. So we're going to dig much deeper into this at Investor Day in December. So hopefully, we'll see you there and we can talk more about it. Operator: We have the next question from the line of Anthony Paolone from JPMorgan. Anthony Paolone: On the Services side, it seems like after you guys have done almost a couple of years of work on that business, you're back to that sort of mid-single-digit or so growth level. Can you talk about just your confidence level of that kind of continuing on a go-forward basis, what the prospects for the business looks like? And also any comments on profitability because I think that was a big focal point of yours as well, but we can't quite see it as clearly in the results. Michelle MacKay: Okay. Yes. No problem, Tony. So as you've seen, we've made incredible progress this year in Services, which has seen accelerated growth for the past 3 quarters. And importantly here, we're moving up the value chain of services into more technical services, again, something we'll speak about at Investor Day. We've also successfully retooled the Services business in a number of ways. We talked about desiloing. That's a big deal for us. This means structural changes in the organization, leadership changes that we've made across the Americas and internationally and cultural changes, bringing leaders together in person often to think more strategically about the business on whole, how we can cross-pollinate, bringing it to our clients as one entity. And secondly, we're focused on profitable growth, not growth for growth's sake. A lot of you heard me say that early on as we started to walk away from nonprofitable contracts in the Services business. This is not only good for our bottom line, but for our clients as well. It allows us to focus on the strategic value we bring to their real estate strategy, and it increases our customer retention as we move up the value chain in terms of technical services that we're providing. When we talk about growth going forward, Neil, do you want to comment on that? Neil Johnston: Sure. If we think about Services growth, I think there are 2 areas that I would look at. The first one is our global occupier Services business, which just has huge potential. We have a tremendous platform tremendous opportunity to scale there without increasing our infrastructure. So that will scale very nicely from an operating leverage standpoint. And also, as Michelle said, as we connect that global occupier service to some of our regional Services businesses, big opportunity there. And then the other area where we're seeing very nice growth, particularly in India and certainly in Europe and in the U.S. is really around project management. Those contracts are slightly shorter, so that builds quickly. That business has very strong margins in the U.S. So that will certainly contribute to profitability, and that's an area that I think has a lot of potential as we look forward. Operator: We have the next question from the line of Seth Bergey Citi. Seth Bergey: I guess my first one is just around capital allocation. You repaid, refinanced some of the debt this quarter and subsequent to quarter end. How do you think about the opportunity set versus continuing to deleverage and pay down debt versus the need for continued organic growth in the business and investment in that and M&A opportunities that you see out there? Michelle MacKay: Yes. Thanks for the question. We are always balancing this as we have discussed in the past. If you notice our free cash flow conversion, how much we're bringing into the company, it's really allowing us to do all the things. As I like to say to my team, we're deleveraging, we're reducing the cost of that capital, and we're simultaneously investing organically across the platform. We're not going to give you our percentages, but I'll let you know that everything we've identified to invest in, we're able to do. M&A as a target is a focus for us, of course. But by default, we're builders here. We're building an organic machine. M&A has to be something really special, really well priced for us to execute on it. Seth Bergey: Okay. That's helpful. And I guess just for APAC, it looks like it was slightly impacted by one of the JVs in China. Do you kind of expect that to kind of normalize into the fourth quarter? Neil Johnston: Yes, sure. So as we look at APAC, as I stated in the prepared remarks, APAC had a $5 million headwind from the timing of Onewo, our joint venture there, just a comparison year-over-year. We do expect the full year Onewo contribution to be approximately flat versus last year. So it really was a timing issue. And then if you exclude this headwind from the quarter, APAC EBITDA would have increased year-over-year as Services and capital markets grew in the quarter. Operator: We have the next question from the line of Ronald Kamdem from Morgan Stanley. Ronald Kamdem: Great. Just 2 quick ones. Just going back to sort of the Services business line, I would love to just double-click on the next leg of margin opportunity. What do you sort of expect to drive that? Is that the technology investments? Are there more cost-cutting opportunities? Just how do we think about sort of what's going to drive the next leg of margin? Michelle MacKay: Yes. There's a lot to drive margin there. To your point, yes, the use of technology. Also, we're moving up the value chain of services. So when you think about some of our businesses, they are highly commoditized at this point, and we're shifting into the zone, say, more mechanical and engineering. Those are also higher-margin businesses for us. On top of that, honestly, we don't do a great job of the cross-sell. And services is a great place to add service lines on to what we're providing for the client, makes it stickier, and that also improves the margin. You're also going to see us retain clients at a much higher rate. We've invested in the kind of structural things you need to do to retain that client base, which both pulls margin and builds it at the same time. Ronald Kamdem: Great. Helpful. And then if I could follow up on sort of the recruiting and some of the talent that you've added to the company. It sounds like there's still a pipeline sort of building there. Is there a way to just qualitatively tell us what the environment for recruiting is in terms of compensation or the market or whatever? Is it getting more competitive? Michelle MacKay: Yes. Are you speaking purely to capital markets? Ronald Kamdem: Yes, generally to specifically the capital markets, but comments in other parts of the firm as well. Michelle MacKay: Okay. It hasn't gotten more expensive. Interestingly, and a real positive for us is that we're starting to receive a lot of inbound calls from the who's who, if you will, of the capital market sector as people are starting to understand that if you don't have a full baked platform with your own research tools, site selection tools like Athena that we're using for data center work that you otherwise are going to fall short right now, 2, 3 years from now in terms of your career. So we are having absolutely no problem recruiting in that industry in particular. And the pricing is something that's always been a bit elevated. We have targeted markets surgically as to where we need to go. And so we're making sure that we are spending the dollars exactly where we need to build. Operator: We have the next question from the line of Mitch Germain from Citizens Bank. Mitch Germain: Michelle, you mentioned cross-sell. I'm curious what you're doing internally to incentivize or drive more cross-sell across your businesses? Michelle MacKay: Yes. Great question. First of all, we're tracking it. And it's a pretty low number at the moment. And we're putting inside the company different forms of incentives. We're not going to talk about exactly what those are to facilitate cross-selling. But also the organization on a whole, I've talked about this a lot needed to be desiloed, and we've really moved about de-siloing first because, yes, you can give people the carrot. You prefer not to give them the stick. What you want to have is a culture that believes in the cross-sell. So we spent a lot of time and effort building that culture out through the organization. In fact, we've got a name for it. It's called Plus One. Mitch Germain: Great. That's super helpful. And then I know that you guys mentioned the flight to quality. I think it's specific in office and industrial. And I'm curious how you as an organization are positioning to capture some of that benefit as some of your tenants look to upgrade the quality of their tenants or customers look to upgrade the quality of their real estate. Michelle MacKay: Yes. Look, this is a real strong point for us leasing, and particularly, you heard me mention larger deals constituting a 40% increase year-over-year in the pipeline of what we've seen. So this just plays through up to our strength. But to your point, Class A buildings are averaging about 90% attendance now. Leasing volume is really on track, very importantly in both industrial, logistics and office, as you can see, as our clients are moving to better quality space, they are paying more rent for it. And we've seen a big valuation bump in those leases. And again, just a big area of strength for us. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Michelle MacKay for the closing remarks. Michelle MacKay: Thank you, everyone, and we look forward to speaking to you at our Investor Day in December. Operator: Thank you. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Champion Iron Limited Second Quarter Results of the Financial Year 2026 Conference Call. [Operator Instructions] This call is being recorded on Thursday, October 30, 2025. I would now like to turn the conference over to Michael Marcotte, Senior Vice President, Corporate Development and Capital Markets. Please go ahead. Michael Marcotte: Thank you, operator, and thank you, everyone, for joining our call today. Before we get going, I'd like to point you to our website at championiron.com, where you'll find the presentation we'll be using throughout this call. On our website, you can also find our MD&A where we make references to forward-looking statements as we'll be making several forward-looking statements throughout this call. Joining me here today includes our CEO, David Cataford, who's going to be doing the formal presentation; and also Alexandre Belleau, our COO, in addition to other members of our executive team and some directors. With that, I'll pass it over to David, who will also do a Q&A portion on the back end of the call. David? David Cataford: Thanks, Michael. Thanks, everyone, for being on the call. We're very happy to be able to discuss our second quarter fiscal year 2026 results. We had a few challenging quarters last year, but very happy to be able to announce robust results this quarter. So despite a maintenance on the rail of about 12 days, we still managed to hit a record of concentrate sold. So a very good job that we've managed to achieve. We'll be able to discuss this a little bit more in detail. Also improved our production. I mean, despite the fact that we had semiannual shutdowns, I think the team did a fantastic job in being able to understand a little bit better the harder ore that we have and not only improve in terms of the plant's uptime, but also be able to work on the iron ore recovery to improve despite the generation of slightly more fines with this harder ore. When you combine all of these together, it allowed us to reduce our cash cost to about $76 per tonne. So as we've always said, we've got quite a lot of fixed cost at Bloom Lake. When we do improve our production, that allows us to reduce our operating costs. In terms of financial highlights, managed to achieve $175 million of EBITDA and just over $56 million of net income, which also allowed us to declare our ninth semiannual dividend of $0.10 per share. If we turn to community governance and sustainability, one of the important elements that we have achieved in the past few months is to be able to present the opportunity for Canada to be able to invest in the high-purity iron ore industry. So working with various groups on the federal level to be able to highlight the importance of investing in infrastructure to be able to help the Labrador Trough develop over the coming years. We've had quite a lot of traction on that side and been in Ottawa quite often to be able to meet with various groups, but I think the discussions are extremely positive. We also welcomed the new chief and his Council to site. So we had 2 productive days of being able to present everything we do and what are the next steps for Bloom Lake and other potential projects with the new chief and his Council, very positive development during the quarter. If we look at the sales highlights, as we mentioned, it was a quarter that we had the annual shutdown on the rail about 12 days downtime, but still managed to achieve quite a lot of sales. There's a few reasons for that. One, we are starting to benefit significantly from the increased rolling stock that is now in place and with all the various hires that IOC made also to be able to operate the new locos. When you combine everything on that front, that definitely helped on the actual logistics chain. What we've done internally as well is improve significantly everywhere that we can. So we've managed to increase the amount of ore per car, which allowed us to bring down more tonnes. So I think the team did a fantastic job to be able to maximize every railcar that we have and every opportunity we have to be able to bring down tonnes. And this allowed us to benefit from higher iron ore prices at the same time during the quarter. So in terms of our stockpile, what does that mean? Well, we managed to reduce our stockpile by about 477,000 tonnes during the quarter, down now to 1.7 million tonnes and continuing to bring that stockpile down. So very positive for cash flows. And also, hopefully, in a few quarters, we'll be able to have these stockpiling events behind us and not go back to that -- to those discussions. In terms of our operations, so yes, we managed to produce quite a lot of tonnes in the quarter that we had our semiannual shutdowns. But I think one important thing to highlight as well is that your mine is in very good standing. So we've invested quite a lot in terms of stripping to make sure that we keep the ore faces ready and make sure that we can operate this mine for the decades to come. So very happy with the results that we've managed to achieve, not only on the concentrate front, but also on the mining side. Turning over to the actual P65 and the industry overview. So you did see iron ore price increase by about 8.3% during the quarter. So that's been very positive for us. A little bit of headwind in terms of the sea freight, an increase of about 12%. But realistically, the improvement on the iron ore price was better for us compared to the slight increase on the shipping costs. What does that mean in terms of provisional price. Well, if you remember, at the end of last quarter, we had expected to settle our tonnes at around $100 per tonne. We managed to achieve $112 per tonne. So since we had 2.5 million tonnes on the water, that gave us a provisional price impact of about USD 30 million for the quarter. So very positive for us. When you look at next quarter, we do have a potential upside if iron ore prices stay where they're at because at the end of last quarter, we had 2.5 million tonnes on the water with an expected price of $114. But as you've seen, iron ore price is closer to about $120 at this time. What does that mean in terms of our average realized selling price. So if you look at the quarter, slightly lower than the average for the P65, one of the main impacts is definitely the fact that we had 2.5 million tonnes at the end of the quarter that was forecasted to settle at a lower price. So that definitely had an impact on our realized price for the quarter. And secondly, as you know, we are finalizing now our DRPF project. So this year, we have been selling more tonnes on the spot market because we are going to transition to this higher-grade material next year and did not want to lock up long-term contracts for our current material that will be converted to higher grade. In terms of cash costs, so as we mentioned, when you combine a very thorough shutdown, so we managed with the teams to be able to not only hit the proposed time for the shutdown, but also work very hard on managing our costs, improved our production and really worked with the teams to be able to see where can we improve in terms of cost without jeopardizing our long-term plan. And working all together, improving our production, we managed to hit $76 per tonne during semiannual shutdown quarter. So very proud of what the team has been able to achieve. What does that mean in terms of financial highlights. So quarterly revenue is just shy of $500 million, EBITDA of $175 million and an EPS of $0.11 per share. So very happy with the results that we managed to achieve in this quarter. What does that mean in terms of cash. So our cash did improve significantly during the quarter from $176 million to $325 million. Two main reasons for this. Well, obviously, the great quarter that we had, but also the closing of our senior secured -- unsecured notes, sorry. So that definitely helped in terms of our cash balance. So even if we continued investing in sustaining CapEx, continued investing in the actual DRPF project, paid our dividend, we managed to increase our cash from $176 million to $325 million. In terms of balance sheet, so we have over $1 billion of available liquidity. So very well positioned to be able to finalize our growth initiative to be able to convert half of our tonnes to 69% and very well positioned as well now that we end our 7-year CapEx run to be able to start deleveraging and potentially change our capital return structure. In terms of growth projects, so as we mentioned, our DRPF project still on time to be able to deliver at the end of this calendar year. So very happy with the progress of the actual construction. In terms of cost, we do expect to finalize the project at roughly around $500 million, so -- which is pretty much in line with the inflation-adjusted capital expenditure going back to January 2023. So when you look at the work that's been done in this inflation environment, very proud that we'll be able to deliver our third major project on time and on budget. In terms of Kami, you probably saw that during the quarter that we finalized the transaction with Nippon Steel and Sojitz. So securing the first payment of $68 million. When we discuss the cash of $325 million, this does not include the $68.6 million. This cash is in a restricted account controlled by us in the Kami partnership. So that is over and above the $325 million that we currently have as cash within the company. So very happy of having closed that transaction. So there's a bit of noise in the market when you look now in terms of what our premiums for high-grade, where is iron ore going -- but when you have 2 of the largest Japanese companies investing in a greenfield project in Canada to produce high-grade iron ore, it really shows that we do believe we're in the right commodity going forward to be able to maximize return for our shareholders. Why do I say this? Well, we have not seen projects of scale being able to come online to improve the quality of the actual iron ore that's traded on the seaborne market. What we're actually seeing is majors reducing the quality of the material. So we have the P62 that is now a P61, so 1% less in terms of quality. We have seen contaminants increase significantly over the past decade. And we do see quite a lot of companies that are announcing declining grades in terms of their material. So we're a bit counter that trend because we are improving the grade of our material. And I do think that over time, this is going to significantly increase the premiums for our material and trickle down as better returns for our shareholders. With that being said, I'd like to thank the team because I think we did an outstanding job during this quarter, and I would like to turn it over to questions that you might have. Operator: [Operator Instructions] First question is from Orest Wowkodaw at Scotiabank. Orest Wowkodaw: Congratulations on the operating performance. I'm curious if you can give us some color on the improvement in cash costs. I mean, last quarter, you warned about costs staying elevated because of harder ore in a different pit. I was just curious, are you out of that pit earlier than expected? Or what's driving the improvement? David Cataford: Yes. Thanks for the question, Orest. When you look at the last quarter, so we're still in that more difficult ore. I think what the team has managed to do, one, when we're in harder ore, it does create more fine material. So there was an impact in terms of recovery, if you look at the last quarters. The teams did a very good job in being able to improve on the recovery. We did quite a lot of work in the plants to make sure that we tweak our circuits to be able to maximize the recovery for that material. We also worked with the mining side to be able to switch a little bit the blending strategy. So definitely, as we've been a few months with this type of material, when we understand it a bit better, it's easier to be able to blend it and be able to minimize the impact. And if you look at this quarter, we also had the volume effect. So going from roughly about 3.2 million tonnes to 3.5 million tonnes was definitely an improvement for us. So if you combine all of those, that definitely helped in terms of our cash cost during the quarter. Orest Wowkodaw: And just as a follow-up, do you think these cash costs are now sustainable as your next quarter is not a scheduled maintenance quarter? Do you think you can maintain those costs? David Cataford: Well, we're surely going to work to be able to reduce as much as we can in the operating costs. I think as you know, it's really a volume portion at this stage. I think that the teams have done a very good job in terms of the maintenance side, the uptime of the plants. If we can hold this in this quarter, I do expect that we'll be able to continue on our cost journey. But realistically, it all depends on the actual volume we'll be able to produce during the quarter. Operator: Next question comes from Fedor Shabalin at B. Riley Securities. Fedor Shabalin: Dave and the team, congrats on a strong quarter, nice beat. And could you remind us, please, about seasonality that typical effects the destocking process? I know winter is [ not ] tough, but if you can quantify the -- and so going forward into the winter, should we expect kind of slowdown in this activity? David Cataford: Just to make sure was the question on the destocking, yes. So when we look at what we've managed to achieve now, obviously, we were in the best period of the year to be able to bring down material. There was no impact from forest fires. There was quite a lot of collaboration between ourselves and the rail operator. So I think we were in the sweet spot in terms of bringing down tonnes. If I look at the next quarter, we're going to start entering the winter months. And as you know, we have some mitigation measures to make sure that we don't freeze material in the ore cars. So that definitely usually reduces a little bit the performance per train. But realistically, I think we've improved significantly the rolling stock and the actual logistics cycle. So I think that's one positive. . And our team at site is definitely aligned to be able to find every opportunity that we have to not lose a single chance of putting tonnes on those trains. So I think we've done some improvements that allow us to think we'll be able to continue to destock, but we are entering in the periods where there's a little less productivity on that front. Fedor Shabalin: Helpful. And my follow-up is on DRPF. Is it fair to assume that the previous estimate of $20 per tonne premium is appropriate for the output of the DRPF. And what is the expected ramp-up profile in terms of volumes and timing. And specifically, what portion of total sales volume do you expect DRPF to present once fully ramped? Is it would be a hub. David Cataford: Yes, thanks for your question. So if you look at the DRPF, so as you know, we're delivering the plant basically at the end of this year. We're going to be in a ramp-up period for a few months. We do expect to have our first commercial vessel to be sold in the first half of 2026 calendar year. And then going forward, what we are going to do is to be able to place those tonnes, as we mentioned, closer to home, so to start benefiting not only from premiums for the high grade, but also from improved shipping costs. When we look at the expected premium, I mean, next year is going to be a transition year. So definitely, we're going to work with our clients to be able to prove that we can make 69% material, and they'll be able to test it in their plants. So as with all new products, there's usually a little bit of lag time before we get the full benefits of this material, but we do expect that these premiums will be significant once we've finalized the ramp-up, work with our various clients and be able to sign longer-term contracts for this type of material. Fedor Shabalin: Okay. I'll go back to queue, congrats one more time. Operator: Next question comes from Craig Hutchison at TD Cowen. Craig Hutchison: Pretty impressive sales volumes for the quarter. I just wanted to confirm, maybe a follow-up to the last question. Did you guys have the scheduled maintenance? Or was there a scheduled maintenance in September that you typically occur? Or is that something that's going to be pushed into Q4? David Cataford: Yes. So thanks for the question, Craig. So during the quarter, there was a 12-day shutdown. So that did happen in September. But despite that, we still managed to achieve the results that we did. So I think it was a very good combination of teamwork and the collaboration between us and IOC. Craig Hutchison: Okay. Great. And just on the DRPF, I mean, the spending in the quarter was a bit lighter than I expected, and you've talked about a slight increase on inflation. Is the balance of spending, is that mostly going to be pushed into the calendar fourth quarter? Or will some of that be spread out into early next year as well? David Cataford: Yes. It's always difficult to match that perfectly between the work that's actually being done and what's being paid. So there is a lag sometimes of work being done in the actual payment. So it's not because we reduced the cadence during the quarter. It's really due more to payment schedules that we have, but we have not reduced the cadence on that project. And when you look at the actual dollars out, it's probably going to be a few quarters after the completion of the plant that you'll see the final sort of investment for the DRPF. But the same thing is what happened with Phase 2 or with Phase 1. Craig Hutchison: Okay. Great. And then just on the DRPF project in general. I know the plan is to start shipping commercial volumes in sort of second half of next year. But is the plan to blend in the first half, will you guys be expensing that and booking that as revenue if you blend it with your other material? Or is the plan to sort of capitalize some of those costs and revenues through the first half until you're producing a product that sort of meets spec. David Cataford: Well, right now, what we're targeting to do initially is probably to blend the material. So we will be paid for the iron units. So as we ramp up the plant, I mean, obviously, if -- if it's a very smooth ride and we can deliver it quicker, well, then that strategy will change. But right now, the strategy is really to be able to -- one, that we'll be able to prove the quality of the material. But first, especially, I mean, we're starting this in the winter months, not the best months to be able to start 2 products at the port, 2 products with the trains. . So we want to demonstrate the actual robustness of the plant, make sure that we can achieve the different qualities. But at first, as you mentioned, we'll be blending that and that will trickle down in terms of revenue only in iron units. So there's usually formulas that we have already in place with our various clients to be able to account for that. And as we're comfortable with the delivery of the plant, well, then we'll be able to start really segregating 2 types of materials and having 69% concentrate or pellet feed and our typical 66% material. Craig Hutchison: Great. And maybe just one last question for me. Can you just maybe talk on what you're hearing in the DRI product in general. I think the last question was just on premiums. Just how robust is the market right now? I know there's some weakness in Europe and other places, but can you give us sort of broad overview of what you're hearing with regards to DRI in general. David Cataford: Yes. When we look at now, I think it's a bit of an abnormal situation. So obviously, you see the price for the DRI pellets. So it's not as its all-time high. It's very far from that. So it's pretty much at cyclical lows, which I actually think played in our favor because it doesn't incentivize a whole lot of people to be able to do what we're doing. When we look at what's potentially happening next year, so we have seen the first positive news out of Europe in the steel industry in quite a long time. So Europe is looking to implement tariffs to be able to protect against some Asian tonnes that are now coming into Europe. So as that happens and what we're seeing with the different steel mills that we're speaking to is that the first time in about 5 years that people seem a little bit positive. So if that happens and Europe does increase the amount of steel that they produce, that's definitely a positive for us and for premiums in terms of this type of material. We have seen projects also in North Africa and even in Europe that are continuing in terms of their DRI and EAF transitions. Some have been delivered, some will be delivered next year and the following year. We're seeing the same in the Middle East. So there might be a bit of a lag between when we see the actual crunch for demand for this type of material and when we deliver our plant. But we still think that this material is going to touch a pretty significant premium. Operator: [Operator Instructions] The next question comes from Stefan Ioannou at Cormark Securities. Stefan Ioannou: Most of my questions have been kind of answered in general. But just maybe just one more thing on the stockpile destocking. Is it still -- I know it's going to vary quarter-to-quarter based on maintenance and weather and whatnot. But is it a fair assumption that this is something that gets down to a "normal level", say, through the end of 2026. Is that a good way to think about it? Or... David Cataford: I mean I would love to do it quicker if I can. So definitely, we're going to put all the efforts to get there. I think it's a reasonable prediction. But again, as you know, we do not control the rails. So we're going to live with that partnership. I do see some improvements. I mean, 477,000 tonnes during the quarter, I think, was pretty good, hitting a record sales even if they had 12-day shutdown. So we'll capitalize on every opportunity we have to bring down that stockpile. We should not, in the future, have more than a few hundred thousand tonnes at site that is varying up and down depending on weather and things like that because our strategy, as you know, has never been to stockpile material. So hopefully, by the end of 2026, as you mentioned, that story can be behind us. Stefan Ioannou: Okay. Great. Great. And maybe just on the minutia sort of this idea of when you start creating the higher-grade product and then blending it at first. I'm just curious, like when you start producing it and you're showing the plant works, how long does it take a potential customer to take that material, test it, get comfortable with it and then come back to sign a contract? David Cataford: It depends on which client and how much they need the material. So I mean, once we've got the specs -- we've already sent quite a lot of test material to our various clients. So they have tested it at various levels in their labs. So I think it's more of a waiting pattern for certain to make sure that we can actually hit the quality. I think we've seen in the mining industry, a few people sometimes overpromise things and underdeliver. It's not really the way that we work, but still when you say that, it doesn't mean that people leave us on the actual material. So I expect that once we're able to produce the material, that doubt is going to be behind, and we'll be able to start signing the long-term contracts. Stefan Ioannou: Okay. And congrats again on the nice quarter. Operator: We have no further questions. I will turn the call back over to David Cataford for closing comments. David Cataford: Yes. So again, thanks, everyone, for your support. I mean when we look at your company, I mean, we've had quite a lot of support from all of you over the past 7, 8 years that we've done a significant CapEx run to be able to get the company where it's at. Now we've got a very strong foundation. We're going to deliver one of the best products in the world. We're going to be able to capitalize on increased premiums going forward, might be a little lag on that, but I still think it's the right strategy because we're really differentiating ourselves from what we're seeing in the rest of the world where quality is declining. So next year is an inflection point for us. It's really the moment where CapEx or significant CapEx are a bit behind us, and we can start benefiting from all the investments that we've made. So again, thanks for your support over the years and looking forward to be able to present the next quarter in a few months. Thanks, everyone. Operator: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Acadian Asset Management Inc. Earnings Conference Call and Webcast for the Third Quarter 2025. [Operator Instructions]. Please note that this call is being recorded today, Thursday, October 30, 2025 at 11 a.m. Eastern Time. I would now like to turn the meeting over to Melody Huang, Senior Vice President, Director of Finance and Investor Relations. Please go ahead, Melody. Melody Huang: Good morning, and welcome to Acadian Asset Management Inc.'s conference call to discuss our results for the third quarter ended September 30, 2020. Before we begin the presentation, please note that we may make forward-looking statements about our business and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additional information regarding these risks and uncertainties appears in our SEC filings, including the Form 8-K filed today containing the earnings release, our 2024 Form 10-K and our Form 10-Q for the first and second quarter of 2025. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update them as a result of new information or future events. We may also reference certain non-GAAP financial measures. Information about any non-GAAP measures referenced, including a reconciliation of those measures to GAAP measures, can be found on our website along with the slides that we will use as part of today's discussion. Finally, nothing herein shall be deemed to be an offer or solicitation to buy any investment prospects. Kelly Young, our President and Chief Executive Officer, will lead the call. And now I'm pleased to turn the call over to Kelly. Kelly Ann Young: Thanks, Melody. Good morning, everyone, and thank you for joining us today. I'm thrilled to share our Q3 2025 results with you as Acadian continues to grow and reach new heights. Every milestone we hit reflects our team's discipline and dedication in executing the organic growth plan we articulated when I assumed the CEO role at the beginning of the year. We remain focused on expanding targeted product and distribution initiatives to deliver long-term growth and shareholder value. Beginning on Slide 3. Acadian is the only pure-play publicly traded systematic manager. Founded in 1986, Acadian has pioneered systematic investing, and we continue to lead the space through constant innovation. We have delivered sustained outperformance across various investment strategies and through numerous market cycles. We managed $166.4 billion of AUM and a pure systematic manager applying data and cutting-edge techniques to the evaluation of global stocks and corporate bonds. 95% of our strategies by revenue have outperformed benchmarks over a 5-year period with a 4.5% annualized excess return. Our competitive edge comes from a combination of world-class talent, data-driven insights and innovative tools, which enable us to generate unique research and risk-adjusted returns that help our clients achieve their long-term investment goals. Our investment team is comprised of over 100 individuals with the depth and breadth of experience across many disciplines of finance, statistics and economics and a shared culture of collaboration and innovation. We're implementing focused product and distribution initiatives to drive sustainable growth, which I will discuss in more detail. Slide 4 showcases Acadian's Q3 2025 strong performance. Our U.S. GAAP net income attributable to controlling interest was down 11% and EPS was down 7% compared to prior year due to increased operating expenses, driven by increased noncash expenses, representing changes in the value of Acadian LLC equity and profit interest. Our ENI diluted EPS of $0.76, was up 29% and our adjusted EBITDA was up 12% driven by significant growth in reoccurring base management fees as well as share repurchases. We realized $6.4 billion of positive net client cash flows in Q3 of '25, 4% of beginning-period AUM, the second highest in the firm's history, driven by enhanced extension and core strategies such as non-U.S. equities. AUM surged to $166.4 billion as of September 30, 2025, marking another record high for Acadian. Turning to Slide 5. Acadian investment performance track record remains strong despite a more challenging recent period. We have 5 major implementations, which comprise the majority of our assets. As of September 30, 2025, global equity, emerging markets equity, non-U.S. equity, small cap equity and enhanced equity have 100% of assets outperforming benchmarks across 3-, 5- and 10-year periods with 1 minor variation. Global equity markets delivered strong returns in Q3 of '25. However, crowding in lesser quality high beta stocks created a more challenging environment for Acadian's fundamentally driven quality-orientated approach. We have seen these periods before but remain confident in our approach and believe we are well positioned for when markets refocus on company fundamentals. Slide 6 details how our disciplined systematic investment process has weathered various market cycles and generated meaningful long-term alpha for our clients. Our revenue weight 5-year annualized return in excess of benchmark was 4.5% as of the end of Q3 2025 on a consolidated firm-wide basis. Our asset weight 5-year annualized return in excess of benchmark was 3.5% as of the end of the quarter. By revenue weight, 94% of Acadian strategies outperformed their respective benchmarks across 3-, 5- and 10-year periods as of September 30, 2025. And by asset weight, 90% of Acadian strategies outperformed their respective benchmarks across 3-, 5- and 10-year periods. Next, on Slide 7, I'd like to focus on Acadian's extensive global distribution platform, which has helped us achieve robust gross sales and will continue to be a major driver of growth in the years ahead. Acadian has had a strong global presence for many years with 4 offices headquartered in Boston, London, Sydney and Singapore. We have continued to expand our client and distribution team with over 100 experienced professionals, serving more than 1,000 client accounts in more than 40 countries. The team has established strong, deep relationships with many institutional lines as our average of client relationship length with top 50 clients is over 10 years. We work with over 40 investment consultants across market segments and geographies, leading to a diverse client base invested across multiple strategies. We have $39 billion of gross sales in the first 9 months of 2025, which has surpassed our previous record of annual sales of $21 billion in 2024. In tandem with expanding our distribution capabilities, Acadian's business and product development teams have been focused on expanding our strategy and vehicle offerings in high demand and growing areas where Acadian's systematic approach is particularly well suited. Our current pipeline remains robust after the funding of several large mandate wins in Q3 of 2025. Moving to Slide 8. Acadian standing is a highly regarded institutional asset manager is a testament to our proven investment process as well as Acadian's world-class investment and distribution teams. We have 5 clients among the top 20 global asset owners and 24 clients among the top 50 U.S. retirement plans. More than 40% of our assets are from clients invested in multiple Acadian strategies. Our client base is diverse with 43% of assets managed for clients outside the U.S. We offer over 80 institutional quality funds for investors. And we achieved $39 billion of gross sales in the first 9 months of 2025 and reached $166 billion of AUM as of September 30, 2025. Slide 9 highlights the sustained momentum in Acadian's net flows. We realized positive net flows of $6.4 billion in Q3 of 2025, the second highest in the firm's history, representing 4% of beginning period AUM. This quarter's net flow is diverse across products and client types. Both enhanced and extension equities generated strong NCCF and core strategies such as non-U.S. also saw meaningful net inflows. Year-to-date, we generated net flows of $24 billion. With positive flows of $1.8 billion in 2024, we have now generated 7 consecutive quarters of positive net flows. As indicated earlier, our current pipeline remains robust after the funding of a number of significant client wins year-to-date. I'm now going to turn it over to our CFO, Scott Hynes, to provide you with more detail on our financial performance this quarter and an update on capital allocation. Scott Hynes: Thanks, Kelly. Turning to Slide 11. Our key GAAP and ENI performance metrics are summarized here. As previously noted, we manage the business using ENI metrics, which better reflect our underlying operating performance. You can find complete GAAP to ENI reconciliations in the appendix. Let me now turn to our core business results. Starting on Slide 12. Q3 '25 ENI revenue of $136 million increased from Q3 '24 by 12%, primarily due to management fee growth, partially offset by a decline in performance fees. Management fees increased 21% from Q3 '24, reflecting a 34% increase in average AUM driven by strong positive NCCF and market appreciation. Moving to Slide 13. In Q3 '25, our ENI operating margin expanded 157 basis points to 33.2% from 31.7% in Q3 '24 driven by increased ENI management fees. Our Q3 '25 operating expense ratio fell 40 basis points year-over-year to 43.3%, reflecting the impact of improved operating leverage. Our Q3 '25 variable compensation ratio decreased to 41.5% in Q3 '25 from 43.3% in Q3 '24. We now expect that our fiscal year 2025 operating expense ratio will be approximately 44% to 46%, and while our fiscal year 2025 variable compensation ratio is now expected to be approximately 43% to 45%. Turning to Slide 14 on capital resources. I'll focus on our strengthened balance sheet and the refinancing of our $275 million senior notes. This morning, we noticed the redemption of these notes that were to mature in July 2026, will be funding the redemption with a committed 3-year bank term loan and balance sheet cash. The term loan will have a floating rate based on SOFR and does not require annual amortization or principal payment prior to maturity, and that it is prepayable at any time with no fees or costs. We expect the senior notes redemption to be completed and for the term loan to fund around December 1, 2025. As of September 30, 2025, prior to the senior notes refinancing, our gross debt-to-adjusted EBITDA ratio was 1.4x, and net debt-to-adjusted EBITDA ratio was 0.8x. As adjusted for our senior note refinancing, our gross debt outstanding declines from $275 million to $200 million, with our gross debt to adjusted EBITDA ratio moving lower to approximately 1x and our net debt-to-adjusted EBITDA ratio to approximately 0.9x. Stepping back, this refinancing transaction is consistent with our disciplined approach to maximizing shareholder value. It increases our balance sheet flexibility, enables further deleveraging and enhances cash flows to capital management priorities, including investments in organic growth, share repurchases and dividends. Moving to Slide 15. We have a track record of creating significant value through share buybacks in recent years. Outstanding diluted shares have decreased 58% from $86 million in Q4 '19 to $35.8 million and Q3 '25. Over the same period, $1.4 billion in excess capital was returned to stockholders through share buybacks and dividends. During the third quarter of 2025, we repurchased 0.1 million shares or $5 million of stock at a volume weighted average price of $48.58. Amy's Board declared an interim dividend of $0.01 per share to be paid on December 24, 2025, to shareholders of record as of the close of business on December 12, 2025. Going forward, we expect to continue generating strong free cash flow and deploying excess capital that maximizes shareholder value. I'll now turn the call back over to Kelly. Kelly Ann Young: Before moving to Q&A, let me recap some key points. Acadia is competitively positioned as the only pure-play publicly traded systematic manager with a nearly 40-year track record and competitive edge in systematic investing. Our investment performance track record remains strong this quarter with more than 94% of strategies by revenue outperforming over 3-, 5- and 10-year periods. Business momentum continued in Q3 of '25 with net inflows of $6.4 billion, the second highest in the firm's history and with record AUM of $166.4 billion. Q3 '25 financial results included record management fees of $136.1 million, up 21% from Q3 of '24 million. ENI EPS of $0.76, up 29% from Q3 '24, and operating margin expansion to 33.2%, up from 31.7% in Q3 of '24. Finally, capital management remained a focus in the quarter as we repurchased 0.1 million shares or $5 million of stock and strengthened our balance sheet with the announced senior notes redemption and term loan refinancing. Acadian is well positioned to continue to drive growth and generate value for shareholders through targeted distribution initiatives and new product offerings. Our talented and dedicated team is acutely focused on achieving these goals, and I look forward to building on the momentum we've seen year-to-date. This concludes my prepared remarks. Operator: [Operator Instructions] Your first question comes from the line of Kenneth Lee from RBC Capital Markets. Kenneth Lee: On the institutional pipeline, you mentioned that it still remains robust. Wondering if you could just talk a little bit more around the composition. Any particular strategies or strategy buckets that you're seeing demand from clients? Kelly Ann Young: As I noted, the pipeline continues to look very robust. And the things that I think we've talked about on these calls earlier in the year continue. So enhanced equity continues to resonate with a number of our clients, particularly, I'd say, our international clients outside of the U.S., although increasingly within the U.S. And we've seen a real pickup of interest in the second part of this year in our extension strategies. I would say that's primarily driven by U.S. clients. But again, we're starting to see some interest there outside with non-U.S. investors. So those are clearly 2 themes that I think have continued through 2025. And continue to see really robust interest in our core strategy, where obviously, we have very long-term attractive track records there. And particularly, I'd say international equity clients looking to allocate perhaps strategies that don't have U.S. dominated. So continuing to see a real interest there. So the pipeline looks very diverse by strategy, continues to look very diverse by client domicile. And we continue to edge closer to that 50-50 split of AUM between U.S. and non-U.S. clients that we have been targeting for some time. Kenneth Lee: Got you. Very helpful there. And just 1 follow-up, if I may. Any update around outlook capital management. You mentioned plans to redeem the senior notes as well as with the term loan relatedly, any plans about how you think about paying down that term loan over time? Scott Hynes: Yes. Ken, it's Scott. Thanks for joining this morning. It's good to talk again. In regards to capital management, I think, look, I would anticipate that we'll continue to be pretty athletic in this regard. So we feel really good about the senior notes redemption and landing with the committed financing we have in place with the new Term Loan A, a lot of flexibility there. And I think you'll see us look every quarter to steer at what's the best answer for our shareholders. recognizing we do have that prioritization as we've spoken about before about organic growth and prioritizing organic growth and then going from there in terms of return of capital to shareholders. So I think during the balance. I think we're really well positioned. I think we'll be looking again every quarter. And you saw this quarter, I think that's reflected. We have a lot, as you can see going on this quarter. Another great quarter of performance, strong free cash flows, but we did have this refinancing and yet we were still in the market doing share repurchases. So I think that's reflective. Again, my words, I think, are going to be pretty athletic in this regard. Every quarter, looking to step into the market when appropriate in terms of share repurchases, while still being mindful of that debt position. This was, as you can see, clearly, a deleverage move. We think that's the right position to be in. I would know in this regard that we also upsized our existing revolver. So I think we're marching to a place of continuing to have a little less leverage. So that $200 million Term Loan A is a lot of flexibility there for us to repay early, no fees or costs associated with that. So we'll be revisiting that every quarter. Does that make sense? Kenneth Lee: Yes, that makes sense. That makes sense. And actually, if I could squeeze one more question and really appreciate the detail around global distribution. Just curious, what's been driving the pickup, the meaningful pickup in gross inflows that you've been seeing over the last year or 2. Were there any specific initiatives or efforts within the distribution platform? Or is it more related to what you're seeing in terms of the client trends? . Kelly Ann Young: Sure. I think it's a bit of both, Ken. I mean, we've very thoughtfully added resources to our distribution and client service teams across the globe to continue to service our clients to the best of our abilities and obviously, continue to focus on sort of newer channels or channels that have been under-penetrated. So I do think that it's a testament to the quality of the team that we've built here. We've also very intentionally tried to build out a suite of pooled funds. We have a usage range that works very well for our non-U.S. clients. We continue to build out our Delaware and CIT ranges within the U.S. So again, I think making ease of access to clients. a lot better. And then I do just think as well as we talked about things like enhanced and extensions are capturing the imagination and satisfying client need at the moment. So I think it's a combination of all of those things. But again, being very intentional about adding to an already incredibly talented team here and being very intentional about that. Operator: Your next question comes from the line of John Dunn Tan of Evercore. John Dunn: I wonder you just talked about like the domicile mix of your AUM. Could you remind us of the geographic mix of your investment strategies? And then just any change you're seeing in the demand for non-U.S. exposure relative to the last year or so? Kelly Ann Young: Sure. Yes. Nice to talk to you again, John. Yes. So we have seen a real pickup in interest, I would say, over the last 12 months in international strategies. It's one of our core strategies here, I would say, alongside global and emerging markets. And is our longest track record at the firm. So again, Acadian is very much known for international investing and we have, I think, a strong brand advantage there. . What's been quite interesting, I think, for us is not just seeing a pickup in interest in these strategies from our U.S. domiciled clients, but starting to see some of our non-U.S. clients thinking in this more sort of international or ex U.S. space. So again, I think there are different drivers, but that's sort of the newer trend that we've seen. And I certainly think we're going to benefit from a tailwind there given our long-standing track record and the established brand in that space. John Dunn: Got you. And then relatedly, one of your competitors recently said that they've seen the other managers that kind of pulling back from emerging markets over the past year. Would you agree with that? And maybe just a little more on emerging markets specifically. Kelly Ann Young: Sure. Yes. I think if we've been talking in 2024, I would probably completely agree with that statement. I think through this year, we are seeing pockets of interest in emerging. Again, I think Acadian has established an emerging market managers since the early 1990s. So again, I think that very strong robust track record that dates back decade, means that perhaps we're kind of front and center when folks are thinking about systematic exposure to EM. I certainly don't think that we're seeing the level of demand that we are in things like developed international. I think that's a fair statement. Again, I think we're seeing -- we are seeing some pockets of interest be on the back of 2 or 3 years, I think, relatively flat demand. John Dunn: Got it. And maybe just one quick modeling one. Could you just kind of outline the puts and takes of the fee rate from here? Scott Hynes: Yes. John, it's Scott. Yes, I mean, as you know, we've -- and Kelly has already touched on it. We've seen a bit of a transition and it's purposeful given the amount of traction that enhance specifically, has gotten in recent quarters. And particularly in the second quarter, the prior quarter when we saw, as you know, another really strong quarter of inflows, particularly in enhanced. You saw a bit of downward pressure on the fee rate. And then for all and purposes, we're more of a run rate reflecting those inflows and enhanced in a large way in the second quarter and again in this quarter. As we said prior, in all candor, this is an output, and there's a lot of things that work here that are not in our control. So more specifically, broader market levels and where we're seeing client demand, as Kelly's said, Enhanced has gotten a lot of traction in recent quarters, and we're seeing at the pipeline, as you already articulated, it's still there. However, there are other products, and I would say to be clear that when we think about enhanced from the start of the year and the management fee rate in the, call it, upper 30 basis points, it would often be somewhat lower than that. But other products that we are seeing also traction in could be higher than that upper 30 basis points rate. So I say that and that we have seen some chunky installations, and it can move around quarter-to-quarter. So that's a long way of saying we have seen this direction of travel closer to the mid-30s range. I think all else equal, looking at the pipeline today, you could see another basis point to come lower perhaps next quarter, particularly if enhanced materializes the way that we're staring at now at the pipeline. But a few chunky wins and another product, which are very much on table could have a different effect. So that's a long way of saying there has been this dynamic. I think you could continue to see a little bit of downward pressure in the fee rate given the ongoing traction and enhanced in the fourth quarter. But I'll tell you, it's not something that I think we can continue to pencil in necessarily. There's just too many factors at work, particularly when we look at 2026 and beyond. Hopefully, that's a help. Operator: Your next question comes from the line of Michael Cyprys of Morgan Stanley. Michael Cyprys: A question for you on the platform today, clearly really a lot of momentum with your enhanced and extension strategy. But when you look at the platform, are there any capabilities, geographies in areas that are lacking today that could put intended to enhance your value proposition with clients. And just curious how you're thinking about inorganic versus organic initiatives as you look out from here. . Kelly Ann Young: Nice to speak to you again, Michael. Yes, as you've noted, enhance and extensions have been a great story for us as have our core capabilities. And I think being able to support clients as they're looking at different points on the risk curve has been very helpful for us from a business and organic growth standpoint. We haven't touched on systematic credit. But I think, as you know, we've been -- we very actively have built out an offering there. I think still perhaps over the medium term where we expect to see much larger flows there. We're coming up on our 2-year anniversary of our longest running strategy in that space next month. So as I -- as we think about pivoting away from perhaps some of that equity exposure, although, I do feel much more comfortable now than a couple of years ago with how diversified that is across the risk spectrum across geographies. Systematic credit is also something that the team is very focused on having some really interesting conversations with existing and prospective clients there as systematic becomes gains traction and is gaining attention in the in the credit space. So I think for us, over the sort of short to medium term, that's going to continue to be a strong area of focus. And again, are hopeful that we see assets follow those strong track records that we're building, be it that we're still sub-2s on track records as we sit here today. Michael Cyprys: And then just on the systematic fixed income, maybe you could elaborate on how that's contributing today? How you think about that evolving over the next couple of years? And what are some of the steps you're taking around to build that out? And do you feel you have the capabilities on the fixed income front, systematic capabilities to capture the opportunity set? Kelly Ann Young: Yes, absolutely. I mean we have -- we hired a gentleman, Scott Richardson to run this initiative 3.5 years ago who comes with an extraordinary pedigree in both equity and fixed income investing. So Scott has built out and handpicked I think, an outstanding team here today to a dozen or so people that have -- we feel very well placed. We've been very intentional about how we have gone to market with these strategies. As I say, our longest high-yield strategy will hit 2-year anniversary next month, closely followed by our global high yield and our U.S. investment-grade strategies all between a year and 2 years. So I think, again, we are -- we have certainly built -- very intentionally built the capability, those track records are still in, I'd say, incubation stage, but not early incubation. I think much more midterm. We know in fixed income, again, the expectations around returns are that much smaller than they are in equities. And so those 3 track records, I do think are going to be very important milestones for the clients to gain comformt. But certainly, when I look at the team that Scott has built, when I look at how integrated that is with the existing research team, the infrastructure of the firm here. I think we're going to be very well placed over the medium to long term in terms of generating meaningful return for our investors and meaningful cash flows as well. So again, I feel very confident about it as we sit here today, but with all the caveats that again, I think in this type of asset class, 3 years is clearly the benchmark that clients will be looking for in terms of gain comfort. But I do think that what Scott and the team have done in terms of building a very consistent positive performance month-over-month, quarter-over-quarter, is starting to really resonate. So I feel very confident where we are today. and the expectations of that platform being able to manage $10 million, $20-plus billion, certainly is the capability there over time. I just think I'd say that those 3-year track records are going to be perhaps more important here than they might be in some other more adjacent areas of our equity business. Operator: [Operator Instructions] And this concludes our question-and-answer session. I'd like to turn the conference call back over to Kelly Young. Kelly Ann Young: Well, thank you, everyone, for joining us today, and I wish you all a great day. Thank you. .
Operator: Good day, and welcome to the Coeur Mining Third Quarter 2025 Financial Results Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mitchell Krebs, President and CEO. Please go ahead. Mitchell J. Krebs: Good morning, everyone, and thanks for joining our call today to discuss our third quarter results. Before I kick off, please note our cautionary language regarding forward-looking statements and refer to our SEC filings that are on our website. The third quarter highlights on Slide 3 showcase our second consecutive quarter of record results driven by higher realized prices strong production levels and solid cost management. As a result, our cash balance is growing rapidly and is expected to exceed $500 million at year-end placing us solidly in a net cash position heading into 2026. Based on recent price levels, we now expect our full year EBITDA to exceed $1 billion and our full year free cash flow to top $550 million, both of which are higher than our prior estimates. Mick and Tom will provide some further operational and financial details in a few minutes, but a couple of other highlights I wanted to quickly mention. Our Las Chispas, silver and gold operation in Sonora, Mexico had another consistent quarter of production during its second full quarter, since the SilverCrest transaction closed back in February. Its free cash flow increased by 34% to $66 million in the third quarter. In addition to their solid operational and financial results, we issued an exploration update last month that highlighted several high-grade intercepts at Las Chispas. We couldn't be more pleased with the SilverCrest transaction and the addition of the Las Chispas operation managed team. It's a great example of well-timed M&A that has allowed us to significantly up-tier our asset portfolio by adding low-cost silver production and immediately bolster our balance sheet, which has put the company in a terrific position as we look ahead to what should be an even stronger fourth quarter and a record-breaking year in 2026. On the share repurchase program, we managed to get nearly 10% of our initial $75 million program completed so far, and we'll continue to evaluate our repurchase activities and overall capital allocation priorities with our board over the coming months. At Rochester, the team continued to make solid progress toward achieving steady state. We mentioned during our last call that we took extended downtime early in the third quarter to make some modifications to the crusher corridor, which have proven to be successful. Mick will talk more about the progress there in a few minutes. Finally, you'll see we fine-tuned our full year production guidance ranges and we also tweaked our cost guidance ranges. These narrower production guidance ranges resulted in a small increase to the midpoint of our full year gold production guidance and a slight decrease to the midpoint of our full year silver production guidance. The main drivers to these adjustments our Las Chispas, Palmarejo and Wharf being nicely ahead of plan, offset by some Rochester ounces being pushed into 2026 to reflect lower than planned crush tons so far this year. Before I turn it over to Mick, I just want to quickly thank the team. Our safety and environmental performance this year is among the best in our company's 98-year history, and the operational and financial results speak for themselves. It's great to see these themes all coming together at the same time, the impact of our recent investments in expansions and exploration, the SilverCrest acquisition and now these higher prices to generate these strong results for our shareholders from our balanced platform of North American assets. Mick, over to you. Michael Routledge: Thanks, Mitch. The third quarter was another solid step forward for Coeur, marked by strong execution and operating discipline throughout the business. Consolidated gold and silver production continued its 2025 trend of positive sequential quarterly increases, delivering over 111,000 ounces of gold and 4.8 million ounces of silver. Adjusted cash per ounce for gold and silver also continued that positive trend compared to Q3 2024 at $1,215 per ounce and $14.95 per ounce, respectively. Looking in more detail at each of the operations, rock solid, consistent production and cost performance with a balanced portfolio was the key takeaway in the quarter. Beginning with Las Chispas, the operation continues to perform exceptionally well, with silver production increasing to 1.6 million ounces and gold production to 17,000 ounces, generating $66 million of free cash flow, as Mitch mentioned earlier. The mine's outperformance to date and expectations for a strong finish to the year led us to increase the range of 2025 silver and gold production guidance. I'm also pleased to report that the full integration of Las Chispas is now complete, kudos to the entire team for a job well and safely done. Turning to Palmarejo. The mine delivered $47 million of free cash flow during the quarter with strong recoveries and mill throughput that reached their highest levels in 6 quarters. The pace of exploration activity has also increased in the East District outside the Franco-Nevada gold stream area of interest. Including drilling, mapping and site work in the highly prospective [indiscernible] and Guazapares trends, which we believe will be key drivers in Palmarejo's next leg of growth. Palmarejo's strong performance year-to-date and expectations for a good finish to the year supported an uptick in their full year 2025 production guidance ranges and driven by continued strong cost management a reduction in their full year 2025 cost guidance ranges. Turning to Rochester. The priority in the third quarter remained on building consistency and momentum through the 3-stage crushing line, which continues to drive steady sequential growth in production at a lower overall cost profile. Gold and silver production increased 3% and 13%, respectively, compared to the second quarter driving a second successive quarter of free cash flow of $30 million. I'm pleased to report that the average particle size continues to trend downward for material passing through all 3 stages of crushing from a P80 of around 0.92 inches in the second quarter to slightly better than budget levels of 0.84 inches in the third quarter and the related recoveries continue to track our PSD models just as we expected. As mentioned last quarter, the team took an extended down period in July to successfully implement several modifications after startup to further enhance the tremendous processing power and efficiency of the cushing train. We also managed through some premature beltway challenges in the secondary reclaim feeder during the quarter with a few more minor modifications to address this in the fourth quarter. This downtime resulted in a slight decrease in tons crushed compared to the prior quarter. However, total tons placed on Stage 6 in the third quarter increased over 9% to 8.3 million tons by utilizing our available fleet and supplementing crushed tons with direct to pad material. Revised 2025 production and cost gains ranges at Rochester reflect the cumulative effects of this year-to-date downtime and the expected timing of ounces coming from Stage 6. Moving to Kensington. The positive impact of the recently completed multiyear underground development program continues to shine through in the form of a stronger, more consistent production profile. Gold production increased for the third consecutive quarter exceeding 27,000 ounces. Cost per ounce at Kensington has shown similar sequential improvement in 2025 reaching $1,659 in the quarter. These positive trends contributed to free cash flow of $31 million, Kensington's highest quarterly cash flow in over 6 years. In light of strong results to date, coupled with greater flexibility and productivity taking route throughout the mine, Kensington's 2025 production guidance has increased and its 2025 cash per ounce range has been narrowed downward. Finishing up at Wharf, the mine achieved its third consecutive quarter of increased production and lower cost applicable to sales. Quarterly gold production increased by 16% to 28,000 ounces, leading to free cash flow of an impressive $54 million. This great year-to-date performance led us to increase full year gold production guidance by 3,000 ounces. At the same time, moving cash guidance down by $125 per gold ounce. As Mitch mentioned, the power of Coeur's balanced North American portfolio is fully enjoying this moment of record-setting metals prices. With that, I'll pass the call over to Tom. Thomas Whelan: Thanks, Mick. As highlighted on Slide 8, our strong Q3 financial results demonstrate the power of our 5 asset portfolio, which is delivering as expected. It was pretty exciting to see the surge in quarterly free cash flow and EBITDA margin during the quarter. Perhaps more exciting is the resulting dramatic improvement of the company's financial position in such a short period of time. Metal sales climbed 15% to $555 million during the quarter, driven primarily by a healthy increase in the number of ounces sold and further accentuated by the 15% higher silver price quarter-over-quarter. This strong top-line revenue growth, combined with overall solid cost control, led to several new quarterly financial records for net income, adjusted EBITDA, free cash flow and adjusted EBITDA margin. One neat metric to highlight is that Coeur's free cash flow party continued at a pace of roughly $2 million per day during Q3, and we expect this rate to increase with the expected higher Q4 realized prices. Turning to the balance sheet on Slide 11. Our cash balance grew to $266 million. We took advantage of our improving financial position to early repay $10 million of higher cost capital leases as we aim to drive down our interest expense even further. We have now repaid over $228 million in debt during 2025, driving our net debt below $100 million. We closed the quarter with a net debt ratio of 0.1x. We are prepared to declare victory on achieving our long-term goal of net debt to EBITDA of 0 during Q4 2025, which is nicely ahead of schedule. Included in our Q3 2025 earnings was a significant milestone around our $630 million of U.S. net operating losses. As the students of accounting on this call will appreciate, we recorded these U.S. net operating losses on the balance sheet during the third quarter. This accounting requirement resulted in a onetime $162 million noncash tax benefit for accounting purposes during the quarter, which is a reflection of the strong performance of the U.S. operations over the past 3 years on a cumulative basis. We have enhanced our guidance and disclosure relating to tax matters to provide additional color on the go-forward effective tax rate and on quarterly taxes paid. Speaking of guidance, we have fine-tuned our 2025 production and cost guidance as is the normal cadence after the end of the third quarter. As Mitch referenced, the overall production changes are truly minor tweaks and speak to our overall predictability over the past 3 years. Despite a stronger peso than we had budgeted and higher royalty obligations due to stronger gold and silver prices, we are particularly excited to lower our cost guidance at 3 of our 5 mines, which reflects the efforts of our business improvement culture and signs that our 2025 inflation estimates were conservative. With that, I'll now pass the call back to Mitch. Mitchell J. Krebs: Thanks, Tom. Before moving to the Q&A, I want to quickly highlight Slide 13 that summarizes our top priorities for the remainder of the year. We've made tremendous progress this year by delivering on our strategy and pursuing opportunities to further improve the quality of the business. We expect this discipline and focus to result in a strong finish to the year and to position us exceptionally well for a record year in 2026. With that, let's go ahead and open it up for questions. Operator: [Operator Instructions] Our first question comes from Mike Siperco with RBC Capital Markets. Michael Siperco: Maybe starting possibly with -- maybe starting with Mick on Rochester or I assume it's Mick anyways. Net of the guidance change and what you're seeing in the second half at the crusher, can you talk a bit more about what's needed to get the operation up to full capacity or steady state, let's say, into 2026 from a throughput perspective? Mitchell J. Krebs: Mick, do you want to go ahead and take that? Michael Routledge: Yes. Mike, thanks for the question. Absolutely. We telegraphed a little bit that we're going to do those extended shutdowns during July, and we did that. And we've got 3 really strong projects done, 1 on the primary, which was really to help us get more efficiently in and out of the primary to maintain that asset around a real system underneath the primary. So that allows us to then run more consistently at the primary level. On the secondary, it was about some modifications that we did to split the 2 secondary systems up, so that we can run 1 of the systems, while maintaining the other one, which also impacts the productivity improvements. And then the third key project that we did during the quarter was an auto sampler downstream around the tertiary system that allowed us to both drive uptime to get more tons through the pipe and to get better visibility of the size fraction online during dynamic operations. So all 3 of those projects have really driven the opportunity for more uptime for size control and productivity at Rochester. That was done in the third quarter, and we've seen some good things that that's getting some traction and we're looking forward to better results going forward. Mitchell J. Krebs: And just, Mike, to piggyback on what Mick just highlighted to get to the point of what's needed to get up to capacity out there and say that the unplanned downtime late in the third quarter regarding that conveyor belt under the secondary crushed ore stockpile that cropped up, which caused us to to lose a little bit of momentum there on the back of completing those projects that Mick just highlighted, that will get addressed here in November. And that should -- there's always going to be something I'm sure that pops up from time to time, but that's probably the 1 thing that we need to get behind us and then we'll hopefully have some clear runway on the backside of that. Is that fair to say, Mick? Michael Routledge: It's absolutely fair to say. The trend is positive. We're seeing some better numbers as we go through this month and year-to-date now that we've got those projects behind us, and we'll just continue to tweak. I'm really actually quite happy where we're at. It's not unusual that we'll do some of these modifications at the startup. And in relative terms compared to the industry average, it's been quite a lean set of modifications to be there. So, so far, so good. Mitchell J. Krebs: Does that help, Mike? Michael Siperco: Yes. And I guess just to follow-up on that, that was going to be my next question. I mean when you look at the issues that you have been addressing, either sort of planned or unplanned, would you say this is more normal course adjustment during a ramp-up of an operation of this size or are you seeing more with respect to either the conveyors or the wear or the material you're running that maybe needs more of a step back and some readjustment? Or is it both? Mitchell J. Krebs: I'd say it's much more of the former, Mike, things that when you run a large crusher train like this for a little while, if something pops up, you fix it and then you move on. Mick, fair to say? Michael Routledge: Absolutely fair to say. It's not atypical conveyors, belts, adjustments to shoots a little bit on strike up bars around the secondary that we'll make adjustments on that will give a bit more longevity on the belts, and we should see the benefits of that going forward. Michael Siperco: So then if I can ask and maybe without getting into guidance specifics, the original 2025 guidance that called for about 20,000 ounces of gold and 2 million ounces of silver in Q3 and Q4. Is that still a quarterly run rate that you feel confident can be reached next year? Mitchell J. Krebs: Yes, I'd say the step up from 25% to 26% will be pretty material out there, getting closer to that on a full year basis, that annual kind of plus 30 million-ton crushing rate, which is really where we need to be to achieve that kind of annual 7 million to 8 million ounces of silver 70,000 ounces of gold on an annual basis. So we expect to see some momentum in the fourth quarter heading in that direction. And then sustain that more throughout 2026, and that's going to give us a nice incremental step up year-over-year out there. Michael Siperco: Okay. Great. Maybe 1 more for me, and then I'll turn it over. Just [indiscernible] on growth, nice segue to M&A. Obviously, Las Chispas has worked out pretty nicely for you over the last 12 months or so. You seem to be anyway as well into cash harvest at this point. How are you thinking about other opportunities either producing or in development out there in the market? And maybe if you can address that in the context of how you're thinking about Silvertip in the longer term? Mitchell J. Krebs: Yes. Yes, sure. Thanks for the question. Look, we came into this year very internally focused on some clear priorities around closing and integrating SilverCrest, ramping up Rochester to steady state, paying down debt quickly. And now here we are almost in November, and you can say that we've either completed or are well on our way to checking the box on all of those. And we're always looking, right, at that things that we could do to potentially make this a better business up tier the quality of the company and the operations that we have not that much of a focus on going back into the development stage game, after having just come out of a period of pretty heavy investment at Rochester, Kensington in exploration, being in this free cash flow positive phase is somewhere where we'd like to remain for a while. And so, any opportunities that we look at, though, have to fit a fairly rigid set of criteria around being gold and silver and improve the quality of the business, sticking in our jurisdictions where we are. So we're always looking at those things. There's not a lot of those, frankly, that fit all those criteria. So we're always actively monitoring and evaluating those kinds of opportunities. Just turning to Silvertip for a second, that's very much a part of how we think about growth in the future, not necessarily in the near term, but looking out a bit longer term, that's a significant leg up in growth, in particular, on the silver side, that could bring in a pretty chunky amount of annual silver production, assuming Silvertip becomes a mine. I think, I said last quarter, we kicked off an initial assessment here to take a look at that project. We'll need to complete that next year, consider whether we move on to the PFS phase. And then if that clears -- if the project clears that hurdle and onto the feasibility study stage, obviously, permitting and then a lot of drilling. So all of those things take time. We don't want to do anything to cut any corners or any shortcuts. We want to make sure we get it right. Of course, Canada is providing a lot of support for critical minerals projects like Silvertip. So we're getting our arms around that and seeing how that might affect the overall time line. But -- so it's out there a few years, but it's something that we're continuing to advance. And I think it's probably going to look pretty attractive, especially at the -- in the current metals price environment. Operator: Our next question comes from Joseph Reagor with ROTH Capital Partners. Joseph Reagor: Mitch and team. So just first thing, I know you guys gave a little bit of guidance on how the tax rate is going to look this year. But what should we be thinking about as far as next year and beyond now that this is -- you have this deferred tax asset? Mitchell J. Krebs: Tom? Thomas Whelan: Sure. Thanks. We're taking bets on whether we get a tax question. So thank you. So again, it was critical to highlight the setting up of the tax asset. And so for years, we've really had basically a 0 effective tax rate on our U.S. earnings. And so that will change starting next year. The federal rate is 21%. The states are -- you might want to add in like 3% on average. And so that should be the go-forward kind of rate. We'll tweak that, of course. We have to wait and see how fast we choose through all of the net operating losses and trying to predict how fast that's going to happen with these increasing commodity prices has been -- it's a high-class problem to have. But we should even be in a situation, where we -- there's a potential to actually pay U.S. income tax, which in 2026, federal income tax, which was a pipe dream many, many years ago. So I don't know, if that gave you enough color, Joe, but that's how you should be thinking about it. Joseph Reagor: That's helpful. And then was a good quarter overall, but I did note Palmarejo and Las Chispas saw a little bit of a drop in grade -- was there anything to that? Or is it just sequencing? Is it Las Chispas -- was it related to the stockpiles that are processed, like any color you guys can give there for what drove that? Mitchell J. Krebs: Yes, I think you actually just almost answered the question with your answer there with your suggestions at least. Mick, do you want to give a little more color? Michael Routledge: Yes. I mean in underground [indiscernible] mines, of course, we're already always characterizing a little bit more ore as we go through the production phase. And when we do that, we then look to see whether that was economic. And then you can either stockpile that ore or you can run it through the pipe. With Palmarejo, of course, we've got upside in our mill and capacity there. So we chose to run some of that. We'll run about, I think, 6% more tons through the pipe in the quarter, and that helped to make those adjustments to the gains. But let's just ask for sure, we ran a lot of that historic stockpile down, and that's a great thing. So that we've now got a very clear view of the stockpile that we have sitting there at Las Chispas. Operator: Our next question comes from Kevin O'Halloran with BMO Capital Markets. . Kevin O'Halloran: So great to see the cost guidance coming down at most of the operations, and it looks like that's mostly on the back of higher guided production. But can you guys comment on what you're seeing from a unit cost perspective? And any main cost pressures that you might be seeing across the portfolio? Mitchell J. Krebs: Thanks for the question. I think we have that inflation slide in the deck that we typically include that shows from our perspective, we're still squarely in that sweet spot of strong rising prices and flat input costs into the business. I think, it's Slide 9, in the deck. Combined, those are close to, I think, around 60% of our total OpEx. And you can see that whether you look over the last 12 months or the last 24 months, it's a pretty attractive cost environment that we're seeing. So not a lot of pressure. There's no tariff pressure at all, at least yet. But I don't know, Mick, Tom, is there anything on the unit cost side that... Michael Routledge: Yes. I mean, look, we saw inflation 3 years ago or 2 years ago, when we put really robust cost controls in place at all of the sites and they're holding true. We're still focused on costs even in this nice price environment and being disciplined in that space helps to drive the margin. So yes, we're enjoying that. Thomas Whelan: Kevin, 1 thing to pile on is just from a royalty perspective, I mean, that's something that can impact costs. And so despite paying some higher royalties, even out at Rochester we've had a royalty that we'll start paying based on these prices. And so that drove a lot of the Rochester increase. But I think it's fantastic that we're able to lower the cost at the other 3 mines despite the higher royalty pressure. And don't forget the peso as well, right? The peso has been very strong. And Mick and Sandra and the team down in Mexico have done a great job on costs. So really happy. Kevin O'Halloran: Great. Yes. That's helpful. Just moving on, kind of already touched on this at Palmarejo, but with higher metals prices, I think pretty much everyone in the industry is facing the decision of whether to send lower grade ore to the mill. Maybe it was previously considered waste and now with metals prices, it can go to the mill. You mentioned you're seeing a bit of that at Palmarejo. Are you seeing or facing any of those sorts of decisions at any of the other operations? And do you expect that impact going forward? Or do you expect to be sticking largely to the mine plans? Mitchell J. Krebs: Yes, Mick, do you want to... Michael Routledge: Yes. I mean, look, on an annual basis, we'll try our best to stick to the mine plans. We're always finding that marginal ore, and then we'll make a decision about that to stockpile that we run it. And the great thing is though we don't just look at that grid, we look at the recovery. So if you look at Palmarejo, for instance, similar lower grade material actually recovered better. And so the balance of play on that was good, and that's why you see that positive that positive outcome at Palmarejo. So just the grid by itself has to be coupled with the tons and the recovery performance. Operator: [Operator Instructions] There are no further questions at this time. Mitchell J. Krebs: Okay. Well, we appreciate everybody's time today. Thanks for joining our call. We wish you all a happy Halloween. Safe, healthy holiday season ahead. And we'll talk to you when we report fourth quarter and year-end results early next year. Thanks. Have a good day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Global Indemnity Group Q3 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Nathaniel DeRose, Senior Vice President and Senior Counsel. Please go ahead. Nathaniel DeRose: Thank you, operator. Before we begin today, I would like to remind everyone that this conference call may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words, including, without limitation, beliefs, expectations or estimates. We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will, in fact, be achieved. Please refer to our annual report on Form 10-K and our other filings with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or otherwise, except as required by law. It is now my pleasure to turn the call over to Mr. Jay Brown, Chief Executive Officer of Global Indemnity. Joseph Brown: Thank you, Nathaniel. Good morning, and thank you for joining us for the Global Indemnity Third Quarter Results Conference Call. With me today in addition to Nathaniel are Evan Kasowitz, President of Belmont Holdings; Praveen Reddy, President and CEO of Katalyx Holdings; and Brian Riley, our Chief Financial Officer. Following our usual format, I will first share overview comments on my assessments of this quarter's results. I will also offer some thoughts on our current positioning as a company as I conclude my third year as CEO. Then our CFO, Brian Riley, will present the highlights of our financial and operational results. After Brian's remarks, we look forward to your questions. This quarter's results continue the underlying positive insurance operating and investment trends that we have seen over the last several quarters. Our accident year combined ratio of 90.4% -- I'm going to say it twice, 90.4%, generated an underwriting profit of $10.2 million, a very nice increase over the 93.5% we recorded last year. This was our best quarterly accident year combined ratio in the past several years, reflecting underlying strong property results for both catastrophic losses and non-cat losses. Our short duration investment portfolio delivered acceptable net investment income results at $17.9 million, a 9% increase from the prior year period. However, we did see a modest short-term mark-to-market loss this quarter as we have started to shift away from a portfolio consisting substantially of shorter-term fixed income investments. The overall extremely positive insurance and investment results were slightly offset by the planned higher corporate expenses as we continue to invest in our Agency and Insurance Services segment. Brian will provide some details on the areas where corporate expenses are increasing. But as we've noted earlier in the year, these investments are intended to help drive the long-term anticipated growth. Overall, the resulting net income of $12.5 million remains consistent with the results from last year. And underlying operating income increased by 19% against last year, a nice year-over-year change. Moving from the bottom line to the top line for insurance operations. Excluding terminated products, gross premium grew 13% over the third quarter of 2024. As noted in our results release, we again saw very solid, sustainable growth in Vacant Express, Collectibles, Wholesale Commercial and Assumed Reinsurance. Premium rate changes on our direct book are still running in the mid-single digits, which coupled with exposure changes are tracking close to our current expectations for loss trends. That said, it is clear that although the market remains favorable for our current products, competition is definitely increasing. Turning from the quarterly financials. Our efforts under our Project Kaleidoscope team to revamp our technology and data infrastructure, information management and policy issuance systems continues to be on track. Our current plans are to have all of our existing products on the new system architecture in 2026, which has been designed to be compatible with our expanding investments in AI technology. Our progress over the past 3 years has been significant as we initially refocused our business on sectors where we had long-term success and adjusted our staff accordingly to serve that business. This is evident in the steady improvement of our accident results over the 3 years and continued double-digit growth in our ongoing businesses. Having built a strong foundation, we launched a new legal and organizational structure at the beginning of the year. Following the addition of Praveen Reddy in March, we have started to augment our existing underwriting and distribution human capital resources with additional staffing in key underwriting and finance positions. As we have previously discussed, our focus remains on executing our strategy to achieve substantial scale in our Agency and Insurance Services segment, including through organic growth, new product launches, service enhancements and strategic acquisitions. We also recently announced the rebranding of this group to Katalyx. Along these lines, we purchased Sayata last month, a high-tech AI-enabled digital distribution marketplace and agency operations for commercial insurance. We believe this acquisition directly supports our strategy to deliver faster, smarter distribution solutions for specialty insurance and new products. We recognize that it will take a while for the market to properly value GBLI in our new configuration with appropriate metrics for the different segments as they grow at different rates. To address this, we have added external resources at KCSA to ensure our company's story is properly communicated to our investors. I should also note that our Board has made the decision to move our stock listing to the NASDAQ exchange, which is viewed as more appropriate for a company like ours embarking on a new chapter in its history. I firmly believe that our existing core business, coupled with our reorganized structure and strategic efforts will yield substantial value to our owners in the next few years. At this point, I will turn it over to Brian. Brian Riley: Thank you, Jay. Starting with one of our most important metrics. Book value per share increased from $48.35 at June 30 to $48.88 at September 30. Including dividends paid of $0.35 per share, return to shareholders was 1.8% for the third quarter of 2025. Net income was $12.5 million for the third quarter compared to $12.8 million for that same period last year. And as Jay mentioned, operating income, which excludes after-tax impact of unrealized losses on equity securities, was $15.7 million for the third quarter, an increase of 19% over the same period last year. Key drivers came from both underwriting income and investment income. Underwriting income improved 54% to $10.2 million in the third quarter of '25 compared to $6.6 million for the same period last year. Investment income improved by 9% to $17.9 million in the third quarter of 2025 compared to $16.5 million in the same period last year. This improvement was partially offset by an increase in corporate expenses to $7.8 million in the third quarter compared to $5.9 million for the same period last year, resulting from professional fees related to the build-out of personnel at Katalyx and transaction costs related to the acquisition of Sayata. As Jay mentioned, our corporate expenses will likely remain higher than previous years as we prospect new business opportunities at Katalyx and Belmont. Let me add a little color on underwriting income and investments, starting with underwriting income. Current accident year underwriting income improved by $3.6 million overall, driven by an improvement in the combined ratio of 3.1 points to 90.4%. This consisted of a 4-point improvement on the loss ratio to 50.1%, driven by both cat and non-cat performance. This is partially offset by an increase in the expense ratio of 1.7 points. Expenses remain elevated as we add personnel to build out Katalyx and complete the runoff of our noncore businesses. Turning to premiums. Consolidated gross written premiums increased 9% to $108.4 million in the third quarter of '25 compared to $99.8 million in the same period last year. As Jay mentioned, excluding terminated products, gross written premiums increased 13% to $108.5 million compared to $96.4 million for the same period last year. Let me add a little color to divisional level. Our Wholesale Commercial business, Penn-America, which focuses on Main Street small business grew 10% to $67.9 million compared to $61.9 million in the same period last year and includes average rate increase of 4%. In aggregate, Vacant Express and Collectibles grew 5% to $16.4 million in the third quarter compared to $15.7 million in the same period last year, driven by rate and growth in agency appointments. Our Assumed Reinsurance gross premiums, excluding noncore business, grew 58% to $15.6 million, resulting from 7 new treaties we added during 2024 and 5 new treaties added in 2025, increasing our in-force treaties to 16 at September 30. Specialty Products, excluding the terminated products, remained flat at $8.6 million. As for investments, total investment return was $14.5 million for the third quarter of '25, with an annualized return of 4%, consisting of $17.9 million of investment income and $3.4 million decline in fair value on the portfolio. Investment income on our fixed income portfolio was $15.2 million for the quarter compared to $15.8 million for the same period last year. Current book yield on the fixed income portfolio is 4.5% with a duration of 1.1 years at September 30 compared to December 31, 2024, of 4.4% with a duration of 0.8 years. The average credit quality of the fixed income portfolio remains at AA-. Our outlook for 2025 is very positive. Our underwriting income ex the impact of California wildfires in the first quarter of $21.2 million for the first 9 months of '25 compares to $15.3 million for the same period last year. Our underwriting performance for the fourth quarter of '25 is expected to improve compared to the same period in '24. We continue to expect premium growth of 10% for the full year. Booked reserves remain solidly above our current actuarial indications. We believe the premium pricing is continuing to track with loss inflation. Discretionary capital, which we consider the amount of consolidated equity in excess of that required to maintain the strongest levels with our rating agencies is $273 million at September 30. Lastly, our investment portfolio remains well positioned to invest in longer duration maturities at higher yields. Thank you. We will now take your questions. Operator: [Operator Instructions]Your first question comes from the line of Ross Haberman of RLH Investments. Ross Haberman: Nice quarter. Could you go back to the investment losses of $4 million you took in the quarter and sort of give us an explanation of why you decided to take -- realize the loss? And will there be similar type of losses in the next couple of quarters as you say, as you restructure and/or sell some of your bond portfolio? Brian Riley: Yes. Ross, to be clear, the loss was not realized in the form of a sale. It's a fair value decline on $25 million in equities that we invested in the third quarter. We view it as short term. Ross Haberman: Okay. And I think you said you're going to restructure investment portfolio. Could you elaborate on that a little bit and the reason why? Brian Riley: Yes. I mean, so far this year, we've deployed $200 million of our short-term investments into corporates and mortgage-backed securities right now. We're at approximately 40% of the portfolio is short term, and we're evaluating how to invest over the next quarter and/or next 5 quarters, those short-term investments. Ross Haberman: I'm sorry, just one clarification. What percentage of your investment portfolio is equities as opposed to bonds? Brian Riley: Equity is about 2%... Operator: Your next question comes from the line of Tom Kerr of Zacks SCR. Thomas Kerr: You mentioned competition is increasing. Can you give us any more color on that, where it's happening and why it's happening now? Joseph Brown: For our current product lines, which are basically focused on small commercial or very small personal collections, et cetera, in our Collectibles business or Vacant Express, we don't see the kind of competition you'd see in larger premium where it starts earlier. We're just beginning to see some of that pressure emerge as we're selling new products to new customers. It's a little bit -- I would say it's a little bit more competitive than last year. I think the important thing is at this point in time, for the business we're writing, we're still achieving the same kind of levels that our current book is priced at. So we're very optimistic about what we have on the books and what we're earning. But we do see that there's going to be pressure as we move into '26 and '27. Thomas Kerr: Okay. And speaking of 2026, do we still have a handle that it's going to be double-digit premium growth? Or any comment looking forward on that? Joseph Brown: I am very optimistic it will be at least double digit. It's not going to be triple digit. I'm only kidding. We're sticking with our approach, which we expect our baseline of existing products will continue to grow at 10%. However, we will see an increase in overall growth rates as we start to add new products and new operations in Katalyx. Thomas Kerr: Got it. Last question. Did you give a discretionary capital number? Sorry if I missed that. Brian Riley: $273 million. Thomas Kerr: All right. That's up from [ $260 million ] to $273 million. Operator: We will now move to our web questions. Your next question comes from Michael O'Brien. One great way to get your message out and show that you believe there is real value in your stock would be able to implement and execute on a buyback program. Any thoughts? Joseph Brown: Sure. The -- I think we've been pretty consistent for the last 2 or 3 quarters that given the amount of money we're investing to restructure our organization, the reorganization we began at the beginning of the year, we think we're going to have a significant amount of growth going into '26 and '27. As such, the Board has made the decision, at least in the short term, meaning in the next 3, 4, 5 quarters that we're going to deploy our capital into those growth opportunities rather than buy back stock. It's obviously a question that's been asked every quarter, and we have not changed our position going forward. Operator: There are no further questions at this time. And with that, I will turn the call back over to Nathaniel DeRose for closing remarks. Please go ahead. Nathaniel DeRose: With that, we thank you all for joining us. We look forward to speaking with you about our year-end results at that time. Thank you. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect.
Operator: Good morning, everyone. Welcome to the Vulcan Materials Company Third Quarter 2025 Earnings Call. My name is Bo, and I will be your conference call coordinator today. Please be reminded that today's call is being recorded and will be available for replay after today's call later today on the company's website. [Operator Instructions] Now I will turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Please go ahead, sir. Mark Warren: Thank you, operator. Joining me today are Tom Hill, Chairman and CEO; Ronnie Pruitt, Chief Operating Officer; and Mary Andrews Carlisle, Senior Vice President and Chief Financial Officer. Today's call is accompanied by a press release and a supplemental presentation posted to our website, vulcanmaterials.com. Please be advised that today's discussion may include forward-looking statements, which are subject to risks and uncertainties. These risks, along with other legal disclaimers, are described in detail in the company's earnings release and in other filings with the Securities and Exchange Commission. Reconciliations of non-GAAP financial measures are defined and reconciled in our earnings release, supplemental presentation and other SEC filings. During the Q&A, we ask that you limit your participation to 1 question. This will allow us to accommodate as many as possible during our time we have available. And with that, I'll turn the call over to Tom. James Hill: Thank you, Mark, and thank all of you for joining our call this morning. Mary Andrews and I are happy to have Ronnie joining us today as we discuss the third quarter results and what lies ahead for the remainder of 2025 and moving into 2026. The third quarter financial results clearly demonstrate the consistent solid execution of our teams across the footprint. Gross margin and unit profitability expanded in each segment and adjusted EBITDA margin expanded 310 basis points. Adjusted EBITDA of $735 million improved 27% compared to the prior year. Thankfully, this year, we were not confronted with the same extreme weather events as the prior year. Aggregate shipments increased 12% in the quarter, resulting in 3% higher shipments on a year-to-date basis. Aggregates cash gross profit per ton grew 9% in the quarter through a combination of commercial and operational execution. As anticipated, the prior year acquisitions and a higher percentage of base shipments contributed to 150 basis points of mix headwinds in our aggregate freight adjusted selling price. Mix-adjusted pricing improved 5% in the quarter and 7% on a year-to-date basis. Our Vulcan Way of Operating efforts continue to benefit our cost performance. Aggregates freight-adjusted unit cash cost of sales was 2% lower than the prior year in the third quarter. I'm proud of the way our operators are adopting new tools and disciplines to drive plant efficiencies. And I'm excited about the runway ahead for continued profitability improvements, especially as private demand recovers. Currently, strong momentum continues in public construction activity. The private nonresidential end use is improving, while residential demand remains weak. Since there has been little relief and affordability to date, single-family housing starts and permits continue to decelerate across most U.S. markets. With our leading footprint, we are confident we are in the right markets to benefit from an eventual single-family residential recovery. In multifamily residential end use, current data is more varied across geographies. Some states are already showing growth in starts, which should begin to help offset weakness in single-family activity. Private nonresidential construction activity is improving. Overall starts in our markets are positive on a trailing 6-month basis. Data center activity remains robust with approximately 60 million square feet under construction and another 140 million square feet proposed and in the planning stages. Nearly 80% of data center projects in the planning stage are within 30 miles of the Vulcan operation. For both data centers and large project opportunities like LNG, which are also gaining momentum, Vulcan is in the right markets and well positioned to supply these projects and help create value for our customers. The same is true on the public side. Growth in public contract awards in our markets continues to outpace other markets. Trailing 12-month awards are up 17% year-over-year in our footprint. And importantly, there's a long tail to public strength since approximately 60% of the IIJA funds are still yet to be spent. Given shipment trends year-to-date, coupled with the demand I just described, we now anticipate full year shipments to increase approximately 3%, yielding full year adjusted EBITDA of $2.35 billion to $2.45 billion, a 17% increase over the prior year at midpoint. Now I'll turn the call over to Ronnie to discuss our continued execution of our aggregates-led two-pronged growth strategy. Ronnie? Ronnie Pruitt: Thank you, Tom, and good morning. Over the last 24 months as Chief Operating Officer, I've been highly focused on growing the profitability of our existing business in addition to shaping our portfolio for optimal future growth. In the third quarter, our trailing 12 months aggregate cash gross profit per ton was $11.51, 27% higher than just 2 years ago. Our commitment to the Vulcan Way of selling and the Vulcan Way of Operating has supported this growth. Our organic growth, coupled with disciplined M&A and portfolio management positions us well to continue compounding results and creating value for shareholders. In early October, we completed the disposition of our asphalt and construction services assets. We believe that these downstream positions that we strategically built over time are now more valuable to the acquirers than to us, and we will redeploy the proceeds into attractive growth opportunities in the future. I'll now pass the call to Mary Andrews to provide some additional details on our financial results and capital allocation before we share some of our preliminary views about next year. Mary Carlisle: Thanks, Ronnie, and good morning. The aggregates unit profitability improvement that Ronnie and our division teams are driving each day is foundational to our cash generation, overall growth and return on invested capital. Over the last 12 months, our free cash flow has increased by 31% to over $1 billion, and our conversion is 94%. Complementing our free cash flow with incremental debt of $1 billion, we have grown our franchise through over $2 billion of acquisitions and returned approximately $300 million to shareholders through dividends and share repurchases, all while maintaining our adjusted EBITDA leverage ratio just below our targeted range of 2 to 2.5x and improving our return on invested capital by 40 basis points. We are poised for additional profitable growth. We also continue to prioritize reinvesting in our franchise. Year-to-date, we have deployed $442 million toward maintenance and growth capital expenditures and plan to spend approximately $700 million for the full year. Our trailing 12 months SAG expenses were $566 million and consistent with the prior year's trailing 12 months as a percentage of revenue at 7.2%. We are pleased with the results our investments in technology and talent are yielding in the business. I'll now turn the call back over to Ronnie to provide some preliminary thoughts on 2026 before Tom makes some closing remarks. Ronnie Pruitt: Thank you, Mary Andrews. Tom shared earlier our views on the current demand environment, and we anticipate those trends to continue into next year, consistent growth in public, improving private nonres and lingering softness in residential. Overall, we expect organic shipments to return to growth in 2026 and improve modestly year-over-year. We also anticipate mid-single-digit pricing improvement. We will maintain our focus on efficiency gains and cost discipline through our Vulcan Way of Operating efforts to continue to deliver expansion in aggregate cash gross profit per ton that exceeds historical averages. Before I turn the call back over to Tom, I would like to express my gratitude for the opportunity to lead this organization and leverage the strong foundation Tom has built over the last decade. He has cultivated a culture of continuous improvement and created meaningful value for our shareholders. I'm excited about what lies ahead, and I'm confident Vulcan Materials will continue to deliver. Tom, back over to you. James Hill: Thank you, Ronnie. I want to thank all the men and women of Vulcan Materials for living out the Vulcan Way each and every day, doing the right thing the right way at the right time. Our safety and financial performance are evidence of their commitment to excellence and to continuous improvement. We are ready to finish the year strong and to continue our long track record of durable growth as we move into 2026. And now Mary Andrews, Ronnie and I will be happy to take your questions. Operator: [Operator Instructions] We'll go first this morning to Trey Grooms with Stephens. Trey Grooms: First, I want to say congratulations, Ronnie, on your new role, well deserved. And also to Tom, it's been a pleasure working with you over the last several years, and we wish you the best on your next chapter. And I guess with that, Ronnie, maybe if you could highlight some of your top priorities that you have for the Vulcan Materials team here as you take the reins and transition into your new position? Ronnie Pruitt: Sure. Thanks, Trey, for the question. First and foremost, I'm going to continue to build on the culture that Tom has grown through his leadership of Vulcan. Our culture is based on safety is our foundation and our people own and drive our results. Our strategic approach will continue to focus on enhancing our core through Vulcan Way of Operating and Vulcan Way of Selling and strategically, we'll continue to expand our reach. through disciplined aggregate-centric acquisitions as well as greenfield initiatives that are going to continue to complement our aggregate leading positions in our network. Operator: We'll go next now to Tyler Brown with Raymond James. Patrick Brown: First off, congrats, Ronnie. Congrats, Tom. But, this quarter's volumes were obviously great, benefited, obviously, from some pretty calm weather. We have the Wake Stone comp. But you guys are guiding kind of towards the low end for the full year. Can you just talk about the trends into Q4? What's kind of driving towards the low end there? And then I appreciate the look on '26. But when you say modest improvement, can you put a finer point there and maybe talk about some of the puts and takes in the 3, call it, the 3 big end markets? James Hill: Yes. I think you got to look back a little bit at the third quarter before we go to Q4. Weather definitely cooperated in the third quarter. Volumes were up obviously double digit. But the big jump in volume was a combination of pent-up demand from the first half of the year, easy comps from last year and then importantly, strong and growing public demand and improving nonresidential demand. Now Q4 weather last year was very good. So tough comps in Q4. We predict 3% volume growth for the full year. With the exception of single-family construction, we see demand in other sectors getting better. I would tell you that October supported the full year guide of 3%. But Ronnie, why don't you talk a little bit about '26? Ronnie Pruitt: Yes, Tom, thanks. As Tom said, I think single-family will continue to be challenging until we get some of the affordability issues behind us. Public is quite strong. And as we look into public into 2026, we'll continue to see improved funding. And I think the more mature DOT execution from the states to get that money put in play. On the private non-res side, our starts have been positive in our markets for the previous 6 months. And as we look internally, our bidding activity, our bookings and our backlog really support demand growth as we go into next year. Operator: We'll go next now to Garik Shmois at Loop Capital. Garik Shmois: Congrats to you both on your new roles moving forward. I wanted to ask just on the pricing, both the growth in the quarter and your confidence in the outlook in '26, it ticked down sequentially. Is there anything specific driving that? And how should we think about pricing in a little bit more detail into 2026? James Hill: As expected, 5%, 150 basis points of mix in there, which we talked about last quarter. Obviously, acquisitions have been a drag on prices, but pricing in those markets continues to improve, I'd call it as planned. In the quarter, we had 20% more base driven by really good highway work in data centers. And while base is lower price, it's also lower cost. So we kept our unit margin momentum. I'm pleased with our -- I'm very pleased with our ability to take that price to the bottom line and then some as you saw costs go down in the quarter. And if you -- looking forward, I think growing highway demand and improvements in nonres will support higher prices and unit margins in '26. But Ronnie, why don't you talk a little bit about '26? Ronnie Pruitt: Yes, Tom is correct. I mean improving demand in public and private nonres will definitely support 2026 pricing. We sent out our letters in September for effective January 1. So we're in the middle of having those conversations now. I've been encouraged with those conversations. And that's really around the fixed plants, 40% of our business. On the bid work, our trailing 3-month backlog prices are showing acceleration. And most of that work will ship in next year. And so still work to be done, but this, coupled with our operating performance should still provide us with continued superior unit margin growth over historical norms. Operator: We'll go next now to Brian Brophy at Stifel. Andrew F. Maser: This is Andrew on for Brian. I had a question about the unit cost down 2% in the quarter. How much of that was Vulcan Way of Operating versus lower inflation versus volume benefits? And then additionally, as you're looking at next year, do you have any preliminary thoughts on how you're thinking about inflation or the cost piece into 2026 following such a phenomenal year this year? James Hill: Yes. Short answer, we've got no relief on inflation. I mean things -- no prices have come down. They're not going up as fast. But I would really point it to the Vulcan Way of Operating, if you look at the whole year. I'm very pleased with our operating performance cost in the quarter and the year, we're seeing improved operating efficiencies, but still early innings of Vulcan Way of Operating. And remember, in the first half of the year, we had weather issues. We had volume issues that actually hurt costs, but Ronnie and his team were still able to keep the cost down. In Q3, we probably had some tailwinds from efficiencies, volume and more base sales. I think Ronnie and his operator operating, and he should be pleased with this performance. Ronnie Pruitt: Yes. Thanks, Tom, and I know our operators will appreciate those comments. First and foremost, our safety performance is really good and is continuing to improve. [ And our ] investment in technology, they're working, and that's the Vulcan Way of Operating. There's still improvement ahead, and so we'll continue to focus on those disciplines as we get into '26. But I've got confidence in our people and our processes and our disciplines and our technology. And I think it will be exciting to watch the Vulcan Way of Operating as we continue to go selling and as far as growing our margins, and I think our margin growth will continue to be even more dependable in the future. Operator: We'll go next now to Anthony Pettinari at Citi. Asher Sohnen: This is Asher Sohnen on for Anthony. Congratulations all around. Just -- you guys talked about stronger backlogs, but I was wondering if you could maybe walk through some of your key geographies and what you're seeing there on an individual or regional basis. James Hill: Yes. Actually, it's pretty widespread. I can't think of any that are down at this point. Probably the healthiest is going to be the Southeast, which is a benefit for us because that's probably where the higher unit margins are. But we've really seen a turn in the nonres side of the business. Data centers have helped that and really strong growth in public demand. And I think that growth continues to accelerate for the next 2 or 3 years. So a good story. Obviously, single-family is still a drag for us and probably will be for a while. Hopefully, that turns next year. But in the meantime, the other sectors are taking up for that. Operator: We'll go next now to Kathryn Thompson with Thompson Research Group. Kathryn Thompson: First off, Tom, it's been a pleasure working with you over the years. Look forward to keeping up with you and Ronnie. We go back a couple of companies, and congratulations on starting in CEO role in January. So yes. So looking forward, you had -- did a great job of shaping your portfolio as was highlighted in the quarter you just reported. How are you thinking about what fits in your portfolio and maybe what may not or who may be a better owner? And can you approach it from thinking about from either a product type which was we saw this quarter or a geographic focus. So just maybe thinking bigger picture about kind of how you're thinking about that portfolio shaping going forward. Ronnie Pruitt: Yes, Kathryn, this is Ronnie. I'll take that question. I'm continuing to be really pleased with the downstream business that we have. In the asphalt business, those businesses are really heavily influenced by the public funding and the strength in public funding. And so we're going to continue to focus on, one, safety as well as our financial performance. And we talk about the concrete and the divestiture that we announced this week. I mean, that's our strategy. And we said early on when we bought Superior that we were going to evaluate that business, and we would decide whether that was a business that we wanted to be in long term. We continue to see challenges on the private side in California. And so we thought the acquirers, it was a business that was going to be more valuable to them. I'll remind you that since the acquisition of U.S. Concrete, we now only have a couple of plants left in the Virginia, D.C. area that are integrated with a very successful Vulcan legacy concrete business, but we've also retained all those aggregates. So it complements our strategy of being aggregate-led, and we're going to keep the expertise of both the asphalt and the concrete business. So if those businesses, as we look in the future and M&A presents those to us, we're not scared of that. But it's going to continue to be aggregate-led. I think that's our strategy, and you'll see us continue to be focused heavily on those aggregate-led businesses. Operator: We'll go next now to Phil Ng with Jefferies. Jesse Barone: This is Jesse on for Phil. Congrats to Tom and Ronnie. Just real quick on M&A., can you just kind of help us how you're thinking about the pipeline? You obviously will have quite a bit of dry powder given where your leverage is and post the divestitures. Just any geographies that you're particularly targeting? Ronnie Pruitt: Yes, this is Ronnie. I would tell you that we're still in process. Greenfields for us is a strategy of growth it takes time. We'll -- those will be timed with both market-driven as well as the timing of permits. And so we still have that going -- when we talk about M&A opportunities, it's been a quiet year. We continue to have a really good list of targets out there, but the timing of those targets are really driven twofold: One, by the seller and their readiness and then also by the market conditions. And so I would tell you, M&A this year is not surprising to us. We knew through some of the uncertainties with tariffs and other pauses in the interest rates that M&A was going to be paused. But I can assure you that we're still very active. We have a really strong list, and those M&A opportunities are going to continue to be aggregate-led. Operator: We go next now to [indiscernible] with Truist. Keith Hughes: Congratulations, Tom, on a tremendous run here. And I do have a question for Ronnie. You had talked about '26 kind of from a high level of continuing this just a wonderful run of cash gross profit per [ ton ]. Just from a general level, would we -- from what you know today in the market, will we see something similar to the last couple of years with the numbers you've been putting up? And what could potentially take that higher? Ronnie Pruitt: What was the last part of that, Keith? Keith Hughes: And what we get higher? What kind of things would you need to see something that would set even better than what we've seen in the last couple of years? Ronnie Pruitt: Look, we're coming off 3 years of muted demand in our markets. And so what we've been able to accomplish over the last 3 years with growing our cash gross profit has been twofold. One, the inflationary stuff helped our pricing early on. And this year, we've had some momentum on the cost side of our business. And so as we said earlier, demand is going to help. Some recovery in demand is going to help our pricing story. And when we look forward to that. But the Vulcan Way of Operating and the Vulcan Way of Selling both support that from a cost side as well as the commercial side. And so I would tell you, as I said earlier in my comments, I think our cash gross profit will continue and I think both sides of it, the cost and the commercial efforts will play a role into that. But some demand will definitely help the pricing side of our story. Operator: We'll go next now to Brent Thielman at D.A. Davidson. Brent Thielman: Congrats to the team as well. I guess bit of a 2-part question, I guess, just in terms of thinking about that mid-single-digit price growth in 2026. Part of the question is just that, is that consistent with the annual price increases you're planning for next year? And then the other thing I was wondering is just around that, how much sort of volume do you bring into 2026 from acquisitions that sort of lack of a better word, underpriced and you're pushing towards that Vulcan Way of sort of Selling? Ronnie Pruitt: Yes. I would tell you the 5.5% to mid-single digit is a combination of what we're seeing both with our backlog as we go into the year. So our bidding work, which accounts for about 60% as well as the announced letters that we have out with our fixed plants, which is about 40% of our business. And so those conversations, like I said, are happening now. Those letters were sent out in September. Those fixed plant increases will go into effect in January. When I look overall at how that is going to shape up, I think our backlogs, and I said on a trailing 3 months, our bookings prices have been accelerating. And so it's a combination of that bid work and what opportunity we're seeing, especially around the private nonres side as well as we still need some help on single-family. And so I feel good about our pricing going into next year. I think there's opportunities on both sides on the public and private side, but that's where we're at. And I think those conversations are going well. As far as acquired volumes, I think it's about 10 million tons of acquired volume coming out of last year, which was both Wake and Superior. And so as we've said before, it's taken us time. We're on that campaign. It's going as expected as far as North Carolina goes. And so I would anticipate that gap being made up with our normal Vulcan markets and what we're seeing in Raleigh, that gap will continue to be made up over the next 12 months. Operator: We'll go next now to Steven Fisher with UBS. Steven Fisher: Congrats, Tom and Ronnie. Just first, a clarification. Have you changed your pricing expectation for the full year of 2025? I'm not sure if I missed that. And then on the volumes, the 1% reduction, is that basically just single-family? And within your '26 outlook, are you starting -- if it is single-family affecting '25, do you assume that -- sort of that's still a drag on the first part of '26 and then a more accelerating part of the second half? I know it's still early, but just curious how you're seeing those dynamics. James Hill: Yes. So on pricing, I would call fourth quarter probably very similar to third quarter as we continue to enjoy the big base volumes. Like I said, while they are at lower price, they're also at lower cost and very good margins. So happy to have that work with the data centers and the big highway work. If you look at nonres going forward, I think it continues to grow. Public is very good. I think we probably see headwinds from res for a while, but it probably starting to bottom sometime in '26. Operator: And we'll go next now to Angel Castillo at Morgan Stanley. Angel Castillo Malpica: Ronnie, Tom, I echo everyone's congratulations and well wishes and looking forward to working with you, Ronnie. Just regarding your quoting activity and projects pipeline, the acceleration you talked about, I was wondering if you could kind of dive a little deeper into that. Maybe just kind of as a starting point, just putting a finer point on the magnitude of what you saw in October versus perhaps 3Q levels? I know you've given kind of the last 3 months, but just if we could kind of split that up. And maybe if you could expand also just on what's driving or what you think is driving kind of the acceleration here in activity. The reason I ask is because I feel like we've kind of heard about project backlogs and quoting activity being robust the last couple of years and conversion rates and delays and shipments have kind of disappointed a little bit. So trying to understand, I guess, what gives us confidence that something has changed that will result in kind of the letting of projects moving faster? And within private, if you could expand a bit more, like is that -- are you seeing it happen outside of data centers and semiconductors as well? Or is it primarily just those 2? James Hill: Yes. So look, we talked some in the first part of the year about projects, pricing projects and then kind of getting postponed or pushed the pause button. We're not seeing that anymore. In fact, we've seen a lot of those projects actually go at supporting growth in our backlogs. If we put it in our backlogs, we're pretty sure it's going to happen. It's very rare that once we put them in there, the projects don't go. So I have very good confidence that our backlogs will be shipped and those -- that growth will support growth as we look at 2026. I think that if you look forward, I think the nonresidential continues to grow. Ronnie, why don't you talk a little bit about kind of volume drivers in '26 and the momentum we carry into that? Ronnie Pruitt: Yes. I mean when I look at starts on the private nonres side, as Thomas said, in Vulcan-served markets, in September on a trailing 6-month were up 7%. [ Trailing 3, ] we were up 8%. And so that momentum continues. As I look at the subsegments of our private nonres, office data, stores and warehouses, institutional are all up. And our quoting activity and our bidding are on the same trajectory. And so as we look at it, I mean there is a lot of data center work out there. That subcategory itself is up 26%. But we've also booked 2 LNG projects. We've booked a couple of manufacturing projects. We booked some retail. And so it's a combination. Data centers has definitely been a very good tailwind for us. But there's other sectors within the private nonres that also give us confidence as we look in 2026. James Hill: Yes. I would tell you that I think that is Ronnie, Mary Andrews, as we all look at '26, pretty good confidence we'll see volume growth the public side, I can't tell you how strong the public side is. It's very, very good. We've seen the turn in what we thought it was going to be. We think warehouses is now probably turning to growth in most of our markets. So as we talk a lot about single-family, it's still a headwind, but I think it continues to probably -- it will get better as we march through next year. So I think our confidence level, that's pretty good. Operator: We'll go next now to David MacGregor at Longbow Research. Joseph Nolan: This is Joe Nolan on for David. Congrats on a nice quarter. I was just wondering on public infrastructure, Slide 5 shows a nice acceleration in contract awards. I was just hoping you could break it down in some of your key markets and give any detail on how fiscal year '26 DOT budgets look there. James Hill: Yes. I would tell you, in our markets, it's very widespread. The public side, I can't underscore it, it's good and getting better. Remember, we're in year 4 of IIJA, and it took 2 years to really get that started, which frustrated everyone, including us, but to be as expected, so now we're seeing the state DOTs mature into substantially increased federal and state funding. All of our -- our top 10 DOTs are all up for fiscal year '26. Trailing 12-month highway starts, as we said, are up 17% in Vulcan states and 5% in other states. So we are where the DOTs are growing. I think simply put, the DOTs are putting that money to work now and they continue to get better at it. And remember, only 40% of the IIJA funds have been spent. So there's a long tail to this past '26. Ronnie Pruitt: Yes. And I think, as Tom said, that those funds will carry us well into '26 and '27 and beyond. And I would tell you there's 3 rules around reauthorization: One, it never happens on time; two, it will happen; and three, it's historically always been larger than the bill before. And so we're anticipating that. We think public will continue to remain strong. And if you think about the infrastructure of the country, we still got a lot of work to do. And so we're happy with where we're at on the public side, and we think that's -- it's going to continue strong in the future. Operator: We'll go next now to Michael Dudas at Vertical Research. Michael, you might be on mute. James Hill: Michael, we cannot hear you right now. Operator: And we'll circle back around to Michael. We'll go next now to Adrian Huerta at JPMorgan. Adrian Huerta: Thank you Tom, congrats and best wishes. It was a pleasure to work with you all these years. Welcome, Ronnie -- and welcome, Ronnie. I know you for a few years on -- since U.S. Concrete, and I'm sure you're going to deliver very good results as well. Quick question on the cost. It's been quite impressive what you guys have been doing on the cost per ton side over the last couple of quarters. I think you mentioned that you're still in the early innings on many of these measures that you're taking. Can you give us a sense on the actions you've been taking and for how many more quarters we can see very good performance on cost as we have seen in the last few quarters? Ronnie Pruitt: Yes. Thank you for the question. I would tell you, we're still in the early innings, and we've talked about Vulcan Way of Operating. The technology investment is complete within our top 127 plants, which represents over 70% of our production as a company. Where we're at today is really in the final stages of the human behavioral side. And so we have a lot of training going on with our plant operators using the tools, the process intelligence, the scheduling systems with our labor focus. And so my anticipation is we've got a long ways to go, but it's really exciting to watch. And I would tell you that as I look at what's transpired this year and then what we're forecasting for next year, these tools, these investments we've made and the processes that we go through around our operations and focusing on our critical size production and the yield on that and the labor side, labor savings, I think we've got a lot of room. And I'm excited about it. And I think more importantly, our operators are the ones that are driving this. And so a lot more to come, but I would tell you, my anticipation is '26 is going to be even more momentum than it was in '25. James Hill: I would say that it's not just a quarter thing. This is years of marching forward with operating efficiency improvements. I think that Ronnie and his team, as I said earlier, should be very proud of their performance this year. And they got help from weather and volume in Q3, but they did not in Q1 and Q2. In fact, surprisingly, how good the cost was given the conditions. But I think they have years of improvement ahead of them. Operator: We'll go next now to Ivan Yi at Wolfe Research. Ivan Yi: First congrats to Tom and Ronnie. I just want to go back to the aggregate pricing again. price per ton in 3Q was the smallest in a few years. And I get that there's some negative mix in there. But why is the year-over-year growth decelerated in recent quarters? It had been double digits, and now you're guiding to 5% in '26. Just some color there. James Hill: Yes. I think that a couple of things there. Obviously, we had headwinds from acquisitions. We had in the first part of the year, we had headwinds from lower volumes in the Southeast driven by weather. That helps -- that got back more normal in Q3. But you're sitting here on 3 years of negative volume, and that does put some pressures on price. I think that's -- so we're kind of probably at a low point. I believe that the continued acceleration in public and now visibility to the private nonres going up really helps our conversations for pricing and our backlog pricing as we look into '26. Ronnie called that out that we've put out January 1 price increases. We're having those conversations. They're going well. But importantly, before that, over the last few months, we're seeing acceleration in our backlog pricing, which is a very good foreshadowing for what's going to happen in 2026. Operator: We'll go next now to Michael Dudas at Vertical Research. Michael Dudas: Yes. I hope the mute is off here. Congrats to Tom and Ronnie. Also congrats, Mary Andrews for the great cash generation and the great cash flow numbers [indiscernible] maybe just as we get close to wrap up here for Ronnie, as you look into your tenure here for the next several years, maybe even a decade or so, as you look out maybe past 2026, how much different or not will Vulcan look like? And do you see the sense of the industry fundamentals and where we are and given what you're seeing from competitors and from clients that this type of growth and sustainability in volume, pricing and certainly profit per ton growth is sustainable over the next several years? Ronnie Pruitt: Yes. Great question. I mean I think if you look out past '26, '27, '28 and the future, Vulcan is going to look very similar. And I would tell you, we're going to continue to be led by our strategy around enhancing our core, which is really investing in continuing to invest in Vulcan Way of Operating and Vulcan Way of Selling, which is going to really complement our margin growth, and it gives us confidence in that margin growth with those tools that we've invested in. And then on the strategic side, when we talk about expanding our reach, we're going to stay aggregate focused. And both within the markets that we serve and building the franchise that we have and also as we look at geographical expansion, it's still going to be an aggregate-led company. And so the future, you're going to see anything different than what Vulcan has continued to execute on. Those growth opportunities will be there, and we'll be right in the middle of it, but we're going to be very disciplined on what we look like and how we -- what those businesses are going to be led by is always going to be aggregates. Operator: And gentlemen, it appears we have no further questions this morning. Mr. Hill, I'll turn things back to you, sir, for any closing comments. James Hill: Thank you, and thank you all for your time this morning. As I step back and look at Vulcan's future, I feel both pride and excitement. Vulcan has fantastic talent and bench strength throughout the organization and particularly in leadership. Ronnie and Mary Andrews and their teams are seasoned, talented industry experts who are armed with a superior set of tools and disciplines embedded in the Vulcan Way of Selling and the Vulcan Way of Operating. Putting that together with our continuous improvement culture will take Vulcan's to remarkable heights. I'm very proud to have represented the men and women of Vulcan, and I look forward to supporting Ronnie and Mary Andrews in the future. Thank you all for your interest in Vulcan and your friendships. Keep you and your families safe and healthy. Thank you. Operator: Thank you very much, Mr. Hill. Again, ladies and gentlemen, that will conclude today's Vulcan Materials Company earnings conference call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.
Operator: Welcome to AB InBev's Third Quarter 2025 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Michel Doukeris, Chief Executive Officer; and Mr. Fernando Tennenbaum, Chief Financial Officer. To access the slides accompanying today's call, please visit AB InBev's website at www.ab-inbev.com and click on the Investors tab in the Reports and Results Center page. Today's webcast will be available for on demand playback later today. [Operator Instructions] Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that AB InBev's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect AB InBev's future results, see Risk Factors in the company's latest annual report on Form 20-F filed with the Securities and Exchange Commission on March 12, 2025. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Michel Doukeris. Sir, you may begin. Michel Doukeris: Thank you and welcome everyone to our Third Quarter 2025 Earnings Call. It is great pleasure to be speaking with you all today. Today, Fernando and I will take you through our operating highlights and provide you with an update on the progress we have made in executing our strategic priorities. After that, we'll be happy to answer your questions. Let's start with the key highlights. In the third quarter, we continue to navigate a dynamic operating environment with headwinds in China and unseasonable weather in the Americas, particularly in Brazil, constraining our results. After a slow start to the quarter in July and August, we saw improved performance in September. We remain focused on the consistent execution of our strategy and adapted where required. We maintained our disciplined revenue management plan and continued to deliver on our productivity initiatives. Consistent investments in our brands and innovations drove increased portfolio brand power and continued market share gains in key markets. Despite the challenging environment, we delivered another quarter of top and bottom-line growth, margin expansion, and U.S. dollar EPS growth. Our growth platforms of premium beer, non-alcohol beer, and Beyond Beer continue to outperform, and the quarterly GMV of BEES marketplace has reached nearly $1 billion. In the U.S., our portfolio is continuing to build momentum and gain share of the industry, led by Michelob Ultra, which is now the number one brand in the industry by volume year-to-date. Our solid financial results in the first nine months of the year reinforce our confidence in delivering our outlook for the year, given our deleveraging progress and strong free cash flow generation, the Board has approved a $6 billion share buyback program to be executed within the next 24 months, as well as an interim dividend of EUR 0.15 per share. We also continue to proactively manage our debt portfolio and have announced the redemption of $2 billion of outstanding bonds. In summary, we are confident in the resilience of our strategy and ability to deliver consistent results. We are investing to provide superior value to our consumers, and we are winning in key markets and growth segments. We are taking action where adjustments are required and are excited about the opportunities ahead to drive shareholder value creation through profitable growth and disciplined capital allocation decisions. Turning to our operating performance, while overall volumes were below potential, we grew revenue in 70% of our markets. The combination of our disciplined revenue management choices and portfolio of mega brands that command a premium price drove a revenue per hectoliter increase of 4.8%, resulting in top-line growth of 0.9% Our productivity initiatives more than offset transactional FX headwinds to drive an EBITDA increase of 3.3% with margin expansion of 85 bps. The strength of our diversified geographic footprint enables us to navigate the current environment and deliver profitable growth in the long term. Revenue increased in 70% of our markets this quarter, and we delivered bottom-line growth in four of our five operating regions. Now I'll take a few minutes to walk you through the operational highlights for the quarter from our key regions, starting with North America. In the U.S., the momentum of our portfolio continued, and we are increasing investments in our brands to fuel growth. In Beyond Beer, our portfolio growth accelerated with a revenue increase in the mid-40s led by Cutwater, which grew revenue in the triple digits. Cutwater is now one of the top 10 largest spirits brands in the U.S. and was the number one share gainer brand in the total spirits industry in August and September. In beer, our market share momentum was led by Michelob Ultra, the number one volume share gainer in the industry and now the largest brand year-to-date in both on and off-premise channels. Ultra has gained market share in all 50 states this quarter. The brand has 16% share of the industry in its top state and 8% average share nationally, but has less than 6% share of the industry in 20 states, so there remains a significant opportunity for further expansion and growth. Michelob Ultra Zero was launched early this year and is already the second largest non-alcohol beer brand and the number one fastest growing non-alcohol beer in the industry. Ultra is the superior light beer made for those who seek an active lifestyle and balanced choices. Now let's turn to Middle Americas. In Mexico, our revenue continued to grow, driven by disciplined revenue management choices. The industry was, however, impacted by a softer consumer environment and unseasonable weather, which resulted in our volumes declining by low single digits. With improved weather and consumer sentiment, our volumes improved sequentially throughout the quarter, gaining share and returning to growth in August and September. In Colombia, record high volumes drove low teens top-line and mid single digits bottom-line growth, with our portfolio estimated to have gained share of total alcohol beverages. In Brazil, market share gain and disciplined revenue and cost management offset a soft industry to deliver flat EBITDA with margin expansion. Our revenue declined by 1.9% driven by volume performance, which was negatively impacted by unseasonable weather and a softer consumer environment. When we look at our performance across both South America and Middle Americas, it is clear that the industry has been impacted by a combination of cyclical and one-off factors this quarter. Cyclical factors include inflationary pressures and low consumer sentiment, which have impacted demand not only for beer but all consumer categories to different degrees. What has perhaps been more acute for beer than other categories has been the unseasonable weather. Latin America accounts for 20% of the global beer volume, which is typically 1.5 to 2x the weight of other categories in the consumer goods area, and the region is even more relevant for our business while we are managing through the short-term headwinds. When we look ahead at the outlook for the category, the fundamental drivers are unchanged, and we see clear potential for industry volume growth as conditions normalize, as evidenced by Mexico where our volumes returned to growth in August and September. In Europe, continued market share gains and premiumization drove flattish volumes and margin recovery. We gained share of the industry in five of our six key markets, with our performance driven by our mega brands and non-alcohol beer. In South Africa, the underlying momentum of our business continued, maintaining share of beer and gaining share of Beyond Beer. Top-line grew by mid single digits and EBITDA grew by high single digits with margin expansion. Now moving to APAC. In China, revenue declined by 15.2% with our volumes underperforming the industry. While the overall industry has been impacted by a soft consumer environment, which has been even more pronounced in our footprint and key channels, we recognize that we have opportunities to enhance our execution and route to market to better align our results with our capabilities. We are a company of owners who strive for operational excellence. We have been working in China to right size inventories in line with the channel shifts, allocate resources towards areas of growth, and elevate our execution. We have a clear view of where to improve, and as we move forward, our priority is to reignite growth and rebuild our momentum. To achieve this, we are focused on increasing investments in our mega brands, leading innovation within the industry across packaging and liquids, strengthening our route to market in the in-home channels with an increased focus on online to offline, continuing our geographic expansion, and rebuilding our excellence in execution. We are moving with speed to ensure that our business emerges stronger and investing to be better positioned to outperform in the long term. Now let's take a look at the key highlights of our three strategic pillars, starting with leading and growing the category. Our megabrands continue to lead our growth with net revenue increasing by 3%. Corona continued to drive premiumization across our markets, growing revenue by 6.3% outside of Mexico and growing volumes by double digits in 33 markets. Through the consistent execution of our category expansion levers, we aim to increase participation across our markets by offering supreme core brands, innovating in balanced choices to provide consumers with no and low alcohol, low carb, zero sugar, and gluten-free options, and expanding our premium and Beyond Beer portfolios. On a rolling 12 months, participation of legal drinking age consumers within our portfolio was stable. In non alcohol beer, our portfolio momentum continued with net revenue growing by 27%, led by the growth of Corona Zero. We are now leaders in eight of our top 14 non alcohol beer markets and estimate to have gained share in 70% of them. Non alcohol beer is a key opportunity to develop new consumption occasions and increase participation, and we are investing and innovating to lead the growth. This quarter, we announced a partnership with Netflix, which is the world's most popular streaming service. They are creating content that shapes culture, and watching Netflix has become a new social occasion. Our iconic brands are part of the fabric of society in the markets in which we operate, and it is a perfect pairing to bring together beer and entertainment in this unprecedented way. What makes our partnership with Netflix unique is its global reach and scale of activations across our portfolio of brands. Consumers will see this come to life through co-marketing campaigns, activations, title integration, limited edition packaging, and even at live events. What we are most excited about is how this partnership will create more meaningful experiences for consumers across their passion points, including comedy, music, cooking, and live sport events. The beer and Beyond Beer category remains vibrant, and we are leading innovation to address emerging consumer needs, providing choice and superior value in different occasions and balanced choices. We are innovating liquids to provide consumers with different options to meet different lifestyles. From the rollout of Stella gluten-free in Brazil to Harbin Zero Sugar in China to Michelob Ultra Zero in the U.S. and Cass 4.0 in South Korea, we are leading the category in liquid innovation. In Beyond Beer, Cutwater continues to expand, growing volumes by triple digits, approaching $0.5 billion in annualized retail sales, and is now a top 10 spirits brand in the U.S. After a successful rollout in Africa, our flavored beer Flying Fish is now expanding to Europe and the Americas. In adjacent beverage categories, we are taking the learnings from developing a number of successful brands in the energy drink space in the U.S. and have launched Phorm Energy to participate directly in this segment. Let's now turn to our second strategic pillar, digitize and monetize our ecosystem. In the second quarter, BEES captured $13.3 billion in gross merchandising value, an 11% increase versus last year. The growth of BEES marketplace accelerated with more than 500 partners on the platform. Quarterly GMV increased by 66% versus last year and is now approaching $1 billion. In DTC, our digital platforms continue to enable a one-to-one connection with our consumers and help us in developing new occasions. Our digital platforms generated $138 million in revenue, serving 11.9 million consumers and generating close to 18 million orders online. With that, I would like to hand it over to Fernando to discuss the third pillar of our strategy, Optimize Our Business. Fernando Tennenbaum: Thank you, Michel. Good morning. Good afternoon, everyone. I will take a few minutes to discuss the progress we have made in optimizing our business. Our EBITDA margins improved by 85 basis points this quarter, with expansion in four of our five operating regions. We know that each quarter will be different, but we are confident that the combination of our leadership advantages, disciplined revenue management, continued premiumization, and efficient operating model create an opportunity for further margin expansion over time. Moving on to EPS, we delivered underlying EPS of $0.99 per share, a 1% increase in U.S. dollars and a 0.3% increase in constant currency versus last year. EBITDA growth accounted for a $0.09 per share increase, partially offset by higher other financial results, which increased due to a higher cost of FX movements and cost of hedging. The objective of our capital allocation framework is to maximize value creation for our shareholders. Given the progress we have made on our deleveraging and our solid year-to-date financial results, we have increased flexibility on our capital allocation choices. We remain confident in the long term growth and value of our business and have announced today a new $6 billion share buyback program to be executed within the next 24 months. In addition, we have announced an interim dividend of EUR 0.15 per share, our first interim dividend since 2019. We also continue to proactively manage our debt portfolio and have announced a bond redemption of $2 billion. Our bond portfolio remains well distributed with no relevant near and medium term refinancing needs. Upon completion of the bond redemption announced today, we will have no bonds maturing through 2026 and we have no financial covenants. Our results in the first nine months of the year, the resilience of our strategy and the strength of our megabrands all reinforce our confidence in our ability to deliver on our 2025 outlook of 4% to 8% EBITDA growth. With that, I would like to hand it back to Michel for some final comments. Michel Doukeris: Thanks, Fernando. Before opening for Q&A, I would like to take a moment to recap on our performance year-to-date. We are encouraged by our results for the first nine months of the year as we delivered EBITDA growth at the midpoint of our outlook range. Underlying EPS increased by mid single digits in U.S. dollar and by 12% in constant currency. While our volume performance has been below potential due to a combination of cyclical and short term factors, we remain confident in the long term fundamentals of our business. With strong free cash flow generation, we have increased capital allocation flexibility and announced a $6 billion share buyback program, an interim dividend of EUR 0.15 and a bond redemption of $2 billion. As Fernando just mentioned, our performance year-to-date and the strategic choices we have made position us well to deliver on our outlook for the year. Our brands have met consumers in some of the most iconic events in sports and culture this year, creating moments of celebration and cheers. But, as we look to 2026, there is an incredible opportunity to activate the beer category because next year, on top of our powerful lineup of mega platforms, we have the FIFA World Cup in North America. This iconic event encompasses 104 games across three countries. Each game is an opportunity to bring beer and sports together and create unforgettable moments for our consumers. With that, I'll hand it back to the operator for the Q&A. Operator: [Operator Instructions] Our first questions come from the line of Edward Mundy with Jefferies. Please proceed with your questions. Edward Mundy: Two questions for me please. The first is around the board's thinking around the shift to a two-year buyback program of $6 billion. Given the balance sheet repair, is it to signal clearer capital allocation priorities from here? Is there also a practical reason insofar as it gives you a little bit more flexibility in the pace of buybacks, given that historically you've tended to get your buybacks done ahead of schedule? That is my first question. My second question is around the broader category, the broader beer category. One of your peers recently highlighted a medium-term outlook for global beer of about 1% volumes. Putting the external environment to one side, how important is it that the rate of pricing required across the broader industry could start to moderate after the huge extremes over the last few years given inflation and negative transaction? How important is it that the pricing going forward might become less meaningful in helping to stimulate volume growth? Fernando Tennenbaum: Fernando here. Let me take the first question and then I will transition to Michel. When we talk about capital allocation, I think it's always important to put in context that the objective of the capital allocation is to create long term shareholder value. The framework is unchanged and remains very disciplined within our choices. What is evolving is that now that we have an improved balance sheet, we have increased flexibility and what you see is that we are exercising some flexibility. The share buyback in itself is an effective use of capital for shareholder value creation. If you think about it as we move from an inorganic to organic transition, I think the first thing that was important for us was to give a framework so people understand the sort of growth that we can deliver. That's the medium term outlook that we provided four years ago. If you look at what we did in the beginning of this year, we provide a framework with the ambition for a progressive dividend. I think now the share buyback is just another natural evolution on that, a two year share buyback of $6 billion, but that should not be seen on a standalone basis. It's the share buyback, it's also the interim dividend which is consistent with our ambition of progressive dividend over time and also the debt reduction that we announced which is consistent with our capital allocation priorities. Much more of an evolution and kind of the consequence of the additional flexibility that we have nowadays. Michel? Michel Doukeris: I think that just building on the share buyback point, there is a lot of consistency on the capital allocation choices and this, of course, is the return to shareholders, the debt, but that is the number one priority that we have, which is organic growth. We'll continue to invest for this number one priority, which is drive the category and the company forward on an organic basis. In terms of the category overall, I think that we shared with you during the capital markets day the view that we have around the category and the potential that we see for future growth coming from structural tailwinds related to economic growth, demographics, and where this growth most likely will come from developing and emerging markets where we have a strong footprint, strong growth to market, and scale. Therefore, we are in the same line where the full potential of the category today would be around 1% growth in normal conditions. The more we increase the addressable market with these Beyond Beer propositions, there are opportunities for us to further stretch this growth, right? Looking at the short term, I think that we see this Latin America impact on the beer category overall. Latin America is very important for CPGs, but is much more important for the beer category to the range of almost twice the size that it represents for beer versus other CPGs. We saw some pressure across CPGs overall in Latin America, but this is more impactful for beer and even more for us because Latin America is much bigger for us than it is for beer overall and for other CPGs. When you think about price, I think that there are two components on that. One is that beer is an affordable category and affordability is very important for beer. And after 3, 4 years of high cost pressure, high inflation for us and for consumers in general, of course we had to be very disciplined in revenue management and to recover our margins, as you just saw during the webcast, to continue to recover our margins over time because of revenue but also cost discipline. As we look forward, inflation is normalized, coming down, so we would expect less pressure on the prices coming from inflation. I'm of the view that we should be very disciplined as category leaders to continue to build over time the capabilities to move prices with inflation so we can continue to recover our margins, but also have a good category and ability to deliver on the investments and everything that we want to do for the future. And how you do that? You need to balance, as we always do, the affordability with the ability to build brands, because premium brands, they command premium price, use the right revenue management capabilities. A good revenue management strategy needs to deliver at least with inflation. This is in the long run, because in the long run we need to capture the cost increase and the opportunities that we have to premiumize in the market. Nothing changed on our side there. I think that what's going to change is a little bit of the environment because inflation is coming down, therefore less pressure will hit consumers. Operator: Our next questions come from the line of Mitchell Collett with Deutsche Bank. Please proceed with your questions. Mitchell Collett: I've also got two questions, I think one for each of you. The first one is on longer term volume growth. I mean, you cited some of the external factors that have impacted not just this quarter, but overall 2025. How do you think about volume growth longer term for the category, particularly in your footprint? You gave the comment that 2026 offers an incredible opportunity to activate the beer category. Do you think you can get back to volume growth in 2026? My second question, which I think is for Fernando, is can you give us any color at this stage? I know it's early on the potential impact of input costs in 2026. I'm specifically thinking about the impact of FX and the timing of your FX hedges. Michel Doukeris: I think that you're right, like 2025 is being very typical and that is this combination of the pressure that inflation has been built over consumer and the consumer baskets. We see this overall across many markets, reduction on the total basket, while beer and alcohol has been maintaining the share of baskets. It's really about a little bit of pressure on consumption. There is this big one-off of this change in the weather pattern because of the La Niña that is impacting the Americas. Some countries such as Brazil were heavily impacted by that. The fundamentals behind the category growth remain the same. As we said before, a lot of this growth, projected to be over 80%, will come from developing and developed markets. Our footprint is very strong in these regions and I see no reason today why this will change over time. Next year then becomes a very special year. While you know that we don't guide for volume, we see the outlook as a positive one because there is less pressure on consumers coming from lower inflation. As salaries rebuild, purchase power rebuilds, prices tend to normalize. Consumers tend to be in a better position. I'm not making any forecast on the consumer sentiment, neither the purchase power for next year. Consumer sentiment is impacting this year and as everybody else, we hope that things will normalize over time. If this bounces back, it should be a positive as well. Overall for CPGs, it's hard to believe that's going to be worse than what we saw this year. The worst case scenario should be the same, but we think that can be better. Then we have FIFA. FIFA over time is being 0.20 to 0.25 impact on the category in the years that we have the games. The fact that's going to happen in North America is great for the category because it's going to impact the overall Americas, of course, but then has great viewership time across Europe and Africa and of course in Asia. People always adapt. The nightlife is much stronger as a consumer occasion in APAC. I think that's going to be a great year for FIFA. Everybody's very excited. The games will be longer next year because more teams, so more people participating. We can't wait to see the fans across the globe gathering and gathering over a beer to watch for that. We continue to work hard focusing on what we can control. You see that the growth of non-alcohol is a great opportunity for us. Our Beyond Beer portfolio continues to accelerate and we continue to innovate in the balance choices. We are providing more options for consumers in more occasions. We are doing our part and we are looking forward to see how consumers will react next year. Fernando Tennenbaum: Mitch, Fernando here. Your question on COGS. We don't provide any specific guidance on cost of goods sold, but you know our hedging policy always hedge 12 months ahead. If you look at where FX is today and what it was one year ago, you can get a good sense on that. From where the market is, it's kind of more like a normal year. Once again, I think we said normal year in 2025. I think 2026 is more of a normal year. Different dynamics in different markets, I think next year probably given where you see Midwest premium today, probably a little bit more pressure on the U.S., but then again, this is based on current market prices. They can always move around and effects a little bit the other way around as we saw in 2025. In 2025, we saw more pressure in the first half given the currency behavior in 2024 and more pressure in the second half, I'm sorry, and less pressure in the first half. In 2026, given how things are evolving, things continue to be the same way. Likely to be the other way around, but then again, this is basically on current effects. We still have two months to go, but let's keep monitoring that. Operator: Our next questions come from the line of Laurence Whyatt with Barclays. Please proceed with your questions. Laurence Whyatt: A couple from me as well, please. Firstly, you kindly gave some information on the exit rate in Mexico suggesting that was improving throughout the quarter. I was wondering if you had a similar view on what was happening in both Brazil and Colombia just to see if we're getting a similar consumer improvement in other parts of Latin America. Secondly, perhaps Fernando, historically you would say that going below 2x net-to-EBITDA was value destructive for AB InBev, just wondering if you continue to share that view and what steps you could take if that metric were to be getting close to being hit. Michel Doukeris: Yes, we made a comment on the exit rate for Mexico because I think that was very telling the fact that once the price environment normalized a little bit, the weather was slightly better. We could see not only our market share bouncing back, but also volumes improving through August and September. Unfortunately, in Brazil it is a tale of two stories. I think that the industry overall remains very impacted by this very unseasonable weather. At this point, it can really be said that's unseasonable because the winter was cold. Yes, winters can be cold, but you see September is usually much better weather in Brazil, even October, and still cold and wet in a very strange way. Brazil didn't improve a lot for the weather. Of course, we've been adjusting our execution. Relative prices in the market improved after more than a year of prices being very open on the gap, and our share bounced back strongly, which reinforces the strength of our portfolio. The way that our megabrands are growing in Brazil and the share gains on the premium segment that continue to accelerate. When you look at Colombia, Colombia is not getting all this impact. Colombia volumes continue to grow, share of alcohol beverages continue to improve, very strong performance. Consumer confidence is not that high, but not as low. Inflationary pressures in Colombia are more moderate, so consumer is in better shape there than it is in some other parts in Latin America. Of course, this all is bouncing back and now we are looking at the summer so we can see really where the industry is going to land overall and how the weather is going to be. As we said, as we look forward for 2026, some of these one offs can actually be positive as we build back in 2026. Fernando Tennenbaum: And Laurence, it's Fernando here. Your question on leverage. We've been very consistently saying that our optimal capital structure is around 2x. It's also fair to say that most of the benefit of leverage you get once you get to 3x. The long term goal is still 2x, but you have less of an urgency to go there. You can have more flexibility once you're below this level, which we reached at the end of last year. Of course, every year is going to be slightly different. Sometimes you have effects, fluctuations, but the resilience of our business gives us the consistency to be more on the, as I can say, more on the offense now. Bear in mind that the priority #1 is always organic growth. We keep investing, we keep, if you see this quarter, sales and market, we continue to invest there, but definitely way more flexibility and kind of still 2x is the optimal capital structure. Operator: Our next questions come from the line of Rob Ottenstein with Evercore ISI. Please proceed with your questions. Robert Ottenstein: Thank you very much. Two questions from me as well. The first one is I want to focus on the announcement that you've won the Champions League. That came as a bit of a surprise to me. So maybe put that in the context of how you're looking at sports and some of these big assets, how that's evolving. Most importantly, obviously there's a lot of big numbers on this. I don't know if you can talk about the numbers on this, but maybe talk about the ROIC, how you see that being an efficient use of marketing investment, and also a little bit about timing. My understanding is that Heineken still has it for the next couple of years. That's the first question on the Champions League. The second question, arguably in the U.S., perhaps the greatest success this year has been Cutwater. That's a brand that you've had for a number of years and it's just exploded this year. Maybe talk a little bit about the success that Cutwater is having this year, what you think the drivers are for that, whether you think that's sustainable, what you've learned from it, and can you take that model to other countries? Michel Doukeris: So starting with the recent announcement and the role of these events, sports and occasions, I would start by talking about consumers. This is the main reason why we do the investments and why we are lining up into mega platforms. Consumers are behaving different and consumers are as usual evolving. As such, it was very important as we build our strategy and we fine tune our execution to make sure that we are leading and moving fast to where consumers are and will be more and more. That is why when we start leading in terms of execution with this concept of mega platforms and megabrands, integrating our brands with big partner, big partnerships, big events and relevant cultural moments is key for our brands to win in the long term. As I said before, these winning brands that command premium price and premium positioning are very important on our strategy. This works for FIFA, this works for Netflix, this will also work for UEFA, which is an important component as we build this integration with platforms and culturally relevant moments that consumers are looking for, are talking about and are experiencing. It is all about the consumer, how we integrate our brands and these relevant cultural moments and how our brands over execute competitors within the category. That is a great addition. We could not be more excited with the opportunity. As everything moves, 2027 is the right timeline for us to start executing on that. The second part on the U.S. and Cutwater, I think that you have been following. We have been talking about this portion of the consumer and consumption occasions where bitter is not the choice, where more refreshing is not the choice, where people want to indulge a little bit more, where the palate is a little bit more sweet, right, and more mixed. We decided to bet on that back in 2018 with Cutwater. We have been building this brand very patiently, but we have built the brand in a very high quality way. Consistency, right distribution, right price as a premium brand, right investments, right consumer occasions and as the brand improves availability, as consumers get to know the higher quality that we have on this proposition and we position very right for the right occasion, I think that the brand is gaining relevance. What we saw over the summer now is consistent brand building and relevance getting to a tipping point. This brand is now the number one share gainer in spirits, triple digits over the summer, becoming one of the top 10 spirits brands in the U.S. and built from scratch. If one would say what we learned from that is that yes, we can build brands in a very relevant way, yes, we can build this Beyond Beer segment to be what we expect to be for us, so incremental and something that will increase our addressable market. We have been rolling out this notion of the Beyond Beer and how to tap into more occasions across many markets. I gave here during the webcast the example of us rolling out now Flying Fish across many different markets from Africa to Europe to Americas. The early results and indicators are very positive as well. There is more to come and we continue to build Cutwater. We are just at the beginning. I think that the brand, still very small for us, is accelerating and we have a big ambition to drive not only Cutwater but Nutrl and the other propositions that we've been betting on in this Beyond Beer space. Operator: Our next questions come from the line of Andrea Pistacchi with Bank of America. Please proceed with your questions. Andrea Pistacchi: This is the first one. So your volumes have been more challenging this year. But after 9 months, you're still very much on track, in fact, you're at the middle of your 4% to 8% EBITDA guidance range. So I wanted to ask whether you had to make any adaptations to the plans that you would have had at the beginning of the year, maybe more agile revenue management or something more tighter cost control? And again, then you would have had at the beginning of the year. If you could discuss this a touch? And then just on the MAZ, the Middle America Zone, there's a question earlier on Colombia, I just wanted to broaden it slightly. So Middle Americas ex Mexico is very profitable for you. It continues to deliver solid volume growth. So could you just discuss a bit on how the environment is in these markets, why you think it's different from, say, Mexico, Brazil? How confident you are in your ability to continue to deliver volume growth in these high-margin countries in the next 12 months-or-so? Michel Doukeris: I think that in a way they are in the same vicinity right on volume and how performance and our execution is adjusting, adapting on this environment. I think that the environment is one that's very dynamic and we've been seeing this of course over the last few years. Every year there is some extra components. As I said before, to me, the extra component on this dynamic operating environment this year was the unseasonable weather in the Americas, but more pronounced in Latin America. I think that we've been adjusting. We often say here in house that our strategies, just like beer, can be used in many different occasions. We've been adapting the execution. We are very agile in reallocating resources. Our portfolio has breadth that is useful for us in this moment because we have from premium brands to value propositions that they can adapt and be used to accelerate a little bit our execution when it's needed. The discipline in cost management, the discipline in revenue management was very, very important for us. A differentiator, I would say, during this period because despite a very challenging consumer environment, we are able to deliver margin expansion, EBITDA growth, EPS growth. Saw very solid financial results that are a product of our very solid operational capabilities and delivers through the quarter. When you look at mass, it is not only very important for us and very relevant for our performance during the quarter and in the long run, but, of course, this quarter specifically because overweight in the beer category versus other CPGs and overweight for us ABI was a big impact on the volume. It is relevant. We are adapting, brands are performing very well, we continue to invest, we continue to manage the portion of the business that we control. And of course, in the long term we continue to see this as a very relevant growth driver for the industry. We are best positioned to capture this growth over time with the operations, scale, and brands that we have in the region. Thank you for the question. Operator: Our next questions come from the line of Celine Pannuti with JPMorgan. Please proceed with your questions. Celine Pannuti: My first question, could you, coming back maybe on the Cutwater question, but in a broader sense, how big is Beyond Beer now for you in terms of the portfolio? You said it grew, I think, 27%. Where do you see the capabilities outside or the opportunities outside of North America? If you could help us a bit frame the growth journey and as well the profitability of that category both in North America and outside of North America. My second question, I think it was an impressive performance in gross margin despite some of the FX headwinds that you were facing. Could you give us a view on the building block on the gross margin performance in the quarter, please? Michel Doukeris: I think that I'll hit some numbers quickly here to cover the points that you asked about. I think that the last time that we talked about that, I mentioned that Beyond Beer is a great opportunity for us because it cuts across this interaction of the different alcohol beverages and is incremental for us, right, so, 2/3 plus of the volume that we capture in these occasions from these consumers is incremental to our portfolio. I also remember that the last time that we talked about this, this was around 1% of our overall volume. This today for us is around 2%. It is growing 27%. The opportunity here is huge because the addressable market outside of the beer category is very relevant and is bigger than the beer category itself. It is a huge addressable market. Today it is a very small portion of our volumes, but it is growing very fast. It is all about the consumers. There is a group of consumers there that indulge in different occasions with different liquid profiles. We have been learning a lot about that and we have been having some very successful launch and scale up products in this area. Cutwater, Nutrl, Brutal Fruit, Flying Fish, Busch Light Apple, to mention a few of them. On average, they are sold at higher prices than the beer equivalent products that we have. They have profitability per hectoliter per SKU that is higher than the profitability that we have with equivalent beer SKUs. I think that we continue to work hard on that. This is small for us today, 2% of the portfolio, but it is big in our opportunity to grow with more consumers in more occasions and in a very large addressable market of consumer occasions and volume pool. I'll hand over to Fernando to the second question. Fernando Tennenbaum: On the gross margin side, I think the gross margin side one is a function of your health brand portfolio. You see the net revenues per hectoliter. As Michel said, premium brands command premium pricing. You can move with the revenue management agenda. The second component of that is of course the cost of goods sold. In the cost of goods sold, you have one component that is the FX and commodities, which is market price, but you have the other components, which is the efficiencies, the kind of fixed costs. There is always a kind of opportunity for us to keep driving on that. For me, it's a combination of strong portfolio with premium brands and also driving efficiency on the cost of goods sold. If you remember, we talked about it several times that when we look for margins, we still see opportunities for us to improve our operations, to improve our margins and a lot of that would be coming from gross profit. It's just delivering on what we already mentioned several times in the past. Operator: Our next questions come from the line of Simon Hales with Citi. Please proceed with your questions. Simon Hales: My first question, I wonder, Michel, could you talk a little bit more about China? Again, I wonder if you could quantify how big the destock was in Q3 in the context of the little over 11% fall in volumes, and should we expect some further destocking, do you think, in Q4? Is there any reason to believe in overall terms that your Q4 volumes in China will be less bad than they have been in Q3? Perhaps just associated with that, you highlight some new innovations that you've got coming in the market, Magnum and some 1-liter cans, are they in market yet or will they be in market in Q4? That's the first question. The second one, a little bit more briefly, I wonder if you could talk a little bit about the early consumer and retail reaction to the launch of Phorm Energy in the U.S. and maybe highlight what really differentiates that brand from other competitors in the energy space. Michel Doukeris: On China, I think that what we highlighted in prior quarters is a kind of one third of what we see in the volumes is coming from really geographical footprint, channel footprint. One third comes from these adjustments on the inventories. You give me here an opportunity I'll take to talk about this. I think that just so I'm clear about the adjustments on the inventories, of course, when regions start to decline, we need to adjust our inventories with the wholesalers so we can have a healthy operating environment. This is what we are doing this year as channels shift as well. You have a second adjustment that needs to be done so we keep the channels healthy, and once they rebound, we can then grow with the channels without stressing the ecosystem. One third is really the shift that happened between on and off premise, where the off premise started growing faster. The propositions that grew in the off premise are more on the core plus sub premium, and then this caused a share loss for us because we were more on the off premise, and we are of course smaller and less distributed in the off premise. Here is where we are making most of the adjustments. When we look at China, most of this adjustment is being already done. There is still, of course, a little bit to be done as you go through October, November, December, but should not be beyond the fourth quarter. At the same time, because we start expanding distribution off premise, adjusting innovation, adjusting execution. That will be a combination of continuing to right size the inventories, but then having acceleration on our STRs and some of the innovations that we launched and tested. You mentioned BUD Magnum, very successful in India, very successful where we launched it in China. We will start to roll it out now, not only the product itself, but some very interesting new packaging that is making a big strike in China will come to BUD Magnum. We had the new Corona can called drop line can, which is a full lid opening can. That's very interesting. We launched it first in O2O, was a big success, and now we're going to expand distribution on this packaging. We have some new deals coming in Harbin as well, not only the expansion of Zero Sugar, but some new propositions there that will be helpful as we further enhance our route to market in the off-premise. Inventory adjustments, one-third channel shifts, one-third, these both should phase out as we go through quarter 4. And then we have increased availability in the off-premise, increased investments for execution and innovation that will start to kick in in quarter 4 and will be very relevant for us in the next year. Phorm is interesting because in a way we've been participating in the energy drink in the U.S. for over a decade, and we have had some very successful scale up of brands in our network, but we were never majority owners of any of these brands. While we were an important component of the scale up and growth of these brands, we were not the owners. The latest one we divested at the beginning of this year, end of last year, was a good divestment, was a good run of the brand. But now we have a brand that we are majority owners, committed to the long term. Incredible partners that are with us in the journey from our wholesalers to the Phorm partners to the UFC. Not UFC, but Dana White partner with us in building that. Brand launch is being very exciting. The product is great because I think that the most differentiated thing is the fact that we are focused on a very specific consumer cohort, those who do the work and need this energy every day. The product brings this clean energy approach, very balanced elements, and I think that the proposition is a strong one, is getting good traction, and we are just at the beginning. I think that there will be a nice upside coming next year because the launch was this year. Distribution is building, awareness is building, and we have some flavors that we are expanding on the back end of this year and will be fully available next year. The most important thing here is our commitment and investment to the long term, because now we are majority owners of the brand and we have incredible partners that are with us on the journey. Operator: These were the final questions. If your question has not been answered, please feel free to contact the investor relations team. I will now turn the floor back over to Mr. Michel Doukeris for closing remarks. Michel Doukeris: Thank you very much. Thank you, everyone, for joining, for the ongoing partnership and support for our business. I hope that you are all doing well. Remember to drink a beer for Halloween, and we'll talk soon. Thank you. Operator: Thank you. This does conclude today's earnings conference call and webcast. Please disconnect your lines at this time and enjoy the rest of your day.
Operator: Good morning, and welcome to the CNX Resources Third Quarter 2025 Q&A Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tyler Lewis. Please go ahead. Tyler Lewis: Thanks, and good morning, everybody. Welcome to CNX's Third Quarter Q&A Conference Call. Today, we will be answering questions related to our third quarter results. This morning, we posted to our Investor Relations website an updated slide presentation and detailed third quarter earnings release data, such as quarterly E&P data, financial statements and non-GAAP reconciliations, which can be found in a document titled 3Q 2025 Earnings Results and Supplemental Information of CNX Resources. Also, we posted to our Investor Relations website our prepared remarks for the quarter, which we hope everyone had a chance to read before the call as the call today will be used exclusively for Q&A. With me today for Q&A are Nick DeIuliis, our Chief Executive Officer; Alan Shepard, our President and Chief Financial Officer; and Navneet Behl, our Chief Operating Officer. Please note that the company's remarks made during this call, including answers to questions, include forward-looking statements, which are subject to various risks and uncertainties. These statements are not guarantees of future performance, and our actual results may differ materially as a result of many factors. A discussion of risks and uncertainties related to those factors and CNX's business is contained in its filings with the Securities and Exchange Commission and in the release issued today. With that, thank you for joining us this morning. And operator, can you please open the call up for Q&A at this time? Operator: [Operator Instructions] Our first question comes from Zach Parham from JPMorgan. Zachary Parham: First, Nick, congrats and good luck in your retirement. And Alan, congrats on your new role. First off, I just wanted to ask on the buyback. You had a sizable buyback during 3Q. It was the highest since, I think, 4Q '22. Can you talk about what drove that uptick in buybacks and how you think about the pace of the buyback going forward? Alan Shepard: Yes. I think the primary driver was a significant free cash flow generator in terms of what we were able to do for the quarter. Our underlying process for evaluating whether or not we're doing buybacks versus other capital allocation opportunities hasn't changed. We continue to view the business valuation very attractive relative to its intrinsic value. Zachary Parham: And then my follow-up, just wanted to ask on the Utica acquisition that you made on the Apex acreage. Could you give us a little more color there? Do you now have Utica rights across the position? If not, are there -- are you looking to make other acquisitions where you could get more Utica rights on that acreage? Alan Shepard: Yes. If you recall, when we did that acquisition, there was about 30,000 Marcellus acres kind of the footprint for the whole asset, and it came with about 8,000 Utica rights. So what that transaction represents is we really went out there and got the remaining unleased Utica rights that underlies that footprint for Apex. And now we're able to go back in and leverage all that infrastructure kind of like we envisioned when we did the acquisition. Operator: The next question comes from Leo Mariani from ROTH. Leo Mariani: I wanted to see if there's any type of update on new tech here. Specifically, I was just curious if there's any update on kind of the oilfield service auto business, perhaps the CNG kind of LNG business and/or just status of 45Z as you guys see it? Alan Shepard: Yes. So let's start with 45Z. So we're still in the period where we're waiting for the notice of final rule-making on 45Z, and we expect that before the end of the year. And then there'll be a comment period and a finalization of that rule, hopefully in the early first half of 2026. All that's subject to the government reopening and things like that. But once we have that, the expectation is that the guidance we provided last quarter on 45Z, that $30 million a year run rate will be sort of confirmed with that guidance. In terms of oilfield services, we have outsourced sort of the operational part of that to our partner on that, and they're continuing to make progress in rolling out those different technologies, but nothing material in sort of the current quarter for '26 as of yet. Leo Mariani: Okay. And just in terms of the plans as we roll into next year, just at a high level, it sounds like the company still wants to stay in maintenance mode. Should we expect production is not a whole lot different in '26? And would that be similar for spending as well? How are you guys thinking about that? Alan Shepard: Yes. I mean we'll give you the full detail on the guidance when we get to January. But generally, I would expect to see maintenance mode, right? We're still going into winter full storage, and we'll see what kind of weather we get this winter. And we need to see some of these longer-term calls on gas develop before you'd be thinking about doing anything other than that. Leo Mariani: Okay. That makes sense. And just on M&A, obviously, you guys sold a little asset, bought another asset, seems kind of longer-term neutral on cash. But just what's the company's appetite in general for deals? Do you see other things that you'd like to pick up in Appalachia and perhaps there's other Utica deals out there that you guys would like to consider? Alan Shepard: Yes. We look at everything that comes to market, but our threshold is acquiring ourselves, right? So unless there's an opportunity that outcompetes that opportunity, you won't see us do anything, right? So that's sort of how we think about it, but we're certainly open to anything if the math works. Operator: The next question comes from Noah Hungness from Bank of America. Noah Hungness: Just for my first question here, I was just hoping you could kind of unpack some of the moving pieces on your free cash flow guidance. Even when you take out the asset -- the additional asset sales, it looks like free cash flow guide is roughly flat to where it was before, even though the adjusted EBITDAX guide moved down and CapEx moved up. I was just hoping to unpack some of the moving parts there. Alan Shepard: Yes. So the way to think about that is our free cash flow guidance includes all working capital adjustments, right? So if you try to take just EBITDA and CapEx, you got to account for sort of fluctuations in AR and AP. I mean we give you a sort of rough number to target for, and we try not to move that number around a bunch. But you're going to see movements like you see here where we're refining guidance throughout the year. But we're still confident we'll be at kind of the range we guided to, $575 million pre-asset sale number. Noah Hungness: Great. That makes sense. And then on the Utica acquisition here in Pennsylvania, could you maybe talk about -- are there any requirements for drilling on that acreage next year? Or is there any acreage that may be expiring near term that you'll want to drill on to hold it? Alan Shepard: Yes. So I mean, we plan to develop the field. Obviously, that's part of the underwriting case for making the investment. The exact timing of that development, I'm not going to get into at this point, but you'll see that fold into our development plan in the years ahead. Operator: The next question comes from Michael Scialla from Stephens. Michael Scialla: I had a couple of questions on the Utica. I guess as you think about next year's plan, is there any thought about trying to delineate the play any more with wells maybe further north or further south? Or do you plan to stay kind of in that area that you've been developing so far? Alan Shepard: Yes. I think the plan for next year is really just focused on sort of the operational side of it, right? Nav and team have done a great job sort of driving down costs, and we want to give them a couple more opportunities to do that. We're pretty confident that we have a view on where the fairway is. So I don't think there's a burning desire to do much exploration either north or south. Navneet Behl: Yes, I think we are pretty confident in our geological model. So our plan is to just step up the development of the play. Michael Scialla: Makes sense. I wanted to see on -- in terms of well costs, where do you see the opportunities there? And does the Utica require a different rig? And if so, you've been just running one rig most of the year. Are there further efficiencies that could be had by keeping a rig running continuously in that play? Alan Shepard: Yes. So if you think about -- I'll let Nav get into the details on rigs and things like that, but just at a real high level, the efficiencies are all on the drilling side, right? The completions is sort of pretty well known at this point. So what they're focused on is getting drilling days down. So maybe Nav, talk about that a little bit. Navneet Behl: Yes. Like the rigs that we have right now are fully capable of drilling the deep Utica. We don't have any issues with that. And over the last 12 months or so, we have made really huge strides on the drilling side. We've been able to increase the efficiency of drilling the whole well and have cut down the days on the pad pretty much. And basically, on the drilling side, like our drilling operations are pretty steady. They're very repeatable. And best of all, we are improving and making up big efficiency gains to get the well down faster and reduce our cost. So... Alan Shepard: Yes. And in terms of guidance on the cost per foot, we're still at that sort of $1,750 range for right now. Navneet Behl: And then just to kind of add to that, like last year, our drilling costs on Utica were like about $2,200 a foot. So we are down almost 20% to $1,750 per foot. Operator: The next question comes from Jacob Roberts from TPH. Jacob Roberts: I wanted to start on the well outperformance that we've seen over the past several quarters. I'm curious if you could provide some color on if this is a function of better-than-expected declines on older vintages? Is this better new well performance? And how durable do you think these results are and how that translates to your longer-term capital efficiency plans? Alan Shepard: Yes. I think for this year, you're seeing 2 things, right? There's some outperformance on the Apex assets that we acquired, in particular, some of the big pad that we brought in right when we acquired it. And then you're seeing outperformance on some of the new products that got converted this year. In terms of long-term performance and capital efficiency ratios and things like that, that remains to be seen. But we're -- our focus is not on that, right? We're still in the sort of flat production mode and focused on generating as much free cash flow as possible. Jacob Roberts: Great. And then maybe if I could just ask your opinion on current in-basin demand and power generation and all that topic you hear and your thoughts there and ability to participate perhaps? Alan Shepard: Yes. No, we're still long term, extremely bullish on the prospect for AI generated new demand come in the basin. Obviously, we sit on an enormous resource base here that can be developed. Still in the early innings, still a lot of talk with folks about developing some of these projects, but I can't say exactly when it's going to occur, but it definitely -- all the math suggests that Appalachia and all the gas up here needs to be part of that mix moving forward. Nicholas DeIuliis: And Jacob, just to add to what Alan said, the other issue underneath all of this that sometimes gets lost with the excitement of AI demand and in-basin demand is the increasingly obvious need for additional pipeline infrastructure to get these low-cost BTUs and molecules from this basin, not just within the basin, but to wherever else the demand centers may be. So until that happens, AI sort of demand gets fulfilled in basin from our perspective. And then if that infrastructure gets built, other regions across the nation can start to participate more wholesomely in this AI revolution. Operator: The next question comes from David Deckelbaum from TD Cowen. David Deckelbaum: I just wanted to echo the sentiments, congratulations to Nick and Alan. Just also wanted to ask on -- welcome. The activity for the fourth quarter, you have the frac crew coming back to work. I still wanted to get some color on the timing of the TILs. It seemed like the guidance have been more of a December time frame. I think last quarter, when we checked in, the macro perhaps seemed a little bit more precarious. And perhaps now things are tightening up a little bit. So how do you guys think about that in terms of turning on new volumes into the winter season here? Alan Shepard: Yes. So we started the frac crews. I think we mentioned in the prepared remarks, kind of in that October time frame. So the expectation on those TILs would be sometime in December, right? So it'll be later in the quarter. In terms of the macro for '26, things have kind of settled into a trading range, but we're still not to the part of winter yet where you can have a good kind of read on where we're going to exit winter. So we'll see. But I think activity is going to look sort of like it did last year, right? We have a concentration of completion activities in Q4 and Q1, and then you set up yourself to be able to be flexible in '26 to respond to whatever sort of pricing environment develops. David Deckelbaum: Appreciate that. And my follow-up is just, obviously, you guys closed a couple of deals this quarter. It seems like the basin in general that there's been a lot more land spend through all your peers right now. I guess, is there -- can you just generally speak to that environment right now? Are we just seeing a lot more horse trading or folks kind of willing to transact on single zone areas? It seems like we should be underwriting perhaps a larger land spend in the '26 time frame and perhaps beyond as maybe these opportunities are increasing. Alan Shepard: Yes. So maybe I'm not going to speak to the activities of some of the peers that happened down in West Virginia and Ohio. But definitely in Central PA, where we're focused on sort of the deep Utica development in the long term, you see more interest as folks start to understand the sort of potential of the reservoir, some of the transactions we've seen up there. You kind of have a moment in time here where there's an opportunity to pick up some of the acreage that still may be open or held by folks that are looking to deal with it to some of the more consolidated players in the area. David Deckelbaum: Appreciate that. And just to confirm real quick, the acres that you sold out of the Marcellus rights, are those areas where you've already developed Utica or those are areas that you intend to develop Utica in the future? Alan Shepard: Those would be the Ohio areas where we've already developed the Utica. Operator: [Operator Instructions] And our next question comes from Betty Jiang from Barclays. Wei Jiang: I want to ask about the -- pretty small, but in the guidance, the increase in the non-D&C capital, what's driving that? And as I'm hearing just more focus on deep Utica development going forward, is there a need for facility infrastructure spend going forward for you to optimize development there? Alan Shepard: Yes. So maybe for your first question in terms of just the $7 million bump to the midpoint there, that's really just timing. I mean we build all of our midstream and water infrastructure. So sometimes you're just talking about a project sliding around 3 months or so, something like that. So it's really just noise on that front. Longer term, the way we think about infrastructure development as we move to Central PA, because our decline rates are so low, there will be -- need to be additional infrastructure, but it's not going to be anywhere near the scale that you saw last decade, sort of midstream build-out cycles that occurred. We're talking about adding a handful of pads a year. So you're able to really just sort of meter out that spend at a different pace from what we've seen historically. Navneet Behl: Yes. And I can add to that comment, too, is, as I told earlier, that we are pretty confident of the model. So we will just be moving from pad, which are contiguous to each other. And so our infrastructure spend just will be like a little bit of additional infrastructure rather than in a delineation model where you have to like delineate the wells and build a whole fairway model. So we are getting into a more efficient infrastructure spend, so which won't change from year-to-year. It will be like pretty steady, just like we have in our drilling program. Wei Jiang: Got it. So the non-D&C CapEx as a percent of total, probably going to be fairly steady. Alan Shepard: I mean it will be -- it won't be anything like last decade. There will be periods where you maybe need to add a station or something like that, but it's nothing on the scale of last year. And as Nat pointed out, the goal is to be as efficient as possible with that spend given that we're able to kind of do return trips and have a focused development plan that just kind of steps out as opposed to needing to go to the extreme end of a field and build infrastructure to that part of it. Wei Jiang: Great. And my follow-up is on the back to the deep Utica development. I know there's been many questions asked around that. But what I'm hearing is the focus is really trying to get the per foot cost down. And as we have seen in the past with play development, it's just about steady-state development and park a rig there and optimize and reduce drill time. And with one rig running, it just seems that's not moving between the Southwest and Central that's just not the most efficient way. Is there a possibility for us to start seeing like one dedicated rig being allocated to the Utica to maximize that efficiency? Alan Shepard: Yes. I think you nailed it, like this industry is incredible. The engineers in the industry are incredible when it comes to optimizing development once you given up reps at any particular project, we do try to align our development plans so that we go back-to-back sort of on those types of pads. But we will have Southwest PA wells developed next year as well. So it all gets taken into consideration. But your broader point is the right one that we're at $1,750 per foot right now is what we're guiding to. And my expectation would be that we're able to drive that down as the engineers do what they do. Navneet Behl: And then to add to that, like most of our pad development, we have like 3 to 4 wells that we are testing right now, especially with the spacing of 1,300 and 1,500 feet. So us being on a 3- and a 4-well pad leads to a lot more efficiency than it would otherwise appear in other place. So our team is actually making progress almost like section by section, and that's why you see the 20% reduction in costs. So -- and that will continue to be there, right? So we will focus on increasing drilling efficiency and reducing the cost no matter what. So -- and that's the advantage that we have in CNX with the acreage position we have right now. Operator: There are no more questions in the queue. I would like to turn the conference back over to Tyler Lewis for any closing remarks. Tyler Lewis: Great. Thank you. Thank you again for joining us this morning. Please feel free to reach out if anyone has any additional questions. Otherwise, we look forward to speaking with everyone again next quarter. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.