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Operator: [Audio Gap] Good afternoon, ladies and gentlemen. Welcome to our earnings call to discuss BPI's results for the third quarter and 9 months of 2025. I'm Haj Narvaez, your moderator for this session. We are conducting this briefing in a hybrid manner with our BPI speakers and panelists here in our headquarters at Tower 2 Ayala Triangle Gardens Makati City. We also have the rest of our participants dialing in remotely. I am pleased to introduce you to our speakers and panelists this afternoon. First, TG Limcaoco, President and CEO; Eric Luchangco, CFO and CSO. They will be joined in the panel for the Q&A by -- there Maria Theresa, Head of BPI Wealth; Ginbee Go, Head of Consumer Banking; Luis Cruz, Head of Institutional Banking; Jenelyn Lacerna, Head of Mass Retail Products; Dino Gasmen, Treasurer and Head of Global Markets, is unable to join us today, but representing him and the group will be Jethro Sorra. We are also joined by the rest of the BPI leadership team in this call. So moving on. This afternoon's agenda will begin with opening remarks from our President and CEO, TG Limcaoco; followed by our CFO and CSO, Eric Luchangco, who will walk you through the third quarter and 9 months performance highlights as well as the digitalization updates. The floor will then be open to questions from the audience. Please note that this call is being recorded and legal disclaimers apply. Now let me turn you over to TG for his opening remarks. Jose Teodoro Limcaoco: Thank you very much, Haj, and a nice afternoon to all of you, and thank you for joining us this afternoon. As we reported last October 16, our financial results remain robust, demonstrating that our strategy of broadening our client base, growing the share of our noninstitutional loans in our loan book, investing in our distribution channels and technology that our digital branches, our digital platforms and our unique agency partners now with close to 7,000 stores, which all allow us to serve more customers more efficiently and delivering service that is truly customer-obsessed. All these are delivering results as we expected. 9-month net income of PHP 50.5 billion, that's up 5.2% versus last year, which delivered an ROE of 15% and a return on assets of 2%. Our net income was driven by strong revenue growth of 13.2% and managed operating expenses, which grew 10.3%. Our net interest income, which comprises about 77% of total revenues, grew 16.2% as a result of loan growth that was over 13% and NIM expansion of around 30 basis points. All these numbers, our CFO, Eric Luchangco, will restate with more detail along with details on our balance sheet growth. The analyst community has expressed some concern on NPL and provisions, not only at BPI, but for the industry as a whole. Eric and the team will walk through some of the numbers that should evidence that our strategy of expanding our consumer book, which is the reason for the slightly higher NPL numbers is truly paying off. The team present today will be more than happy to give more details on these as well as our policy on provisioning, which follows the output of our expected credit losses -- of our expected credit loss models, which we believe are forward-looking and are independently vetted and verified by third parties. We would also be more than happy, of course, to provide you with our outlook on these markets going forward. Finally, Eric will provide what I call snippet updates on our digital initiatives, including that of the use of AI in our first project, the breadth of our agency banking rollout and our expansion of our wealth business. Again, thank you for joining this afternoon, and allow me to turn the floor over to our CFO, Eric Luchangco. Eric Roberto Luchangco: Okay. Thank you, TG, and good afternoon to -- and thank you to everybody joining us today on our third quarter earnings call. As usual, I'll start off with an update on our financial performance to be followed by some updates on key initiatives of the bank and then move on to taking some questions as part of a panel. This quarter's results extended the pattern of growth from previous periods, highlighted by the following. For the first 9 months, -- for the first 9 months, the bank generated record income of PHP 50.5 billion, up 5.2% from the prior year, driven by revenue growth. The bank also generated a record quarter income of PHP 17.5 billion, up 7.4% quarter-on-quarter, largely driven by loan expansion in the non-institutional segment. Indicative return on equity stood at 15% and return on assets at 2%. The balance sheet continued to expand with loans up 13.3% year-on-year and 1.8% quarter-on-quarter, while deposits were up 7.7% year-on-year and 2.5% quarter-on-quarter. Liquidity ratios remained robust, while the capital position further strengthened from strong income generation with the CET1 ratio at 14.9% and CAR at 15.8%. With the NPL ratio at 2.3% and NPL cover at 96.5%, credit quality remains under control and favorable versus industry averages. We delivered earnings per share of PHP 9.55 per share for the first 9 months, and we are on track to pay improved dividends for the second half. Net income reached PHP 50.5 billion for the first 9 months, up 5.2% year-on-year, driven by strong revenue growth that offset higher operating expenses and provisions. Net interest income rose 16.2% year-on-year to PHP 109.1 billion, driven by a 13.3% loan growth and a 27 basis point increase in NIM. Trading income increased 13.5% to PHP 3.38 billion against the backdrop of declining interest rates. Fee income was up 6.5% to PHP 28.1 billion, reflecting transaction activity growth. Total revenues reached PHP 142.3 billion, up 13.2% year-on-year, sustaining the positive jaw versus the 10.3% rise in OpEx to PHP 65.5 billion. Provisions were up 145% from last year, reaching PHP 11.75 billion, tempering net income growth to 5.2% at PHP 50.5 billion. Looking at it on a per quarter basis, net income reached PHP 17.5 billion, up 7.4% quarter-on-quarter. Total revenue rose to PHP 49.8 billion, up 4% from the previous quarter, driven by net interest income of PHP 37.9 billion, up 3.2% quarter-on-quarter despite a slight decline in NIM for the period. This growth underscores the continued momentum in noninstitutional loans, which offset the flattish performance for institutional loan volume for the quarter. Fee income of PHP 9.55 billion, up 2.8% quarter-on-quarter and trading income of PHP 1.8 billion, up 50.5% quarter-on-quarter. Moving on to the next slide. For the first 9 months of the year, earnings per share reached PHP 9.55 per share, reflecting a 5.2% year-on-year increase. Profitability remained strong with an annualized return on assets of 2%. Return on equity remains solid at 15%, demonstrating sustained value creation for shareholders. Moving on to the balance sheet. Total assets reached PHP 3.5 trillion, reflecting a 9.3% year-on-year increase. Loan portfolio expanded to PHP 2.4 trillion, up 13.3% year-on-year and 1.8% quarter-on-quarter, driven by sustained credit demand across segments. The deposit base expanded 7.7% year-on-year, primarily fueled by growth in time deposits. Both loan and deposit growth outpaced industry averages, contributing to further gains in market share. The CASA ratio was at 61%, while the loan-to-deposit ratio stood at 90%, reflecting efficient funding utilization. Managed deposit growth, combined with a 450 basis point cumulative reduction in the reserve requirement ratio since October of last year supported liquidity and lending capacity. The loan book grew 13.3% to PHP 2.4 trillion, indicating continued positive momentum. Notably, the non-institutional segment now accounts for 30.8% of the total loan book. This puts us about 1 year ahead of the 2021 plan to hit a 30% ratio by year-end 2026. Net interest margin for the quarter was 4.62%, easing 5 basis points quarter-on-quarter, the first quarterly decline since the rate cuts in October last year. During the quarter, asset yield rose by 1 basis point as the positive impact of higher loan volume and an 11 basis point increase in loan yields was offset by lower yields from investment securities. As shown by the red line on the right-hand chart, loan yield actually continued to increase, reaching 8.16%. Meanwhile, cost of funds rose 6 basis points quarter-on-quarter, driven by an increase in time deposit volume, which outweighed the benefit of lower TD rates and other borrowing rates. Overall, credit demand remained resilient and BPI's growth continued to outpace industry. Gross loans increased by PHP 283.3 billion or 13.3% year-on-year. Non-institutional loans accounted for over half of that growth, rising PHP 159.4 billion or 27.2% year-on-year. The growth in noninstitutional loans was led by business bank loans up 72.3%, personal loans up 31.4%, credit card loans up 30.6%, auto loans up 28.7%, mortgage loans up 19% and microfinance loans up 16.8%. These reflect robust growth momentum, especially considering the higher base following successive years of strong growth. On funding, we continue to optimize our funding sources by shifting from time deposits to bond issuances, leveraging incentives under BSP Circular 1185 for green and sustainable financing. This approach offers a lower effective yield compared to that of top rate time deposits. While deposits remain our primary funding source, we saw a 34% increase in borrowed funds, which now account for 7% of total funding. Funding ratios remain stable with loan-to-deposit ratio at 90.3% and loan to total funding at 83.7%. We continue to prioritize strengthening our deposit base with focus on CASA. Our CASA mix remains predominantly retail, comprising 77% of the total, including contributions from microfinance and SMEs. Growth in CASA is being driven by the core mass market and mid-market, reflecting client base expansion and higher average balances. Asset quality. On asset quality, credit quality remains manageable despite expansion into higher-yielding segments. NPLs rose PHP 55.01 billion, and the NPL ratio remained broadly stable at 2.29% as the new rate of NPL formation slowed. Provisions reached PHP 4.5 billion for the quarter, bringing year-to-date credit cost to 68 basis points. NPL coverage remains adequate at 96.5% and further strengthened to 122.3% under BSP Circular 941, ensuring a solid buffer against potential credit losses. Across segments, the institutional, business bank, mortgage, microfinance and auto loan segments posted declines in their respective NPL ratios. Personal loans NPL ratio rose by 123 basis points quarter-on-quarter to 7%, while credit cards increased by 32 basis points to 4.65%. The increase in personal loans NPL is primarily from the universe expansion initiative, which included lowering the income requirement in 2023. To mitigate further delinquencies, we tightened the credit score cutoff starting May 2025, and this adjustment has proved effective as accounts booked post tightening show a lower NPL ratio of 5.5%, 4 months after booking. Teachers loans, which account for 33% of personal loans also contributed to the delinquencies, even though 28% of the loans classified as NPL are still paying regularly due to a system implementation under depth rules. Excluding these technical NPLs, the adjusted NPL for teachers loans would improve to 6.6% -- for personal loans would improve to 6.6%. The increase in credit card loans is 55% from depositor programs and 45% from regular programs, covering mostly younger segments, lower income, and new to credit. Similar to PL, we tightened the credit score requirements starting August and we'll only be able to measure the impact after 6 months. Microfinance NPL ratio rose by 250 basis points year-on-year, reaching 13% due to the test program that granted higher loan amounts to existing clients and extending loan tenors. However, recent bookings have shown improved performance following the tightening of credit score requirements. Business banking NPL ratio remained stable quarter-on-quarter, up 180 basis points year-on-year, primarily due to the strong loan growth last year. BB loan balances doubled in 2024, which suppressed the NPL ratio. With the recent tapering in loan growth, the NPL ratio has now adjusted to the 7% to 8% range, which reflects more normalized levels for business banking. In addition to NPL coverage, we report ECL coverage at 102.5%, as shared during our previous earnings call, our provisioning approach is anchored on ECL, which provides a forward-looking estimate of potential losses. The shift from an NPL-based approach is driven by two key considerations. One is provisioning against NPL is reactive as it occurs after loans have become NPL. And two, under PFRS 9, we're required to maintain reserves that adequately cover the ECL. Additionally, we maintain surplus reserves for performing loans through the GLLP or general loan loss provisions. Together, these provisions reflect a prudent and forward-looking credit risk strategy, ensuring our financial statements present a realistic view of expected losses. Moving on to Fee Income. Fee Income for the quarter reached PHP 9.55 billion, up 2.8% quarter-on-quarter and 1.7% from last year, driven by continued growth in core businesses. Card fees surged 17.3% on a 21% increase in billings, 17% increase in transaction count and 3% increase in average ticket size, supported by a growing card base, which increased 7%. Wealth management fees grew 7.5% with AUM reaching PHP 1.8 trillion. 88% of the increase came from client contributions, reinforcing our market leadership in trust assets and mutual funds, where we continue to gain market share. Income from the insurance business rose just 1.5%, primarily due to a decline in equity income of our insurance subsidiaries given challenging market conditions. Excluding this impact, insurance fee income grew 6.8% year-on-year. These gains were partly offset by lower fees on retail loans due to outsized housing loan penalties charged last year. Remittance fees declined due to lower transaction count amid increasing competition. Bank service charges dropped as clients continue to shift from branch transactions to online channels. Digital channel fees also declined despite a 10% increase in API partner volumes, mainly due to the termination of e-wallet loading services to GCash and Maya. Operating expenses rose by 1.7% quarter-on-quarter and 7.9% year-on-year, primarily driven by manpower, premises and other expenses, which includes marketing, rewards, business volume-related expenses and third-party fees. These investments have strengthened the bank's position. We added nearly 2 million new customers since the start of the year, bringing our total customer count to 17.8 million. We achieved strong volume growth across the bank and gained market share in key areas, including loans, deposits and wealth management. We achieved operational efficiencies with the cost-income ratio continuing its steady decline. Although we expect expenses to show the usual spike in the fourth quarter, our cost-income ratio is currently trending close to 1 percentage point lower than last year. Moving on to capital. Our CET1 capital reached PHP 402 billion, driven by strong income accretion despite the June dividend payment. The capital position remains robust with indicative CET1 at 14.9% and CAR at 15.7%, both well above regulatory and internal thresholds, providing ample capacity to support continued loan growth and strategic expansion. Loan growth at 13.3% year-on-year versus growth -- RWA growth of only 7% was due to the application of fill ratings for some eligible issuers and corporates lowering their risk weights from 100% to between 20% to 50%. The CET1 ratio is estimated to close the year at 14.7%. This table shows the revenues associated with loans covering the first 9 months of 2025 and the first 9 months of 2023 and the respective net NPL formation for each loan book for the two periods. From 2023 to 2025, revenues across the loan books increased by PHP 30.9 billion, which is nearly 4x higher than the PHP 7.75 billion increase in net NPL formation. The non-institutional segment contributed PHP 25.1 billion in revenues, surpassing the PHP 13 billion increase in net NPL formation, a pattern observed consistently across all loan segments. The total revenue uplift is driven by the sharp growth in non-institutional volume, which in turn drove the shift in loan mix toward higher-yielding segments and the increase in fee income associated with higher loan volume. Revenues have outpaced the cost. Despite the rise in provisions, the pivot toward non-institutional loans has delivered value and validates the bank's direction to grow the share of noninstitutional portfolio in the loan mix. While institutional loans are and will remain a core part of our portfolio, non-institutional loans have proven to be a segment with greater growth opportunity, consistently delivering loan yields above 12%, twice that of institutional loans. Even after factoring in credit cost or net NPL formation, which are both around 3%, noninstitutional loans continue to grow -- continue to show greater risk-adjusted returns. Non-institutional loan growth has outpaced institutional loan growth, contributing to the uplift in overall profitability as there is greater availability of untapped opportunity in that market. Within the unsecured space of our noninstitutional loans, a substantial share of our loan releases has been directed towards existing clients, leveraging insights drawn from their customer profiles, transaction history and cash flow patterns. In credit cards, 81% of new clients onboarded in the first 7 months of the year were already BPI clients. For microfinance and personal loans, year-to-date loan releases also show strong bias toward existing clients with 69% for microfinance loans and 74% for personal loans. This data-driven strategy prioritizes existing clients with stronger financial behavior, thereby enhancing credit quality while supporting loan expansion. The bank achieved strong loan expansion through lending programs, programs with clearly defined parameters to test the viability of new credit models, borrower segments or loan products prior to a full-scale rollout. Here, we provide a glimpse of how we structure our lending programs. Each program has a dedicated budget, which has ranged from PHP 300 million to PHP 3 billion with an expected level of delinquencies aligned to the risk profile. These initiatives are data-driven, leveraging extensive historical client data. Since the launch, 54 programs have been conducted, of which 24 have been regularized or fully implemented, 17 have been decommissioned, while 13 are still ongoing. The impact is significant. Regularized programs now account for 16% of the outstanding non-institutional loans. This approach supports the bank's long-term growth strategy, rather than focusing solely on short-term asset quality metrics, we prioritize sustainable portfolio expansion. And as the portfolio continues to grow, the relative impact of NPLs from these lending programs is expected to lessen over time, given the smaller relative size of a lending program to the overall book. As part of our commitment to digital leadership, the bank continues to operate seven client engagement platforms with steady growth in enrolled and active users, as shown at the bottom of the table. Transaction volume is increasingly shifting to digital channels, driven by our efforts to expand partnerships, introduce new functionalities and enhance the overall customer experience. The newly launched features for each platform are highlighted at the top of the slide. As of October 2025, we now have 136 API partners, up from 74 in 2019 and offer more than 17,000 brands, up from only 749 in 2019. Delving into the BPI mobile app. From 2023 to 2025, the new BPI app has evolved from offering basic services to delivering comprehensive digital banking solutions that allow clients to move, protect and grow their money. Key enhancements include Under Move, the introduction of mobile check deposit, cardless withdrawal and pay via QR as key features to deposit transfer and make payments. Under the Protect, the card control features now allow clients to manage their card usage by themselves, including either temporarily or permanently blocking a card or securing a replacement and securing a replacement without the need to contact the call center. If you've ever misplaced your wallet, but you know where it's somewhere safe or left your credit card at a restaurant, you can now temporarily block it until you retrieve it without needing to replace the card. Under Grow, clients can now open time deposit and investment accounts and get personalized financial advisory with a track and plan feature. Key milestones for the app include 8.7 million enrolled users with 4.8 million active users, 90% of what would be branch transactions are now done digitally. 51% of new-to-bank clients since January have been onboarded digitally and an app rating of 4.8 and 4.5 for the Android and iOS apps, respectively, after the introduction of prompted ratings. One of the bank's first initiatives in artificial intelligence is the launch of the BPI Express Assist Intelligence or BEAI, BPI's generative AI-powered platform designed to serve as a digital companion for our unibankers. BEAI enhances productivity by searching and summarizing information from the bank's knowledge base up to 3x faster than manual document searches, enabling unibankers to respond to customers with greater confidence and efficiency. In its first year, BEAI received 99% positive feedback and achieved an app satisfaction rating of 9 from its initial 1,800 users. One year post launch, over 8,000 users have been defined to access BEAI and engage with the platform by asking over 300 questions per day. On screen now is a sample response from an inquiry posted to BEAI, asking for the minimum age to open a time deposit. BEAI can communicate not only in English, but also in Tagalog and Cebuano, 2 of the most widely spoken languages in the country, enabling it to connect with a broader user base through a more natural through more natural and personalized conversations, resulting in higher user engagement and satisfaction. Moving on to Agency Banking, where we continue to expand the bank's customer reach in underserved areas through technology-enabled service delivery. For the third quarter of 2025, our partner base has increased to 33 brands from 25 brands, mainly from additional banner stores under the RRHI Group. We now have 6,943 partner stores, 637 of which can process cash-in, cash-out transactions. Agency Banking continues to demonstrate strong momentum with product sales reaching 170,000 in the third quarter, a 20-fold increase from just 8,500 in the first quarter of last year. This translates to an average of 1,847 products sold per day. Deposit and withdrawal transactions also rose significantly to over 48,000, effectively expanding the physical presence of BPI without having to build a physical branch ourselves. Moreover, product sales per store accelerated, rising to 24.9 in the third quarter, up from 13.8% in the previous quarter and just 1.6% from the first quarter of last year, highlighting improved productivity and deeper client engagement at the store level. Earlier this month, the bank marked a major milestone in its regional expansion with the opening of BPI Wealth Singapore, strategically located in the Marina Bay District, authorized by the Monetary Authority of Singapore, and operating under our capital market services license, BPI Wealth Singapore is equipped to manage investment portfolios, conduct investment research and execute trade transactions. Initial offerings include global portfolio accounts under both discretionary and nondiscretionary mandates with a minimum amount of USD 2 million. This launch represents a major step forward in BPI's mission to bring its wealth and asset management expertise to a broader client base. To close, let me highlight a few points. We delivered another strong revenue-led performance for the third quarter, reflecting solid execution across our businesses. Our balance sheet remains healthy with ample liquidity and strong capital levels. Asset quality continues to be manageable with adequate allowance maintaining and maintaining BPI's strong credit culture, and we continue to accelerate growth through digital leadership. We remain focused on executing our strategic priorities and navigating the continuously evolving operating environment. Thank you, and we will open the floor to questions. Operator: [Operator Instructions] So joining here in front with TG and Eric are our senior leaders, Tere Marcial, Head of BPI Wealth; Ginbee Go, Head of Consumer Banking; Louie Cruz, Head of Institutional Banking; Jenny Lacerna, Head of Mass Retail Products; as well as Jethro Sorra of Global Markets. We've received some questions in the Q&A box. So we'll start off with the first question. Actually, it's from Rafa Garchitorena of Regis. Rafa's question is, what is driving the higher cost of funds? And the second part of the question is why is deposit competition intensifying given policy rate cuts and RRR cuts? Eric Roberto Luchangco: So, on the higher cost of funds, what we're seeing is that we're continuing to see some reduction in the CASA ratio. And obviously, the time deposits being higher priced affect that total cost of funds. And so that's what's leading to the to the higher overall cost of funds. But the actual cost of the time deposits has not really been going up. And in fact, our time deposits have come down, but it's just the percentage, the increase in the percentage that's driving that up. Operator: Okay. Thank you, Eric. We have a question from the Zoom actually. It's actually from DA Tan of JPMorgan. Daniel Andrew Tan: It's DA here, can you guys hear me? All right. Awesome. A few questions from me. First, on the loan mix, right? We're already at 30.8% noninstitutional. Just want to understand how you guys are thinking about the mix and actually the growth going forward, let's say, for the balance of this year and next year? Eric Roberto Luchangco: Okay. So basically, we will at this point, we're not seeing ourselves at the end of the tunnel, right? At the end of the road. This 30% was the target that we had set back in 2021 for the end of 2026. We continue to reevaluate at what point we think this would come. But we're from what we see, we're not close to the end of the road yet. We think there's still a lot of room for continued growth. As I mentioned, this is an area that we think still has a lot of untapped opportunity. At this point, we aren't giving out new guidance for, let's say, the next 5 years. But as we're seeing it now, we're not close to the end. So certainly, up to 35% is something that we think should be well within reason. But we will continue to evaluate as that proportion grows, we'll continue to evaluate, mainly looking at where the opportunity, if the opportunities continue to remain. Jose Teodoro Limcaoco: I don't think we should be looking at a mix of institutional versus noninstitutional as a target. I think we run the business separately. We look at our noninstitutional business, and we have invested a lot in that because we believe that there is significant margins to be made there. We have invested in data to try to build that business up. And to the say, our growth in our noninstitutional business is just sub-20-- 20%. It's really driven by credit card growth, auto loan growth, personal loan growth, and SME loan growth. Then you look at the other side and you take a look at institutional lending, which is today growing about 8%, 9%, maybe 10% depending on whether we land a couple of large deals, whether our corporate clients want to build up their working capital based on their outlook of their industries. Those 2, we look at independently, we will continue to focus on those 2. And if it happens that non-institutional will grow at 20% and institutional growth at 10% and the mix today is 70-30, then you can do the math and see what will happen a year from now. That the ratio is just falls out from the math. Operator: Thank you, TG. Before we proceed with some more of the online questions, I just wanted to check if anyone from the audience had questions. Gilbert? You're good. Okay. Okay. We have a few more online questions in Zoom actually. The next question comes from TG Kiran of White Oak. On the NPL coverage front, could you help us understand why coverage is higher in institutional loans versus business banking? If you reference Slide 11, NPL cover for the institutional book is at 124% versus business bank's 87%. Jose Teodoro Limcaoco: That comes out of the fact that the way we provision is based on the ECL model. So we run ECL expected credit loss models on every portfolio. So the number that comes out for ECL for institution book is X, and that X just happens to be 120% higher than the current NPL ratio. The ECL number for business bank is Y, and Y just happens to be what's number 70 or 80-something percent of the NPL. Now, the reason the ECL numbers might be less than the NPL numbers is because the SME book is collateralized. A lot of the loans there have collateral against it, whereas in the institutional book, a lot of the large corporate loans are not collateralized or clean. So if a loan there goes bad, then it's 100% loss. Operator: Thank you, TG. Okay. Shifting gears a bit. We have a question on funding from Emuel Olimpo of Metro Bank Trust. His question is, can you describe any deposit competition or I guess, intensified deposit competition that we envision or anticipate through to the year-end? Ginbee Go: Yes. That's typical. Every year-end, you see a ramp-up for deposit towards year-end, primarily because the banks would want to make sure that we have enough liquidity crossing the year-end. And we also expect loans to increase towards year-end. And that's why we see intensified competition towards year-end. Nevertheless, immediately after year-end, we also see this coming down. And that, again, is the natural wave of deposits and loans through the year. Operator: Thank you, Ginbee. We have a question. It's actually focused on the credit card business. There are actually 2 questions here from Chan Kei Hong of JPMorgan. He asks, how much of the credit card receivables are on regular rates versus SIP? How has this mix shifted over the years? And the second question is on the NPL ratio for credit card receivables with regular rates versus the SIP... Jenelyn Zaballero Lacerna: So on the first question, SIP actually has been gaining a lot of share over the years because I think at the end of the day, it gives the customer the flexibility to use it other than at point of sale. We actually offer SIP on a selective basis. This is for customers who actually, for example, do not use the card so often or have the tendency to actually just use the card for very simple purchases. So we do proactive offers to those customers because the need might not just be really at point of sale. And we see that coming up over the past couple of years. And the second question is? Operator: Yes. The second question is the NPL ratio. Is there, I guess, any difference between SIP and credit card receivables on regular rates? Jenelyn Zaballero Lacerna: No, we don't really see a huge difference in the NPL coming from the SIP loan availers and from the regular availers of a credit card, which uses it at point of sale or online. Operator: Thank you, Jenny. The next question actually it's back again, DA Tan of JPMorgan. Given the current mix and trend that non-institutional is growing faster, do you have updated credit cost outlook for this year and next year? Eric Roberto Luchangco: So I think what you're looking at into the end of the year is credit costs that are fairly similar to what we've seen in the last couple of quarters. That's generally where you would expect to see it. Even though the book continues into the end of this year, so just in the fourth quarter, right, the movement in the mix probably won't be enough to move the credit cost significantly for the last quarter. Obviously, as that continues to expand into next year, then you'll start to see some changes in the credit cost. Operator: Okay. Thank you, Eric. We have another question, I'll go back later, Chan Kei, but there's a question from Ana Aligada of Standard Chartered. She's wondering if we have any guidance on the NPL ratio and NPL coverage by the year-end? And the second part of your question, is there a cap or threshold for the NPL ratio given the expansion of the noninstitutional loan portfolio? Eric Roberto Luchangco: So generally the NPL ratio has been fairly consistent over the last couple of quarters, same for the NPL coverage. Again, the driver is going to be ECL rather than NPL coverage per se, but it will probably remain at about the same level. And on the second question, there's no cap to it, right? But we will continue to monitor the performance of the portfolio, and we will scale back as needed if we see that performance isn't as we expect or as we want. But there is no cap per se. But given that we expect to continue to apply the standards that we're applying now, we should probably expect the NPL ratios to not go much up from where we are right now. Jose Teodoro Limcaoco: I think it's very hard to try to characterize the way we run the bank with a single number. I am really getting. I think we need to be very clear that we operate the bank today, looking on a granular level. We look at the different products. We understand the NPL levels of each product, and we build the programs around this product based on the profitability of each product. So when we look at a business like personal loans, and we begin to see that the NPL level is beginning to go higher than we had expected, then we ramp down and we begin to put controls there. Is there a maximum limit for the whole bank, a single NPL? No, but we have limits on each product. For example, I would tell Jenny, if credit card NPL goes over 6.5%, she's got a problem, right? But at 4.5%, we're very happy to continue to grow the book there. So I think let's be very clear that we're very comfortable with the current NPL levels where we stand, but that current NPL level of 2.25% is really driven because it's just the math that comes out from the different NPL levels from the different products. We watch each product. And as we said, the NPL cover is just math coming out of what is known as ECL cover. ECL cover is the amount of provisions we put in each product based on what an expected credit loss model says we would lose on that product in the future. So we're covering for losses in the future. NPL cover is just covering the past. We are covering for the future as well. Operator: Thank you, TG and Eric. We actually have a couple of participants who have raised their hands. So the next question actually comes from Claire Diaz of Phil Equity. Sorry Claire, are you there? Okay. We'll probably go back to you first. We'll come back to you later. We can go ahead. The next question actually is from Priya IR. Unknown Analyst: This is Sam here from Con [indiscernible]. So a couple of questions. One was, can you help us reconcile the difference between the rise in the loan yield versus the asset yield because the loan yield was up almost 11 bps Q-o-Q, while the asset yield was just up 1 bps. So, is there any repricing that is still pending, which is why it is not yet reflected in the overall asset yield, and the benefit of which would come in going forward? Jose Teodoro Limcaoco: Yes. So loan yields have been rising, but the rise in the loan yield was held back by, we increased the holdings in securities that were lower yielding, right? So, as you can imagine, a lot of government securities are going to be lower-yielding than some of the loans that we're extending, and the increase in our holdings there brought down average loan yields. Unknown Analyst: Is there a particular reason? Jose Teodoro Limcaoco: No, loan yield, right? Loan yield is the yield on our client loans. Asset yield is the blended yield of both the loan yields and the securities we hold in the book for investments or liquidity. So the fact that loan yields have gone up faster than asset yields means that as rates have come down, obviously, securities yields have reacted faster because they're market-driven. Right? And it shows that we have been able to hold our loan yields, and that's primarily because a lot of our loans are consumer loans, which are very sticky. Unknown Analyst: Right. So would that mean that we would have a bigger impact incrementally going forward, where there would be some pressure on the loan yields because of the declining interest rates? I'm just trying to understand whether... Jose Teodoro Limcaoco: Yes. We've always said that in the long run, as policy rates come down, obviously, loan rates have to come off because our corporate clients reprice their rates. And the top corporates are price sensitive. So if we don't react quickly to the top corporates, the Ayalas, the SMs, Aboitiz, those loans will leave us. So those will reprice over time. But there is a lag because they reprice on the average, maybe 6 months, whereas consumer loans hardly reprice. Maybe auto loans never reprice, mortgage maybe reprice maybe 1 year or maybe 3 years, 5 years, depending on the repricing term cards never reprice, right? So the greater the share you have of noninstitutional loans, the less sensitive your loan book is to falling policy rates. Eric Roberto Luchangco: And I also Sorry, if I can just add, the rising proportion of consumer and SME in the loan mix has also lifted that. So as TG mentioned, there is overall like downward pressure on interest rates because of the easing interest rate environment, but this has kind of been counteracted by our increased loan mix in the consumer and SME portfolios. Unknown Analyst: So incrementally, when we look at the NIMs going forward, where do you see the NIM settling down based on the current interest rates, assuming that there are no further cuts. Do you see your NIM settling down at these levels, or do you see maybe another 5 to 7 bps decline before it settles down? Just trying to understand the dynamics as and when they play out. Eric Roberto Luchangco: Given our current situation, we shouldn't be seeing much NIMs coming off much because as the repricings on the corporate work themselves into our book and they will, right? Some of the recent rate easings have not yet filtered into our book, and they will over time, but these will be counteracted by the fact that our loan mix continues to skew towards the consumer and SME portfolios, and that will provide a counterbalancing force to the downward pressure because of lower interest rates. Unknown Analyst: So as a follow-up on that, since our -- the noninstitutional part of the book is growing faster, should the fee income from transactions also move in tandem because ideally, that would be the key ROA driver going forward as your noninstitutional part of the book grows faster? Eric Roberto Luchangco: So overall, yes, but there are other -- I mean, the fee income is composed of many things, right? And so one of the things that we've been seeing come off lately is, as I mentioned, some of the transaction fees came off because we discontinued the e-wallet loading. And so that resulted in some of the fees coming up. And so moving forward, we expect continued pressure to reduce transaction fees, payment fees. And so that will provide some downward pressure on fees overall. But as you mentioned, there are opportunities to raise it, our growing card business, our increasing consumer loans as well as our growing wealth management business. Unknown Analyst: So do you think the roadway would be, say, maybe three to four quarters at least before we see the fee income growth in line with the noninstitutional book growth? Or do you think that, that road map would be a little further down the year, not four quarters, but more? Eric Roberto Luchangco: Depending on when some of these -- I mean, some of these things come into play, right? I mean, as I mentioned, BSP is pushing towards zero P2P fees. It's not yet in effect. We think it's coming in the near term. If that comes in tomorrow, then obviously, there would be higher downward pressure on NIMs -- sorry, on the fee income. But if it comes in two years from now, then we'll put that off for a while, right? So it's a very dynamic scenario because there are just so many variables in it. Jose Teodoro Limcaoco: Maybe to help you think through the way we look at fees, consider the major fee drivers of our business. Number one is cards. The cards business provides us about 30% of our fee business. And the card fees are really driven by the billings from interchange fees, annual fees from cardholders and I guess, penalties and things like that -- sorry, late fees, right? So all of that is driven by card usage and card -- the numbers in your cardholder base, right? And that we expect to continue to grow. I don't think there's significant pressure on interchange fees because Mastercard and Visa are dictate those fees, right? Then you take a look at the second fee driver, which is wealth management, which is about 15% of our fee business. That one will grow as we continue to grow AUM in our book. And we continue to be very bullish about that segment. We continue to build up our AUM, get more corporate clients, handle more pension funds and also are pushing our UITFs and our mutual funds down into a broader market by digitizing the ability to subscribe and redeem on our app as well as on our distribution channels, such as the agency, the partners and on GCash and Maya, right? The insurance business is the third that contributes about 10% to 12% of our business. We believe there's much promise still in insurance, the country and our client base is still underinsured. And we are looking at programs not only on the life insurance part, which is generally the most profitable or generates the most fees for us on the life insurance, but there's significant potential as well on the non-life. And my bank assurance team is very focused on getting more of our clients on to non-life insurance based on our bancassurance channel. Then the others, which used to be the big drivers before are now smaller, for example, bank service charges, minimum balance, client statement fees, which they go in the branch are clearly falling because we are digitizing most of our transactions. So people are able to get statements online. People are able to transfer without having to go to the branch. And we've also rationalized our deposits where we have many deposit products today that have no maintaining balance because we are after really the transaction fees that they might generate in terms of bills payments and InstaPay fees, right? The other one is the digital fees, which used to be growing very fast, particularly because of InstaPay fees. But obviously, there's been competitive pressure there. We used to be PHP 25, then we moved to PHP 15 and now we're down to PHP 10. And I believe that sooner or later, the BSP will come out with circulars that will basically make most banks bring that fee down to zero. Then the rest are very small. Remittances should continue to grow, but as you get competition from people like Wise or Remitly that will fall. And then you have, I guess, securities brokerage, and then asset sales. So those are small. So that's the way I would think about it in terms of how our fee business is growing. I don't think it's necessarily correlated with the growth of our non-institutional loan book. It really will be correlated with the growth of our customer base. Operator: Okay. Actually, there's a question sent in earlier. It's actually in relation to BPI Wealth. So this would be for you, Tere. How do we envision leveraging on Singapore's regulatory and market environment to differentiate our offerings for Filipinos as well as regional investors? Do we have a… Maria Marcial-Javier: I'd rather have answer that to the person directly... Operator: Yes. Okay. We have another question. I actually referenced this earlier, but there's another question from Chan Kei. How much of our credit card receivables are SIP in percentage terms? Jenelyn Zaballero Lacerna: The receivables of SIP loans is about maybe 30%. Yes. So from the total outstanding receivables, about 55% are SIP. But from the SIP portfolio, there are also merchants that are in SIP. These are the one that you buy on 0% and there the portfolio also that are on loans. So that's 30% and 20%. Then the 50% are, in fact, retail transactions. The revolvers, there is about a good 40, close to 40% and transactors about 10% to 15%. Operator: Okay. Thank you, Jenny. We have a question from Julian Roxas of Philippine Equity Partners. He asks, how should we view the lower tech OpEx growth of 3.2%. This is 3.2% year-on-year in 3Q versus the overall total OpEx growth. Are tech investments already plateauing? Or will this accelerate again given continued digitalization efforts? Eric Roberto Luchangco: I'd love to say that it has plateaued, but I think what we'll see is we'll see a bit of a spike up in the fourth quarter so that the growth in tech expenses will probably be similar to prior years. So we're not yet plateaued on that. But we are implementing some improvements that we think moving forward after 2025 are going to probably lead to a slowing in the pace of growth on the tech side, but not yet in 2025. I think it's more of a timing issue. Jose Teodoro Limcaoco: Yes. I think what Eric is saying is that these tech vendors, they always send their invoices pretty late. They do catch up at the end of the year. So that's when a lot of it gets booked. So you'll notice also that we have a lot of spike in December, that's mainly marketing and tech expenses that come to the fold. But as Eric has intimated, we are making several changes in our tech vendor program and our tech providers that we believe we will see significant reductions going forward next year. Operator: Thank you, TG and Eric. Actually, there's another question sent in is actually from Elizabeth Santiago of Abacus Securities. He's actually asking maybe just for us to comment already in terms of how big the teacher loans book is so far, I guess, as of September and perhaps maybe comment on the growth as well. Jenelyn Zaballero Lacerna: So the teachers loan is about PHP 15 billion in loan books, and that's about 81% growth if you look at it year-on-year since we got it in 2024. From a size standpoint, there are about 900,000 teachers and our penetration today is just about 7%, but that's already coming from 4% last year. So we're continuously growing in teachers loans. So a lot of things that went into 2025 and 2024 when we got it is that we have, in fact, turned the agents, our sales agents into in-source salespeople and that have actually improved the performance by about 30% per individual. We also situated our agents and our offices in more strategic locations to be able to cover the schools. We also set up operational centers so that it's easy for our salespeople to go to the depth and to also go to the teacher because we have found out that there's really areas where in the commute are so long between a depth and the school premises. So we also have mapped that out. And more importantly, the structure by which we actually manage our salespeople are closer and tighter. We have put in monitoring tools to be able to track performance on a team basis, on a regional basis, on a division basis. So that collaboration with -- that better collaboration with our salespeople, in fact, resulted to about an 81% growth in our outstanding receivables. And I think there's really so much potential. We also have intensified our relationship with the debt. We have assigned relationship managers per region so that we can, in fact, have more closer coordination when it comes to booking our teachers' loans because as we're finding out, it really is very highly dependent on the divisions in each of the regions to be able to process and approve the loans for endorsement for teachers loan to, in fact, allow us to disburse. So those are the few big things that we've done that resulted to really a double-digit -- almost 100% growth in outstanding receivables. Operator: Thank you, Jenny. Actually, just a clarification again from DA regarding the credit card split, transactors, revolvers and installment. If we get the split. Jenelyn Zaballero Lacerna: So from the retail and SIP, it's about a 55-45 split. Between the 55 SIP, there's a 30% loans and the 20% point-of-sale. This is the one that you actually use to be able to buy refrigerators, big ticket items. And of the remaining 45%, a good 30% of that are revolvers, a good 10% to 15% are transactors and the rest are your receivables coming from your delinquent accounts. I hope that clarifies the question. Operator: Thank you, Jenny. Okay. We have another question from, so the question now is from Gina Rojas of Macquarie. He's asking, in the last 2 months, we've seen some downgrades on the GDP growth outlook for the rest of the year and going into 2026, brought about by concerns about public spending. So they're just wondering if that is -- some of this is already reflected in our ECL models. Eric Roberto Luchangco: I would suspect that the ECL model gets - what's the word, recalibrated, we build every -- at the end of September. And then every -- at the end of every quarter, we put in the new economic forecast. But this September, there was a new model that was built. So the model that we have today is probably the most -- at the September time point, that's probably your most accurate model going forward. Operator: Okay. Just wanted to check again if there are any questions from members who are here on site. Unknown Analyst: How are you really impacted by the flood control? I mean if you can describe in greater detail, especially Louis Cruises business. Unknown Executive: First, let's talk about the outlook. I think your boss' question really was also thinking what's the outlook. In fact, that's one of the questions that we discuss a lot. We're trying to look at signs of whether there's any stress, right? Anecdotally, we're beginning to hear from research pieces who cover the other that September was fairly weak. But when we look at our September numbers in billings, our credit card billings for September were actually quite strong. But we need to really drill down, but the data on merchant usage comes 60 days later. So we won't be able to see it. But there's anecdotal evidence that retail was fairly weak in September relative to, let's say, even, maybe Louis can give a little color on what's happening on the institutional banking side, particularly as it relates to, I guess, the flood control issue. Are we seeing particular clients holding back on working capital? Luis Geminiano Cruz: Great. Thank you, Gilbert. For the overall first, the overall exposure of the portfolio is less than 1%. So basically, we'll continue to closely monitor that. What we're also looking at is really the indirect exposure wherein we might have clients, suppliers that may have flows coming in from BPWA. So that's where we are monitoring. But in terms of our exposure in terms of the issue, it's less than 1% but I think the concern really more for our clients is the government spending as a whole, right? Given this, there might be some slowdown or restrictions when it comes to specifically to infrastructure-related spending. But for some positive side of it, though, if you look at there's one side of the government that's where it's doing quite well, and this is the energy sector. The JAP program, I think we're in the Phase 4 already. A lot are bidding for it. And that's where you see conglomerates still bidding for it for the private sectors. And the good thing about it also, you see also some foreign investors bidding for it, bidding for those projects. So, we still see a good sign for it, a good sign in terms of spending and support from the government and partnership between private and the other sector that we're seeing is that because of this BPWH issue, there's the shift in funding towards Department of Education. And that's where what we're hearing that they might really pump up the spending and increasing the classrooms, the building of classrooms. And again, we're seeing some private companies, private sectors bidding for that. So those are good signs and also opportunities for us to take part of. And then this is actually related to our driver for our growth also for next year. Unknown Analyst: So is it fair to assume that it's not really that bad. Like PPPs, do you still see hope there? Unknown Executive: For certain sectors and industries, we still see... Unknown Analyst: Even outside of renewable energy, like airports? Unknown Executive: Yes, yes. The answer is yes. it's bad for that issue because perception towards the country as a whole, it doesn't give a good light, right? But specific to certain sectors, industries as mentioned, I think there's still an opportunity for companies to grow and opportunities for projects within private can still take part of. Unknown Analyst: And you're prepared to give an outlook number? Unknown Executive: For my growth for next year, okay. We're looking at 10% to 12%, same range as last year, if that is acceptable to my boss. But I think 10% to 12% is something that we're looking less of the ICI. Yes, so far because I think we have basis for that. We have a good healthy pipeline. I think if you look at it quite objectively, maybe the flood control was the gimmick, how people were able to steal money, right? But what it's done in the near term is it's made the government really slow down on real projects. And therefore, it's possible that many of our clients who provide, let's say, cement or steel bars will slow down a little bit because the projects are not there. But those projects will eventually come back. In fact, when I remember that distinctly was one of our steel clients whose major product was the steel sheets for flood control, and that's completely stopped. But the reality is those sheets are used. I don't know how effective they are, but then they just have to repurpose right? So, there will be a temporary pause, but you need to believe that roads will continue to be built and PPP projects will be awarded once the government gets comfortable again through this scandal. Unknown Analyst: And last question. On the consumer front, mortgages, high-end residential, you're seeing a slowdown. Jenelyn Zaballero Lacerna: Mortgages, we continue to see very positive growth in ours. Unknown Analyst: Including the very high end. Jenelyn Zaballero Lacerna: Including the very high end. We don't have 500 million. Unknown Analyst: So, you don't lend. Jenelyn Zaballero Lacerna: No. But really, we've seen our loan releases in the housing loans has increased by over 30%. That really tells you that there's a good demand still. But we're also very deliberate in our approvals in our lending programs and making sure that we're lending to end buyers rather than just simply investors because for flood control issues, it's usually the investors that slowdown in terms of their purchases because consumer confidence is. But in our case, a lot of our buyers are really end buyers for occupancy. So, we're still foreseeing growth in our mortgages book. Second is on car sales. Car sales have actually slowed down in the industry, but we've seen strong growth again on our auto loans business, growing by close to 20% in loan releases. Unknown Analyst: It's slowing down even with the EVs. Jenelyn Zaballero Lacerna: The EVs is growing. Unknown Analyst: You don't want to finance EVs. Jenelyn Zaballero Lacerna: We do finance EVs. BYD, we finance Kia EVs, we finance even hybrids, and that's where the growth has been. But overall, we've seen extremely strong growth coming also from our branch channel aside from dealer channel. Our branch channel has actually outpaced our dealer-generated auto loans book, which means that our own depositors are the ones who are actually buying cars. And that's why we have better quality as well. And these are the ones who would most likely go for EVs. Unknown Analyst: And how is the portfolio that you inherited from our bank, the motorcycles? Jenelyn Zaballero Lacerna: Very strong growth. In fact, that's the other area that we see a lot of potential in. From a demand standpoint and opening it just imagine, our Robinsons Bank had over 150 branches. Now it's open to over 800 branches. We've doubled our loan releases and our loan book on motorcycle loans, and there's still demand. Operator: Okay. Just wanted to check if are there any other questions from the participants who are here outside. So actually, yes, that just about does it so far with no other questions from our participants online. So, I wanted to thank everyone again for your questions. Of course, we at BPI are always welcome with your feedback and take them into careful consideration. So, before we end the call, maybe call on TG for some final thoughts. Jose Teodoro Limcaoco: Just to reiterate our thank you for participating in this call for the very open questions and thank my colleagues here for also participating. And we look forward to engaging with you. Again, as usual, if there are any questions or follow-up questions, our team would be more than happy to answer them. And then looking forward to seeing all of you again in 3 months. Operator: Okay. Thank you, TG, Eric and the rest of the BPI senior management. Ladies and gentlemen, that concludes today's earnings call. Thank you again for your participation. To those joining us online, you may now disconnect. And for those who are with us on site, please do join us for some refreshments. Thank you.
Operator: Greetings, and welcome to the LSB Industries Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kristy Carver, Senior Vice President and Treasurer. Thank you. You may begin. Kristy Carver: Good morning, everyone. Joining me today are Mark Behrman, our Chairman and Chief Executive Officer; Cheryl Maguire, our Chief Financial Officer; and Damien Renwick, our Chief Commercial Officer. Please note that today's call includes forward-looking statements. These statements are based on the company's current intent, expectations and projections. They are not guarantees of future performance and a variety of factors could cause the actual results to differ materially. For more information about the risks and uncertainties that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in the company's most recent annual report on Form 10-K. On the call, we will reference non-GAAP results. Please see the press release posted yesterday in the Investors section of our website, lsbindustries.com, for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. At this time, I'd like to turn the call over to Mark. Mark Behrman: Thank you, Kristy, and good morning, everyone. As a company, we pride ourselves on safety first. And while our teams continue to focus on safe operations, as evidenced by our first 9 months of the injury-free performance, it is with great sadness that I have to report that in early October, a contractor working on our Pryor facility was fatally injured. Our hearts go out to his family and colleagues. This is a tragic reminder about why we put safety first and the importance of the need to remain focused on safety in everything we do. I am confident that our team will learn from this tragedy as we work together to ensure that everyone on our sites remains safe every day. With respect to third quarter financial results, market conditions remain constructive in both our industrial and fertilizer businesses. After increased CapEx spending in 2024 and through the first half of 2025, where we elected to execute on several growth projects, we are back to generating free cash flow. We expect to finish the year having generated solid free cash flow, and we're well positioned to keep investing in our strategic priorities. We recognize that there's more work to do and we see opportunities to continue to enhance our performance across the business. Now I'll turn over the call to Damien to review current market dynamics and pricing trends. Damien? Damien Renwick: Thanks, Mark, and good morning, everyone. Turning to Page 5. During the third quarter, we completed our transition out of high-density AN for fertilizers and into AN solution for explosives. This moves us towards our stated goal of optimizing our sales mix. As a result, we are now supplying 100% of our AN solution contractual obligations to our customers. We continue to see strength in our industrial markets. Demand for AN for explosives is robust, particularly in the mining sector where strong gold and copper prices are boosting activity worldwide. Demand is also benefiting from quarrying aggregate production for infrastructure upgrade and expansion activity. We are seeing continued increases in domestic production of methylene diphenyl diisocyanate, or MDI, as a result of tariffs and antidumping duties on imported MDI. As a result, our nitric acid sales remain strong. Turning to Page 6. Pricing for UAN averaged $336 per ton on a NOLA basis in Q3, up 65% over Q3 2024. Prices continue to be supported by steady exports, lower imports and strong demand leading to below average inventory levels throughout the U.S. We expect these favorable dynamics to continue in the near term and position us well as we head into 2026. Urea prices moderated somewhat during the quarter driven by the resumption of Chinese exports. However, with the results of the latest India urea tender now known, Chinese participation was minimal and it appears that future exports will once again be restricted, supporting tight supply and higher prices. The ammonia market is healthy and pricing remains at attractive levels. Tampa ammonia increased by $60 to $650 per metric ton for the November settlement. Tampa ammonia has now increased by almost $260 per ton or 65% since hitting its 2025 low of $392 per ton in June. The market continues to be dictated by ongoing unplanned supply disruptions from the Middle East, the higher cost of production in Europe and continued delays in the start-up of new production capacity in the U.S. Increased natural gas curtailments and other issues in Trinidad are also maintaining the pressure on global supply. In the U.S., we expect to see a typical fall ammonia application season, subject to seasonal weather outcomes. Now I'll turn the call over to Cheryl to discuss our third quarter financial results and our outlook. Cheryl Maguire: Thanks, Damien, and good morning. On Page 7, you'll see a summary of our third quarter 2025 financial results. Solid third quarter volumes and net sales reflect the progress we are making on our reliability journey along with the absence of no planned turnaround activity during the quarter. Page 8 bridges our third quarter 2024 adjusted EBITDA of $17 million to our third quarter 2025 adjusted EBITDA of $40 million. Higher pricing and increased sales volumes were somewhat offset by higher natural gas and other costs. Costs were higher in the third quarter, primarily related to the transition out of the HDAN business, along with higher maintenance and operating costs. On Page 9, you can see that our balance sheet remains solid with approximately $150 million in cash and net leverage at approximately 2x. After several quarters of heavy investment, we are back to generating free cash flow with approximately $20 million of free cash flow generated year-to-date and approximately $36 million in the third quarter. And we expect to continue to build on that in the fourth quarter. Turning to the fourth quarter outlook. Tampa ammonia settled at $650 per metric ton for November, up from $590 per ton for October, and NOLA UAN has averaged above $300 per ton so far this quarter. Additionally, Henry Hub natural gas cost is averaging approximately $3.45 per MMBtu but is expected to trend higher as we approach seasonally cooler temperatures. With the transition of our HDAN business into industrial grade AN, approximately 35% of our natural gas costs are passed through in our selling price to customers. This provides improved visibility into our earnings profile. Overall, we'd expect the fourth quarter of 2025 to be higher than the prior year fourth quarter due to higher selling prices and higher production, somewhat offset by higher variable and other costs. And now I'll turn it back over to Mark. Mark Behrman: Thank you, Cheryl. Page 10 is an overview of our low carbon project at our El Dorado facility. We continue to expect the technical review of our permit to be completed in the first quarter of next year with operations to then begin by the end of 2026. We're excited about this opportunity as we expect to generate approximately $15 million in annual EBITDA from the project, with the majority of it beginning in 2027. Our El Dorado CCS project is a good example of how our industry can decarbonize and provide customers with low-carbon ammonia and derivative products in a cost-effective manner. We have made strong progress in the first 9 months of 2025 driven by increased production volumes of ammonia, UAN and AN and expect to end the year in line with our total sales volume targets set out at the beginning of the year. We've also continued to successfully shift our sales mix towards more contractual industrial sales, which allows us to pass through natural gas cost to our customers and provides us with greater earnings stability and visibility. At the same time, we've reduced our outstanding debt, continue to maintain a healthy cash balance while we evaluate several growth opportunities and continue to invest in the reliability and efficiency of our plants. I remain extremely optimistic about the future of our company, both for the remainder of the year and looking ahead to 2026. The market outlook remains robust, and we are well positioned to continue to improve our operational and financial performance while delivering sustainable growth and profitability. Before we open it up for questions, I'd like to mention that we will be participating in the NYSE Industrials Virtual Conference on November 18 and 19. We look forward to speaking with some of you at this event. That concludes our prepared remarks, and we will now be happy to take your questions. Thanks. Operator: [Operator Instructions] Our first question comes from the line of Lucas Beaumont with UBS. Lucas Beaumont: So I just wanted to sort of start on the ammonia market. I mean it's been tight sort of with the limited supply and the ammonia contracts continue to kind of move higher. I mean sort of depending on what we assume there for December, it looks like pricing could be up $130 sequentially, if not more into the fourth quarter. So I guess just kind of what's your view on the market there generally to begin with. And then assuming we see sort of a large kind of increase somewhere in that range, how should we think about that flowing through to your fourth quarter pricing? Mark Behrman: Lucas, so at a high level, it is a tight supply and demand market globally. On top of that, clearly, we've got some issues going on in Trinidad that are affecting the market today and could have long-term effects on the market. I think also, while it's a little early, we feel like we're going to have a really healthy fall ammonia application season. So I think everything is really setting up to have good demand certainly in the United States and globally. A bit tighter supply, and that's why you're seeing pricing move up. But I'll let Damien give a little bit more color on the market itself. Damien Renwick: Yes. Lucas, again, like Mark said, this is a story about lack of supply more than anything else. You've got issues in the Middle East with the Ma'aden plant in Saudi Arabia having a very extended outage for a significant volume of tons, other issues as well. And then you've got the news coming out of Trinidad with production coming out of the market for who knows how long. And the market is just reacting to that. So how long does that continue for? Well, look, it will continue for as long as that supply is out of the market. And then the wild card is when does the new capacity come online in the U.S. Gulf. And there's indications that some of that could be up later this year or early next year. But who knows? The proof will be in the pudding when that happens. Mark Behrman: And I think just to add on to that, I mean, while it has been well known that, that production is coming online and we can have some more supply in the marketplace, I think the wild card now is Trinidad and what happens there and could that offset all or just partial some of that new supply coming on. Cheryl Maguire: Yes. And Lucas, in terms of how that pulls through in the financial results, as you know, we are tied to Tampa ammonia. And so you will see that pull through in our pricing for the fourth quarter. Lucas Beaumont: Right. And then I guess just thinking about UAN as we're kind of headed into the spring here. So I mean, we've sort of been seeing some sort of softness in pricing there a bit as urea has sort of come off and we're out at a kind of high period of seasonal demand so far. So I mean, it seems like that's probably going to continue to soften here a bit through the fourth quarter. But last year, we had pretty strong price increases and tight local supply-demand conditions as we sort of got into the spring. So I was just wondering if you guys could talk us through how you see that set up the 2026 there. Damien Renwick: Well, look, Lucas, I think we're a little more optimistic on UAN. We're well sold forward. Are prices softening at the moment? I mean, yes, sure, urea has softened a little bit. But I think that's set up for a recovery shortly as that market tightens as Chinese exports exit their short entry in the last few months. And then the UAN market, I think, producers are pretty comfortable here in the U.S. We all came out of last season with very little inventory and there's been turnarounds, et cetera, in the last few months. And I think that tight supply is set up to continue. And we're confident that prices will be pretty healthy heading into Q1 and then into Q2 into the application season. Lucas Beaumont: Right. And just wanted to ask one on the volume side. So there's a bit of noise this year sort of with the shift in the turnaround timing and kind of just the impact on sort of volume and the product mix between 3Q and 4Q. It seemed that was probably like flowing through to sort of costs in a few different ways as well. So I was just wondering if you could kind of help us understand sort of the impact that you saw there in the third quarter and how you see the set up for the fourth quarter on the sort of the volume and the cost side due to that. Cheryl Maguire: Yes. So I mean, if we're thinking about the third quarter, we did have some mix changes flowing through with the transition of HDAN into AN solution for the industrial markets. We did see some higher costs related to that. I believe that's what you're alluding to. Part of that is, look, we're switching railcars and with that comes higher maintenance costs as we move and change out the fleet. We've got to restore the other cars to original state, which does lead to some higher maintenance costs. And you do see that pull through in the third quarter. As we're thinking about the fourth quarter, I think we would expect to see our ammonium nitrate, nitric acid volumes kind of in line with the third quarter. Ammonia as well and UAN, I would suspect, would be a bit higher in the fourth quarter as compared to the third quarter. Operator: [Operator Instructions] Our next question comes from the line of Andrew Wong with RBC. Andrew Wong: With the stronger industrial demand which appears to be continuing, how does that impact your negotiating position for contracts and the margins you're able to secure? Damien Renwick: That's a tough question, that one, Andrew. Look, I think it's really going to depend on when those particular contracts expire and what's happening at the time. I mean, at any one time, we do have contracts rolling off, but they are typically smaller than some of our more substantial ones which are under longer-term duration. So again, it would just come down to the specific situation. I think at the moment, prices are healthy and the broader happenings with Tampa ammonia and natural gas makes the environment well set up to maintain or even increase prices if and when contracts expire. Mark Behrman: Yes. I would just say that healthy overall nitrogen prices certainly help negotiating new contracts or renewal of new contracts when they come up for sale. Andrew Wong: Okay. Great. That's helpful. And then just in terms of growth for LSB, just given that stronger industrial backdrop, is that a path that we can expect to see LSB take in terms of spending on more upgrade capacity? And if you were to take that path, do you maybe need to have some sort of backstop on like longer-term contracts to guarantee a certain return on those projects? Mark Behrman: Yes. Andrew, we're constantly looking at ways that we can increase our production capacity. So we did a urea expansion up at our Pryor facility. There is a second urea expansion that is in the early stages of evaluation. And that might not necessarily just go to UAN. We could enter the DEF market, which would be an industrial product. So I think we're evaluating whether we want to do that or not. At El Dorado, we've talked in the past about an ammonia expansion there, and that ammonia expansion would probably add in the neighborhood of 100,000 tons. So we are down the pathway to evaluate and really do our engineering studies to see if that really makes sense for us. Would we backstop that? I think at 100,000 tons, we're probably pretty comfortable. If we did a big expansion, I think we would want to backstop it as is a lot of our risk aversion for trying to lock in some returns for the investment of capital. So I think we're not prepared yet to talk about the expansion. I think we'll wait until we get through our engineering studies. And then if it makes sense and the Board supports it, then we'll certainly announce it. Operator: Our next question comes from the line of Laurence Alexander with Jefferies. Laurence Alexander: Two, if I may. First, on the industrial market side of your business, can you just give a baseline for your seasonality going into next year with the current mix of contracts? And then how do you think about extending the amount of preselling if there is any sort of fly up in ammonium nitrate prices? And secondly, with El Dorado, what's your current thoughts around changing your offtake structure or signing more offtake agreements as the project gets closer to completion? Mark Behrman: Well, Damien, I'll let you handle the first one. Damien Renwick: Yes. Okay. So seasonality, Laurence, most of the offtake through the year is fairly ratable. We do see some seasonality in our AN industrial business for explosives. And that's simply related to weather. I mean, we've got sales up into the northern parts of the U.S. and into Canada. And when it gets cold, it becomes more difficult for those miners to blast. And so that does mitigate some of that demand. But we're well set up to manage that with our current infrastructure and arrangements with our customers. Mark Behrman: As far as the project at El Dorado, Laurence, are you referring to the carbon capture and sequestration project? Or are you referring to if we were to expand our ammonia production capacity? Laurence Alexander: Sticking to the CCS project. Mark Behrman: Yes. So the CCS project, we've already got a negotiated per ton of CO2 sequestered rate with our partner, Lapis Energy. So that's already locked in. And as you know, we're generating the CO2 today. We're just venting it in the air. So the project here is to capture it, dehydrate it, compress it and then sequester it in a well that is actually already drilled on our property. So the real gating item here is just the permit, the Class VI permit from the EPA to allow Lapis to really sequester the CO2. Obviously, once we get that, we need to build a compression facility. But again, there are lots of those around the world and so that's not complicated technology. So whether we sign additional AN solution contracts or nitric acid customer contracts for those products at a premium, the team is working on that and certainly engaged in conversations with customers. The other thing that we could do, and we spent a fair amount of time looking at, is you could sell in the interim the environmental attribute. And there's a value to that as well. So I think we're looking at all avenues to monetize the low-carbon ammonia and the environmental attribute that is associated with that. Operator: [Operator Instructions] Our next question comes from the line of Rob McGuire with Granite Research. Robert McGuire: Could you please talk about UAN volumes? It looks like they're down around from 150,000 to about 135,000 year-over-year. Cheryl Maguire: Yes, Rob. So we did have a bit of miss on our UAN production in the third quarter. I would say we didn't quite meet our expectations. We would expect to be in line with our expectations in the fourth quarter. Robert McGuire: Okay. Great. And then can you talk -- what's your revenue mix of ag versus industrial now that your HDAN is being sold as ANS into the mining markets? Cheryl Maguire: Hard to look at it on a revenue basis, Rob, because revenue is really going to be driven by what the pricing looks like at any given time. I think it's probably better to look at it from a volume or a tons perspective. And so I think from the industrial side, we're probably 40% to 45% with the balance being on the ag market side. Robert McGuire: And then you talked about the proposed antidumping duties on imported MDI. Can you just give us a little more color around the dynamics around that topic? Damien Renwick: Yes. Rob, so that evaluation is currently working its way through all the typical formal proceedings here in the U.S. I think there's a preliminary determination that's out there and we're awaiting the formal determination. And that will then officially put in place the antidumping duties on Chinese MDI. And so the effect of that is we're seeing domestic producers ramp up their MDI production as much as possible. And nitric acid is a raw material into that production chain, which is pretty complex so I won't try and explain it to you. But yes, so we're seeing some pull-through there and certainly efforts to increase production where possible. Robert McGuire: Wonderful. And then just one last question. Can you give us an update on your value creation initiatives? Mark, you told us about what may be up and coming, but just of what's left, where you're at in terms of your progress? Mark Behrman: Oh boy, we have a lot left. So I would say on our reliability and maintenance efforts, we've still got a fair amount of opportunity out there. So maybe we're somewhere between 25% and 50% complete with that. But I think I really do believe we have a lot of opportunity to not only improve our reliability and therefore the production tons, but do it in a much more efficient manner, so lower cost. And so we're focused on both of those. When it comes to profit optimization. I think we outlined that there was probably $20 million or so that we expect to come from that. And we're somewhere, again, between 40% and 50% when it comes to that. As far as some of the other initiatives that we have, I think the greatest thing about all of this is we're like kids in a candy store here. I mean, every day, we're trying to solve for issues or improve the overall profitability of the company. And you sort of peel that onion back and then you find two other things that you can work on to really create value. So I think it's a never-ending process, to be honest. But I think we'll give a lot more color, Rob, on our fourth quarter conference call, our year-end conference call of exactly where we are and what we expect to achieve in 2026. Operator: Mr. Behrman, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments. Mark Behrman: Great. Well, as always, thank you, everyone on the call, for their interest and great questions. As you can tell, we're really excited about the business and where the markets are today. And so stay tuned. Thanks so much. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Hello, and welcome to the Phathom Pharmaceuticals' Third Quarter 2025 Earnings Results Call. [Operator Instructions] Please be advised that today's call is being recorded. With that, I would like to turn the call over to Eric Sciorilli, Phathom's Head of Investor Relations. Please go ahead. Eric Sciorilli: Thank you, operator. Hello, everyone, and thank you for joining us this morning to discuss Phathom's third quarter 2025 results. This morning's presentation will include remarks from Steve Basta, our President and CEO; and Sanjeev Narula, our Chief Financial and Business Officer. Robert Breedlove, our Principal Accounting Officer, will be joining for the Q&A portion of today's call. A couple of notes before we get started. Earlier this morning, we issued a press release detailing the results we will be discussing during the call. A copy of that press release can be found under the News Releases section of our corporate website. Further, the recording of today's webcast and the slides we'll be reviewing can be found on our corporate website under the Events and Presentations section. Before we begin, let me remind you that we will be making a number of forward-looking statements throughout today's presentation. These forward-looking statements involve risks and uncertainties, many of which are beyond Phathom's control. Actual results may materially differ from the forward-looking statements, and any such risks may materially adversely affect our business and results of operations and the trading prices for Phathom's common stock. A discussion of these statements and risk factors is available on the current safe harbor slide as well as in the Risk Factors section of our most recent Form 10-K and subsequent SEC filings. All forward-looking statements made on this call are based on the beliefs of Phathom as of this date, and Phathom disclaims any obligation to update these statements. Later in the call, we will be commenting on both GAAP and non-GAAP financial measures. Specifically, in the scope of this discussion, when we refer to cash operating expenses, please note we are referring to the non-GAAP form of this measure, which excludes noncash stock-based compensation. As always, detailed reconciliations between our non-GAAP results and the most directly comparable GAAP measures are included in this morning's press release. With that, I will now turn the call over to Steve Basta, Phathom's President and CEO, to kick us off. Steve? Steven Basta: Thank you, Eric, and thank you to everyone joining us today. I'll start with an overview of our financial and commercial highlights this quarter and then provide commentary on our shift to a greater gastroenterology focus and our current operating priorities. First, I wish to welcome 2 new Phathom leadership team members. Joining me on the call today is Sanjeev Narula, our new Chief Financial and Business Officer. Sanjeev brings to Phathom a proven track record of building successful profitable pharmaceutical businesses of significant scale. His experience and insights will be important to driving our growth. I'm delighted to have Sanjeev as a partner in building Phathom. I'm also pleased to announce that Nancy Phelan has recently joined Phathom as our new SVP of Marketing and Analytics. Nancy brings a wealth of experience in technology-driven marketing, tactical implementations of marketing to integrate with sales activities and both HCP and consumer promotion in the pharmaceutical industry. Nancy has successfully led marketing for several successful drugs. We have a solid commercial and financial team in place. Starting today with our financial highlights for Q3. Really pleased to report at the end of Q3, we've delivered 25% growth this quarter while reducing operating expenses by 43% and therefore significantly reducing our cash usage. We beat expectations on the revenue and on the operating expenses, and we're executing effectively throughout the organization on the plan that we set out 6 months ago. Net revenue for Q3 was $49.5 million, which represents 25% growth quarter-over-quarter. This is ahead of expectations of approximately $47 million and is in line with our revenue guidance for the year. As a result of the strength this quarter, we are narrowing our full year guidance to the top half of the previously communicated range. While growing revenue significantly, our cash operating expenses were $49.3 million this quarter, which is meaningfully better than our previously stated target of getting below $60 million in cash OpEx for Q3. You may recall in May, we set a target for the year of bringing our operating expenses on a quarterly basis below $55 million by Q4 of 2025. I'm pleased to report that we've achieved that milestone early in Q3. We've cut our cash OpEx by nearly 50% since Q1 while growing revenues ahead of expectations. We're quite pleased with the performance that the entire team has delivered through the course of the past 6 months. Our cash usage was less than $15 million for Q3. That's down 77% versus the Q2 cash usage number. One note for Q4. Our operating expenses for Q4 will be somewhat higher than in Q3, primarily due to the start of the EoE Phase II trial. But we do still expect to operate at below $55 million cash OpEx as we've previously stated, even with the additional clinical trial expense. My sincere thanks go to the entire Phathom team for their dedicated efforts to deliver both our continued revenue growth and our operating expense discipline throughout this period. I'm most impressed every day by the extraordinary talent and dedication of our team. A few notes on commercial performance for the quarter that might be helpful for folks. Launch-to-date, we have 790,000 filled prescriptions as of October 17. That's approximately 36% growth since our Q2 call. In Q3, we had 221,000 filled prescriptions. Of these 221,000 prescriptions in Q3, 144,000 were covered scripts, which grew approximately 23% quarter-over-quarter. For everyone who looks at our financials, recall this is the growth category that drives our revenue. We also had 77,000 cash prescriptions that were filled, growing approximately 38% quarter-over-quarter. The growth here includes the impact of having turned on Medicare patient availability on a cash-pay -- for the cash-pay program as of April. As we've previously noted, 70% of our prescriptions launched to-date have come from gastroenterologists. During the recent quarter, we are seeing stable payer coverage and expect that moving forward for VOQUEZNA. We've pivoted in the last 6 months to focus on gastroenterology target prescribers as our core growth strategy. The intent of this shift is to really target depth rather than breadth of writing. That is we want to get physicians who adopt VOQUEZNA to write prescriptions more and more frequently and grow their utilization of our product as the clear path to driving our growth. In alignment with that strategy, we have communicated that and have taken several steps over the past 6 months to align our sales activities to enable that greater focus on the gastroenterology customer. In May, we announced the strategic shift. Step one, which actually occurred in May as well in Q2, was to adjust our incentive compensation plan for our sales reps to more reasonably balance and focus on gastroenterologists who were previously had been focused on the primary care call point. Step 2, which we implemented in July, was to reset the sales territory target list to include all of the gastroenterology customers and take out unproductive primary care physicians from those target lists. That allowed the sales force to start spending more time in gastroenterology practices. We also implemented in July a modified incentive comp plan, which focused on growth of total prescriptions rather than focusing on growth of the new writer base. So it really is aligned with that strategy of driving depth rather than breadth of writing. Step 3, which we just implemented in October, just in the last couple of weeks, is a realignment of our sales territory geographies to enable better balance and better focus on our gastroenterology target call point. Let me describe that evolution for you a little bit in terms of the sales force structure. Prior to our October restructuring, we had approximately 280 sales representatives in place. But they were situated in territories that had been mapped at launch around total PPI volume, which is basically mapping them around primary care PPI volume because that was our prior strategy prior to the restructuring in May. As of 2 weeks ago, what we've done is we have realigned the base territory maps so that we consolidated territories that did not have enough gastroenterologists to focus the reps' time appropriately on those customers, and we created new territories where there was a high concentration of gastroenterologists. The transition of territories does create a bit of disruption in the field during this quarter. At full strength by Q1 when we filled the open territories, we expect to have approximately 300 sales representatives in place. The net effect at the end of this transition is to create territories that are better balanced to enable us to call on every target gastroenterologist with the desired frequency. This realignment in the sales force territories could have some temporary impact in Q4, which we've considered in updating our revenue guidance for this quarter and setting our updated guidance for the year. We believe the sales force realignment can accelerate our growth during 2026. It may take some time to see the full impact of the sales force realignment activity. The gastroenterology opportunity for VOQUEZNA includes a target universe of approximately 24,000 gastroenterology writers. And that includes 17,000 physicians and about 7,000 affiliated nurse practitioners and physicians' assistants. Collectively, those 24,000 GI targets write about 20 million PPI prescriptions every year. That's our opportunity set. At our current prescription run rate in GI, we believe we've converted approximately 3% of the GI PPI prescribing market opportunity of 20 million prescriptions a year. If we are able over time to convert 20% to 30% of that 20 million prescription volume, we believe that that penetration could potentially reach or exceed $1 billion in revenue per year within the gastroenterology target universe alone. Obviously, there's a much bigger opportunity than that, and that opportunity resides in primary care. And we do believe that in future years, our expansion back into more depth and time in primary care clinics could potentially drive revenue to an even higher number, possibly reaching $2 billion or more in revenue. A quick update on our clinical program. We have recently initiated our Phase II clinical trial in Eosinophilic Esophagitis. Screening of patients is currently underway in that study. So we've initiated study sites. We've initiated screening patients with the first subject enrolled in the study expected in Q4, as we previously communicated. Just as a quick reminder, the rationale for this study is twofold. First, in terms of market opportunity, PPI therapy is currently first-line therapy for EoE patients. There is an opportunity for VOQUEZNA, therefore, to play an important role in EoE treatment, potentially displacing some portion or a meaningful portion of that PPI usage in EoE patients if the trial is successful and if the program overall is successful. Second, if this Phase II study is successful, we believe that we have an opportunity or may have an opportunity to receive a written request from the FDA to conduct a Phase III study that includes pediatric patients, and that creates the potential for us to extend our regulatory exclusivity by an additional 6 months. That will be determined at the end of the Phase II trial as we have conversations with FDA at that time. We expect to report top line results from this study in 2027. As we're on the topic of regulatory exclusivity, just a quick reminder for everyone. We've updated the Orange Book or FDA rather, has updated the Orange Book to indicate that we have exclusivity through May of 2032. The mechanics of how that works actually provides us exclusivity into 2033 because an ANDA filing is not permitted until that May of 2032 date. So with a 10- to 18-month typical ANDA review timeline, we believe generic entry is unlikely until 2033. A note on the VOQUEZNA TRIPLE PAK update that we've previously discussed. We've had good progress here working with our supplier of the TRIPLE PAKs. You may recall from our update in August that there has been some risk of disruption to the availability of the clarithromycin component in our TRIPLE PAK from the supplier of that product. We have not to-date experienced any disruption in TRIPLE PAK availability and based upon recent communications, do not anticipate any near-term interruption, although there is still some uncertainty in this area. We will continue to monitor this closely and provide any updates that are needed. We are executing at Phathom with discipline and momentum to implement our GI-focused strategy. The financial picture of the company is in order with solid execution on our plan. We have a talented and engaged team throughout Phathom driving our revenue growth. I'll turn it over at this point to Sanjeev to provide more detail on the financials and the outlook for the year. Sanjeev Narula: Thank you, Steve, and hello, everyone. I wanted to begin by saying how privileged and excited I am to be part of Phathom Pharmaceutical at this critical inflection point for the company. As I thought about my next chapter, I focused on 3 questions. Does the work matter for patients? Can I help build something durable? And is the dream truly aligned with the mission? At the heart of it, I wanted to join a company where work being done has the potential to directly improve patients' life. Phathom and VOQUEZNA checked all 3 boxes for me. That's what drew me here. Early conversation with Steve made the strategy clear: sharper on focus and execute with discipline. The company is on a solid footing and the plan, growing the top line while being disciplined with expense management resonates with me. I'm especially aligned with the best among GI writers' commercial approach. I've seen the specialist-led bill playbook work for -- worked in my prior experience, and I believe it's the right fit for VOQUEZNA. My first weeks here have only strengthened that conviction. We are all in in our goal to become a profitable, durable GI company. The foundation is strong and I'm excited to help this team build on existing momentum. Before I dive into the results, I would be remiss if I did not thank Robert Breedlove for his effort during the transitionary phase while Phathom was searching for a CFO. Robert will continue to serve as our Principal Accounting Officer and as an important leader in our organization. With that, let me turn to results. We are pleased with our solid financial results for third quarter for 2025 and feel that clearly demonstrate the progress being made as a result of shift in our strategy. As Steve mentioned, we reported top line net revenue of $49.5 million in quarter 3. In connection with our strong quarter and year-to-date results, we're updating our full year revenue guidance to $170 million to $175 million. Q3 revenue represents a 25% increase compared to prior quarter, driven almost entirely by covered prescription, which grew approximately 23% during the quarter. Cash-pay prescription and changes to wholesale inventory had minimal impact to our quarterly results. For third quarter 2025, our gross to net came in towards the lower end of previously guided 55% to 65% range. Based on these results and our expectation for rest of the year, we're tightening our quarter 4 gross to net range to between 55% to 60%. Our gross profit for the quarter were approximately 87%, in line with our expectation. This margin, which includes product cost as well as licensing royalties, continues to be consistent compared to previous quarter. After accounting for quarterly cash expenses, we reported a loss from operations, excluding stock-based compensation, of only $6 million. This is an 88% improvement compared to previous quarter. Overall, we believe our revenue results today reflect the progress of ongoing commercial efforts to focus on GIs. Now let's turn to operating expenses. As a reminder, in the scope of this discussion, when we refer to operating expenses, we will be referring to non-GAAP form of this measure, which excludes noncash stock-based compensation. For quarter 3, we reported operating expenses of $49.3 million, which excludes $9.3 million of stock-based compensation. Compared to the same period in 2024, this represents a decrease of 38%. The year-over-year decrease primarily reflects a reduction in personnel costs and a sharper focus on commercial activities that we expect to materially drive VOQUEZNA adoption. We believe these results demonstrate our commitment to disciplined cost management while it continue to grow revenues. In fact, we also achieved a meaningful reduction in spending this quarter compared to quarter 2 and quarter 1 of 2025. Our quarter 3 operating expenses reflect a $36.8 million or 43% decrease from quarter 2 2025 and $48.8 million or 50% decrease from quarter 1 2025. Importantly, this quarter, cash operating expenses were well within our previous guidance of below $60 million. For additional context, the main driver for decreasing spend between Q3 and Q2 were a reduction of approximately $19 million in advertising spend, primarily DTC was turned off as of June 30, $10 million in headcount and restructuring-related spend and $8 million in vendor costs. Looking forward to Q4, we expect expenses to be somewhat higher than Q3, primarily related to the initiation of Phase II EoE trial. Even with EoE included, we reiterate our previous guidance for fourth quarter operating expenses being below $55 million, excluding stock-based compensation. Based on our Q3 results and anticipated Q4 targets, we're refining our full year 2025 non-GAAP operating expenses to $280 million to $290 million. We believe our results clearly show a path towards operating profitability in 2026, excluding stock-based compensation. Net revenue this quarter have already begun to outpace cash operating expenses, and we believe gross profit will follow suit. In this event, we expect the operating profit generated to organically strengthen our balance sheet and provide an opportunity to further investment in our business. As of September 30, 2025, our cash and cash equivalents totaled approximately $135 million, reflecting only a $14 million reduction in net cash. This net cash usage reflect a significant 77% reduction compared to last quarter of approximately $63 million. Based on our current revenue outlook and operating forecast, we reiterate our belief that current cash balance can support operations through the anticipated point of achieving operating profitability in 2026, excluding stock-based compensation, without the need for additional equity financing. I feel very confident in our financial position and our path forward. We believe we have brought down expenses to a point that materially improves financial profile of the business in concert with anticipated revenue growth. With this improved financial profile, we expect to have the ability to modify or refinance our existing debt to provide greater flexibility. I'm excited to be at Phathom at such pivotal point in the company's journey. Our strong results this quarter are encouraging, and we remain confident in our ability to execute on our strategy for the remainder of 2025 and into next year. With that, I will now turn the call back to Steve for his closing comments. Steve? Steven Basta: Thank you, Sanjeev, for the helpful financial update. To wrap up, I'll just reiterate a couple of key points. And I realize we've already said some of this, but just in summary. We're really pleased with the way the third quarter went. Revenue was up 25%. Cash operating expenses were down 43% versus Q2 and cash usage was down by 77%. We are executing on the strategy that we laid out approximately 6 months ago on our May call. Our strategy to concentrate on our gastroenterology call points is being executed crisply. And with the momentum, both financially and operationally throughout the organization, we believe we are well positioned moving forward. My sincere thanks to our Phathom team members for their extraordinary dedication and diligence throughout this year and on an ongoing basis, and to the physicians and patients who trust in our products every day, and to our shareholders joining us on this call and all of our shareholders for your continued support. I'll now turn the call over to the operator for any questions. Operator: [Operator Instructions] Our first question comes from the line of Umer Raffat of Evercore. Umer Raffat: Congratulations on Sanjeev. I have 2 questions, if I may. First, if I look at your prescription growth over the last couple of quarters, it looks like you're tracking at about 48,000 in additional prescriptions in 2Q and 3Q. And per guidance, even if I take the high end of guidance, it looks like the guidance is baking in only 35,000 prescriptions in 4Q. And I guess that's my question, is that what you're baking in, that prescription -- that growth steps down in 4Q? Which leads me to the second question, which is the cost cuts and the discipline coming through is solid right now. The cost cut and discipline is very solid right now. But my question is, from those advertising cuts that Sanjeev spoke to, do you anticipate any impact as we head into 1Q and 2Q next year because they may not show right away? Steven Basta: Umer, thanks so much for dialing in. This is Steve. Appreciate the questions. First, on the growth, we are continuing to see really positive traction with all of our gastroenterology accounts in the context of the strategy to go deeper within gastroenterology. Our guidance for the full year was, in fact, narrowed to the upper end of the range. But we're trying to balance both the momentum that we're going to gain in the gastroenterology accounts with the fact that in Q4, we are going through the sales force transition. And so those 2 variables have somewhat offsetting effects, and we wanted to guide appropriately to something that we had significant confidence in. Sanjeev Narula: And Umer, to your second point about the expenses, I think the management has been very disciplined. The expenses that have been kind of streamlined were not driving the top line per se. I think that's the key point to note here. And we've been obviously very mindful of watching the script trends, watching the return on the investment, and we feel comfortable with the level that we have is sustainable. Obviously, Umer, our job as a management team is to make sure we maximize the top line, and we'll continue to watch the expense level. But right now, we feel we're not going to have any impact from the DTC that we paused at the end of second quarter, but we'll continue to watch as we go forward. Operator: Our next question comes from the line of Kristen Kluska of Cantor. Kristen Kluska: So with the strategy, I wanted to ask how much you are still focusing on those PCPs that you were having success with initially. I believe about 30% of the scripts you were seeing prior to this new alignment were on PCP. So was that mix from several PCPs? Or did you find that there were some that were higher responders? Steven Basta: So Kristen, that's -- thank you for the really important point that a large part of the PPI market has come from primary care. We are not ignoring that opportunity at all, and we are continuing to call on the customers that have already written scripts for VOQUEZNA. The PCPs that we took out of the call pattern during Q3 were primary care physicians who had not yet written a script. So anyone who had written a script stayed in the call targeting list. And what we're trying to do is shift time toward GI, but it's not 100%. So ultimately, where we want to get to is that 70% or more of our sales force time is being spent in gastroenterology practices. Now that leaves 30% of our sales force time to continue calling on the top decile primary care physicians, that is the primary care physicians who write the most PPI scripts and included in that call pattern set is the primary care physicians who have already adopted the product because naturally, a physician who's already adopted is an opportunity for meaningful growth. I do think in future years, you're going to see us, after we have deep penetration within GI, think about how do we grow our penetration in primary care. But for the coming quarters, certainly through 2026, our focus is going to be with an emphasis on GI, not excluding at all the PCPs that are adopting and growing. Kristen Kluska: Okay. Last question for me. You mentioned that there were new territories created where there was a higher concentration of GIs. I'm curious if these were doctors that the team was not visiting or perhaps they were outside of the main area, so they were still potential customers. They just weren't getting as much face time with them since that territory didn't exist before? Steven Basta: That's right. That's right. It's not that we have GI customers that we couldn't see at all. We couldn't see them with the frequency that we wanted to create the depth of adoption that we wanted. And so we had some territories that had 80 gastroenterologists in them. And if you think about the call pattern and the frequency that we want to achieve in order to really drive growth, that is a heavy call load that made sense to split some of those territories to be able to put 2 reps into that geography. We had other territories where they only had 10 gastroenterologists and they just can't spend that much time in 10 offices. And so that's where the realignment needed to take place. Operator: Our next question comes from the line of Paul Choi of Goldman Sachs. Kyuwon Choi: Congrats on all the progress. With regard to the opening up of the Medicare access and the cash-pay component of it, could you maybe just comment on how you think the mix of cash-pay as a mix of covered prescriptions and so forth will be evolving over the next few quarters? Any color on that would be great. And then my second question is with regard to repeat prescribers, particularly in the GI channel. Are you seeing any evidence of an increase in the number of repeat prescriptions that your existing prescriber base is offering now? Any quantification there would be helpful. Steven Basta: Paul, thank you. I appreciate the questions on both of those points. Let me first take the sort of cash and Medicare versus covered prescription mix question because we don't actually try to actively manage the mix or the ratio. And you'll see in the way that we presented the slides and the way that we've revised how we're talking about this, it's not about talking about total script numbers and what percentage is where, but rather the growth specifically in the covered scripts and the growth specifically in the cash scripts. And what we're attempting to do is drive growth in prescribing behavior, recognizing that both of those categories are going to grow. And we're not actively trying to manage in any way what that ratio is, whether it's 30% or 35% in a given quarter. That's not a part of the conversation set that we have with any physician. The conversation that we have with physicians is about what patients are most appropriate for them to consider starting VOQUEZNA and how they make that decision and how they evolve their prescribing patterns. So I think what you're going to expect to see is growth in covered scripts and growth in cash scripts, and we're not attempting to actively forecast that ratio. We want to drive continued growth in both on an aggressive basis. Sanjeev Narula: I think the other important point, Paul, to note is, as Steve mentioned in his prepared remarks, is our top line revenue is driven by the covered scripts, which is what grew 23% this quarter. And clearly that has got a direct relationship. And the other thing I keep in mind is you shouldn't think about that one is cannibalizing the other. Both are growing depending upon where the patient is right fit based on all the coverage that doctor and the patient decides. Steven Basta: Yes. I think that last point is a really important one. In no way does our cash script volume cannibalize our covered script volume that the incremental patient on Medicare who gets a cash script was never going to get coverage. So that's not lost revenue in any way. When that patient gets added, that's just a positive additional impact in terms of the patients being satisfied with the product, the physician being satisfied that their patient gets access to the product and the physician being more willing to adopt. So we actually think getting that extra Medicare patient started on VOQUEZNA increases the propensity of that physician to prescribe our product for their covered patients as well. The growth in one actually drives growth in both. So that's a part of the reason for turning on that opportunity. The second part of the question on sort of the repeat prescribing behavior and evidence for increase. We're not providing specific metrics, but you can imagine we are, in fact, tracking the metrics internally. What we've done is we have evolved our selling model and our coaching model for the sales territories around what we are referring to internally as the adoption ladder. And that is how do we grow physicians from trialing the product, using the product a few times every quarter to prescribing the product on average every other week to -- as an NRx to prescribing the product on a weekly basis to really making this a core part of their practice. And we are tracking physician growth up that adoption ladder. We're tracking it on a territory-by-territory basis. We're tracking it on a physician-by-physician basis. This is the coaching conversation that our regional sales managers are having with their territory managers as they are working through each conversation about each of their customers, and we are seeing evidence that we're growing utilization, we're growing more and more physicians into that regular prescribing adopter category, and we're doing that on a monthly basis. We're just not giving the metrics because there are so many different metrics and so many different ways of looking at it that it gets complex. One other sort of broad perspective is overall, as we described, the 20 million prescription opportunity in gastroenterology, we had 140,000 prescriptions in gastroenterology -- in the gastroenterology segment in -- as an estimated number during Q3. So annualize that and you get to something on the order of $600,000. You get to 3% of that $20 million run rate on an annualized basis. That's our growth opportunity. If we want to get to 10x, the current revenue in gastroenterology, we need to get to 30% rather than 3% of those 20 million scripts. That's the focus in every conversation, and we are starting to see evidence of that growth pattern on an account-by-account basis. Operator: Our next question comes from the line of Yatin Sunjea of Guggenheim. Yatin Suneja: Can you hear me? Steven Basta: Yes. Yatin Suneja: Congrats on pretty good execution. Maybe just 2 questions from me. As you are sort of trying to go more deeper into the GI community, can you just talk about the type of patients you are seeing right now? Can you also talk about the penetration you might be seeing in NERD versus GERD population? And how should we think about the duration of treatment that is playing out right now? And Sanjeev, congratulations on the new opportunity. Maybe if you can maybe help us understand how should we think about 2026 as the sales ramp up? How should we think about the OpEx there? Steven Basta: Okay. I'll let Sanjeev take the OpEx question at the end. Let me just jump into the types of patients that we're seeing and sort of NERD versus GERD within GI. The typical patient with either erosive esophagitis or non-erosive reflux, but the typical reflux patient that is landing in a gastroenterology practice has already been having conversations with their primary care physician for some time around their reflux. Almost always, they will be started on a PPI because they're complaining about heartburn to their primary care physician. Most typically, they'll be started on 20 milligrams of omeprazole. They might then be escalated within the primary care practice to twice a day omeprazole or to 40 milligrams of omeprazole every day or they might be adding Tums or other therapeutic modalities to their PPI whenever they have breakthrough heartburn. And it's when that patient is still experiencing significant pain and the physician has tried a couple of things and has not been able to resolve the heartburn, that's when they get the referral to gastroenterology. So the type of patient who lands in a gastroenterology practice is often a patient who has either tried BID dosing or has cycled through a couple of PPIs or has doubled their dose of PPI or is adding an H2 blocker or is adding antacids to their PPI and they're still having significant pain. So the patients who land in the gastroenterology practice and are being evaluated for their reflux are exactly the patients that should be switching to VOQUEZNA because they need more significant acid suppression. And we're hearing that in every conversation. I was just at ACG for a few days having a number of conversations with gastroenterologists over these past few days. And the commonality of the story that every patient who's landing in their office has already been on a PPI. Often they've been on it for years, often they've double dosed it. That's who they're seeing, and that's who they're switching. And that's why we think that we can capture a very meaningful percentage of that PPI volume in gastroenterology practices because that PPI volume is being prescribed to exactly the patients who need our drug. We don't have as clear a distinction on the breakout between non-erosive reflux and erosive esophagitis patients because physicians for a patient who is experiencing significant heartburn might prescribe 20 milligrams for patients in both categories. Our indication is specifically that the 20 milligrams should be for erosive esophagitis and 10 milligrams is the approved dose for non-erosive reflux, but it's really at the physician's discretion how they use one or the other. And one of the things we also see is that many patients who start on 20 milligrams never switched to 10 milligrams. They just maintain their treatment on 20 milligrams because if the patient is doing well, they just continue on with the treatment that's working for them. Which gets to the duration of therapy question, we are looking at that on an ongoing basis in an analysis that we did early on in the first 12 months of launch. We saw that we were getting 6 or 7 prescriptions from -- within a year for patients that converted. We are continuing to look at that on an ongoing basis to see whether or not that evolves in a meaningful way over time, and that analysis is ongoing. I would expect that we're going to get pretty good persistence over years with patients who are experiencing this level of heartburn because they get the positive reinforcement that when they take this drug, they feel better. That's going to cause someone to want to continue using it, but it's hard to predict exactly numerically how that evolves. Sanjeev Narula: Yes. And Yatin, thank you for your question. And obviously, we can't give you like 2026 financial guidance right now. We'll do that at the beginning of the year. But let me tell you a little bit qualitatively how we're thinking about next year. So let me start with the first on the top line. So obviously you saw strong quarter 3 with 25% revenue growth. You saw in Q2 we had a 39% revenue growth with the pivoting strategy go deeper in GI. We'll continue to see more prescriptions coming, very effective calls. So that percentage of revenue growth will continue. Obviously, it will moderate as the base becomes bigger and bigger, but you should expect that the top line will continue to grow next year quarter-by-quarter. Number two, I don't expect significant change in gross to net because we got a good coverage. And on where things are, there are going to be pushes and pulls, but I don't expect fundamentally a significant different gross to net, which will kind of give us a steady path to gross margin next year. Now coming in terms of the operating expenses, I think the way to think about that is in 2 kind of ways. One is what is the operating expense to run the base company with the indication and the strategy that we've gotten so far, which means pivoting to GI and going after the top decile primary care. I think we've reached that point with the expense level that we reached in this quarter or quarter 4. I think you will kind of see that, and that will continue in next year as we go forward. As a management team, obviously we'll be looking at all other investment opportunities which are revenue enhancing and have a payback. And then obviously we'll consider those. But all of this put in together, you've got one thing in -- we said that in the beginning of the discussion was we expect ourselves to be operating profit -- in operating profit position next year. And that's kind of what we are of course striving to. With the cash usage that we have of $14 million this quarter, I mean that goal is near to us. But again, we will be providing all that beginning of the year when we give the guidance. But I feel very good about what the momentum is right now where we are entering into quarter 4 and then entering into next year with a solid set of financials. Operator: Our next question comes from the line of Joseph Stringer of Needham & Company. Joseph Stringer: Just 2 from us, kind of a follow-up question, just given the backdrop of the 3Q print here where revenue came in higher than consensus and OpEx a bit lower. So in terms of hitting your goal of sustainable non-GAAP profitability in '26 without the need for additional capital, you've been pretty consistent in that messaging. So I guess what's your confidence in hitting that goal now to say, compared to your confidence level maybe last quarter or in the quarters past? And then secondly, with the -- curious to get your thoughts on the new marketing analytics hire. What have they seen? Or what are some of the initial insights or takes from looking at the analytics or what the analytics are telling you about the VOQUEZNA launch and the strategy there? Was there any area outside of some of your prepared remarks that surprised you or that could be optimized or areas where you could really drive uptake or growth going forward? Steven Basta: So Joe, thanks so much for both of the questions. First, in terms of sort of our confidence in getting to positive cash flow operations next year or positive EBIT as we've described it, we have remained consistent since May in the indication that we believe that that's achievable. And I think what we've done this quarter is just demonstrate that we are exactly on that path. So it's one more quarter of clear demonstration of exactly the path that we set out in May, which is we're going to continue to grow revenue. The thing that continues to drive revenue growth is sales force time in gastroenterology practices and driving growth and depth of adoption in GI practices. That remains unchanged. That's what we saw when we looked at the metrics back in May. That's what was working. That's what was driving our revenue. We've done more of that. We're continuing to drive revenue. My confidence that as we do more of that, we're going to continue to drive revenue is high. Similarly, as Sanjeev just mentioned a moment ago, we've brought down expenses we believe to a sustainable level in terms of our base operations and we might, on a discretionary basis, choose to make additional investments in certain areas if we want to do certain clinical trials or if we want to run a program. So we're not guiding on this call to what the expense level is going to be in 2026. We'll provide that guidance as we get towards 2026. But we are clearly vigilant about maintaining the expense level at a level where we can get to operating cash flow profitability next year and reaching operating profitability. And we wouldn't have said it if we didn't mean that we were going to try to work very diligently doing that and that we didn't believe we could do it. We absolutely do believe we can do it. From a marketing and analytics perspective, Nancy just started a couple of weeks ago. So I'm not going to speak for her as to what she's seen already, but our whole analytics team is spending a lot of time doing a deep dive on exactly how do we see detailed patterns, how can we direct the sales force time and marketing programs ever more efficiently and effectively. That's something that's not a 1- or 2-week exercise. That is something that is going to be months and, in fact, years of work on an ongoing basis. But I've just been delighted working with Nancy over the last couple of weeks, delighted working with Sanjeev over the last few weeks. And we've got a really solid team that is being very thoughtful as they work through the plan. Operator: Our next question comes from the line of Dennis Ding of Jefferies. Unknown Analyst: This is Anthea on for Dennis. Congrats on the quarter. I wanted to ask on the sales territory realignment. When do you expect that to complete? And as you ramp up the additional 20 reps, when do you expect to see their productivity reflected in the top line? And then second, in terms of expansion back into PCPs, what is the gating factor there? Or what would you want to see to consider taking that on again? Steven Basta: So Anthea, thanks so much for the questions. Two quick things on sort of thinking about the territory realignment. We've already executed the territory realignment. So all of the territory maps have been changed. All of the reps have their new territories. They are in their new territories calling on their new customers. But in the course of that, it does create some vacancies. We are actively recruiting for all of those positions. But obviously hiring doesn't happen in a week or 2. Hiring takes months. So we will be bringing folks on through the course of this quarter and next to fill the open positions. As we indicated on the call, I expect that by Q1, as we fill all of the open territories, we will get to a sales force strength of 300. But I actually feel really good about where we are already today that as the significant sales force strength that we already have is in the right territories, calling on the right customers, we're going to start to see that traction. But we'll see incremental impact as we fill those territories through Q1. And that should play out through 2026. And as I communicated, I think you're going to see an acceleration in growth through 2026 as we get more and more of that traction. The other element of sort of what drives us back into the primary care market, there's an organic phenomenon that's going to happen, and it's going to turn into revenue, it's going to turn into metrics that then drive when we make the decision. So one of the key metrics that we look at is NBRx per sales call. And that is how many new patient conversions are we getting relative to the amount of time that we're spending in a physician's practice. NBRx per sales call is much higher today for us in gastroenterology versus primary care, which is why we're driving sales force time into gastroenterology practices. NBRx per sales call is going to go up over time in primary care because primary care physicians will become more familiar with VOQUEZNA as more of their patients who've been converted on to VOQUEZNA and GI practices go back into the primary care office and talk to their physician about how much better they feel. Primary care physician had a patient in pain, sent them to a GI, came back. Their first question is naturally going to be in the next visit, well, how are you doing? How did that referral go? When the conversation goes to VOQUEZNA and they feel a whole lot better and a physician has heard from 5, 8, 10 patients, that's when that becomes a much softer target call for us to be able to drive conversions, and we'll see that NBRx per sales call number go up. At some point, that becomes really profitable to make an investment in growing in that space. Now I don't think that's a 2026 thing. I think that's '27 or '28. But at some point, when that metric works and we're getting positive ROI for that incremental investment, you'll see us expand into more time in primary care as well. Operator: Our next question comes from the line of Annabel Samimy of Stifel. Annabel Samimy: I think you guys have covered a lot already. But clearly you have a great opportunity within the GI community. Maybe you can, just on the flip side, talk about some of the reasons why physicians have not yet adopted. Is it a matter of awareness or one of reimbursement? And it seems like there is high-end awareness. So for the GI -- the new GI doc, what is the average number of calls that you need to convert these docs? I guess what I'm asking is, at some point, do you expect some inflection point in sales with this critical mass that you've now focused on GI docs? So that's my question. Steven Basta: Annabel, thanks so much for the question. And I agree, we do have a terrific opportunity within GI and that's an opportunity to get to really significant revenue. So there's not actually an impediment to first adoption within GI. In fact, the vast majority of gastroenterologists have already written prescriptions for VOQUEZNA. What we need to do is change behaviors to frequency of writing. And that happens gradually. The major impediment candidly is 30 years of habit. They've been prescribing PPIs for 30 years. They're comfortable with them. It's their sort of first inclination. It's the easy thing to do. And what we are trying to do is shift practice patterns away from ingrained 30-year habits that are easy and comfortable and familiar to a new product that provides a meaningfully better outcome for their patients. Their patients when they're on VOQUEZNA feel a whole lot better. And what it takes to change that is repetition of conversation, repetition of experience, feedback from actual patient experience. So we might get a physician to start writing, but only for the patients that have failed everything else. They switched them to between 3 PPIs, they switched them to double dose BID PPIs. And now they finally switch them to VOQUEZNA because there's nothing else to do. Soon if that patient tells the doc that they're feeling better, there's an opportunity for the sales rep to have a conversation about, doc, why are you waiting to switch through 3 PPIs before you use the product? Why don't we start using it on anybody who's coming into your practice who looks like this patient characteristic but doesn't need to go through all of that difficulty and challenge, you can get them started sooner. Maybe they start with their erosive esophagitis grade C and D patients because we've got clear clinical evidence of superior healing in those patients. And then after they see the significant healing, we start talking to them about their grade B erosive esophagitis patients and patients where they think they might not heal well enough on a PPI and they ought to convert. And as they get more experience, they grow their utilization. And then eventually, we're talking to them about patients that are having nighttime heartburn even though they have non-erosive reflux and how do you think about those populations. So it's really about growing the adoption pattern. It's not enough to get a first adoption. It's about changing patterns in broad categories of patients that happens incrementally with multiple sales calls. And we are seeing that happen. There's not an impediment to first writing. There's really just a habit change process that comes from reinforcement, multiple calls, multiple patient feedback experiences. And that's happening today, and it's happening organically. Annabel Samimy: Okay. That's great to know. So just one more question maybe for Sanjeev. So it's great that you turn on Medicare. And it's interesting that the average gross margins come down at the same time, while the cash-pay business seems to, I guess, come back up to about 35%. So is that -- I guess, if you are guiding gross to net to the bottom end of the range, is that suggesting that commercial will continue to grow faster than cash-pay? Are we understanding these impacts? Like I just want to understand what gives you confidence on the gross margin -- gross to net being at the lower end of the range with some of these dynamics going on? Sanjeev Narula: Yes, Annabel, thank you for the question. So actually gross margin, if you look at last 3 quarters, have been very consistent within the range and lower end of the range. I think this quarter as well, when I looked at the results, it came at the lower end of the range. And when I find comfortable with the 3 quarters in hand that we could tighten the guidance for fourth quarter from that perspective. As regard to cash-pay, the way the gross margin is calculated and everything, that does not have a material impact on our gross to net percentages. So as those percentages continue to grow, they will all be reflective of that because our bigger part of the gross to net is impacted by the covered script. And I don't expect that to change significantly between this year and next year. Operator: Our next question comes from the line of Chase Knickerbocker of Craig-Hallum. Chase Knickerbocker: A lot has been asked, but maybe just to stay on the topic of gross to net. Just as we think about it longer term, I mean should we think about that kind of tighter range as kind of the right way to think about medium- to long-term gross to net? Should we continue to see some improvement even potentially going closer to 50% from the bottom end of the range now? I mean, where do you think kind of gross to net ultimately mature to as your business matures over the medium to long term? And then, Sanjeev, just maybe any low-hanging fruit that you see on the gross to net to maybe continue to drive some improvement there from your past experiences? Sanjeev Narula: Yes, Chase, thank you for the question. So we obviously are very kind of focused on gross to net as every other line item. So I'd say -- I think one thing I'd say, I've seen very consistency. I think management has done a good job in getting access and managing all the contracts. And the 3 quarters results have been very consistent and they give me the confidence we can tighten this for this quarter. Going forward, Chase, I don't expect a significant change in how we look at it. Obviously, we look at it at the right time what kind of guidance we want to give. Maybe it will be a little bit tighter than what we had before, but we'll come back to that when we give the guidance. I -- there would be obviously pushes and pulls as you think about it. There is a potential for price increase. There are obviously rebates in the government sector that we got to be mindful of and everything else. But also we have things like DSA. As the company gets matured, we have opportunities for renegotiation some of those things. So there are pushes and pulls that are going to happen. We'll manage it. But I don't expect on an overall basis to be a significant change in our gross to net trajectory as we've seen thus far for 3 quarters this year. Operator: Our next question comes from the line of Matthew Caufield of H.C. Wainwright. Matthew Caufield: And welcome to Sanjeev. I wanted to ask, is there a sense of the proportion of patients that may be getting lost between having their script written by their GI, not being covered and then the patient not subsequently following up for BlinkRx, for example, and how that may be evolving or ideally improving? Steven Basta: So Matt, thanks so much for the question. I don't think we've ever disclosed specific numbers on the number of prescriptions that weren't filled. We obviously are tracking abandonment rates and looking at that pattern, actually overall are pleased that we're doing better than industry norms on some of the metrics. But one of the key advantages of offering the Blink service is that it improves that pattern. So if a patient goes to a retail pharmacy and their product isn't -- and their script isn't covered by their insurance, for example, and they get a higher-than-expected co-pay, they may walk away and not fill that script. If the patient goes to Blink and they are getting covered, they will get a $25 co-pay. And if they are not getting covered, they will be offered a $50 cash price. So that methodology enables us to significantly minimize that process. And as we're educating physicians about the fact that there's an advantage to sending their patients to Blink, it can just -- we can manage that cycle to reduce that walk away from a prescription to minimize the co-pay and minimize at all times the patient out-of-pocket payment so that you have the best likelihood of a patient getting access to the product. And one of the advantages of doing that is even if they end up with getting access to the product on a cash-pay basis, for example, if they've got a high deductible plan and their plan isn't going to covered or their payment is going to be too high early in the year, at some point several months later, they may actually get their script covered and we want to be resubmitting it and switch that patient to a covered category patient. And that advantage -- that whole process is streamlined and works better through Blink and through a retail pharmacy typically. Operator: Thank you. Ladies and gentlemen, that does end the Q&A session and conclude Phathom Pharmaceuticals' call for today. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the CVR Partners Third Quarter 2025 Conference Call. [Operator Instructions]. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts, Vice President of FP&A and Investor Relations. Thank you, sir. You may begin. Richard Roberts: Thank you, Eric. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; and other members of management. Prior to discussing our 2025 third quarter results, let me remind you that this conference call may contain forward-looking statements as that term is defined under Federal Securities Laws for this purpose. Any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, are included in our 2025 third quarter earnings release that we filed with the SEC for the period. Let me also remind you that we are a variable distribution MLP. We will review our previously established reserves, current cash usage, evaluate future anticipated cash needs and may reserve amounts for other future cash needs as determined by our general partner's Board. As a result, our distributions, if any, will vary from quarter-to-quarter due to several factors, including, but not limited to, operating performance, fluctuations in the prices received for finished products, capital expenditures and cash reserves deemed necessary or appropriate by the Board of Directors of our general partner. With that said, I'll turn the call over to Mark Pytosh, our Chief Executive Officer. Mark? Mark Pytosh: Thank you, Richard. Good morning, everyone, and thank you for joining us for today's call. The summarized financial highlights for the third quarter of 2025 include net sales of $164 million, net income of $43 million, EBITDA of $71 million, and the Board of Directors declared a third quarter distribution of $4.02 per common unit, which will be paid on November 17 to unitholders of record at the close of the market on November 10. For the third quarter of 2025, our consolidated ammonia plant utilization was 95%, which was impacted by some planned and unplanned downtime at both facilities during the quarter. Combined ammonia production for the third quarter of 2025 was 208,000 gross tons, of which 59,000 net tons were available for sale and UAN production was 337,000 tons. During the quarter, we sold approximately 328,000 tons of UAN at an average price of $348 per ton and approximately 48,000 tons of ammonia at an average price of $531 per ton. Relative to the third quarter of 2024, sales volumes were down slightly primarily as a result of low inventory levels at the end of the second quarter, following the strong demand in the first half of 2025. UAN and ammonia prices increased 52% and 33%, respectively, from the prior year period, driven by tight inventory levels across the system as a result of elevated demand and reduced supply associated with domestic and international production outages. Overall, we had a strong third quarter with UAN pricing above levels we saw in the spring and we believe the setup is favorable for the remainder of the year and into the first half of 2026. Domestic and global inventories of nitrogen fertilizer remain tight, and that has been supportive of higher prices which I will discuss further in my closing remarks. I will now turn the call over to Dane to discuss our financial results. Dane Neumann: Thank you, Mark. For the third quarter of 2025, we reported net sales of $164 million and operating income of $51 million. Net income for the quarter was $43 million, $4.08 per common unit and EBITDA was $71 million. Relative to the third quarter of 2024, the increase in EBITDA was primarily due to a combination of higher UAN and ammonia sales pricing. Direct operating expenses for the third quarter of 2025 were $58 million. Excluding inventory impacts, direct operating expenses increased by approximately $7 million relative to the third quarter of 2024 primarily due to higher natural gas and electricity costs and some preliminary spending associated with Coffeyville's plant turnaround. During the third quarter of 2025, we spent $13 million on capital projects, of which $7 million was maintenance capital. We estimate total capital spending for 2025 to be approximately $58 million to $65 million, of which $39 million to $42 million is expected to be maintenance capital. We anticipate a significant portion of the profit and growth capital spending planned for 2025 will be funded through cash reserves taken over the past two years. We ended the quarter with total liquidity of $206 million, which consisted of $156 million in cash and availability under the ABL facility of $50 million. Within our cash balance of $156 million, we had approximately $28 million related to customer prepayments for the future delivery of product. In assessing our cash available for distribution, we generated EBITDA of approximately $71 million and net cash needs of $34 million for interest costs, maintenance CapEx and other reserves and had $6 million released from previous reserves. As a result, there was $42 million of cash available for distribution and the Board of Directors of our general partner declared a distribution of $4.02 per common unit. Looking ahead to the fourth quarter of 2025, we estimate our ammonia utilization rate to be between 80% and 85%, which will be impacted by the planned turnaround currently underway at the Coffeyville facility. We expect direct operating expenses, excluding inventory and turnaround impacts be between $58 million and $63 million and total capital spending to be between $30 million and $35 million. Turnaround expense is expected to be between $15 million and $20 million. With that, I will turn the call back over to Mark. Mark Pytosh: Thanks, Dane. Harvest is currently on schedule and nearing completion. The USDA is estimating yields of approximately 187 bushels per acre on 98.7 million acres of corn and inventory carryout levels of approximately 13%. Soybean yields are estimated to be 54 bushels per acre on 81 million acres planted with inventory carryout levels of 7%, although the soybean numbers will likely be impacted by ongoing trade friction with China. Both of these carryout estimates are at or below the 10-year averages. Grain prices have remained at the lower end of the last 12-month range, driven primarily by expectations of large crop production in Brazil and North America this year and potential trade disputes where the purchase of grains may be used as a negotiating tool and reaching trade agreements. December corn prices are approximately $4.30 a bushel. In November soybeans are approximately $10.90 per bushel. The Trump administration and congressional leaders have indicated they intend to provide a subsidy program for farmers to help offset lower grain prices and higher input costs. Geopolitical conflicts are continuing to impact the nitrogen fertilizer industry. In the third quarter, Ukraine continued to target nitrogen fertilizer plants and export infrastructure in Russia, after the large planting seasons in the U.S. and Brazil and the loss of production due to geopolitical factors fertilizer inventory levels across the industry have been tight and are taking time to replenish. We expect these conditions to persist into the spring of 2026. The wildcard continues to be the potential for tariffs on Russian fertilizer imports that could have significant impacts on pricing in the near term. Natural gas prices in Europe have been steady since our last earnings call and remained around $11 per MMBtu currently, while U.S. prices continue to range between $3 and $4 per MMBtu. As we near winter, Europe has refilled its natural gas inventories at a lower level than normal and there's a risk of prices moving higher if the winter is cooler than expected. The cost of produced ammonia in Europe has remained durably at the high end of the global cost curve and production remains below historical levels, which has created opportunities for U.S. Gulf Coast producers to export ammonia to Europe for upgrade. We continue to believe Europe faced structural natural gas supply issues that will likely remain in effect through 2026. We are nearing the completion of the planned turnaround at our Coffeyville facility. In the early phases of the turnaround, we experienced an ammonia release, which we currently anticipate could delay the completion of turnaround work by a few days relative to the original schedule. We expect the facility to resume full production in the next few weeks. As a reminder, we are currently planning for a 35-day turnaround at our East Dubuque facility in the third quarter of 2026. At our Coffeyville facility, we continue to work on a detailed design and construction plan to allow the plant to utilize natural gas and additional hydrogen from the adjacent Coffeyville refinery as alternative feedstocks to third-party pet coke. This project could also expand Coffeyville's ammonia production capacity by up to 8%. We also continue to execute certain debottlenecking projects at both plants that are expected to improve reliability and production rates. These include water quality upgrade projects at both plants and the expansion of our DEF production and load-out capacity. The goal of these projects is to support our target of operating the plants at utilization rates above 95% of nameplate capacity, excluding the impact to turnarounds. The funds needed for these projects are coming from the reserves taken over the last 2 years and the board elected to continue reserving capital in the third quarter. While the Board looks at reserves every quarter, I would expect them to continue to elect to reserve some capital and we anticipate holding higher levels of cash related to these projects in the near term as we ramp up execution and spending, which we will -- we expect will take place over the next 2 to 3 years. The third quarter continued to demonstrate the benefits of focusing on safety and reliability and performance. In the quarter, we executed on all the critical elements of our business plan, which includes safely and reliably operating our plants with a keen focus on the health and safety of our employees, contractors and communities prudently managing costs, being judicious with capital, maximizing our marketing and logistics capabilities and targeting opportunities to reduce our carbon footprint. In closing, I would like to thank our employees for their safe execution during a few brief outages in the quarter, achieving 95% ammonia utilization and the solid delivery on our marketing and logistics plans resulting in a distribution of $4.02 per common unit for the third quarter. With that, we're ready to answer any questions, Eric. Operator: We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Rob McGuire with Granite Research. Robert McGuire: Could you, Mark, go back to the Coffeyville natural gas feedstock project? I apologize. But can you just -- I think I missed, when do you anticipate that to start. And are you at a point where you can talk to us about total cost for the project and what you expect in terms of returns? Mark Pytosh: I'm not ready to talk about finalizing the final cost and returns yet. We're in detailed engineering. So we need to kind of confirm some things about that in terms of configuration or reconfiguration and the infrastructure needs, but everything looks like it's kind of penciling out the way we thought it would. And that's -- it's a combination project to be clear. Part of it is taking additional hydrogen from the refinery. The refinery has a reformer unit. So we are talking about taking additional hydrogen from the refinery plus replacing -- potentially replacing pet coke as a feedstock for a portion with natural gas. But the hydrogen component would be an increase in our production capacity. So it's a combination project that includes the ability to replace feedstock plus bring additional hydrogen, which means additional ammonia capacity. That's what I've been referring to in my comments about up to 8% increase in our production capacity. So we have been reserving for that project. And so we will have the capital available set aside for that. And I'm expecting by the next call to be able to talk with more specifics on that project and moving ahead there. But so far, all the engineering work that's coming back in the construction plans look on track with what we thought what the original plan was. Robert McGuire: I appreciate that. And shifting gears, any concerns about drought conditions impacting ammonia runs in this ammonia application season. . Mark Pytosh: Not in the markets where we're placed. We've had some moisture here in the last week, particularly the big ammonia run for us is up in the Northern Plains around East Dubuque, and there was -- there's been moisture. So I actually -- I think conditions are as close to perfect as we could predict because we've had -- the harvest is basically complete there. So we've emptied the fields. The soil temperatures are down and moisture come in, in the last week. And that combination is about perfect conditions. And I'm expecting a big fall ammonia run. The customers are telling us that we have a good book of business already, but people are coming in now with additional cash orders. And so I expect really a good fall ammonia run. So I'm very optimistic. Robert McGuire: Wonderful. And I mean, kind of just moving forward to that question is just how significant of an impact do you think it will be for the acreage to be down this coming season, at least on anticipated acreage? And is it simply that inventories are down, supply is tight, so you're not concerned at all about selling your volume at elevated prices? Or will there be an impact maybe even on imports? Mark Pytosh: I'm -- so there's a couple of different layers to the answer to that. Number one, we've been expecting that we were thinking that the acreage -- corn acreage, this is corn acreage would drop next year. I'm not sure now based on -- I'm still reading what happened this morning over in Korea with Trump and Jae, but the feeling in the marketplace is that the corn acreage won't drop as much, because there's concern about what is the what are the end markets for soybeans. And so maybe there's going to be more corn acres just on a defensive approach to protect against trade, trade war behavior. And so I actually think that the corn acreage might surprise on the upside versus a drop -- a lot of people were talking about drop to below 90s, which is still great. That's a great corn run. But it may not drop as far, because I think farmers are of the belief that maybe the end markets will be restricted for soybean exports. So we may end up with a better answer there. I would tell you that if you look at the inventory balances, we're already -- we're tight and I think lower acreage given where we are from an inventory perspective, probably won't impact us much in '26 as it normally would, because quite frankly, there's a rush to try to replenish what we have -- and you probably saw the announcement that Nutrien has shut down one of the Trinidad plants, which is an importer to the U.S. And so that's going to affect the replenishment time frame. So I'm not terribly concerned about the acreage. We watch it closely. But right now, I think the market is in a position to absorb that. Robert McGuire: That's really interesting. And then with regards to the Trinidad and just looping Russia on imports, are you seeing an impact in the marketplace on those imports at this point in time? Mark Pytosh: We have not seen any impact on Russian imports. In fact, Russia is the -- particularly like in UAN, Russia is the marginal producer in the marketplace, and they've been exporting to the U.S. in size. So there's been no effect. The fear factor in the market is if there's somehow a tariff or sanctioning of fertilizer coming to the market, that could be a big event from affecting supply. And so that's a fair factor. But we haven't seen any signs. But during the course of this year, even with all the geopolitical events, there's been no restriction on the imports of Russian and I'll focus more on UAN, but there's urea, too. But Russian UAN has been a big factor in the U.S. Robert McGuire: Well, that's really helpful. And Mark, last question, and I certainly won't hold you to this, but I'd love to hear what your outlook is for the price of ammonia, UAN and urea heading into fourth quarter. . Mark Pytosh: It's -- we never give out pricing for those products, but it's going to be a solid quarter. And so we've seen a strong market since the UAN fill season and the ammonia prepay. So pricing will be higher in the fourth quarter versus 3Q, which it normally would be. So we'll see that show up in the results. And I'm optimistic. I'm not ready to prognosticate on pricing for spring, but I'm optimistic about the supply-demand balance and what we're going to see there. So I expect this kind of these sorts of market conditions to carry through the first half of '26. Operator: Thank you. We have reached the end of the question-and-answer session. I'd now like to turn the floor back over to management for closing comments. Mark Pytosh: Well, thanks, everybody, for participating in the call today, and we look forward to reviewing our fourth quarter results with you in February. Have a nice day. Operator: Ladies and gentlemen, this concludes today's call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good day, and welcome to Medallion Financial Corp. Third Quarter of 2025 Earnings Call. [Operator Instructions] Also, please be aware that today's call is being recorded. I would now like to turn the call over to Val Ferraro, Investor Relations. Please go ahead. Val Ferraro: Thank you, and good morning. Welcome to Medallion Financial Corp.'s Third Quarter Earnings Call. Joining me today are Andrew Murstein, President and Chief Operating Officer; and Anthony Cutrone, Executive Vice President and Chief Financial Officer. Certain statements made during the call today constitute forward-looking statements. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in our earnings press release issued yesterday and in our filings with the SEC. The forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update these forward-looking statements. In addition to our earnings press release, you can find our third quarter supplement presentation on our website by visiting medallion.com and clicking Investor Relations. The presentation is near the top of the page. With that, I'll turn it over to Andrew. Andrew Murstein: Thank you, and good morning, everyone. We are pleased with the strong performance we delivered in the third quarter of 2025. As compared to the third quarter of last year, our net income was $7.8 million, $11.3 million when excluding a nonrecurring $3.5 million charge related to the redemption of preferred stock at Medallion Bank, supported by a 6% increase in net interest income to $55.7 million and continued momentum across our core lending verticals. We also saw a further improvement in net interest margin on both gross and net loans, which is reflected in our earnings. During the quarter, we redeemed the Series F preferred stock at Medallion Bank. While that resulted in a onetime $3.5 million charge to earnings, it lowers our ongoing cost of capital at the bank and positions us well going forward. Across the portfolio, we continue to execute effectively with meaningful contributions from our recreation, home improvement and commercial lending lines. Total loans reached $2.559 billion and loan originations came in at $427 million for the period, an increase from both the previous quarter and year-over-year. This improved performance reflects the continued strength across our lending segments, driven by disciplined execution and strategic positioning, which I will now walk through in further detail. I'll start with consumer lending, our largest and most profitable business line, which continues to anchor our performance with interest income of $74.1 million for the quarter, growing 5% as compared to the same period of last year despite consumer lending originations being $201.4 million as compared to $235.6 million a year ago. Within the consumer lending segment, the recreational loan book grew 3% to $1.603 billion at September 30, 2025, representing 63% of our total loans. Originations also grew slightly to $141.7 million compared to $139.1 million a year ago, and interest income rose 4% to $53.6 million. Delinquencies of 90-plus days were just 0.57% of gross recreational loans and the allowance for credit losses was 5.1% to reflect expected seasonal and economic dynamics as compared to 4.53% a year ago. The home improvement loan book decreased modestly to $804 million at September 30, 2025, representing 31% of our total loans. Originations were $59.7 million versus $96.5 million last year. Delinquencies of 90-plus days were just 0.16% of gross home improvement loans and the allowance for credit losses was 2.55% compared to 2.42% a year ago. Importantly, we are originating loans to individuals in these niches that have strong credit quality with average FICOs on new originations now 688 for rec and 779 for home improvement. The vast majority of our book falls within super prime to near prime, which has moved up over the years. Moving on to our commercial segment, which continues to deliver meaningful equity gains. We had new originations of $17.5 million during the quarter, and the portfolio grew to $135.1 million with an average interest rate of 13.71%. Additionally, as of September 30, we had nearly 3 dozen equity investments with a book value of just $9.3 million on our balance sheet. These equity components are a result of our long-term strategic investments. And while the timing of exits is inherently unpredictable, we remain confident in our pipeline. During the quarter, gains from equity investments were modest, generating $300,000 of income, but have generated $15.8 million year-to-date, and we do expect more realizations in the coming quarters. Our strategic partnership program, whereby we earn an origination fee and about 3 to 5 days of interest on holding loans before selling them back to the partner had its fourth straight quarter of over $120 million of originations, reaching a record level of $208.4 million this quarter. Total loans held as of quarter end under the strategic partnership program were $15.3 million. Most of these loans are outside of rec and home improvement and are mostly offered as employee benefits by large employers and loans for unplanned or elective medical procedures. Although this program represents a small part of fees and interest generated from Medallion Financial, approximately $1.5 million in total this quarter, it has nearly tripled from a year ago and continues to expand each quarter and represents further diversification of our income sources. We continue to do work on our growing pipeline of new partner prospects and expect to add new partners over time. Furthermore, we are taking a very methodical approach to growth to ensure we continue to do it the right way. Turning to our taxi medallion assets. We collected $6.1 million of cash during the quarter, which resulted in net recoveries and gains of $3.4 million. Net taxi medallion assets declined to just $5.1 million and now represents less than 0.2% of our total assets. Despite the small size, these assets continue to generate cash. And with more than $150 million of charge-off medallion loans, a majority in New York City, we believe there continues to be recovery opportunities. From a capital allocation perspective, we remain committed to returning capital to shareholders. During the quarter, we paid a quarterly dividend of $0.12 per share. And although we did not repurchase any shares this quarter with $14.4 million remaining under our $40 million repurchase program, we would expect to see additional purchases in the quarters to come, enhancing the return we provide to shareholders. From a credit perspective, we continue to benefit from a diversified portfolio, prudent underwriting standards and attractive returns on our lending activities. Our approach is highly analytical and data-driven, supported by advanced digital tools that help optimize underwriting, origination, servicing and overall portfolio visibility. These capabilities allow us to assess risk with precision and maintain consistently strong performance across operating environments. With solid execution across our businesses, a disciplined approach to credit and strong demand for our loan products, we believe we are well positioned to deliver sustainable growth and attractive shareholder returns over the long term. With that, I'll now turn it over to Anthony, who will provide some additional insights into our quarter. Anthony Cutrone: Thank you, Andrew. Good morning, everyone. For the third quarter, net interest income grew 6% to $55.7 million from the same quarter a year ago. Our net interest margin was 8.21%, up 10 basis points from a year ago. Our total interest yield increased 17 basis points from a year ago to 11.92%, and the average interest rate on our deposits was 3.82% at the end of September, up just 1 basis point from the prior quarter. During the third quarter, we originated $141.7 million of recreation loans at an average rate of 15.77% and $59.7 million of home improvement loans at an average rate of 10.9%. We continue to originate both recreation and home improvement loans at rates above our current weighted average coupon in these portfolios with new originations in October at rate averaging around 15.5% for rec loans and averaging around 10.5% for home improvement loans. Our loan portfolio reached a value of $2.559 billion at September 30, up 3% from a year ago and included both loans held for investment and those loans held for sale. Total loans included $1.6 billion of recreation loans, $804 million of home improvement loans, $135 million of commercial loans and $15.3 million of strategic partnership loans. For the quarter, the average yield on our total loan portfolio increased 27 basis points from a year ago to 12.39%. Consumer loans more than 90 days past due were $10.2 million or 0.43% of total consumer loans as compared to $9 million or 0.39% a year ago. Our provision for credit loss was $18.6 million for the quarter, a decrease from $21.6 million in the second quarter and a decrease from $20.2 million in the prior year quarter. During the quarter, we increased the allowance for credit loss in the commercial loan portfolio by $300,000 as well as increasing the allowance for credit loss on our consumer loans given both seasonality and economic uncertainties, which resulted in additional provision of $3.9 million, $3.8 million of which was related to recreation loans with the remainder tied to home improvement loans. Additionally, the current quarter provision included $1.7 million of benefits related to taxi medallion loans. Total net benefits related to taxi medallion during the quarter were $3.4 million. Net charge-offs in the recreation portfolio during the quarter were $12.9 million or 3.36% of the average portfolio and were $2.1 million or 1.03% of the average home improvement portfolio. Turning to expenses. Operating costs totaled $20.7 million during the quarter, up from $19 million in the prior year quarter. The $1.7 million increase over the prior year included costs associated with technological initiatives surrounding our servicing platform and capabilities, resulting in higher third-party professional services and higher depreciation expense. As we've said in the past, the upgraded platform allows for greater flexibility in the servicing of our consumer loans with a fair amount of self-service tools, which we believe will add to an improved customer experience and greater efficiencies long term. Again, as previously disclosed, these costs are expected to remain elevated in comparison to prior years as we continue to expand our capabilities and incur the cost of the customized platform. Employee costs increased roughly $700,000 from a year ago, both as a function of retaining talent as well as enhancing our talent pool. For the quarter, net income attributable to shareholders was $7.8 million or $0.32 per diluted share. Net income to shareholders included a nonrecurring charge of $3.5 million, an impact of $0.14 related to the redemption of Medallion Bank Series F preferred stock. Excluding this nonrecurring charge, earnings would have been $11.3 million compared to $8.6 million or $0.37 per share earned in the prior year quarter. Our net book value per share as of September 30 was $17.07, up from $16.77 a quarter ago and $15.70 a year ago. Our adjusted tangible book value, which excludes the value of goodwill, intangible assets and the correlated deferred tax liability associated with both was $11.64 at the end of the quarter, up from $11.32 a quarter ago and $10.17 a year ago. That covers our third quarter results. Andrew and I are now happy to take your questions. Operator: [Operator Instructions] And our first question here will come from Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Anthony, was the operating EPS $0.46 a share? Anthony Cutrone: Yes. So $0.32 and $0.14 on that $3.5 million charge on the redemption of the bank's Series F, that would get you to $0.46. Christopher Nolan: And then were there any loans sold in the quarter? Anthony Cutrone: No. No, we still have -- other than within the strategic partnership program, we still have a fair amount of recreation loans that we do anticipate selling. I don't know if it will happen in Q4, but we are targeting sometime in the next couple of quarters. What we're seeing is with the capital levels we have at the bank, that might not be necessary. So we'll -- as something comes together, we'll determine whether or not we want to bring those back and hold them or if we want to continue to sell them. Christopher Nolan: Okay. And then I noticed that on the income statement, noncontrolling income increased quarter-over-quarter. And on the balance sheet, noncontrolling interest decreased. Does that relate to the Series F redemption? Anthony Cutrone: Yes. So the decrease in the -- on the balance sheet is the redemption of the Series F, that's correct. And on the income statement, we broke it out. So you've got the $3.5 million on the redemption of the Series F and also the interest -- the dividend -- the preferred dividend on those on the SBLF and the Series G, that's going to be recurring. That's 9% of that noncontrolling interest. That's what we would expect to see going forward. Christopher Nolan: So we should see -- what should be the noncontrolling income quarterly going forward on a run rate? Anthony Cutrone: It's the $2.33 million. Christopher Nolan: Versus $1.5 million, which was roughly the run rate earlier, correct? Anthony Cutrone: Right, right. So in our noncontrolling interest, the preferred stock of the bank has increased over the last year, so it's gone up. And the Series F a year ago had an 8% coupon. The Series G has a 9%, which is higher than last year, but lower than what the Series F stepped up to in Q2. Christopher Nolan: Got it. Final question, and I guess for Andrew. Given the government shutdown, do you guys have exposure to government employees? Anthony Cutrone: No. Andrew Murstein: Yes, nothing that would affect us at all. Operator: And our next question will come from Mike Grondahl with Northland Securities. Logan Hennen: This is Logan on for Mike. First, congrats on the continued growth of the strategic partnership loans. Could you give us some color on how you guys are viewing strategic originations and fees in 2026? Andrew Murstein: That's been growing for quite some time now. We're pleased with the way it's been performing the last several quarters. We're going to try to bring on 1 or 2 new partners in the next 1 to 2 quarters. And therefore, I think, you're going to see a continued increase in performance there. The volume should go up significantly probably if we're able to contract with those firms. And even if we don't, I think, the volume is just ramping up nicely on its own. Logan Hennen: Great. Then can you provide some color on why recreation originations were flat year-over-year and what your outlook is for that segment? Andrew Murstein: Part of it is just the capital. We were -- we raised our credit standards in the last several quarters. We didn't complete our offering. I think it was May or so. So we were just cautious. We didn't know if we were going to be able to successfully close the transaction. We thought we would. But until it's in your -- money is in the bank, so to speak, you never know for sure. But now that we're able to use that money and leverage it up with low-cost deposits, I think, you're going to see accelerated growth in the next several quarters. Logan Hennen: Got it. And then with the Fed cutting rates yesterday for the second time, how should we be thinking about margins going forward? Anthony Cutrone: Yes. I think the trend we saw in Q3 with margin expansion is something we would think continues. We're currently writing loans at rates above where our WACC sits. So we would expect our yield to continue. We should start to see some drop in cost of funds over the next couple of quarters, but it might take another quarter or 2. So I wouldn't expect any additional compression, but we should start to see some expansion -- further expansion in the coming quarters. Logan Hennen: Got it. And then one last one from us. How do you feel about overall loan growth going forward? Andrew Murstein: I think we all feel pretty positive about it. It should grow closer to what it was several years ago when we had the excess capital. And again, we have it now. We also brought in a significant group that was doing home improvement lending. And they just started with us a couple of weeks ago. And I'm hearing great things about their names and reputations, and we may put out a release about it in the next few weeks, but that should really be a supercharge for us. I think if they can perform like we believe they can, I think that's going to really accelerate the home improvement lending. Operator: And with that, we will conclude our question-and-answer session. I'd like to turn the conference back over to Andrew for any closing remarks. Andrew Murstein: Thank you. Before closing the call, as many of you know, the Board of Directors appointed me into an expanded role as CEO starting January 31, 2026, and I'm truly excited about this opportunity to build on our momentum and continue driving the company forward. I'm going to continue to work closely with our leadership team to assess performance across all of our business lines, identify new opportunities and ensure we remain agile in a rapidly evolving market environment. Over the past quarters, our focus has been on executing our strategic priorities, strengthening our operational foundation and positioning the company for sustainable long-term growth. As we approach the end of the year, we're proud of the strong performance we've achieved so far in 2025 and remain confident that we will continue to deliver solid results in the final quarter of this year. Moving forward, we plan to maintain the growth strategy that has guided our lending business successfully over the past several years. Our commitment to our shareholders remains strong, evidenced by our consistent earnings, our strategic buyback and our dividend. Thank you again for your investment and interest in Medallion, and have a great rest of your day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the MAA Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, October 30, 2025. [Operator Instructions] I will now turn the call over to Andrew Schaeffer, Senior Vice President, Treasurer and Director of Capital Markets of MAA for opening comments. Andrew Schaeffer: Thank you, Regina, and good morning, everyone. This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA. Members of the management team participating on the call this morning are Brad Hill, Tim Argo, Clay Holder and Rob DelPriore. Before we begin with prepared comments this morning, I want to point out that as part of this discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statements section in yesterday's earnings release and our 34-F filings with the SEC, which describe risk factors that may impact future results. During this call, we will also discuss certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures as well as reconciliations of the differences between non-GAAP and comparable GAAP measures can be found in our earnings release and supplemental financial data. Our earnings release and supplement are currently available on the For Investors page of our website at www.maac.com. A copy of our prepared comments and an audio recording of this call will also be available on our website later today. After some brief prepared comments, the management team will be available to answer questions. I will now turn the call over to Brad. Brad Hill: Thank you, Andrew, and good morning, everyone. As highlighted in our earnings release, our third quarter core FFO results met our expectations, reinforcing the resilience of our platform and strategy. While the broader economic environment has introduced some challenges, including slower job growth and tempered pricing power in new leases, we are still seeing recovery. Strong occupancy, solid collections and year-over-year improvements in new renewal and blended lease rates in the third quarter demonstrate our momentum. Demand across our markets remains healthy and we are encouraged that the record level of lease-ups in our region are being absorbed with occupancy levels increasing 450 basis points over the past 5 quarters and now approaching pre-COVID levels. Supply levels in our markets, though elevated historically, are trending down at a faster pace than many other regions. As new deliveries continue to decline each quarter, we anticipate a strengthening recovery in pricing power and operating performance. Importantly, new starts remain below long-term averages and have for the past 10 quarters, and we see no indication of an acceleration in starts. In fact, per our third-party data provider, our markets saw just 0.2% of inventory in new starts in the third quarter. And starts over the trailing 4 quarters were just 1.8% of inventory, roughly half the historical norm, positioning us for sustained improvement. Our diversified presence across high-growth markets and more affordable price point provides access to a broader segment of the rental market that is financially strong, supporting continued strong collections. Additionally, our region continues to capture one of the highest levels of annual wage growth, as evidenced by the increasing incomes of our new residents, driving favorable rent-to-income ratios, which remain at a healthy low of 20%. Improving leasing conditions also bolster our redevelopment pipeline and offering residents a newly renovated unit at a more affordable price as compared to the higher-priced new multifamily supply. Due to persistent single-family affordability challenges, our strong customer service and demographic trends that support renting, residents are choosing to stay longer with only 10.8% of our move-outs occurring due to home purchases. Our balance sheet remains a key strength with our recent credit facility expansion, which Clay will discuss in a moment, providing exceptional flexibility. While the transaction market has been active at sub-5% cap rates, we continue to identify select accretive opportunities such as our recent Kansas City acquisition, a stabilized suburban 318-unit property that we purchased for approximately $96 million and is expected to deliver a year 1 NOI yield of 5.8%. Subsequent to quarter end, we purchased an adjacent land parcel for an 88-unit Phase 2 that will expand the stabilized NOI yield on our total investment to nearly 6.5% after capturing additional scale and efficiencies from the Phase 2 development. We are also advancing our development pipeline and securing additional attractive long-term investment opportunities. In today's equity-constrained environment, our access to capital and development expertise remain competitive advantages. Following quarter end, we acquired land, plans and permits for a shovel-ready project in Scottsdale, Arizona scheduled to begin construction in the fourth quarter. This project, like others, we've recently launched, reflects our ability to capitalize on situations where developers face equity challenges, allowing us to secure projects at a compelling basis. The Scottsdale development is expected to deliver a stabilized NOI yield of 6.1%. In total, we now own or control 15 development sites with approvals for over 4,200 units. And if market conditions remain supportive, we anticipate starting construction on 6 to 8 projects over the next 6 quarters driving meaningful earnings contribution in the years ahead. With a 30-year track record of delivering through economic cycles, we remain confident in our ability to execute during this transition. Our focus on high-demand, high-growth markets, significant redevelopment opportunities, efficiency gains from technology initiatives rolling out in '26 and beyond and a growing external growth strategy position us for stronger earnings growth. Our portfolio will continue to benefit from job growth, wage growth, household formation and migration and population trends that outpace other regions. We are encouraged by the building blocks that are in place in what we expect will be an acceleration of the recovery cycle in 2026 leading to sustained revenue and earnings growth, as new deliveries continue to decline and the recovery advances. To all our associates across our properties and corporate offices, thank you for your unwavering dedication and commitment during this busy leasing season. Your efforts continue to drive our success. So with that, I'll turn the call over to Tim. Tim Argo: Thank you, Brad, and good morning, everyone. For the third quarter, we saw increasing occupancy and strong retention and renewal lease rates but experienced continued lack of traction and the ability to push on new lease rates. We believe broad economic uncertainty and slower job growth, as evidenced by a downward revision to the job growth numbers, contributed to prospects being more cautious about making decisions to move and to operators prioritizing occupancy over new lease rents. Despite the challenging environment for new leases, we continue to see new lease-over-lease pricing improve over the prior year at minus 5.2%, up 20 basis points as compared to the third quarter of 2024, combined with the strong renewal lease-over-lease performance of plus 4.5%, which was up 40 basis points over the prior year. Blended pricing for the quarter was positive 0.3%, improving 50 basis points from the third quarter of last year. As mentioned, average physical occupancy sequentially improved to 95.6% in the third quarter, representing a 20 basis point increase from the second quarter. Additionally, we had another quarter of strong collections with net delinquency representing just 0.3% of billed rents. A number of our mid-tier markets, particularly in the Mid-Atlantic region continue to be outperformers relative to the portfolio. Richmond and the D.C. area markets remain strong and other markets such as Savannah, Charleston and Greenville all demonstrated strong pricing power in the quarter. Of our larger markets, Houston continue to be steady and we are seeing encouraging progress in Atlanta and the Dallas-Fort Worth area properties, where blended pricing in both of these markets improved sequentially from the second quarter and outperformed the same-store portfolio. The lagging markets we have noted for the past few quarters remain consistent with Austin continuing to work through its record supply pressure, resulting in weak new lease pricing and Nashville facing significant pricing pressure as well. In our lease-up portfolio, we had three properties: West Midtown, Daybreak and Milepost 35 reach stabilization in the third quarter. We continue to make progress with our other 4 lease-up properties, which have a combined occupancy of 66.1% as of the end of the third quarter and the 2 development properties that are currently leasing units. We have seen the uncertainty and higher leasing price impacted a portion of our lease-up portfolio and pushed the stabilization date by 1 quarter for Valvest and Phoenix. While Liberty Road just started leasing the other 5 properties with units delivered are well into the lease-up process and rents are in line with the original performance. This helps preserve the long-term value creation opportunity despite the overall leasing velocity being a little bit behind original expectations. Our various targeted redevelopment and repositioning initiatives continued in the third quarter, and we still expect to accelerate these programs into 2026. During the third quarter of 2025, we completed 2,090 interior unit upgrades, achieving rent increases of $99 above non-upgraded units and a cash-on-cash return in excess of 20%. This was an acceleration of both volume of completed units and rent growth achieved from the second quarter. Despite this more competitive supply environment, these units leased on average 10 days faster than non-renovated units when adjusted for the additional turn time. We still expect to renovate approximately 6,000 units in 2025. And for our common area and amenity repositioning program, we continue the repricing phase at 6 recent projects with 5 of the 6 past the halfway point in repricing. So far, the results are encouraging with double-digit NOI yields and rent growth far exceeding peer MAA properties. Five additional projects are now underway with the anticipated repricing to coincide with the prime 2026 leasing season. We are live on five 2025 retrofit projects for community-wide WiFi with go live base planned through the remainder of 2025 at an additional 15 communities. As we approach the end of October, our current occupancy is 95.6% and 60-day exposure at 6.1%, 20 basis points and 30 basis points, respectively, better than this time last year, which keeps us in a position for stable occupancy heading into the slower traffic season. As Brad referenced, new supply pressure continues to moderate and absorption remains strong with market-level occupancies including lease-ups at the highest level since mid-2019. Our theme of strong renewal performance continued in the fourth quarter with higher retention rates and lease-over-lease growth rates on renewals accepted for October, November, December, ranging between plus 4.5% and plus 4.9%. Moderating construction starts, Sunbelt market, demand dynamics and high retention rates underlie our optimism for an improving leasing environment, particularly as we get into the spring and summer leasing season of 2026. That's all I have in the way of prepared comments. Now I'll turn the call over to Clay. A. Holder: Thank you, Tim, and good morning, everyone. We reported core FFO for the quarter of $2.16 per diluted share, which was in line with the midpoint of our third quarter guidance. Favorable overhead expenses of $0.01 and same-store expenses of $0.05 and were offset by unfavorable same-store revenues of $0.05 and non-same-store expenses of $0.01. As Tim alluded to in his comments, our occupancy and renewal lease performance remained strong and were in line with our projections for the quarter while new lease rates performed below our expectations. During the quarter, we funded approximately $78 million in development cost for our current $797 million pipeline, leaving an expected $254 million to be funded on the current pipeline over the next 3 years. Our balance sheet remains well positioned to support these and other future growth opportunities. At the end of the quarter, we had $815 million in combined cash and borrowing capacity under our revolving credit facility and our net debt-to-EBITDA ratio was 4.2x. At quarter end, our outstanding debt was approximately 91% fixed with an average maturity of 6.3 years at an effective rate of 3.8%. Subsequent to quarter end, we amended our revolving credit facility, increasing the capacity of the facility from $1.25 billion to $1.5 billion and extending the maturity of the facility to January 2030. In addition, we amended our commercial paper program to increase the maximum amount of outstanding commercial paper borrowings to $750 million. We have an upcoming $400 million bond maturity in November that we expect to refinance in the fourth quarter. Finally, we have adjusted our core FFO and same-store guidance for the year as well as revised other areas of our detailed guidance previously provided. Primarily due to the lower recovery trajectory on new lease rents as the broader economy and employment markets moderated over the summer months, we are making slight adjustments to our guidance associated with same-store rent growth. We are lowering the midpoint of effective rent growth guidance to negative 0.4% while maintaining average fiscal occupancy guidance at 95.6% for the year. Total same-store revenue guidance for the year is revised to negative 0.05%. We are also lowering our same-store property operating expense growth projections for the year to 2.2% at the midpoint. The lower guidance is primarily due to favorable third quarter property tax valuations as compared to our original expectations. The changes to our same-store revenue and property operating expense projections resulted us adjusting our same-store NOI expectation to negative 1.35%. In addition to updating our same-store operating projections, we are revising our 2025 guidance to reflect favorable trends in overhead expenses, along with adjusting our acquisition and disposition volume for the year given the current transactions market. The impact of these adjustments, combined with the updated expectations for our non-same-store portfolio, resulted in us adjusting the midpoint of our full year core FFO guidance to $8.74 per share and narrowing the range of $8.68 to $8.80 per share. That is all that we have in the way of prepared comments. So Regina, we will now turn the call back to you for questions. Operator: [Operator Instructions] Our first question will come from the line of Eric Wolfe with Citi. Eric Wolfe: A number of your peers have talked about the worsening trends in late September and into October, specifically on new leases beyond just the sort of normal seasonal curve. Can you maybe talk about recent pricing trends that you're seeing on new leases? And are there any markets that are moving abnormally at this time of year? And just sort of any thoughts on sort of how that could trend through the rest of the quarter? Tim Argo: Yes, Eric. This is Tim. I would say broadly, we've seen generally pretty typical seasonality. Actually on the new lease side, saw our new lease decline a little bit less than normal from Q2 to Q3. It's normally in the 60 to 70 basis point moderation. We moderated 40 basis points and then even did better on the renewal side. So I think broadly we're seeing normal seasonality. We typically see pricing kind of peak in July and then slowly moderate from there for the rest of the year as the traffic starts to die down and that's pretty much what we've seen. The trend was a little bit less seasonal, as I mentioned, but broadly happening as we would typically expect. In terms of markets, I mean the DC market we talked about is still on a relative basis doing well but certainly moderated a little on the new lease side. The other -- some of the laggards that I talked about have been similar. The encouraging ones have been Dallas and Atlanta both. We saw actually new lease acceleration from Q2 to Q3. And those are combined our two largest markets and seeing some encouraging trends there. But broadly normal seasonality. Eric Wolfe: That's helpful. And then could you maybe talk about any early thoughts on 2026 in terms of earning and contribution from other income? Essentially the more sort of predictable items for next year. Obviously, if you want to give your view of market rent growth, we'll take it, but I realize it's a dynamic environment. Brad Hill: Hey, Eric. This is Brad. I'll start and Tim can certainly jump in here. But I think as we look at and start thinking about what '26 is likely to look like just big picture, I mean, I think really for us to start with, we talk about the demand fundamentals. And for us, everything ultimately boils down to what the demand side of the equation ultimately looks like long term. And as we look at 2026 today, we really think that the demand fundamentals look pretty similar in '26 to the way they looked this year. Whether you're looking at migration trends, population growth, household formation or just single-family affordability headwinds, we really think all of those look very, very similar next year. Clearly, the unknown for us is the job market and really what that looks like next year. The early projections that we see for next year show the job market looking a little bit softer than it does this year. But I think one thing to keep in mind is next year is an election year. So I do think the administration is going to be very focused on getting the tariffs kind of behind them and then really focused on job growth the balance of the year, which we think could certainly help on the job growth side. And then I think, certainly from a supply perspective, we know the supply pipeline next year is set to decline considerably from where it is this year, where next year's deliveries will be about close to a 50% drop from the peak that we had in 2024. So certainly, the picture looks a lot better on that front. So despite our recovery certainly not being quite as robust as what we had hoped for this year, we are making progress. And I think that progress will continue to manifest itself as we get into 2026. Tim, what would you add on the earning piece? Tim Argo: Yes. On the earning piece, I mean, I think based on where we see rents at the end of this year, you're probably somewhere around flat to slightly negative, which is a little bit of improvement on where we were heading into 2025. And then last point I'll make, you asked about the other income, it will be the WiFi projects that will drive that. They've been slow to materialize this year as we wait on circuit deliveries and other things, but we've got 20 or so that we think will be live by the end of this year. And that that group as a whole, once fully rolled out, is about a $5 million NOI piece. So we'll get a piece of that. So that will be the biggest thing sort of above and beyond our normal run rate on fee and other income. Brad Hill: And then just to follow up on the point on the earning. As Tim mentioned, for next year, flattish going into 2026. And just as a reminder, coming into 2025, it was a negative 40 basis points headwind. So a significant improvement going into 2026 as we sit here today. Operator: Our next question will come from the line of Jamie Feldman with Wells Fargo. James Feldman: I guess following up on the guidance line of questioning. On the expense side, anything, as we think about year-over-year comparisons, anything in 2016 that we should be aware of? A. Holder: James, this is Clay. The one thing -- a couple of things that I would call out. I think starting with real estate taxes. We saw some very good favorability in our original projections for real estate taxes at this point in the year. A lot of that is due to some prior year adjustments -- some onetime prior year adjustments that we realized this year. So we'll have to anniversary that. But also thinking about the fact that we are projecting negative NOI growth for the year, so we would expect property valuations to significantly increase going into next year. So all said, we would expect real estate taxes to grow at a relatively normal rate of somewhere between 2.5%, 3.5%. And I'm not giving guidance at this point, but just kind of where we think that's where we're probably headed at this point. Other than that, I think insurance will continue to get some tailwind from that given our recent renewal. So that will benefit us in the front half of the year and then we'll have to go through that process again next year. But I would expect, at this point any significant increases in that line, just probably normal typical run rates. And then personnel, R&M costs, things of that nature. I mean, Brad mentioned the tariffs and expectation that, that gets settled here over the course of the next several months. We would think that those would typically grow in line with just typical inflationary trends. So nothing really outside of the norm for those. Should get a little bit of a benefit in marketing expenses next year as we get past the levels of supply that we've been facing this past year. And so that should tail off a bit as well. So all in all, I don't want to speak to overall guidance, but that's kind of how we're thinking about those items. Tim Argo: I might add one point real quick just on the utility side. We talked about the WiFi projects a minute ago. There is an expense component that hits in that utilities line. It's obviously a much larger revenue component, but that will impact utilities a little bit as well. James Feldman: Okay. Great. Super helpful color. And then just thinking about concessions in some of your bigger development markets or heavier supply markets. How would you -- what's the scorecard on the pace of concessions today? Is it getting better? Is it getting worse? Anything you'd call out there? Tim Argo: Yes. I would say, broadly, concessions in Q3 were a little bit higher than what we were in Q2. When we look at our comps there is probably 55%, 60% or so of our comps have some sort of specials, and that's up a little bit from what it was in Q2 but not significantly. I think the level of concessions at a given property is pretty similar. You're seeing anywhere from half a month to a month free is pretty typical with a little bit higher in some of the highest supplied submarkets. We've seen a couple of submarkets really came down. I mentioned Atlanta earlier. We've seen a little bit lower concessions in Buckhead. Uptown Dallas, we're seeing a little bit lower concessions. So it's actually some of the more urban submarkets we've seen concessions come down a little bit. And then we've seen it up a little bit in Phoenix, a little bit in suburban Orlando, a little bit in downtown Nashville, but broadly ticked up a little bit but not hugely different than what we've been seeing. Operator: Our next question will come from the line of Adam Kramer with Morgan Stanley. Adam Kramer: Maybe I just wanted to ask about sort of lease up for your development properties and maybe just how the cadence of that today compares to lease-up cadence maybe 6 months ago or the same time a year ago. Tim Argo: Yes. This is Tim. I mean, the leasing velocity broadly has been a little bit slower. I don't think it's necessarily gotten slower than what it has been over the last couple of quarters. I mean, we've seen obviously with the supply over the last couple of years that, that velocity has been a little bit slower to occur than what we originally underwrote. But broadly, rents are in line. When you think about the overall lease-up portfolio, we're holding tight there and keeping, as I mentioned in the comments, just keeping our value proposition in line. So broadly, leasing velocity a little bit slower than what we expected. And we pushed back one of the stabilization dates on one of our lease-up properties. But broadly, the rents are intact and feeling good. Particularly as we move into the spring and summer, we expect that as it really starts to increase on that velocity. Adam Kramer: Great. And then maybe -- I know you touched on it a little bit earlier, but maybe just the specific new renewal and blended lease growth for October, if you're able to provide? Tim Argo: We're not going to get into the details of the monthly. But I would say, generally, what we're expecting for Q4, and I mentioned this earlier, is pretty normal seasonality, perhaps a little bit less than what we typically see is as supply continues to moderate. I mentioned in the comments the renewals are holding up really well. So I think on a blended basis could be a little bit better than last year. And new lease probably trending somewhere maybe slightly better than where we were last year. But typically a normal seasonality with a little bit better performance on the renewal side. Operator: Our next question will come from the line of Steve Sakwa with Evercore ISI. Steve Sakwa: I guess I wanted to circle up on the Scottsdale project. I think you mentioned that the initial yield on that was 6.1% and maybe with the new piece of land that would go to 6.5%. But your stock is kind of trading sort of in that mid-6s right now. So just how are you thinking about capital allocation, development yields? And what kind of hurdles do you need on projects going forward, given the changing cost of capital? Brad Hill: Yes. Steve, this is Brad. A couple of things that I'll mention. One, just a clarification. What I mentioned in my comments was the Kansas City deal was about -- that was an acquisition, was at 5.8%. We went under contract and that back when our stock price was in the 150s. So certainly, cost of capital is a little bit different at that point. For that project, when we add the Phase 2 component to it, that will bring the total investment yield on that one to about 6.5%. You're correct. The Scottsdale development is about a 6.1% NOI yield. So that part is correct. But in terms of capital allocation, when we're looking to make really any decision a couple of things that we're considering. One is where is our capital coming from? What's the cost of that capital? And really what's the potential long-term impact of that investment on our business? And our primary focus in all of our decisions that we make is on generating compounded earnings growth to support a steady and growing dividend over the long term. I mean that's really what we, at our heart, really focused on. And if you look at the performance that we've put up in terms of dividend performance over the last 10 years, I think we've been very successful in hitting those goals. We have probably one of the highest, if not the highest 10-year CAGRs on dividend growth performance in the space, where it's at 7%. So earnings and dividends are really the best ways for us to deliver TSR on a REIT platform. But when we're looking to invest capital, we can deploy it through external growth as we were just talking about, be it development or acquisitions. We can invest in various internal opportunities that include technology investments, really geared towards strengthening our platform in driving efficiencies, improving margins of our existing portfolio or we can reinvest in our existing shares. Those are really the options that we have. And certainly, at the moment, scaling our platform from acquisitions has really gotten materially more difficult given the dislocation that we see right now between private and public markets. But again, as I mentioned with the Kansas City, we were able to find select acquisition opportunities, but that's probably going to be even more difficult. But as I mentioned in my opening comments, we do continue to find what we believe are compelling development opportunities where we're able to achieve yields in the 6% to 6.5% range, which, if you look at that compared to our current cost of capital, it's still accretive. And if you look at it on an after-CapEx basis, it produces similar returns to what we would get if we were investing in our existing portfolio right now. But importantly, I think you have to remember that by selectively determining where we're putting some of this capital in developments, we think we're able to drive better long-term growth prospects through that capital. And certainly, with 6 to 8 projects that we think we can start over the next 6 quarters at a cost of $850 million, we have a pretty good runway for continued growth. We'll continue to lean into some of these numerous internal investment opportunities in 2026. And as Tim talked about, we're looking to expand our renovation and repositioning platforms. And so you'll continue to see us do that. But having said all that, our focus is on driving long-term earnings growth and higher share value. And if we find that our best investment opportunity to do that is to invest in our existing portfolio via share repurchases, we have an authorization in place. We've done it before. And we wouldn't hesitate to do that again if conditions warranted it. So it's something that we continue to monitor in every one of our investment opportunities and we'll continue to do so. Steve Sakwa: Okay. Maybe just as a second and maybe a follow-up. Just, I guess, taking that and maybe stretching it out a bit. Just would accelerating dispositions kind of be part of the philosophy maybe to fund both the development and potential share buybacks? It seems like pricing is pretty good in the apartment market despite some of the slowdowns we all talked about here on the leasing side. So would you lean into dispositions at this point? Brad Hill: Yes. I mean, we definitely could. I mean, frankly, our disposition strategy is really based on trying to improve the overall quality of the portfolio while not introducing earnings volatility. So we wouldn't want to significantly scale up dispositions to take the advantage of some market level arbitrage and introduce earnings volatility. But as part of our annual strategy, we're generally looking to dispose of around $300 million worth of assets. And if we find that we can continue to do that and when we dispose of those assets, the best use of that capital is to go into share repurchases, then I think we would continue to look to do that. From my perspective, the share buyback is really an alternative based on current cost of capital. Current returns is an alternative to what we would do with that disposition capital, where normally we would roll it back into the acquisition market. And that's just not a broad opportunity for us at the moment. Operator: Our next question will come from the line of Jana Galan with Bank of America. Jana Galan: Following up on your comments on the transaction market and seeing assets trading at sub-5 cap rates. Can you help us understand how investors are underwriting the rent growth at this point in the Sunbelt recovery and maybe the types of financing they have available to them to get them there? Brad Hill: Sure. I think the #1 driver right now from the deals that we're looking at of those cap rates is the cost of capital. I think if you look today where folks are generally able to get 5-year money today from the agencies is probably in the maybe 5.25% range, maybe just under that. And most folks are able to buy down the rate by 25, 30 basis points. And so by the time they do that, they're at a sub-5% interest rate. And then at that point, they're generally underwriting a couple of years of a little bit more aggressive rent growth to get their returns to make sense. But I would say the #1 driver is, just given where the cost of capital is today, it's really supporting cap rates to be sub-5% and especially when you layer on to that the buy down of the rate. Jana Galan: And then kind of a different topic, but you guys have always been very strong in your Google scores and reviews. I'm curious kind of how you're implementing AI and looking at different ways as search moves more over to those types of platforms to kind of continue this reputation that you have out there. Tim Argo: This is Tim. Yes, I'm glad you brought the reviews. We continue to do really well there. We're #1 in the sector, 4.7 or so is our average with a lot of volume. So we put a lot of emphasis on that. I mean, in terms of our use of AI, I mean, we're using it obviously in multiple areas of the company, and it's something that we're expanding more now as we think about leasing and some of the communications. And we'll have some more pilots and tests on that as we get into next year. So obviously, a key part of our go-forward platform is to continue to look at all the various pieces of that. Operator: Our next question will come from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: You talked about how 2026 could look a lot like '25 from a demand perspective and supply obviously coming down pretty meaningfully. I guess should we just continue to see lease rate growth improve versus the prior year? Or I guess, asked a little bit differently, should schedule rent continue to accelerate from here into 2026? Tim Argo: Austin, it's Tim. Yes. I mean, I think we're back in terms of the normal seasonality. I think this year has been the most seasonal that we've seen in the last few years. And I think generally that seasonality will hold as you strengthen through the spring and summer and then moderate a little bit into the fall and winter. So I mean, I think -- we're obviously not giving guidance right now. But when you think about how much supply is moderating and what the construction starts and we're expecting deliveries next year to be significantly down from where they were this year and with a similar demand environment that we have right now, which is significant, if you look at any of the demand variables, whether it's job growth, household formation, immigration, our region in the country, while perhaps a little bit weaker than it was earlier this year and expectations for next year a little bit weaker, is materially stronger than the rest of the country. So when you balance that relative demand with rapidly decreasing supply, I think you see a normal seasonal curve but a much steeper curve to where we see some new lease rents start to accelerate. Would expect our renewals to hang in where they are. We can see how for the next 3 months or so, that those are continuing to holding strong. So yes. I continue to expect that strength is what we'd expect, enhanced strength, if you will, as we get into 2026. Austin Wurschmidt: Helpful. And then just going back to the sequential improvement you flagged around Atlanta and Dallas. I guess was this just as simple as less competition from supply? Was there a comp issue? And then are there any markets that you'd highlight that are on the cusp of seeing kind of a similar dynamic that you referenced in Atlanta and Dallas, that sort of sequential acceleration from 2Q to 3Q and new lease rate growth? Tim Argo: Yes. For Atlanta and Dallas, what we saw particularly was some improved performance in the more urban in town. So we obviously have several properties in uptown Dallas that we sold, did better. And then we have a fair amount of exposure in Midtown, Downtown and Buckhead, Atlanta, and that's where we're really starting to see some -- that inflection point where those are the submarkets they got most of the supply. They're starting to work through that. Concessions are coming down. So certainly there's a comp issue there but there's just a general performance improvement there as well as they absorb that supply. Atlanta is one of our highest absorption markets over the last 4 quarters of any of them. So those are the 2 that I would call out. There's not any others at the moment where we're seeing. Obviously, Q2 to Q3, [ operation ] is a little bit opposite of normal seasonalities. So we're not seeing a lot that completely booked that trend like Dallas and Atlanta did, but the ones that have continued to be strong, have done that, the markets I mentioned. And the Carolinas continue to be strong. But Dallas and Atlanta are certainly the standouts. Operator: Our next question will come from the line of Nick Yulico with Scotiabank. Nicholas Yulico: So I guess, first off, on the negative 5% new lease rate growth in the quarter, how much is that number being impacted by concessions, meaning like if you just lifted all concessions? Is there any way to give a feel for what that number would look like? Tim Argo: Well, I'll tell you this, Nick. In terms of cash concessions this quarter, ours was about 0.6%, 0.7% of rents for our portfolio. So that can give you some idea. Obviously, we spread concessions throughout the term of the lease, but that can give you a little bit of insight into that. Nicholas Yulico: Okay. And then second question is, if I go back to the original guidance for the year. And you had that bridge of FFO per share benefit and there's that bucket of development lease-up and other non-same-store NOI, which was originally said to be a $0.20 benefit this year. I wanted to see if that's still the same number in the new guidance. And then secondly, if there's any way to give a feel for if you just stabilized all the developments or lease-up assets in that pool, like how much extra annual FFO per share benefit would that be from that entire pool? A. Holder: Yes. Nick, this is Clay. To your point, we introduced the guidance coming into the year with that pool of the portfolio of benefiting about $0.20 for the full year. Going back to the discussion that Tim had with just the longer leasing velocity that we've seen with those properties, and it hasn't been quite that strong but it has been a positive benefit to us over the course of the year. Now where you think about those and when they fully stabilize and are generating ongoing NOI growth, those properties on a year-to-year basis, we expect to be anywhere between $0.10 and $0.12 of earnings growth after considering what the cost of capital is running. So that's kind of what we would see on a long-term basis. And I'm talking specifically about sort of $0.10 to $0.12, really our development and lease-up portfolio itself. Keep in mind, there are some other things in that non-same-store pool that our stabilized properties, properties that haven't moved into the same-store pool. But when I mentioned the $0.10 to $0.12 kind of our current development lease-up pipeline, that's going to contribute another $0.10 to $0.12 in a given year. Operator: Our next question will come from the line of Michael Goldsmith with UBS. Ami Probandt: This is Ami on with Michael. I was wondering, was there any change in your fourth quarter forecast? Or do the updated same-store revenue guide mainly bake in just the softer third quarter? Tim Argo: Yes. This is Tim. We brought down -- I mean, we adjusted the new lease rates for Q4 forecast based on what we saw in Q3, actually brought up our rates a little bit but brought down the new lease rates. But in terms of forecast, it's really carrying through the Q3 new lease rates as have more of an impact, obviously, but broadly just brought down the new lease run rate a little bit. Ami Probandt: Got it. And then where do you ultimately see the balance between your large and mid-tier markets? Are there any other markets that you're targeting for acquisitions? And how do cap rates broadly across these markets compared with some of the larger markets? Brad Hill: Tim, do you want to hit on the performance between those two markets? Tim Argo: Yes. Yes. In terms of what we're seeing in the performance between the two, I mean the mid-tier markets broadly have done a little bit better and they continue to do slightly better. I mentioned several of them in the prepared comments. But we are starting to see that dynamic narrow a little bit, as I mentioned, with Dallas and Atlanta and some other. We're starting to see that performance narrow a bit and would expect that to continue to squeeze as we saw most of the supply over the last couple of years or more of the supply focused on some of those larger markets and some of those more urban submarkets. Brad Hill: Yes. And in terms of where we're looking to deploy capital, I mean, I think it's both the large and mid-tier markets. I mean we like our current exposure between those markets where we are, I think, we have 70% or so of our allocation to large markets and about 30% to the mid-tier markets. So you'll see us continue to try to maintain that by deploying capital similar to that in the large and mid-tier markets. But clearly, as we talked about a moment ago, acquisitions, it's tough for us right now. So mainly focused on doing that through development. But in terms of pricing differentials between those markets, really not much. I mean, we're really seeing similar cap rates for similar quality assets across those markets. Operator: Our next question will come from the line of Haendel St. Juste with Mizuho. Haendel St. Juste: Let's see what I got left here. So maybe one on -- I think you mentioned earlier that you're seeing new starts on an LTM basis now around 1.8% of stock, I think you mentioned, which is half the long-term average. But I'm curious how that figure is trending. It sounds like it's picking up from where we were earlier this year. So I guess my question is, what's your sense of private developers' ability to obtain financing, get underwriting, getting their underwriting to clear their hurdles and if that's getting any better with the lower cost of debt we've seen here. Brad Hill: Haendel, this is Brad. In terms of the trend of starts per quarter that we're seeing is, I mean, that trend actually just continues to come down. The trailing 12-month starts in our region, as I mentioned, was [ 1.8% ] which implies 45 basis points or so per quarter. Last quarter, third quarter, it was [ 0.2% ]. So we're seeing that trend generally come down. And I think that those numbers really track with the anecdotal evidence and information that we get from our partners, from the developers that we partner with. I mean, what we continue to hear from them is it is getting more difficult to raise capital than it is. It's certainly not getting easier. It's getting more and more difficult. Even with the backdrop of interest rates coming down, we're certainly hearing some of the smaller developers are having trouble even getting bank financing at this point. The large developers can get bank financing but they're having a hard time getting equity in the current environment. And then just based on the results that we're seeing on the deals like the Scottsdale, Arizona project, the Richmond project we started last year, I mean, we continue to see opportunities for us to step into developments where someone bought the land, achieved entitlements, sometimes got plans but then could not get their financing lined up. We just continue to see more and more opportunities in that area. Some of those still don't underwrite for us but some do. So just broadly speaking, it seems like it's getting more difficult to put a shovel in the ground than it has been. Haendel St. Juste: Got it. I appreciate the color there, Brad. And then one more, maybe. Just also a bit of a follow-up from last quarter. I think you mentioned where you said you'd be willing to lean into debt a bit more given the lower cost that you had about $1 billion of buying power with your leverage down around 4x debt to EBITDA. I guess I'm curious if that view might be changing, evolving at all given the softer macro, the pricing that you're seeing out there, I don't think cap rates to budge at all really and maybe other opportunities you might be considering. So I guess I'm curious, that view on leaning into leverage to acquire assets, how that might be different today versus maybe 90 days ago. Brad Hill: Yes. I mean, I think, yes, I think based on our current cost of capital, you generally won't see us much at current pricing. So I mean, the pricing that we would have to be able to achieve on an acquisition would have to be substantially different than it was just a few months ago. And so you probably won't see us lean into acquisitions in any way, shape or form at the moment. But I do think from a funding perspective, what you'll see us do is lean into debt funding for our development pipeline. We'll continue to fund that as we talked about generally through our commercial paper program. And then once we get our debt to a certain level, we'll then look to go and issue bonds to clear that up. So that's generally how we'll continue to look to finance the business right now at 4.2x. We could continue to expand the balance sheet to somewhere in the 4.5%, 5% range, keep it in that range and be completely fine with our credit rating agencies. So we'll continue to move forward with that type of strategy. Operator: Our next question will come from the line of Brad Heffern with RBC Capital Markets. Brad Heffern: One of your peers talked on their call about how Sunbelt lease ups are seeing challenges removing concessions when it comes time for the first renewal. Just curious if that's a dynamic that you've seen in your own lease ups and is that a source of any broader pressure. Tim Argo: I mean certainly, when you start having those renewals turn, that is the most difficult part of the lease-up where you're trying to keep the back door shut and have more people coming in the front door. So we have seen that a little bit. I mean, I think more broadly, we're just seeing the concession environment stay elevated, if you will, despite -- I made this comment in my prepared comments that despite continuing increasing occupancies we've seen 5 straight quarters where market level occupancy has increased in our markets. The concession environment stays pretty elevated. And I think that just speaks to the uncertainty that is out there right now. So it is impacting the lease ups a little bit as well and driving that slower leasing velocity that we talked about. Brad Hill: Brad, this is Brad. Just one point that I would add with regard to our lease ups. In terms of our renewals on our lease ups, they're performing in line with our existing portfolio generally in terms of retention rates. But the renewal rates that we've been able to get is about 11% in the third quarter on our lease-up properties. So we are getting really good traction there on the renewal side. So I wouldn't think that the hangover of the concession side of things on our renewals has been impacting us, especially in the third quarter. Brad Heffern: Okay. And then maybe I missed it, but can you give the current gain or loss lease? Tim Argo: Yes. We're at a gain to lease of around 1% right now, which is not too unusual given this time of the year. Operator: Our next question will come from the line of Connor Mitchell with Piper Sandler. Connor Mitchell: I appreciate all the commentary on the pricing in the markets. I guess we kind of would have thought that maybe the smaller markets would have been insulated from some of the pressure that the larger markets are facing, but it sounds like that's kind of dwindling. On the other side of the equation, could you just talk about what you're seeing, any differentiations between the demand factors for some of those mid-tier markets versus the larger markets and how that's impacting performance? Tim Argo: Not really anything different. I mean, our strongest markets for several quarters now have been markets like Charleston and Greenville and Richmond, which still on a relative basis have gotten a fair amount of supply. But there's huge demand drivers there as well. And some of our best job growth -- I think Charleston right now is our best job growth market that we have. So there's still a ton of demand there even with the supply scenarios. But as I mentioned, I think we're starting to see -- I don't think it's a lack of strength in the secondary or mid-tier. It's more of some strengthening in some of the larger markets where they've started to work through some of those concessions. They started to get the net absorption. And I think it's more a function of like Dallas and Atlanta, as I mentioned, on the way up versus some of the mid-tiers coming down. Brad Heffern: Okay. That makes sense. And then maybe following kind of the same line but again switching to the supply side of it. It does seem like the supply will be coming down compared to this year and past couple of years. But it's just kind of dragging out from what we expected earlier in the year, even in the mid-summer. Do you see kind of the extending of supply just dragging out having more of an impact on some of the larger markets than you expected earlier this year? Or just what kind of supply pressure are you kind of expecting now versus earlier in the year, especially from the larger markets, but overall as well? Tim Argo: Yes. I mean on the supply side, I don't think it's moved a ton in terms of our expectations on what that impact is going to be. I mean, I think some of the weakening we've seen in new lease pricing has been more a function of some of the job growth numbers and what we talked about before. So a little bit weaker demand, but certainly much stronger in our region in the country. So the absorption continues to be great. I mean, we've got 5 straight quarters I mentioned of increasing occupancies in our markets. There's been about 300,000 apartments absorbed over the last 5 quarters in our markets. So that continues to hold up strong. So assuming demand kind of hangs in where it is now, we would expect this to continue to get better and strengthen particularly as we get to the spring and the summer of next year. Operator: Our next question will come from the line of Rich Hightower with Barclays. Richard Hightower: Covered a lot of ground, so just one for me. But I'm going to go back to the stat on, I guess, all-time low move-out for home purchases. And I think we all understand the dynamic driving that. But I guess, in your opinion, is affordability the only gating factor to that number kind of moving up back towards historical averages going forward? And it just sort of feels like there's this massive, massive pent-up demand to buy houses. And so how would that affect your business? What are your thoughts? Brad Hill: Rich, this is Brad. I mean, I think in general, that's certainly a component but I don't think that's the only component. I think if you look at the demographics of our renters, where 80% are single. If you look at the average income for us now is approaching $100,000 given where current home prices are. Yes, I mean, there is definitely an affordability issue there. But I think just given the demographics, we're seeing certainly more single-person households being formed, which definitely, I think, leans more into the rental market than it does the for-sale market. But there are demographic shifts. I think what folks are looking for, one of the #1 reasons why folks are renting is because they want a maintenance-free lifestyle, which you can't get in the single-family market but you can in the multifamily market. So I think there are other things going on that are driving some of the retention rates. We've seen that trend declining for the last 10-plus years. Certainly, it's as low as it is today partly because of the single-family affordability, but there are other trends that were in place years ago that started that trend. And I think it will continue to be in the ballpark of where it is today for the foreseeable future. Operator: Our next question will come from the line of Wes Golladay with Baird. Wesley Golladay: I just want to see if there's any early indicators of a demand slowdown. Is your exposure in line with normal levels? And you did call out Atlanta as having high absorption. Are there any markets that are having a deceleration in absorption? Tim Argo: Wes, this is Tim. On your first question, exposure, we're at 6.1%, which is about 30 basis points lower than it was this time last year. And as I mentioned, we're around 95.6% occupancy, which is a good 20 basis points or so higher than it was this time last year. So I think as we head into the slower leasing season, we're certainly in a good shape in terms of those metrics. But no, I mean, broadly there's not any markets where we're seeing a material slowdown in absorption. I mean, Q3 absorption wasn't quite as high as Q2, but Q2 is sort of a record of anything that we've ever seen but did still see market level occupancies from Q2 to Q3 moved up about 30 basis points. So outside of some of the weaker markets that are still below, even Austin still at a 91%, 92% occupancy level market-wide, we're much better than that but including the entire market. Huntsville is one that it's a smaller market, but it is at a record ton of supply there. That's another one that's struggled a little bit with absorption, but broadly continuing to see uptick in that absorption level and occupancy levels. Operator: Our next question will come from the line of Linda Tsai with Jefferies. Linda Yu Tsai: On '26 earn-in being flat to slightly down. What was this like 90 days ago and from an internal reporting standpoint, how frequently do you update earning expectations? Do you always have a point in time metric available? Just wondering if this could change quickly as supply drops further in '26. Tim Argo: I mean, we look at it typically when we look at our forecast and look at that every month and every quarter. So it certainly came down a little bit just based on our new lease growth expectations. So the way we look at earn-ins is all the leases that we expect to be in place at December 31, you just sort of assume that rent roll carried through to next year. So it's going to be dependent on where those new lease rates head. But right now, that's kind of what we're thinking is that somewhere around flat for next year. Operator: Our next question will come from the line of Alex Kim with Zelman & Associates. Alex Kim: Just a quick follow-up on the retention question from Rich earlier and ask, just how do you think turnover should trend during the recovery portion of the cycle? Tim Argo: Yes. Right now, we don't expect material changes in turnover. I mean, it's hard to believe it gets a lot lower from here, but I don't think there's a lot of signs pointing to it getting much higher either. I mean, for all the reasons Brad talked about on single-family homes, don't expect that to move much. I mean, job changes, job transfers are always our #1 reason for turnover. If that starts to tick up, it's probably a sign that the economy is doing pretty well. So even though turnover could pick up a little bit in that scenario, it's probably good more broadly and we're getting better rent growth as well. But nothing we see would suggest that turnover changes a lot from where it is right now. Operator: Our next question will come from the line of Ann Chan with Green Street. Ann Chan: Just one for me. So you noted earlier that migration and household formation trends should remain pretty stable in '26 relative to what we see in '25. So just given that and following up on a comment from a few months ago, do you still anticipate new lease rate growth possibly turning positive by next summer? Or is job growth enough of a wild card in '26 that might cause a slower pace of supply absorption that might push out the new lease recovery time line up further? Tim Argo: Well, as we said, we're not giving guidance for 2026. But I do think if the demand side remains kind of where it is right now, where we're thinking that -- we expect to see acceleration in new lease rates. I mean, it's difficult to know exactly where it's going to be several months from now. And lease is obviously the most volatile in terms of how your competitors are behaving and all that. But given what we know today with the demand trends, we know what supply is doing, and we're in a great position in sort of all the other metrics, I would just leave it as we expect to see new lease rates to continue to get better on a year-over-year basis as they have this year. Operator: Our next question will come from the line of Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: While your market generally tend not to be prone to any kind of rent control type provisions, just kind of curious as we're kind of going through the current election cycle if there's anything on any ballot in any of the key states that you're kind of watching that could have implications for your operating performance going forward? Robert DelPriore: It's Rob. As we've talked about before and as you indicated, our markets, 90% of our NOI is in states that have a state level prohibition preventing local governments from passing rent control rules. We're not really seeing anything on rent control in any of our markets that's going on. There are a few out there in the country, but there are also a lot of pushback really saying that rent control is not really the answer to the affordability issue. And so I think we're keeping an eye on it but nothing that we're really concerned about right now. Operator: Our final question will come from the line of JP Flangos with BNP. John Flangos: Just one given the time. [Technical Difficulty] has been weaker [Technical Difficulty] appeared to fall and just have lower annual income relative to the private industry as a whole. Earlier, you mentioned that the projection... [Technical Difficulty] Brad Hill: JP, you're breaking up bad. Maybe you can try again. We are having a hard time hearing you. John Flangos: Now? Brad Hill: No, not getting you. Are you on -- maybe try one more time. John Flangos: Now? A. Holder: Try repeating your question. John Flangos: Can you hear me? Brad Hill: Yes, you're kind of coming in and out. John Flangos: All right. Well, we'll just leave it there. Brad Hill: We can follow up with you off-line, JP. Operator: With that, I'll return the call back to MAA for any closing comments. Brad Hill: All right. We appreciate everybody joining today, and we'll see you guys all in the upcoming conference season. If you got any questions, don't hesitate to reach out. Thanks. Operator: This concludes today's program. Thank you for your participation. You may disconnect now at any time.
Operator: Ladies and gentlemen, good morning, and welcome to the Bel Fuse Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Jean Marie Young with Three Part Advisors. Please go ahead. Jean Young: Thank you, and good morning, everyone. Before we begin, I'd like to remind everyone that during today's conference call, we will make statements relating to our business that will be considered forward-looking statements under federal securities laws, such as statements regarding the company's expected operating and financial performance for future periods, including guidance for future periods in 2025. These statements are based on the company's current expectations and reflect the company's views only as of today and should not be considered representative of the company's views as of any subsequent date. The company disclaims any obligation to update any forward-looking statements or outlook. Actual results for future periods may differ materially from those projected by these forward-looking statements due to a number of risks, uncertainties and other factors. These material risks are summarized in the press release that we issued after market close yesterday. Additional information about the material risks and other important factors that could potentially impact our financial performance and cause actual results to differ materially from our expectations is discussed in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and our quarterly reports and other documents that we have filed or may file with the SEC from time to time. We may also discuss non-GAAP results during this call, and reconciliations of our GAAP results to non-GAAP results have been included in our press release. Our press release and our SEC filings are all available at the IR section of our website. Joining me today on the call is Farouq Tuweiq, President and CEO; and Lynn Hutkin, CFO. With that, I'd like to turn the call over to Farouq. Farouq Tuweiq: Thank you, Jean. And we appreciate everyone joining our call this morning. Thank you. During the third quarter, we continued to see robustness across most of our end markets, particularly within the commercial aerospace, defense and networking sectors, with continued steady rebound within our distribution channel and consumer lines. Our profitability this quarter surpassed our expectations, thanks to the continued dedication and discipline of our global team. This strong performance reflects our global team's dedication from pursuing strategic business opportunities and investing in key customers to effective procurement cost management, operational efficiencies and improved fixed cost absorption resulting from increased sales volumes. As part of our ongoing commitment to operational excellence, we are continuously reviewing our global footprint with an eye towards scaling Bel for long-term performance. In October, we made the strategic decision to transition operations from an additional facility in China to a subcontractor during the fourth quarter of 2025. This move follows a thorough evaluation of internal manufacturing costs versus outsourcing and outsourcing in this instance, proved to be the better alternative. We expect the transition to largely be completed by December 2025, with a fair amount of annualized cost savings to be occurring as we head into next year. We're also progressing with the restructuring initiative at our Glen Rock, Pennsylvania facility. Following the sale of the building in the second quarter of 2025, we are now transitioning the remaining manufacturing operations to other Bel sites, with full completion expected by early 2026. The Glen Rock initiative is projected to incur minimal incremental restructuring costs in Q4 2025. And throughout this process, we have already realized significant annualized savings as we had previously discussed. To put this in perspective for some of our newer investors, our restructuring efforts over the past 4 years have resulted in 7 facility consolidations in addition to the sale of our Czech business in 2023. These actions have resulted in an over 600,000-plus net square footage reduction on our manufacturing lines while leaning into automation and investing for the future of our factories. And I recall that, again, just to put a pin on it in terms of where we are heading, which is the more important part. As we approach the end of 2025 and look ahead to 2026, our focus is and has been firmly on our go-to-market strategy and driving growth, both organically and inorganically. Throughout the past few months, we have been meeting with Bel's key leadership across the world to identify the areas, methods and resources needed to better achieve top line growth. While we're in the early stages of strategic planning, I want to emphasize the exciting collaboration and energy within Bel's extended leadership team as we chart our next chapter. One of the common themes emerging is shifting our historical focus from products to end markets and customers to ensure we are delivering the totality of Bel to them. This mindset shift will take a while to cement, but is a logical step for a company such as Bel given the impressive breadth of our product portfolio. This is an exciting effort, and one that is key for a long-cycle design business such as Bel. In addition to driving growth, we're investing in the foundational structures that support our business, especially around IT systems and data infrastructure. To give you an example of some of the current initiatives, we are in the process of updating and implementing the CRM platforms, travel management software, developing various dashboards tools for key financial and operational metrics and KPIs. These enhancements will enable our leaders to make faster data-driven decisions, strengthen accountability and improve overall performance. Standardizing our processes and terminology will also allow us to scale efficiently and seamlessly integrate future acquisitions. In summary, there is a tremendous amount of activity and excitement underway at Bel, all aligned to our common goal of growth and continued maturity. With that, I'll turn the call over to Lynn to run through the financial highlights from the quarter and some color on the Q4 outlook. Lynn? Lynn Hutkin: Thank you, Farouq. From a financial perspective, we delivered another strong quarter, marked by continued margin expansion and robust sales growth across all segments. Third quarter 2025 sales totaled $179 million, representing a 44.8% increase compared to the same quarter last year. In addition to the $34.4 million of incremental revenue in the current quarter related to the Enercon acquisition, each of our 3 product segments achieved double-digit organic growth over last year's third quarter. Profitability improved alongside sales, with gross margin rising to 39.7% in Q3 '25, up from 36.1% in Q3 '24. This margin expansion was driven by improved absorption of our fixed costs in our factories with the higher sales volumes and by strong execution within each of our segments and maintaining discipline around the SKU level profitability. Turning to some details at the product group level. Power Solutions and Protection delivered another exceptional quarter, with sales reaching $94.4 million, representing a 94% increase compared to the third quarter of last year. Excluding A&D, organic sales grew by $11.3 million or 23.2%, reflecting strong demand for our power products in key markets. Sales of power products for networking applications increased by $11.4 million. Growth within the networking market reflects both rebound in demand following a long period of inventory destocking and new incremental demand driven by AI. As we've noted in the past, it is difficult to isolate exactly how much of this growth is AI-driven. But to provide a comparable metric to prior quarters, our third quarter sales into AI-specific customers were $3.2 million in Q3 '25, up from $1.8 million in Q3 '24. Other areas of strength within the Power segment were seen in sales of our fuse products, which were up $1.8 million or 41% from Q3 '24, and an increase of sales into consumer applications of $2.3 million or 39% from Q3 '24. As an important note, fuse products and consumer-facing products have very short lead times and are generally the first areas where we see the pickup in intra-quarter turns, which is a positive indicator for the overall business. As an offsetting factor, eMobility sales were $2.2 million in Q3 '25 versus the $3.4 million in Q3 '24, and sales into the rail market were $8 million in Q3 '25 versus $9 million in Q3 '24. Gross margin for the segment came in at 41.8% for the quarter, up 240 basis points from Q3 '24, largely driven by the higher sales volumes and better absorption of fixed costs at our factories. Turning to our Connectivity Solutions Group. Sales for the third quarter of 2025 reached $61.9 million, up 11% compared to Q3 '24. This growth was primarily driven by strong performance in commercial aerospace applications, where sales totaled $18.8 million, an increase of $6.3 million or 50.5% year-over-year. Connectivity product sales into defense applications also continued to be robust in the third quarter, with sales rising $3.6 million, a 31.2% increase from the prior year quarter. Contained within our defense number here are sales into space applications, which amounted to $2.5 million in Q3 '25, up 25% from Q3 '24. While connectivity sales through the distribution channel were down $1.9 million or 9.7% versus Q3 '24, it's important to note that this reflects the shift of an end customer out of the distribution channel and we are now servicing directly. Profitability within the connectivity segment continued to improve, with gross margin for the group rising to 40.3% in Q3 '25 from 36.6% in Q3 '24. This margin expansion reflects the benefits of operational efficiencies achieved through facility consolidations completed last year and a more favorable product mix. These positive factors were partially offset by minimum wage increases in Mexico and foreign exchange pressures related to the peso. Lastly, our Magnetic Solutions group delivered a strong quarter, with sales reaching $22.7 million, an 18% increase compared to Q3 '24. This performance was consistent with the expectations we shared on our last earnings call and was primarily driven by higher shipments to a major networking customer. Gross margin for the group improved to 29% in Q3 '25, up from 27.3% in Q3 '24. This margin expansion was supported by higher sales base and the benefits of facility consolidations in China, which helped reduce fixed overhead costs. These gains were partially offset by minimum wage increases in China and unfavorable foreign exchange impacts related to the renminbi. At September 30, 2025, R&D expenses totaled $7.5 million in Q3 '25, representing an increase of $2.1 million compared to Q3 '24. This increase was primarily attributable to the inclusion of Enercon's R&D costs, which amounted to $2 million during Q3 '25. Looking ahead, we anticipate that R&D expenses in future quarters will generally remain consistent with the Q3 '25 level as we continue to invest in new technologies and solutions to support our customers and drive long-term growth. Our selling, general and administrative expenses for the third quarter of 2025 were $32.8 million or 18.3% of sales, up from $26.7 million in Q3 '24. Importantly, SG&A as a percentage of sales declined from 21.6% last year, reflecting continued progress in managing our cost structure as our business grows. The increase in total SG&A dollars was primarily driven by the inclusion of Enercon's SG&A expenses, which contributed $6.6 million to the quarter and our U.S. medical claims continued to be high in the third quarter. As noted in prior quarters, our legacy level of SG&A expense was maintained during our period of reduced sales, such that we believe we are already spending the right amount on fixed SG&A infrastructure needed to support future growth. Turning to our balance sheet and cash flow. We closed the quarter with $57.7 million in cash and securities, down $10.5 million from year-end. This decrease was primarily driven by our proactive efforts to strengthen the balance sheet, including paying down $62.5 million in long-term debt, resulting in $225 million of total debt outstanding at September 30, 2025. Additionally, we made $2.5 million in dividend payments and invested $8.6 million in capital expenditures to support growth and efficiency initiatives. These outflows were partially offset by $7.8 million in proceeds from property sales and $1 million from the sale of held-to-maturity securities earlier in the year. Looking ahead to the fourth quarter of 2025, we continue to see strength across all 3 segments. Historically, we have seen seasonality in the fourth quarter with fewer production days due to the holidays being celebrated around the world. In light of this historical trend and based on the information available as of today, we expect Q4 '25 sales to be in the range of $165 million to $180 million. We noted in the second and third quarters that the trend of intra-quarter sales has resumed, and this range assumes that trend continues into the fourth quarter. And with that, I'll now like to turn the call back to the operator to open it up for questions. Operator: [Operator Instructions] The first question comes from the line of Bobby Brooks from Northland Capital Markets. Robert Brooks: Just wanted to circle back on those last -- the last piece that Lynn, you were touching on for the fourth quarter guide. Obviously, something that caught my eye was, yes, bucking kind of the historical trend of 4Q being lower than 3Q. And you mentioned that trends of intra-quarter sales have resumed and that the range assumes that continues in the fourth quarter. I was just wondering if we could just discuss what other factors might be at play, driving that outlook a little bit more detail because I feel like that's a really kind of exciting development for you guys. Farouq Tuweiq: Yes. Bobby, I'll let kind of Lynn jump in here with more details. But I just want to kind of call out a comment that caught my ear here, which is this kind of step down over Q4. I think you said bucking the seasonality trend. I think if you look at -- we see a potential of that, if you just look at the range that we put out there, $165 million to $180 million versus, let's say, the $179 million that was delivered, so possibly. But when we look at the range, I think it's broader than that in the sense that we do expect some seasonality, right? I mean, at the end of the day, we're going to have fundamentally less working days as we head into the holiday season and year-end and as we look kind of around the world and also just various holidays, whether it be kind of Golden Week and/or some of the holidays, for example, in Israel. So, I just want to be mindful that we just do have less working days. So, could it happen? Sure. I think the good news is we're expecting it to be a good quarter, but maybe we beat Q3, but I just want to be mindful of that. And I'll turn it over to Lynn here. Lynn Hutkin: Yes. So just to add to what Farouq said, I think that we are seeing continued strength in areas like commercial air, defense, AI, space. We are continuing to see the rebound coming through in networking and distribution. So, all of these trends are continuing from Q3 into Q4. So it's definitely end market strength continuing. But to Farouq's point, just mathematically, there are fewer production days in the quarter. So there's Golden Week in China, which was the first week of October, and then there's Thanksgiving and all of the winter holidays throughout the world in December. So it's really -- those are the pieces. So, I mean, if you stripped out the holidays, the messaging would likely be different. But if you look back at our trend historically, having a dip from Q3 to Q4 is pretty natural for us. So... Robert Brooks: Yes. I really appreciate that color. And I guess more so, it's just -- I definitely can appreciate that, yes. A lot of the ranges would be 4Q being coming in lower than 3Q. But I guess what just caught my eye was the guidance that you gave matched what the guidance was for 3Q. And usually, your guidance is for even the high end of the range being lower than what 3Q was. But I can appreciate those puts and takes you just laid out. The other piece is just like on those legacy customers and kind of the order trends. Is it fair to assume that -- it seems like it's fair to assume that those are still trending positively. But maybe could you give some more context as to like how to think about where they could go? Like obviously, we're coming off like trough levels in '24. But do you think they can -- do you feel like they are like continuing to improve? Or are they just at an improved level now stabilizing? Just curious to hear more on that. Farouq Tuweiq: I think if we look -- if we zoom out and we look at kind of, let's say, the last 5 years, 2020-2025, I think the industry would generally agree with the statement that has been anything but normal. In terms of the extreme extended lead times that happened in the earlier part of the time frame, I just laid out to an extended dip, if you will, where the industry was kind of down for a longer time than normal. And then you overlay a lot of geopolitical and economical uncertainties, let's say, right? So, I think the reason I point that out, I'd say, is it's still a little bit, I would say, not normal. And I think what we're seeing is a little bit of a maybe hesitation, if you will, on the parts of the customers and kind of robustly coming back. So the good news is that the attitudes have changed a little bit, I think, from a historical perspective. But what we are seeing in our business and we look at backlog and discussions, there's definitely a positive outlook, right? I think maybe if you look back at -- again, we have a lot of customers in a lot of places, so just general terms here. But generally, we'd see people maybe coming back a little bit stronger. And I think if you look at the industry-wide, and I was at a conference last week, there's a little bit of timidness. So, people are maybe not investing as much in a buffer stock and really more kind of just ordering as needed. But what we really look at is the end demand, right, our customers' demand. We're in a B2B business. So, what does their demand cycles look like? Where are their products going? And are they growing? And the answer is yes, as is reflected with our number and with our guide. So, we like the outlook, but I think it's hard to generalize that everybody is feeling all yippie about the world. So nonetheless, we like our positioning. We like our -- where we are with our customers. And I think we'll have pretty good outcomes here. Lynn Hutkin: And just to add, our book-to-bill was positive again this quarter. So, that's the third consecutive quarter of a positive book-to-bill ratio. And I mean, we haven't seen that trend since back in 2022. So, I think just generally, we're seeing more activity, which is positive. Robert Brooks: Got it. And then just last one for me is, I was really impressed, Lynn, when you were going through each kind of segment of power, and it really seems like power was driven -- these robust results in power were driven across many different segments. And it was nice to hear you break out what Enercon was as well. And just curious on Enercon, is the integration of them into you guys kind of wrapped up now? Or is there still a bit more to go? And then just curious on -- obviously, you guys are working on long lead time projects, but any early reads on kind of cross-selling opportunities maybe starting to bubble up here? Farouq Tuweiq: Yes. So, I would say, I think we want to be just mindful of the word integration because the plan was never kind of a, let's say, classical approach to integration. right? So from our -- when we think about integration, it's really around alignment from a go-to-market and tackling opportunities and co-selling and making sure that we are kind of creating opportunities together. And obviously, in Europe, it's a little bit of a different playbook as we talked about in the past, right, just in terms of trying to manufacture a little bit more there and be more present in our customers' backyards. But putting all that aside, I think we're definitely moving in the right direction. There's definitely obviously more work to be done, but we are seeing some nice, let's say, early sparks of where one side of the house is bringing an opportunity to the other side of the house. So I think our, let's call it, lead sharing, co-tackling is better, but we do have more room to go, keeping in mind that while we also want to do that, it is a very busy market, right? So step one, we got to do our day jobs and get out and push, and we're seeing the benefits of that strategy, but also want to make sure that we're more aligned. So, I would say we like what we're doing. We can do a little bit more, and we plan on doing a little bit more. Operator: We take the next question from the line of Theodore O'Neill from Litchfield Hills Research. Theodore O'Neill: Congratulations on the good quarter. Lynn, you mentioned in your prepared remarks, you saw a shift -- you had a shift of a customer out of distribution to service directly. And I have 3 questions related to that. How often does that happen? What determines the shift? And how does the distributor feel about it? Farouq Tuweiq: So, I would say -- first of all, thank you for the question there, Theo. I'd say we've kind of talked about in the past, distribution is a very dynamic channel and they're great and key partners for us and within our industry. And it's really hard to paint this in a broad stroke, but I'll try my best. Some customers, while we may design and work with them directly, ultimately, they want the distributor to aggregate all their purchases, right? So, we may start the relationship direct and it goes into the distribution channel to give them some kind of fixed fee. And the inverse of that also happens where a customer comes to us through distribution and then we develop something together, and it can be distributed and worked through the distributor or sometimes it does come out. So it happens both ways. And I would also say the -- some of the guiding principles on that include minimum order quantity. So if it's something smaller, we wanted to go through distribution. So sometimes we push people into the distribution channel to really maximize our cost to service these customers' model. So, I would say it's definitely a dynamic channel. And I would say when we look at distribution, it's a great discovery channel for new customers. So, I wouldn't say we're doing anything unusual in our industry because at the same time, we're not looking to burn the relationships, right? So this is pretty standard, I would say. The other thing is not all distributors are the same. There are some folks that really focus on kind of low quantities and as things scale, they don't want you in the channel, so you take it out directly. Other folks more if it's big and opening up doors. So, I'd say the answer is it depends, but I wouldn't say anything unnatural or odd happened here. Theodore O'Neill: Okay. And what's the M&A opportunity looking like for you right now? Farouq Tuweiq: Yes. I mean, I think we've been very clear. We like our balance sheet. We continue to pay down our balance sheet. We like where the direction of just paying down more heading into Q4 and into next year is going. So, we feel like we are in a very good position to do an M&A deal. I think really the question as we kind of think about is how big and what is it. And when I say how big, it's both in terms of just size and scale, complexity and also purchase price, right? So today, I would say it's still not a healthy M&A environment, but I think we are seeing a step-up in terms of opportunities versus Q1, Q2 this year. So, we are seeing more shots on goal. I would not classify it as normal yet, but we definitely have some opportunities ahead of us that we're kind of working through. I would also say is it feels like if you look at our course of a quarter, we always have something live. The question is, do you want to strike and do you like the business fundamentals? So, that kind of -- hopefully that answers your question, Theo. Operator: We take the next question from the line of Jim Ricchiuti from Needham & Company. James Ricchiuti: I apologize if you gave some of this detail in the presentation. I joined a little late, but I did hear something regarding the ongoing transition with some of your manufacturing footprint, I think. Did you say you're divesting a facility in China if I understood you correctly? Are you partnering with a contract manufacturer on these products? And if I missed it, did you provide any detail on which product areas are affected? And to what extent this is going to have an impact on margins? Or is it fairly small? Lynn Hutkin: So Jim, it's within our Magnetics segment. And we are -- we basically went through an analysis of whether it was more cost efficient for us to be manufacturing internally versus outsourcing that manufacturing. And in this case, we chose that outsourcing was the better alternative. As far as impact on gross margin, that would be about $1 million a year. Farouq Tuweiq: Yes, give or take. Obviously, we're in the process of moving that, but it will be positive. And more importantly, I'd say than that, Jim, is allow us to focus on the things that we excel at, right? So hopefully, it unlocks more bandwidth than beamwidth for us to pursue things that have a better ROI for us. James Ricchiuti: Got it. And the strength you're seeing in networking, I was wondering if you could maybe drill down into that a little bit. Is that being driven by just the increased AI investment that we're all hearing about? Or is it simply the distribution channel having just burned off the excess inventory that was out there or maybe it's a combination of both. Lynn Hutkin: Yes. So in networking, and if we talk about -- are you asking about a particular segment or just in general, Jim? James Ricchiuti: I'm talking about networking because you did highlight that as one of the areas. Lynn Hutkin: Yes. So, that was right. So if we're talking about the Power segment, we mentioned it's really a combination of both of those factors that you just said. So, there is some rebound happening coming off of the couple of years of destocking that we went through. But then we're also seeing new incremental demand related to AI. So it's a mix of those 2 that's driving the growth in networking. James Ricchiuti: And Lynn, you mentioned, I thought book-to-bill was above 1. Is that right? And did you -- can you characterize the bookings by the 3 main product areas, whether there was much variability among the 3? Lynn Hutkin: So, each of the segments were above 1. We saw positive book-to-bill across all 3 segments. Operator: We take the next question from the line of Greg Palm from Craig-Hallum. Danny Eggerichs: This is Danny Eggerichs on for Greg today. Congrats on the solid results here. I think just first off, maybe kind of a broader question on demand you're seeing from your -- each of your respective geographies, anything to call out in terms of outperformance, underperformance? And then maybe specifically on China. I know last quarter, we saw kind of the pause and then the resumption of order patterns. So, maybe just kind of what you're seeing current day and whether those have kind of just returned to business as usual. Farouq Tuweiq: Yes. I'd say, Dan, that's a good question. I think, giving our end markets -- so understanding, right, kind of taking a step back and saying we're -- the numbers move around a little bit. But by far, 2/3 plus of our business is kind of exposed to U.S.-based customers, right? And when we look at those, we also see that A&D is our largest end market today, which kind of lends itself both to the U.S., Israel and Europe. So when we look at geographies with the lens of the end markets, I'd say the kind of U.S.-based customers and Israeli-based customers are probably leading the way. And then also combining the networking side, also, those are the vast majority of the people we spend time with. Asia is our smallest exposure and then Europe/Israel is in the middle, right? So from a mathematical perspective, we're going to really kind of move the needle as we see our, let's say, U.S. and Israel business moves predominantly. In terms of demand environment, I'd say the U.S. seems a little bit more healthier, broadly speaking. When we look at Europe, I think it's a little bit of a mixed bag. So, our rail business is a fair amount in Europe, for example, right, we talked about. So, that was a little bit down. EV and eMobility, which sits in our Power group tends to be more European exposure. Obviously, there's other things going in the sector. But Europe, I'd say, is a mixed bag. It really depends on what it is you're talking about in terms of end market exposure. Asia is kind of an interesting place for us. It is a small place, but we have throughout this year, invested in the senior leadership within our sales organization in Asia. And I think we're seeing some nice opportunities coming out of that. So, we like what we're seeing, but Asia generally is a smaller play for us. And also keep in mind that for us and the end markets we play in, right, we're not really a heavy consumer market business. We're not auto. And obviously, we're not a race to the bottom on pricing. So, Asia for us is a selective strategic play where we pick our spot. So, we can do more in Asia. We are planning on doing more in Asia. But I'd say that, that's going to just round robin there on geographies. Danny Eggerichs: Yes. Got it. That's all really helpful. Maybe if I can hit on the Power segment and specifically kind of the gross margin there, I think it's kind of the same thing we saw last quarter where even this quarter, you see even a bigger sequential step-up in revenue, but that gross margin kind of stays flat or maybe even slightly steps down. I know last quarter was kind of the legacy business outgrowing Enercon and kind of being a negative mix factor there. So, I guess how should we think about that as Power continues its growth trajectory? And when should we think about kind of that gross margin hooking up with the revenue growth and seeing some expansion there? Lynn Hutkin: Yes. So, I think on the gross margin side for Power, I mean, there's a few different factors going on. Obviously, the Enercon acquisition is additive to our legacy Power margins. I think the one thing to keep in mind, both in Q3 and going forward here is there are 2 currencies within the Power segment where there could be margin pressure. So, we have the Israeli shekel related to the Enercon business and then also the renminbi related to the China facility that we have within Power. And we don't have a natural hedge in place. We do have some hedging programs, but they're not hedging in all exposure. So, that's something that we just need to be mindful of because that can move margins a little bit. Farouq Tuweiq: And then also keeping in mind some of our other margin businesses like eMobility and rail are down and those tend to be higher margin. I think the bigger -- I think discussion is today, we're at a point where I would say we're at great levels of gross margin. And if we're trying to think about growth, right, what is the opportunity there to expand to new customers, new offerings and new products versus having an extremely strict line on gross margin, right? So that's kind of something we're thinking about kind of how do we smartly think about that to ultimately drive EPS all the way down. Because as we've said in the past, to a large degree, there is some -- our SG&A and R&D are relatively range bound. So, how do we really get some operational leverage from that cost structure to continue to drive the top line. So, these are kind of things that we're all kind of thinking about. But I would say today, we're definitely up there in terms of performance on margins. Danny Eggerichs: Okay. Yes. And maybe that kind of plays into my last question here, which is kind of the Q4 guide and the gross margin range. Just looking back year-to-date, the gross margin has kind of been at like a 39%. And obviously, revenue levels in Q4 that suggests higher than -- quite a bit higher than what we saw in the first half at the midpoint here. So, I'm sure it's a lot of those factors that you just talked about, but any other things within that gross margin assumptions, maybe mix or maybe there's a little bit of conservatism built in there? Any thoughts there? Lynn Hutkin: So, I think it's a couple of factors. One is our Magnetics group has been depressed over the last couple of years, right? So as that rebounds, it is our lowest gross margin segment. So if you're looking at our gross margin in total on a consolidated basis, that would have some downward pressure on it as Magnetics grows into a larger piece of the overall pie. So, that's one piece to keep in mind. I think the -- if we're looking at Q3 sales to Q4, seasonally, we're down a bit in Q4 versus Q3. So if that happens, you have less leverage within your fixed cost absorption, so that could have some potential gross margin pressure. And then as I mentioned, on the FX side, with the peso, the renminbi and the shekel, those do directly impact our margins. So, those are some of the factors that come into play when we are putting out our guide for margin for the fourth quarter. Operator: We take the next question from the line of Christopher Glynn from Oppenheimer & Company. Christopher Glynn: Congrats on the nice results. Just curious in terms of the development of the commercial multiple that you've described in some detail, where are you seeing the kind of leading end of progress, early adopters, so to speak, in terms of design cycles, new business opportunities generating? It seems like AI, maybe defense. You noted a little progress in Asia. Maybe there's some other cross-sections to bring into the discussion as well. Farouq Tuweiq: Thanks for that, Chris. I think your question is just more commercial across the business and where they're coming from, the new wins? Christopher Glynn: Yes. Yes, exactly. And maybe a little color on new business opportunities, what's the growth there year-over-year? Farouq Tuweiq: Yes. So in general terms, right, as an engineering-led organization and we've talked about this, we're a medium to long-term kind of design cycle business. So really, the actions and the results that we're seeing today in Q3, you can almost got to look back at least 1 to 2, 3 years to see what was done then and kind of seeing where these wins have come, right? So I would -- obviously, as Lynn said, we do have some intra-quarter turns that do happen. But generally, I would say what happened in Q3 here is probably not a whole lot in large in terms of new business that things that happened in Q2, maybe some Q1 stuff, okay? So, this puts a big pressure on us to make sure that today, in Q3 or Q4 here, we're working for Q2, Q3, Q4 next year and beyond. So the question is, okay, well, how are we as a team tackling go-to-market and what is our sales initiatives and what is our data side of things to help lead those kind of tip of the spear activities. When we look at the activity around new developments and new wins that we saw, for example, in Q3, it's definitely exciting for us, to be honest with you. We're seeing some nice new wins, some bigger wins than maybe we historically have, some new customers that we, historically, were not maybe competitive or didn't kind of co-tackle it appropriately. Obviously, with the customers we've had for a very long time, we, I would say, probably constantly win new programs, right? When we look at, obviously, defense, which is our biggest kind of market nowadays, it's not like there's a whole lot of primes in the U.S., right? So really, there, we look at, are we getting more shots on goal? Are we getting new opportunity design wins? And I think the answer is yes. When I speak to the teams across Bel Fuse, I think there's a pretty fair aggressiveness in terms of hunting for the new. We are defining what new is. We want certain margin profiles of business and learning how to win. Again, we've always done this throughout our 76-year history, but I think we're putting more fire around it in recent times. And this was kind of my earlier commentary here, Chris, where when today, our business is really kind of -- we think about things to some extent from a product perspective, but we have a lot of products that go to the same customers. So how can we align ourselves more robustly to deliver solutions to our customers to ensure that we're not missing a cable or a connector or a fuse sale because we're selling a power system. So when we look at our product portfolio, I think we can do more with it. And this is back to also my earlier commentary around we got to invest in the systems and structures that we can make sure we're going after highest ROI opportunities and really measuring performance. It was a little bit of a new muscle for us, but I think the early signs and the wins we're seeing today, we kind of got to look back probably before 2025, to be honest with you. Christopher Glynn: Okay. Great. And then just curious on Enercon, if they're caught up on shipments. I think they had a little delivery snags last quarter. And did the quarter include some catch-up? Or is that just the sequential scaling that the business is generating? Farouq Tuweiq: Yes, both. It continues to kind of go from strength to strength. There was a little bit of catch-up, but also just kind of depends on where the catch-up we're talking about is. The biggest issue end of June, as you may recall, just flights stopped coming in, specifically from India and out of Israel. So, that's kind of the catch up, but it wasn't a very long pause, right? And obviously, there was local consumption that happened inside of Israel. So, there was some catch-up, but also, yes, growth, whether it be sequentially or year-over-year. Operator: We take the next question from the line of Luke Junk from Baird. Luke Junk: Farouq, I want to circle back to gross margins and maybe more of a philosophical but bigger picture, certainly. If we look at the gross margin trend this year, it's been above the high end of guidance 3 straight quarters, 39% plus in general. And just love to get your thoughts on kind of your feel for volume leverage in the business on a go-forward basis, especially as you continue to layer on those new design wins just relative to your understanding of the improved cost structure and kind of what that can mean incrementally as you do add volume? Farouq Tuweiq: No, I appreciate that question, Luke. It's a question we've been thinking a lot about in general is where should you be, right? And I think by all accounts, putting aside our mix between Magnetics and the other segments, yes, we're seeing an uplift in margin as sales grow and we are getting operational leverage. The question is now that we are really trying to shift our mindset away from just operations and cost efficiency, which always just become regular way table stakes, how do you drive growth? So as we launch new products and go after new customers, invest in new relationships and new technologies, we need to be honest with ourselves and say, okay, what is the pricing strategy on things. So for example, right, let's say there's a very nice piece of business that was, I don't know, $1 million, $2 million that was a little bit below corporate averages. But over time, we can scale it up and also get new opportunities. Would we take that business? I think we really need to consider that if it's a strategic relationship. I think the gross margin strategy, let's say, has not been one that was available to us through our history. So now we got to look at it as an asset and as a tool. Now keeping in mind, we work very hard to get our gross margins here, right? We don't want to arbitrarily kind of get it further into that 37%, 39%. So, I think there's a little bit of self-discovery, to be honest with you, as to where we should be. I think when we look at gross margins today, we want to make sure we're not picking out too much and just really missing the boat on EPS growth, given that we talked about the range boundness of our SG&A and R&D. So that's, I think, the sense of maybe a little bit of conservatism there. I think the -- I appreciate in public markets that everybody is looking to manage a certain level of expectations. But our intention, and we've talked about this internally, is we want to land in range, right? We don't really want to blow the range on the top or on the bottom. So, I think our -- and we give the optics here in the last 2 quarters to your point, I think we could see some conservatism. That's fair. The question is, okay, as we go throughout next year, where do we want to be? The good news is we have a lot of -- we have a buffet of options to play while delivering good returns, good gross margins to our investors, and that's kind of the front and center. So it's a little bit of a self-discovery journey we're going through to be honest. Luke Junk: That's all very helpful. Second question on -- just curious if we could double-click on networking and AI specifically in terms of the design win activity and just tilting the organization to growth overall. I guess I'd be especially interested in Power and just how you think going forward? I mean, we're seeing this rebound, obviously, in demand from an inventory standpoint and whatnot and those direct AI sales. But as you think about building the pipeline, just the opportunity set within Power specifically? Farouq Tuweiq: Yes, no. I mean, today, with an improved cost structures and the investment that has gone into the factories from an automation perspective, the improvements R&D teams that have done in terms of moving quicker to launch products, our sales team being more mindful of what we're going after. I think today, we're in a better position to go after opportunities and be a little bit maybe more serious about it than we have been able to in the past, okay? So as a result of that, as we think about networking, there's obviously a -- and as Lynn talked about earlier, we know where our AI products are going, but that's a floor, right? And we know that we sell to some other networking folks that are servicing directly AI. So, we know that our products that we're selling to networking guys are probably also being impacted by AI. How do you measure it is a different complexity to it, right? Because our products are high-end products that can go to AI or other applications. But I think it's hard to say that all things going on in AI data center world is not positively impacting us. The other thing I would say is with the improved operational structure and more focus on the markets is we have, I'd say, started to open up doors with some customers that maybe in the past, we were not cost competitive or we're not focused on, maybe a little bit too much in our comfort zone. So, we're seeing some of that newness as well. The other thing I would say in the networking side, given that there's a lot of investment and focus on it, broadly speaking, we are seeing new entrants into the markets with newer technologies. So all that, I think, at the end of the day, is additive for us from a networking perspective. So, we want to make sure that we're not just simply waiting for the same customers we had 3, 4 years ago to come back. Yes, that's a benefit, obviously. But I would also say we want to make sure we're investing in new relationships. And within the existing relationships, I think we're doing a little bit of a better job learning how to more service our customers to more ingratiate ourselves into that relationship and get more opportunities on goal. Because if you look at some of our big customers, we can do so much more. The question is, how can you do so much more, right? And that's kind of what we're trying to really push the team. And quite frankly, we're seeing some nice results of that. Luke Junk: All really great color. Just a quick one for my last question. And then you called out for the second straight quarter that there was some increased medical expense in the SG&A line. Just how we should think about that sequentially into the fourth quarter, if you have any visibility? And then going into next year to the extent that, that doesn't repeat, would it be reasonable to assume some normalization in SG&A? Farouq Tuweiq: Yes. I would say the -- just can I give some context here? We're really talking about the U.S. side of the business. And obviously, we all read and feel what's going on in all things world of health care and medical care. We are a self-insured plan, right? And whenever we do kind of market checks on it, it still is the most cost advantageous way to do it. So every kind of few years, we go out there and check and make sure it's the right. So today, we are self-insured. The downside of self-insurance is there could be variability in claims that come in the door, and we're seeing that in Q2 and Q3. But the variability is hard to get a read on it, right? We just don't know when somebody is going to have a major medical issue that comes our way. The plus side of going to a regular way health care is you have a fixed cost, but every year somebody comes and the health care companies will give you a big increase, right? So from our perspective, we're still in a cost advantageous way, but it does introduce variability to your point. The other thing I would say is as just the overall age of our organization, right, medical claims are not unexpected. So, what does that mean for next year? I think that's a tough question to answer for us, and we obviously saw a spike in Q2 and Q3 a little bit here. Operator: We take the next question from the line of Hendi Susanto from Gabelli Funds. Hendi Susanto: Congrats on strong results. My first question is you talk about rebound in networking and distribution customers. Can you talk about rebound or sign of rebounds across other areas, specifically, let's say, in Magnetic, Connectivity and then some major areas? Lynn Hutkin: Sure. So, I think for -- so you're looking for a breakdown by product group, Hendi, or just other end markets aside from networking? Hendi Susanto: Yes. I think like where -- like besides networking and distribution channels, are there like early signs of inventory rebound, customers rebuilding their inventory or maybe whether you have some outlook or expectation on where rebounds would start to take place in other areas? Lynn Hutkin: Yes. I think the other 2 areas that we've been seeing a rebound, which had been depressed in prior periods is in the consumer end market. If you recall, last year, that was the end market that was impacted by one of our large suppliers in China. And so that had been depressed for several quarters. We did see a rebound in that business in the third quarter. So, that was nice to see now that we have some new suppliers identified, getting product back out into the market at this point. So, there's been a rebound there. And then also on the fuses side -- I mean, fuses go into everything, but that's something that had been softer in the past and we're seeing that rebound now. So, I think those are probably the other 2 areas in addition to networking and distribution. Hendi Susanto: Got it. And then Magnetics sales is still significantly below pre-COVID levels. Any puts and takes in terms of expectation on Magnetics sales, let's say, like going forward, like where the recovery is somewhat -- is likely in the short to midterm? Farouq Tuweiq: Yes. So, I think when we look at Magnetics, Hendi, I think when we look at the industry and we've seen this in our Power, right, there was a very unnatural spike that happened back in 2022-2023, where customers were literally buying and renting new warehouses just to store a lot of these components. So, there was a, let's say, unnatural behavior there today. So if we were to kind of put a range on where we've been, let's say, it was $175 million to roughly $75 million, we would look at peak to trough, roughly speaking. I would say $175 million is probably not in the cards for the next few years because also remember, we walked away from certain business and we are being prudent after what business we're going after. And also keeping in mind that the Magnetics, as we talked about there, there is a product concentration and 2 end market concentration, which is networking and distribution largely. So if we look at the ranges of $75 million to $175 million, I would say the -- or I should say $70 million, sorry, the range was $180 million to $70 million. So, I'll let you kind of decide where we are, but we're seeing the year-over-year over growth. But 2022 at $180 million was extremely unnatural, and we've slimmed down the business since then. So, I would not really anchor to that. So, I'll leave it at that, but we do think that we got some ways to go here. Hendi Susanto: Got it. And then, Lynn, may I ask how we should think and project the pace of potentially early debt payment? Lynn Hutkin: The pace of debt payments going forward? Hendi Susanto: Yes. Yes. Lynn Hutkin: So, I mean, barring an M&A opportunity coming up or anything like that, we've been running at a rate of, call it, $20 million to $25 million a quarter just based on our cash flows. So, we would continue to pay down debt. That would be our first priority, barring anything on the M&A side. Operator: Ladies and gentlemen, with that, we conclude the question-and-answer session. I would now hand the conference over to Farouq Tuweiq for his closing comments. Farouq Tuweiq: Again, I want to thank everybody for joining us here and a very big thank you for the Bel Fuse team around the world and our customers that helped us deliver this great quarter. And we'll put our head down to continue to work throughout the year here and heading into 2026. Wishing everybody a great holiday season as we head into year-end, and I'm sure we'll be talking soon. Thank you very much for joining us this morning. Operator: Thank you. Ladies and gentlemen, the conference of Bel Fuse Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Greetings, and welcome to the STAG Industrial Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Steve Xiarhos, Vice President, Investor Relations. Thank you. You may begin. Steve Xiarhos: Thank you. Welcome to STAG Industrial's conference call covering the third quarter 2025 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website at www.stagindustrial.com, under the Investor Relations section. On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include forecast of core FFO, same-store NOI, G&A, acquisition and disposition volumes, retention rates and other guidance, leasing prospects, rent collections, industry and economic trends and other matters. We encourage all listeners to review the more detailed discussion related to these forward-looking statements contained in the company's filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental information package available on the company's website. As a reminder, forward-looking statements represent management's estimates as of today. STAG Industrial assumes no obligation to update any forward-looking statements. On today's call, you'll hear from Bill Crooker, our Chief Executive Officer; and Matts Pinard, our Chief Financial Officer. Also here with us today are Mike Chase, our Chief Investment Officer; and Steve Kimball, our Chief Operating Officer, who are available to answer questions specific to their areas of focus. I'll now turn the call over to Bill. William Crooker: Thank you, Steve. Good morning, everybody, and welcome to the third quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about the third quarter 2025 results. Our year-to-date results continue to exceed internal projections. The outperformance year-to-date has allowed us to increase our core FFO guidance for the year to a range of $2.52 to $2.54 per share, a $0.03 increase at the midpoint. Industrial fundamentals remain stable and are improving. Leasing demand is improving with increased tours and RFPs. However, lease gestation periods remain elongated. Supply pipeline continues to decrease, and we are forecasting further decreases next year. While we expect national vacancy rates to be in and around 7% for the next 2 to 3 quarters, we anticipate those will improve materially in the back half of next year. Based on this, we believe our market rent growth for next year to be similar to the 2% market rent growth expected for 2025. We have accomplished 99% of our forecasted leasing for 2025 at levels consistent with our initial guidance, including cash leasing spreads of approximately 24%. Turning to next year, 2026 represents a record amount of square footage expiring in a calendar year for our company. I'm pleased to report that we've addressed approximately 52% of the operating portfolio square feet we expect to lease in 2026. This compares to 38% at the same time last year. We expect cash leasing spreads to be between 18% and 20% for 2026. This leasing success is a testament to the quality of our portfolio and a welcome sign of tenant engagement and commitment to their space. We've seen an increase in acquisition opportunities in the market, specifically with sellers eager to close by year-end. Acquisition volume for the third quarter totaled $101.5 million. This consisted of 2 buildings with cash and straight-line cap rates of 6.6% and 7.2%, respectively. Subsequent to quarter end, we acquired one building for $49.2 million with a 6.5% cash cap rate. In addition to the $212 million of stabilized acquisitions we have closed so far this year, we have $153 million more under agreement and slated to close before year-end. In terms of our development platform, we have 3.4 million square feet of development activity or recent completions across 13 buildings as of the end of Q3. 52% of this 3.4 million square feet are completed developments. These completed developments are 83% leased as of September 30. This includes a full building lease totaling 244,000 square feet, which commenced in Greer, South Carolina on September 1, with 3.75% annual rent escalations. Subsequent to quarter end, we leased the remaining 91,000 square feet in our Nashville development. This project is now 100% leased with a cash stabilized yield of 9.3%. We stabilized this transaction 210 basis points higher than our initial underwriting and 6 months ahead of schedule. Including this transaction, our completed developments are currently 88% leased. I'm happy to announce a recently signed build-to-suit project on a fully entitled 40-acre parcel of land located in Union Ohio. We'll develop a Class A 349,000 square foot warehouse with our development partner. The building is scheduled to be completed in Q3 2026. Upon completion, the building will be fully leased for 10 years with 3.25% annual lease escalations to a strong credit tenant. The project is estimated to cost $34.6 million and is expected to have a stabilized yield of 7%. With that, I will turn it over to Matts who will cover our remaining results and updates to guidance. Matts Pinard: Thank you, Bill, and good morning, everyone. Core FFO per share was $0.65 for the quarter, an increase of 8.3% as compared to last year. During the quarter, we commenced 22 leases totaling 2.2 million square feet, which generated cash and straight-line leasing spreads of 27.2% and 40.6%, respectively. Additionally, executed leasing activity accelerated from 4.1 million square feet leased in the second quarter to 5.9 million square feet leased in the third quarter. 2025 is on track to be a record year in terms of leasing volume. Retention for the quarter was 63.4% and 78% for the year through September 30. We have accomplished 98.7% of the operating portfolio square feet we expected -- we currently expect to lease in 2025, achieving 23.9% cash leasing spreads, demonstrating the strength of our portfolio. As mentioned by Bill, we have accomplished 52% of the square feet we currently expect to lease in 2026, achieving 21.8% cash leasing spreads. Same-store cash NOI grew 3.9% for the quarter and has grown 3.5% year-to-date. Included in the same-store cash NOI is 23 basis points of cash credit loss incurred this year as of yesterday. Moving to capital market activity. On September 15, we refinanced the $300 million Term Loan G, which was scheduled to mature in February 2026. It now matures March 15, 2030, with one 1-year extension option. The term loan bears an aggregate fixed interest rate, inclusive of interest rate swaps of 1.7% until February 5, 2026, and will then bear an aggregate fixed interest rate, inclusive of interest rate swaps of 3.94% from February 5, 2026, through initial maturity. Leverage remains low with net debt to annualized run rate adjusted EBITDA equal to 5.1x with liquidity of $904 million at quarter end. As for guidance, we have made the following updates. We have decreased and narrowed the range of expected acquisition volume to a range to $350 million to $500 million. As a reminder, the impact of external acquisition volume has always been heavily weighted to the end of the year and has a minimal impact on our core FFO guidance. G&A expectations for the year have been reduced to a range of $51 million to $52 million, a decrease of $1 million at the midpoint. Cash same-store guidance has been increased to a range of 4% to 4.25% for the year, an increase of 25 basis points at the midpoint. These guidance changes contributed to a revised core FFO guidance range of $2.52 to $2.54 per share, an increase of $0.03 at the midpoint. I will now turn it back over to Bill. William Crooker: Thank you, Matts, and thank you to our team for their continued hard work and achievement towards our 2025 goals. We're excited about the opportunities that are in front of us here at STAG. Activity is improving across all aspects of our platform, including acquisitions, operations and development. These areas will all be key contributors to the future growth at STAG. We will now turn it back to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Craig Mailman with Citi. Craig Mailman: Bill, the progress on '26 here is really good, puts you guys in a good spot for next year. I'm just kind of curious, is it tenants coming to you -- could you just talk about what is driving that, I guess? Is there a higher weighting of those maturities kind of skewed towards the first half, and so you're just in that window of tenants kind of looking to get that done? Or are people coming to you early? I just kind of want a little bit more color on what's driving that. Is it -- like what's the breakout of renewals versus kind of new leasing or backfills of vacated lease expirations? William Crooker: Yes. Thanks, Craig. I'll just answer the second part first. The breakout between renewals and, call it, new leasing, about 95% of that number is renewals, which makes sense just given where we are in the calendar, so 5% is renewals. And then with respect to, are they coming to us, are we going to them? It really is -- it's a blend, right? We've been a little bit more proactive with our tenants, just given the larger than normal lease expirations we have in 2026. So we've been proactive. Our team has been proactive. But then also, we've had our larger sophisticated tenants reach out to us and engage earlier than normal because I think a couple of factors. One, they like their space. They view themselves in their space for long term and they wanted to lock it up because in some instances, they have a large investment in that space. And that skews a little bit more to the bigger suite sizes. So next year, we have 5 or 6 large lease expirations, so call it anything over 400,000 square feet. So of those, we've addressed all of them except for one, which we're in active negotiations with. So that was a little bit of a different dynamic in '26 than we've had in previous years. So that also impacted the 52% versus prior years, circa 38%. Craig Mailman: And you guys -- you talked about the build-to-suit in Ohio. You guys got Greenville done, you got Nashville done. I mean is this -- I know that everyone and you guys included have been talking about sort of a thawing of the tenant decision-making. I mean is it people just feeling more comfortable putting capital out the door? Or is there a bit of FOMO in some of your markets where you don't have as much new supply as kind of where it's top-heavy in a couple of markets in the U.S. and so some things have been taken off the table and now people are rushing to make sure they secure a spot? Like could you talk a little bit about the dynamics across some of your markets and maybe point out some of the really -- kind of your best and maybe still slowest markets in terms of activity? William Crooker: You're good, Craig. I think that was 6 questions in one. But I'll do my best to try to address all of them. I'll try to address as much as I can there. With respect to our markets and developments, we haven't had the volatility that they call it the top 5 markets in the U.S. have with respect to vacancy. So our vacancy rates have held in there. Our occupancy rates in those markets have held in there a little bit better than others. So that's been beneficial to us and you can collaborate that through any third-party industry report. Is there FOMO for developing in our markets? I think to some degree, you could say that. We're certainly having a lot of success in our development platform. I've said in the past several quarters, our best use of capital than was incremental deployment of capital was developments. Really happy with the way that initiative is playing out. And then if you think about what our messaging has been in the last 2 quarters, it's been this degree of uncertainty in the market. And our messaging now is the stability in the market. So it really has been a pretty big shift as we move into the last quarter of the year here. And that's a great thing. And we knew this was going to start to come. Now we say stability, but as I mentioned in the prepared remarks, you look at industry reports, vacancy rates nationally around 7%. I think our number is maybe high 6s. When does that really start to tick down and you can drive some additional market rent growth? It's probably another 2, 3 quarters. But overall, we feel really good about where our portfolio sits with respect to the markets they're in. Maybe I got 4 out of 6 there. I tried, Craig. Operator: Our next question comes from the line of Nick Thillman with Baird. Nicholas Thillman: Maybe talking on the '26 leasing and the progress there, just the sustainability of these spreads in the mid-20 is a little bit higher. You mentioned sort of the 4 large renewals. If we just look at the expiration schedule, it looks like the rents expiring here around 15% below where they were at the beginning of this year. So just curious on what we're thinking for spreads for the remainder of the expirations? William Crooker: Yes. Thanks, Nick. As I said in my prepared remarks, we're guiding to 18% to 20% cash leasing spreads for next year. And if you look at where they were a few years ago, were I think 30% and then went to 24% this year, and 18% to 20% next year. And if you look at where our mark-to-market has been in those years, it's similar to what our escalators have been. So you haven't been driving additional mark-to-market opportunities. So naturally, that similar type of degradation and spreads will happen. And then with respect to next year and those large tenants, what we've done, those tenants early renewed, as I mentioned earlier to Craig, much ahead of time. But when you think about the spreads, what we've signed to date and what we're guiding to next year, there's a little bit of a difference there. And we usually don't get too much into the fixed renewal options, but they're part of our portfolio every year. So the remaining 48% of incremental leasing next year, almost all of our fixed renewals are in that number, which is why the spreads are a little bit lower for the remaining non-leased asset plan for next year. Nicholas Thillman: No, that's very helpful. And then just on maybe Matts on occupancy, you had a little bit of a headwind this year. As we think of building blocks for '26, good progress on the leasing. How are we feeling about sort of portfolio occupancy or potentially even growing that in the same-store pool next year? Matts Pinard: Yes. Nick, I think as we sit here in October, we're going to provide 2026 guidance in February. So I don't think that we're prepared to start walking down the list of what guidance is going to be next year. I think Bill gave a lot of the color in terms of the change from maybe a little bit of instability in the first half of the year into the third quarter to a much more stable environment now. Again, I just pointed the fact that we did the 52% of what we expected to do last year, which is north of 10% higher than what we normally are at this point during the calendar year. William Crooker: I had to try my best, Matts... Matts Pinard: It was very obvious... Operator: Our next question comes from the line of Eric Borden with BMO Capital Markets. Eric Borden: Bill, can you just talk a little bit about your appetite to lean into developments here, just given the improving demand environment and the potential for a vacancy inflection in the back half of '26? Is there -- how are you feeling about potentially leaning into developments to get ahead or time up the deliveries with the improving landscape? William Crooker: Yes. We're bullish on development. We're trying to sign up the right developments. We obviously are very careful with our underwriting, and we still want to achieve at least that 7% going in yield. We're really happy with the Ohio deal -- Ohio build-to-suit deal we signed up and that we signed up at a 7% yield to a very strong credit. So happy there. There's -- we're working on some others. We're trying to get more internal developments done as well as some additional partner developments. And as we sign those up, we'll announce those. So it's certainly a great use of our capital. The market is stable now and looks to be improving and certainly in the back half of next year. But what -- one other change in terms of deploying capital, we're seeing a great opportunity to deploy capital on acquisitions right now, which is not what we saw earlier this year. So if you look at where we are from an acquisition, we did lower the top end of our guidance. But we've closed $212 million to date. We've got another $150 million under contract and LOI. So to get to our midpoint, we need to sign up another, call it, $60 million between now and Thanksgiving. And we're underwriting a lot of deals. We're evaluating a lot of deals on a weekly basis. So we're hopeful that we can get to that midpoint this year. So that's been a pretty nice change that we've seen over the past couple of quarters. Eric Borden: I appreciate that. Just one on the guidance. You raised guidance $0.03 at the midpoint, but it implies a sequential deceleration from the third quarter to the fourth quarter. Maybe could you just talk about some of the offsetting factors in the fourth quarter that are driving that sequential drag? Matts Pinard: Yes, absolutely. I'd say the easiest thing to point to here is credit loss. We've been outperforming our credit loss guidance, but we're not through the rest of the year. So we do have some credit loss baked in on a speculative basis for the remainder of the year. To the extent we outperform that, and again, these are unforeseen, just call it, more of a modeling number, we would be at the higher end. Eric Borden: Yes. So your math is at the midpoint, I assume, right? Matts Pinard: Yes, that's right. William Crooker: I think it depends on where we fall within that core flow range. Operator: Our next question comes from the line of Blaine Heck with Wells Fargo. Blaine Heck: Just following up on acquisitions, Bill, can you talk about what might have changed over the last 90 days to kind of pull back on your forecast, if there was anything specific that you noticed? And then this is probably difficult to forecast now, but given the trends you're seeing today that you just alluded to, how do you feel about your ability to make up for this 2025 decrease in 2026 and show a more significant increase in activity year-over-year? William Crooker: That's a good one, Blaine. As Matts said, I think we'll handle all the remaining 2026 guidance in February. But certainly, if you look at the cadence throughout this year, it has been accelerating into year-end. What dynamics have changed? You've got a couple of things. You've got interest rates that have been stable. I think just a macroeconomic environment that's a little bit more stable. And you've got some seller -- call it, seller pent-up demand. So I think the ask prices are -- the ask price is a little bit more reasonable. If you look at what happened last year, there was not a lot of transactions trading in the market compared to historical norms. This year, you had all the uncertainty as you move through the year. And then lastly, with this stability that's in the market, you have a lot of sellers that want to get their deals done by year-end. So when you look at somebody like us who have a really strong reputation in closing deals and closing deals in a pretty short period of time, we're the preferred buyer in a lot of these instances and some of them were not the high bidder. There's a preference to close by year-end. So that's another driver in terms of giving us some confidence with our Q4 transactions. But I don't know if there's -- Mike, I don't know if there's anything else that you're seeing. Michael Chase: No. I mean, I think you hit on it. The end of Q3, we started seeing a significant increase in deals coming to the market, particularly ones that wanted to close year-end. And as you said, Bill, on those deals, surety of closure is almost as important as pricing and STAG has a great reputation for surety of closure. So we're seeing a lot of deals, and we're cautiously optimistic that we'll have a good Q4 here. William Crooker: Yes. And we expected a lot of deals to come to market post Labor Day after the summer slowdown and the other uncertainty to happen this year. And that's exactly what we saw. Blaine Heck: Okay. That's helpful and makes a lot of sense. Just shifting gears to leasing. Can you talk about any leases you've signed that are directly or indirectly related to manufacturing projects or nearshoring and onshoring? And any markets that you think are particularly well positioned in your portfolio to benefit from some of those trends? William Crooker: Yes. I mean from the markets that are going to benefit from those trends, it's a lot of the markets we operate, right? It's what we've said before. It's Midwest, it's Southeast, and we signed that lease last year or it was earlier this year. Everything is kind of blending together. But that was a direct onshoring lease. It was a building that was a local distribution -- regional distribution building that ultimately became a supplier building to a wood flooring manufacturing company that brought their operations onshore to be closer to the consumer. So we're certainly benefiting from that. There's a couple of leases that we've signed this year that are related to solar manufacturing plants. There's some leases that we've signed that they -- one lease we've signed, actually manufacturers generators for data centers, so not just staging for data centers, but generators for that. So that was a lease that we're benefiting from in our markets that maybe does not have the same demand drivers in other markets. Operator: Our next question comes from the line of Vince Tibone with Green Street. Vince Tibone: For the near-term acquisitions you're looking at, are you considering any value-add deals that will require lease-up or focus more on stabilized assets? Just curious kind of where you find the best opportunity today and if there's any greater opportunities from some forced sellers with some spec projects that have not gone according to their underwriting, kind of hitting the market and allowing for any interesting opportunities for yourself? William Crooker: Yes. We're seeing some of them. I would say we're not seeing a lot of value-add deals come to market or at least the ones that we have a desktop review. We're not penciling the pricing out. So we don't -- they don't even make it to the full underwriting stage. But we will absolutely evaluate those transactions, right? I mean it's what we do, right? We build buildings, we buy buildings, we lease buildings. So if there is a developer that wants to take some chips off the table and has a vacant asset that they don't want to try to lease or that's not their core business, we'll absolutely take a look at that transaction and put a bid in to price that. But we're not seeing a lot of those. I think what we're seeing now is probably a little bit more skewed to 3, 5 and kind of longer lease term transactions. And part of it is the ones we are seeing, like I said, just don't pass that even initial desktop review with respect to where we would price those assets. Vince Tibone: No, that's helpful color. Maybe just switching gears for a second. Just on the updated same-store guide for the year, it looks like it's implying decent acceleration in the fourth quarter. If you could just talk about kind of what's driving that? Are you expecting any sequential occupancy gains in the fourth quarter kind of what else may be at play that kind of gets. I think like the mid- to high 5s is what it implies for the fourth quarter, the updated same-store guide? Can you just touch on that, that would be helpful. Matts Pinard: Yes, absolutely, Vince. Thank you for the question. So I'm going to walk you through, it's related to a tenant and some cash basis accounting. So number one, we've executed virtually all the leasing we expect for this year. In the third quarter, the metrics include the impact of moving one tenant to cash basis accounting and obviously, the associated impact of writing off AR balance. Well, after September and quite recently, we executed a repayment agreement that requires the tenant to come current during this quarter and also make the required rental payments. So a performed pursuant to the agreement through today. And to the extent they become current by year-end, we'd expect to be near at the high end of our same-store guidance. So this is what I think is going to help here. Had we not written off the AR balance, the Q3 same-store would have been approximately 5% as opposed to where it is. And year-to-date, it would have been approximately 4%, right in line with our updated guidance. So it's -- basically, it's a matter of timing. The tenants catching up on past due payments in the fourth quarter. Q3 is lower due to the write-off and the fourth quarter will benefit from the payments being made by the tenant as they become current. Just a little background, this customer is a supplier to the automotive industry and has an incredibly strong customer roster and is profitable. So it really is timing, Vince. Vince Tibone: No, that's super helpful. And is there any color on occupancy. I mean, should we expect same-store occupancy to be around 97% as well in the fourth quarter, given it sounds like most of the leasing is done? Matts Pinard: Yes. I mean our guidance, which we didn't change is roughly 75 basis points of occupancy loss in the same-store for the full year. So we didn't change that. Operator: Our next question comes from the line of Jon Petersen with Jefferies. Jonathan Petersen: The $153 million of acquisitions that you have under agreement, can you give us a sense of the cap rates on those properties that we should be thinking about? William Crooker: Yes, it's pretty consistent with what we've closed in the third quarter. Jonathan Petersen: Okay. And then the new land that you bought in Union, Ohio, I believe that's near Dayton. Can you just talk about that market a little bit? It's maybe not one I'm super familiar with. So just what are you seeing from a demand and supply perspective that gives you confidence in doing a development there? William Crooker: Yes. And just that land that we bought, that's that build-to-suit that I've mentioned in the prepared remarks to a strong credit for 10 years. But I don't know, Mike or Steve, who wants to take the -- Mike, why don't you take that? Michael Chase: Yes. I mean, Dayton is kind of, I would say, a market that is up and coming and emerging. It's 104 million square feet. It's about 4% vacant. They have less than 1 million square feet of construction going on right now. So -- but all that said, we were very comfortable with acquiring that land and developing as we had a long-term build-to-suit lease signed up with a strong credit tenant. So that was an easy one for us to kind of take a look at. William Crooker: And in this property is near the airport. Michael Chase: Yes, this property is located right next to Dayton International Airport and a couple of miles away from the main interstate there, I'd say. William Crooker: If not the best submarket in the market, one of the best submarkets, right? And the building fits the market really well. So to the extent after the 10 years, the tenant does renew, we feel very comfortable with the leasability of that asset. Jonathan Petersen: Okay. And then I know we're all trying to tease out 2026 same-store. So maybe I'll ask it one more way. Is there any known move-outs that we should be thinking about as we look into '26? William Crooker: All right. I'll answer that one just because you're so direct with it. Nothing material. There was -- we call out the large known move-outs, call it, anything over 400. As I said, I think there was 5 of them. We addressed 4 of them were in active negotiations with the last. So nothing to call out. Operator: Our next question comes from the line of Michael Griffin with Evercore ISI. Michael Griffin: Bill, I want to go back to your comment in your prepared remarks about lease gestation time frame remaining longer and maybe marrying that up to the execution you've had in your '26 leasing plan already, I mean, whether it's new leases or renewals? Like can you give us a sense, are tenants shopping around for a deal? Or does it seem like they're getting closer and closer and ready to sign on the dotted line, given the maybe greater clarity and certainty that's out in the market? William Crooker: Yes. And that's -- it's a good question. Just to clarify, it's, call it, a couple of months for the negotiations that go on, maybe a little bit longer for normal negotiations with the lease. Historically, those are the numbers, maybe we're a little bit longer this year. But for example, in our Nashville lease that we got done, that was done from start to finish in weeks, right? So we -- I do expect those to remain elongated for a period of time, similar to tracking with vacancy rates, right? As I mentioned, in and around that 7% or high 6s mark for the next couple of 3 quarters. And as those vacancy rates comes down, naturally the lease gestation periods get reduced, right, because there's less options, you need to make decisions a little quicker. In Nashville, a great example, really strong industrial market, not a ton of options, tenant needed our space. We got the deal done start to finish in a matter of weeks. So I think it's just a period of time for these to stay relatively, call it, elongated and then those will start to shorten as vacancy rates come down. Michael Griffin: Appreciate the color there. And then maybe you could just give us some insights into the demand of the 4 development projects that are going to be completed in the fourth quarter? I know there's probably some time until those stabilize, but what's the traction sort of looking like on that space? And would you be willing to give on concessions in order to get the projects leased up? William Crooker: Yes. I'll let Steve answer the details there. And just as a reminder, we underwrite 12 months of lease-up for our development projects, but Steve can walk through the demand that we're seeing for the ones that are going to be completed soon. Steve Xiarhos: Yes, Michael, I appreciate the question. We've made good progress on the existing, but the stuff coming that we still have left to lease. I'll just walk you through the 5 markets. That's probably the easiest way to do it. We have a small amount of vacancy in Greenville, Spartanburg, just 70,000 square feet. As you probably know, the activity in that market has been very good with a lot of absorption in the last couple of quarters, and we do have activity on that 70,000. So we feel pretty good about that space. It's built out. The office is there. It's ready to go, and we have users looking at it. The next -- and that market has dropped to below 7% vacancy. And on these calls, we've talked about it being double digit for some time. So a big improvement in that market. The next market where we have vacancy would be in Tampa. If you recall, we had the 2 buildings there. We leased one of them relatively quickly to a single user. We have one remaining at 140,000 square feet. That market as a whole is about 6.5% vacant and our submarket is below 5%. So -- and there, again, we have activity for that building. And so we feel good about the Tampa market and prospects for that building. The next market where we'll be delivering here in the fourth quarter is two 200,000 square foot buildings into the Charlotte market. That market is about 8% vacancy with a lot of positive momentum, particularly in the larger bulk that's brought that vacancy down. So as it was alluded to earlier, one of the questions about developing into improving markets, I think Charlotte should be one of those stories where that market is starting to improve, and we're delivering product. In the submarket that we're out in Concorde, that's about a 5% vacancy market. And in that project, you'll recall when we've talked about it, we have some benefits on users relative to some of the peers because there are some zoning issues with sewer availability in the market. So we can do distribution and manufacturing tenants when some of our competition can't do the distribution. Next market would be Reno where we have 2 buildings delivering, a 285,000 and a 76,000 square footer. Both of those buildings fit the North Valley submarket that we're in. That market has been slower absorption in the last probably 6 quarters. And so that -- a little bit of headwinds there, but we expect absorption will pick up as we deliver these buildings. And we do have activity and have had activity on both buildings, but nothing to report yet. And then the last market is Louisville, probably the one I'm personally the most bullish about. It's a 4% vacancy market. We are in a Class A park just south of the market and a very established park. We have strong activity in our building and there's very limited supply that we'll be competing with in that market. That takes you through kind of the 5 markets where we have future exposure. Michael Griffin: Appreciate the detailed analysis there. Operator: Our next question comes from the line of Nikita Bely with JPMorgan. Nikita Bely: It looks like you are pretty bullish on both acquisitions and developments. Can you talk a little bit about how you rank them on a relative basis, one versus another? And as you start to ramp both of them up, it appears in 2026, how do you plan to fund it? And are we close enough to issue equity at these prices? William Crooker: Nikita, it's Bill. With respect to ranking, it's hard. I mean, that was good -- I guess, I'll still say the joke, it's like ranking your children, right? They're different. I would say we evaluate opportunities for development and acquisitions. And depending on the returns, the market, et cetera, we may choose to look at one or the other. But the reality is we've got a balance sheet and liquidity to -- if we like both opportunities, we can deploy capital to both opportunities. So it's not an either/or for us. And we certainly have the process, the people and the systems internally to evaluate all those opportunities. So for us, it's not an either/or. So we don't have to force rank those 2 opportunities. But as I said, development was -- the favorite choice of deployment of capital earlier this year, and I think acquisitions is catching up, which is great to see. In terms of capitalizing those and financing those, I'll turn it over to Matts to talk about that. Matts Pinard: Yes. Nikita, so as we sit here today, we're retaining north of $100 million of free cash flow. Our balance sheet is at the low end of our balance -- of our leverage target. So those are probably the 2 first sources. We have $47 million of unfunded forward equity, which would be the next source. We don't anticipate any deviation from our normal leverage gains, generally operating in the low 5x. Operator: Our next question comes from the line of Brendan Lynch with Barclays. Brendan Lynch: You mentioned the fixed renewal options that are in place for some of the leases that are going to roll in 2026. Do you have a lot more of these? And are they mostly reflecting acquisitions that you've made and the contracts that were put in place by the prior owners? William Crooker: Yes, they're almost all based on assuming leases. And I would say they're not higher -- materially higher or lower than other years. They just happen to be in the remaining portion of the unleased space for next year. Generally, those renewal options have some sort of notice period. It could be as short as 3 months. So some of those are to the back end of next year. Brendan Lynch: Okay. That's helpful. And then maybe kind of a strategy question. You seem to have an improving view on how the market is trending. And I think there's a lot of third-party data out there to support that. When you think about the acquisitions that you have made versus the ones that you passed on, do you get the sense that you could have been more aggressive in the past to make more acquisitions? And is that changing your calculus now as the market seems to be improving? William Crooker: One of the things we look at for acquisitions is we're deploying capital accretively, right? And that was part of the issue that we were seeing earlier was that we weren't able to do that with all of them. You can always Monday morning quarterback decisions. We try to evaluate decisions with the information that we have on hand at that point in time and make the best informed decision at that point in time. So I think we've made a lot of good decisions this year. Really, I'm happy with the acquisitions that we've made this year, and really happy with the development decisions we've made this year. So we'll continue to evaluate acquisitions and development opportunities with the information that we know and try to make the best decision we can. Operator: Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Crooker for any final comments. William Crooker: I just want to thank everybody for joining the call and as always, the thoughtful questions. And we look forward to seeing you all soon at the upcoming conferences. Take care. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning. My name is Rob, and I will be your conference operator today. I would like to welcome everyone to the call. [Operator Instructions] I'd like to introduce Beth DelGiacco, Vice President, Corporate Communications and Investor Relations. You may begin your call. Beth DelGiacco: Thank you. A press release was issued earlier today with our third quarter 2025 financial results and business update. This can be found on our website, along with the presentation for today's webcast. Before we begin on Slide 2, I'd like to remind you that forward-looking statements may be presented during this call. These may include statements about our future expectations, clinical developments, regulatory timelines, the potential success of our product candidates, financial projections and upcoming milestones. Actual results may differ materially from those indicated by these statements. Argenx is not under any obligation to update statements regarding the future or to conform those statements in relation to actual results unless required by law. I'm joined on the call today by Tim Van Hauwermeiren, Chief Executive Officer; Karl Gubitz, Chief Financial Officer; and Karen Massey, Chief Operating Officer. Luc Truyen, our Chief Medical Officer, will be available during Q&A. I'll now turn the call to Tim. Tim Van Hauwermeiren: Thank you, Beth, and welcome, everyone. I'll begin on Slide #3. At the start of the year, we set a bold growth agenda anchored in our long-term road map for value creation, Vision 2030. Today, VYVGART is delivering meaningful impact in 2 blockbuster indications with MG and CIDP. Our prefilled syringe is now approved in most major markets, fueling new patient and prescriber adoption. We've also made significant pipeline progress and will enter 2026 with 3 Phase III assets. At the same time, we are investing in our next wave of growth with 4 new molecules in Phase I development by year-end and a vibrant immunology innovation program driving future opportunities. Slide 4. Today, I'm joining you from AANEM in San Francisco, where we are engaging with the neurology community and sharing new data that reinforce our commitment to continuous innovation in rare neuromuscular diseases. I would like to briefly highlight several key data sets presented this week that underscore our leadership in gMG. VYVGART has set a high bar in gMG, driving rapid, deep and sustained responses. Our gold standard for patient impact is for patients to achieve minimum symptom expression or MSE. New data from the ADAPT subcu study showed that up to 60% of patients reached MSE with 83% maintaining it for at least 8 weeks, highlighting the durability of VYVGART responses. We also know that steroid reduction is recognized as a critical outcome for both patients and prescribers. Building on earlier data showing meaningful steroid reductions with VYVGART at 6 months, we now see this sustained through 18 months with over 55% of VYVGART patients reducing steroids to below 5 milligram per day. We also presented data from the ADAPT SERON study, which met its primary endpoint, showing significant improvement in MG-ADL at week 4 compared to placebo. Importantly, we observed increasingly pronounced and clinically meaningful improvements in both MG-ADL and QMG scores across subsequent treatment cycles in the overall population and across all patient subgroups. These positive results support our plan to file for a label expansion that includes all 3 seronegative subgroups, MuSK-positive, LRP4 positive and triple seronegative. This is a landmark moment in advancing our scientific understanding of MG as the results indicate that pathogenic IgG autoantibodies drive disease regardless of antibody status. Additionally, we continue to showcase the strength of our ADHERE data in CIDP, while introducing new HEOR insights that highlight the severe disease burden, long diagnostic journey and the urgent need for innovation for these patients. Slide 5. We now have 3 first-in-class molecules in Phase III development, efgartigimod, empasiprubart and ARGX-119, each representing a true pipeline in a product opportunity. We continue to maximize the FcRn opportunity by advancing efgartigimod in severe IgG-mediated autoimmune diseases while building the future of this target with the next generation of molecules. As we grow our understanding of FcRn biology, we're building out our capabilities to address patient needs in therapeutic areas beyond neurology. We're also reinforcing our leadership in neurology with empasiprubart, now in Phase III development for MMN and CIDP. With its selective approach, blocking C2 at the intersection of the classical and lectin pathways, empasiprubart is uniquely positioned to address a broad range of autoimmune diseases. Lastly, ARGX-119, our MuSK agonist, has now advanced to Phase III in CMS. It is designed to restore neuromuscular junction function, opening the door to indications like ALS and SMA and underscoring our commitment to pioneering new biology in high unmet need indications. Pipeline and the product molecules are designed with built-in optionality, giving us the flexibility to prioritize indications and allocate resources to programs where we can deliver the greatest patient impact. In line with this strategy, we've made three disciplined development decisions. First, we stopped development of empasiprubart in dermatomyositis due to operational challenges with study enrollment. That said, DM remains an area of commitment for us. This is a population that has seen little innovation and unmet need further validated by the strong pace of DM enrollment in our ALKIVIA study with efgartigimod. Second, we decided not to advance efgartigimod into a registrational study in lupus nephritis based on the results of the Phase II data. Efgartigimod was well tolerated and safety in line with established profile. Third, we are rolling out our next efgartigimod indication, which is Graves' disease. This expands our reach into thyroid-driven autoimmunity and allows us to move directly into Phase III in a disease where there is a high need for a new treatment option. We expect to initiate the registrational studies early next year. These are well-informed decisions to ensure we focus our time and capital on indications where we can deliver the most value. We're also thinking in terms of long-term growth horizons for our core assets, which means that even though we are moving forward in certain indications today, we are a data-based company and we will be ready to revisit our decisions as new evidence emerges. Slide 6. The progress we have made positions us for 5 registrational readouts next year. Each reflects our disciplined approach to indication selection, a clear biology rationale, trial designs anchored in robust clinical endpoints and strong commercial potential to address an unmet patient need. Ocular MG will be the first of these in 2026. We have established a strong biologic rationale, supported by encouraging ocular domain data from the ADAPT study and real-world case reports. The Ocular study will assess the MGII ocular score and if successful, could expand our label to include MGFA Class I patients. Myositis and TED studies extend our reach into rheumatology and endocrinology. With myositis, the Phase II portion of the registrational ALKIVIA study demonstrated meaningful improvement in muscle strength and physical function using TIS, which we will evaluate over 52 weeks in the Phase III. In TED, we're stimulating TSHR autoantibodies drive disease, we leveraged peer data to advance directly into Phase III. Across both indications, we see a clear opportunity for VYVGART to deliver differentiated efficacy and safety. MMN will be our first registrational readout for empasiprubart. With IVIg as the only available therapy today, there is a significant opportunity to disrupt this market with a novel treatment. In consultation with the regulatory agencies, we've changed the primary endpoint to grip strength, which should capture meaningful functional improvement for patients. Lastly, in ITP, which is already approved in Japan, we designed an efficient confirmatory trial to enable regulatory submission in the U.S. and EU. Translational data continue to show that efgartigimod reduces platelet destruction and supports platelet production and maturation. Slide 7. As part of Vision 2030 and in support of our ambitious goals, we're making investments across our business to ensure long-term sustainable growth. We're actively scaling our operations in the U.S., including an expanded collaboration with FUJIFILM through a new manufacturing facility in North Carolina. This move strengthens our global supply chain and supports our manufactured in a region for the region strategy, ensuring we can meet growing demand for VYVGART and future pipeline therapies. At the same time, we are investing our pipeline innovation engine, doubling down on our pursuit of novel biology because this playbook is working. We remain on track to have 4 new pipeline assets in Phase I by year-end with more expected to advance from our 20 active IIP programs, each representing a potential breakthrough in immunology. With that, I will now turn the call over to Karl. Karl Gubitz: Thank you, Tim. Slide 8. The third quarter 2025 financial results are detailed in this morning's press release. We are proud to report an outstanding quarter, reflecting exceptional execution and sustained momentum in our business. In the third quarter, we reported total product net sales of $1.13 billion, marking a historic milestone for argenx as we surpassed for the first time $1 billion in VYVGART sales in a single quarter. We achieved growth of 19% or $178 million in product net sales when comparing to the previous quarter of this year and 96% or $554 million in growth when comparing 3Q on a year-over-year basis. If you look at the breakdown by region, product net sales were $964 million in the U.S., $60 million in Japan, $94 million across our rest of the world markets, including our partner markets and $9 million for product supply to Zai Lab in China. The product net sales in the U.S. specifically grew by 20% quarter-over-quarter, reflecting the impact of our investments in the PFS launch earlier this year. PFS is now firmly established as a growth driver in our markets, supporting our continued momentum in gMG and CIDP. The gross to net adjustments in Q3 and the net pricing in the U.S. are in line with the prior quarter. Next slide. Total operating expenses in the third quarter are $805 million, representing a 5% increase compared to the second quarter. Our R&D expenses increased by 9% or $28 million and our SG&A expenses by 4% or $11 million. Building on our solid revenue performance, we continue to invest in our growth opportunities. Therefore, expect our expenses to continue to grow in the single digits for the rest of the year. This will result in our combined R&D and SG&A expenses to land just north of $2.5 billion at between $2.6 billion and $2.7 billion. Cost of sales for the quarter is $109 million. Our year-to-date gross margin remains consistent at 11%. Our operating profit for the quarter is $346 million, and the quarterly financial income is $43 million, which results in profit before tax of $386 million. The year-to-date effective tax rate is 13%. After tax, the profit for the quarter is $344 million and $759 million on a year-to-date basis. Our cash balance at the end of the quarter, represented by cash, cash equivalents and current financial assets is $4.3 billion, which represents a nearly $1 billion increase in cash since the beginning of the year. I will now turn the call over to Karen, who will provide details on the commercial front. Karen Massey: Thanks, Karl. Let's go to Slide 10. As we close the year, it's inspiring to reflect on how far we've come since VYVGART's first approval 4 years ago, reaching more than 15,000 patients globally across 3 indications and 3 product presentations. We're transforming patient outcomes, redefining what patients can demand from their treatments and pioneering an entirely new class of medicine with our first-in-class FcRn blocker. This quarter is a continuation of delivering that transformative impact. Today, I'm excited to share how our commercial strategy continues to turn innovation into access and impact for patients and how we plan to sustain our growth momentum into 2026. Slide 11. Once again, the team has delivered an outstanding quarter, reflecting growth in all indications across all markets. The prefilled syringe is performing exactly as expected, driving increased VYVGART demand among patients and prescribers who embrace a more flexible treatment option. More than half of patients starting on PFS are new to VYVGART with the rest switching from Hytrulo vial or IV. Since the launch of PFS for self-injection, over 260 prescribers have written their first ever VYVGART prescription, expanding our prescriber base and setting the stage for continued patient growth. We've also strengthened payer access, securing additional policies to enable more patients to initiate treatment. Growth outside the U.S. is strong with the PFS approved in most major markets. I'm excited to now share how we're executing on our strategy to strengthen our MG leadership and build the momentum to establish an equally strong foothold in the CIDP treatment landscape. Slide 12. In MG, we have consistently delivered new patient growth for 15 quarters while executing on our strategy to unlock the full 60,000 patient opportunity, advancing 2 label expansion studies in seronegative and ocular MG and driving earlier adoption of VYVGART to expand the biologics market by an additional 25,000 patients. Today, we're the #1 prescribed and fastest-growing biologic in MG. Where we see the biggest opportunity to maintain this leadership is to reach patients earlier in the treatment paradigm. We're already seeing this shift take place with the percentage of patients coming from oral therapies increasing year-over-year now at 70%. The PFS is fueling this momentum, opening doors to new segments of younger, more active patients and our strong safety and efficacy remain the foundation of physician confidence, driving earlier prescribing decisions. As Tim highlighted, we're excited to be moving closer to potentially expanding our label to include seronegative gMG patients following positive top line results. The unmet need here is significant, especially for triple seronegative negative patients who experience diagnostic challenges and currently have no approved therapies. Ocular MG is next. Patients often struggle with symptoms that make everyday activities like working or driving nearly impossible. Many are heavily reliant on steroids in the absence of treatment options. These programs reflect our commitment to address underserved populations and redefine care in MG, setting a higher bar for what patients can expect from treatment. Slide 13. In CIDP, we continue to deliver innovation that translates into patient impact. We're seeing consistent growth in both patient starts and prescriber engagement, driven by physician trust in the safety profile of VYVGART Hytrulo and its ability to deliver meaningful functional improvement. We're on track to grow towards our 12,000 addressable market of patients not well controlled on current therapy. We continue to hear stories from patients about their positive experience to date. The prefilled syringe is driving additional demand as patients opt for the convenience of self-injection, and our activation efforts are empowering patients to ask their neurologists about VYVGART Hytrulo. Here's the story of one of those patients. Sasha is a mother of 4 in her 30s. She was hospitalized for over 3 months earlier this year given her symptom progression. She shared the frustration that came with CIDP, completely dependent on her spouse for even the simplest daily activities. After starting VYVGART Hytrulo and later switching to the prefilled syringe, she said, "I can live my life." She's walking her children to the school bus, something she deeply missed. And thanks to the flexibility of the PFS, she's thrilled to plan a 10-day cruise without worrying about having to be home for an injection. While this is just one patient experience, these stories give us confidence to expand our reach and serve more patients over time. We're now gearing up for 5 Phase III readouts next year, actively engaging with patients and physicians to ensure that if the data are positive and approved, we'll be ready to expand into these markets and deliver broader patient impact. As an example, we're strengthening our rheumatology presence through deeper engagement and increased visibility at major medical conferences with our clinical data. Our focus remains on finishing this year strongly while laying the foundation for multiple future launches. With that, I will now turn the call back to Tim. Tim Van Hauwermeiren: As the heart of our success is our commitment to transforming patient outcomes, with multiple pathways to realize Vision 2030, we're not just positioned for sustained growth, we are building a legacy of long-term value for patients and shareholders. We have the strategy, the signs and the momentum behind us. But most importantly, we have the passion and purpose to redefine what's possible in immunology. With that, operator, we'll open the call up to questions. Operator: [Operator Instructions] Your first question comes from the line of Rajan Sharma from Goldman Sachs. Rajan Sharma: Just one clarification actually just on the formulation mix. It obviously seems that the PFS is driving the growth. But could you just confirm that all of the other -- or the other 2 formulations are still growing underlying in both CIDP and MG? And then just on the pipeline, I know it's a little bit further out for you at the minute, but I'd be interested to get your perspectives on Sjogren's disease. We saw some Phase III data from Novartis ianalumab yesterday. I'd be keen to get your thoughts on that and how you think VYVGART could potentially differentiate and what represents a clinically meaningful signal? Karen Massey: Yes. Thanks for the question. Maybe I can take the first one on the PFS and Tim, if you want to comment on Sjogren's. So you're right, prefilled syringe is the major driver of growth this quarter, and that actually continues the trend that we've seen over time since Hytrulo launched or since we launched the subcutaneous version. Having said that, the IV does continue to be an important contributor to the business and to the results that we saw this quarter. There is definitely a segment of patients and physicians that prefer the IV option. So the fact that VYVGART has all 3 presentations, and they're all contributing to our performance is important for both -- for obviously, for MG, whereas for CIDP, the focus is on Hytrulo as approved in presentation. Tim, do you want to comment on Sjogren? Tim Van Hauwermeiren: No. Thank you, Karen, and thank you for the question. So I think it's important and great news for patients, Sjogren's patients to see the Novartis data, which clearly showed a statistically significant win in Sjogren's. When we look at the efficacy, we believe a 2-point improvement is considered clinically meaningful, so there's definitely room for improvement. We have strong conviction, of course, in efgartigimod based on our own Phase II data and peer data in Phase II. This is a precision tool, which we believe is going straight after the circulating immune complexes instead of a more broad general B-cell suppression. So the data need to speak and the trial is well underway. Thank you for the question. Operator: Your next question comes from the line of Tazeen Ahmad from Bank of America. Tazeen Ahmad: I wanted to get some color about how you're thinking about the CIDP launch. Specifically, our survey work indicates a high level of excitement from physicians to want to move efgart into frontline therapy ahead of IVIg. I wanted to hear what your feedback from the sales force is and what efforts would be needed in addition to what you are already detailing in order to make efgart the first-line option for patients in CIDP. Karen Massey: Yes. Thanks for the question, Tazeen. And we're hearing very positive feedback from prescribers about the CIDP launch as well. And what -- the feedback that we're hearing is that the real-world experience for CIDP patients reflects what we see in the clinical trials and importantly, around efficacy and safety. And then obviously, we have the convenience. You'll recall that in our clinical trial and in our label, we have the approved indication for all patients. And so what we're seeing at the moment is that the early experience is from IVIg switch patients, so 85% of our patients are coming from IVIg switch. But we are seeing some of the patients that are starting naive where they haven't started with IVIg, they're not switching and we're having -- just like in the clinical trials, we're seeing good real-world experience with that. So we see that we're at the beginning of the growth curve for CIDP. We see continued momentum. We see continued expansion of the prescriber base. And I think that over time, we'll start to see more penetration in the market across all patient segments. Operator: Your next question comes from the line of Derek Archila from Wells Fargo. Derek Archila: Congrats on the progress. Just as the narrative shifts to VYVGART pivotal readouts in '26, I mean, can you give us a sense of the revenue potential for those indications and how they may compare to MG and CIDP? And I can sneak in a second, I guess, what diligence got you excited about pursuing Graves with VYVGART. I know there's been some debate about the unmet need there. Tim Van Hauwermeiren: Yes. Thank you, Derek, and thank you for the question. What we have been saying publicly is that revenue potential-wise, each of these Phase III indications roughly represent an MG-like opportunity, and we will be giving more detailed information when we come closer to the market. You know that Graves has always been on our indication list. I think there's a clear biology rationale. It's established how you do the clinical trials, and we have been digging deeper into the unmet medical needs. So whilst it is true that it is a subset of patients doing well on the cheap available medication, there's a substantial subset of patients which are not doing well. And again, from that point of view, it may resemble MG, but a subset of patients is in bad need of an alternative medication because there's not much left once you feel the cheap available medication today. Thanks for the question. Operator: Your next question comes from the line of Alex Thompson from Stifel. Alexander Thompson: Congrats on the quarter. I guess on the empasiprubart discontinuation in DM, I wonder if you could speak about sort of the trial issues, the enrollment issues you had there. Was that due to the IV presentation and how that compared to the myositis trial with efgartigimod? And maybe you could also comment on the CIDP, empasiprubart enrollment as well and if that's being affected? Tim Van Hauwermeiren: Alex, thank you for the question. We have the benefit of having Luc with us, our colleague and Chief Medical Officer. So Luc, why don't you take the question on the discontinuation of DM and the excitement which we have about ALKIVIA. Luc Truyen: Yes. Thanks, Tim, and thanks for the question. Yes. So most of the -- this is also a POC trial, Phase II trial that we were running, of course, in a highly competitive enrollment environment. And of course, it didn't help that C5 read out negatively. And we set the bar high for what we want to see, so our inclusion criteria are pretty robust to make sure that we can have a readout that would be predictable for Phase III. And the enrollment just stumbled on that. And then we, of course, have to make decisions within our portfolio with all the work we have, what we keep trying or what we say, okay, DM is an important indication and ALKIVIA during which DM enrolled pretty well. But right now, for the C2, we felt we had to reprioritize. Beth DelGiacco: And then on your question on CIDP enrollment, we just started those empasiprubart trials, so are still too early to say on how our enrollment is projecting there. Operator: Your next question comes from the line of Yatin Suneja from Guggenheim. Yatin Suneja: Just a quick one from me. With regard to the thyroid eye disease studies, could you just talk about the expectation in this indication, how you're thinking about the potential positioning? And then I think also just talk about -- is there a way to capture some of the TED patient population with Graves' study that you might be running now? Tim Van Hauwermeiren: Yes. Thank you, Yatin. For TED, we decided not to disclose too much about positioning. I think we first need to wait for the data to speak. We think there is a convincing proof of concept out there from a peer molecule. And the jury is out to know how this mechanism of action is going to differentiate itself from the available mechanisms of action. And it's fundamentally different biology, fundamentally different mode of action, but the data need to speak for themselves. I think there is ample of room for improvement, both on the efficacy side and the safety side. And you know we're running this trial as well with the prefilled syringe. TED and Graves are basically presentations of the same spectrum, the same disease biology, underlying disease biology. And so with venturing into Graves, which we announced today, we are actually increasing our efforts in the thyroid space. Thank you for the question. Operator: Your next question comes from the line of Yaron Werber from TD Cowen. Yaron Werber: Congrats all. Really nice quarter. I have a couple of questions. Maybe the first one, can we -- any chance to get an update on 121, the IgA sweeping platform and then 213, the long-acting VHH of efgartigimod? And then secondly, maybe when we look at sales, sales essentially have now quarterly sales more or less doubled since about a year ago, as you noted, when you launched also CIDP and obviously, PFS is now launched. I'm just trying to get a sense, can you -- how much of the growth is driven by CIDP versus gMG? Tim Van Hauwermeiren: Yes. Karen, why don't you start with the commercial question on the relative growth drivers that impact? And I will take the pipeline question. Karen Massey: Yes, absolutely, happy to. Yes, so you're right, we saw when you zoom out, nearly 100% growth year-over-year, as you said. And what we see in the underlying fundamentals of the business is strong growth across both MG and CIDP, both contributing to the growth that we're seeing for the quarter and over the long term. So if you look at MG, in particular, I think it's important to note, we're the #1 brand of biologic at this point, and we're growing faster than the market. And that market is expanding quickly with biologics being used earlier in the treatment paradigm. And then, of course, in CIDP, just a year out from launch, we're seeing expansion in our market share there as well. And I spoke earlier about the increased penetration into that market. So I would see -- I would say what you can expect moving forward is continued growth in both MG and CIDP, and contribution from across the different markets and geographies as well. Tim Van Hauwermeiren: Thank you, Karen. And then, Yaron, on your question on the pipeline, which I really appreciate, both ARGX-121 and 213 are swiftly progressing through the Phase I studies. Remember, in the dose escalation, single dose, multiple dose, we are, of course, first and foremost, interested in safety and tolerability, but these are also molecules which are going to unveil their potential to the PD effect. So you know that the ambition level for ARGX-213 is to move to monthly dosing with an equivalent PD effect as VYVGART and no compromise on safety. And for ARGX-121, the IgA removal sweeper, the objective is to have a very fast and very deep IgA reduction. So these Phase I trials will disclose a lot about the potential of these molecules, they're on track, and I would say stay tuned for the first data disclosure soon. Thank you. Operator: [Operator Instructions] Your first -- your next question, sorry, comes from the line of Danielle Brill from Truist Securities. Danielle Brill Bongero: Congrats on the quarter. Maybe I'll ask a question about the seronegative opportunity based on our conversation yesterday. Can you talk about your confidence in the opportunity from a commercial standpoint and the approval based on the subgroup data that you presented? And I'm also curious if you could share any MSE data findings given the importance of that endpoint to prescribers? Tim Van Hauwermeiren: Thank you, Danielle, and we have the benefit of having Luc on the phone. So look, maybe you show some color, you share some color on the path into submission and then how -- from where you sit, the likelihood for an approval? And then maybe, Karen, you comment on the importance from a commercial point of view. Luc Truyen: Yes. And Danielle, thanks for the question. So we are very excited by the outcome of the SELON study because we invested a lot in running the biggest trial in seronegatives with a rather innovative design, including diagnostic adjudication. And they really -- the overall results really enforces VYVGART's potential to really move the dial in this underserved population, as Karen already said. So we met the primary endpoint, which by design was on the overall population with a clinically meaningful and highly robust statistical significant reduction in MG-ADL score. And we also, as we showed at AANEM with James Howard presenting, showed that over consecutive cycles, this impact with benefit accrued deeper and deeper. Now this was seen across the 3 subgroups. So the MuSK, which -- coincidentally, we have one of the biggest MuSK data sets here, triple seronegatives and then LRP4. And across these 3, the benefit moved towards the same direction. And that for us is the basis that we have quite some conviction in the benefit we are providing to these patients. But of course, ultimately, it's going to be a review decision by the agency. But we feel pretty confident that we can have a great discussion on the real benefit that we're bringing to this underserved population. Tim Van Hauwermeiren: Thank you, Luc. And Danielle, on your MSE question, there's a ton of data to unpack. So the long-term follow-up, the deep dive into these patients, there will be much more data sets disclosed going forward into the future. So please stay tuned. And Karen, why don't you comment on this significance from a commercial point of view? Karen Massey: Yes, happy to. And I think this is a significant opportunity from a commercial perspective, and we're certainly very pleased to see such strong data from the SERON study. So as you know, we're the leaders in the MG market, and our strategy is to expand that leadership with the broadest label possible. So SERON or seronegative opportunity is one angle for that. The other is ocular MG, and we know that we have the data readouts coming next year for that. So we're well on our path of executing our strategy of expanding our market leadership. And the opportunity that we see in seronegative with the 11,000 patients is very high. One of the indicators that we think is important is how fast this clinical trial enrolls across all 3 of the subtypes. And I think that really demonstrates the unmet need and the enthusiasm about VYVGART in these subtypes. So I'm looking forward to the approval, if we get the approval, and I know the team is looking forward to being able to bring transformative impact to patients -- in seronegative patients as well. Operator: Your next question comes from the line of Akash Tewari from Jefferies. Amy Li: This is Amy on for Akash. Congrats on the quarter. Just a quick question on myositis. Curious to see what your bar for success is across the 3 subsets and how you are thinking about integrating the new steroid tapering protocol while still mitigating placebo risk? Tim Van Hauwermeiren: Thank you, Amy, and thank you for joining us on the call today. So of course, the first thing we want to achieve in this basket trial is to achieve statistically significant separation from placebo. It is generally understood in the community that a total improvement score of 20 represents a clinically meaningful benefit. You may recall the Phase II data, which we presented where we did a sensitivity analysis looking at TIS of 20, but also TIS of 40 and even 60, where you just see an increasing effect of VYVGART, which is very exciting. So that's how you should frame or look at success in the clinical trial. Thank you for your question. Operator: Your next question comes from the line of Richard Vosser from JPMorgan. Richard Vosser: Maybe you could talk a little bit more around the rationale for the change in endpoint for the EMPASSION trial for empa and MMN, and give us an idea of what you're looking for around the group strength endpoint. Tim Van Hauwermeiren: Thank you, Richard. Thank you for joining us and great question. Luc, this is a great question for you, right? Luc Truyen: Yes. Thanks for that question. So we made that change in close consultation with the agencies. On that endpoint had a precedent and felt that this could indeed be an indicator of a meaningful outcome. And so that's why we made that switch. We had strong data on this endpoint, by the way, from our Phase II trial where there was accruing benefit over time on this measure. So we feel pretty confident that with this switch, our probability to show the benefit of empa is more or less unchanged from the prior endpoint, the MMN routes, on which we also keep doing the work, which is going to be a key secondary, which will provide further insights in the dimensions of benefit. Tim Van Hauwermeiren: Thank you, Richard [indiscernible], I think this is a great advantage for us because the alternative was MMN routes, which was still going through an important validation step. But now we see CBUR and CDUR using the same endpoints in a specific indication for IVIg in the past and now VYVGART going forward. So we're welcoming that harmonization. Thanks for the question. Operator: Your next question comes from the line of Samantha Semenkow from Citi. Samantha Semenkow: I wonder following the lupus nephritis data that you've seen, is there anything you can take from that data set to help inform additional indication selection for efgartigimod or even 213 going forward? And then just relatedly, how are you thinking about additional indication expansion for empa? And do you have any plans for subcutaneous formulation development there similar to your playbook that you have for VYVGART? Tim Van Hauwermeiren: Yes, Samantha, thank you for the question. From a playbook point of view, it is indeed the intention to leverage our subcu platform across all indications. But maybe, Luc, you want to comment on the lupus nephritis data? Luc Truyen: Yes, yes. And thanks for that question. So we're still fully digesting it. But just from the top line evaluation, it was clear that right now, there isn't a path forward to a registrational study. And given that we want to be transparent about these things, we put it in here, but we're still trying to fully understand the data, which, to your point, may inform further decisions on a path forward potentially with another asset in the portfolio. Operator: Your next question comes from the line of Myles Minter from William Blair. Myles Minter: Congrats on the quarter. My question is back on the ianalumab data that we just saw and placebo responses in Sjogren's disease. I'm just wondering whether that 5.5, 5-point change from baseline in ESSDAI, is that within your expectations for your ongoing UNITY study? Or just saying that data change your expectations and potentially powering assumptions for that trial? Tim Van Hauwermeiren: Thank you, Myles, and that's a great question. In Sjogren's, I think we badly need better endpoints. That's why in the Phase II proof-of-concept study, we explored the effect of the drug across an entire spectrum of endpoints, also some of the new endpoints which are coming. But unfortunately, today, the regulator still forced to use ClinESSDAI because the CRESS and STAR endpoints haven't been fully validated yet. I think the placebo effect which you see in this study is actually quite consistent with the placebo effects, which we have seen in historical trials. So it's the ballpark which we expected when we were designing the clinical trial and powering the clinical trial. Thank you for the question. Operator: Your next question comes from the line of Sean Laaman from Morgan Stanley. Unknown Analyst: Congrats on the quarter. This is Morgan on for Sean. We have 2 questions. So first, just wanted to get your thoughts on J&J announcing the head-to-head for Imaavy versus VYVGART in gMG.? And then second, I know you provided guidance on OpEx for the rest of the year. But given all the pipeline indications and trials you have going on, I wanted to know if you could provide any guidance on OpEx and the potential lift over the next 12 months or so? Tim Van Hauwermeiren: Luc, do you want to first comment on that study from J&J, please? Luc Truyen: Yes. Thanks, Tim. Thanks for the question. So I want to start by saying at argenx, our goal is always to prioritize evidence generation that will really add significant value to the patient and the community. And if we look at this design of this head-to-head trial, I'm afraid it will not provide that much new information that benefits patients because of the primary endpoints chosen and the timing of the readouts, we already know that when you stop dosing VYVGART or [indiscernible] for that matter, that IgG's will return to baseline. That is not novel. So this study will just prove different PD effect of 4 doses of VYVGART versus continuous dosing. And I don't think that, that really adds. And it's also not in line with how VYVGART is actually used in the real world today. And at AANEM, for example, we have poster # 12 for those who are interested to show the long-term data on subcus that shows that with a regimen that really triggers new treatment when the start of deterioration happens that you can keep people well below the significant difference of minus 2 points. So to me, that, therefore, creates this question how much added value will this study bring and understanding, and overall, our perspective on competitive landscape hasn't really changed with this. We welcome competition because it's good for patients, and we get to better outcomes ultimately for that patient community, but we have not seen really meaningful differentiation being offered here. And so we continue to be confident in the bar we have set. The accumulated data shown at AANEM with all the data out there across both pediatrics, long-term data, the seronegatives are really in line with our mission to present data that really add value. Tim Van Hauwermeiren: Yes. Thank you, Luc. And I want to remind the audience that for the long-term follow-up in the subcu study, we now reached 60% MSE in our patients, 85% of these patients have sustained MSE of 8 weeks or longer. I think that's what matters to patients most. Thank you for the question. Karl Gubitz: Morgan, thank you for your question on operating expenses. Just to repeat what I said earlier, this year, we will end between $2.6 billion and $2.7 billion. Our capital allocation priorities is clear. We're investing in growth. We're not going to talk about the operating expenses and guidance for next year now. But what we will say is that the increases you saw in Q3, you can expect that to continue going forward. Thank you for the question. Operator: Your next question comes from the line of Jacob Mekhael from KBC Securities. Jacob Mekhael: With $4.3 billion on your balance sheet, how are you thinking about external innovation in the future? I believe you did an early-stage deal earlier this year, but should we expect more of those going forward? And are there any technologies that you think would be a good fit with your internal efforts? Tim Van Hauwermeiren: Yes, Jacob, and thank you for the question, and thanks for joining us today. Just as a quick reminder, all innovation at argenx starts with the collaboration with external world. So at the core of each pipeline asset is a very strong fabric of collaborators. It is true that with the increasing cash balance, our aperture for novel biology, which we're hunting for is opening up. We are no longer just looking in academic labs, but we're also involved in a number of constructive discussions with young biotech companies, typically not a place where you find exciting biology. So we're looking for the same biology. The hunting ground just increased, thanks to the balance sheet. So stay tuned. In our innovation mission, more of that biology will be coming in. Operator: Your next question comes from the line of Luca Issi from RBC Capital Markets. Unknown Analyst: This is Cathy on for Luca. Congrats on a robust quarter. And we have a question on VYVGART for gMG. We've been hearing from a few KOLs that patients are receiving the drug using shorter off cycles compared to the label. And that is because these physicians are worried that these patients relapse towards the end of the off cycle, so they prefer to restart the next cycle sooner rather than later. Is that consistent with your understanding? And if so, this is an important tailwind that is partially offsetting your gross to net headwind? Any color there much appreciated. And if it's okay, we have a quick follow-up on seronegative MG for Luc. Any rationalization around why triple seronegative patients are not as responsive? Tim Van Hauwermeiren: Cathy, thank you for the questions. So first of all, in the ADAPT trial, we adapted the cyclical dosing of the drug to the individual need of the patient. And that's also what the label says. So the label is not prescriptive in how you use the cycles, you redose based on clinical judgment. So it is possible that there is a subset of patients which needs the drug more frequently. There's also a tail of patients which needs to dose much less frequently and there's the whole individualization concept behind VYVGART. So your information is correct. Actually, we presented these data in the poster where you see the total distribution of patients with an average cycle of 5.2 per year, with a number of patients needing it more frequently and a long tail of patients needing it less frequently. The seronegative question is intriguing, right? Luc, why don't you pick up this one? Luc Truyen: Yes, yes. And it's important to realize that triple seronegatives often have a longer diagnostic course and therefore, present often also with a more severe disease, which is actually what we have observed in ADAPT SEROM. And therefore, and talking through, of course, experts in the field, our hypothesis is that the initial signal may be lower because repair mechanisms need to kick in and so forth. But what is really encouraging for us is that in the subsequent cycles, they really get to meaningful benefits. And in that sense, that story is not too much different from what we've seen in non-seronegatives. And so we find that encouraging. We -- of course, we'll continue to look into the data, as was already said, around can we get to MSE also in these patients given their longer disease journey. But overall, we feel the totality of the data fully supports a robust benefit here. Operator: Your next question comes from the line of Thomas Smith from Leerink Partners. Thomas Smith: Let me add my congrats on the strong quarter. Just on Graves, we recently saw some long-term follow-up data from a competitor FcRn suggesting a potential to drive long-term disease remission in this disease. I was just wondering if you could comment specifically on that data set and how important the potential disease modification was in your decision here to pursue Graves with VYVGART. And then you mentioned some excitement around the market potential. I was just wondering if you could maybe expand on that and share some of your initial assessment around the potentially addressable market here? Tim Van Hauwermeiren: Yes. I will start with taking the answer and maybe, Karen, you can shed some qualitative color on our excitement around the size of this opportunity. It is correct that there are data out there from a peer in the FcRn space. We shared the passion for FcRn with our peer group. Whilst it is interesting, we have to be very careful because this was a very small sample. So I think it warrants further investigation in a large properly controlled clinical trial. So stay tuned for more data coming out of more advanced clinical trial work. And maybe, Karen, a few words on excitement around Graves. Karen Massey: Yes, happy to. I mean whenever we select an indication, we look through 3 lenses: the biology, can we develop the indication, and we always look at the commercial opportunity through the lens of what is the real unmet patient need in this indication? And can we bring transformative outcomes in the patients. And so when we looked at the Graves indication, what we saw was that there's a large prevalence of the disease, and there is a subset of patients that has a clear unmet need that we think they've got based on the proof of biology study, based on the convenience of our subcutaneous dosing that we think we could fulfill that need. It also creates that franchise, if you will, opportunity given the connection to TED that Tim talked about earlier. So we see that there's a significant commercial opportunity here and look forward to seeing the clinical data readout. Thanks for the question. Operator: Your next question comes from the line of Douglas Tsao from H.C. Wainwright. Douglas Tsao: Just maybe sticking to the subject of Graves' disease. I'm just curious just -- obviously, it is a spectrum along with TED. And so just given the start of the study, I mean, are you thinking about targeting a particular time point in that progression? And do you think it's realistic or possible to potentially show that you're able to sort of modify the course of disease in terms of progression to TED? Tim Van Hauwermeiren: Yes. Thank you for the question. We're not going to comment in this call specifically about the trial design. The trial will come live relatively soon, and we will be presenting trial design, inclusion/exclusion criteria, et cetera, in the appropriate conferences, so stay tuned. On the potential disease modification, it's an interesting hypothesis. I think we need more data to come to a firm conclusion there. But thank you for the question. Operator: Your next question comes from the line of Victor Floch from BNP Paribas. Victor Floch: Actually, a quick follow-up on the peer assets that one of the analysts was mentioning before. That's exactly the one you've actually used to leverage their Phase II data to go straight to TED a few years ago. So I was wondering that is that asset is going to report some Phase III data in the not-so-distant future. So I was just wondering whether these data sets was a relevant proxy for [indiscernible] out of success in TED or if you have any comments to be made? Tim Van Hauwermeiren: Yes. Thank you. It's hard for us, Victor, to comment on the time line of clinical trials of third parties. I think we're best off asking the question to them. The way we look at this type of Phase II work is it is a proof of biology. I mean it is an FcRn antagonist. It is firmly establishing the role of FcRn and autoantibodies in the disease. And we know these diseases are autoantibody-driven. I would be very careful jumping to conclusions because as we know, in the FcRn class, not all FcRns are made equal. I think VYVGART is a unique Fc fragment. It's uniquely engineered based on a unique understanding of the biology. So I would not just cross-compare between molecules in the same class. We have already seen in other indications that actually it is just not appropriate to do. So strong proof of biology, stay tuned for the argenx data, I would say. Operator: Your next question comes from the line of Xian Deng from UBS. Xian Deng: So I have a question on VYVGART Phase II data in myositis, please. So just wondering for the Phase II data, there were about 23% injection site erythema. So just wondering if you could share any comments on that and any strategies to mitigate that. And so in general, just wondering how serious do you think that is? And in terms of physician feedback, given in a small subset of patients, they might have interstitial lung disease. So just wondering what's your mitigation strategy there? And if I may also squeeze in very quickly, Roivant recently announced a positive Phase III data for their JAK/TYK2 inhibitor, brepocitinib in dermatomyositis. I mean, of course, you are running the trial in a much broader general myositis overall, so just wondering what's your comment on the competitive landscape, please? Tim Van Hauwermeiren: Yes. There's 2 questions in one, right, but that's not a problem. Luc, yes, we have seen the data in DM. This is, I think, a large market, huge unmet medical need. There will be multiple molecules which will be playing in this marketplace, and we are welcoming this molecule. It's going to help us shape and build that market. It will not be the solution for each patient. I think you will need a portfolio of therapies to adequately deal with these patients. They're very complex patients. Back to the erythema, it's much to do about nothing I would say. These are very mild erythema. It's typically your first administration where it can happen and then it disappears. This is nothing new. We have reported that as well in our MG and CIDP patients. So we know the phenomenon. It's not unusual, atypical. And I think it's mild, it's transient, and it's certainly not stopping us in commercialization of this product in other indications to the contrary. Thank you for the questions. Operator: Your next question comes from the line of Charles Pitman-King from Barclays. Charles Pitman: I've got one just on the patient numbers. I know you've not provided us with an update today on kind of the total number of patients tried on therapy. But I'm just wondering kind of what the next milestones are that you could be announcing? I mean, can we assume from today that you've not kind of hit 20,000 across all indications or, say, 5,000 for CIDP, just given the kind of prior 15,000 total ex-China and 2,500 guidance that you gave us at 2Q? And also just related to that, I wonder if you could give us some commentary on just the quarterly patient add dynamics, given you now got MG, CIDP and PFS launched, when should we expect kind of patient adds to peak ahead of the next indication approval? Beth DelGiacco: Thanks, Charles. Yes, we did not provide a patient number this quarter. The last one we provided still stands, which was from 2Q. We did a similar communication rhythm with MG and that we provide patient numbers as we cross certain thresholds. We're not going to share what those thresholds are, but I think it's important to know that we have seen consistent growth and that the revenue in this situation really speaks for itself. And Karen, do you want to talk about the patient growth? Karen Massey: Yes, absolutely. Happy to talk about the patient growth. I'm pleased for the question because I'm really excited about the continued momentum that we see across all indications in terms of patient growth this quarter. And I think when you zoom out, I mean, certainly for MG, it's been 15 quarters of consistent momentum in terms of patient growth as we bring more innovation to patients. And most recently, obviously, the PFS has contributed to accelerating that growth. I think what's really important to note is that with prefilled syringe, 50% of the patients are new to VYVGART, and that's across both indications. And don't forget the 260 prescribers since prefilled syringe launch 2 quarters ago are new to VYVGART. They had never -- these prescribers had never written before prefilled syringe launch. So what you can see is both patient growth very consistently across the quarter with momentum as well as prescriber growth consistently. And that prescriber growth is important because it opens up new pockets of patients in both MG and CIDP and indicates that we're at the beginning of the growth curve for both indications. Thanks for the question. Operator: And your final question today comes from the line of Colleen Kusy from Baird. Unknown Analyst: This is Nick on for Colleen. Congrats on the quarter. If you could comment on the progress you made in the ex-U.S. launches, whether you think that could be a meaningful top line growth driver for the next year? Or whether you think focus will be more so on deepening penetration in the U.S. and what you view as the eventual market opportunity for ex-U.S. relative to the opportunity in the U.S.? Karen Massey: Yes. Thanks for the question. What you will see is that we have growth across all geographies or all markets. And what we're pleased to see, certainly, if I go through those markets, in Japan, we've launched CIDP. We recently got the PFS approval, and we're pleased to see continued demand growth for both MG and CIDP. So Japan is a very important growth driver for us, and we see that continuing in the future with the PFS launch. If we turn our attention to the other major markets in Europe, in Canada, what we see is that in MG, as you'd expect, it takes a little more time for those markets to come online as we negotiate pricing and reimbursement agreements. We have a narrow price band, and we have good pricing and reimbursement agreements in place. And what we are starting to see is those revenue contributions for those HTA markets increasing. We recently received the approval for CIDP, that's launched in Germany, and we expect that there'll be further launches for CIDP in additional markets in the upcoming months and years. So we expect that there will continue to be growth ex-U.S. But of course, the U.S. will continue to be a strong growth driver for us as well. Thanks for the question. Operator: And with that, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good day, ladies and gentlemen, and a warm welcome to today's earnings call of the AlzChem Group AG following the publication of the Q3 figures of 2025. I'm delighted to welcome the CEO, Andreas Niedermaier; CFO, Andreas Losler; as well as CSO, Dr. Georg Weichselbaumer, who will speak in a moment and guide us through the presentation and the results. After the presentation, we will move on to a Q&A session in which you will be allowed to place your questions directly to the management. And having said this, I hand over to Mr. Niedermaier. Andreas Niedermaier: Yes. Thank you for the warm welcome, and good morning together. Thank you for joining us today, and welcome to the quarter 3 call. As usual, we open with an executive summary, go forward with the figure analyzes and then move on to the new outlook. As always, we will go through the presentation first, and then be available for the questions at the end. So, let's skip the disclaimer and go directly to the Page 5. So, I have to do that as well. Let's check Page 5. So, now Page 5, you should see that. So, in a summary, it can be said that we are on a real good growth core, especially in the Specialty Chemicals product segment. So, from that point of view, it was an additional successful quarter 3 for us. For the third quarter, we recorded growth, which means that the group sales increased by additional 6% for the 9 months period by 2%. Once again, our Specialties were the main driver of the growth with a 9% increase in sales here, which more than compensated or overcompensated for the decline in sales in the other businesses. We will then hear more details about analysis later on, but that information is a teaser here. EBITDA also grew by 12% to EUR 86 million, approximately mainly due to the positive volume development of Specialty Chemicals. The EBITDA margin across the group increased from 18.5% to 20.3% now. So, based on the real good development on the figures for the first 9 months, we can -- and we are able to confirm the outlook for the sales more at a lower threshold, but we will be able to increase earnings from the today's point of view and the reported figure is more the lower end than we can see today. So, our CapEx activity is in full swing. The construction of the two new plants, including infrastructure is on schedule and on budget here. The roofs are currently being built and will also be closed soon. The first installations inside the plant have already begun. In the U.S., we are in the process of talking about specific project situations with several locations. And teams are evaluating the individual locations so that the basis for a decision can be laid in the coming months here. And engineering has already started with the adoption and the translation of the layout to the U.S. standard. The demand for creatine products remains really high in order to be able to benefit from market growth and incremental creatine expansion was successfully commissioned in quarter 3. In addition to the urgently required capacity increases, this investment also leads to greater efficiencies with an automatic packaging system. This shows the strength of Alzchem as I see that when sales potential on the market opens up, we size the possibility of growth and efficiency investments that are implemented quickly and consistently. And we can report the cooperation with Ehrmann and a high protein creatine products with Creavitalis in stores since October. Let's discuss that in more detail on the next page. So, Ehrmann in cooperation with AlzChem launched in expansion of its high-protein product line, which takes functional nutrition to the next level. The focus is on Creavitalis, the high-quality creatine made in Germany from us. The Ehrmann High Protein Creatine range makes the proven ingredient available for the first time in the form of delicious everyday products for a broad target group. The new product line comprises three categories: puddings, drinks and bars. And delivers per portion approximately 1.5 gram of Creavitalis each. Since October, the Ehrmann High Protein Creatine puddings and drinks have become gradually available in German retailer stores. And in the Ehrmann online shop, the bars will be added to the range starting now in November. Creavitalis stands for the highest purity and quality and therefore, also has convinced the customer Ehrmann to enrich its products with high-purity creatine and to provide it with a broad range of products for the first time for a broader market here. The first creatine project in the Ehrmann products underlines a variety of applications of creatine also outside the fitness sector and confirms our strategy of investigating the further applications of creatine and thus opening up further market potential. And we believe in further growth here. However, let's now move on to more figure analysis of how the business performed in the quarter and for the first 9 months. And for that, I hand over to Georg Weichselbaumer. Georg Weichselbaumer: Thank you, Andreas. As always, let's start with the development in our Basics & Intermediates segment, which managed to slightly reverse the downward trend observed in the first half of the year. The segment concluded the reporting period with sales amounting to approximately EUR 122 million. This represents a decrease of EUR 11 million or 8% compared to the previous year. Only looking at Q3 standalone, sales showed a positive development and were 6% above Q3 last year as was EBITDA. Again, this development was not a surprise to us and part of our guidance. For the 9-month period, and as outlined throughout the year already the decline in sales driven by volumes effects. The European steel industry remains in a difficult economic situation and is continuously producing lower volumes than in the previous year. Accordingly, our customers to ask for less quantities. In contrast and on a positive note, the development in the fertilizer segment, particularly with our calcium cyanamide fertilizer, Perlka, was encouraging. Q3 sales were further supported by a new product in our midsized business, which was successfully placed with the customer for the first time. This product contributed positively to the sales and EBITDA development within this segment. We are now in negotiations with the customer regarding an additional production campaign, which could contribute to a further positive development of our Basics & Intermediates segment. This sales development within the third quarter of 2025 led also to an increased EBITDA for the same period. Nevertheless, this development did not contribute to an increase in EBITDA in the 9-month period compared with the previous year. Even if we managed to pass on some portion of high electricity costs, we could not compensate to reduce quantities and tend to accept the decline in EBITDA, which also led to a decline in the EBITDA margin compared to the previous year. On the production side, the facilities within our Basics & Intermediates segment could steadily and reliably produce all raw materials required for the growth of our Specialty Chemicals segment. This brings me to the next page, where we analyzed the situation in our Specialty Chemicals segment. Specialty Chemicals is still on a very promising growth path supported by the recent development within our Creatine business, which Andreas described already. For the 9-month period as well as for Q3 stand-alone, all major KPIs could be increased compared to the comparative periods. On a cumulative basis, we can report a sales increase of EUR 22 million or 9% and EBITDA increase of EUR 11 million or even 16% and an increased EBITDA margin of almost 28%. Only looking at Q3 stand-alone, we can report a sales increase of EUR 7 million or 8% and EBITDA increase of EUR 2.4 million or 11% and an increased EBITDA margin of almost 28%. Main support for this development clearly came from the increased quantities supported by slightly increased prices for the 9-month period. It must be noted that this performance is very much in line with our guidance as set during the year. Let me outline the development within three business areas: Human Nutrition with our outstanding high-quality creatine products, Creapure and Creavitalis, custom manufacturing with very specialized products and production facilities and defense with our propellent nitroguanidine. While the latter can only grow this year to the extent that our customers are able to purchase before completing their own capacity extensions. The other two businesses made a significant contribution to growth. The demand for our creatine products made in Germany was much higher than last year, and we could especially grow in the U.S. but also in other regions. Andreas already mentioned the cooperation with Ehrmann brings creatine into the functional food market for the first time. The most current successful commissioning of our expanded creatine capacity will support our growth and the satisfaction of steady and increased market demand. As already mentioned during our information in Q1 and Q2 of this year, the comeback of our custom synthesis area continues. We have seen increased and steady demand, and this development supports our belief that the volume declines over recent years were only a temporary phase and that the Traditional Chemical segment with its highly specialized products continues to offer further growth opportunities with a corresponding contribution to earnings, even in Europe. EBITDA grew in line with sales, but a very good plant utilization led to an improved EBITDA margin. Again, we are mostly satisfied with this development within this group and confirm our growth perspective. Let us now move on to our third segment, Other & Holding. As seen throughout the year, sales for the Other & Holding segment were below the previous year's level. This decrease is primarily due to reduced electricity grid fields for the chemical park customers, which AlzChem is allowed to charge the customers under electricity regulations. All other services provided to our chemical park customers are broadly stable. The segment's EBITDA followed the sales and the decline was mainly due to the reduction of grid fees. That was all for our detailed view on the segment development. Let's now hand over to Andreas Losler and take a look at the overall group figures. Andreas Losle: Yes. Also good morning from my side, and thank you, Georg, for the insight in our segment development in the first 9 months of '25. As always, I will start with a detailed look at our group P&L figures first. In terms of sales, we finished the first 9 months of the year with total sales of almost EUR 425 million, which represents an increase of 2% or almost EUR 10 million compared to the previous year. A closer look shows that this increase was mainly supported by the development in the third quarter of '25, in which we managed to grow by 6.5% or EUR 8 million. Over the whole group and adding all segments together, the sales increase of over 9 months was driven by volume and price increases almost at the same level. As my colleague, Georg explained already, both operating segments contributed to this development completely differently that the quantities sold in our Specialty Chemicals segment could more than overcompensate the volume loss in our Basic & Intermediate segment. On a regional basis, the major sales increase could be achieved in the U.S. and Europe. As already mentioned in previous calls, the ongoing discussions about U.S. tariffs did not affect our business that much. Our sales split for this reporting period shows 66% sales coming from the Specialty Chemicals segment, while this relationship was only 62% on the comparative period. This development underpins our strategy to grow within our Specialty Chemicals products in niche markets and finally, support and explained our ongoing good EBITDA development. EBITDA is a good point. Let's talk about its development within the first 9 months of '25. Over the whole group, our EBITDA grew more than our sales debt and ended up at EUR 9 million or even 12% over the last year's reporting period. As seen over the last reporting period and in line with our strategy, this development was mainly driven by our Specialty Chemicals segment, supported by a steady and reliable raw material supply from the production plans in our Basic & Intermediate segment. Also, electricity prices are still higher than last year. A good utilization of our production facilities compared with stable sales prices led to an improvement in our extended material cost ratio showing an improvement from 36% to 33% this period. Cost wise, we have to report increased personnel expenses based on increased union tariffs and slightly increased number of employees, which support our growth. Our operating costs increased mainly resulting from much higher FX losses due to the weak U.S. dollar development. All put together, we managed to increase our EBITDA margin to impressive 20.3% after showing 18.5% last year after 9 months. With stable depreciations and supported by an improved financial result, we ended up on a group net result of EUR 45 million, which represents an increase of 20% compared to last year. Accordingly, earnings per share have increased by the same rate up to EUR 4.62 per share. That was the big picture of our profit and loss. Now let's move on to the balance sheet and cash flow figures. Our balance sheet and cash flows are still very healthy, but further influenced by some special impacts, which we have seen and reported throughout the year '25 already. The increase of EUR 105 million in our balance sheet, total can simply be explained by two major impacts: increased CapEx spending for our nitroguanidine expansion in Germany and customer grants received for this CapEx program. Non-current assets increased by EUR 57 million, primarily due to the investments aimed at expanding production capacity for nitroguanidine as well as customer grants capitalized in this context as non-current receivables. Approximately 67% of our investing cash flow within the first 9 months of the year was dedicated to this CapEx program in Germany. In total, we received almost EUR 56 million of customer grants already related to our nitroguanidine expansion. These are based on milestones or monthly payments. As such payments increase our cash balance, they also do increase our contract liabilities on the other hand. As of September 30, '25, we showed contract liabilities amounting to EUR 85 million. Those will be released beginning in '27 as revenue when the products are delivered out of the new plant. During our Q1 call in April this year, we gave a detailed explanation of the accounting treatment, and we refer to this presentation. Apart from this, we saw an increase in our inventory level in preparation for a scheduled extended maintenance shutdown of one of our carbide furnaces at the beginning of '26. Equity total could be increased by EUR 28 million. This development was supported by our positive group's net result and the recognition of increased interest rates for pension valuation and reduced by the dividend payment of EUR 18 million in May '25. However, as the balance sheet total increased materially, our equity ratio decreased from 42% to 40% but could be increased since our half year reporting date. This development was already outlined within our guidance and shows the expected ratio. Based on the increased interest rates mentioned, our pension liabilities were reduced by approximately EUR 5 million, while real pension payments amount to only EUR 2 million. As of our reporting date end of September '25, we can again report a positive net cash position of EUR 37 million. And again, we were able to shortly invest our liquidity surplus in order to earn interest, also a reason for our improved financial result. Our operating cash flow is still significantly influenced by the customer grant received for our CapEx program. As mentioned already, we received EUR 55 million in total. On the other hand, we slightly increased our working capital in preparation for the extended maintenance of one carbide furnace with a corresponding impact in our operating cash flow. We have already mentioned our materially increased CapEx activities compared to last year. Apart from the nitroguanidine expansion, we invested in expanding our creatine production capacities, the development of network operations and infrastructure matters. Anyhow, we can still report a positive free cash flow, which almost equals the amount from last year. Our increased dividend payment in May '25 and approximately EUR 4 million cash out for the current share buyback program explains the increase in financing cash outflows. As you can see, AlzChem is in a very healthy cash position and ready for future growth. At the end of this call, I will now give you some updates on our guidance for the remaining 3 months of the year. From today's perspective, we can confirm the outlook given in our last financial statements and the developments within the first half of '25 have confirmed our estimate. Sales are expected to grow to approximately EUR 580 million, while we expect them to settle at the lower end of our range, as Andreas already mentioned. EBITDA is still expected to grow at least to approximately EUR 130 million. Our outlook is still based on the same assumptions as given at the beginning of the year. The fundamental growth drivers will be volume effect within segment Specialty Chemicals, which will overcompensate the sales decline in segment Basics & Intermediates. Sales are supported by further increased demand in the area of human nutrition, custom manufacturing and possible positive developments within the metallurgy product area. As mentioned already, we still do not expect a material negative impact from the volatile tariff politics of the U.S. administration right now, but the further weakening of the U.S. dollar could have a negative sales and cost impact on our result. So, that's it from our side with the information for the first 9 months of the year and the outlook for the remaining 3 months of' '25. At this point, we would like to thank you for your appreciated attention and are now at your disposal for possible questions. Operator: Yes. Thank you very much for the presentation, and we now move on to the Q&A session. [Operator Instructions] And we already have some participants raising their hands. Mr. Faitz, you should be able to speak now and place your questions. Christian Faitz: Yes. Good morning, everyone. Thanks. Hope you can hear me. Congratulations on the results. I have a couple of questions, please. So first, can you please talk a bit about the inventory development into the end of this year in preparation of the refurbishment of the calcium carbide furnace in heart. Should we expect inventories in your Basics & Intermediates to approach, let's say, a EUR 60 million level or even above and on the shutdown for refurbishment? We are talking about the bigger furnace being out for how long and in which time frame? Thanks very much. Andreas Losle: Maybe I can answer the first question about the inventory development. Right now, we do expect to be on the level where we expect it to be at the end of the year. Also -- so, we have seen an increase over the year. But at this point in time, we should have reached the topline and inventory should not change that much until the end of the year. Andreas Niedermaier: And for the maintenance shutdown, it will take approximately 6 months. Christian Faitz: Okay. Perfect. If I may, I have one more question for now. Can you please give us an update on the scouting for the location for nitroguanidine in the U.S.? Is there any recent updates? Maybe you can share some thoughts there. Georg Weichselbaumer: I mean, as we said in the presentation, we have narrowed it down to a few locations. We have visited those locations, and we're currently also building P&L for all of those locations to make a very good decision based on figures by the end of the year. Operator: Well, thank you for your questions. And we move on to the next participant, Mr. Schwarz, you should be able to speak now and place your questions. Andreas Niedermaier: Oliver, it seems to be that you are muted. Oliver Schwarz: Yes. I just realized, sorry for that. The obvious mistake I'm making every time. Hopefully, it works now. Andreas Niedermaier: No problem. We can hear you. Oliver Schwarz: Wonderful. Thank you very much. So without further ado, I also got some questions for you. Firstly, regarding the Q3 development in the Basic & Intermediate segment, obviously, what we saw in Q3 is a reversal of the trends we saw, especially in H1, but also in previous years, that we saw volume and price declines. And you said -- stated that this was mostly due to a new contract with a customer, I don't know whether it's an existing one or a new one that enabled you to break that trend in Q3, which would imply to me that the contract size of that customer regarding their product might be in the vicinity of EUR 5 million to EUR 10 million, probably. Could you just confirm that the underlying trend of lower prices and volumes is still ongoing and is just offset or more than offset by this new product and the respective contract? And could you elaborate a bit how sustainable that is? So what kind of market potential you see for that product? And in general, how you see things going forward in that regard? That would be my first question. The second one is for Specialty Chemicals. It's basically the same thing. We saw a bit of a trend reversal also in Specialty Chemicals. Given that at the half year stage, there was a flat pricing in Q3, there was a price increase of 7%. But on the other hand, you had strong volume growth in H1, and it declined a tad in Q3. Could you elaborate a bit, especially on the, let's say, less strong increase or the, let's say, the drop in momentum in volumes in Q3? I guess that might be a mix effect that we see strong creatine sales, which is a highly profitable product, but other products might have had a harder time. Could you especially talk about Creamino in this context, please? And last but not least, congratulations on your cooperation with Ehrmann, which is quite a sizable diary operation in Europe. Could you give, let's say, your estimates or your feelings about what the market potential in the midterm of this cooperation and the resulting products could be, given that we are just at the very beginning of the rollout here in Germany and Europe will probably come, I don't know, next year or the year after, how is that timing planned in that regard? That will be my third and final question. Thank you very much. Andreas Niedermaier: So, Georg will you take the opportunity to answer the Basic & Intermediate question first, I think. Georg Weichselbaumer: Yes. I'm not surprised about that question. To get some more information about the background of that as we think a turnaround, particularly in the nitriles portfolio, we are in cooperation with a blue-chip customer. And the first campaign, which we made was just a start to confirm when we did that in a very positive way that the synthesis works. And there will be quite some significant ramp up. However, we are not privy to the information to which level it will grow, but the numbers which you mentioned were not completely wrong. It does not indicate that this is a reversal for the Basic & Intermediate segment. It is a good starting point, as I said, for the nitriles portfolio. But the underlying economics, in particular for the steel industry are still unchanged and will remain unchanged. We are positively surprised. I think we can say that for the Perlka development, because we could increase both volumes and prices. Andreas Niedermaier: Yes. So thank you, Georg for that analysis, some words to specialties. So, please don't overestimate the single quarters. So, you have to look more on the accumulated figures from my point of view. Because sometimes there is a little more quantity of that product in the last months of the, let's say, second quarter and then it's moved to the first month of the next quarter. And from that point of view, the underlying trend is really healthy for the already mentioned products like Creapure, Creavitalis, and the Specialty products here as Georg already reported. So, NQ is stable and on stable growth underway. And you will see next year a big increase when the new plant will be ramped up and will be started. So from that point of view, we will see really a healthy and a good underlying trend for our Specialty Chemicals here. So, the last question from you, Oliver was some words about Ehrmann. So, Ehrmann is very important from my point of view because it's the first step into the daily market and that interesting is quite big from other daily customers as well. And from that point of view, I think that's a trendsetting product actually. And that will help the creatine growth a lot. But that's not the only and single underlying trend for the creatine growth. So, we see a good growth trend in healthy aging, in fitness sector as well. And from that point of view, we really think about adding additional capacities. We think about that actually. And hopefully, we can report in a few, let's say, months that we will increase the capacities again here. Yes. So, that's in a nutshell, hopefully, answered your question here. Oliver Schwarz: Yes. Thank you very much for that. Just perhaps a clarification on the Ehrmann project that you did. I was just wondering, I mean, at the very beginning, when Ehrmann rolls out a product in Germany, obviously, due to the landscape of the German supermarket chains, the uptake will be choppy. That's normal because the products have to be listed and the respective supermarkets have then to display them in their shelves and so on. And that is very different, how REWE does it compared to EDEKA and so on and so forth. And then, we have the rollout in other European markets because Ehrmann is not only strong in Germany. It's also very strong in other parts of Europe when it comes to their sales composition. So, I'm just wondering is that this Ehrmann cooperation has that -- is that basically just a tip of the iceberg, what we are just, let's say, seen and how big might that become just that cooperation. I'm not negating other growth -- pockets of growth in other parts of your business. I just want a better understanding about how -- what kind of lever on sales and earnings that might grow into when it's, let's say, fully fledged rolled out, roll it over Europe, how much of that would basically be reflected in your future earnings and sales? Andreas Niedermaier: Oliver, as you know, we can't display and can't get this detail, and talking about earnings and sales on a customer base. But let turn it that way around. So, from my point of view, you're right, that's only that the first small introduction into the daily business of creatine. Creatine will be, from my point of view, a standard product. But Ehrmann was very fast to introduce that. And from my point of view, we will see many products out there in the future, but it could take time, let's say, from my point of view, 1 or 2 years, to introduce other customers as well, because you have to do your tests. It's not so easy to stabilize creatine in puddings and in milk products or in their products at the end of the day. And Ehrmann did it in a very fast and in a very, let's say, positive way from my point of view. And at the end of the day, we will see here a good growth path and a good growth segment, which will support our growth for creatine much, let's say. But that's not only the one thing, as I already said. So, healthy aging, fitness trend, women health that will support the creatine as well. And from that point of view, I have seen another question here written down, if the additional quantities are already sold out of the creatine plant? Yes. We have already sold out all the quantities, and that's the reason why we are thinking about additional quantities here as already mentioned. Operator: Yes. Thank you very much. And we indeed have questions in our chat box. I will read one out so that you know how to answer it. Could you please elaborate on CSG's strategic rationale for acquiring such a significant stake in AlzChem? Do you believe they intend to build a more substantial position over time? Andreas Niedermaier: So, interesting question. We know CSG as an investor. We do have contacts. But to be honest, I do not know the strategy of them. They are an investor as all investors, and we maintain the contact quite well, and they support from today's point of view, the strategy, and we will see what happens in the future. So, from that point of view, I can't disclose more because I don't know more about the strategy. Actually, from that point of view, I think you could go to them directly and ask them what's the strategy, because we don't know more about that. Operator: Well, thank you. And I'll read out one more question from the chat box. Could you comment on the latest competitive landscape for nitroguanidine. Rheinmetall has publicly stated in recent earnings calls that it aims to build a vertical integrated supply chain for propellant powders, including NQ, how might AlzChem be impacted by such efforts? Georg Weichselbaumer: That's a really very simple answer to that question, positively. I mean, just imagine Rheinmetall and in particular, our contacts are approximately 20 kilometers away from here, and we have a very, very good communication and we develop things jointly. Andreas Niedermaier: Yes. And as you know, Rheinmetall has an own nitroguanidine plant in South Africa. Yes, that is the case. But if you want to be backward integrated, you need guanidine nitride, you need dicyandiamide, you need the fertilizer business and at least you need to have the carbide business there. If you want to -- if you don't want to be dependent on Chinese material, then you have to build up all that chain. So, you can ask Rheinmetall if they will build up carbide furnace or if they purchase a carbine furnace. I haven't heard about that. Operator: Well, there was a follow-up concerning this from [ Mr. List ] separately, what is management views on synthetically produced guanidine and NQ, since their ongoing efforts in the United States, do you have a perspective on those developments? Andreas Niedermaier: So, that brings question marks to our eyes and to our ears. So, we haven't heard about that actually. So, if you can give us that information and hand in that information, then you can do analysis on it, and we can probably answer that question afterwards. Operator: Okay. Perfect. And we move on to -- well, there is a follow-up on this from [ Mr. List ] in the context of the U.S. expansion, are you engaged in discussions with particular states regarding potential subsidy packages, grants or tax incentives to support site selection? Georg Weichselbaumer: Yes, we are. Operator: That was pretty clear. Andreas Niedermaier: That's pretty clear. That is what we are used to receive from Georg. Yes, that was pretty clear. Operator: Okay. Thank you. And if we move on to one participant raising his hand. Mr. Hasler, you should be able to speak now and place your question. Peter-Thilo Hasler: Of course, I have also questions on Ehrmann. You mentioned that Ehrmann was very fast on the chart on Page 6. There's only the end of the timeline mentioned was October '25, the market launch. Could you tell us when was -- when the beginning was and what fast is in that industry? And the second question would be if you expect -- so I expect that you will not expect that the mass market entry will lead to a dilution of your premium positioning. But do you expect that this will increase the pricing power in your industry business? And the third question is I haven't seen the yogurts and bars. And so yet in the supermarket. Could you tell us something about the pricing of the Ehrmann products? And if I may ask a fourth question on that. You said that you will not comment on an individual client. But if it were Christmas today, how would you do such a partnership, as you call it, in your dreams? Would it be a true sale? Or would you get percentage of revenues of the products? Andreas Niedermaier: Yes, let's start with the last question. It's a true sale and it's not the percentage. From that point of view, we have been very quick in developing that. So, developing times or sometimes more than 5 years. But here, we have been much quicker. So let's say, between 20 months and a little more. We are talking here about the time framing. So unfortunately, you haven't seen the product in the supermarket, but come over to Trostberg, then we can display you that, no doubt about that. And what the very positive thing is that you will see television spots in the near future. Here, I think it has been already started. And you see advertising in all multichannels already about that product. And so, from that point of view, that was only a setup of the logistics lines. They filled all the logistics and now are promoting the product in all channels, what you can see. So, I think the next quarter we can talk about that everybody should have seen the product in the supermarket and should have heard about the product, I think. Yes. The pricing, I'm not really sure. I think it's approximately EUR 250 , but it differs from some offers and from some supermarkets. So, from that point of view, we don't really have a clear view about that. Georg Weichselbaumer: If I may add, it is very rare from Ehrmann that they actually display logos of other products, on their products. And since there is such a good synergy between proteins and also creatine, which actually is symbiotic, not 1.1 is 2, but more than 2, because creatine can activate the metabolism of proteins, they actually agreed that the Creavitalis logo is also on their sales products and it was a joint development because, as I said, creatine and then Ehrmann really fits. Andreas Niedermaier: So, let's grab the next question. What's the development of Eminex. So actually, we are in the process of incorporating Eminex into the climate calculators. That's a very important that you are a piece of the climate calculator. We are not in there, but there are positive signs from our point of view. We have good contacts and hopefully, we will make it next year that we are a part of the calculator. And then from my point of view, it will much supported to take Eminex at the end of the day. But please be remind the farmers don't have to pay actually for their methane emission that will change in the future. And if that two things have been changed, then Eminex will go like a rocket. Operator: Well, thank you very much. That was the last question from the chat box. No, there is one final question from [ Mr. List. ] I'll read it out. Amid the positive sales developments within the need trials product line, have you given further thought to potential portfolio rationalization given the new trials is not part of the integrated Verbund model. Thank you. Georg Weichselbaumer: It is not part of the integrated Verbund model, but it strengthens our site. Also, nitriles operates our air purification or our exhaust purification plant. So, it would not be easy to shut it down. That's the more defensive answer, but the more offensive is, I think we can develop nitriles into a business which looks cook completely different from what it used to be. But with products were not so much making nitriles, but gas phase reactions can really make a difference. And the project, which is currently implemented is the first one, which we have and there are more to follow. Operator: Thank you very much. And there is one participant raising his hands. Mr. Piontke, you should be able to speak now and place your questions. Yes, Mr. Piontke, you unmute yourself? You should be able to speak. Manfred Piontke: One question regarding the bird flu. We got a lot of information the last couple of days. Do you feel that here, this could bring problems for your product which is going to the feeding of these animals that if I remember 10 years ago, we -- in the last bird flu, Evonik had lots of problems and in sales and earnings. Do you have first impression what has happened to your clients? And how big is this business in the creatine business? Andreas Niedermaier: Yes. So it's a decent stack of our business, no doubt about that. So it's very important for us, the Creamino business we are talking about. But actually, I haven't heard that any of our customer had a problem with the bird flu now. So at least in the U.S., I haven't heard about some problems of our customers with the bird flu. So it's, from my point of view, more a German thing actually, and Germany is not that big for our Creamino business here. So, from that point of view, I don't see really a big danger, but you're right. That's always a topic. So, if the birds are slaughtered down and brought away then we have a heavy impact or it could have been seen a heavy impact on Creamino business. But up from now, we don't see that. Operator: Well, thank you very much. And there are no more questions by now. I'll wait a few moments. But no. So, ladies and gentlemen, we now come to the end of today's earnings call. You will find the presentation on the website of AlzChem Group AG and also on the Airtime platform by clicking into today's event. Dear participants. Thank you for joining and you've shown interest in the AlzChem Group. Should further questions arise at a later time, please feel free to contact Investor Relations. A big thank you to Mr. Niedermaier, Dr. Weichselbaumer, and Mr. Losler for your presentation and the time you took to answer the questions. I wish you all a lovely remaining week. And with this, I hand over to Mr. Niedermaier for some final remarks. Andreas Niedermaier: We'll thank you very much for your questions. Thank you for being here now. A message on our own behalf. So, because this was the last joint publication together with Georg Weichselbaumer here. As you already know, this is his last term as a Board member and his successor is already in the starting blocks. I would like to thank you, Georg, very much for the excellent cooperation on behalf of the Board and the employees. You were certainly a significant stable success factor with your know-how and your market knowledge here. Thank you for that. So, our corporation will not be completely away yet. You will still take care of the success of the USA project for a while. But in this format, it was certainly the last appearance, and you can pass on your responsibilities now. Thank you very much, Georg. So, let's now come to an end. We can now offer you the opportunity to visit us again virtually or in person at the conferences, as shown above. We will be available in Frankfurt. We will be available in London. Otherwise, we will be back with our full year reporting on February '27. Stay safe and sound, stay in our good graces, and goodbye. Thank you.
Operator: Thank you for standing by. And at this time, I would like to welcome everyone to today's Provident Financial Services Third Quarter Earnings Call. [Operator Instructions] I would now like to turn the call over to Adriano Duarte, Head of Investor Relations. Adriano? Adriano Duarte: Thank you, Greg. Good afternoon, everyone, and thank you for joining us for our third quarter earnings call. Today's presenters are President and CEO, Tony Labozzetta and Senior Executive Vice President and Chief Financial Officer, Tom Lyons. Before beginning the review of our financial results, we ask that you please take note of our standard caution as to any forward-looking statements that may be made during the course of today's call. Our full disclaimer is contained in last evening's earnings release, which has been posted to the Investor Relations page on our website, provident.bank. Now it's my pleasure to introduce Tony Labozzetta, who will offer his perspective on the third quarter. Tony? Anthony Labozzetta: Thank you, Adriano, and welcome, everyone, to the Provident Financial Services earnings call. I'm happy to share Provident's third quarter results today, which demonstrated continued strong performance and advancement on several strategic initiatives. Looking back over the past 12 months, we have made notable progress driving consistent and diversified growth, while also improving operational efficiency across our entire organization. Our hardworking team remains focused, contributing to our strong results by expanding our loan portfolio and pipeline broadening our deposit base and driving record revenues for the second consecutive quarter. During the quarter, we reported net earnings of approximately $72 million or $0.55 per share, which is consistent with the previous quarter. Our annualized return on average assets was 1.16% and our adjusted return on average tangible equity was 16.01%, while we are pleased with the bottom line metrics, we are even more energized by the meaningful improvement in pretax free provision revenues during the third quarter, which grew to a record of nearly $109 million. Our pretax pre-provision return on average assets of 1.76% has improved substantially compared to the 1.64% in the prior quarter and 1.48% for the same quarter last year. We believe this improvement serves as a good indicator that we have consistently enhanced the underlying profitability of our business, even as we have accelerated and diversified our loan growth. One of our primary areas of strategic focus continues to be deposits. And during the quarter, our deposits increased $388 million or an annualized rate of 8%. It is worth noting that this growth was primarily driven by core deposits, which increased $291 million or 7.5% annualized. We continue to remain focused on efficiently funding our strong commercial loan growth and have made investments in people and capabilities to support quality deposit growth over the intermediate term. Switching to loans. During the third quarter, our commercial loan -- our commercial lending team closed approximately $742 million in new loans, bringing our production year-to-date $2.1 billion. As a result, our commercial portfolio grew at an annualized rate of 5%, driven primarily by C&I production. Our strong capital formation, combined with the growth and diversification of our loan portfolio has reduced our CRE concentration ratio to 402%, if adjusted for the merger-related purchase accounting marks. This compares favorably to the 408% in the prior quarter. Our loan pipeline grew appreciably to nearly $2.9 billion, with a weighted average interest rate of approximately 6.15% as of quarter end. The pull-through adjusted pipeline, including loans pending closing, is approximately $1.7 billion. We are proud and encouraged by the loan team's performance and the strength of our pipeline as we approach the final stages of 2025. While we have worked hard to grow and diversify our loan pipeline, our commitment to managing credit risk and generating top quartile risk-adjusted returns has remained unchanged. Nonperforming assets improved 3 basis points to 0.41%, which compares favorably to our peers. We also saw a decline in nonaccrual loans during the third quarter, while our net charge-offs were only $5.4 million. Overall, we've remain very comfortable with our credit position and our underwriting standards, and we continue to look for the risk appropriate opportunities to grow our business. We believe it is worth reiterating that our exposure to rent-stabilized multifamily properties in New York City is modest at $174 million or less than 1% of total loans, all of which are performing. Additionally, our credit exposure to non-depository financial institutions is limited to $292 million of mortgage warehouse loans. We are comfortable with the credit structure of these loans, including the controls we have in place to minimize risk. Furthermore, the customers we deal with our established and well-known counterparties to our banking. Another area of strategic focus is growing noninterest income, which performed well during the third quarter. Provident Protection Plus continues to drive consistent growth in our noninterest income with revenues up 6.1% when compared to the same quarter last year. While normal seasonality drove a step down in revenues when compared to the linked quarter, we remain optimistic about the high level of business activity occurring on our insurance platform. Beacon Trust saw revenue growth in the third quarter, increasing to $7.3 million. We are excited to announce that Beacon's new Chief Growth Officer, Annamaria Vitelli, joined us in September and will bring our demonstrated track record of driving strategic growth to expand Beacon's market presence and deepen client relationships. We also continue to invest in our SBA capabilities, which have been a steadier contributor to noninterest income. In 2025, generating $512,000 gains on sale in the third quarter. Year-to-date, we have generated $1.8 million of SBA gains on sale, which is up from $451,000 in the comparable period last year. While our total assets have grown 3% year-to-date, our strong and consistent profitability continues to build Province capital position, which comfortably exceeds well capitalized levels. As such, this morning, our Board of Directors approved a quarterly cash dividend of $0.24 per share payable on November '28. I'd like to conclude my remarks by emphasizing how proud we are to see the results of careful planning and hard work translate into continued strong performance in the third quarter. None of these accomplishments would be possible without the dedication and commitment of our employees. We will continue to execute our key strategic initiatives aimed at sustaining growth in our core business, while simultaneously making the necessary investments on our platform to ensure Provident is well prepared for the future. Now I'd like to turn it over to Tom for his comments on the financial performance. Tom? Thomas M. Lyons: Thank you, Tony, and good afternoon, everyone. As Tony noted, we reported net income of $72 million or $0.55 per share for the quarter, with a return on average assets of 1.16%. Adjusting for the amortization of intangibles, our core return on average tangible equity was 16.01% for the quarter. Pretax pre-provision earnings for the current quarter increased 9% over the trailing quarter to a record $109 million or an annualized 1.76% of average assets. Revenue increased to a record $222 million for the quarter, driven by record net interest income of $194 million and noninterest income of $27.4 million. Average earning assets increased by $163 million or an annualized 3% versus the trailing quarter, with the average yield on assets increasing 8 basis points to 5.76%. Our reported net interest margin increased 7 basis points versus the trailing quarter to 3.43%, while our core net interest margin increased 1 basis point. The company maintains a largely neutral interest rate risk position, but anticipates future benefits of the core margin from recent Fed rate cuts and expected steepening of the yield curve. We currently project the NIM in the 3.38% to 3.45% range in the fourth quarter. Our projections include another 25 basis point rate reduction in December of 2025. Period-end loan sales per investment increased $182 million or an annualized 4% for the quarter, driven by growth in mortgage warehouse and other commercial and multifamily loans, partially offset by reductions in construction and residential mortgage loans. Total commercial loans grew by an annualized 5% for the quarter. Our pull-through adjusted loan pipeline at quarter end was $1.7 billion. The pipeline rate of $6.15 is accretive relative to our current portfolio yield of 6.09%. Period-end deposits increased $388 million for the quarter or an annualized 8%, while average deposits increased $470 million or an annualized 10% versus the trailing quarter. The average cost of total deposits increased 4 basis points to 2.14% this quarter, while the total cost of funds increased 1 basis point to 2.44%. Asset quality remained strong with nonperforming assets declining to 41 basis points of total assets. Net charge-offs were $5.4 million or an annualized 11 basis points of average loans this quarter, while year-to-date net charge-offs were just 6 basis points of average loans. Current quarter charge-offs reflected the resolution of several nonperforming loans and the write-off of related specific reserves. Our provision for credit losses increased to $7 million for the quarter as a result of growth in loans and commitments and minor deterioration in our CECL economic forecast. Our allowance coverage ratio was 97 basis points of loans at September 30. Noninterest income increased to $27.4 million this quarter, with solid performance realized from core banking fees, insurance and wealth management as well as gains on SBA loan sales. Noninterest expenses were well managed at $113 million with expenses to average assets totaling 1.83% and the efficiency ratio improving to 51% for the quarter. Excluding the amortization of intangibles and the related average balance, these ratios were 1.73% and 46.72%, respectively. We project quarterly core operating expenses of approximately $113 million for the final quarter of 2025. Our sound financial performance supported earning asset growth and drove strong capital formation. Tangible book value per share increased $0.53 or 3.6% this quarter to $15.13 and our tangible common equity ratio improved to 8.22% from 8.03% last quarter. That concludes our prepared remarks. We'd be happy to respond to questions. Operator: [Operator Instructions] Our first question today comes from the line of Tim Switzer with KBW. Timothy Switzer: My first question is on the margin. I think you guys have -- I understand kind of the interest rate impacts on the floating rate book in your deposits there. But I think you guys also have quite a bit of loan back book repricing as well. Can you maybe update us on the quantity of loans that are fixed rate repricing over the next 12 months or so? And then what kind of uplift you would expect on the yields just at current rates? Thomas M. Lyons: I think, I can give it to you in pieces, Tim. The total repricing is just under $6 billion to $5.9 billion. Within that, the floating book is about $4.950 billion. So the balance is either longer-term adjustable repricing in the period or fixed rate. Timothy Switzer: Got you. And do you have kind of like what the blended yield is on that fixed rate and adjustable portion? Thomas M. Lyons: I do not. I know I mean the margin projection reflects all of that. So you can see the increase based on the expected new loan rates of 6.15% that's in the pipeline. But I don't have it at my fingertips the current portfolio rate for that piece of that segment. Timothy Switzer: Got you. Okay. And there's been some discussion on other conference calls about increasing loan competition on pricing. Could you maybe discuss what you've seen in your markets and then kind of dissect that between C&I and then the CRE market? Anthony Labozzetta: Sure. Yes. I think that's a fair statement that we've seen some increased competition in the lending market for sure, mostly on the CRE side with what the either the private space or insurance the agencies are doing. In fact, some of our -- we had about $348 million of payoffs this quarter. Some of that had to do with that. Some of it have to do with loans just selling. But on the C&I side, we're not seeing the same level of competition that we are on the CRE side. But I would say it's a fair statement to say overall, the competition has grown stronger. However, I would like to end that by saying that our team is still building a pipeline that's kind of record high at $2.9 billion. So in our pull-through, I say we're closing about 65% of the things we touch, so those are good consistent metrics for us. We're careful about what the economy looks like. We're doing good loans to good sponsors under good terms, but we're aware that there's some pricing competition or structure competition out there. Timothy Switzer: Got it. That's helpful. And if I could get 1 more follow-up. Could you maybe add some color on how some of your new specialty verticals like ABL and health care are contributing to the loan growth? Anthony Labozzetta: I think as we might have mentioned on the written prepared comments was -- this quarter, the C&I reflected most of our growth, which includes health care, maybe our warehouse lending did very well for us this quarter. In fact, those were all double-digit growth in some of those categories, where our CRE was relatively stable because of some of the prepayments, unanticipated prepayment we saw was in that class. So again, those are good. That's the areas that we are strategically focused on scaling up. We're doing it very well. We're very proud of that. We have the good teams to handle that. It's also driving a good result on our CRE concentration ratio, as I mentioned, so it's having all the strategic effects that we desire. If CRE kicks up, I think, this quarter, while I said that loans grew 5% the effective production would have been somewhere around 7%, 7-plus-percent if the prepayments were not there in the CRE space. So I'm pretty proud of the productivity this bank has right now. And our focus will continue on those verticals, which we put in place strategically. We expect them to be high single double-digit growth because the scale of that book is not substantial, so that all the productivity is going to be substantial. And while CRE will run in that 5% space. Thomas M. Lyons: Tim, the other thing I could add, if it helps with the projected loan mix is the pipeline breakdown. Commercial real estate represents about 42% of the pipeline. The specialty lending category, which includes the ABL and health care, you were referring to is about 14% there's 5% in resi and consumer and the balance is the other commercial loan categories, middle market and other commercial lending. Operator: And our next question comes from the line of Feddie Strickland with Hovde. Feddie Strickland: Good afternoon, everybody. Just wanted to touch on noninterest income, the guide seems to imply about a $1 million step down linked quarter. Is that just an expectation of lower loan prepayment fees, plus maybe some seasonality on the insurance? Thomas M. Lyons: Yes, you got it, Feddie. It's maybe a little conservatism in there as well. But the prepayment fees, again, subject to some volatility. They were about $1.7 million this quarter. So we scaled that back, but who knows what we'll see. Personally, I'd rather hold the loan and leave the fees out. But yes, that -- and the seasonality in the fourth quarter is not necessarily the strongest for insurance. We see well going into Q4 too. Q1 is where we see the pickup, right? Feddie Strickland: And I guess, along the same lines of noninterest income. Can you talk about the opportunity on the wealth side as we enter '26 and whether you're working to bring on additional talent there? Anthony Labozzetta: Well, absolutely. As I mentioned on the call, we've hired Anna Vitelli. She's the Chief Growth Officer. She's building -- she's charged with growing and service and retainage of -- in a way of extraordinary service in that space and deeply integrating it with the bank. So we think there's a lot of great opportunity. So Anna will build out our needs, adding more sales and production staff and organizing ourself in a fashion that will give us the things that we're looking for. But certainly, these investments are aimed at 1, growing new AUM and deepening connections that we have within the organization already. Feddie Strickland: Got it. And just 1 more quick 1 for me on capital. Just hoping to get your updated thoughts on how do you think about capital and about deployment via dividends versus buybacks versus organic growth, while still managing the CRE concentration piece as well. Thomas M. Lyons: Yes. I think our first preference remains organic growth at profitable levels. And again, recognizing the strength of our pipeline, that's where our energy has been focused -- that said, we are at comfortable levels of capital there. We're close to $11.90, I think, on CET1 at the bank level. So there's opportunities for us there. We certainly think we're trading at an attractive price at this point. With regard to dividend, we kind of like to get back to a 40%-ish payout ratio, somewhere in the 40% to 45% range. So I think that's when we look at that more carefully. The other thing is we're in the middle of budget season here, which is why we didn't give a lot of forward guidance. We want to wait until January to give everybody a full year update. But that will help inform our capital decisions as well as we get more confidence around our asset growth and capital formation projections. Operator: And our next question comes from the line of Dave Storms with Stonegate. David Storms: I appreciate you taking my questions. Just wanted to start with some of the decrease in deposit costs and maybe get your thoughts on how much more room there might be to run here and what that looks like from a competitive landscape? Thomas M. Lyons: Decrease in deposit costs. Well, we saw growth in noninterest-bearing, which was helpful to us. The overall cost of funds was only up 1 basis point to 2.44% this quarter. So there was a little bit of shift in mix. While deposit costs were up it was still at an attractive rate in terms of funding advantage relative to the wholesale borrowings. So that's really what we try to manage, obviously, is the overall cost of funds. That all said, we do have -- we had the Fed rate cut at the end of September, the 17th, I think it was -- and then this most recent 1 is yesterday, I guess. So we're going to see the benefit of that of both of those cuts in Q4. The September cut was effective on October 1, and the most recent cut will be effective November 1, in terms of beta overall, I think we conservatively model something in the 30% to 35% range on deposits. David Storms: And then just 1 more, if I could. It looks like your efficiency ratio is hovering right around that 50% mark. Curious as to how much of a push there is to get that under 50% and maybe what that would entail? Thomas M. Lyons: I don't think it's necessarily a push, but rather our desire to continue to make prudent investments and build for the future. So I think where we are is a really attractive level. If you look at a pure overhead management, the OpEx ratio at 183% and that's inclusive of some fairly significant intangible amortization is really quite well managed. So I don't know that there's a lot of room we're going to look to take down on that just because I think there's investments that we want to continue to make to support growth. Anthony Labozzetta: I would argue that we've been steadily making the requisite investments in our business to build out the platform for our future. The efficiency ratio, we will see that come down further by enhanced revenue opportunities. And then you might see a blip up with further investments. And I know obviously, we'll get a positive operating leverage, and you'll see it move back down. And that's kind of the trend we've been watching, but I think Tom says -- it's in this area, it can go down another point, if we're building the revenue base and then represent factor in future investments. Thomas M. Lyons: Yes, Tony made a really good point. I was focused on the expense side, but I think the revenue opportunities are there. You saw 2 consecutive quarters of nice growth and record levels for us. We do project core margin expansion over the next several quarters of, say, in the 3 to 5 basis point range each quarter. So and again, we talked about some of the investments that we hope to see returns on in the fee-based businesses over the course of the next year. A lot of room there. Operator: Our next question comes from the line of Gregory Zingone with Piper Sandler. Gregory Zingone: Quick question. How frequently are you bumping into private credit firms nowadays? Thomas M. Lyons: I'm sorry, Greg, could you say that again? We have difficulty hearing you. Gregory Zingone: I asked how frequent are you bumping into private credit firms nowadays? Anthony Labozzetta: Yes. We know that's out there. We're not -- it's not really been a factor for us, at all. Most of the business we're doing is relational. So clients are not that reticent to go to private credit for 1 transaction knowing that the whole relationship is important to them and us. So again, we're very cognizant of it being out there and the scale of it. However, it has not been a factor in us building our pipeline or getting our deals closed. Gregory Zingone: Awesome. And at first glance, your average fee in wealth management of 70 bps seems kind of high. Have you felt any pressure on pricing recently? Thomas M. Lyons: I wouldn't say recently, it has actually come down. I can remember us being as high as 77 basis points probably 2 years ago or so. But it's been pretty stable, sorry... Gregory Zingone: I was going to ask on top of that, where are new relationships coming on today? Thomas M. Lyons: I would say similar levels because it has remained steady at 72 basis points for quite a few quarters now. Gregory Zingone: And then lastly for us, M&A is picking up in the industry, it seems like a pretty good time to ask you guys. What are you looking for in your next potential acquisitional target? Anthony Labozzetta: Well, I would actually answer the M&A question a little bit differently, right? So I think our primary focus here is on the organic growth strategies that we outlined. We're pretty excited about build-outs and our advancement at the middle market space, we think there's a huge opportunity for us to create shareholder value and 1 that we think is most relevant. That being said, we're always evaluating opportunities that might be out there. I think we've proven that we have a great merger DNA, we can get stuff done. We have the right platform to do that. We'd love to see our currency trade at a place, where it's more reflective of what we're worth. So we'll always evaluate opportunities from every direction, but it's a wonderful place to have the optionality, and we're creating that by having an organic growth and focusing there first. Operator: All right. And our next question comes from the line of Stephen Moss with Raymond James. Stephen Moss: Good. Maybe just starting on purchase accounting here. I realize it's probably elevated from the prepays this quarter. But curious as to how you guys are thinking about that going forward. And also on the subject of prepaid, just kind of curious, do you think those will continue to be elevated in the near term? Or do we -- from the fee income, kind of we're going to moderate down to more [indiscernible] levels? Anthony Labozzetta: I think the prepays, usually, if we look at past trends, the third quarter seemed to have a heightened pickup, which is the summer months. We expect that to normalize and maybe $150 million to $200 million range, I would say, is more normalized, but you always have in that number that I gave, there's a lot of businesses that sold as much as it wasn't a huge, huge number of refinancing elsewhere, probably $90 million of it refinanced elsewhere. So there's always going to be activities, companies selling companies coming. We just have to have an organizational capacity to grow at a level to make up for that. But if I were to put a number on it, I would say $200 million, $150 million, $200 million is probably a good place to be. Thomas M. Lyons: And with regard to purchase accounting, Steve, I'd say our normal number runs about 40 to 45 basis points of the NIM. I would expect that to persist throughout the next 4 quarters. Stephen Moss: Great. And then kind of on the theme of organic growth and hiring. I heard you guys' comments around the efficiency ratio. Just kind of curious how you guys are thinking about hiring for 2026. You've definitely made a number of investments over the last 12-plus months. Kind of curious if there's maybe another step-up in terms of bringing people over in the new year or just color around that? Anthony Labozzetta: Yes. I mean, so I think we have a pretty good visual to our strategic planning process of what our needs are to give us the productivity in future years, particularly in areas of focus. It is our expectation that we'll continue to invest. If you look at what insurance does, we hire roughly 10 to 12 new producers every year to keep pace with that. We're expecting that to happen in the Beacon space, our commercial platform continues to hire not only in new geographies, but in verticals that we're investing deeper in. I would expect more investment in the middle market space for us next year. All of those things we have clarity of what the positive operating leverage will be derived from that. So it is part of our process in terms of forecasting and strategic planning that. We'll build all that out for you in the first quarter and you'll get a better clarity of the investment against the returns. Operator: And it looks like there are no further questions at this time. So I'll now turn the call back over to Tony Labozzetta, for closing comments. Tony? Anthony Labozzetta: Great. Thanks everyone for your questions and for joining the call. We hope everyone has an enjoyable end of the year and a holiday season. We look forward to speaking with you again soon. Thank you. Operator: Thanks, Tony. And again, this concludes today's conference call. You may now disconnect. Have a good day, everyone.
Operator: Good afternoon, and welcome to Werner Enterprises Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Chris Neil, SVP of Pricing and Strategic Planning. Please go ahead, sir. Chris Neil: Good afternoon, everyone. Earlier today we issued our earnings release with our third quarter results. The release and supplemental presentation are available in the Investors section of our website at werner.com. Today's webcast is being recorded and will be available for replay later today. Please see the disclosure statement on Slide 2 of the presentation as well as the disclaimers in our earnings release related to forward-looking statements. Today's remarks contain forward-looking statements that may involve risks, uncertainties, and other factors that could cause actual results to differ materially. The company reports results using non-GAAP measures, which we believe provides additional information for investors to help facilitate the comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation. On today's call with me are Derek Leathers, Chairman and CEO; and Chris Wikoff, Executive Vice President, Treasurer, and CFO. I will now turn the call over to Derek. Derek Leathers: Thank you, Chris, and good afternoon, everyone. Today I will speak to what we are seeing in the market, how that is translating into our performance, and what we are doing from a strategic standpoint to further position Werner for long-term growth. While the second quarter was more favorable, the third quarter presented some challenges, namely in our One-Way business. However, there are several positive developments that we can highlight from the quarter. In Logistics, we continued a double-digit growth trajectory with lower operating costs year-over-year, despite some anticipated change in mix. In One-Way trucking, revenue per total mile increased, the fifth consecutive quarter of year-over-year improvement. And in Dedicated, revenue grew sequentially and year-over-year as momentum continued from recent business awards and startups. We are building a foothold in new verticals like tech and aftermarket automotive parts. Our new customers are seeing the value of our strength and scale in Dedicated in these new applications, but there is a short-term upfront investment as we pursue these opportunities. In terms of the challenges in the quarter, in Logistics we experienced margin pressure from mix changes and in One-Way we saw decreased miles per truck, although we view this as temporary as One-Way production has been recovering throughout October. Startup costs in Dedicated were more elevated compared to the second quarter and more than we anticipated. Overall, as market dynamics remain unpredictable, we are keeping focus where it matters most, on delivering superior value to our customers and positioning Werner for long-term success. We remain confident in our business fundamentals and progress that we are achieving toward our long-term goals and strategic objectives. Moving to Slide 5. Our focus remains on 3 overarching priorities: driving growth in core business; driving operational excellence as a core competency; and driving capital efficiencies. Here's where we are on these priorities. First, driving growth in core business. Our Dedicated fleet is growing and conversations with customers regarding the cost advantages of for-hire Dedicated fleets are resonating. We've been awarded several new fleets, and the pipeline remains strong with momentum growing in new and attractive end markets of choice. Service levels are high and have been recognized recently by several strategic shippers naming Werner Dedicated Carrier of the Year. All Logistics divisions produced top line growth the past 2 consecutive quarters, with intermodal achieving its highest quarterly revenue in 11 quarters. We continue to offer compelling solutions to our customers who are finding value and entrusting us to solve their supply chain challenges. Second, driving operational excellence is a core competency. This priority is anchored by a culture of safety, service, reducing our cost-to-serve profile, and transforming how we do business. We continue to trend favorably on our DOT preventable accidents per million miles, which declined low-double-digit percent from Q3 of last year and year-to-date is below our 5-, 10-, and 15-year averages. Our 2025 cost savings plan is progressing as planned, and by the end of third quarter, we achieved 80% of our $45 million in cost saving target for 2025, and remain on track to reach the full goal by year end. We are also progressing well on our technology transformation, positively impacting both efficiency and our safety performance. We've often said this is a multiyear journey, but we are in the later innings. As this takes hold, the benefits will be more evident. Our tech transformation, to say it plainly, it's a lot. The scope across our business is expansive. This is not just another tech upgrade. Rather, over the past 4 years, we've completely rebuilt our technology stack from the ground up, replacing every single component, creating a modern, scalable, secure, cloud-based platform. While others bolt on AI to their legacy systems, we built an integrated foundation that connects every part of our business from pricing and planning to safety, billing, recruiting, and more. Our Cloud First, Cloud Now strategy is paying off. It allows us to take full advantage of our new tech stack, automating processes, and layering new AI agents quickly and effectively. For example, our largest expense in one back-office department has been lowered by 40% over the last 2 years through modernization and AI automation while maintaining full service levels. We see the benefits of this in 4 areas: safety, data, analytics, and operational efficiency. And even more important, an enhanced experience for our customers, drivers, and third-party carriers. For example, technology benefits safety and our driver experience through enhanced in-cab situational awareness and visibility, such as through real-time anticipated weather and routing technology and installing sideview cameras that talk seamlessly with other systems. The technology data and cloud storage of video also provides opportunities for enhanced training and driver development. Our third-party carriers benefit from optimized load matching based on our carrier preferences and enhanced communication. Operationally, we benefit from greater efficiencies across our business. Orchestrated intelligence is changing how we operate every day, consolidating systems, automating steps, and using AI to streamline end-to-end workflows. We see this efficiency growing across the shipment lifecycle from pricing and load booking to route planning and invoicing. As a result, dwell time is down, planning efficiency is up, and thousands of customer and driver interactions are now handled each week by conversational AI. And most importantly, our customers benefit, as we continue to roll out the EDGE TMS platform and ecosystem across our business. Our goal is for our customers to have increasingly more information, visibility, and transparency. We've seen the financial benefits of our tech transformation reflected in Logistics, with multiple quarters of meaningful OpEx reduction year-over-year while growing volume and top line. We're already seeing progress across our TTS segment. Given the size and complexity of managing assets and drivers at scale, the lift is larger but so is the impact. Our final priority is driving capital efficiency. Despite the challenging operating environment, we continue to generate solid operating cash flow, maximize value on the sale of used equipment and invest for growth. Let's turn to Slide 6 and discuss our third quarter results. During the quarter revenues increased 3% versus the prior year. Revenues, net of fuel, increased 4%. Adjusted EPS was negative $0.03. Adjusted operating margin was 1.4%. And adjusted TTS operating margin was 1.9%,, net of fuel, surcharge. We previously disclosed a legal settlement agreement entered into in October for $18 million related to class action litigation that had lasted more than a decade involving claims related to driver pay. We also incurred legal fees of $3.4 million in the quarter related to this litigation. These costs represent a $0.26 negative impact to GAAP EPS, but are removed as part of adjusted EPS. In Dedicated, we're continuing to see steady momentum in adding new business while maintaining solid retention. Shipper conversations continue to be constructive as customers remain focused on reliable and flexible transportation partners who offer creative solutions with high service and scale. In One-Way, truckload revenue per total mile increased sequentially and was up modestly again year-over-year. Contractual rate changes that became effective were mitigated by spot rates that declined in July and August before increasing in the latter part of the quarter. One-Way production was lower year-over-year driven by 3 factors: fleet composition, onboarding of new drivers, and some network softness. We rebalanced driver capacity to launch new Dedicated and specialized freight, which temporarily created inefficiencies in the One-Way network. Overall, we're now on the other side of those transitions with a more focused One-Way fleet, sustained Dedicated growth, and the flexibility of our PowerLink solution to capture higher margin peak freight as the One-Way fleet moderates into Q4. In Logistics, revenue increased sequentially and year-over-year. However, gross margin was pressured as the conclusion of higher-margin project work was replaced with contractual business. This mix change resulted in startup costs and contributed to an increase in purchase transportation. Before Chris discusses our financial results in more detail, let's move to Slide 7 to summarize our current near-term market outlook. Demand in Q3 was below normal seasonality for most of the quarter. However, we did see improvement in One-Way trucking demand through September and so far in October. While concerns about consumer health persist, consumers remain resilient with rising retail sales and moderate inflation relief. These are supportive signs for retail. However, beneath the surface, there are other concerns. Consumer confidence is lower, real growth is modest, and many consumers are in preservation mode rather than expansion mode. As a result, we like our mix of retail being more concentrated in discount and value retailers. Retail inventories appear to have mostly normalized. While some inventory was pulled forward ahead of Q3, nondiscretionary goods have had more consistent replenishment cycles. Spot rates trended higher starting in September and into October and are expected to follow normal seasonal patterns for the remainder of the year, with upside potential supported by ongoing capacity attrition. Customers have provided additional insights into their peak season volume estimates. Shipment forecasts vary by customer, but in total, peak volume and pricing are estimated to be similar to last year, with more balance across the network. Capacity continues to exit, and recent supply-demand tightening would suggest the pace is increasing, given developments surrounding nondomiciled CDLs, B-1 visas, and English language proficiency. As challenging operating conditions continue, we are also seeing an uptick in bankruptcies as a further limiter. We are well positioned on these issues and will benefit as the market comes more into balance. Given the dynamic tariff backdrop, uncertainty related to the cost of Class 8 trucks remains. We expect used truck values are likely to remain stable in the near-term, particularly for assets with lower miles and remaining warranty. Class 8 net truck builds are now well below replacement levels and not only signal that a potential truckload capacity tightening could be ahead, but also that more carriers could be looking to refresh their fleet in the used equipment market. With that, I'll turn it over to Chris to discuss our third quarter results in more detail. Christopher Wikoff: Thank you, Derek. We'll continue on Slide 9. All performance comparisons here are year-over-year, unless otherwise noted. Third quarter revenues totaled $771 million, up 3%. Adjusted operating income was $10.9 million and adjusted operating margin was 1.4%. Adjusted EPS was negative $0.03. Discrete tax items negatively impacted adjusted EPS by $0.08 in the quarter. Consolidated gains on sale of property and equipment totaled $4.5 million. Turning to Slide 10. Truckload Transportation Services total revenue for the quarter was $520 million, down 1%. Revenues,, net of fuel, surcharges, were flat year-over-year at $460 million. TTS adjusted operating income was $8.9 million. Adjusted operating margin, net of fuel, was 1.9%, a decrease of 340 basis points. 200 basis points of the decrease is attributed to higher insurance and claims expenses and 50 basis points are associated with Dedicated startup costs. Insurance costs were lower than the previous 2 quarters, but significantly higher year-over-year as costs during the prior year quarter were below $30 million, a low point going back to the first quarter of 2022. Investments in new Dedicated fleet startups exceeded $2 million in the quarter, a $0.03 impact on EPS. Startup costs in the third quarter were higher compared to the second quarter. Timing of these costs was difficult to predict or to pass on, given the new verticals, freight and customers represented by the majority of the wins earlier in the year. We are now seeing the startup expense dropping off. So far in October, these related costs are down 75% from the third quarter run rate. Let's turn to Slide 11 to review our fleet metrics. TTS average trucks were 7,503 during the quarter. The TTS fleet ended the quarter flat year-over-year and down 100 trucks, or 1.3% sequentially. TTS revenue per truck per week, net of fuel, decreased 0.7%, primarily due to lower miles per truck, partially offset by higher revenue per total mile. Within TTS, Dedicated revenue, net of fuel, was $292 million, up 2.5%. Dedicated represented 65% of TTS trucking revenues, up from 63% a year ago. Dedicated average trucks increased 1.2% year-over-year and 0.2% sequentially to 4,865 trucks. At quarter end, the Dedicated fleet was up 125 trucks, or 2.6% from where we started the year and represented 67% of the TTS fleet. Dedicated revenue per truck per week grew 1.3% and has increased 29 of the last 31 quarters. Lower production in the startup fleets negatively impacted this metric by 140 basis points in the quarter. It often takes 90 days or more before new fleets meet targeted production as drivers are sourced and integrated into the fleet, equipment is positioned, and routes are optimized. In our One-Way business, for the third quarter, trucking revenue, net of fuel, was $160 million, a decrease of 3%. Average truck count of 2,638 increased 1.3% year-over-year and was up slightly on a sequential basis. However, end-of-period One-Way trucks declined 2.4% as the fleet size decreased throughout the quarter. Revenue per truck per week decreased 4.3% due to 4.7% lower miles per truck, only partially offset with higher revenues per total mile, up 0.4%. Miles per truck declined more than expected in the third quarter. Over the past 2 years, we've realized significant gains in One-Way production and modest year-over-year decreases in the first half of this year. As Derek mentioned, the Q3 change in trend reflects shifts in fleet profile and new driver onboarding and, to a lesser degree, some early quarter network softness. While seeding Dedicated growth had tangential impacts on One-Way production, we are in a more favorable position now and production has already improved through October, returning to nearly flat versus last year. Revenue per loaded mile increased 0.8% year-over-year. Deadhead was slightly higher, increasing 32 basis points year-over-year and 15 basis points sequentially, resulting in a 0.4% increase in revenue per total mile. Although total One-Way miles decreased 3% versus the prior year, combined One-Way and PowerLink miles rose over 4%, enabling us to serve customers efficiently with fewer assets. Logistics results are shown on Slide 12. In the third quarter, Logistics revenue was $233 million, representing 30% of total third quarter revenues. Revenues increased 12% year-over-year and 5% sequentially. Truckload Logistics revenues increased 13% and shipments increased 12% with gross margin expansion. Our PowerLink offering led the growth, up 26%, while traditional brokerage recorded mid-single-digit revenue growth. Higher volume was the driving factor with modest rate improvement. That being said, Logistics volume in October softened and margins have been pressured as purchase transportation costs have increased. Intermodal revenues, which make up approximately 15% of the Logistics segment, increased 23%, almost entirely from higher volume. Final mile revenues decreased 1% year-over-year but increased 4% sequentially. Logistics' adjusted operating margin of 1.8% improved 140 basis points, driven by volume growth and lower operating expenses. The operating margin expansion is net of added pressure on Logistics gross margins as some higher-priced project business was replaced with contractual business. Our ability to scale in Logistics at lower cost is driven in part by our technology investments and our EDGE TMS platform. Moving to Slide 13 and our cost savings program. Through the third quarter, we have achieved $36 million in savings towards our $45 million goal. Actions to achieve the full $45 million have already been taken, giving high assurance of achieving the remaining $9 million in the fourth quarter. 2025 marks the third consecutive year of cost saving achievement in the range of $40 million to $50 million per year. We will continue this discipline into 2026. Leveraging our technology investments will help, along with additional initiatives aimed at improving profitability in One-Way and extending our operating efficiency in Logistics. We look forward to discussing our 2026 cost savings program with you next quarter. Let's review our cash flow and liquidity on Slide 14. Operating cash flow was $44 million for the quarter or 5.7% of total revenue. Net CapEx was $35 million, or 4.6% of revenue. Year-to-date, net CapEx is 4.2% of revenue. Free cash flow year-to-date is $26.2 million, or 1.2% of total revenues. We ended the quarter with $725 million of debt unchanged sequentially. Our net debt to adjusted EBITDA as of September 30 was 1.9x. We have a strong balance sheet, access to capital, relatively low leverage, and no near-term maturities in our debt structure which provides ample financial flexibility to invest in growth and value-enhancing opportunities. Total liquidity at quarter end was $695 million, including $51 million of cash on hand and $644 million of combined availability under our credit facilities. Let's turn to Slide 15. When it comes to broad capital allocation decisions, we will remain balanced over the long term, strategically investing in the business, returning capital to shareholders, maintaining appropriate leverage, and remaining disciplined and opportunistic with share repurchase and M&A. In August, our Board authorized a $5 million share repurchase program, replacing the prior program. We did not repurchase any shares in the quarter. Let's review our guidance for the year on Slide 16. We are adjusting our full year fleet guidance range from up 1% to 4% to down 2% to flat. The TTS fleet is down 0.1% year-to-date. Implementations of new fleets in Dedicated remain ongoing, but the One-Way fleet decreased during the quarter and is expected to further decline through year-end. We are tightening our full year net CapEx guidance from a range of $145 million to $185 million to a range of $155 million to $175 million, with the midpoint unchanged. Dedicated revenue per truck per week increased 1.3% year-over-year and is up 0.4% for the first 9 months of the year. We are tightening the full year guidance range to flat to up 1.5%. One-Way Truckload revenue per total mile increased 0.4%. For the fourth quarter, we expect revenue per total mile to be down 1% to up 1% compared to the prior year period, mostly due to mix plus structural changes anticipated in One-Way aimed at profitability improvement in 2026 and greater operating leverage and readiness as capacity tightens and the macro improves. Our effective tax rate in the third quarter was higher than usual due to discrete income tax items, specifically a $4.7 million return-to-provision adjustment, which unfavorably impacted adjusted EPS by $0.08. We expect our fourth quarter effective tax rate to be between 26% to 27%. The average age of our truck and trailer fleet at the end of third quarter was 2.5 and 5.5 years, respectively. Regarding other modeling assumptions, gains of $4.5 million was down from $5.9 million in the second quarter as expected on nearly 20% fewer tractor sales and over 40% fewer trailers. Despite the sequential pullback, unit gains were almost double compared to a year prior. We expect resale values to remain generally stable given OEM production constraints and the evolving regulatory backdrop that will be an incentive towards high-quality used assets. We are narrowing our full year guidance range for equipment gains from a range of $12 million to $18 million to a range of $14 million to $16 million. With that, I'll turn it back to Derek. Derek Leathers: Thank you, Chris. In summary, while we experienced significant challenges in One-Way this quarter, results across the rest of our business are steadily improving. What remains constant during these uncertain times is our competitive advantage. We are a large-scale, award-winning, reliable partner with diverse and agile solutions to support customers' transportation and Logistics needs. As this challenging operating environment continues, we are taking actions to position the business for long-term growth. Our fleet is new and modern due to the investments made in the last few years. We're progressing through our transformational technology journey, and our balance sheet is strong, enabling flexibility in our capital allocation strategy. With that, let's open it up for questions. Operator: [Operator Instructions] And your first question today will come from Jordan Alliger with Goldman Sachs. Jordan Alliger: So questions. Given some of your comments in the fourth -- for the fourth quarter so far on spot picking up, maybe demand a little better, productivity, some of the startup costs dropping off, is there a way you could maybe frame up how to think about hopefully improvement in TTS operating ratio? As we move from 3Q to 4Q, would that be the expectation? Christopher Wikoff: Jordan, I'll take that one. This is Chris. Yes, maybe at a high level just to give you some inputs going Q3 to Q4. Q4, we would expect it to be, call it, seasonally softer, down sequentially with revenue softness in Logistics. I think there will be some operating income upside with some of the items that you mentioned, startup expenses dropping off, some One-Way production rebounding, and our cost discipline holding. There's some offsets with some further Logistics gross margin pressure and lighter gains. Operator: Your next question today will come from Bruce Chan with Stifel. Matthew Milask: This is Matt Milask on for Bruce. To start, I believe you said that the pace of capacity reduction related to regulatory enforcement appears to be accelerating. One of your competitors pointed to potentially larger impact there than what ELDs had several years back. We're curious if you could comment on the magnitude of reduction you might ultimately expect here, maybe what the timing might be, and any color or early signs that you're seeing across the business or within the customer conversations that you've had around this. Derek Leathers: Thanks, Matt. Thanks for the question. So yes, on the pace, we'll start with the one that started first, which was really the ELP side of it. We've seen ongoing increases in the pace and aggressiveness of the English language proficiency enforcement. Right now if you were to look at current trends, it would project out to be about 30,000 annually that would be placed out of service. But each month, that trend has increased in momentum. And I think as more states realize this is serious and it is a safety concern and enforcement increases, that number could certainly move north. But as of late, that focus has really been shifted or added to by the focus on the nondomiciled CDL front. There's lots of estimates out there, but a fairly conservative one appears to be 200,000 nondomiciled CDLs. And as we see enforcement starting to ramp up on that issue, it shows through as it relates to regional tightness and regional movements in the spot market. So I don't think anybody is here today saying the spot market has fundamentally moved up into the right nationally, but it's very clear that it's moved and followed trends in markets where enforcement has been ramped up. As recently as a few hours ago, I saw there was a press conference where in Indiana, they had a focused enforcement activity that took another 100-plus drivers off the road, of which I think upper 40s were Class 8 CDL holders. That type of enforcement and momentum we expect to continue. I would argue that, in total, when you take the B-1 visa cabotage issue, the ELP issue, and the nondomiciled CDL issue, I would concur that, that is larger than what we saw with the introduction of ELDs. The last enforcement around the corner that we believe the administration is aware of is actually relative to ELDs, and that's some of the ELD fraud that may be occurring out there on the nation's road. It's way too premature for me to try to put a number on how vast that may be. But I'm encouraged by all of the enforcement opportunities to improve safety on our nation's roadways, and I applaud the administration for taking those matters very seriously. Operator: And your next question today will come from Jason Seidl with TD Cowen. Jason Seidl: That's some good color that you just gave. If I could just tack on to that and then ask you questions about where you think the rates are going for bid season. But what do you think the overlap is between nondomiciled and ELP? That's something that we haven't been able to get a handle on even as we ask people. And I guess as we look for the bid season, what are your early thoughts on bid season for '26? Can it look better than this past year, the low-single digits? Or do you think not with the demand environment that we're in now? Derek Leathers: Yes, I'll start with -- so the overlap question, I agree, I think it's probably the most nebulous of all of the numbers to try to get your arms around. But honestly, I'm not sure that it matters a whole lot, right? If we have significant enforcement on the nondomiciled CDL issue, even if it only means the nonrenewal of such licenses as we go forward, you can very quickly get into a significant number of drivers. I think the bigger thing that gets overlooked often is what's the numerator, what's the denominator, right? And so what we're talking about here, even at Werner within our own results, is we have pointed very clearly to the duress being in the one-way over-the-road network. That duress is pronounced through the proliferation of a lot of things to include the B-1 visa cabotage opportunities, ELP, and lack of enforcement of existing laws and the nondomiciled CDL proliferation that we've seen over the last 4 to 5 years. And so, it is a significant portion of that population that we're talking about. Now is it as high as some of the estimates I've seen? I don't know. But even if you cut those estimates by half and you look at 150,000-ish of those overlapping drivers, if you will, that's a significant change in market dynamics. And so, yes, I think this enforcement does continue to put us in a position for a bid season that shapes up to be better than a year ago. But all of that is a week-to-week, month-to-month monitoring of what's happening with the attrition, what's going on in the bankruptcy front, does lender leniency continue to tighten slightly as used truck values improve, and all of the above, not to mention just overall trucker duress out there and the need for increased rates, I think, puts pressure going into bid season for us to try to do even better than what people were achieving this year. This year's bid season, we were, for the first time, and you've seen it in 5 consecutive quarters, seeing increases in our rate per mile. As we came out of bids, we were seeing more stability in the outputs of those bids. But we need a lot more where that came from. And I think that's something that's well aware. And the last piece on this enforcement is we tend to think about it only as law enforcement, but there is increasing awareness from insurance providers of some of the risks that these issues represent to them. And as insurance companies are starting to dig in and, I think, think differently about fundamentally underwriting some of these carriers, I think that's yet another barrier that really has not been present in the past that's starting to show its head. For the record, on all of the above issues, we like our position and our fleet position very much, and we encourage increased enforcement on all of the above. Jason Seidl: Listen, I'm sure that's the case. And on the insurance side, do you think that's something that we could see quickly accelerate, putting more capacity out of the marketplace? Derek Leathers: All I can speak to is actual conversations that I'm aware of that are happening as we speak between insurers and their underlying carriers and documentation and vetting that is certainly ramping to a level that was not previously in place. All of that, I think, is good for the industry and good for public safety. Operator: And your next question today will come from Tom Wadewitz with UBS. Thomas Wadewitz: Wanted to ask you on the, I guess, the popular topic on the call here. So you mentioned, Derek, that the numerator and denominator are important in figuring out this potential regulatory impact on supply in the market. What do you think the denominator is? Do you think it's like third-party for-hire truckload that you would say, hey, it's like 1 million drivers. Is it 2 million? How do you allocate the exit in terms of estimating a percent impact, whatever you think that numerator is? Derek Leathers: Yes. Tom, thank you for the question. Yes, I think when you think about Class 8 over-the-road one-way, not private fleet driver base where this is having the most profound impact, and frankly, covering most of the nation's highways with this type of category of driver and/or skill set, I think it's less than $1 million, but approximately that number. So let's just say $1 million. And then if you go back to the earlier conversation where I think conservatively between the triple impact of B-1 cabotage -- so I'm not anti-B-1. I've said that many times, we don't use them in our fleet, but if you're using them legally, so be it -- but cabotage is prohibited under the program, ELP, and nondomiciled CDL, you're going to quickly get to a number that looks something like 150,000 to 200,000, and that's if you're being very, very conservative in my view. Thomas Wadewitz: And how much price do you think you need to get back on a more favorable margin trajectory? Is that -- I mean, it seems like just the cost pressures are relentless on insurance. Derek Leathers: Well, I'll start on the insurance side and maybe Chris will jump in, and we can give you some more color. But I would tell you that I believe, obviously, as recently as this first quarter this year, we had one that came out of nowhere based on some unique situations down in Louisiana. But we have started to find a normalized run rate, if you will, of insurance that I think is somewhere in that, call it, $35 million to $38 million range. It may ebb and flow slightly from there. What I'm proud of is that we continue to post near-record lows in accidents per million miles, DOT preventables, work comp injuries, et cetera. But it's the same story you guys have heard way too many times, which is it's the outsized one-off nuclear verdicts and/or settlements that throw a lot of noise into the number. We believe we're properly accrued and that we've really done a very diligent job relative to reserves as we look forward. And we're attacking the most important thing, which is frequency and bringing it down month-over-month, quarter-over-quarter, anywhere and everywhere we can. So on the insurance front, that would be my answer. On the rates, obviously, you asked the question what do we need. We need a lot. I mean, so does the entire industry. Not a very technical answer, but we're going to get everything we can. I think shippers are starting to become aware more and more of how their freight may or may not be moving the way they thought it was and by whom it may be getting moved compared to what they thought it was. And we need to make sure that we get this industry back to reinvestable levels, at a high-quality level, with vetted, qualified, competent drivers behind the wheel. And that is certainly the work that we'll be doing as we go forward with our shippers. Operator: And your next question today will come from Ravi Shanker with Morgan Stanley. Nancy Hipp: This is Nancy Hipp on for Ravi. It would be helpful to hear a couple more details on peak season and your thoughts towards the end of the year, especially with your nondiscretionary-focused consumer base with this recent extended government shutdown. Derek Leathers: Nancy, thank you. So peak season, if I start at 40,000 feet, I think the best way to think about it from our view is that it's going to look similar to a year ago. Now there's some puts and takes in that, that make it maybe a little cloudier. A year ago, inside of some of those peak numbers were some projects related to hurricanes and storms and natural disasters that at this point don't appear to be the case for this Q4. Overall, discount retail holding up pretty well, and what we're seeing in terms of opportunity sets look comparable. We've made some conscious decisions as we talk about One-Way being under duress to reallocate assets relative to where we're participating in peak, where we think it fits our network better. It may or may not demand the same premium, but if it doesn't have the same cost associated to it, that's still a win. So we need that to play out and see what those volumes come in at. But in general, we're working with customers that are doing better than most. They are in the end of retail or on the retail spectrum where people are migrating to, not migrating away from, and their projections and same-store sales are holding up pretty well. So what we know is that's on the books today looks pretty good and similar to a year ago. What we don't know is whether there's upside from there given some of the enforcement issues and other freight and mini bids that it could cause. We're not in a position to talk with a lot of optimism about that today because I think this enforcement trend needs to continue to gain traction before we would see that. Operator: And your next question today will come from Scott Group with Wolfe Research. Scott Group: So on the -- you've talked about regional tightness in a bunch of areas. We're hearing that from a lot of folks. I'm just curious, as you're seeing some areas get tighter, are other areas getting looser? Meaning is there some chance that these guys are leaving the states that it's being enforced and they're going to the states where it's not being enforced. And so the net impact is there's regions that get tight, but the net impact isn't as significant as maybe we'd think. Derek Leathers: Yes, Scott, I understand the question. Thank you for that. But no, I don't believe that's the case. We absolutely believe there is some avoidance going on. So I want to be clear about that, right? Some out-of-route miles being ran to avoid states of enforcement or areas of enforcement. We believe there's some of that happening. But where we're seeing the tightness happen, often we have the ability to follow up and get more specific on what's happening in the market, whether it be through our used truck sales network, our local boots on the ground, a terminal in the area. And what we're hearing back is, no, 20 drivers didn't report to work today, and they're not coming back because they're concerned about enforcement, or the fleet that's involved with whoever those drivers may be, let go of 30 drivers today or close their doors. We've seen some truck cancellations from fleets that were purchasing trucks from us that unbeknownst to us had drivers of those types maybe in their fleet and have had to cancel because they now are sitting with open trucks. So no, I don't believe -- you wouldn't -- because they're predominantly in the over-the-road application, Scott, and predominantly doing, therefore, national freight kind of one-way freight, you can't really avoid your way around the problem, and especially now as more and more states are starting to step up their own enforcement. We may think about 48 states, but you really have a select number of major highways in America, and that's where that freight is traveling. And as long as you've got a state or two somewhere along that route, the enforcement starts to tighten pretty quickly. Scott Group: And then just I wasn't clear the answer about how to think about Q4. Do you think we'll see some improvement in the truckload operating ratio from Q3 to Q4? Just any -- wasn't clear. I know someone else already asked, but I don't know that I followed the answer. Christopher Wikoff: Scott, this is Chris. Yes, so maybe just repeating what we did earlier. Overall, some of the softness is going to be more so from Logistics within TTS, at least on a sequential basis, revenue more or less stable to up, but you unpack that and there's more opportunity with the Dedicated fleet, revenue per truck growth peak contributing, but the One-Way fleet being down a bit. And then from an expense perspective, there's upside in TTS with those Dedicated startup expenses that are dropping off very quickly. We alluded to some of that. Early here in November it should be completely gone. There will -- we are expecting some lighter gains. Resale values, I think, will continue to be sustained. But obviously, it depends on the quantity and the number of units that we're selling. So that would really be the puts and takes that I would give to you from a TTS perspective. Operator: And your next question today will come from Eric Morgan with Barclays. Eric Morgan: I wanted to ask on utilization. I think you mentioned some specific shifts or factors that drove the step lower in the quarter that was unrelated to the softness that you saw. So maybe you could just elaborate on that. And then I think you said it's improving in October. So should we just expect that to step back up in 4Q? And is that market-driven or something that you're taking action on? Derek Leathers: Yes. I would tell you that it wouldn't be the right readthrough relative to the productivity in the Q3 to associate it to some sort of significant volume gap or volume issue, per se. These were really issues that stemmed from a variety of factors, one being that as we were seeding these Dedicated trucks and going through these new vertical startups, we had mix issues in the fleet in One-Way as a result. I would remind everyone that One-Way is really, in many cases, the source of Dedicated drivers. That's where those drivers come from. Our team mix was lower in Q3 than it will be as we look into Q4 as a result of teams that are breaking up to go become a Dedicated driver. That's certainly part of it. There's some friction involved in the production numbers when you're moving trucks and moving drivers out of one area into another as part of some more significant startups. So that was certainly part of it. And then we had some mix issues in the quarter that were unique to Q3 from a year-over-year perspective relative to projects a year ago that were different in their makeup and mix in Q3 and much smaller in their representation. So all of that went into the soup. When we look at Q4, and we look at October specifically, that's why we felt it important to call it out in the prepared remarks. We've made significant progress in stabilizing that production issue and really setting ourselves up for a strong peak as it relates to production and the ability to serve our customers. Eric Morgan: And maybe just to circle back on your view on the spot market. You said rates have been improving in September and October. And then I think in the prepared remarks, you called out the upside potential from these regulatory changes we've been talking about. I think the numbers you threw out there could be pretty meaningful. So your formal outlook, I think, is just for normal seasonality, I believe. And then the One-Way revenue per mile guidance is flat at the midpoint despite the contract renewal. So I guess, any way to quantify what that upside looks like into year-end and, I don't know, early '26? Christopher Wikoff: Eric, this is Chris. Yes, speaking of One-Way Trucking rate per mile, so you're right, we were flat at the midpoint. We have had 5 consecutive quarters of increases. And as you think about spot, we did -- you summarized it well. It was weaker earlier in the quarter. It has improved in September and now into October. And you're right, we did call for normal or expect normal seasonality, but potentially with some upside, given some of this enforcement that we've been talking about. In terms of the projection and the guidance on the One-Way rate per mile, I mean, there's a couple of things, obviously, that would influence that. Our contractual rates are pretty much set. Bid season is over. Our results were, as we've talked in the past, mixed with low to mid-single-digit increases. So those rates are established. So the peak season will have an influence clearly on our Q4. Last year, we had a decent move from Q3 to Q4, much of that related to peak. And so if we're able to attain a similar peak season in terms of volume and rate this year, then that trajectory might be similar. And then, of course, you have spot and mix as well. And with a smaller fleet, hopefully, we can be a little bit more selective with some of the freight options that are out there. Derek Leathers: Yes. The only thing I would add is, as Chris indicated, our spot exposure intentionally right now is a little greater than what has been historically. That number is still moving, but it's still below contract in many cases. So we need it to continue to move. It does generally move in Q4. And if enforcement ramps up, it moves even faster. So a little bit of a hedge perhaps by going to the negative 1 to positive 1, but we're trying to provide clear data that we know as we sit here today and leave ourselves an opportunity to improve upon it. And then lastly, I mentioned it earlier in the comments, so I'll just reiterate it again. As it relates to the peak season, the volumes and premiums, we think the outcomes will be similar, but we've made decisions to attack peak season this year where we have better density, where we have better ability to serve and less costs to go along with it. And so, therefore, you're not necessarily extracting the same level of premium, but your gross margin, if you will, should look similar and with an opportunity for upside. So that's exactly how we're trying to think about it. But it does mute a little bit of premiums if you just did, for instance, an all-West Coast strategy. Operator: And your next question today will come from Reed Seay with Stephens Inc. Reed Seay: I'm going to circle back to the capacity side. Not to harp on it too much, but I think one of the things that we've been looking into and other people have been concerned about is that you've had a lot of people come off the roads that could get on the roads with the news of the new enforcement that is expected to drive improvement in rates. So something like this would obviously impact the actual impact of rates. Is this something you're keeping an eye on? And how do you think about that as a potential governor to this upcycle? Derek Leathers: Yes, Reed, I think it's a great question, and yes, it is something that we're thinking about. We would have some level of visibility, obviously, just in our brokerage arm and in our PowerLink solution arm as well. And I've talked with them recently about are you seeing changes or differences in new applicants and new people that are wanting to do business with us. And around the edges, I think their answer would be yes. That doesn't really surprise me. I mean, I do believe that you might see some folks come back into the market, but I don't think -- I think it would pale by comparison to what appears to be a much more significant issue than really anybody had full appreciation for relative to some of the CDL issuances and the percentages we talked about earlier. So a couple of ways to skin that cat. I mean, one, earlier I talked about just take half the number of some of these estimates, and that's where you end up at the 150,000 level. Another way would be take the full estimate and assume that you're going to have a whole bunch of people come back in. I guess my point is in any way you think about it, it appears if enforcement appetite remains, and I think we would all agree the backdrop on that seems to be yes, there is capacity that will be exiting this market, and it will be more meaningful than what we've seen up till now. Reed Seay: And then if I could just ask on the technology side real quick. You focused on it a bit there in the prepared remarks, but can we get a little more color on exactly where that's being applied within the TTS segment and within the Logistics segment? It sounds like you've done a lot of work with that technology. Derek Leathers: Yes. So Logistics is nearly fully implemented. I mean it ostensibly is fully implemented. And now it's just iterations of improvements as we go forward, each iteration bringing forth additional productivity gains. But it's being applied across our Logistics group to automate any and everything that we can and take friction out of the process. You can see it flow through in our OpEx expense as a percent of revenue and the dramatic improvements that we're making on that side. And we believe there's more to come as we can continue over time to take another step up in growth once we get through this short-term buy-side pressure that's out there, take that step up in growth and continue to add volumes. They are comfortable in their belief that they can -- we can take on more volume without adding a corresponding OpEx to go with it. On the truckload or TTS side, we're at a different stage. We're at a stage where more and more every week, we have more and more of our volume in the new system. But until you can unplug and disconnect and convert completely, often it represents a headwind. It's a net headwind in the short term. To offset those headwinds, we're deploying lots of AI across multiple places, whether it be in recruiting, billing, collections, all the way across to be able to automate more and more processes and do more with less. It allows our higher-level folks that are in those areas to still use all of the knowledge they've developed over all of these years, but to have a much broader impact and sphere of influence over the process and automating many of the manual tasks. Christopher Wikoff: Reed, I would just add a little bit to that. Obviously, we're committed to the technology investments and furthering the journey, getting across the finish line, but also committed to seeing more of those synergies and benefits, particularly as we go into the next year, as it relates to margin expansion and part of our cost savings program. Obviously, we're not guiding on a cost savings program for next year. We'll do that at the next quarter, but we will be looking to more of that program to come from tech enablement type of savings, just given where we are being in these later innings. Still some more to go. But as we move forward into next year and throughout the year to be seeing more of that operational gain from the investment to this point. Operator: And your next question today will come from Brian Ossenbeck with JP Morgan. Brian Ossenbeck: Derek, maybe just an industry-wide question for you. With the insurance costs, how they are and the claims trending in the direction they are, unfortunately, what do you think is needed to really get some progress on that, not just for Werner, but for the entire industry? Are we seeing any improvements on reform, anything you're excited about or states that are moving forward? Because ultimately, I'm just not sure if the shipper is going to pay for the higher insurance claim if they think that's more of a trucking industry problem and not theirs. Derek Leathers: Yes, I think it's a multipronged approach, right? We have to continue as an industry. But that industry, the definition of the industry, I think, needs to include shippers, insurers, and everybody all in to attack tort reform. That's a state-by-state battlefield. It's very difficult. It usually takes in any one state multiple years from the time a bill is first proposed to before you finally get it across the finish line. We've seen lots of recent successes in multiple states around the country doing so. And I think that battle needs to continue to take place. We need to continue to engage where appropriate in states that have elected judges and have shown significant judicial bias against companies or pro-plaintiff bias. What we're asking for is a level playing field. We, the industry, would like to just believe that all facts of a case should be relevant and be able to be considered. The fact that we still have nearly half the Continental United States with gag rules relative to whether a claimant was wearing a seatbelt is just simply unacceptable. I mean if they're making decisions to not wear a seatbelt and then suffer significant injuries as a result, I think every juror in America would like to know that fact, because otherwise, they're making ill-informed decisions. So we've got to engage at the judicial level. And then finally, I think we have an environment right now where we need to be all full-court press on federal legislation that moves accidents and interstate commerce from the state court system and into a federal jurisdiction and federal courts so that at least we've got some standard set of playing rules, and we can all -- everybody can understand the level of professionalism that comes -- that takes place there. Does that guarantee positive outcomes every time? No. Does it mean anybody is trying to skirt their responsibility from an accident that's their fault? Absolutely not. But we cannot continue to live in a world where accidents can grow overnight due to bad facts or bad rulings from what should be a defense verdict into a multimillion-dollar verdict the other way. So it's going to be long and hard fought. You can probably tell by my voice, there's some passion for it, and we're going to stay engaged along with many other of our brethren in this industry. Brian Ossenbeck: I understand it's a pretty difficult road ahead, but it sounds like some progress. One other quick follow-up on another topic you're passionate about, Derek. Just the B-1 visa, the cabotage, I know there's some enforcement mechanisms for more ELP testing than nondomiciled issue. But is there any way to address and maybe get some tighter enforcement around the illegal uses of the B-1 as it relates to cabotage? Derek Leathers: Yes, I believe there is. I mean, obviously, like many things, there's a difficult or a resource obstacle or issue involved with how much current enforcement people are able to do. if they're now trying to enforce ELP and they're enforcing nondomicile and then asking them to additionally enforce B-1 cabotage. There is efforts underway. The government is engaging on this B-1 cabotage issue as we speak. And I know that there's some creative tech that they're engaging with, I'll just leave it at that, that excites me because I think it will present an opportunity for them to do it more systemically than just with roadside inspections and stops. But the reality that we all know is that there are drivers crossing the southern border or northern border every day. And we know that in talking to CBP officials and others that it is not uncommon and in fact, more the norm that they don't cross back for 21 to 27 days. If that's the case, nobody will convince me or I think any reasonable person that the only thing they did was to drive to destination, pick up a load, and then exit the country. And so all of the above for the benefit of the nation's highways and public safety on those highways needs to be enforced. And we plan on continuing to be a loud voice to that effect. Operator: And your final question today will come from Chris Wetherbee with Wells Fargo. Christian Wetherbee: Derek, in your prepared comments, you mentioned One-Way trucking demand through September improving and then so far in October. So I guess I just wanted to come all the way back to that. It sounds like what we've heard from some other folks was maybe a little bit different than that over the course of the last few days. So I want to maybe see if you could expand a little bit on what you're seeing, particularly in the month of October. Derek Leathers: Chris, I would start by just reminding you that the makeup of our customer base is heavily retail. Obviously when you start getting into September, October, our exposure to the effect of what is happening in preparation for peak and during peak is probably a little different than some of our competitors. So not discounting any comments they may have had, but yes, we have seen some uptick in September and that strength has continued through October thus far. I would tell you that that's seasonally normal for us. So it's not like we're trying to call that out as some out of the norm anomaly of some sort. That's what we would expect, and that is what we're seeing, and we felt it worth mentioning. That's also why the confidence in both secured peak opportunities as well as those in discussion give us the confidence to speak to similar volumes, similar impact as a year ago, which was a more normalized peak following a couple of years in a row of very subseasonal peak. Christian Wetherbee: Yes. I think in this environment seasonality is not necessarily a bad thing. And then maybe just quickly, the Dedicated pipeline, you guys mentioned that. I'm just curious, as you maybe just think not just 4Q but how you think about that into the first half of next year, it sounds like it's building. Derek Leathers: Yes. The Dedicated pipeline is holding up. This time of the year, discussions taper off in Dedicated a bit because everybody is focused, both us and them, on obviously getting through peak season and delivering on the expectations of their customer. But our pipeline is robust. We've got a lot of stuff that is already precommitted into Q1 next year. We do very few implementations in Q4. That's always the case. But Q1 is shaping up pretty nicely. And the overall store prospective pipeline that folks that we're in the, call it, 5th, 6th, 7th inning with also looks pretty good. So our expectation next year is that we're going to continue to lean into the Dedicated pipeline. We think it has more of a value proposition in a tightening One-Way market. We think people in this enforcement level market that we're in today, where people are paying more attention to that, I think Dedicated also even looks a little more attractive. But we will be very cautious. And our Dedicated implementations that we choose to take on will be true Dedicated. So difficult-to-serve, defensible-type fleets, not just volume or One-Way fleet masquerading as Dedicated. We want the sticky stuff, the stuff that, yes, can be painful. I'll remind everybody again about the implementation cost pain we've just been through, but it's worth the pain because once you're on the other side, the ability to retain that fleet well into the future is something that we've proven very good at it, and we expect that to be the case in those as well. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Derek Leathers for any closing remarks. Derek Leathers: Thank you. I just want to thank everybody for being with us today. We've talked a lot about the macro environment remaining uncertain. But as we enter in this year's peak season, the health of the consumer and our retail alignment sets us up well to put the Werner capabilities on full display. Enforcement on a multitude of fronts is leading to ongoing capacity attrition, and the tariff-related noise seems to be settling in. The ongoing structural improvements to our costs, combined with the recent increases in productivity, put us on improved footing to leverage the upside as the market comes further into balance. This prolonged freight recession has, like any challenge, strengthened us even further for the long haul. Again, I'd like to thank you for spending your time with us today and your continued interest in Werner. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, and welcome to Arthur J. Gallagher & Company's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward-looking statements within the meanings of the securities laws. The company does not assume any obligation to update information or forward-looking statements provided on this call. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the information concerning forward-looking statements and Risk Factors sections contained in the company's most recent 10-K, 10-Q and 8-K filings for more details on such risks and uncertainties. In addition, for reconciliations of non-GAAP measures discussed on this call as well as other information regarding these measures, please refer to the earnings release and other materials in the Investor Relations section of the company's website. It is now my pleasure to introduce J. Patrick Gallagher, Jr., Chairman and CEO of Arthur J. Gallagher & Company. Mr. Gallagher, you may begin. J. Gallagher: Thank you. Good afternoon, everyone, and thank you for joining us for our third quarter '25 earnings call. On the call with me today is Doug Howell, our CFO, as well as members of the management team. Before I start, I'd like to acknowledge the damage caused by Hurricane Melissa in the Caribbean. Our thoughts are with all those impacted, including our own Gallagher colleagues. Our team of experts have been mobilized and are on the ground helping our clients and colleagues. Moving to our financial performance. We had a terrific and obviously very active third quarter. Our two-pronged revenue growth strategy, that's organic and M&A, delivered revenue growth of 20%. In fact, over the last 30 quarters, we've delivered double-digit top line growth 26 times. This is now our 19th straight quarter of double-digit growth. Clearly, our relentless client-centric, team-driven and welcoming culture is thriving. Underlying that headline revenue growth, we posted 4.8% organic, grew adjusted EBITDAC 22% and expanded adjusted EBITDAC margins by 26 basis points, demonstrating we are getting substantial benefits of scale and the value delivered by our strategy of constantly focusing on improving our productivity while delivering our high-quality services. EPS for our combined Brokerage and Risk Management segments, we posted GAAP EPS of $1.76 and adjusted EPS of $2.87. That would have been $0.22 higher had we levelized for the intra-quarter revenue seasonality related to AssuredPartners that we closed on August 18. Doug will unpack this timing aberration in his comments. The punchline is our business continues to shine and the early days of the AssuredPartners folks coming together with the Gallagher team is off to a terrific start. Already, we're selling together. We're showing that we are better by being together. Moving to the results on a segment basis, starting with the Brokerage segment. Reported revenue growth was 22%. Organic growth was 4.5%. Relative to our September IR Day commentary, we did see a little pressure on contingents and a few large life insurance cases shifted out of the third quarter. Adjusted EBITDAC margin headline shows flat year-over-year at 33.5%. But when we exclude merger and acquisition, interest income, it shows underlying margin expansion of 60 basis points. Doug will give you a bridge from last year. That's terrific work by the team to stay vigilant in our relentless pursuit of being more productive every single day. Let me provide you with some highlights behind our Brokerage segment organic. Within our retail operations, we delivered 5% organic overall within P&C with U.S. up more than 7%, international flat, driven by less renewal premium increases and lower contingents. Employee Benefits posted around 1% organic, driven by lower-than-expected large life cases. Shifting to our wholesale and specialty businesses. In total, we delivered organic of 5% with the U.S. outperforming our international businesses slightly. As for reinsurance, it's a relatively small quarter and organic here was in the high single digits. And while not in our organic growth numbers, AP's third quarter organic was 5%. That really shows you that a terrific sales-driven culture is joining our team. So we continue to deliver organic growth across retail, wholesale and reinsurance. Let me provide some thoughts on the P&C insurance pricing environment. Overall, global insurance renewal premium changes remain in positive territory, and we continue to see more carrier competition across property classes, particularly shared and layered programs and cat-exposed risks, resulting in renewal premium decreases. With that said, carriers continue to push for increases across most casualty classes, which are more than offsetting the property decreases. Let me provide a further breakdown on our third quarter global insurance renewal premium changes, which includes both rate and exposure by line of business. Property down 5%; casualty lines up 6% overall, including general liability up 4%, commercial auto up 5% and umbrella up 8%; U.S. casualty lines are up 8%, and that increase has been consistent over the past 12 quarters, suggesting domestic carriers are recognizing continued pressure; package, up 5%; D&O down 2%, we think perhaps close to bottoming out; workers' comp up 1 point; and personal lines up 6%. So while property is down 5%, many lines are still seeing increases. In fact, global renewal premium change, excluding property, remains around 4% with good accounts getting some premium relief and accounts with poor loss experience seeing greater increases. Looking at differences in renewal premium changes by client size, we continue to see some bifurcation. For middle market and smaller clients generating less than $250,000 of revenue, renewal premiums were up about 3%. For larger clients generating more than $250,000 of revenue, renewal premiums were down 1%. So many of the market trends that we have been highlighting for the past few quarters persist today. As for the reinsurance market, a very small quarter for us. Looking towards January 1 renewals, the industry remains healthy. There's adequate capacity to meet expected demand. Property coverages continue to favor reinsurance buyers, while casualty reinsurance dynamics are more stable with continued caution for U.S. risks. Moving to Employee Benefits. We continue to see solid demand for talent retention strategies given the resilient U.S. labor market. Further, managing rising health insurance costs is becoming increasingly important for our clients as they deal with continued medical cost inflation. So we are engaging with employers to help them alleviate the pressure from rising medical and pharmaceutical costs. Moving to some comments on our customers' business activity. While the U.S. government shutdown has halted economic data releases, our proprietary data, which has been an excellent indicator of the economy, continues to show solid client business activity. Third quarter revenue indications from audits, endorsements and cancellations remain nicely positive. Interesting, through the first 3 weeks of October, our revenue indications are showing even more positive endorsements and lower cancellations than in September. So while we are watching our customers' business activity carefully, we are just not seeing signs of an economic downturn. Regardless of market and economic conditions, I believe we are very well positioned to grow. From our leading niche experts, vast proprietary data, award-winning analytics platform, extensive product offerings, outstanding service and global resources, this puts us in an enviable spot competitively. As we sit today, we are seeing Brokerage segment fourth quarter organic of around 5%, which would bring our full year organic to more than 6%. Moving on to our Risk Management segment, Gallagher Bassett. Third quarter revenue growth was 8%, including organic of 6.7%. We saw strong new business revenue and excellent client retention in the third quarter and believe these favorable dynamics will continue through the end of the year. Accordingly, we expect about 7% organic growth in the fourth quarter. Third quarter adjusted EBITDAC margin was 21.8%, a bit better than our September expectations. Looking ahead, we see fourth quarter and full year margins around 21%, and that would be another great year for Gallagher Bassett. Let me shift to mergers and acquisitions, starting with some comments on AssuredPartners. Since the mid-August close, dozens of Gallagher leaders and hundreds of others have been traveling to AP offices and hosting gatherings. We've been sharing our stories with thousands of our new colleagues and highlighting all the tools and expertise that is now at their fingertips. I, too, have attended many of these meetings and events. And I have to tell you, the level of excitement all of us have witnessed during these visits is literally palpable. We have shared a view that we will be better together. 1 plus 1 will be greater than 2, and there is immense value creation for our clients, carrier partners and shareholders. Equally important, they know they are now home, and they are getting the resources they have desperately needed for years. For those that are ready to join the amazing Gallagher culture, I welcome you. Outside of AP, we completed 5 new mergers, representing around $40 million of estimated annualized revenue. This brings our year-to-date estimated annualized acquired revenue to more than $3.4 billion or 30% of full year '24 revenue. That is fantastic. And for those new partners joining us, I'd like to extend a very warm welcome. Looking at our pipeline, we have about 35 term sheets signed or being prepared, representing around $400 million of annualized revenue. Good firms always have a choice and it would be terrific if they chose to partner with Gallagher. I'll conclude my prepared remarks with some comments about our Bedrock Gallagher culture. As I am meeting with colleagues, both new and old across our global network, it's always impressive to me how quickly new employees and acquisition partners come together as part of the Gallagher family of professionals, how we embrace the Gallagher Way and enhance our offerings and services to clients. As tenant #24 of the Gallagher Way reminds us, we must continue to building a professional company together as a team. And I believe this spirit of teamwork and shared purpose is precisely what is driving our success today. That is the Gallagher Way. Okay. I'll stop now and turn it over to Doug. Doug? Douglas Howell: Thanks, Pat, and hello, everyone. Today, let me first address the third quarter impact from rolling in revenues from AssuredPartners. So let's go to Page 7 of the CFO commentary document that we provide on our website. Over the last 30 days, we finally got usable AP data down to the customer level detail. That gave us the policy inception data necessary to implement our 606 accounting and harmonize revenue accounting methods. First, it's important to note that the new detail did not change our annual view of revenue or EBITDAC. Second, however, it did reveal that AEP's business is much more seasonally skewed than we could previously estimate. Two tables here on Page 7 help unpack this. The top table shows you the inter-quarter seasonality. It's easy to see first and fourth quarters have considerable seasonality, which you should consider when building your models. What this table doesn't show is the intra-quarter seasonality. So we've added the lower table. What this shows, while we owned AP for half the quarter, only about 40% of the policy inception dates were between August 18 and September 30. That produces an $80 million revenue difference to our September IR Day estimate where we used a 50% assumption because we owned it for half of the third quarter. That causes a $0.22 shortfall to our indicated September IR Day estimate. You'll see that in the yellow column in that table. It does impact some of my other commentary, but I'll highlight those throughout my remarks. All right. With that said, let's go back to the earnings release, and let's go to Page 3. Brokerage segment organic growth of 4.5%. That's about $11 million of less revenues than our September IR Day thinking. Half of that relates to those lumpy life sales that didn't get closed. And we've talked about that, how that can impact organic a little bit from time to time. That cost us about 30 basis points of growth. The other half or so relates to contingents. While there is some geography with supplementals, we did have an unfavorable estimate change related to one of our international programs. That cost us about 20 basis points of growth relative to our expectations. Looking forward to the fourth quarter, we see organic around 5%. A couple of items that influence our thinking when we make that estimate. First, as we discussed in our IR Day, we are in the midst of our annual update on 606 estimates. When all that settles, that could move that growth estimate 0.5 point either way. We know that's just accounting, but it can cause some noise. Second, always a little sensitive to the timing of those large life sales. If buyers believe rates may come down even more, they might push those into '26. That said, if we were to deliver fourth quarter organic around 5%, we would finish the year with organic above 6%. That would be a terrific year. Flipping to Page 5 of the earnings release to the Brokerage segment adjusted EBITDAC table. Third quarter adjusted EBITDAC margin was 33.5%. That's flat year-over-year on the headline. But as I do each quarter, let me walk you through a bridge from last year. First, if you pull out last year's 2024 third quarter earnings release, you'd see we reported back then adjusted EBITDAC margin of 33.6%. Now adjusting that using current FX rate, and this quarter is about 10 basis points. So FX adjusted EBITDAC margin for third quarter '24 is about 33.5%. From that starting point, the roll-in impact of M&A used about 200 basis points with more than 2/3 of that impact coming from the seasonality of AssuredPartners. Interest income, including the cash we are holding for the AP closing through mid-August, added about 140 basis points of margin. And most important, organic growth of 4.5% gave us about 60 basis points of margin expansion this quarter. This bridge helps you quickly see we continue to deliver terrific underlying margin expansion. As for fourth quarter, we don't see anything that causes us to change how we view underlying margin expansion potential. We still see terrific opportunities. Sticking on Page 5, the Risk Management segment organic growth was 6.7%. That was in line with our expectations, and that resulted due to strong new business revenues and excellent retention. We expect favorable new business and retention again in the fourth quarter, so it's looking like another quarter of organic growth in the 6.5% to 7% range. Adjusted EBITDAC margin of 21.8% was better than our September IR Day expectations. And looking forward, we still see full year margins closer to 21%. Let's turn now to Page 7 of the earnings release and the corporate segment shortcut table. Each of these adjusted lines came in close to the midpoint or just a bit better than our September IR Day expectations. All right. Let's leave the earnings release and go back to the CFO commentary document. Starting on Page 3 with our modeling helpers. Most of the third quarter '25 actual numbers, which were given, excluding AP, were close to what we provided back in September. Looking forward, we are including AssuredPartners in our fourth quarter figures for depreciation, amortization and earn-out payable. Also, please always take a few minutes to look at the impact of FX as you refine your models. Turning to Page 4 and the corporate segment outlook for the fourth quarter 2025, not much change here from our IR Day 6 weeks ago. Flipping now to Page 5 to our tax credit carryforwards. Again, not much change from our IR Day. But as a reminder, it's a nice cash flow sweetener to fund future M&A that doesn't show up in our P&L, but rather via our cash flow statement. Turning to Page 6, the investment income table. We've updated our forecast to reflect current FX rates and changes in fiduciary cash balances. These numbers assume one future 2-basis-point rate cut in December. Shifting down to Page 6 to the rollover revenue table. The third quarter '25 column subtotal around $137 million before divestitures. That's pretty close to our September estimate. Looking forward, the pinkish columns to the right include estimated '25 and '26 revenues for brokerage M&A closed through yesterday, excluding AssuredPartners. And just a reminder, you always need to make a pick for future M&A. Moving down the page, you'll see that we expect fourth quarter '25 Risk Management segment rollover revenues of about $16 million. All right. Flipping next to Page 7, I hit on the major takeaways upfront in my comments, but heads up on a couple of items as you use this page to build your models. First, take a hard read through the footnotes. This table shows our midpoint estimates. It uses a placeholder assumption for growth and also does not include synergies. We still see annualized run rate synergies of $160 million by the end of '26 and $260 million to $280 million by early '28. And the second point, the noncash items that we show here, mostly depreciation and earn-out payable are also reflected in the Brokerage segment fourth quarter estimates on Page 3. So please don't double count those. Moving to cash, capital management and M&A funding. When I look at available cash on hand plus future free cash flows plus investment-grade borrowings, over the next couple of years, it's looking like we might have $10 billion to fund M&A before using any stock, still at multiples with a terrific arbitrage. So before we go to Q&A, a few sound bites on our 9-month combined brokerage and risk management adjusted results. Revenue up 17%, net earnings up 27%, EBITDAC up 25%, organic year-to-date at 6.6% and EBITDAC margin over 36%. Those are stellar results, and I see us finishing '25 strong and '26 is looking like another terrific year. Okay. Back to you, Pat. J. Gallagher: Thank you, Doug. Operator, if we can go to questions, please. Operator: [Operator Instructions] Our first question is from Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question, I want to start on AssuredPartners. When we're thinking about, well, I guess, new business by AP, I'm assuming that, that's in the M&A line, but then what about synergies? Is that -- does that fall in the M&A line? Or is that something when they start coming online that will be included within organic revenue growth? Douglas Howell: Well, the revenue synergies that we get out -- get from -- that goes into the AssuredPartners P&Ls will be given credit to them, not to us. If there is something that we would book, for instance, a broader base contingent commission or supplemental that impacts our books, that would go into the legacy Gallagher organic growth. So to a certain extent, if we pick up some more on the AssuredPartners book of business, that would not -- that would understate organic revenues. Does that help? Elyse Greenspan: Yes, that does help. And then I guess -- I mean, I think in the past you guys have said that next year, right, feels a lot like this year. You just said that the full year is going to be, I think, just more than 6%. Based on how you guys are seeing everything today, is there more precise guidance just in terms of the organic outlook that you're looking at for 2026? Douglas Howell: Yes. We're in the middle of our budget and planning process, but I still think we feel comfortable that next year -- '26 could look a lot like '25. We still believe that. Early indications that we're having terrific success in our Reinsurance business. We're having terrific success in our P&C businesses. So as a matter of fact, when you really pull back the organic growth in the P&C business, it's been pretty consistent over the last 5 to 7 quarters when you strip out property cat. So basically, our business are still running very similar and today is what we were seeing throughout the year. So that's what makes us feel comfortable that next year could be a lot like this year. Elyse Greenspan: And then my last one is on M&A. When you guys talk about the pipeline, I'm assuming that's now like a combined Gallagher and AP pipeline? And how has -- now that you guys have closed on the AssuredPartners acquisition, how has, I guess, the M&A from their side of the house? How is it like added to the pipeline as well as just when you think out about kind of your bolt-on M&A over the course of like the next year or 2? J. Gallagher: Elyse, give us a couple of weeks on that. I mean we just really got closed, and we're kind of getting around that. As I said, we've been doing a lot of visits. We're going to have most of their folks in the field come to the home office over the next 1.5 months or so. And that pipeline has not been yet put into our pipeline report. They did have a good pipeline. Things we're working along. And of course, we're going to bring them together with our M&A people. But I don't have a real good handle on that yet. We're hopeful that, that business and those opportunities will roll that over to us, but I haven't seen that yet. Douglas Howell: Yes. One thing qualitatively on that is that what's happened is, as I sit down and talk to some of the branch managers that -- or agency presidents that have come over that have been merger partners and assured partners, I think a lot of them are frankly, we're kind of surprised that we'd be so interested in them. They're in smaller communities necessarily. Their books -- they're not quite as large. So I think it's opened up the eyes to -- of those 30,000 agents and brokers out there that of all sizes, we have an interest. If you want to sell, you want to take care of your customers, you want to get better together, our doors are open for that M&A. So that's -- I think there's an awakening that we want good producers that want to produce some good agency leaders that want to stay on and be a part of the business. So I think that's going to lead for us getting more looks and more swings at the plate. J. Gallagher: It will also take a little while recook, if that's the right word. People are naturally cautious. We're going down a discussion and track with AP. You've now gone a different direction with Gallagher. How are you feeling about that? Are you still wanting to put the recruiting press on me? Or are you feeling a little bit hesitant? I think people want to naturally watch that. I'm very hopeful that when it starts to cook, it should cook well for us. That's what I'm hoping. Operator: Our next question is from Andrew Kligerman with TD Securities. Andrew Kligerman: So I just actually want to build on Elyse's question. The first one on the organic growth. I recently spoke with 2 competitors in the small to middle market brokerage area. And both of them kind of said, in this shallow pricing environment, 4% to 6% is a good organic run rate, that it's very doable and likely. How does that strike you? I mean does that feel like the strike zone as opposed to in the past, you were looking more at upper single digit just given the pricing environment? Douglas Howell: Yes. I think if -- we stood on January 1, remember, we thought that we would be somewhere between 6% and 8%, and that's where we're going to fold out. The difference is on some of that is our reinsurance business, our international business. So I think that you've got a good nose into what might be Main Street U.S. retail. I think where we top up on that is because of our wholesale business that performs well, our programs. We've got that business, and then we've got our reinsurance business. So those are the things that make me feel being more on the upper end of that spectrum that range than within that range. Andrew Kligerman: Got it. And then going back to M&As, and I get it's kind of too early to talk about AssuredPartners pipeline and so forth. But just in terms of A.J. Gallagher appetite, if a deal were to present -- a large deal were to come across here, your desks or if a deal outside of the United States that were large to come across your desks, would that be something you could do at this stage, just given the sheer size of AssuredPartners? J. Gallagher: Absolutely, yes. Operator: Our next question is from Gregory Peters with Raymond James. Charles Peters: I guess -- first of all, I appreciate the disclosure on Page 7 of your CFO commentary. And Doug, I think you mentioned or just reiterate it, the $160 million of synergies that's not in these estimates, you can confirm that. Is that -- can you talk about the geography of that? Is that going to be -- is that going to be in the operating expense? Or is that going to be revenue and operating expense? Or -- and I'm not asking to pinpoint by quarter, just ballpark where you think those synergies, how those are going to show up when we get to the year-end '26? Douglas Howell: Yes, I think by the time you get into '26, it's easy for me to always say 1/3, 1/3, 1/3. We're going to get 1/3 for revenue uplift. We're going to get 1/3 because better -- coming together, we'll have some efficiencies in our workforce, and I think 1/3 of that will come from our operating expenses. The more exciting number really comes when you get to that as you start to push $300 million of synergies out over the next year, Really over the next 1.5 years after the end of '26. I think you're going to see terrific opportunities for us to deploy our technologies. The AI that we're working at right now. Greg, you've been around the story a long time. We have spent 20 years transforming our business. We have capitalized on labor arbitrage. We've deployed technologies. It's just part of our DNA. You put that over our tracks, and you put that $3 billion over our proven places where we've been able to deliver efficiencies, productivity and raise quality, I think it's ripe for a tremendous, tremendous amount of better together even -- maybe even better than what we're saying right now. J. Gallagher: I think the better together stuff, too, Greg -- this is Pat, is the whole revenue side of things. I think there's a lot more closeness in terms of what we're producing, and there's a lot more opportunity to trade together. They are clients of RPS, but not to the same extent nearly that our present platform does contribute to RPS. They've got a host of business, although they're a spread middle market broker, they do have a ton of business in the U.K. We've identified literally millions of dollars of business opportunities to trade with ourselves there. And so just across the board, we've already produced $1 million of new accounts with them in 6 weeks, that are accounts we both mutually had in our prospect system. We went out together with our tools, their connections, our connections, they made it easy for that buyer to join us. There's literally thousands of those opportunities. So I think the trading better together is a real opportunity. Charles Peters: And in your answer, you mentioned that you're going to have -- the AP gets credit for in their book for their revenue synergies. And so it seems like you're keeping 2 books for the purposes of getting through the earn-out period. But am I to infer from your comments that you're going to be taking or trying to encourage the AP retail reps to use RPS as opposed to other sources. Is that going to help drive your wholesale organic. Or does that -- if something like that happens, is that going to AP book, and we don't see that manifest itself in terms of organic results for AJG? Does that make sense? J. Gallagher: I'll let Doug comment on how we'll account for it. He's got that down, but let me tell you about the opportunity. As you know, probably about 5 or 6 years ago, we went through the arduous task of going out to our retailers and cutting back from probably 500 separate wholesalers being used across the entire platform in absolutely no coordinated way. And we moved that across to 4 specific strategic relationships, one of which was RPS, our owned wholesaler, recognizing that we needed others besides just ourselves. That, I call it arduous because it was trench warfare and we got it done. And by the way, we did that to benefit our clients and improved it over and over again. Well, AP is just Gallagher 15 years ago. So we're going to have to go through that process, and we're not mandating the use RPS, but we will start the process in the new year of saying, look, there's basically 5 and that we'll add one to that and that will be it. And we're going to just keep pushing and pushing and pushing. And that, of course, does include what we would hope to be an outsourced -- an outsized opportunity for RPS. And Doug can talk about the accounting. Douglas Howell: Yes. Greg, in that example, if we move it from wholesaler X, Y, Z to RPS, that would be considered organic growth in our legacy numbers. And we're talking about another 10 months of this, right, on that. So that would be legacy Gallagher organic growth. If we -- if they come on to a base commission schedule, where we were getting 16% commission and they were getting 14%, that extra 2% of that base commission would be credited to that AssuredPartners' historical branch. Does that keep us from having to consolidate these businesses for purposes of that solely? No. There's a self-adjusting mechanism because it's going to go to the producer -- that extra compensation will go to the producer and for us to track the producer, whether they move from branch A to branch B., it's not going to produce any more difficulty. We're not keeping them separate from us. There is no earnout on AssuredPartners other than those that they bought were still on an earn-out. So we will have their earnouts, but those will go away in another 1.5 years too. So it's not going to put a burden and we're not doing anything to keep. We're trying to put everybody on the same system and get everybody in the same playbook as fast as possible. Charles Peters: I guess for the final sort of cleanup question just back to market conditions. There's a lot of rhetoric in the marketplace about where we are in the pricing cycle. And I noted your comments that you're seeing some continuing stability and especially your middle and small market exposures. But maybe you can -- Pat, you've been around, I don't know what number cycle you're on at this point in time, but there's a number of them. And I'm just curious how you think this is going to play out over the next 2 or 3 years because certainly, it seems like large account property is under a lot of pressure, and there are some other areas where there's pressure points? J. Gallagher: Yes. I'd be glad to talk about that. I've done this in the past, Greg. So it's consistent with my previous comments. Surprising to me a couple of years ago when I was in London, we've just gotten done putting forward and selling 300% renewal increases on our public company D&O book. And I was with the FI team in London. They said, Pat, this thing is going to soften fast. And I'm like, how can that -- wait, how can that happen? D&O is going to start to drop down and so is cyber. And go, guys, you got to be kidding me. And that started about 2.5 years ago and continues while at the same time, during that period, other lines were continuing to firm. So what I think we're seeing this time, which is different from the cycle in the late '80s into the '90s and different the cycle in 2005 is that there's less of all lines down, all lines up, which is why we try to give it in our prepared comments. The property market clearly is in a good spot for clients. It's been a hard place for clients for the last number of years. They're getting some relief. That's a positive thing. When you take a look at the casualty market, isn't it interesting that we're still seeing rate increases there as they look to the tail on that stuff and realize they've got to adjust to it. So I do believe that you have cycles within the cycle, which is different than the past, and this is my fourth. It's different than I've seen in the past, and I think kind of makes sense. So I think we're always one storm or one disaster away from a firming property market. Casualty takes a long time to sort of figure out. You don't know your cost of goods sold and it bleeds in, and then you've got ancillary lines like package and what have you. The interesting thing to me is that this is also bifurcated in a different way than it was in the past. Our large accounts are demanding discounts and they're getting bigger ones, makes some sense. They wield more premium. Smaller accounts, which were in the last cycles down as well, not so strong. So we'll see how this all shakes out. But I think the dominant theme here is it's going to be cyclical, it is cyclical, but I think it will be by line and by results by line, cycles within the cycle. Operator: Our next question is from Meyer Shields with KBW. Unknown Analyst: This is [indiscernible], on for Meyer. My first question is a follow-up on the pricing dynamics. We do see some deceleration in casualty, so 6% this quarter. Do you think the trend will continue to decelerate or stabilize from here? Just wondering like what is your expectation going forward? J. Gallagher: So what you're saying -- let me make sure I understand the question. You're seeing a deceleration in the casualty pricing increases, not a decrease in casualty pricing? We're not seeing that. We disagree with that. Douglas Howell: Yes. Listen, I think that on a quarter-by-quarter basis, you could get a little bit of mix difference that might cause us to look at. But let's face it. This thing is marching up at 6% to 8% a year, has been for 3 or 4 years. I don't think things are getting less risky out there. I think that the carriers are being smart by staying ahead of this and continue to march forward on the casualty pricing. The other thing too is, remember, I know you're asking questions about rate. There's also exposure unit change underneath it. And then also our customers -- remember this. When rates are coming down, they opt-in for more insurance. They buy more insurance. When rates are going up, they opt out of it. So the actual -- we're actually seeing revenue increases in lines that are higher than what rate declines that we're seeing in it. So the fact is people are buying more insurance within that line, i.e., more exposure. They dropped their deductibles, they raised their limits, so they're buying more. So the brokers will never show -- will never track 100% of rate because of this opt-in and opt-out. And we used to speak about that a lot 10 years ago. So it's not just rate, it's just what are our customers' budgets going to afford. Now as our customers grow, we'll sell more insurance, too. A person has 100 trucks and they go to 105 trucks, they got to buy 5% more truck insurance. Unknown Analyst: Got it. My second question is kind of on the industry. So we noticed one broker continues to expand its wholesale operation in London and recently enters the U.S. retail market. Just wondering what's your take on this? And how does this impact that Gallagher? J. Gallagher: Well, I'm not going to comment on our competitor strategy. Things are perfect for us. Operator: Our next question is from Mark Hughes with Truist Securities. Mark Hughes: The employee benefits, you had some slippage in a couple of large life cases. But as a general line of business, how do you see that shaping up for fourth quarter 2026? Douglas Howell: Well, the fourth quarter is a time where we do a lot of our helping customers enrollment. We see that as pretty strong right now. I think that there's a lot of help as people are trying to change the dynamics. So we're helping folks on with that. I think that it gets into the executive comp lines where people are looking for their strategies coming into proxy season. And the base medical sales right now, too. I think that human resource leaders are waking up to the spiraling -- the increasing cost of medical inflation, both on utilization and then cost on the utilization. So you're having a frequency that pop up. I think this is going to be a time where if you go back, I don't know x years ago, I think there's always a war for talent. But right now, I think human resource folks are really working hard on this escalating cost of medical inflation. That will put some opportunities into our books here in the fourth quarter, and I think it will keep us really busy next year. Mark Hughes: Yes. How about new business. Pat, in your experience at this time in the cycle, things are a little -- understanding that casualty is still up and still is a tough market. Is it a little easier or harder or about the same to go out and get new business? J. Gallagher: No, Mark, I think you're raising a good question. It's kind of an interesting time. First of all, it's nice in a time like this, you can deliver for your clients. So it's not -- we're not constrained by capacity in just about anyway. At the very same time, you have our littler competitors, and you'll recall that we compete 90% of time against smaller players. They can surprise us with a quote we didn't expect. You can end up sitting there and saying this is a great deal and someone will come in with something crazy. At the same time, quite honestly, our clients are not happy. They've gone through 5 years of listening and listening to increases and what have you. We've been able to show them with our data and analytics, why it's happening, where it's happening, what to expect. But sometimes that local guy will get a shot at something and deliver a price, we've got to match or what have you. So I think that it's both a very good time for new business because our people that are aggressive on the phone out talking to people can really deliver. At the same time, we have to reemphasize and resell the existing book we have. And I think we're good at that. Overall, I think it's probably a positive for new logos, and it's probably less of a positive for top line revenue growth. Operator: Our next question is from David Motemaden from Evercore ISI. David Motemaden: I had a question just on the property market. It was encouraging that RPC held in at down 5%. I think it was down 7% in the second quarter. Just given the light storm season, I'm just wondering how you're thinking about just the property market overall going forward, not only for the fourth quarter, but then also for next year? J. Gallagher: I think the property market is going in a direction that makes some sense given the fact that they've got good results. The cat bond industry is doing well, record ILS activity. Reinsurers are making a good return on what they put at risk. I think there is more capacity available. I think there's continued pressure on the downside. Douglas Howell: And that influences our pick. If it was down 5% to 7% this year and what we post this year. And next year, if it's down 5% to 7%, that's baked into our outlook for next year. J. Gallagher: I will say this, David. I do not sense a dramatic decrease coming in the fashion of past cycles where all of a sudden you turn around, it's off 15%. I'm not sensing that at this point. David Motemaden: Got it. That's helpful. And so the sort of like a down 5% to 7% is embedded, Doug, and your early thoughts on next year looking similar to this year? Douglas Howell: That's right. David Motemaden: Okay. Great. And then also it seems like the RPC was fairly stable with what you guys had said in some of the other lines versus September. Just if I think holistically about the book, could you just talk about what RPC is trending at or what it was in the third quarter compared to the second quarter and maybe where it was in the first quarter? Douglas Howell: Yes, I think overall that we're seeing basically a 4% increase across the book. I think Pat said that in the early part of his comments, probably got lost in there a little bit that overall, we're still seeing a business where the rate and exposure are moving north of 4%, 5%, something like that. David Motemaden: Got it. And then maybe if I could just sneak one more in. I noticed that you guys generated about $500,000 on AssuredPartners fiduciary balances in the third quarter. I would have thought that, that would be a decent size opportunity for you guys. Is that something -- it doesn't look like much of a change in your fiduciary expectations for the fourth quarter. I know the interest rate environment has changed a little bit. But how are you thinking about the fiduciary cash at AssuredPartners? And how much revenue do you think you can generate off of that next year? Douglas Howell: I think it's a great opportunity over long term. If you go back, and I think one of you or might have been Adam Klauber, was asking a lot of questions about what we're doing in order to channel working capital? We would talk about consolidating bank accounts over and over and over 10 years ago, and we really did a great job of bringing more efficiency to our free cash flow management, our pooling across divisions and then also just the ability to quickly harness the fiduciary monies and put them into interest-bearing accounts. So I see it as a terrific opportunity. I got to go back and take a look at our assumptions going forward, and we'll probably update those in December a little bit. But by and large, I think over the next few years -- and we haven't baked that into our synergy assumptions when I've been talking, but there will be an opportunity for us to consolidate those accounts and harvest those cash flows faster. And at an interest rate that's a little bit higher than it was 10 years ago, there's a pretty good payback on that. Operator: Our next question is from Ryan Tunis with Cantor Fitzgerald. Ryan Tunis: Definitely like one of my favorite leadership teams has been Pat, Doug, Ray, but I got a couple of kind of tough questions. First one for Pat, second for Doug. So first one, I was going through some old transcripts like I think it was 2013, maybe 2014, but it was when the last hard market was kind of in this situation, and you guys were doing 1% organic. And like what I'd say, Pat, is like you sounded like on those transcripts the same way you do now. We're killing it, we're doing everything. J. Gallagher: Positive, bullish and really excited. Ryan Tunis: Exactly, but you're doing 1% organic and like that was execution, and now you're talking about 6%. So my question for you is like what is actually different because like I think you appreciate this time in the market. I'm curious, what you're thinking about why you'd be able to do 6% now and back then 1% was good? J. Gallagher: Well, it's really simple. I mean, first of all, the market is not falling off below us as fast across all the same lines. Right now, we're dealing with still across all of the lines a positive 4%. If you go back to '13, '12 and '14 and look at the -- what was actually happening, it was until about '15, '16 that any price increases anywhere, we're coming into positive territory. So we're now -- our renewal book is still producing 3% to 4% organic. And yes, property is down. And of course, at the time when we were talking in '12 and '13, I think we had a pretty clear vision of what we're trying to accomplish. And even though the pricing environment was down, we saw opportunities to do good acquisitions to become more efficient. At that time, people -- we're over 20-plus years now of working with our colleagues in the GCOE, both in India, in the Philippines, in Scotland, in Las Vegas. We're up about 16,000 people providing over 500 services to us around the world. Yes, there's an arbitrage in cost there from employment, but there's really a huge increase in productivity and quality as well. What we do is better, and I think we saw that. We were very excited about it. And I look back at those times and at that very time, what you'll recall, we were telling you is that the two-pronged approach. People look at acquisition activity go up. You bought that growth, that didn't count. Well, last I looked, when you buy something at an arbitrage in many instances as much as 50%, someone's giving me $1 for $0.50. I think that's a pretty good deal. And I see the same dynamics now. In fact, if anything, the dynamics are stronger in our presence now because we are bigger, our brand is stronger, our data and analytic capabilities. Just take 2012, we did not have any real capacity to take structured data and tell you the things we told you tonight. What happened in work comp last month in Oregon? I can tell you. In fact, I can tell you what happened yesterday. Our data lake, OneSource, now actually comprises 3 years of the AP data. We've gotten that done in less than 2 months. So when we go with Gallagher Drive to the field, and we talk about people like you buy this, and this is what's happening to rates in our book, that's real Gallagher/AP data. As of today, by SIC code, by line, by geography. Customers want that stuff. So do we weather up and down rates? Yes. Ryan, just pull up the chart and look at our TSR, seems like it worked. Douglas Howell: Before you get a tough question for me, let me throw on one thing. 2013, no international presence to speak of. We did -- we hadn't done any acquisitions and built the business we have in the U.K. Australia, New Zealand. You didn't have reinsurance. RPS was, yes, use them if you want. We didn't have the programs that we have now. So when -- back in then, Gallagher Bassett was a pretty good grower and still is a pretty good grower in the claims business as people saw the value that they create. We're a different business today by far. The excitement hasn't changed about our opportunity because we still see opportunity, still see opportunities to trade better with ourselves, to take more market share, to outsell our smaller competitors. So it's a different franchise today than it was in 2012. That should bring you some optimism that if we're posting 1%, then make 6% look pretty easy now. J. Gallagher: I wouldn't say easy. Douglas Howell: Ryan, next, give me my hard one. Ryan Tunis: Here you go. So your hard one, Doug. It's not easy, but like you're known on the Street definitely for throwing a real fast ball, like 101, you always nail everything. I go back to 2020. It's like you had a bug in everyone's room. You know exactly what you're going to do. This wasn't like the most uncertain environment in the history of the world. There's been a couple of quarters here, though, where we've had an investor preview, and then you've fallen a little bit light. I'm a little worried you are over worked. But I'm wondering like where is the fast fall a little bit in terms of being able to like forecast adequately or accurately exactly what's going to happen? Douglas Howell: The 5% that we talked about in September, I did give you a heads up that there could be some slippage because of the large life sales. That's $11 million on a $3 billion quarter. So yes, that one, I told you was coming. The adjustment in the contingent commission line that they have to true up for an international program that sometimes have some 3-year rating on it. I just didn't have insight to it, but across about on a contingent contract where we've probably got about 600 different contingent contracts, that cost us $4 million too. You're right. Of the $11 million out of $3 billion, I was off my game on those 2, half of it got past me. Ryan Tunis: No, no. I love you guys. Douglas Howell: You're right. I missed $4 million out of $3 billion, sorry. Operator: Our next question is from Andrew Andersen with Jefferies. Andrew Andersen: Just as we're thinking about kind of the building blocks to organic here, I think you've talked about international a bit as maybe being additive or incremental. I guess if I look at some international retail, U.K., Canada, Australia and New Zealand, it's kind of been like low single-digit year-to-date. Are you expecting some uplift in '26 or kind of steady in that market? Douglas Howell: Listen, I think right now, our businesses are performing about where they're going to perform next year. I got to say I'm always pleasantly surprised about our specialty business in the U.K. They are creative, they use our tools. They have great market insight. I'm really excited about niche experts that we have in our business. When we pick up the AP business, it makes our niches stronger. And also we're picking up some terrific new niches out of the AP where they've got some really smart people. So where we have our smart people, they hit it out of the park all the time, and we have the steady smart people that are in kind of tough markets. So I don't see a lot of difference between what we just talked about here this year, next year. Our guys and gals are doing a terrific job out there of servicing their clients. And so I don't see a lot of difference. If that was the essence of the question, I am just not seeing us -- any places where we've got any weakness right now. Andrew Andersen: Got it. And then in the past, we've talked about maybe 6% organic underlying expansion of 60 bps or so. How should we think of maybe the sensitivity there if that growth is being led by specialty, which I would think is a little bit higher margin versus retail, which is maybe a little bit below? Any sensitivity would be thinking about there? Douglas Howell: Listen, our specialty business is pretty complex. The professionals that we have on staff, to service that. It's not just somebody a generalist that goes out and talks about how you're selling on an oil well or on a SpaceX cargo or on the marine placement. Those tend to actually have some heavier support cost that goes along with it. And our benefits business, the actuarial services that we provide in particular, that was coming out of the Buck acquisition. So I think our niche retail business, where we're really strong in a particular niche across -- it doesn't matter whether it's the U.S., Australia, New Zealand, so that runs a pretty good margin. So I wouldn't -- I wouldn't say that specialty is necessarily a laggard when -- that retail is a laggard to specialty when it comes to margins. Operator: Our next question is from Katie Sakys with Autonomous Research. Katie Sakys: Just a quick one from me. I realize it might be a little bit too soon to tell, but thinking about the 200 bps headwind from roll-in on this quarter's Brokerage adjusted EBITDAC margin, how might we think about impact from rolling of M&A going forward? Douglas Howell: All right. Good question. I think that, first of all, you have to think about the seasonality that we show on Page 7 of only getting half a quarter -- not even half a quarter, 40% of a quarter and how that causes -- because you got more of a steady fixed cost structure on a lower 1.5 -- month period? How do I see it going forward? Let's just take the fourth quarter in particular. I think that AssuredPartners, because of the seasonality of their business might hurt margin by about 1 point. I think the roll-in of businesses that we bought that naturally run lower margins would probably be about 40 basis points of a headwind. I think that lesser interest income, et cetera, might be somewhere around 0.5 point, but the underlying margin we're seeing in the fourth quarter, still in that 40 to 60 basis points, -60 basis point expansion. So if you think in ranges like that, that we're going to get 0.5 point increase from organic. We're going to give back a point because of the seasonality of that assured and then the natural roll-in of M&A targets that have not yet reached our margin levels is another 0.5 point on. So that's how I'm thinking about it. Operator: Our next question is from Rob Cox with Goldman Sachs. Robert Cox: Just a question on reinsurance brokerage. Just wanted you guys to help me out here. So you've been growing in excess of your 2 larger peers in this business for a while. It sounds like you're still confident here. If pricing takes another leg downward, I'm just trying to gauge your confidence level in still being able to achieve like high single-digit organic here, and is that due to growth in adding new accounts? Or is that growth in accounts that you already have? J. Gallagher: I think it's both. But I'll tell you one of the things that has worked out, Rob, at a level that I'm very, very proud of. When we did the Willis transaction, one of the things we told the investment community and our people is that we thought there was an advantage of making sure that our retail operations, our wholesale operations and our reinsurance operations were seen together on the same page, helping each other produce and service clients. And frankly, that's a bit of a different model than some of our competitors. And that has worked to a level that I think is better than any of us expected. So our team is talking all the time. We are connected at the hip. You can see that the CIAB, that's the Council of Insurance Agents and Brokers, just had their, rendezvous, if you will, out at The Broadmoor a month ago. And the meetings are comprised of all the parties that are trading with those companies, the discussion on strategies are together, and I think that's a big part of it. And so I think that when I look at where we are, we've had good growth with our existing clients. We've been able to help them, and we're very appreciative of that, and we have added new accounts. Now the thing that I'm kind of excited about with AP, quite honestly, is that they're trading with a lot of smaller markets that we've never traded with. I won't get into a bunch of names, but you know them all. And yet we didn't really transact. And AP has very good relations with those companies. So coming out of The Broadmoor, we're kind of excited to say, this doesn't diminish our continued commitment to our large trading partners that we've had at Gallagher forever, but adding some new people to the list that AP already has a real positive relationship with, I think, once again, will be tied together at the hip. It will be good for production on all sides. So I think new account opportunities benefit from that as well as penetration from our existing business. I continue to be very, very bullish on reinsurance. I'm very impressed with our team there. We've got a very smart group of people. Douglas Howell: Two other adds on that. Every time we open up a new carrier relationship on the retail side and have it, it opens up the opportunity to not only do reinsurance, but also to do claims management for them. Our Gallagher Bassett unit has a terrific carrier outsourced practice on that. And that's not runoff, that's carrier outsourced of white labeling their programs. And the second thing, too, is on our reinsurance program, we are really strong in casualty. So another step down in property. I think there's going to be lots of appetite to buy more reinsurance, but we are pretty heavy in casualty. So that -- you can't think about the entire reinsurance book as being a cat property book. Hope that helps. Robert Cox: That's super helpful. And just wanted to follow up on contingents. I mean, profitability for these insurers seems to be pretty good. And I think those are a little lag there. So I'm just curious if your thought process on contingents plays into your thought process on relatively stable organic growth next year? J. Gallagher: Yes. I mean I think, look, when the carriers are doing well, and we're on a contingent commission, and that's a very big part of what we're doing as wholesalers, MGAs and program managers, we do well. So I feel good about that, and we're pleased to see those carriers that we've been representing and partnering with doing well, and we'll get our fair share of contingency on that. Now the other side of that is that we have supplementals, which are not subject to profitability, but are subject to growth. And there, again, I think we're seeing very good growth. And I do also believe that the arrangements that we have with many of the carriers that AP does trade with, our arrangements are stronger than theirs. So we're going to -- they're going to benefit from that. So all in all, I feel good about our supplementals and contingents going into next year. Douglas Howell: Yes. And by fact, they are growing at about 1.5x as fast organically as what we're growing in the retail -- in the applicable books of business. So they are outpacing slightly on the organic growth. And as we think about next year being like -- we're not expecting a spike up in those or a spike down. The carrier profitability is good as that could be a little bit of an upside case and organic for next year. Operator: Our last question is from Mike Zaremski with BMO Capital Markets. Michael Zaremski: On the organic viewpoint next year, what's your estimate of embedded in there on lumpy life sales? I know you guys don't love us asking about it or maybe I'm wrong, but you do keep bringing it up. So I feel like I have to ask. Douglas Howell: No, actually, we don't mind you asking about it all because I think it's informative on some of these small little -- a couple of million dollars here, a couple of million dollars there. We think we'll have a good year next year as rates drop, next year, if you believe that to happen. Either 1 or 2 things are going to happen. Rates are going to drop, and so they're going to have people that want to come in and buy this because it's a cheaper product from, so that should fuel demand. If rates become stable, we're not going to have people wait around for the next drop. So I think -- and a lot of these are products that you have to buy them at a certain point. So you can play with timing the market by a quarter or 2. But by and large, I don't see -- I see '26 being a more favorable drop -- backdrop for these products than '25 was. Now over the course of the year, they don't vary all that much in total magnitude. It's this noise between quarters that sometimes causes us to talk about a lot. It's a great product. We're really good at it. It's needed. It's necessary. And I think '26, we could be pretty excited about it. But it hasn't influenced our pick in terms of what we see for next year. But I can see an upside case on that, too. Michael Zaremski: Okay. So not quantifying it, but I guess I ask and other ask is if we look at the RPC trends in recent quarters, and I think you unpacked some of your thoughts next year for property to David's question. It would kind of would imply that if we assume the current RPC trend sticks that 6% to 8% is just -- is a high bar, unless there's just, right, other factors, which maybe it's lumpy life, and you just alluded to maybe there's maybe there's the contingent and sub trend growing faster or it's reinsurance. So I know I'm saying a lot, but maybe is there -- should we not be focusing on kind of the RPC as much as we used to because there's kind of other levers you have to pull on organic to be able to do so well next year on a decelerating kind of pricing environment? Douglas Howell: Listen, we've always said that -- again, I'll go back to my first comment on one of the first questions today is that we're in this opt-in era when it comes to coverages. So that would be the departure from. As people get cuts in their base rate, they're going to buy more insurance. So that should fuel next year. I believe there's a lot of underbuying of insurance that's going on. I think that people over the last 5 years have underbought. I think that we still -- there's a big elephant in the room and that is replacement cost. I don't believe -- I think the carriers have paused and trying to get rate for that a little bit. I think they've got to get back on that because replacement costs are still skyrocketing. And so I think there'll be -- there's an upside case there as carriers get back on trying to get more rate for the exposures that are underinsured values on that. So it's not a direct correlation by any means. That's why we weren't growing our property business 20% when property was up 20%. We're growing half of that. So that's the area that we're in right now, is that people are going to opt-in to buy more coverages. I think we're going to win more business because we get to use our tools and resources to demonstrate in a calmer environment that you get more from buying through Gallagher. The value we're bringing, I think clients see that. Our retention is good. Like Pat said, there are some angry clients that probably are going to -- want to get a new fresh face across the table. But I think our team is doing a good job to show you, "Stick with us, and we'll get you through this." Michael Zaremski: Okay. That's helpful. And maybe just lastly on M&A. So to the extent -- I'm sure you guys will hit your targets on Assured in terms of all the synergies and whatnot. Clearly, it will be a great deal for everybody. So curious if there's other Assured's out there. Obviously, there's a lot of roll-ups out there. But I recall, Pat, you said that for Assured, you didn't get a look at lots of those properties that Assure had purchased, so you kind of felt more comfortable doing this deal because they didn't say no to Gallagher in the past. But -- so are there other similar ones out there? Or maybe you just would be willing to do more of just other roll-ups that might have been looked at Gallagher in the past, too? J. Gallagher: Yes, I think there's a lot of them. I do. I think there's a lot. And I also think that they -- remember, there's 30,000 agents and brokers that's firms in America that are independent firms. So there's lots of opportunities for us to continue building our pipeline and should another opportunity like an Assured come along, we'll take a very hard look at it. Douglas Howell: But I think it should be clear. Like you say, there are so many terrific family-owned agencies out there that I think that we're going to get our fair share of those along the way, too. So we love our tuck-in strategy. But if there's a big one that comes along and only 5% of them told us no when we were looking at them, I think that would be a terrific opportunity for us. J. Gallagher: Well, thank you again, everyone, for joining us. We've had a great 2025 thus far. And as you can tell, I remain very excited about the rest of the year and beyond. To our now 71,000-plus colleagues, thank you for all that you do for our clients day in and day out. We've got the best team in the industry, and I think it shows. Thank you all for sticking around late in the evening, and have a good rest of the evening. Operator: Thank you. This will conclude our conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good afternoon, and welcome to the Republic Services Third Quarter 2025 Investor Conference Call. Republic Services is traded on the New York Stock Exchange under the symbol RSG. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Aaron Evans, Vice President of Investor Relations. Please go ahead, sir. Aaron Evans: Good afternoon. I would like to welcome everyone to Republic Services Third Quarter 2025 Conference Call. Jon Vander Ark, our CEO; and Brian DelGhiaccio, our CFO, are on the call today to discuss our performance. I would like to take a moment to remind everyone that some information we discuss on today's call contains forward-looking statements, including forward-looking financial information, which involve risks and uncertainties and may be materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations. The material that we discuss today is time sensitive. If in the future, you listen to a rebroadcast or recording of this conference call, you should be sensitive to the date of the original call, which is October 30, 2025. Please note that this call is property of Republic Services, Inc. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Republic Services is strictly prohibited. Our SEC filings, our earnings press release, which includes GAAP reconciliation tables and a discussion of business activities, along with the recording of this call, are available on Republic's website at republicservices.com. In addition, Republic's management team routinely participates in investor conferences. When events are scheduled, the dates, times and presentations are posted on our investor website. With that, I'd like to turn the call over to Jon. Jon Vander Ark: Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. We delivered strong third quarter results, which highlight the consistency of our business model, disciplined operational execution and power of our portfolio. Even with persistent headwinds in construction and manufacturing end markets, we generated solid earnings growth and margin expansion. Continued investment in our differentiated capabilities positions us well to drive sustainable growth and enhance long-term shareholder value. During the quarter, we achieved revenue growth of 3.3%, generated adjusted EBITDA growth of 6.1%, expanded adjusted EBITDA margin by 80 basis points, delivered adjusted earnings per share of $1.90, and produced $2.19 billion of adjusted free cash flow on a year-to-date basis. Our commitment to delivering world-class service continues to support organic growth by reinforcing our position as a trusted partner for our 13 million customers. Our customer retention rate remained strong at 94%. We saw continued improvement in our Net Promoter Score. This reflects our team's commitment to delivering products and services that customers value. Organic revenue growth during the third quarter was driven by strong pricing across the business. Average yield on total revenue was 4% and average yield on related revenue was 4.9%. Organic volume decreased total revenue by 30 basis points and related revenue by 40 basis points in the quarter. Volume performance included outsized C&D and special waste landfill activity. The increase in C&D tons related to hurricane recovery efforts in the Carolinas. Special waste activity was driven by an increase in event-based volumes across many of our disposal assets primarily located in Sunbelt geographies. These volumes were offset by a decline in the collection business. The decrease in collection volumes related to continued softness in construction and manufacturing end markets and shedding underperforming contracts in the residential business. Organic revenue decline in the Environmental Solutions business created a 140 basis point headwind to total company revenue this quarter. Environmental Solutions performance was impacted by 3 primary factors: continued softness in manufacturing activity, lower event-driven volumes in our landfills, which includes E&P activity and fewer emergency response jobs. Given the relatively fixed cost structure of these assets and services, the impact on Environmental Solutions' EBITDA and margin was more pronounced. While the Environmental Solutions business was down both sequentially and year-over-year, demand stabilized exiting the third quarter. Our pipeline for new business is now expanding, and we remain well positioned to capture growth opportunities as market conditions improve. Importantly, despite these headwinds in Environmental Solutions, we delivered over 6% growth in adjusted EBITDA and expanded adjusted EBITDA margin by 80 basis points at the enterprise level. These results reflect disciplined pricing above cost inflation, strong operational execution and effective cost management. Moving on to sustainability. We are making progress on the development of our Polymer Centers and Blue Polymers joint venture facilities. In July, we commenced commercial production at our Indianapolis Polymer Center. This operation is co-located with a Blue Polymers production facility. We expect commercial production to begin at the Blue Polymers facility late in the fourth quarter. We are advancing renewable natural gas projects with our partners. One project came online during the third quarter. We have commenced operation at 6 RNG projects this year. We expect a total of 7 RNG projects to commence operations in 2025. We continue to advance our commitment to fleet electrification. We had 137 collection vehicles in operation at the end of the third quarter. We expect to have more than 150 EVs in our fleet by the end of the year. We currently have 32 facilities with commercial scale EV charging infrastructure. This infrastructure investment will support continued growth of this differentiated service offering. As part of our approach to sustainability, we strive to be the employer where the best people want to work. We continue to have high employee engagement scores, and our turnover rate continues to trend lower compared to the prior year. With respect to capital allocation, we have invested more than $1 billion in strategic acquisitions on a year-to-date basis. Our acquisition pipeline remains supportive of continued activity in both the Recycling and Waste and Environmental Solutions businesses. Year-to-date, we have returned $1.13 billion to shareholders through dividends and share repurchases. I will now turn the call over to Brian, who will provide additional details on the quarter. Brian Delghiaccio: Thanks, Jon. Core price on total revenue was 5.9%. Core price on related revenue was 7.2%, which included open market pricing of 8.6% and restricted pricing of 4.8%. The components of core price on related revenue included small container of 9.2%, large container of 7.1% and residential of 6.8%. Average yield on total revenue was 4% and average yield on related revenue was 4.9%. Third quarter volume decreased total revenue by 30 basis points and decreased related revenue by 40 basis points. Volume results on related revenue included a 45% increase in landfill construction and demolition or C&D volume, driven by $35 million of hurricane cleanup activity in the Carolinas, and an 18% increase in landfill special waste revenue, driven by volume growth across many of our disposal assets. Year-to-date, we recorded approximately $100 million of event-driven revenue associated with hurricane and wildfire cleanups. We estimate these volumes will result in a full year adjusted EBITDA margin benefit of 30 basis points. Large container volumes declined 3.9%, primarily due to continued softness in construction-related activity in most manufacturing end markets and residential volume declined 2.4% due to shedding underperforming contracts. Moving on to recycling. Commodity prices were $126 per ton during the quarter. This compared to $177 per ton in the prior year. Recycling processing and commodity sales decreased organic revenue growth by 20 basis points. Increased volumes at our Polymer Centers and reopening a recycling center on the West Coast partially offset the impact of lower recycled commodity prices. Current commodity prices are approximately $120 per ton. Total company adjusted EBITDA margin expanded 80 basis points to 32.8%. Margin performance during the quarter included a 40 basis point increase from previously noted event-driven landfill volumes and margin expansion in the underlying business of 90 basis points. This was partially offset by a 20 basis point decrease from net fuel, a 20 basis point decrease from recycled commodity prices and a 10 basis point decrease from acquisitions. Adjusted EBITDA margin in the Recycling & Waste business was 34.3%, which was up 150 basis points compared to the prior year. With respect to Environmental Solutions, third quarter revenue decreased $32 million compared to the prior year, driven by softness in manufacturing end markets, lower event activity and softer E&P volumes in the Gulf. Adjusted EBITDA margin in the Environmental Solutions business was 20.3%. Year-to-date adjusted free cash flow was $2.19 billion. Our strong performance reflects EBITDA growth in the business and the timing of capital expenditures. Year-to-date capital expenditures of $1.18 billion represents 62% of our projected full year spend. Total debt was $13.4 billion, and total liquidity was $2.7 billion. Our leverage ratio at the end of the quarter was approximately 2.5x. With respect to taxes, our combined tax rate and impact from equity investments in renewable energy resulted in an equivalent tax impact of 21.2% during the quarter. I will now hand the call back to Jon. Jon Vander Ark: Thanks, Brian. Through the cycle, we believe our business can consistently deliver mid-single-digit revenue growth and grow EBITDA, EPS and free cash flow even faster. This generally produces 30 to 50 basis points of EBITDA margin expansion per year. This growth assumption is supported by pricing ahead of underlying costs, selling our comprehensive set of products and services, and capitalizing on value-creating acquisition opportunities. We also expect financial contribution from investments made in sustainability innovation, including plastic circularity and our renewable natural gas projects. Our initial perspective, regarding 2026 is the long-term growth algorithm, is intact. As a reminder, we reported approximately $100 million of revenue at an 80% incremental margin related to landfill volumes, except in 2025, that will not repeat in 2026. This should be reflected in year-over-year growth assumptions. We plan to provide full year 2026 guidance on our earnings call in February. With that, we can now open the call to questions. Operator: [Operator Instructions] And today's first question will come from Tyler Brown with Raymond James. Patrick Brown: Jon, I just want to make sure I have it big picture. I appreciate the color right there at the end of the prepared remarks. So the long-term algorithm, mid-single-digit revenue hopefully, EBITDA free cash flow faster than that. So when you think about as we go into '26, and I think you kind of alluded to that, is that including the headwinds with the special, with the event-driven volumes? And then we also are going to have a fairly sizable commodity headwind if we snap the line today. So can you just talk a little bit about the puts and takes into '26. Jon Vander Ark: Yes. As you know, we're not giving guidance for '26, but I'll give you some markers in the spirit of your question. Look, the long-term growth algorithm of mid-single-digit growing EBITDA growth or EBITDA faster than revenue and free cash flow faster than EBITDA, we think, holds. We're coming over a tougher comp. So that probably just takes each of those down a click going into '26. And that's predicated on remaining pretty conservative on the macro, but also understanding what our pipeline looks like and how well performing we are in the fundamentals of the business, I think that shapes our perspective into 2026, and that certainly includes overcoming that commodity headwind as well. Patrick Brown: Okay. Helpful. And then, Brian, just on the event-driven volumes. I just want to make sure I have it kind of by quarter. Was it something like $10 million of revenue in Q1 and then $55 million in Q2 and $35 million in Q3? Is that roughly right? Brian Delghiaccio: Yes. So it's roughly -- it was $12 million of revenue in Q1, $53 million Q2, $36 million in Q3, total of $100 million. Patrick Brown: Okay. Perfect. And then just my last one. You guys have been very realistic around the volume environment. It does look like ES slowed down, it accelerated on the -- to the downside. Just kind of what are you seeing out there in the market? Is that largely related to project work? And then if I look at the EBITDA flow-through, I think it was almost a 1:1 revenue to EBITDA flow-through. I know haz waste landfills have very high flow-through. But was there something else driving that contribution margin? Jon Vander Ark: Yes. I think it's a confluence of events. Like the macro manufacturing continues to be very slow, and we see that in the Recycling & Waste business, too, when large container hauls, again, we're gaining share in that area, but volume is slowing down just because plant output is down in that space. So that's part of it. We're seeing delayed project-based work, a lot of reoccurring work like turnarounds or tank cleanouts. People are just pushing those. And the good news is those come back, those will get delayed forever. And then good news for the macro society, bad news for us, it's just been a very slow emergency response here across the board. Activities has been pretty low across the board. So all of those things are feeding into it. Brian Delghiaccio: Yes. And Tyler, to your question just on the margin, you're right, it is falling through almost at the amount of the revenue decline. That is not just due to the revenue itself, there were some unique costs. We called out last year that we had a bad debt recovery, about $4 million that was somewhat out of period. This year, we had a legal settlement, which added a couple of million dollars worth of cost. So that added $6 million spread between the 2 years, about a 140 basis point impact on margin year-over-year. Operator: The next question will come from Noah Kaye with Oppenheimer & Company. Noah Kaye: The open market pricing strength looked good again this quarter. Maybe just update us on how you see price cost spread heading into year-end here and kind of the runway for '26. Jon Vander Ark: Yes, positive. I mean we'll think about cost inflation kind of roughly in line with what you think about CPI. Broadly speaking, there's a few puts and takes underneath that. But at the aggregate, that's fair. And then we'll think about kind of a yield number that's 75, 100 basis points above that. Noah Kaye: That's a great place to model from. I guess switching gears, there was one competitor this week that took an impairment charge related to a plastics facility. I know it's different technology. But as you look at what's happened with commodity pricing, how do you think about return expectations for the Polymer Centers? Jon Vander Ark: Yes. We're excited. Listen, these projects typically have challenges on 2 ends. One is the supply end, and I'm sure we have an advantage because we get something up the ground 5 million times every day. And the other is on the demand then. And the demand then from both a pricing and a volume standpoint has been very strong. And the spread between the input and the output on this side has been really consistent. In fairness, it's taken us a little longer on the ramp-up of these projects to get to full capacity and full output. And that's just the normal learning curve of new facilities starting up plants is challenging, but feel really good about our long-term assumptions there and excited to see Indy come up the curve and Allentown open up next year. Operator: Your next question will come from Sabahat Khan with RBC Capital Markets. Sabahat Khan: Great. I guess just as you kind of think about 2026 and you called out acquisitions as one of the areas that generally contribute here. How is the pipeline looking relative to kind of this year, obviously a big year this year? Can you just talk about kind of the magnitude or how full that is and then mix across your different silos? Historically, you've talked about just keeping it more balanced, but just how is that looking right now? Jon Vander Ark: Yes, pipeline looks very strong. We expect to finish the year strong and start out next year strong. The exact balance of when things close end of the year or into the first half of next year, we'll see. And then the pipeline behind that, things that would be more likely to close in the second half is still very full. And that will be a balance across both recycling and waste and ES, tilted toward recycling and waste, but we'll look for opportunities on all ends. Sabahat Khan: Great. And then you provided some benchmarks around 2026. Is it really just going to be on the environmental services side, kind of the magnitude of the event-driven volumes that really swing how that segment performs? Or do you have any sort of visibility on how the next year could evolve relative to this year? Just some high-level perspective on what you're seeing. Jon Vander Ark: Yes. Listen, we'll forecast to grow that business next year even in what we -- again, we'll remain conservative on the macro, and that continuing to be sluggish. The pipeline, again, Brian mentioned, we mentioned in the prepared remarks that the pipeline is building. And listen, most of our challenges here have been macro. But we all -- we talked last quarter, we haven't always gotten quite right in terms of the price volume trade-off, and we've taken a lot of price over the last 3 years in this business, and we will continue to put upward pressure on price. That being said, for some of these opportunities, finding the market and the right balance, we try overshot that as the team is working hard, and that's why the pipeline is building to get that pricing right. Operator: Next question will come from Bryan Burgmeier with Citi. Bryan Burgmeier: Yes. I mean just following up on some of the questions on ES. Can you maybe give us a sense of your expectations for the fourth quarter for that business? Should we continue to expect kind of those mid-single-digit declines in the top line or just the pipeline that you're mentioning and building sort of start to come through? And then I guess on a sequential basis, margins kind of stepped down from 3Q to 4Q normally. I'm just not sure if that's generally how you're thinking about it. Jon Vander Ark: Yes. We think we've kind of found the bottom on this thing that we're coming over -- overcoming a pretty tough comp from the fourth quarter of last year. We had a major ER job that came in at pretty high incremental margin on that front. But I think about margin performance that kind of looks in the same ZIP code, and then we build up from that in 2026. Bryan Burgmeier: Got it. And then just one follow-up is you mentioned you acquired a recycling facility in California during the quarter. I think that's a little bit different than your Polymer Centers, is may be more of a reclaimer, I think does that kind of fit between your Polymer Centers and your MRF? I'm just sort of curious what the incremental opportunity is there? And is there more opportunities like that as Republic tries to build out their national kind of plastic cycling network, just overall thoughts on the M&A environment around plastics. Jon Vander Ark: Yes. That ended up being pretty opportunistic and unique. It's connected to the West Coast Polymer Center and gets us plugged into the -- really the bottling value chain there. Over time, we'll look for more M&A in the space. I think in the very near term, you're unlikely to see more opportunities there just because we'll be focused on executing the Polymer Center and getting any fully up the curve, getting Allentown on pace and then the Blue Palmer JVs. And then over time, there'll be an M&A opportunity, but I would think more about '27 and beyond there versus '26. Operator: Your next question will come from Kevin Chiang with CIBC. Kevin Chiang: Maybe just on some of the labor disruption you had in the second quarter, you -- or maybe the first half of the year, you called out about $56 million in costs. Just wondering if there's any residual impact as we think of Q4 into next year related to credits or any type of revenue adjustments you make as you kind of rebuild goodwill with some of these customers that face that disruption as we think of revenue trends in the next few quarters here? Brian Delghiaccio: Yes. Kevin, we think we mostly captured the impact of that, including the revenue credits themselves. So we think at this point, the $56 million that we recorded in the third quarter will be it at this point. So yes, we think we're done. Kevin Chiang: Oh, perfect. And just on the EV targets, you provide us with the update every quarter here. It does feel like OEMs are deprioritizing the production of their electrification strategy. Just I guess, how do you think that impacts these longer-term targets you have? It feels like you still feel pretty confident that you can get the vehicles you want despite maybe OEMs deprioritizing this propulsion system. Jon Vander Ark: Yes. No, we feel really good about our partners in the space and customer demand for it. And we think it provides really unique benefits of a zero-emission vehicle and cities and communities are excited about it. At the same time, we're going to do it in an economic fashion, right? This isn't just a sustainability investment. This is also a business investment. And so we lost a little bit of incentive here in the federal legislation. And that might slow our pace on the margin. But there's other state and local incentives and there's certainly customers who are willing to pay the most important part of the equation that will allow us to continue. So we're going to continue to march it out in communities where it makes sense. Operator: Your next question will come from Trevor Romeo with William Blair. Trevor Romeo: I had one kind of follow up on, I guess, the overall kind of manufacturing industrial volume activity as it relates to both solid waste and ES. Just kind of wondering, was the softness in this quarter kind of about what you expected last quarter when you lowered the guidance? Or you talked about demand stabilizing exiting the quarter. Maybe you could just walk us through kind of the monthly trends a little bit more? Or just any more color on that would be great. Jon Vander Ark: Yes. And probably since our last call, in the first couple of months after that, it was certainly more to the negative than our outlook was and we've mentioned, started to stabilize, and we think we found the bottom of rebounding from here. There's a ton of uncertainty out there for manufacturers and trade policy is top of the list. And I think you're just seeing the rebound effect of those tariffs and people prebuilding and prebuying to get ahead of the tariffs. And then we've seen a slowdown in economic activity in a lot of sectors, pretty dramatically in June, July, August and starting to see that pick back up. And so that's really what we're facing in both sides of the business. Trevor Romeo: Got it. And then I guess, on capital allocation, the buyback ramped up quite a bit in Q3. I think all the solid waste stocks have been trading kind of weaker since the quarter closed even. Should we think about buybacks continuing to be maybe a bigger driver with the stock at these levels? Or how are you thinking about that versus other uses of capital in the kind of near term? Brian Delghiaccio: Yes, I would say we've always been opportunistic, and we looked at it as a great opportunity to create value for our shareholders. So we were a buyer, and I would expect us to be a buyer going forward. Operator: Your next question will come from Tobey Sommer with Truist. Jasper Bibb: Jasper Bibb on for Tobey. I just wanted to ask about expense inflation trends. Any early indication on what you're anticipating for price/cost spread in '26. Noticed your labor COGS actually declined year-over-year this quarter, so maybe a favorable indicator there. Jon Vander Ark: Yes. As mentioned earlier, we think about pricing coming down relative but also cost coming down, but maintaining a price cost spread in the Recycling & Waste business of 75 to 100 basis points. And have pretty good outlook and confidence of that going into 2026. Jasper Bibb: Got it. And then maybe following up on ES, have you seen any retention impacts at your customers based on the pricing increases you've taken over the past couple of years? Jon Vander Ark: There's certainly been some churn, and we see that all the time in the Recycling & Waste business, too, as we've improved margin in that space. We've also seen the return of customers and that -- understanding that low price doesn't always mean the best value upfront. I'd say where we've gotten the price volume equation just slightly off is more of the event-based work that we've missed out on some opportunities. So it's not pricing recurring revenue customers out. It's event-based opportunities that we think we're going to be able to be more competitive going forward. Operator: The next question will come from Toni Kaplan with Morgan Stanley. Yehuda Silverman: This is Yehuda Silverman on the line for Toni Kaplan. Just had a quick question about some of the cost uptick, specifically for fuel and landfill operating costs in the quarter. I'm just wondering if this was tied to anything specific or if it's nothing really to focus too much on. Jon Vander Ark: Yes. Look, if you're looking just at a year-over-year basis, yes, some of that, again, it's a combination of both. You've got price, but you also have volume due to acquisitions. So I would say neither of which are going to be anything significant or out of the norm. Because if you look as a percent of revenue, for example, fuel is relatively flat. Yehuda Silverman: Got it. And just had a question on commodities in general. So were the commodity headwinds this quarter worse than expected? And is there any way to sort of hedge or counteract weaker price in commodities? Jon Vander Ark: Well, I mean, commodity prices ticked down, right, throughout the quarter. So when we were exiting Q2, they were in the $140 range -- $135, $140, and you can kind of see for the average for Q3, $126 exiting about $120, right? So they have been stepping down sequentially. That when you think about getting a third-party hedge, it's a pretty thin market, quite honestly. So more of what we've done is we've moved the model to charge the fee-for-service. So for the collection itself of those materials or the processing of the material at one of our third-party facilities, we're charging the fee. And then we split with our customers, the ultimate sale of the commodity. So again, we're earning a good return on the services we're providing. And you accept some level of volatility with the ultimate commodity sale, but that's just inherent to the business. Operator: The next question will come from Rob Wertheimer with Melius Research. Robert Wertheimer: You just touched on this a minute ago, but ex the labor one-offs, labor productivity actually looked pretty good in one of your better quarters. Is there anything to call out there? Or is that normal variability? Jon Vander Ark: Well, no, labor productivity, I would say, if you take a look at labor as a percent of revenue, just in the quarter, we've seen an improvement of 70 basis points, right, on that front. So that's going to be a continuation of the benefits that we're getting from a RISE platform where we're producing productivity benefits within our collection business. But also just as we've said, when you think of the margin expansion, a lot of that is the price in excess of your cost inflation. So with labor being one of your largest cost inputs, the place where you're going to see that the most is labor improving as a percent of revenue. Robert Wertheimer: Totally fair. And then just a small one. You touched on manufacturing and some of the -- we've seen that obviously in the industrial world. Any -- there's a lot of cross currents and construction, any trend line you saw through the quarter, you got interest rate cuts, you've got large projects, you got lots of crosscurrents. So just curious if there's any movement in one direction or the other. Jon Vander Ark: No, not yet. I haven't really seen signs of life. Again, we remain in the longer term, very bullish, medium to longer term on construction. In terms of single-family, multifamily, I feel that there's a lot of pent-up demand in most of the markets across our 1,000 dots on the map in the U.S. and Canada. I think we probably need just a little more time before we start to see that take off. Operator: Your next question will come from David Manthey with Baird. David Manthey: Back to Environmental Solutions. When you talk about stabilization, just trying to understand definitionally, are you saying that the decline should start lessening here? Or are you talking about absolute revenue sort of flattening sequentially from 3Q to 4Q? Brian Delghiaccio: Yes. I would say a little bit of both, right? So again, at the same time, we saw it just from an overall revenue perspective -- and look, one month doesn't make a trend, but September was better than August, and we're starting to see something look similar in October from an overall revenue perspective. And then you think about just the year-over-year that would just naturally lend itself to the year-over-year decline starting to modulate. Now Jon mentioned earlier, one of the things you have to remember is last year, we had almost $50 million of revenue in the quarter from a single emergency response job, right? So that's something that we have to anniversary. So that's going to create a tough comp, and about $15 million of that carried over into Q1. So you don't get that out of the numbers until -- from a year-over-year perspective until we get into Q2 of '26. David Manthey: Right. Okay. That's great color sequentially. And then looking back to the ECO data back in 2021, has the data changed much in terms of the top verticals in Environmental Solutions. So is it still chemicals, metals and general manufacturing making up, I don't know, 40%, 45% of the total? Jon Vander Ark: It's a very diversified set of end markets, and we don't -- probably don't cut it exactly the same way that the legacy company did. But very strong -- manufacturing will be the largest probably defined chemicals, oil and gas, general -- continuous slow, general production. But utilities, government, there's a broad mix of end markets that we serve. Operator: Your next question will come from Stephanie Moore with Jefferies. Stephanie Benjamin Moore: I wanted to ask maybe a high-level question on the solid waste business. As it relates to pricing, I think you guys as well as the industry continue to execute well on pricing and getting good pricing, obviously, in the open market as well. As you think about the success that you've had in the open market, what would you attribute the major drivers of that be? Do you think it just general rationality? I mean, obviously, inflationary, but we also hear a lot from general customers with price fatigue and inflation fatigue. So I'd love to get your updated thoughts. I mean, is it your ability to capture price because of your technology investments, but I think just can any updated thoughts on that would be helpful. Jon Vander Ark: Yes. I think there's a lot of elements to the equation. I'd say the most important one from a macro level, we're a very, very small percentage of most customers' cost structure. And in a macro sense, I think the industry is underpriced, right? You think about a resident, their bill is less than their Starbucks delivery month. And we're taking a $400,000 truck and driving it, taking it to a recycling center that costs $50 million, $60 million to build or a landfill where we're going to rent you piece of real estate forever and probably produce electricity or gas on the back end of that. So I think the value proposition across the industry is phenomenal, and we're, again, a very small portion of people's cost structure, so that creates a lot of pricing opportunity. I think if you kind of come down a level and look at our company, we focused really hard on customer mix. Some customers are very price sensitive, and we are underpenetrated in that part of the market, overpenetrated and customers who are willing to pay more for the value and then have a lot of tools and sophistication in terms of how we price customers to make sure that they not only take the price, but they stay forever. Stephanie Benjamin Moore: Got it. I appreciate it. And then just one follow-up on the M&A commentary. I appreciate the look into 2026. I wanted to also gauge your appetite and maybe doing a larger deal M&A at this time, whether in solid waste or within ES? Jon Vander Ark: Yes. We will maintain a perspective on everything, all right, as fiduciaries of the business on that front. And I wouldn't say anything is impossible. I'd also say our focus is on small- and medium-sized deals as we look into the rest of 2025, but even in the '26 and '27, and feel like we've got a very strong pipeline both in Recycling & Waste and ES. Operator: The next question will come from Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: I just want to get straight a little bit about the commentary about things getting better in ES towards the end of the quarter. How much of it is your figuring out the issues with the pricing in specific areas? And how much of it is finding kind of a bottom and starting to improve? And then I just wanted to ask you a little bit about the pricing just in general. Do you feel like you figure out where you're getting it not exactly on the mark, and is there a thought that we've kind of gotten to the point where we've -- the outsized pricing is kind of behind us? Or is it really just those emergency response type stuff is really the only place where you feel like you've pushed it too far? Brian Delghiaccio: Yes, maybe let me start at the end. I think we've taken up margins fairly dramatically since we closed the US Ecology acquisition. So tremendous progress, and that wasn't all priced, but a lot of that was price. And we think there's certainly more room to go. We're facing, obviously, a very challenging demand environment. And so getting that balance right get primarily on event-based work, but it's certainly an opportunity for us and the team. Part of this is just the -- this industry itself is at a different stage of evolution and maturity than the Recycling & Waste industry, where we've been in Recycling & Waste a long time in terms of the tools, sophistication, commercial capabilities of our sales team to get that balance just right to try to win the job of maximize price. And we're still climbing the ladder on the environmental solutions side of the business. And then if you work your way back into what kind of momentum we're seeing, I think we are seeing certainly a stabilization of the overall market, not strength and rapid recovery, but a stabilization. And then you layer on top of that, again, our level of speed. We're getting very, very dialed into specific opportunities. And those 2 things together give us a positive outlook. Shlomo Rosenbaum: Okay. And then just overall on the pricing, you said you've taken a lot over there. Would you say you're still in early innings, mid-innings, where do you feel you are in terms of that opportunity ex the area where you're kind of recalibrating right now? Jon Vander Ark: Yes. I'd say longer term, we still think these assets are under price, right? These assets -- on the post-collection side, these assets are impossible to replicate, right? And we sell things here rather than price by the ton oftentimes by the pound or sometimes by the ounce. And so we think there's plenty of room to go. We've also said this isn't going to be a straight line of progress. There's going to be ebbs and flows on our path. And so in any given quarter, like the one we just saw, there might be a little bit of pullback. And I think if you measure this thing very narrowly quarter-to-quarter, I think you're going to miss the picture. If you measure it year-over-year, I think you're going to get a much better view of where we think progress in this business goes. Operator: Next question will come from William Grippin with Barclays. William Grippin: Just wanted to come back to the union contract settlement here. Was there any impact, I guess, from the strikes on revenue in the quarter. I know you made the adjustment to EBITDA, but just wondering if there was any impact on the revenue side. And then any sort of outlook in terms of cost inflation in '26 related to that contract sort of relative to your expectations and your commentary? Brian Delghiaccio: Let me take the first part there. So there was an impact on revenue. There was a recognition of about $16 million worth of credits, which reduced the reported revenue. Now when you look at adjusted EBITDA, while we didn't adjust the revenue, we did include those credits in the adjusted EBITDA. So the add back of $56 million includes those $16 million worth of revenue credits in order to drive adjusted EBITDA. In terms of the longer-term impact on labor, we think the answer is no. We work very hard, whether our frontline people are represented by union contract or not that we're keeping them in line, and we want our people to be amongst the best paid in the local markets in which they operate. But it's very critical for us to make sure that they're not out of market. And when people get out of market, right, it hurts everybody. We lose work, and we ultimately have to let go of drivers and technicians. So getting that number right is important to us, and that's why we took the stand we did this past year on the set of contracts. But going forward, we feel like we're in a very good position to maintain our price cost spread, as we talked about before. William Grippin: Appreciate that. And then just coming to the ES business. You mentioned in your pipeline, possibly having some opportunities related to M&A for ES. Any additional color you could provide there on what types of assets or services that you might be looking at? Jon Vander Ark: Sure. I certainly look for certain verticals that we're in. We'd like to get in further to life sciences and biopharma and high-tech are certainly attractive to us, and we've got great positions regionally but not in every region. There's 20 field services locations geographically, where we have really strong footprints in Recycling & Waste but don't have a field services location. That creates an immediate cross-sell opportunity for us. And then we're always interested in any post-collection assets. Anything with infrastructure, we feel is very attractive to the network as well. Operator: The next question will come from Tony Bancroft with Gabelli Funds. George Bancroft: Great job on the quarter. I know I'm sort of beating a dead horse here. But with M&A game plan, maybe another way to look at it, it's obviously a huge draw of energy demand with data centers. Any thoughts maybe just a longer-term view or vision of M&A in sort of in that space with E&P or energy based? Or is it more the traditional stuff. Maybe you could talk about that a little bit. Jon Vander Ark: Yes. That will certainly help us on the margins. Those things get constructed. There's opportunities around earthmoving and soil and remediation opportunities. And then listen, our landfills, less than half of them have landfill energy projects on them. And could those projects be electric based kind of back to the future in the sense that that's where we serve those projects, and it's been all RNG over the last few years. We're certainly exploring some technologies around getting after lower flow sites, smaller landfills. And electricity projects might be part of that, and that might be feed into that grid. I'd say from a macro standpoint, we don't participate -- those facilities don't create a ton of ongoing waste and recycling or environmental solutions opportunities once they're up and constructed. But during the construction phase, we'll certainly participate. Operator: At this time, there are no further questions. I would like to turn the call back over to Mr. Vander Ark for closing remarks. Please go ahead, sir. Jon Vander Ark: Thank you, Chuck. Before we conclude today's call, I want to take a moment to recognize the great work of the entire Republic Services team. The team's commitment to safety, sustainability and providing outstanding service continues to drive our performance. We are confident in our strategy, our people and our ability to continue delivering value to our customers, communities and shareholders. Have a good evening and be safe. Operator: Ladies and gentlemen, this concludes the conference call. Thank you for attending. You may now disconnect.
Operator: " Daniel Sampieri: " Cashel Meagher: " James Whittaker: " Raman Randhawa: " Wendy King: " Peter Amelunxen: " Ralph Profiti: " Stifel Nicolaus Canada Inc., Research Division Orest Wowkodaw: " Scotiabank Global Banking and Markets, Research Division Dalton Baretto: " Canaccord Genuity Corp., Research Division Fahad Tariq: " Jefferies LLC, Research Division Daniel Morgan: " Barrenjoey Markets Pty Limited, Research Division Craig Hutchison: " TD Cowen, Research Division Adam Baker: " Macquarie Research Anita Soni: " CIBC Capital Markets, Research Division Marcio Farid Filho: " Goldman Sachs Group, Inc., Research Division Operator: Good afternoon, and welcome to Capstone Copper's Q3 2025 Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, October 30, 2025. I would now like to turn the conference over to Daniel Sampieri. Please go ahead. Daniel Sampieri: Thank you, operator, and thank you, everyone, for joining us today to discuss our third quarter results. Please note that the news release and regulatory filings are available on our website and on SEDAR+. If you are logged into the webcast, we will advance the slides of today's presentation, which are also available in the Investors section of our website. I am joined today by our President and CEO, Cashel Meagher; our SVP and Chief Operating Officer, Jim Whittaker; and our SVP and Chief Financial Officer, Raman Randhawa. During the Q&A session at the end of the call, we will also be joined by our SVP, Risk, ESG, and General Counsel, Wendy King; and our Head of Technical Services, Peter Amelunxen, who are available for questions. Please note that comments made today on the call will contain forward-looking information within the meaning of applicable securities laws. This information, by its nature, is subject to risks and uncertainties, and actual results may differ materially from the views expressed today. For further information, please see Capstone's most recent filings, which are available on our website at www.capstonecopper.com. And finally, I'll just note that all amounts we will discuss today are in U.S. dollars unless otherwise specified. It is now my pleasure to turn the call over to our President and CEO, Cashel Meagher. Cashel Meagher: Thank you, Daniel, and hello to all of you dialing in from the Americas, Europe, Australia, around the globe. Today, we are pleased to present our third quarter 2025 results and achievements. Q3 was marked by several key catalysts on our path towards transformational growth. This included sanctioning and beginning construction on our Mantoverde optimized project, which will deliver near-term production growth at our flagship asset through a capital-efficient brownfield expansion. This also included announcing a minority joint venture agreement with Orion Resources Partners at our Santo Domingo project, representing a major milestone towards unlocking the value of the Mantoverde Santo Domingo district. At the same time, we continue to strengthen our pipeline through exploration in support of our commitment to building a world-class long-life copper district in the Atacama. We achieved encouraging results from Phase 1 of a 2-year drill program at Mantoverde and announced a new exploration program at Santo Domingo and Sierra Norte. While we increased production to meet the growing global demand for copper, we remain committed to doing so responsibly. Earlier this month, we were pleased to publish our 2024 sustainability report, which demonstrated steady progress on our sustainable development strategy. We also received the Copper Mark award at our Pinto Valley site in recognition of responsible production practices in one of the oldest mining districts in the United States. As we execute our strategy in a responsible and safe manner, we continue to focus on operational excellence at our existing operations, as highlighted on Slide 5. In Q3, our operations delivered consolidated copper production of 55,300 tonnes at a consolidated C1 cash cost of $2.42 per pound. This is the third quarter in a row that our team has delivered lower cash costs, especially during times of strong commodity prices. Cost control across the business ensures that margins are protected and incremental value is returned to our shareholders. Our Mantoverde site experienced higher-than-normal downtime this quarter, primarily due to motor failures in the ball mill, in addition to 5 days of planned maintenance. Our team worked collaboratively with third-party experts to return Mantoverde to full operating rates sooner than initially anticipated and continues to advance a remediation strategy to mitigate the potential for future impacts. The lower throughput during the quarter was partially offset by record recoveries as we continue to progress towards design levels. We look forward to demonstrating the full potential of Mantoverde over the remainder of '25 and into 2026 as we enhance the consistency of operation, execute on Mantoverde optimize, and progress our exploration strategy. At Mantos Blancos, we achieved another quarter of strong production and cash costs despite slightly lower throughput due to maintenance completed during the quarter. Arizona continued to experience severe drought conditions in Q3, which resulted in constrained throughput at our Pinto Valley mine. In the near term, we are focused on the implementation of our asset management framework to achieve stable operations at Pinto Valley. Longer term, we remain committed to unlocking the significant value of Pinto Valley and assets strategically positioned in the United States with over 1 billion tonnes of resources. At Cozamin, we saw another steady quarter with strong production and low unit costs. Based on our operating performance over the first 3 quarters, we have reiterated our production and cost guidance. We expect total copper production to finish within the lower half of the range and cash costs to finish within the upper half of the range for 2025. We are positioned well for a strong finish to the year. Amidst strong commodity markets, we look forward to demonstrating reliable copper production, lower costs, and strong cash flow generation while continuing to advance our production growth opportunities in preparation for a strong 2026. And with that, I'll pass over to Raman for our financial results. Raman Randhawa: Thank you, Cashel. We are now on Slide 6. In Q3, strong copper production and commodity prices drove record quarterly revenue of $598.4 million. We note that copper sales were around 2,600 tonnes above payable production levels, primarily due to timing of sales at Mantos Blancos. LME copper prices averaged $4.44 per pound in the quarter, up 3% compared to $4.32 per pound in Q2, and we realized a slightly higher copper price of $4.49 per pound. LME copper prices are even stronger today at just above $5 per pound. With over 90% of our revenue derived from copper, we stand to benefit significantly from higher copper prices. C1 cash cost of $2.42 per pound decreased by $0.03 from last quarter and by $0.42 compared to Q3 last year, marking the third quarter in a row our team has achieved lower cash costs. Solid production and cost control allowed us to realize strong gross margins of $2.07 per pound or 46% in Q3, which represents a 7% increase over Q2. By protecting margins, we can ensure that benefits from strong commodity prices flow through to our bottom line. Record adjusted EBITDA in Q3 of $249.2 million increased 106% year-over-year, driven by higher copper production, lower cost, and stronger copper prices. This is the fourth quarter in a row we've generated record EBITDA as we continue to realize the benefits of our recently ramped-up mines in Chile. We also reported strong operating cash flow of $231.2 million before working capital changes. Net operating cash flow of $153.4 million was impacted by adjustments of $77.8 million, largely due to a buildup of accounts receivables at Mantoverde and Mantos Blancos. We also reported adjusted net income attributable to shareholders of $49.4 million or $0.06 per share in Q3. As you can see from our financial highlights, we achieved record results in a number of areas, representative of a commitment to operational excellence across our organization. Moving on to Slide 7. On the bottom left-hand side, we summarize our available liquidity, which as at September 30 was greater than $1 billion, including $310 million of cash and short-term investments and $761 million of undrawn amounts on our corporate revolving credit facility. We finished this quarter with a consolidated net debt of $726 million. In Q3, we continue to see our net leverage decline with our net debt-to-EBITDA ratio of 0.9x at the end of Q3. This is the seventh quarter in a row we have seen improvements to this metric as we deleverage our balance sheet ahead of Santo Domingo. The chart on the right-hand side of the page illustrates our EBITDA sensitivity of various copper prices based on our 2025 forecast, as well as upside related to MVL and Santo Domingo at run-rate production. The level of EBITDA generation will enable us to continue to generate cash to delever our balance sheet, further enhancing our financial position. For the balance of the year, a 10% change in copper prices impacts our EBITDA by approximately $50 million. And at these production levels, a 10% change impacts EBITDA by close to $200 million over a full-year basis. Now I'll hand it over to Jim Whittaker for the operations review. James Whittaker: Thanks, Ryan. We are now on Slide 9, where we will first run through our Mantoverde operation. Total production yielded 23,769 tonnes of copper at a record low combined C1 cash cost of $2.27 per payable pound. In Q3, plant throughput averaged 27,500 tonnes per day, which, of course, was impacted by the ball mill molded failures we had previously disclosed and 5 days of planned maintenance. As a result of an investigation with third-party experts and the manufacturer, we now understand that the failures were caused by an issue with a part within the motors called the exciter. We have been focused on repairing the failed motors and remediating the remaining motors while also implementing further protections to avoid potential future failures. This has resulted in a bit of additional downtime in October. But now as we sit here today, we have completed the required repairs on all 5 motors, including 2 in the ball mill, 2 in the SAG mill, and 1 spare, and with another spare ordered and on the way as additional contingency. We are eager to get back above design throughput levels consistently, especially now that we are not constrained to 32,000 tonnes per day from a permitting perspective. Copper grades averaged 0.7% in Q3, with the highest grades of 0.81% occurring in September. Importantly, during Q3, we achieved record recoveries of 85.8%. July had lower recoveries as we finished mining through the transition zone, similar to what we experienced in Q2. In August and September, recoveries significantly improved as we progressed to predominantly sulfide ore zones. It is also worth noting that recoveries starting from late August were impacted by the processing configuration where we bypassed the ball mill because of the motor failures. Using only the SAG mill resulted in a coarser grind and overall lower recoveries. So we are quite pleased with the performance on the recoveries this quarter and believe we are well-positioned heading into Q4 and 2026. Mantoverde is trending towards the lower end of its asset level production guidance range and the upper end of the cost guidance range for 2026. This is primarily due to downtime associated with the motors and impacts from mining through the transition zone earlier this year. In Q4 specifically, we are expecting throughput just below 30,000 tonnes per day average. Moving now to Slide 10. We wanted to provide a status update on the Mantoverde optimized project. After receiving the permit approval from the Chilean authorities in July, we announced project sanctioning in August and began construction. MV Optimize is an extremely attractive project for us, adding 20,000 tonnes per year of copper production at a low capital intensity of around $9,000 per tonne. Our capital cost of $176 million, and our scheduling expectation for the project remains unchanged. In 2026, we are expecting an additional 10 days of maintenance currently planned for Q3 in order to complete the final tie-in of infrastructure required for MVO. We then plan to ramp up through and during Q4 with a goal to achieve consistent 45,000 tonnes per day throughput rate in early 2027. We look forward to progressing construction to unlock near-term production growth at our flagship asset. Now moving north to Chile. Mantos Blancos continued to deliver strong results in Q3, as highlighted now on Slide 11. Total sulfide and cathode production yielded 15,417 tonnes of copper at C1 cash cost of $2.24 per payable pound. Throughput averaged 18,100 tonnes in Q3, slightly below design levels as a result of maintenance. As we continue to work through our Mantos Blancos Phase 2 study, the team on site was able to continue to push the plant, reaching an individual maximum daily throughput over 28,000 tonnes per day in September. As a result of strong throughputs and recoveries year-to-date, which we expect to continue through Q4, Mantos Blancos is trending towards the upper end of its production guidance range and the lower end of its cost guidance range for 2025. Turning to Pinto Valley on Slide 12. We produced 9,949000 tonnes of copper during Q3, lower than we had expected as the severe drought in Central Arizona continued for longer than we had anticipated. The lower production level is based on operating at only 2/3 availability with only 4 of 6 mills online for the majority of the quarter, driven by these water constraints. The lower throughput was partially offset by stronger grades and recoveries compared to Q1 and Q2. I am very pleased to report that throughout October, water levels were high enough to support a ramp-up to full availability with all 6 mills now operational. We are committed to mitigating the impacts of drought at Pinto Valley through a number of initiatives that are ongoing. This includes improving on-site water infrastructure, evaluating potential agreements with other closed mines in the area that have impacted water, which could be used in our operations, and also leadership changes to improve the tactical focus. For Q4, we are expecting throughput to average around 50,000 tonnes per day after accounting for the performance in October. When combined with the performance through the first 3 quarters, Pinto Valley is trending below the lower end of its production guidance range and above the higher end of its cost guidance range. The focus of the current U.S. administration on growing domestic copper production has provided further endorsement for the strategic value of Pinto Valley. We remain committed to unlocking the value of the significant resource at Pinto Valley through the evaluation of the upside opportunities on our land package and within our broader district. In the meantime, we will continue to improve the reliability of the plant to drive higher production and lower costs through our asset management framework. Moving to Slide 13. Building on the success of the first half, Cosmin delivered another quarter of solid results in Q3, producing 6,145 tonnes of copper at C1 cash cost of $1.51 per payable pound. Cosmin is tracking towards the upper end of its production guidance range and the lower end of its cost guidance range for 2025. We continue to conduct exploration at Cosmin to evaluate the potential for mine life extensions or for potential improvements to the production profile. And with that, I'd like to pass it back to Cashel. Cashel Meagher: Thanks, Jim. Turning to Slide 15. We recently announced a joint venture agreement with Orion Resource Partners at Santo Domingo. This transaction represents the culmination of a competitive process to select the premier partner that will assist Capstone in unlocking the considerable value at Santo Domingo. Through this next phase of a long-standing partnership with Capstone, Orion will contribute up to $360 million for 25% of the Santo Domingo project. They will also contribute their pro rata share of project CapEx. Included in the total consideration is a base purchase price of $225 million at FID, a further $75 million 6 months later, and a $60 million in contingent payments based on certain milestones. We believe the established contingent milestone thresholds are very achievable and endorse the value we expect to continue to create by increasing the copper production profile and bringing on byproduct cobalt production. In our view, an extremely valuable part of this transaction is the buyback option, which allows us to reconsolidate 25% of Santo Domingo for a predetermined price based on a return threshold applied to Orion's contributions. We view this as a call option for Capstone and one that is likely to be accretive for our shareholders, especially in a rising copper price environment. Orion has also subscribed for $10 million in equity, which will be used to fund new exploration program targeted at the areas eligible for contingent payments. I'm proud of our team for reaching an agreement that realizes significant value and derisks our project funding requirements while also retaining future optionality through a buyback option. Turning to Slide 16. We have outlined the path towards sanctioning Santo Domingo with the required permits in hand, the feasibility study published last year, and a joint venture agreement reached. We will continue to progress the remaining work streams in parallel towards a sanctioning decision in the second half of 2026. Next steps include securing project financing, which has already kicked off and is expected to take 12 months. We also plan to continue to progress detailed engineering, targeting closer to 60% ahead of sanctioning, while also advancing the upside opportunities and potential district optimizations. From a Capstone corporate perspective, we will continue to strengthen our balance sheet through internally generated cash flows and reduce our net debt leverage further prior to a sanctioning decision. Having recently completed the Mantoverde development project, 35 kilometers away, we are extremely well-positioned to execute on the Santo Domingo project. In pursuit of our vision to build a world-class long-life copper district in Chile's Tier 1 Atacama region, we are unlocking value through the drill bit as shown on Slide 17. Supported by an expanded budget for 2025 of $40 million, we continue to advance the initial 2-year exploration program at Mantoverde as well as our recently announced program focused on Santo Domingo and Sierra Norte. Related to this, we are pleased to announce we have signed an exploration option agreement with ENAMI for more than 18,000 hectares of concessions surrounding Sierra Norte, further consolidating our position in the region. We've already received some encouraging results from Phase 1 of the exploration program at Mantoverde, as highlighted on Slide 18. This includes the potential to improve our grade profile in the near to medium term via Brecha Flores sector. Additionally, the results from step-out drilling at Animas and the Santa Clara Corridor, pictured on the slide, have provided us with increased confidence in our future expansion plans. We look forward to advancing Phase 2 of the exploration program, which is underway. It follows up on the results from Phase 1, such as at Animas and the Santa Clara Corridor, and will also include targets on the highly prospective northern corridor of our Mantoverde concession identified through an IP survey completed earlier this year. There are 7 drill rigs turning on site at Mantoverde, and this program will continue to inform further opportunities for growth within the district. Turning to Slide 19. During Q3, we achieved a number of milestones, a testament to the executable nature of our organic growth opportunities. At Capstone, we are proud to have created a strong pipeline supported by a solid diversified foundation of operating assets. As we enter the final quarter of 2025, we will continue to focus on operational execution, strengthening our balance sheet, and prudently advancing our projects to position us well for 2026. With sanctioning of Mantoverde Optimize behind us, we are hard at work upgrading the operation to sustain 45,000 tonnes per day, funded by internally generated cash flows. At Santo Domingo, signing of a joint venture agreement, arrangement marked a significant milestone. We are now working on securing optimal financing for the project while advancing the remaining work streams in parallel towards sanctioning. Beyond MVO and Santo Domingo, we have a strong pipeline of low-risk, high-return projects in top-tier jurisdictions. This includes an expansion at Mantos Blancos to unlock incremental copper production, optionality to realize synergies in the MVSD district, and the potential development of another major copper district around our Pinto Valley mine in Arizona. A strong copper price environment and growing consensus of increasing future demand supports our growth strategy, reinforcing the importance of remaining agile to execute responsibly. With that, I'll turn to Slide 20 to conclude today's presentation. In the third quarter, our current operations performed well, allowing us to realize the benefit of strong commodity prices by delivering solid production and improving our cash costs, resulting in record adjusted EBITDA. We also took tangible steps on our path towards transformative growth. We are well-positioned to become a leading long-life, low-cost copper producer, playing an important role in providing the copper the world needs now and into the future. And with that, we are ready to take questions. Operator: [Operator Instructions] First question comes from Ralph Profiti from Stifel. Ralph Profiti: Cashel, what's the earliest we may start to see some of these Brecha Flores and MVS intercept material into the mine plan? You talked about sort of short-term and medium-term. I'm just wondering if that means sort of '26 or '27? Or will you wait until a more comprehensive block model is established? Cashel Meagher: Yes, Ralph, thanks. I think what we've done is with that exploration release is what we've done is we've developed a platform by which we can communicate in the future ongoing exploration results. It's a rather large program. So for us to be able to incorporate and interpolate the results into a mine plan, we kind of want to have much of the program complete. So I would suspect that that would be a '27, sometime first half of '27 to be able to really show what effect it has on, number one, Mantoverde Optimize, because some of this drilling will affect the stripping and hopefully, a little bit of the grade a bit. And then the Phase 2 will be an ongoing process because we have ambitions that, that district and that fault will yield higher grades that are more accessible than the immediate pit. We're just expanding the size of it, such that we can optimize what we call Mantoverde 2 and determine where that center of gravity of future resources to properly locate the expanded and the additional production facility that Mantoverde 2 would provide for. Ralph Profiti: I wanted a follow-up question on Santo Domingo. And I'm just wondering about the relationship between the $60 million contingent cash consideration that comes upon those 3 milestones and the potential exercise of that buyback right. And I'm just wondering whether or not some of those conditions would happen before or after or in concert with each other. Some help with that would be appreciated. Cashel Meagher: Yes. That's a very good question. The sort of the way we look at it, certainly, the upgrade of the Serra Norte and the oxides. To us, that's something we're getting underway right away. We suspect that, in the fullness of the development of Santo Domingo that we will be able to realize 2 of the 3 payments during the development process. So we look to enhancing the NAV by that drilling. And basically, number one, it's to improve the grades beyond year 7 in the current production profile as published in September of 2024 for the grades or for the copper grades and production of copper from years 8 through 15. And so too, to establish an oxide leaching facility at Santo Domingo, whereby we can utilize the capacity available in the SXEW at Mantoverde to complement that copper production. Probably those, we would meet those thresholds before commercial development or commercial production, I should say. So the threshold for our buyback is post-commercial production. It will be hit or miss if we're ready with the cobalt, but we might be. It's a cobalt study during that process also, which is the remaining $20 million. I think what's important about those 3 items is there are enhancers to the NAV of Santo Domingo, which is distinct and different to what the buyback is based on, which is the a multiple to the contributions that Orion makes during the construction and the buy-in to Santo Domingo. So all that NAV created by those $60 million in payment are to our account and hopefully increase the NAV of the asset and therefore, make our buyback of that 25% more attractive and accretive to Capstone. Ralph Profiti: Clearer now. Congratulations on a well-executed deal with optionality. Operator: Next question comes from Orest Wowkodaw from Scotiabank. Orest Wowkodaw: Wondering if we can get some more color on the progress at Matoverde sulfides. Specifically, obviously, you had the issues in September, but can you give us a sense of where throughput and recoveries were in October? And did I hear correctly that you were earlier guided to average throughput for the quarter of, I think, just below 30,000 tonnes a day. Did I hear that right? Cashel Meagher: Yes. Thanks, Orest. Yes, you did hear what the throughput ended up being due to the interruptions in production. Fortunately, Jim and his team were able to run the SAG mill independent of the issues we had, such that we could continue producing sort of at a half clip. So we're able to maintain sort of production. With that being said, there's some detailed questions in there. I'll hand it over to Jim to answer sort of more fully your question around October and some of the issues around what we experienced in Q3. James Whittaker: Yes, it was a pretty tough quarter in general. And as Cashel said, we managed to get through it kind of limping through because we did have a design option in the MVDP design that allowed us to run the SAG mill direct to flotation. So although there was a moderate impact on recovery, we were able to partially operate. So all in all, I think we had a pretty good month considering that during the same time, we were basically switching motor for motor and replacing the exciter, which is basically the part that controls the power into the main shell and frame of the motor in each of the 5 units that we have, which was quite complex. This is all done off-site. There was a lot of logistics involved, a lot of cranes involved, and we were working very closely with our partner, Ingot team to be able to perform all that work, which was quite complicated actually. So right now, when we're looking at the plant, we've got 4 motors in place operating. We have rebuilt spare that's on the deck. We do have a crane and everything at site in case we have any further work to do. And we continue to work on the control systems and protections around those motors to make sure we have some consistent operation. As we mentioned in the text, October is going to be a bit of a difficult month. We haven't closed out finally on the month and the data yet, but we're looking forward to a much stronger end of Q4 and bring up the throughput to be able to push us into the line of our guidance, what we expected from Mantoverde, but we'll just be on the lower edge. So we have a lot of work left in front of us. With respect to recovery, yes, I can make a couple of comments. Obviously, with the tonnage changes and the configuration changes, it's been up and down a bit. But during Q3, we did achieve recoveries above 90% during August early in the quarter, which was very good for the group as we managed to get some confidence around running the flotation circuit and those configurations to push that recovery up. So really, except for Q2, remember, when we discussed, we had a lot of altered material coming in or all of, I guess, you would call it semi-oxidized material coming in. But except for Q2, on a quarterly basis, we really saw the recoveries coming up and increasing. We were really looking at 82% in the early year. We were roughly 86% in Q3 of this year. So we're really, really happy with the way that's going. It's running pretty steadily now. And we're almost at the design recovery levels of, say, 87% and above. We expect to continue to achieve these recoveries in the mid- to upper 80s in Q4 and then consistently look for these design recovery rates in 2026. So as I said, a difficult quarter, very, very complicated trying to maintain consistent flotation recovery when we're having these plant stoppages because of the motor issues, I think we were able to get ourselves through it. Still some work to do, a lot of people on site, a lot of technical people, and the support from Aussie, Asinko, and FLS and Inga team to help us through this issue. So yes, I think we're in really good shape to finish off the year and still some work to do. Orest Wowkodaw: Just a follow-up. How much time did you guys lose in October with this issue? I thought this was largely behind you at the end of September. James Whittaker: No, we were still working on to that. I was just going to say a lot of the big impact was through Q3. But during -- obviously, during this month of October, we were starting off full, but there was still, obviously, within our program maintenance, still continuing to work on the motors. As we disclosed during the Q3, we did have that impact. And we also took time down for maintenance, which was planned. But we're still -- during the month of October, even though we're looking very, very positive about the quarter, yes, there's still some work to do on that, but we're able to manage that within our normal maintenance downs that we're working through with the motors. Operator: Next question is from Dalton Baretto from Canaccord. Dalton Baretto: I'd like to swing the conversation back to the Santo Domingo JV. Cashel, can you comment on how you guys made the decision on going with Orion? Like what sort of criteria? Was it the buyback option? Was it the fact that they're already a shareholder? Just any thoughts around that? Cashel Meagher: Yes. All of the above. Thanks, Dalton. So number one, obviously, we have a very good relationship with Orion. They were with John McKenzie, our Chairman, founder at Mantos Copper, and founder in the new Capstone Copper. They were obviously 1/3 shareholders at one period of time and have worked with us quite cooperatively through the last number of years. So obviously, they had insight into our project delivery, our project management, and our operating teams. But that being said, we had classical interest in this process, whereby there were traders, smelters, sovereign wealth funds, and obviously, private equity involved. And we weighed the various benefits relative to one another. And there's one familiarity, knowing a partner and trusting them. But one of the things that became very important to us, besides maybe the classically seeking advantageous rates in financing for our ambitions to finance Santo Domingo, was recently, Orion also has announced that they have partnerships with the U.S. government and the United Arab Emirates on various funds and access to funds. And we feel that they can bring some of that to bear in the financing of Santo Domingo. So that sort of leveled them out with some of the more classical players that would have that type of opportunity available to the funding of Santo Domingo. And then obviously, the other one is the buyback option. And it sort of came to our attention during this TCRC process that when you have a partner in an asset, the copper you value the most is the copper you produce yourself. And having a partner, while it's very important to derisk the project, value the project, and finance the project, at some point, you covet the copper you produce that somebody else gets to sell. And that's the original deal. So we sort of inspected with the various parties that were participating, whether or not there was a possibility to buy back that asset. And lo and behold, that sort of suited the model of a private equity, and certainly with Orion. And we were able to come to an arrangement that we think is advantageous and is to our call as an option shortly after commercial production when the assets at its most valuable. And so that became very attractive to us. And really, I think that's what put it over the edge besides the familiarity that we have with Orion as a financing entity. Dalton Baretto: And that sort of preempted my next question around project financing and the cost. So maybe I'll ask a different one. Thinking broadly across the Mantoverde, Santo Domingo complex now, you've got 2 different partners at either asset, plus the DL600 at Santo Domingo. How does that play into your thinking around some of these synergies and the net returns to each asset? I'm just wondering if that opens certain doors and closes others. Cashel Meagher: I think it keeps all doors open. Like one way or other, like you mentioned the DL 600, which is our tax stability agreement, and that will keep the 2 entities separate irrespective for accounting purposes and tax calculation out of Santo Domingo and Mantoverde, but it doesn't preclude us from establishing transfer pricing for any of the shared infrastructure or materials between the 2 areas. And so we'll just work through what those are and how they work out. I think what's important is in our process, we did identify some strategic possible partnerships whereby we could optimize the future design by sharing infrastructure within the region. And to us, that's a very appealing improvement that we can execute on beyond what appeared in the 2024 technical report, and that revolves around pipelines, desalination plants, and principally the port. And so we'll pursue those in parallel with our financing efforts and our detailed engineering over the next year to derisk the project and the project delivery further. So we still think there's more upside to come out of Santo Domingo by that sort of negotiation. In addition, as I was speaking before, the opportunity to leach material at Santo Domingo and enhance the copper profile beyond year 7 with the oxide and the Sierra Norte sulfides will be enhanced opportunities, just utilizing the SXEW at Mantoverde, of course, will also enhance the NAV at Santo Domingo in the future and so too, reduce the unit costs at Mantoverde. So it's a very virtuous optimization where both assets benefit. And that's the advantage of operating in a district. Operator: Next question is from Fahad Tariq from Jefferies. Fahad Tariq: On Slide 11, on Mantos Blancos, what was the unplanned maintenance that happened in the quarter? Cashel Meagher: Yes, Fahad, thanks. I'll pass that over to Jim to answer. James Whittaker: At Mantos Blancos, we had some issues through the quarter with a final concentrate thickener. As you know, the Mantos Blancos site is very old. It started in 1957. And when we were doing a routine planned maintenance, we encountered some issues around the base of our Falcon thickener, where basically 100% of the production passes through that thickener. What we found, we had some, I guess, you would call some weaknesses in the structure below the thickener, and we had to take a look at that, and that included draining the thickener, drilling through the base, investigating, and then refilling those void spaces that we found. There was a lot of very specific work done on that to make sure that it's not going to be an issue in future. But then again, it may be something that we'll have to revisit in our 5-year planning to see if it looks at -- if we look at any further replacement of that equipment. But it was done very, very efficiently by the team on site. We had some external specialist contractors helping us with that work, and we were able to bring the thickener back on with actually -- without any harm to anybody working on the job. So there was a lot of movement and -- but a good focus on that. Mantos Blancos was able to come up back up online and actually now positioning to be at the high end of its guidance for the full year. Fahad Tariq: Okay. And then maybe just switching gears, a question for Raman. On the balance sheet targets before sanctioning Santo Domingo, is it fair to say that those have been achieved? Or I'm just trying to square the -- because the net debt-to-EBITDA target has been met, so it's been so is the liquidity target. But is there further deleveraging that needs to happen? I'm just trying to understand those 2 points. Raman Randhawa: Yes, it's a good question. So it's a good position to be in. We have met our targets. Our target was 1x, and we're at 0.9. We're at 1x last quarter. But that doesn't mean, obviously, this price environment, we're going to continue to delever ahead of Sano Domingo sanctioning. So we're just putting us in a better position pre-FID. So I'm looking forward to seeing that number go down even further. Fahad Tariq: And maybe if I can ask a different way, is there another target that you're thinking of post-project financing? In other words, once you have the project financing in place, is there a higher leverage that you kind of wouldn't want to exceed? Raman Randhawa: Yes. So look, during construction, I think we said we always want to be at least below 2x is kind of when we run our numbers. So if you look at floor versus cap, I think we were getting below 1 and then no higher than 2x during construction because our EBITDA will be strong when we're constructing Santo Domingo will be north of $1 billion. Operator: Next question is from Daniel Morgan from Barrenjoey. Daniel Morgan: Can we just talk a little bit about momentum at Pinto Valley? So it looks like you were mining at reasonable rates. Obviously, despite the drought, you're mining at a good clip. Does that mean you have the mine in a good place to provide good grades into 2026? Do you have the water to continue to sustainably run these mills? Or is that still something that you're a little nervous about? And are there any upgrades that you've done to the mills during this downtime that you could improve operational stability for 2026? So basically, just how is the asset looking? Cashel Meagher: Yes. Jim, why don't you take that? James Whittaker: Sure, Cashel. Thanks, and great question. It's good that you're noticing the mining uptick as we are, too. We actually had a really good quarter on the mining side of the business. We hit a 1-day record of about 190,000 tonnes moved through the last month. So we've been taking a lot of steps to invest correctly at Pinto Valley. We have some new trucks that are coming online, and we're really starting to see the benefit of that. Between that, the work that we're doing on asset management, the work that we're doing on the operating system, we've seen consistent and steady increases in mining output at Pinto Valley, which is promising and sets us up for the future. On a grade basis, to tell you the truth, we're right on target where we expected to be through this year. Remember, it is a porphyry deposit. It's kind of a lot of the same grade. There is small variances, but we're right on our target where we expect to be with that site. The big thing was really the water through the summer months, these 1 and 100-year droughts seem to be happening more frequently. It was really tough through the summer months, and we obviously had to back off in the milling operation just because we didn't have water in our reservoirs to be able to run it. There's 3 main sources, I think you could say, of water that feeds into that plant. And we have 3 different groupings of action plans that are focused on those sources. So one, you just have transport from well fields to the plant. The focus there is making sure that our older pipeline systems are in good condition, and we're investing in them correctly to make sure that that doesn't become an issue for us in the future just from the availability point of view of the equipment. There's also the evaporation aspect of it, which is about storage facilities and deposit reclaim. The reclaim water that we take back off of the tailings area is very important to us. But when the water levels are so low, it makes it very, very difficult to receive filtered water. So some of it is about making sure now that we're into the winter months and we're receiving water that we're not losing that water, and we're taking care of those reclaim facilities. And the other issue is seepage. Our oldest reservoir has some seepage through it, which basically is a loss for us. We're currently running some projects right now to look how we can mitigate that and minimize that in the future by different methods of kind of covering off, I guess, you could say that reservoir or the areas that we lose water into the base of the reservoir. So a lot of work going on now. to set up for the next year. We do think the data that we have tells us that next summer is going to be a tough summer, and it's dependent on us right now to be able to store water to be in better shape for the 2026 summer months. Daniel Morgan: And with regard to just mill availability and stability, any works on that, that -- I mean, that you could improve the reliability of the mill throughput for next year versus what we've experienced in recent-- Cashel Meagher: Yes, absolutely. Our focus is really on asset management and maintenance. I think the biggest upside that we're going to see at Pinto Valley is being able to run the mine and the plant consistently. And that means that the maintenance side of the business is going to have to give that uptime that we need. We're looking, obviously, right now into budgeting for the next year. We're looking at our position on the 5-year plan. We're looking at higher values of that, that obviously will come out with our guidance in the future. But we're a bit bullish on what we think we can do with our maintenance processes and actually bringing stability to that site. Operator: Next question comes from Craig Hutchinson from TD Bank. Craig Hutchison: Just one follow-up question, just on Pinto Valley. Can you talk to some of the strategic initiatives you guys are looking at around Pinto Valley with Copper City? There seems to be obviously a huge focus from the U.S. administration to produce domestic copper, but any updates on that front or timing around future milestones would be appreciated. Cashel Meagher: Yes. Certainly, Craig, certainly, the focus on -- by the U.S. administration on copper produced in the U.S. has been timely for us. We still anticipate the end of this year sort of being in a position whereby we can talk to our neighbors around what is the future and what does -- how is Pinto Valley involved as the only operator within the district. And so we're sort of still on time. We expect internally to be executing on that option agreement before the end of this year, and then sort of in next year, discussing what is the art of the possible within the area. So simply put, I think the industry understands that quite often cooperation with adjacent sites can produce more value for multiple companies or both companies, and that's what we're focused on. So we hope in sort of the first or second quarter of next year to have more news on what we can expect out of the future of Pinto Valley. Operator: Next question is from Adam Baker from Macquarie. Adam Baker: Just maybe a quick follow-up to that question before. Just wondering if you've had any engagement with BHP, or is that something that you're working through internally with relation to copper cities. This is just on the back of Mike Henry being in the United States recently, meeting Donald Trump. It appears that BHP is turning a lot more positive on some of the legacy assets in Arizona. Cashel Meagher: Yes. Adam, thanks. Certainly, again, there's a lot of focus on U.S. copper. There's a lot of focus on domestic refinement. There's a lot of focus on the endowment of resources that exists in the American Southwest. And what I would say is within our district of Globe Miami, we're the principal producer. We're the only ones with a sulfide plant. We do have a large resource. We have 1 billion tonnes at Pinto Valley. So we do have right now in our technical report, a mine life out to 2039 or 2038, and we do have opportunity to expand that out beyond 2050. But we're working with our neighbors to understand if there's more value to be had there. And so what I'll say is a few years ago, we did announce that we went into an option agreement on Copper Cities to be able to evaluate how the 2 assets might work together to create more copper. And that remains sort of on target, and that work remains in progress. And what I can say is if something materializes from that work, we think we'd be in a position to talk about that maybe in the first half of next year. Adam Baker: And congrats on getting the deal done at Santo Domingo. Just wondering now that you've done the deal, you mentioned the pathway through the project financing route. Is there any room to bring in a third partner into the JV now that the sell-down has been complete? Just trying to think of this in context of some of the preexisting infrastructure, which is in the region, ports, et cetera. Cashel Meagher: Yes. I think most avenues are on the table. Certainly, there is a possibility of that to bring in a third partner to be able to access maybe infrastructure that can enhance the value overall of the project. So we really haven't taken any sort of avenue of engagement off the table. Operator: Next question is from Anita Soni from CIBC World Market. Anita Soni: So just one quick follow-up on Mantoverde. I just wanted to close the loop on the expectations for Q4. 30,000 tonnes of copper -- sorry, 35,000 tonnes of throughput on -- for the quarter. And then in terms of the grade, I think you guys had mentioned 0.81% in October. Is that kind of the expectation for the remainder of the quarter as well? And then 91% recovery rates. Is that also the expectation? Or is it somewhat lower than that? Cashel Meagher: Anita, like Jim sort of was explaining, we're probably in October, what our target was -- originally, our target before these interruptions with the motors was we would push beyond 32,000 tonnes a day because we had the permit to do so. And what we're really hoping for was a good run rate through Q4, such that we could establish a good guidance while we perform the necessary works at Mantoverde Optimize to take us to the end of the year where we would ramp up to 45,000 tonnes a day exiting 2026. So the way I sort of characterize it is we're somewhere between 3/4 and 2/3 of that 30,000 tonnes a day through October, but with the ambition to be up around 34,000, 35,000 through November and December is the way we look at it. As far as the grade goes, I think we trend -- I think the 0.81 isn't sustainable through the whole area, but high 0.7, low 0.8 is sort of where we'll average out most likely for Q4. Operator: Next question is from Marcio Farid from Goldman Sachs. Marcio Farid Filho: Just a quick follow-up, maybe on Mantoverde's cost expectations into the fourth quarter. I think the guidance is to be on the high end of the cost. So far this year, I think performance has been better than expected, and maybe mostly on stronger byproducts as well. So just wondering it's -- how should we think about costs going into the fourth quarter? I know the ramp-up in terms of throughput might not be as strong as otherwise expected because of the month of February. But just it seems like the guidance is conservative at this point. Just wondering if there's anything else to be considered into fourth quarter. Cashel Meagher: Marcio, yes, basically, I think the way we look at it, consolidated-wise as a company, we're sort of mid- to high on the cost guidance where we see ourselves by the end of the year. And certainly, Q3, obviously, was a little higher cost, but we expect Q4 to improve on that throughout the balance of Q4. So as I sort of stated, probably because of the denominator being a little lower in October. But with things trending the right way now for November and December, we can do a little better in Q4 than we did in Q3 with respect to Mantoverde's costs. Marcio Farid Filho: And just a quick follow-up on Pinto Valley. Obviously, Mark Scott has been appointed as General Manager recently. It seems like the water issues are or can be expected to be resolved. Anything else in terms of operational turnaround that can be expected at Pinto Valley to improve the overall cost position there? What are -- what is Mark's kind of target going forward now? Cashel Meagher: Yes. I think the way we sort of look at Pinto Valley, it's very much denominator-driven. Our ambition this year was to run the asset at 52,000 tonnes a day, and we sort of ran into that sort of drought situation. And the way I always look at the asset is the asset on an instantaneous basis, can process ore at 62,000 tonnes a day. We have 6 mills. And if we're running all 6 mills pull out, that's what it is. Due to the age of the asset, what would be suggested best-in-class is 90% utilization. So the best that asset can do when operating sustainably is about 56,000 tonnes a day. So Mark's ambition is over the next year to 1.5 years, move it from what we're currently doing 50,000 tonnes a day to 56,000 tonnes a day. So that's with the asset as it is. There are other improvement projects and items we're reviewing from our mines technical services group to enhance the opportunity for future production or production increases. But right now, the focus is on, as Jim mentioned, the asset management framework, which will allow the availability of the plant such that the ore can be delivered. And the other is a management operating system that Mark is bringing to the platform to be able to get more efficient work out of his maintenance group, out of his operating group and therefore, just be more operationally efficient and deliver on that operational excellence such that we can use that capacity that exists between the 50,000, 56,000, and it's not all maintenance. Some of it is the water, as Jim discussed. And the combination of the 2, we believe, will allow us to deliver the full potential out of Pinto Valley over the balance of the next year or so. Operator: I'd now like to turn the call back over to Cashel Meagher for final closing comments. Cashel Meagher: Thank you, operator. We look forward to updating you in February with our Q4 results. Until then, stay safe and feel free to reach out to Daniel, Michael or Claire, if you have further questions. Thank you for your continued support, and have a great day. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
Operator: Good afternoon. My name is Julieanne, and I will be your conference operator today. At this time, I would like to welcome everyone to Reddit's Q3 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Jesse Rose, Head of Investor Relations. You may begin your conference. Jesse Rose: Hi, everyone. Welcome to Reddit's Third Quarter 2025 Earnings Call. Joining me are Steve Huffman, Reddit's Co-Founder and CEO; Jen Wong, Reddit's COO; and Drew Vollero, Reddit's CFO. I'd like to remind you that our remarks today will include forward-looking statements, and actual results may vary. Information concerning risks and other factors that could cause these results to vary is included in our SEC filings. These forward-looking statements represent our outlook only as of the date of this call, and we undertake no obligation to update any forward-looking statements. During this call, we will discuss both GAAP and non-GAAP financials. Reconciliation of GAAP to non-GAAP financials can be found in our letter to shareholders. Our third quarter letter to shareholders and earnings press release are available on our Investor Relations website and Investor Relations subreddit. And now I'll turn the call over to Steve. Steven Huffman: Thanks, Jesse. Hi, everyone. Thank you for joining our earnings call. Q3 was a strong quarter for Reddit with differentiated results and solid execution across product, growth and revenue. We ended the quarter with 116 million DAUq and 444 million WAUq, both growing around 20% year-over-year. We're especially encouraged by the mix of growth with organic product-led improvements and successful marketing both playing a role. This balance is working, and we're focused on replicating it across markets. Revenue came in at $585 million, up 68% year-over-year, and our financial model is scaling very well. We continue to be GAAP profitable with a net income of $163 million and a net margin of 28%, an improvement of $133 million from last year. This quarter, we achieved a targeted adjusted EBITDA margin of 40%, which was a profitability goal we set at our IPO just last year. Today, Reddit is the #3 most visited site in the U.S. per Semrush, October 2025. That puts us in a rare company. YouTube is #2 and Amazon is #4 and reflects how Reddit is where people start, not just where they end up. People come here to find trusted perspectives to participate in communities that share their interests, no matter how niche or mainstream, and increasingly to engage directly with brands, institutions and publishers. In September, we launched new Reddit Pro tools tailored for publishers. Early adopters like the Associated Press can now sync their feeds, automatically import articles, track how their stories are shared and use AI-powered tools to find the right communities. Our consumer product strategy continues to focus on making Reddit easier to use and more rewarding from day 1, so casual users become daily users. They're already coming to Reddit. Now it's on us to make the experience worth coming back for by being more relevant and intuitive. To that end, we're making real progress across the 3 main focus areas we shared last quarter: core product, search and internationalization. Let's start with the core product. We're redesigning the Reddit experience with a more modern search-forward interface and streamlining onboarding so it's easier for new users to find what they're looking for with a dynamic personalized home feed. We're also helping more people contribute to their favorite communities by using AI to interpret subreddit rules and surface post insights. On the moderation side, we're investing in tools that help mods grow and strengthen their communities. These tools are now live in over 3,000 communities, which are seeing 30% more active moderators on average. Moderators aren't just enforcing rules. They're shaping culture, building communities and helping Reddit thrive. Our job is to give them the tools to do it more efficiently. Next, search. Search is one of our biggest opportunities because Reddit conversations are uniquely authentic, contextual and helpful. This is why we're investing in making Reddit a true search destination. In Q3, over 75 million people searched on Reddit weekly, and that number continues to rise. Reddit Answers provides users with curated community-powered insights that are often more helpful than traditional web results. We started integrating Reddit Answers into core search, increasing its visibility across conversations and rolling out to non-English languages. Our aim is to have a single great search experience on Reddit. And third, internationalization. Our international growth continues to accelerate. Machine translation is available in 30 languages, and it's a major driver of top-of-funnel growth outside the U.S. We've built a local content framework to identify top interests in each country, which we use to guide partnerships, content and marketing. This approach worked well in India, and now we're applying it in Australia, Brazil, Germany and France. We're focused on finishing the year strong and putting our strategy for 2026 in motion. Looking ahead, our biggest priorities are: growing app users by improving the experience and therefore retention; broadening the types of users and communities that call Reddit Home, both in the U.S. and globally; increasing top-of-funnel growth by diversifying the sources of traffic, including organic, paid and publisher-driven; and, of course, scaling monetization and ad formats for our users and partners. Reddit is in a unique position. We're not trying to be the next anything. We're focused on being the best version of ourselves and what the Internet needs most, a place where people can connect on almost any topic and find genuinely useful information because no matter what you're going through, someone on Reddit has already been there, done that and shared the story. Thank you for being a part of this journey. I'll now hand it over to Jen to walk through the business in more detail. Jennifer Wong: Thanks, Steve. Good afternoon, everyone. I'd like to start by building on what Steve mentioned about our consumer product strategy. We're excited about the opportunity to meaningfully grow our user base, both in the U.S. and internationally. And as we refine our strategies, our consumer product road map is focusing more intently on the Reddit app. This is where we can build direct, high-engagement relationships, which are most valuable to both our users and our business. The app can be more personalized, have easier onboarding and incorporate search more consistently. These kinds of changes can impact user retention, increase returns on marketing and help us better convert web users into the app. We're also working on expanding our users, communities and contribution across Reddit. We recently introduced tools focused specifically on publishers to help them share content and engage organically on Reddit through Reddit Pro. Now moving to monetization. In the third quarter, we demonstrated continued growth and strong execution with total revenue reaching $585 million, up 68% year-over-year. Our unique proposition and ad platform improvements delivered differentiated growth and positive outcomes for advertisers. The advertising business grew 74% year-over-year in Q3, reaching $549 million, and the growth was driven by broad-based strength across the business as we continue to expand existing relationships, acquire new customers and diversify our advertiser base. The total active advertiser count expanded by over 75% year-over-year in Q3 as we added new accounts across all channels, including large mid-market and SMB businesses. Now moving to our ad stack. Our strategy is focused on making all businesses successful on Reddit by driving performance of our ad solutions, improving usability for users and productivity for our sales force and offering our advertisers and partners Reddit-unique solutions and ad formats. We made meaningful progress against each of these areas in Q3. First, ongoing investments in our ad models and formats are driving greater performance and efficiency, which means better returns for advertisers. In Q3, we continued to optimize our models for lower-funnel objectives, including app installs and conversions. Model improvements to our lower-funnel app ads objective generated double-digit percentage improvements to performance outcomes and ML-driven optimizations in the lower-funnel conversion objective improved performance by over 20%. We continue to enhance our shopping solution, Dynamic Product Ads, or DPA, which launched to general availability earlier this year. We're excited by the capability and seeing ongoing improvements to performance beyond the core conversion objective. DPAs currently account for a small portion of our total lower-funnel revenue. Broader advertiser adoption remains an opportunity and as it takes a little more time and resources for clients to implement this more complex ad product. To strengthen our lower-funnel strategy, we continue to make it easier for businesses of all sizes to adopt our measurement tools, including Pixel and conversion API or CAPI. In Q3, CAPI-covered conversion revenue tripled year-over-year. Second, improving usability for advertisers and productivity for our sales force. We're investing in automation across our full ad stack to help drive adoption of our ad tools and improve performance for advertisers. For the upper funnel, we launched the beta of auto bidding, which simplifies budget management and improves efficiency, leading to over 15% more impressions and lower pricing for advertisers. In the middle and lower funnel, auto targeting is delivering strong results and adoption is growing over 50% year-over-year. We're also in early testing of our end-to-end automated campaign platform that uses AI to streamline campaign setup. It is focused on activating mid- and lower-funnel objectives and provides customers with insights on what made their campaign successful. Early results are promising with advertisers unlocking higher return on ad spend while spending less time managing campaigns. We're continuing to test the solution with a number of global advertisers across business sizes and verticals and adding new features. Third, building Reddit-unique solutions and ad formats for our advertisers. In the third quarter, we expanded access to conversation summary add-ons, a distinctive ad format that lets brands integrate positive Reddit conversations into ads. We're now testing this format with a broader set of advertisers across the funnel and seeing encouraging results with brands like Bethesda, the mid-market video game publisher, seeing 15% higher click-through rates. We're developing interactive ads built on our developer platform, allowing advertisers to create custom experiences like mini games or quizzes directly within an ad. This format is testing now and the plan -- with plans to scale more broadly next year. Finally, we're seeing momentum with our free-form ad format launched last year, which lets brands tell richer stories through multiple media types in a post that feels native to Reddit. For example, FootJoy used freeform ads to promote their new HyperFlex line of golf shoes, delivering click-through rates 100% above benchmark and time spent more than 50% above benchmark. Overall, Q3 was another strong quarter for Reddit. I'm proud of the progress and the importance -- and the improvements we're delivering for our communities and partners and excited about the opportunities ahead. Now I'll turn the call over to Drew. Andrew Vollero: Thank you, Jen, and good afternoon, everyone. Our solid Q3 results again demonstrated that financial model continues to scale well. And specifically, Reddit can be a leader in both growth and profitability. Total revenues grew 68% year-over-year, and our adjusted EBITDA margin reached 40%, passing that important profitability benchmark for the first time. The key to our financial success is continued traction across our 5 financial strategies. These strategies include: First, achieving differentiated revenue growth. Revenues grew more than 60% for the fifth consecutive quarter. Second, expanding margins. Gross margins expanded 90 basis points year-over-year to 91%, our fifth consecutive quarter of over 90%. Our adjusted EBITDA and net income margins expanded by 1,300 and 1,900 basis points year-over-year, respectively. Third, scaling profitably. GAAP net income reached $163 million and adjusted EBITDA hit $236 million, both new highs for Reddit. Our net income margin was 28%. Our incremental adjusted EBITDA margin hit 60%. Fourth, generating positive cash flow. Q3 cash flow ended at $183 million, and our free cash flow margin for the quarter was 31%. In the last 12 months, we've generated over $0.5 billion of free cash flow. Cash and cash equivalents on the balance sheet continued to build at $2.2 billion. And fifth, minimizing dilution. We continue to view stock-based compensation and dilution as business costs and manage them closely. The progress continues to be evident Total fully diluted shares outstanding were 206.1 million, down from both 206.6 million last quarter and 206.2 million last year. Similarly, stock-based compensation costs fell sequentially, both in dollars and a percent of revenue basis from 19% to 16%. I'll provide a bit more color on these headlines. First, Q3 total revenue of $585 million was driven by our advertising revenue, which grew 74% year-over-year to $549 million as we saw strength across objectives, verticals, geographies and channels. Other revenue, which includes revenue from our data licensing business, reached $36 million, up 7% year-over-year. Average revenue per user, ARPU, grew 41% year-over-year to $5.04, which is still low on an absolute basis and remains an opportunity. Regionally, revenue grew 67% and 74% year-over-year in the U.S. and internationally, respectively. In the quarter, 4 revenue drivers fueled growth. First, performance ads and brand ads had strong quarters, both growing more than 70% year-over-year. Second, impression growth remains our key driver, but we saw a tailwind from pricing in the quarter, a consistent trend so far this year as we continue to deliver value and favorable outcomes for advertisers. Third, we saw strength across the funnel with growth ranging from mid- to high double digits in the upper, middle and lower-funnel segments. And fourth, we continued to see diversified strength by verticals. We had 9 of our top 15 verticals grow revenues by 50% or more. Now moving to expenses. The growth rate in Q3 total adjusted cost was very similar to Q2. Total adjusted costs, which include both cost of revenue and OpEx, were $349 million in Q3, up 37% year-over-year, consistent with a 38% growth last quarter. Our main cost driver continues to be operating expenses, which, on an adjusted basis, were $297 million in Q3, about 85% of total adjusted expenses. Adjusted OpEx costs grew 35% in Q3, the same growth rate as Q2, close to half the growth rate of our revenue, which was 68%. Most of the increase in OpEx costs were driven by our growth investments in sales and marketing. Adjusted sales and marketing expenses were $115 million in Q3, about 20% of revenue, in line with peers. Sales and marketing investments were made in 2 key areas: first, building out our sales team; and second, brand and user marketing. Let me expand on each. First, our sales team investments are primarily adding people resources in customer-facing areas like sales, marketing and ad tech. In the quarter, the company grew total headcount about 3% sequentially, slightly more than 80 net adds with about 70% of the net hires focused in these 3 growth functions. Our investment track record continues to be very strong here with fast paybacks and investment returns multiples higher than the cost. Second, during the quarter, we continued to invest strategically in brand campaigns and user marketing to drive awareness, acquisition and engagement. Our marketing spend was aligned with creative campaigns and targeted specific growth segments. We maintained a balanced approach to investing in brand awareness and performance marketing in both the U.S. and international markets. We remain thoughtful with our Q3 spending, targeting marketing expenses in the low to mid-single digits as a percentage of revenue. We're poised to scale marketing spend where we see the traction is promising. We'll continue to invest in those areas if we see the returns are sustainable. Let me finish up the results discussion by adding a couple of other call-outs for the quarter. In Q3, our CapEx remained modest $2 million, less than 0.5% of revenue, which means both operating and free cash flow continue to move in lockstep. Net income was $163 million or $0.87 per basic share, $0.80 per diluted share, up 4 to 5x from $0.18 and $0.16 last year, respectively. So as we look ahead, we'll share our internal thoughts on revenue and adjusted EBITDA for the fourth quarter, which is where we have the greatest visibility. In the fourth quarter 2025, we estimate revenue in the range of $655 million to $665 million, representing 53% to 55% year-over-year revenue growth with a midpoint of about 54%. Adjusted EBITDA in the range of $275 million to $285 million, representing approximately 78% to 85% year-over-year growth and an adjusted EBITDA margin of 42% at the midpoint. So overall, we accomplished a lot in Q3 and the output metrics of users, revenues and margins reflect that progress. The business model remains quite powerful as we saw impressive revenue growth be converted into 90% gross margins, 60% incremental margins and now 40% adjusted EBITDA margins for the first time. That was a pre-IPO goal for Reddit and an important milepost to pass. That concludes my comments for Q3, and now we turn our attention to the seasonally important fourth quarter. Let me turn the call back over to Steve. Steven Huffman: Thanks, Drew. We'll start, as usual, with a few questions from the RDDT community, and then we'll turn it over to the rest of the call. Question one, I am impressed by the growth in international DAUq, 31% year-over-year. Can you give any detail on which countries in particular stood out for growth? Thanks for the question. We're seeing strength across a number of regions and our focus countries, in particular, France, Brazil and India. And these are some of the first countries where we launched our international playbook, which includes machine translation, which is a good driver of top-of-funnel growth, local content framework based -- a local content framework, which is based on interests and passions, marketing efforts to drive awareness and then finally, local partnerships with brands and notable people. Question two, a question about what we are doing to improve the user experience, making it easier to contribute and helping new users understand subreddit rules. So improving the onboarding experience and delivering value early in the user's journey is a top priority for us. We want them to see in their first session that Reddit is amazing and has content for them. So our goal is to connect users with relevant content very quickly. Community rules are a unique Reddit feature. So every subreddit has rules that is written by its own community and enforced by their own community. But what we're doing is we're using AI to make it easier for those user-written rules or moderator-written rules to be enforced automatically to make moderation more fun and efficient. And so that's coming along. That's out there and working nicely in many cases. And we're supporting the contribution journey, so users posting successfully using AI-powered tools like post guidance and community recommendations to, for example, tell a user before they submit a post, whether or not it violates the community rules, which has historically been a friction point for new users. Okay. Now I'll turn it over to the rest of the call for questions. Operator: [Operator Instructions] Our first question comes from Ron Josey from Citi. Ronald Josey: Steve, I wanted to ask about users and then also on product. And so can you talk to us a little bit more or talk to us a little bit more just about user growth trends here, particularly as we go into 4Q and going forward in the context, I think you said on the call, we're increasing top-of-funnel growth by diversifying traffic. So any insights on, call it, immediate term or near-term trends on traffic and more details on diversifying traffic progress? And then on Answers, now that we're embedded in search results reaching 75 million WAUs, would love to hear engagement trends from those users? Are they more -- are those users who are using Answers more engaged, asking more questions, things along those lines. Steven Huffman: Thanks, Ron. Okay. Question one, user growth trends. So as we mentioned in Q3, it's a nice balance between organic and paid. External search was basically flat. Of course, that can ebb and flow. The product initiatives, including machine translation, were the largest contributors. And our product road map, we're still working very hard through that. Marketing today is very broad, but we want to focus on growing our most valuable users in the app and improving ROI there. Looking into Q4, we exited Q3 higher than our average. So we have a head start. Beyond that, we're going to see how the quarter plays out. And thinking bigger and longer term, we're really focused on the product to drive sustainable growth. We have 190 million Americans visit Reddit every week. So the reach is there. Our aim is to increase the frequency of those visits. And that really means focusing on that first session user experience to improve retention, which compounds into growth. As for Answers, that integration is coming along nicely. Our goal there is to build a global unified and modern search experience. The community vote signals that we see on Reddit, the authenticity and trust are all differentiators in Reddit Search. We're currently handling about 20% of our search volume in Answers or in that kind of core search box, and that full integration is coming in the coming quarters. We've also expanded Reddit Answers to non-English languages very recently last week, Spanish, German, Italian, French and Portuguese. So I think lots of opportunity there. And then very high level, Search is something that many users do in their first session. And so this is a part of kind of the general onboarding and retention strategy, which is make sure that when new users run a search on Reddit, it's great results and it's differentiated, that should turn into improved retention for us, which is why it's such a priority. Operator: Our next question comes from Tom Champion from Piper Sandler. Thomas Champion: Jen, I was wondering if you could talk about Publisher Pro. Is there a revenue opportunity here? Or is this about bringing new content into the Corpus and maybe driving user engagement on Reddit. And Drew, maybe for you, curious if you could talk about user marketing, how you're approaching it domestically and in rest of world. And just curious if you intend to ramp user marketing spend going forward. Jennifer Wong: Thanks, Tom. I'll take the first one. So I think we think about Reddit Pro, first and foremost, is bringing, I think, value to the platform. So Reddit is better when we have a diverse set of users and entities and leagues and businesses and publishers add a lot of vibrancy to our community because they bring content and a lot of our communities are talking about these organizations. And so having them engage on our platform, we think, is a really -- and Reddit Pro is really positive and Reddit Pro is a way of finding -- giving them a home on Reddit from which to do that. And of course, obviously, if we have more engagement on the platform, that converts into revenue. Having Reddit Pro also allows businesses to find a home on Reddit. They can have their own profile. They have tools that allow them to find insights who's talking about their brands, et cetera, or their products. And so that is really helpful because that's -- those are potentially leads into our advertising platform. Publisher tools specifically, I think our vision there is to help those publishers be able to bring their content on to Reddit. That could be in multiple formats and text and video, et cetera. And I think we'll just increase the contribution, the content on Reddit and the vibrancy of the platform. So I think it's accretive in a lot of ways. Andrew Vollero: So on your second question on how we're thinking about the financials of it and where we're focused. Look, right now, we're in test mode. I would say that we're looking across a couple of dimensions. I would say we're top of funnel, lower funnel in terms of our spend. We're doing some brand spend at the top. We're also looking for conversion down at the bottom. I'd say we're spending in the U.S. and international markets. Right now, I've given you a couple of bread crumbs over the last couple of quarters on how much we've spend. We spend about low single-digit percent of revenue last quarter. This quarter, we're kind of low mid-single digits percent of revenue. To be honest with you, Tom, we don't have sort of a pinpoint number that we're going after. We're really, at this point, looking at that quality user. We're looking at the ROI and we're looking at the retention curves of people that we're bringing on to the platform. That's really what we're focused on. If we find an area that makes sense, we're not afraid to spend. Obviously, we have a P&L that we're continuing to show that we can both grow our business and grow it profitably. And so we do have that ability to invest. I think really right now, we're trying to understand how we can really drive that usage on our platform. And if we find an area that makes sense, we're not afraid to invest behind it. But if we don't see that, we won't be putting a ton of money behind it. So that's where we are. We're really idea driven at this point and really looking for engagement users. Over the last couple of quarters, we've been kind of consistent in that spend. It could be more than that if we move forward if we're starting to see the traction in certain markets or with certain initiatives running. Operator: Our next question comes from John Colantuoni from Jefferies. John Colantuoni: In your new marketing campaign, talk about returns and learnings so far? And maybe you could just sort of help compare how engagement for the users who come to you through performance ads compared to your existing users. And second, as you track engagement of these users acquired through performance channels, how does conversion to log in compare to overall company averages? Jennifer Wong: I can take that. Good questions. Let me start with some examples. So we do -- we've done a little bit of brand work. For example, we did a campaign in France, countries outside of the U.S. where our awareness and consideration is lower than in the U.S. because we're newer. We think we need to make some investment at the top of the funnel, very beginning of that journey. But things we like from that were the fact that we saw an increase in Reddit app installs as a result of a brand campaign, which I think is good. And we saw a movement in brand awareness and consideration, which I think was also positive and provides a foundation for performance later. Obviously, with things like that, you want to keep on being top of mind, et cetera, and that's work that you have to continue to do. But I think there are some good learnings there. I think over time, we can probably toggle how we think about brand and performance as the awareness sticks in some of those new markets outside of the U.S. So just to give you an example of the kinds of things that we're testing. On the performance side, I'd say it takes -- we've never marketed. So until recently, we really haven't spent a lot of money on marketing. And so there is some apparatus that you have to build in terms of the infrastructure for marketing and targeting, et cetera. And so the spend that we've done since we turned it on has allowed us to learn there. There's still more to learn. I think we -- what we're excited about is the opportunity to grow specific audiences. So if you look at Reddit in the U.S., for example, we have very robust content in parenting, in sports, in gaming. But yet when you look at the audiences that are available in those areas, like how many parents there are in the U.S. that could come to Reddit and have a great experience, about half of them don't even think about Reddit for parenting, only 1/4 of them are on Reddit today. It's a really big opportunity. That's both a little bit of awareness and a little bit of performance that needs to go into that. And there's a little bit of work that we're doing in thinking about the landing page experience for that. Like when we bring them in and show off that we have great parenting content, we bring them in like what do we show them first? And maybe it's a variety of different content from different communities from Daddit and Mommit and parenting, et cetera. So that's where we're really testing to see where we have the best residence for that audience. And as we go through the testing with one audience group, we want to expand to others. We see a lot of verticals where we have this opportunity. So that's kind of how we're approaching it. Operator: Our next question comes from Naved Khan from B. Riley Securities. Naved Khan: Great. Two questions for me. One, maybe just on the simplified onboarding flow. Are there any early results you can share in terms of how that effort is going? And then maybe just another one on referral traffic from AI chatbots. Just trying to understand how meaningful is that in terms of your overall traffic? And what kind of trends you're seeing there? Anything you can do specifically to improve that? Or maybe it's not necessarily very, very important to you? Steven Huffman: Great. Thanks for the questions. So on simplified onboarding, we're launching kind of a revamp of that relatively soon to get early results. I think intuitively, it makes a lot of sense. Reddit, we believe, has some of the best content on the Internet. But today, it's behind a couple of screens of interrogation before you actually get to see it. And so really streamlining that or even removing it are the things that we're putting into test shortly and making sure users are landing on feeds that are relevant to them. Jen was alluding to some of that where users are coming from specific channels with specific interest, making sure the content matches their expectations and what's going to work for them. So it's still very early there, but we're excited about where that can go. Second question on traffic from chatbots. They're not a traffic driver today. I think our relationships with the companies that we work for -- or work with directly are healthy, and we both learned a lot over the last couple of years, really the value of Reddit's data and where our respective products can go and how we can help each other. So I'm looking forward to continuing to work on these things with these partners, but they're not a major traffic driver today. But I think there's plenty of opportunity there as we continue to work together. Operator: Our next question comes from Jason Helfstein from Oppenheimer. Jason Helfstein: I'll just start with the LLM licensing. Is there any kind of color or just thoughts around progress with LLM licensing deals with both either your existing partners or non-partners? And then for those companies that you're kind of involved in lawsuits with, perhaps just share what is their logic? They think they can just take your IP without paying for it? And then just a quick follow-up. Is there any kind of deals you could do to capture identity for logged out users that would help with ad targeting, whether it's like a JV or partners? Steven Huffman: Okay. Thanks for the questions. On LLM licensing, no news to share here. Our relationships are very healthy and collaborative. As I mentioned, I think we've both learned a lot. And I think we've better identified the areas where we can mutually help each other's products and create better consumer experiences. So I'm looking forward to continuing to work through that with our partners there. But I think we're in great shape. Second, on the lawsuits, I can't add anything on that. Our complaints are worth a read. There's, I think, lots of information in there. I think you captured their logic, but I don't want to suppose it. But at the end of the day, look, our job is to protect our data for our business, for our users and for our paying partners. And finally, I think your third question was capturing identity of logged out users. Look, all of Reddit is really built around this idea of connecting users with their interests. So not necessarily what or who they are, but what they're into on Reddit. And so that's how we're different than some other platforms. We don't need to know who you are or necessarily even how old you are or other demographics because we look at your explicit interest on Reddit, right? Are you part of the skiing community, you're probably in the outdoor stuff. Are you coming from a parenting blog, you're probably a parent. And so that's generally how we think about it. And I think it's a little bit of a different model, but I think it's better for user privacy, and we can target on, I think, a unique but really powerful dimension. Operator: Our next question comes from Andrew Boone from Citizens Bank. Andrew Boone: I wanted to go back to logged-out users and talk about users that are coming in from search. Can you guys talk about the product road map of improving that experience? And then one for Jen. Jen, can you just talk about lower-funnel products that you're excited about for '26? What gets you most excited? And kind of what's the biggest near-term impact that you think investors should be thinking about? Steven Huffman: Okay. Thanks, Andrew. First question on logged out users coming in from Search. Look, our focus is on growing logged in app users. And so we do that in 2 ways. One, of course, we want to convert some of those search users into logged in, and I think there's more we can do there. I don't think that's going to be our best channel long term just because of what the user is doing. If they're running a search, they might be on the Internet to get off the Internet. But I do think we can do more there. For example, something we've been doing this year is showing those users not just the direct post they're arriving on, but also a Reddit Answers summary of the topic that that's about. And that has helped to increase engagement from those users. So there's plenty we can do there. But I actually think the biggest opportunity are the users who are opening the Reddit app for the first time. These are the users who are coming for the community and conversation product. And I think we have the biggest opportunity here to give them a better experience, improve their retention, which will obviously compound into more app growth. So that's the cohort that we care the most about. Second question, Jen, was lower-funnel products. Jennifer Wong: I think I love talking about the lower funnel, and I am excited about a lot of things. So I'll just pick 3. One is the engine automation, which we've been testing, really excited about that to make our platform easier, more accessible. I think that allows for the thousands of advertisers who aren't on Reddit today, some of them small to make it easier for them to activate and onboard on to Reddit and then allows us to deliver even more performance. We love making the impressions work harder for our customers and delivering more outcomes for them. The second is shopping. Shopping is something that we're really pleased with the results that shopping or DPA delivers. And we had a partnership with Smartly that we announced and a piece of that is also just doing work together on shopping, which we're excited about. And so feeling really optimistic of the opportunity around shopping. So that's another piece and also how shopping come alive on our platform in general. And then the third is the ongoing work we're doing in app install. We've been working on our measurement there and the attribution and this journey of becoming a SAN. And that can, I think, be very powerful in terms of measurement, making sure that advertisers see all the value we're delivering and then two, for signals that go into the ML for even stronger optimization for app install. Operator: Our next question comes from Josh Beck from Raymond James. Josh Beck: I wanted to discuss the onboarding flows a little bit. It obviously has historically had quite a few steps and quite a few kind of tiles to choose interest. I think the goal is to simplify that. I'm just kind of curious, as you've done the experimentation with the new flows, is it getting to a place where it's maybe closer to going GA? Or how should we think about maybe what you've learned so far? And how should we think about maybe the rollout there? Steven Huffman: Thanks, Josh. Great question. Yes, lots of steps. We want to get rid of those steps. I think the best pitch for Reddit is Reddit's content and making sure that first feed is amazing. And one of the big developments that we've had over the last couple of years since we released the kind of onboarding as we know it, the topic-based selection is our machine learning feed is much more capable, and it's actually the top driver of new subreddit subscriptions today. And so getting users into that feed sooner and letting the feed and the ML do the work of making good community recommendations. So we're pushing very hard here, getting some things in the test and then hopefully beyond as soon as possible because I think this is one of our biggest levers. Operator: Our next question comes from Doug Anmuth from JPMorgan. Douglas Anmuth: I apologize if this has been asked, but there's just been a lot of discussion around how Reddit shows up on search and on large language model results. Can you just help us understand how that ties to the value of your data licensing deals? Or do you view these as kind of 2 more distinct or separate items? Steven Huffman: Thanks for the question, Doug. Look, I think our relationships with the kind of search and LLM companies are multifaceted, right? Their products are different for sure. And so we look at, I think, all of the different ways that there can be a value exchange. Look, our top priority is growing the Reddit community and conversation product. so really helping our flywheel go faster. And I think looking the other direction, we can help these companies deliver kind of better search results in those moments. And so that's our attitude or that's our position in this space is how can we make -- like how can we use these relationships to grow the core Reddit product. I'd say, I guess the color commentary there is I think our relationships are as healthy and collaborative as ever. And so we're, I think, having interesting conversations on how we can help each other do this because we've learned so much over the last couple of years, I think we got into this relationship and maybe perhaps a simpler place. But now I think we mutually have much more confidence in where our products are going. And of course, I'll just remind everybody that our core business is ads, and that's really the driver of Reddit's revenue. Operator: Our next question comes from Rich Greenfield from LightShed Partners. Richard Greenfield: I guess, Steve, more than anything else, you've talked about 50% of your traffic comes direct and 50% from Google. I guess if you just think from a very high level, what are the top 3 or top 5, whatever the best number to think about is, what are the best drivers of someone becoming a Reddit app user? Like what determines that activity? Because that's obviously where you make your money and what is the biggest determinant of your success. Steven Huffman: Thanks for the question, Rich. I'd say those numbers are approximate, but pretty close. Look, the way somebody becomes a Reddit user, an app user is they install the app and they find amazing content. We see a lot of new app users every day and plenty of what we call like a reinstall or an opportunity for a reengagement every day. And so this is why I keep bringing your and our team's attention back to that first open experience and making sure there are no barriers between the user and seeing content on Reddit because the biggest driver of retention is following subreddits that are relevant to your interest. And so it's not rocket science. Now Reddit is very, very broad, and we don't always have a lot of information coming in. And so we do have to do that work. Our machine learning there has gotten much better. And then Jen was earlier describing opportunities where we know where a user is coming from, from a particular content source, whether it's a category source, so call it parenting or gaming or TV shows or whatever, to give them a tailor feed as well. And so that's really the way that we think about it. I think we have enough shots on goal here every day that improving this process will make the whole Reddit machine run much more efficiently. Operator: Our next question comes from Benjamin Black from Deutsche Bank. Benjamin Black: Great. Jen, I guess, can you talk a little bit about the operating environment you're seeing as we head into the 4Q holiday shopping season? And what assumptions have you baked into the guide from a macro perspective? And then secondly, Drew, one on margins. I guess, no good deed goes unpunished. You already hit your margin targets that you laid out at the IPO. So when we look ahead, your incremental margins are sort of hovering around the 60% range. How should we think about potentially sort of updated margin targets? Jennifer Wong: Great. I can take the first one. Look, I'd say the macros -- for us, the market feels largely stable, broadly stable, but I'd say there's low visibility. I'd say tariffs are on the minds of some of our customers. Efficiency is important. We're certainly delivering that. And we're definitely counseling our customers as they're navigating through a very dynamic environment and as they're thinking about investment across the funnel. I mean the great news is we have a full funnel offering. So we can meet their needs, I think, broadly. So I think it's broadly been stable in Q3. Andrew Vollero: Ben, on the margin side of things, you're right, that was our target, that 40% margin that we talked about. That was our North Star during the IPO. It's nice to hit it. Six quarters in. So that is something. The guide you probably picked up on in the fourth quarter is even higher than 40%. I think how we think about it is -- and the North Star is going to be something more than 40%. We're thinking that it's probably in the 50% range. That's our North Star. I think it's a couple of things are important on the day-to-day and kind of the near and mid-term. Obviously, we want margins to be higher and they will go higher. It won't be every quarter. I think that's the piece that I want to make sure that people understand here. We're really building a business, and we'll invest in things where it makes sense, right? You have a 90% gross margin, you just have the ability here to really do special things if you can get growth. And so there may be times that we'll have to invest in our business periodically. I think right now, we're doing fine and things continue to scale well. But for a North Star, I think 50% makes sense. I think in the medium term, we'll be focused on better than 40%, like that's how we'll be thinking about it. And then remember that our business won't always be that way quarter-to-quarter. We reserve the right to be strategic to grow our business. Operator: Our next question comes from Ken Gawrelski from Wells Fargo. Kenneth Gawrelski: Two, if I may, please. Two probably directed to Jen. First, could you talk about -- I mean, first, impressive expansion of the advertiser count again this quarter. Jen, can you speak to whether self-serve has become a meaningful part of that advertiser count expansion yet or when it may become meaningful? And then maybe a second one, please, probably also for you, Jen, is could you talk about how marketers may use you for GEO like generative optimization, AI optimization. Is this a major use case for your advertisers? And could you walk us through your pitch? Jennifer Wong: Sure. So on self-serve, that -- we do have self-serve today, but it's not a big part of our business. We want to have a self-serve offering, and I think the end-to-end automation work that we're doing will be a great step in that direction for more advertisers who want to operate on a self-serve basis. But it hasn't been the focus. I mean our focus is on the advertisers who really have a lot of significant budget who do want somebody to talk to some -- in a lot of cases. So they're in our managed segment, either our large customer segment, mid-market or even our managed SMB segment, where they provide some light counsel to them, and we're in like what I would call a hybrid configuration where we're kind of both hands on keyboard working together in a light way. Our strategy is to maximize the opportunity across the biggest part of the market, and that sits right now in the managed segment and to optimize like put the customer in the right service channel that maximizes their experience and their ability to spend on Reddit. So we're not religious about self-serve. I think we're really focused on the right service model for the right advertiser to be successful on the platform and get what they need. But I think self-serve is something that we're interested in as we build more automation. The second one was about optimizing for, I guess, LLMs. And look, I think Reddit's corpus of information is clearly incredibly valuable and helpful to LLMs because it's human conversation that's fresh, it's authentic. It's just distinctive. There's nothing like it. And we know that LLMs appreciate Reddit's conversation. But when marketers come to us, they're coming to us because that conversation is on Reddit and for the opportunity to find customers and engage those customers in an environment where that conversation is happening because when they're in that environment on Reddit, they're getting the engagement converting to outcomes that help them grow their business. So I don't think it's about the influence in LLM. That's a secondary product of our core amazing platform, the conversations and communities. What the marketers are getting is real value from the Reddit platform itself in terms of converting that engagement to real business outcomes for them. It just so happens that, that environment of that conversation is also appreciated by LLMs. But that environment is on Reddit. Operator: Our next question comes from Rohit Kulkarni from ROTH Capital Partners. Rohit Kulkarni: A couple of questions. One on user mix as engagement has risen and number of users have risen. Can you talk about how the mix has evolved over time over the last couple of years, maybe in terms of people who actively contribute versus we just come in there to consume or then there are those in between people who kind of amplify through voting and sharing content? And then the second is on ARPU. Any drivers on underlying ARPU growth? How much is ad load contributing to ARPU growth versus other factors? Steven Huffman: Thanks for the questions. On user mix, yes, there's been some movement there. I'd say it's in a fairly consistent range. It's something we think a lot about. We haven't talked about it much on this call. Well, we did a little bit. So our strategy around contribution is -- when we say that, we're really referring to helping new users post successfully on Reddit and eliminating like roadblocks there, one of which we're working very hard on, which is when a user shows up to Reddit and they want to contribute, but they may not be aware that there's a bunch of rules in the community they're writing to. And so we try to catch that early in the journey to give them feedback or find them other places to submit. So that's been testing very well and improving kind of the contributor mix there. And then Reddit does have multiple ways of contributing. You described a cohort of users that we colloquially call the lurkers. These are people who don't write comments, but they vote. And the voting is very important for ranking. And today on Reddit, you can't leave a comment or vote unless you're logged in. And so getting more people logged in, so this brings us back, of course, to onboarding and those flows, getting people through logged in more successfully, relevant communities more successfully, removing barriers to contribute and finding content they like to increase the voting and engagement are all things that kind of push us in the -- I think, in the healthy direction. I think there's a lot of opportunity here because there's friction at each of those steps. And then the second question, Jen, was ARPU and ad load. Jennifer Wong: Yes, sure. I can take that one on ARPU. So just a reminder, our strategy is to make every impression more valuable by delivering hard outcomes, more clicks, more conversions. In Q3, we saw eCPM grow, but the quarter had impressions grow was a bigger contributor. There are 3 components that drove the impressions. One is user engagement and then also ads and comments and then also a temporary operating point that we hadn't when we had a balancing supply and demand in ad load. Just to be -- just to address ad load directly. So our ad load overall, if you look at the fee compared to peers, is much lower than our peers. And it is not a core part of our strategy to increase ad load. Our strategy is to make every impression more valuable and to design ad units for spaces where we don't have ads like ads and comments. It is an operating point that we do use when we have supply-demand tightness to make sure that the marketplace is consistent for our advertisers. And so we did use that lever temporarily in Q3, but we turned it back. So that's kind of the contributors of impressions in the ad load. Operator: Our next question comes from Youssef Squali from Truist Securities. Robert Zeller: This is Robert on for Youssef Squali. Just one for me. It seems like new types of AI content are rising and users are also consuming more video. So just curious what Reddit's strategy is in this environment. And if you're focused on building out answers and integrating publishers, does that imply that the focus of content is still going to be predominantly text-based? Steven Huffman: Great question. So there's a couple of dimensions to this. So our very high-level positioning for Reddit in the AI era is that Reddit is for humans by humans. And so yes, there's plenty of AI content on the Internet. And -- but we want Reddit to be a place where humans talk to other humans or people talk to people about the stuff that they're interested in. Now every post on Reddit, which they can be a link, text, image, video, meme, GIF is really a prompt for conversation. So in terms of what the post is, we don't have a strong feeling there. We just want more posts, and we want to continue to expand the post types that Reddit support, so kind of evolving with the time. And developer platform, which we haven't talked much about today, is one of our big ways of doing that. So we're seeing all sorts of new posts on Reddit. Users have rebuild polls. We've got lots of games. There's stock charts, all sorts of things. But really, all of these things serve as prompts for conversation. Video on Reddit is and has been for a while, our fastest-growing content type. Even though we don't think of Reddit as a video platform, I think there's a lot of headroom for video on Reddit, both as post, which is what we see today, but also using video and then potentially down the road audio just as a means of communication. I think there is a kind of very uniquely Reddit way of doing video. One of the things that I'm very excited about is we did our first video AMA just a couple of weeks ago. So this was done by NASA, so you can find it. And in this case, NASA hosted the AMA, but all of their astronauts answered in video within the Reddit comments. I think this is a really nice way of letting people kind of like really bring their charisma to these moments. And video comment replies is kind of this interesting marriage of video to the modern content format, but in the context of a conversation as opposed to kind of the long-form, short-form influencer stuff you might see on other platforms. So we always try to think like what's the Reddit version of this content format. And I think there might be some opportunity there. And then in terms of publishers, yes, look, text isn't going anywhere. Text, you can read quietly. Again, it serves as good as anything as a prompt for conversation. Now with AI, you can turn text into audio for background listening. And so I don't think video or AI video replaces text any more than movies replaced books. Really, what happens is the content pie just keeps getting bigger and bigger, and we want to make sure everything works on Reddit. Jesse Rose: Julianne, this is Jesse. I think we're kind of bumping up in time here. So I just want to thank everyone for joining. We appreciate it. Look forward to speaking again soon. Steven Huffman: Thanks all. Jennifer Wong: Thanks, everyone. Operator: This concludes Reddit's Q3 2025 Earnings Call. You may now disconnect.
Operator: Hello, everyone, and thank you for joining us today for the LCI Industries Third Quarter Earnings Call. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is now my pleasure to hand over to your host, Lillian Etzkorn, CFO, to begin. Please go ahead. Lillian Etzkorn: Good morning, everyone, and welcome to the LCI Industries Third Quarter 2025 Conference Call. I am joined on the call today by Jason Lippert, President and CEO; along with Kip Emenhiser, VP of Finance and Treasurer. We will discuss the results for the quarter in just a moment. But first, I would like to inform you that certain statements made in today's conference call regarding LCI Industries and its operations may be considered forward-looking statements under the securities laws and involve a number of risks and uncertainties. As a result, the company cautions you that there are a number of factors, many of which are beyond the company's control, which could cause actual results and events to differ materially from those described in the forward-looking statements. These factors are discussed in our earnings release and in our Form 10-K and in other filings with the SEC. The company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements are made, except as required by law. In addition, during today's conference call, we will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available in our earnings release and investor presentation, which have been posted on the Investor Relations section of our website and are also available in our Form 8-K filed this morning with the SEC. With that, I would like to turn the call over to Jason. Jason Lippert: Thank you, Lillian, and good morning, everyone. Welcome to LCI Industries' Third Quarter 2025 Earnings Call. This quarter, we continued to build on our ongoing and successful efforts to drive efficiency and drive benefits from our years of diversification and our relentless focus on growth. To that point, we delivered an exceptionally strong quarter with sales growth of 13% to more than $1 billion, along with solid margin improvement, driven by double-digit gains across our RV and Adjacent businesses. This demonstrates the continued benefit of our innovation strategy and successful integration of our recent acquisitions. Our entire organization continues to work diligently to optimize productivity, footprint and resources, positioning the company for outperformance as the industry begins to recover from this prolonged cycle. Operating margins improved 140 basis points year-over-year to 7.3%, a direct result of our disciplined cost management, sustainable improvements in overhead and G&A, more favorable mix, footprint optimization and ongoing productivity initiatives. Year-to-date, we successfully completed 3 facility consolidations with 2 more expected by year-end. Our facility consolidation actions completed in 2025 alone are expected to generate more than $5 million in annualized savings. Collectively, these initiatives position us to deliver our 85-basis-point operating margin improvement goal for the year. On the wholesale front, following a strong Elkhart Open House, we expect a near-term uptick in units produced. Our chassis orders in October are up roughly 275 to 300 units per week compared to prior months, an encouraging sign of OEM confidence and proactive dealer restocking ahead of the next selling season. Turning to RV OEM. Net sales were approximately $470 million, up 11% year-over-year. This double-digit growth underscores the effectiveness of our innovation strategy and the strength of our competitive moat. Total content per unit increased 6% year-over-year to $5,431 as we continue to expand share across our top 5 product categories: chassis, appliances, axles and suspensions, furniture and windows. Since 2020, our total content has grown an impressive 60%. Recent innovations like the Furrion Chill Cube air conditioner, analog braking systems, 4K Window series, SunDeck and TCS suspension systems continue to gain momentum. Together, these platforms have reached a combined $225 million annualized run rate, more than doubling from $100 million just 2 quarters ago. The enthusiasm around all new products at the Elkhart Open House were tremendous, with strong OEM and dealer engagement as these new innovations showed up on many leading brands. Our ability to deliver high-impact innovation supported by our customer relationships, our expansive product portfolio, scale and manufacturing expertise positions us to consistently capture 3% to 5% organic content growth annually. We also saw some easing in product mix pressure this quarter as smaller single-axle trailers declined from the mid-20% range earlier this year to about 19%, supporting both content and margin growth. Looking ahead, we expect North American RV wholesale shipments in the 340,000 to 350,000 range for 2025. As demand returns, our focus on innovation and share growth will continue to drive solid performance. Net sales in our Adjacent or diversified businesses were $320 million, up 22% year-over-year. This strong performance reflects growth across our building products, utility trailer, transportation and marine markets. Of the total increase, approximately $39 million came from acquisitions, specifically Freedman Seating and Trans Air, where synergies are tracking well ahead of schedule. Since our acquisition of Freedman Seating, they have entered the heavy-duty bus seating market, $150 million addressable opportunity where they are already capturing orders, showcasing our ability to scale our furniture manufacturing expertise. At Trans Air, we're streamlining operations and achieving early wins consistent with our proven acquisition playbook. Subsequent to the quarter, we also expanded through the acquisition of Bigfoot Leveling in October, which broadens our hydraulic leveling system offerings and MAS Supply, which enhances our residential window capabilities, complementing our internal window lines. Utility trailer production remains healthy at around 700,000 units per year. We're accelerating content growth through innovative new products for this market like ABS, coil spring suspension and tire pressure monitoring systems, all helping to elevate our offerings in this market. We're also leveraging our manufacturing expertise to expand into high-growth sectors like OEM and aftermarket golf cart seating, an area experiencing strong growth in residential and community living markets. Collectively, LCI's total addressable market opportunity is approximately $16 billion and strategically aligned with our core manufacturing strengths. Turning to Aftermarket. Net sales were $246 million, up 7% year-over-year as our strong OEM content continues to fuel aftermarket growth. The growth in OEM content directly fuels additional revenue streams with increased demand for product enhancement and service in the aftermarket. A great example of this is our Furrion air conditioners. In 2022, our OEM share was less than 5% with virtually no aftermarket presence. Today, just 3 years later, we captured over 50% OEM market share, and we expect more than $20 million in aftermarket air conditioner sales this year. This formula is clear. OEM success and momentum drive aftermarket growth. To support our continued growth in the service portion of our Aftermarket business, we continue to invest in service infrastructure. Year-to-date, over 28,000 dealer service personnel have completed our technical training programs with thousands of in-person sessions and over 1 million visits to our online tech pages. These training efforts are driving higher quality service and strong dealer partnerships. We've also expanded our service footprint, adding 3 new facility sites in 2025 and doubling our mobile tech staff. These investments have already increased service completions by double digits, improving speed, convenience and customer satisfaction. All in all, LCI is a huge right to win in the aftermarket. LCI is one of the only players in the industry that truly touches every RV consumer as our components are present in nearly every unit on the road. That unmatched footprint fuels long-term aftermarket growth and positions us as a trusted partner across the entire life cycle of RV ownership. We're also leaning into new opportunities like upfitting solutions, allowing customers to add features like leveling and TCS if it wasn't included in their OEM packages. We are also partnering with campgrounds and storage centers to enhance service accessibility and convenience for our customers. With roughly 1 million RVs entering the service cycle over the next few years, we are exceptionally well positioned to capture recurring aftermarket demand. To meet rising demand in the aftermarket, we've recently opened a new state-of-the-art 600,000-square-foot distribution center in South Bend, Indiana. This facility further enhances our logistics capabilities, boosting speed, accuracy and overall capacity while supporting our margin performance as we transition from our older, less efficient Mishawaka location. We remain disciplined in capital allocation, maintaining our industry-leading dividend yield and executing meaningful share repurchases. Year-to-date, we have returned $215 million to shareholders with a repurchase of $129 million of stock and have paid $86 million in dividends. We have a solid balance sheet, having refinanced our convertible notes and other long-term debt earlier this year. In the third quarter, we refreshed and repriced our term loan, reducing annual interest expense by roughly $1 million and improving free cash flow. CapEx for the year is now expected to land between $45 million and $55 million, better than our prior range of $50 million to $70 million, reflecting disciplined capital project management. Looking ahead, our team's confidence continues to build given the multitude of innovation and efficiency efforts we have delivered and will continue to deliver that should result in the sustained future growth and enhanced financial performance. As we look beyond the end of the year into 2026, we expect continued 3% to 5% organic content growth from innovation and our competitive advantages, driven in part by a $225 million run rate in our top 5 product innovations, manufacturing optimization, including $5 million in annual run rate savings from 2025 consolidations and 8 to 10 additional consolidations planned for 2026, better product mix normalization as single-axle trailers decline, RV wholesale shipments to lift to 345,000 to 360,000 units in 2026 with near-term strength already evident, aftermarket tailwinds with approximately 1 million RVs entering the service cycle and exploring divestiture opportunities of approximately $75 million of revenues that are dilutive to the business in 2026. Together, we expect these targeted initiatives to lift operating margins to 7% to 8% in 2026. Most importantly, none of this will be possible without our incredible team, the dedication, resilience and commitment of our 12,000 team members remain the foundation of our success. Over the past 3 years, we have navigated through some tremendous challenges. And today, we're operating from a position of real strength, solid cash flow and balance sheet, healthy margins and strong customer sentiment. I'd also like to recognize the passing of our founder, our grandfather, Larry Lippert, whose vision, ingenuity and perseverance built this company from the ground up. His culture of grit, innovation and courage continues to define who we are today. To our teams across the globe, thank you for relentlessly serving our customers and community every day. Together, we are building a stronger, more resilient and a truly differentiated LCI Industries. I'll now turn it over to Lillian, who will provide more detail on our financial results. Lillian Etzkorn: Thank you, Jason. Lippert's innovation, competitive strengths and successful M&A supported double-digit net sales growth this quarter, while sustainable operational improvement initiatives translated into meaningful margin expansion. Our consolidated net sales for the third quarter were $1 billion, an increase of 13% from the third quarter of 2024. OEM net sales for the third quarter of 2025 were $790 million, up 15% from the same period of 2024, driven by RV OEM net sales of $470 million, which were up 11% compared to the prior-year period. This increase was a result of market share gains and an increased mix of higher content fifth-wheel units. Content per towable RV unit increased 6% year-over-year to 5,431 and content per motorized unit increased 2% year-over-year to 3,839. Towable RV organic content grew 3% year-over-year and 1% sequentially, supported by the share gains we delivered in the top product categories we supply to RV OEMs, specifically appliances, axles and suspension, chassis, furniture and windows as well as the continued adoption of recent innovations like our ABS, TCS, appliances, Furrion Chill Cube and the SunDeck. Adjacent Industries OEM net sales were $320 million, up 22% year-over-year, primarily due to acquisitions within the transportation market, which represented $39 million in the quarter. This increase was also supported by other markets such as utility trailers, where net sales grew 22% and marine, where net sales rose 9%. We continue to further expand our presence across numerous diversified markets. Aftermarket net sales were $246 million, an increase of 7% compared to the same period in 2024, primarily driven by product innovations and the expanding Camping World relationship within the RV aftermarket, partially offset by lower volumes within the automotive aftermarket. Consolidated operating profit during the third quarter was $75 million or 7.3%, a 140-basis-point expansion over the prior-year period. This growth was primarily driven by reduced costs from material sourcing strategies and increased North American RV sales volume related to market share gains and increased sales mix of higher content fifth-wheel units. The operating profit margin of the OEM segment increased significantly to 5.5% in the third quarter compared to 3.2% for the same period of 2024, primarily driven by increases in selling prices for targeted products, reduced cost from material sourcing strategies, improved fixed cost absorption and production labor efficiencies. Our Aftermarket segment delivered a 12.9% operating profit margin compared to 13.9% in the prior-year period. This change was primarily driven by higher material costs related to tariffs and higher steel, aluminum and freight costs, lower production volumes in the automotive aftermarket as a result of lower retail volumes and investments in capacity, distribution and logistics technology to support future growth. These were partially offset by our ability to increase selling prices for targeted products. Adjusted EBITDA grew 24% to $106 million compared to $85 million in the third quarter of 2024. GAAP net income in the third quarter was $62 million or $2.55 earnings per diluted share, up from $36 million or $1.39 earnings per diluted share in the prior-year period. Adjusted net income increased to $48 million, up 35% to $1.97 per diluted share, excluding loss on extinguishment of debt and gain on sale of real estate net of tax effect. Noncash depreciation and amortization was $90 million for the 9 months ended September 30, 2025, while noncash stock-based compensation expense was $17 million for the same period. We continue to anticipate depreciation and amortization in the range of $115 million to $125 million during the full year 2025. At September 30, 2025, our cash and cash equivalents balance was $200 million, up from $166 million at December 31, 2024. For the 9 months ended September 30, 2025, cash provided by operating activities was $252 million. Investing cash flows included $38 million used for capital expenditures and $103 million used for acquisitions. During the quarter, we refinanced and repriced our term loan facility, lowering interest by 25 basis points. This action strengthens our capital structure and should reduce annualized interest expense by approximately $1 million, supporting continued cash generation and balance sheet flexibility. We also continue to execute on the $300 million share repurchase program that we announced last quarter. During the quarter, we returned $38 million to shareholders through share repurchases and $29 million through our quarterly dividend of $1.15 per share. Year-to-date, we returned $215 million to shareholders in the form of dividends and share repurchases, underscoring our commitment to balanced capital allocation and shareholder returns. As of September 30, 2025, our net inventory balance was $741 million, which was about flat to prior year. At the end of the third quarter, we had outstanding net debt of $748 million or 1.9x pro forma EBITDA adjusted for the impact of noncash and other items. Looking forward, we expect October net sales of approximately $380 million, up 15% from prior year, and we anticipate mid-teens year-over-year growth for the full fourth quarter. As Jason mentioned, we project that North American RV wholesale shipments for 2025 will be in the range of 340,000 to 350,000. Margin expansion continues to run ahead of plan as well. Fourth quarter year-over-year operating margin expansion is expected to match third quarter levels. Efficiency initiatives and infrastructure optimization continue to drive these results. For example, we plan 2 more facility consolidations by year-end for a total of 5 this year. This translates to $5 million run rate in annual savings. Looking to capital allocation for the full year 2025. Capital expenditures are expected to be in the range between $45 million to $55 million, focused on business investment and innovation. We continue to use our balance sheet to prudently pursue strategic opportunities that drive profitable growth and deliver shareholder value. Our long-term leverage target remains at 1.5 to 2x net debt to EBITDA, and we remain committed to returning cash to shareholders. Our preliminary outlook for 2026 calls for North American RV wholesale shipments of approximately 345,000 to 360,000 units, and we continue to target organic towable content growth of 3% to 5% annually. From an efficiency perspective, we expect 8 to 10 additional facility consolidations and are exploring divestiture opportunities of roughly $75 million of revenue from lower-margin noncore areas in 2026. These factors, combined with identified operational improvements and further expansion of our presence in diversified markets are expected to support operating margins in the range of 7% to 8% for 2026. In closing, we are confident that our operational flexibility, strategic diversification and effective cost management, along with our strong balance sheet, will enable us to deliver sustainable and measurable shareholder value over time. With that, operator, we're ready to take questions, if you could please open the line. Thank you. Operator: [Operator Instructions] The first question comes from Daniel Moore of CJS Securities. Dan Moore: Congrats on the solid results. I want to maybe just parse out -- so in the quarter, adjusted operating margins rebounded quite a bit faster than expected. Can you maybe bucket or just rank order those improvements between leverage to higher volumes, optimization, mix? And I'm wondering if there -- if maybe tariffs didn't have quite as much of an impact as expected as well. Lillian Etzkorn: Yes. So let me, Dan. So I'll start actually with the end of your question first. I'd say from the tariff perspective, things continue to progress through the year as we had expected. And frankly, as we are foreshadowing previously, the team has done a really solid job of mitigating the tariff impact to the business, both from the resourcing, working with our vendors for options there to help drive the cost down. And then to the extent that we needed to, we've been negotiating with our customers to pass along pricing. So that definitely helped the results that we were able to effectively mitigate the tariffs. Clearly, we saw the volume uplift. We've been seeing the strength in the industries, and I say that broadly, not just the RV, but also strength in other industries as we've been moving through the quarter. And that definitely helped. And you saw as well on the RV side of the business, the content expansion as our newer products continue to be very well received. And as we are going through the model changeover and through open house, we've continued to be very successful in penetrating market share with those products. Jason Lippert: And Dan, productivity was a huge boost, too. I just to give you a quick example. I think we're down 50 team members year-to-date from the beginning of the year. And with all the acquisitions, especially the 2 large ones we did, we've added 1,000 people there. So to be up 1,000 with acquisitions, but down net 50 for the year kind of shows you the productivity gains we've experienced through some of the footprint optimization and other productivity initiatives we've been working on. Dan Moore: Really helpful. I wanted to clarify the Q4 outlook, revenue up mid-teens. Can you maybe break that down by end market a little bit? Obviously, a little bit better outlook in RV is helpful. And then on the margin side, you mentioned similar improvements year-over-year. I'm assuming that's about 150 basis points adjusted, putting us in the 4% range. Just want to make sure I'm understanding your thoughts on Q4 margin profile, Lillian. Lillian Etzkorn: Sure. So yes, I think you're getting to the right ZIP code with that in terms of that year-over-year margin expansion. In terms of more specific market clarity, I guess, best way to characterize that without getting into specific numbers, we expect to see continued strength in the RV industry as we're going through the fourth quarter. We're seeing continued strength, as Jason was commenting about in his comments around the mix of product, having less of the single-axle units and more of the fifth-wheels coming through is definitely beneficial as well from a top line perspective and for the business. Also keep in mind, as we look at the fourth quarter, that does tend to be a seasonally low time period for some parts of our business, specifically aftermarket. That's a light quarter for us and as well for international tends to be a little bit light, too. Jason Lippert: It appears that volume lift and productivity gains will help as we've mentioned. It doesn't appear that there's any downtime that would be more than normal. I mean everybody is taking off kind of normal off times during the seasonality holidays. So I think those are the biggies. Dan Moore: Really helpful. And I appreciate the color on the margin uplift from some of the divestitures and optimization steps that you continue to take. You generated a $20 million gain in the quarter. You've got 2 more facilities consolidation this year, 8 to 10 next year. Are there -- any sense for the potential proceeds and/or gains from those sales? I know they're onetime, but that could be a nice cash benefit. Jason Lippert: Some of the facilities are leased there. Some of them are owned. So to the extent we can -- we're going to fully get out of the facility and not use it for something else, then we'll certainly look to put those on the market. So there'll be probably a couple of those, but we don't have any dollars attached to those yet till we get that done. But we definitely have significant momentum in that category as we continue to really drive hard to consolidate and simplify the business. Dan Moore: Absolutely. Last, I appreciate the outlook for the RV wholesale shipments, the preliminary outlook for '26. Do you have kind of a similar outlook for marine at this stage? Lillian Etzkorn: At this stage, Dan, we don't. I think when we come out with the fourth quarter results, we'll have a more comprehensive outlook for next year. Jason Lippert: And our big opportunity in marine right now is just content growth through some of the innovation we've launched here in the last couple of quarters. Dan Moore: Got it. All right. Well, hopefully, all of the share gains that we're seeing come through, but some of that chatter to rest. Operator: The next question comes from Joe Altobello of Raymond James. Joseph Altobello: I guess first question on the industry outlook. You mentioned wholesale looks to be up modestly next year. Would you also expect retail to be up next year? Jason Lippert: I think we're kind of expecting the same -- for them to kind of stay in line as they have in the last couple of years. We're not forecasting any kind of big jump in retail at this point. Joseph Altobello: Okay. Got it. And then just in terms of the quarter, the 13% revenue growth, could you parse out how much of that was pricing related? Lillian Etzkorn: So we haven't parsed it out specifically on that, Joe. I mean it is -- there is pricing elements to that, but it's also the overall volume uplift as well and the acquisitions that we identified the $42 million. Joseph Altobello: Okay. And maybe one last one for me. You talked about the mix improving. And I know this time of the year with the model year changeover, you usually see a little bit of a richer mix of larger units. Are you seeing an improvement beyond what you would expect normally from a seasonal perspective? Jason Lippert: Well, I'd say that the mix to single-axle trailers has changed significantly over the last. It's been in process for the last 8 years or so. But I think what we've seen is the momentum slow down and start to retreat the other way in a meaningful way quarter-to-quarter. So it could change next year. It could go back up a little bit, but our expectation is that it's going to kind of stick around where it's at with all the conversations we've had with the dealer -- the dealers are driving and seeing a lot of this retail activity. There's a lot of those units out in the market. So that, I think, is one of the things that's going to hold that number down. You can only sell so many of those. So that's the short answer, Joe. Operator: The next question comes from Scott Stember of ROTH Capital. Scott Stember: Congrats on the very strong results as well. I just want to square something away with what the largest dealer indicated on their conference call yesterday, pretty much saying that they're starting to see some elasticity issues, particularly given some of the price increases that have been put through, I guess, related to tariffs. Have you seen any change or any commentary from your OEM customers of any potential change in behavior suggesting that maybe they want to pull back a little bit? Or is the comments we heard yesterday probably just more episodic or related to that dealer? Jason Lippert: Yes. I think it's a little bit to the latter, the last comment you made. I think some of that might be there. But there's definitely overall price sensitivity in the market around how much RVs have gone up. And it's really -- there's a few things going on. I think what's going to drive volume next year a little bit is the fact that suppliers, OEMs, they have reduced capacity. So there's less capacity if dealers want to get to have product in their lots for the spring selling season, they have to think about ordering a little bit differently and a little bit further ahead because some of that capacity is restricted. And then Camping World, they don't supply, I guess, every single OEM. So I mean, there's winners and losers out there in terms of the brands. The good thing about Lippert and our whole strategy, and we supply the whole market. So when you look at the Forest Rivers and the Brinkleys and the alliances, we're supplying a lot of content to those brands. So when I look at those -- the types of comments you're making, I talk to a lot of dealers, not just Camping World, and that's kind of how we're coming up with our assumptions for the next year. There's a lot of positives there. Scott Stember: Got it. Awesome. And maybe just talking about, I guess, one of the bigger components that you had to put price increases through for was steel and aluminum. And in the past, there's usually been a timing delay of when you get those prices through. It seems as if you were pretty successful in getting those through. I just want to see how this time -- if it is different than the last time that we saw steel and aluminum prices running up. Jason Lippert: Yes, nothing's really changed there. I mean those 2 commodities are the largest components of our BOMs, at least on the RV side. So they are all controlled largely by these indexes. So right now, steel is a good guy and aluminum is a bad guy. Aluminum pricing is going to be going up here for the next couple of quarters and steel pricing is starting to come down. So there'll be a little bit of offset there. There were some tariff announcements this morning that there will be some favorability. Hopefully, we don't have timing on that yet as it was just announced here in the last 24 hours. So I think the big headline for cost next year is the fact that tariffs seem to be at least settled in place where things are predictable, and we can start working on costs better, and we're going to work with our OEMs the best we can and the discipline that they've had to get real production back to make sure that we're getting them the best we can for costs and as they redo bill materials and recontent and decontent that we're a bigger part of the solution as possible. Scott Stember: Got it. And last one for me on the Aftermarket, very strong results, very resilient. I know you have a lot of traction from previous OEM introductions that you're working into the aftermarket. But just trying to get a sense of a breakdown of the business between the automotive side and the RV side. Is there a big difference in growth between the 2 right now? Jason Lippert: So the RV aftermarket for us has grown sequentially almost since we've started it 10 years ago, a little over 10 years ago. The repair and replacement service business is growing always for us because we're always putting more content in the RV. So I'll go back to the example I used in my opening remarks of we launched air conditioning. We've launched a lot of products in the last 5 years, but we launched air conditioners a few years ago, I think I said in '22, we had maybe 5% of the total OEM content, but we had no aftermarket business in ACs. And today, if you fast forward, we've got probably 50% market share OEM, which is fantastic. But now we're seeing close to -- we'll see close to $20 million in AC aftermarket business this year. So again, the point is that when we launch new products, for most of the products we launch, there's a meaningful aftermarket once we penetrate the OEM business. So we expect the aftermarket business to continue to grow, especially with the tsunami of units that were built in 2020 to 2022 that like you're going to start hitting the repair and replacement cycle here in the next couple of years. And on the auto side, we've had a lot of great success against our largest competitor, who used to be Horizon Global, went to First Brands. And if you read anything about First Brands in the last month, they've got some serious issues. So our largest competitor, we're already starting to make some huge inroads here recently just because there's a lot of uncertainty around whether that business is going to continue to exist and who's going to own it. You look at the brands they have like Reese and Fulton and Bulldog, I mean, CURT is their largest competitor. So we've got some significant upside on that part of our business as it relates to the auto pitch and trailering components. So hopefully, that's helpful, Scott. Operator: The next question comes from Tristan Thomas of BMO. Tristan Thomas-Martin: Can I confirm, I think you said $2 million from acquisitions in the quarter. And then have you quantified what you expect Bigfoot to contribute on an annual basis? Jason Lippert: We've not. It's smaller. I mean MAS and Bigfoot are less than $25 million combined. And then for the quarter on acquisitions was $30 million. Lillian Etzkorn: $42 million total. Jason Lippert: $42 million. Tristan Thomas-Martin: Okay. Great. And then for next year, how are you thinking about kind of the annualized tariff impact either on a gross or net basis or maybe both? Lillian Etzkorn: I think as we think about the tariffs for next year, really in terms of what we would expect is really a continuation of this year in terms of that mitigation. We've got the actions in place so that they're not impactful. So again, assuming that there's no changes with the global tariffs and they seem to have stabilized, I'd expect that we continue to have that full mitigation that we do presently going into next year. Jason Lippert: It should be a lot easier. Tristan Thomas-Martin: Okay. And then just one last question. How long do you think it's going to take to kind of get that single-axle versus multi-axle and fifth-wheel mix kind of back to that, call it, 84-ish percent range? Jason Lippert: It's hard to say. Camping World is doing a great job pushing that product in the market. They're the single largest producer of that type of trailer. The strategy is to get more first-time buyers in the RV lifestyle because of the price point entry on that of less than $12,000 in a lot of cases. So it's really hard to say, Tristan. But our expectation is that it will normalize. It won't go back to where it was probably 10 years ago, but we think it has a good chance of getting back into that 16% range, especially as all the people that have bought that type of unit over the last 5 years decide to -- whatever portion of them decide to re-up and buy another RV, they're going to buy a bigger one. Operator: [Operator Instructions] The next question comes from Bret Jordan of Jefferies. Charles Dipollino: This is CJ Dipollino on for Bret Jordan. I wanted to circle back to dealers real quick. Could you just give us any color into dealer sentiment and any insight into the probable timing of the restocking cycle as we move into the new year? Jason Lippert: Yes. I mean, like I said earlier, we talk to a lot of the big dealers just to try to get a feel for where everybody is at because all the dealers have a little bit different strategy, and they play in different markets. And I would just say that there is a sentiment that inventories are low. The OEMs have had good discipline, like I said earlier, that's helped keep inventories low, but dealers have been just not ordering a ton of inventory. But again, like I said, it's not just us that has simplified our footprint and optimized. I mean a lot of suppliers and OEMs have. So the capacity is less than the industry today. And I think that the dealers know that. And they're being -- they've got to be a little bit cautious on how they look at restocking and not trying to get inventory is too low because they're not going to be able to get the product when people need it for spring selling season. So I think that's why we're seeing a little bit of this. And again, our forecast is very modest for next year. 345,000 to 360,000 is not a huge lift, but every 5,000 units that get added to the wholesale production is a really big deal for us considering our content at $5,400 so -- and the innovation that's coming. Charles Dipollino: Okay. Great. And then could you just comment on trends in contenting that you're seeing? More specifically, I just want to see if the decontenting of RVs has started to stabilize. Jason Lippert: I feel it has. And again, I've always said that we're a little immune to that just from the standpoint that we tend to have a lot of the products that that customers need to differentiate their products from others. And those would be things like the Chill Cube AC that we've talked about, the bus dial, square windows that we've launched in the last 1.5 years with the different colors on the exteriors, TCS and ABS and things like that, they tend not to decontent those things. So the biggest thing that hurts us is mix when it comes to decontenting. It's just the biggest negative and content for us would be a mix shift. But like I said, we're seeing a shift to the positive at this point in time. And just another anecdotal thing I was just thinking about with the dealers. I was talking to a dealer the other day and their multisite dealer, their most popular floor plan they had or what they sell, they had 6 on the ground, which doesn't lend itself to good sales for the dealers if they don't have really popular floor plans in the right geographies. So I think that that's another reason we're seeing a little bit of positivity out there from some of the dealers that we're talking to. Operator: We currently have no further questions. I'd like to hand back to Jason for any closing remarks. Jason Lippert: Well, the last 3 years have been tough being at the bottom of the cycle, but we figured out how to peak operating performance here in the trough. We're really proud and happy with the results we've -- the solid results that we put out here in the last quarter, and I look forward to talking about that continued momentum next quarter. Thanks for the call. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Good morning, and welcome to Quanta Services Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Kip Rupp, Vice President, Investor Relations, for introductory remarks. Kip Rupp: Great. Thank you, and welcome, everyone, to the Quanta Services Third Quarter 2025 Earnings Conference Call. This morning, we issued a press release announcing our third quarter 2025 results, which can be found in the Investor Relations section of our website at quantaservices.com. This morning, we also posted our third quarter 2025 operational and financial commentary and our 2025 outlook expectation summary on Quanta's Investor Relations website. While management will make brief introductory remarks during this morning's call, the operational and financial commentary is intended to largely replace management's prepared remarks, allowing additional time for questions from the institutional investment community. Please remember that information reported on this call speaks only as of today, October 30, 2025. And therefore, you are advised that any time-sensitive information may no longer be accurate as of any replay of this call. This call will include forward-looking statements and information intended to qualify under the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995, including statements reflecting expectations, intentions, assumptions or beliefs about future events or financial performance or that do not solely relate to historical or current facts. You should not place undue reliance on these statements as they involve certain risks, uncertainties and assumptions that are difficult to predict or beyond Quanta's control, and actual results may differ materially from those expressed or implied. We will also present certain historical and forecasted non-GAAP financial measures. Reconciliations of these financial measures to their most directly comparable GAAP financial measures are included in our earnings release and operational and financial commentary. Please refer to these documents for additional information regarding our forward-looking statements and non-GAAP financial measures. Lastly, please sign up for e-mail alerts through the Investor Relations section of quantaservices.com to receive notifications of news releases and other information and follow Quanta IR and Quanta Services on the social media channels listed on our website. With that, I would like to now turn the call over to Mr. Duke Austin, Quanta's President and CEO. Duke? Earl Austin: Thanks, Kip. Good morning, everyone. Quanta delivered another quarter of strong results, achieving double-digit growth in revenue, adjusted EBITDA and adjusted EPS compared to the prior year, along with record backlog of $39.2 billion and a number of other record financial metrics. These results reflect accelerating demand in our Electric segment, robust activity across our end markets and positive momentum headed into 2026. They demonstrate the strength of our portfolio, the capability of our craft-skilled workforce and our ability to provide certainty through world-class execution as customers modernize and expand critical infrastructure. Our performance continues to be powered by Quanta's core drivers, craft-skilled labor, execution certainty, and disciplined investment, which are critical to how we operate and create long-term value. Our craft workforce remains the foundation of our business, executing with safety, quality, reliability across diverse infrastructure solutions. Execution certainty reinforces our reputation as a trusted partner capable of consistent high-quality project delivery and disciplined investment ensures capital is allocated toward opportunities that strengthen our platform, deepen customer relationships and support sustainable growth. Quanta's integrated solution-based model continues to differentiate our platform. By combining craft labor with engineering, technology and program management expertise and critical supply chain capabilities, we deliver comprehensive self-perform solutions across the full infrastructure life cycle. This approach deepens customer partnerships and positions Quanta as a long-term collaborator, not a traditional contractor. Quanta operates at the center of a fundamental transformation in the energy and infrastructure sectors. The convergence of the utility power generation, technology and large load industries is driving increased demand for resilient grids, expanded generation and storage and new infrastructure to support electrification, data centers and domestic manufacturing. These structural drivers are fueling a generational investment cycle and critical infrastructure. And Quanta's diversified scalable platform is well positioned to capitalize on these opportunities. To that end, this morning, we announced the expansion of our Total Solutions platform that builds upon our world-class craft-skilled labor capabilities and history of constructing more than 80,000 megawatts of power generation through our industry-leading renewable energy and battery energy storage solutions as well as other forms of generation. Our Total Solutions power generation platform leverages these capabilities to address growing generation and infrastructure needs due to the rapidly increasing demand for electricity from data centers, manufacturing and reshoring, industrialization, electrification and power grid expansion. This platform is focused on providing a fully integrated solution to high-quality customers for their generation development strategies. As a demonstration of this platform strength and scalability, NiSource has engaged Quanta's for a design, procurement and construction execution of generation and infrastructure resources capable of producing approximately 3 gigawatts of power for a large load customer. This project highlights the strength of our Total Solutions platform, spanning power generation, battery energy storage, transmission, substation and underground infrastructure and underscores the value of our collaborative approach and builds on our relationship with NiSource and strong presence in Indiana. We believe these announcements reinforce our strategy to lead in large converging markets where utilities, power consumers and industrial operators require scalable integrated solutions. We expect to achieve record backlog and another year of double-digit earnings per share growth in 2026. Our strategy remains focused on delivering certainty to customers, investing in talent and technology and expanding our addressable markets through disciplined strategic growth. Quanta's resilient solution-based model has performed well through varying market conditions. Our strong execution, disciplined investment and commitment to safety and quality continue to differentiate our platform and support sustainable value creation for our shareholders. I will now turn it over to Jayshree Desai, Quanta's CFO, to provide a few remarks about our results and 2025 guidance, and then we will take your questions. Jayshree? Jayshree Desai: Thanks, Duke, and good morning, everyone. This morning, we reported third quarter results with revenues of $7.6 billion, net income attributable to common stock of $339 million or $2.24 per diluted share, adjusted diluted earnings per share of $3.33 and adjusted EBITDA of $858 million. Based on our continued backlog momentum and strong revenue growth during the quarter, we are raising our full year revenue expectations to a range of $27.8 billion to $28.2 billion. We are also raising our full year free cash flow expectations to $1.5 billion at the midpoint, driven by another quarter of healthy free cash flow, which totaled $438 million. During the quarter, we issued $1.5 billion of notes to recapitalize the balance sheet and enhance our liquidity position following the acquisition of Dynamic Systems. The interest rate on these notes was approximately 40 basis points lower than our issuance in the third quarter 2024 reflecting the benefit of our recent ratings upgrade and the stability of our earnings outlook. This transaction reinforces our ability to support operations, maintain financial flexibility and deploy capital strategically while preserving our investment grade rating. Our customers continue to value Quanta's differentiated self-perform craft labor solutions, and we are expanding our platform for growth as evidenced by the power generation platform we announced today. These dynamics, coupled with another quarter of record backlog, give us confidence in our ability to drive sustained revenue and earnings growth over the coming years. As we look toward 2026, the end market momentum and our consistent execution position us to deliver another year of double-digit adjusted EPS growth and attractive returns. We believe the opportunities ahead represent the next phase of a generational investment cycle in critical infrastructure, and Quanta is well positioned to lead through it, delivering consistent performance, disciplined capital deployment and long-term value creation for our stakeholders. Additional detail and commentary on our 2025 financial guidance can be found in our operational and financial commentary and outlook expectation summary both available on our Investor Relations website. With that, we're happy to take your questions. Operator? Operator: [Operator Instructions] Our first question is from Steve Fleishman from Wolfe Research. Steven Fleishman: I will follow the rule and try to stick to one question. Yesterday, we heard from AEP talking about a potential partner for their high-voltage transmission opportunities. Maybe I'd be curious if you could comment on whether that would likely be you? And then also just how much of the kind of high voltage transmission that's being discussed in Texas, PJM is kind of already in any backlog? Or is that all mainly to come? And when might we see it? Earl Austin: Yes. Thanks, Steve. With AEP, look, they're a large customer of ours, have been for many, many years. We have great relationships there. And I do think we're collaborating on 765 capabilities and doing a lot of different things together. So I do -- there's more to come there with us. But as we sit today, none of the 765 is in our backlog. We have lots of discussions, lots of verbals. We have LNTPs, all kinds of different things, but none of that is in the backlog at this point. It's something that we're taking our time with to make sure we get it right. We're setting the resources and making sure internally that we have the training done and working with the clients on this in a collaborative manner. I do think there's opportunities for us. We've made investments in our transformer facility and done some things there collaboratively with our clients. So yes, we have a great relationship there, probably more to come, and I like our chances on the 765. Operator: Our next question is from Andy Kaplowitz from Citigroup. Andrew Kaplowitz: Duke, Jayshree, obviously, the Total Solutions platform announced today, I think, can provide a whole new driver of backlog growth. But how do you think about execution risk for these larger total solution jobs that include power generation. I don't think you ever really left power generation, but Duke, as you know, when you've focused on bigger power generation, you've had a little more variable performance. So can you get favorable terms and conditions and get comfortable? How do you protect Quanta as you enter these larger jobs? Earl Austin: Yes. I mean, great question. When we think about it, we've built 8 gigs of generation and Zachary has built 6, so 14 gigs put together. They built 100 CCGTs. So when I think about it, we put a great partnership together. We collaborated significantly with the client not only for us but for the end users, ratepayers as well as the large load customer. So I think when we look at it in a holistic manner at Total Solutions, we were able to put together what I consider derisk both sides here on cost escalations and things of that nature. We've said publicly that we're not taking risk on these kind of projects. And I think we've done a great job of working with the client here in a collaborative manner to what I consider to give the ratepayer the right cost as well as the end user, which is a large load customer the right cost. So it's really -- I think when we plan -- when we get in front of these things, we can give a total cost solution and derisk everyone in the value chain here and I think we've done that. Operator: Our next question is from Steven Fisher from UBS. Steven Fisher: So in 2019, you rolled out this Utility Services model, which reduced the reliance on larger discrete projects and focused I guess it was around 80% plus or so more on kind of Utility Services. And I think that's obviously been a very, very successful strategy. And I'm just curious how we should think about your overall strategy. I know, obviously, it's very heavily focused on being a solutions provider in this new platform. I think you would say is clearly part of providing solutions. But just curious how we should think about framing the strategy between being sort of this more base-level recurring services type strategy versus more of a discrete EPC project delivery that may be a little bit lumpier? Earl Austin: Yes. Thanks, Steve. Look, I think when you look at the company, nothing's changed. We certainly believe that craft skill is at the core. It's fungible. We'll move across different platforms from MSAs to larger projects and solve the solution-based approach to the client. We're not going to turn down because it's a large project, I mean I think that's part of this and projects are getting bigger. But we're working for clients that we work for decades. And that hasn't changed. We continue to do that. We're also discussing technology as [indiscernible]. And I do believe we're addressing that. And so our clients there, we work for decades. So as we look at both sides of this, and I would tell you that we're still around 80% of base business even with what you see today. Now we've talked about this before, I do believe you're going to get in a period where you start stacking large projects on top of that base. And I've been consistent in that. You're just now starting to see it go up. So I would expect the backlog to continue to increase. I would expect us to stack and continue to. Nor the power plant nor green belt is in our backlog and it will continue to stack. So at the larger projects, LNTPs, no 765 in there. I really like our chances of stacking this for decades or more. And we're giving long-term growth profiles. We're doing the things that we need to do to be a consistent compounding earnings platform. Operator: Our next question is from Sangita Jain from KeyBanc. Sangita Jain: So can I ask a follow-up on the JV that you announced this morning for the large load center. I'm assuming that this is mostly all your basic high voltage work that you do. But I'm wondering if there's a potential to add further scope to this with the customer itself for low-voltage electrical or mechanical work? Earl Austin: No, Sangita. This is a full CCGT. I mean it's a full build. That's -- it's a 50-50 partnership. Certainly, we have aspects of this that will perform that internally and then Zachary has aspects of this that they'll perform really well. So it's a full JV, a full turnkey project, and it's electric Scope 2. I think you'll see in the program itself with NiSource, we'll continue to see some stacking there with other things and opportunities. But in general, what you see is us building out that platform of what I consider from the CCGT 3 gigs and the batteries around it, and that's what we're building. I hope I answered your questions. Operator: Our next question is from Julien Dumoulin-Smith. Julien Dumoulin-Smith: Look, if I could follow up a little bit on this question of scope of business. Obviously, you guys are expanding into the -- more of the generation side. But how do you think about expanding more into the data center side, specifically, right? You're talking about pursuing generation here, specifically for large loads. How about getting sort of inside the house? Obviously, you guys have done a couple of acquisitions here. It would seem germane to your strategy to continue to ramp and expand the scope more directly here. How do you think about that and the rate of growth there in specifically? Earl Austin: Yes, Julien. I mean, I think we're down to a shell at this point, and that's from what I can -- you can put a slide and basically build a building. The customers and how we look at it in solution based, if they ask us to build a balance of plan or what I would say the total data center and we can build it. The MEP piece of it, we can go -- we can grade. We can do whatever is necessary. I think we'll have those opportunities. We'll probably work with a general here or there on that. But look, we're in a position where we can build basically the whole data center. We can build a generation behind it, all the way to rack. So I feel real comfortable with how we've positioned ourselves to take advantage of these opportunities. We want to go fast, one person, and we can do that. So it's also working with the client, the utility as well and how that converges, I think, is where the real opportunities for us is that convergence of generation, labor certainty and where we sit in that sphere there. So I like it that we're in front of it. And I do think we have a lot of opportunity to continue to build out scope with technology. Julien Dumoulin-Smith: Excellent. We'll hear about it grow next year maybe. Earl Austin: Yes. Operator: Our next question is from Jamie Cook from Truist Securities. Jamie Cook: Duke, I just want to build on your announcement this morning with the total solutions power generation platform and the joint venture with Zachary to build power plants. I guess just taking this a step further, this is sort of unlike you to sort of joint venture with someone. So I'm just thinking longer term, is this sort of you dipping your toe in power generation and getting more comfortable. To what degree do you think you need to do an acquisition and acquire someone to do full EPC power plants? Like is this a step in dipping your toe and then over time, you would do an acquisition so you could do everything, I guess, by yourself. Earl Austin: Yes, Jamie, I look at it like we're listening to our customer and they're asking us to expand our services. And I believe we've got the capabilities to do so. So we're working with select customers on this and long-standing customers on power generation. I do think it's a great business for the foreseeable future. Zachary was a great company, very much valued the same as us, know them well, know the family well, a great opportunity for us to work together on some things that they do better than us. And we have the capabilities internally to do everything so do they. We felt like this was a great venue for us in Indiana to work together to build this plan. Risk is always concerning me in these combined cycles. And I believe we've done a nice job here of working collaborative with the client. So I feel real comfortable with that. Yes, we can expand here. It can be a large, what I consider, opportunity for the company, and we'll take advantage of it. But in select cases, I'm not going to get pressured to go sign up 10 combined cycles. It's just not who we are and we'll make sure that we limit ourselves to strategic partners and people that will collaborate with us on a total solution. This is a large program. It's very much a solution for us. And I think we've done it the right way with the JV to mitigate some risk for the client and ourselves. So I think it's a smart way to kind of for us to go into Indiana and other places, other kind of machines, we would look at it differently. But for this one, this was a great opportunity for us. And I think what we've leveraged our capabilities along with Zachary is to have a complete solution for the client. Operator: Our next question is from Ati Modak from Goldman Sachs. Ati Modak: I'm just wondering, as you think about the JV opportunities in general, is there a way to think about the dollar value of the project, maybe on a gigawatt basis or whatever way you would like to guide us? And what's the view on the total market opportunity that you have for CCGTs as it stands today? And what is a reasonable market share for you longer term? Earl Austin: I think how to look at the JV is just kind of -- when we think about our portion of it, it's -- the whole thing is similar to SunZia. I mean I think that's how you have to look at this and how we're looking at it, we have half the CCGT, but on the other side of that, Quanta doing direct with other opportunities there with battery and other things. So I think I would look at it like a SunZia from that standpoint and from our revenue base. Although the JV will be half, we're 50-50 on that, and Jayshree can walk through the accounting, but it's 50-50. And as far as the market, look, I wouldn't get it all lathered up that we're going to go after all the CCGTs that are out there. That's not who we are. We're really going to -- we're focused on our customers and in certain programs and where it can be more a total solution, much like what you've seen with NiSource in Indiana. We want that total solution. We're not going to -- if it's a one-off, I do not believe you'll see us in that arena unless we can -- unless it makes total sense, but I doubt it. So I think we're going to be extremely selective here on how we go to market with combined cycles. Operator: Our next question is from Nick Amicucci from Evercore. Nicholas Amicucci: I just wanted to kind of touch upon. So just given kind of the massively increased demand for natural gas as the feed fuel. I mean, have you guys been having some conversations? Obviously, the pipeline business is kind of -- it was targeted to be down this year. Just kind of thinking about the available infrastructure currently within the United States and then the need -- the inevitable need for some more. Just wanted to get a sense of are people starting to talk about that? Or is it still very early innings? Earl Austin: No. I mean I think we have probably a conversation every day about a piece of pipe. When I think about it, I wouldn't -- when I go into next year, it's $500 million. That's what we're going to guide. And we're not going to -- unless we have book work against it, we're not going to get ourselves in a position where that's something that the company is focused on, and we'll build it. We certainly see it. We have great customers there. It will be selective. The risk profiles and everything else on a large diameter pipe, and it's lumpy. We're trying to be a compounder of earnings and give good guidance for multi years and decades in fact. So it's hard to do when you're with lumpiness of big pipe. It's just not us. And so I think, yes, we can build billions in pipe. It's just a matter if the client needs us to do it, and we'll have to do it in a way that we can derisk ourselves. I don't like the weather risk and that risk, a bunch of different things there. If we can derisk ourselves, we'll build it all day. And I do think the opportunity is there. It's a good market, and certainly, you can see it. It's still tough at the state level in permitting. We're not past that yet. Operator: Our next question is Ameet Thakkar from BMO. Ameet Thakkar: On one of your earnings supplements, I think kind of said that your solar and storage backlog increased pretty significantly versus last quarter. I was just wondering if you guys could provide a little bit more color on how much did it increase? And then what do you guys see as the kind of drivers of that? Is that more from the legislative and safe harbor certainty? Or is this kind of just more follow-through from kind of the power demand environment that's out there? Earl Austin: Our renewable business hasn't let up. We said it last quarter, I'll say it again. It's just LNTPs that are coming into FNTPs. Nothing new. I think we're growing the business. Obviously, power is in need. And if you can build it faster with renewables and batteries, that's what's happening. The fastest thing in the market right now is we'll be all encompassing in power and generation. The fact that we put in this, what I consider, as total solution now, it will continue. And I think backlog in the renewables side has been great. The inbounds are great. And I don't think it's pull-in, I think it's just the normal course. And we're seeing a nice market there. We continue to see it. Battery storage business is fantastic. We're happy with where we sit in the market. And now that we can provide a larger solution, I think it's great. And you'll continue to see us follow our customers. I mean if you look at our bigger customers and look at what they're saying, I think we're right there in front of them or right there with them. And it's important to us to be able to say yes to a customer app when they ask us to do something and they ask us to go with them that we can say yes and have the capabilities to do so. The 67,000, 68,000 employees we have out there, they're fungible in many ways that we can move them around. We have to do a great job up here of making sure that we have, what I consider, the end markets to move to, and we can be more selective and we have been. So that renewable piece is a part of it. We're building a lot of renewables in Indiana. And so that same workforce will move over and do some CCGT work. So I just think we're extremely fungible. We're happy with where we sit. And backlog was broad-based, and we had not put the bigger projects in it. Operator: Our next question is from Justin Hauke from Robert W. Baird. Justin Hauke: Great. I guess I just wanted to build on Jamie's question. The thing, I guess, you guys have always self-performed so much of your work and that's sort of a way that you've mitigated risk. And so just with the joint venture, maybe you can clarify kind of what's in your wheelhouse that you'll be doing and what's in Zachary's in terms of the combined cycle gas plants. And then also just on the margin profile. I know you're not looking to do kind of discrete one-off plants. But I guess, how we would think about it is historically, the margins on those have been a little bit lower than the grid work just because the utilities, the ROEs are lower on that CapEx versus the spend on grid with some of the adders. So anything different from the margin profile on the work that would be coming in on that? So kind of those are the questions. Earl Austin: Yes. As far as who's performing what, I mean both of us can perform total solutions. So I think they're better at certain things than we are. And we'll make sure from an engineering standpoint, they certainly have the engineering staff and the capabilities there, so the front end side of it, the back end side of it makes a lot of sense for Zachary. And then, of course, we'll balance each other across the plant, whether it's internal subcontract, how we decide to do it. But we're capable of doing the whole thing. I think what the right answer is, how do we -- we continue to use local content in Indiana. We have a great presence there. We'll work with the client on that to make sure that we're pulling in local content into the state as well as we have offices there. We can self-perform all the mechanical, we can self-perform all the electric, basically can do it all. I just -- it's kind of a '27, '28 build with the ramp in '28 -- '27, '28, and we'll just have to see where we're at there. But -- and we have all those capabilities internally. We'll just balance each other there. As far as margin profile, I would tell you it's at parity or better in the segment. Operator: Our next question is from Phil Shen from ROTH Capital. Philip Shen: I know you haven't given guidance for '26. But as we wind down '25, can you share what the growth trajectory for organic growth might look like for '26? Perhaps comments on the different outlook for Electric Infrastructure and UUI. If you can't take that, perhaps you can comment on the margin profile, the expanded total solutions platform compared to the current electric power margins. Is the deal with NiSource margin accretive or in line with current run rate? Earl Austin: It's in line or accretive on the first -- on the last question. As far as guidance and where we're at, I mean, look on '25, we're right in line. I see some say $10 million or one way or the other on $2.8 billion. I wouldn't get worked up about it. We hit it down the middle and I think we've taken into account a lot of things and giving conservative guidance. More importantly, when we look at guidance, I mean, I'm looking in '28, '29, what we're saying, we floored it at 10% and kind of 15% EPS -- adjusted EPS at the midpoint, given all levers of the balance sheet and 20% is what we've done. So I don't know -- I think I've given you 5-year guidance as far as I'm concerned, outward. And so I don't -- that's the guidance. And it will be somewhere in there when we go to the Street. Operator: Our next question is from Chad Dillard from Bernstein. Charles Albert Dillard: So a big picture question for you guys. So over the medium and long term, how do you think the power industry evolves to serve large load customers like data centers? Is it [indiscernible] model like we're seeing with NiSource? Is it behind the meter? Is it traditional grid connection? I know it's a combination of all the above, but I would love to get a sense for like how you think that mix evolves? And then I guess, secondly, when it comes to the JV just announced, how do we think about the contract structure, and just like how you guys are thinking about bidding? Is it competitive? Is it open book? Any color on that would be helpful. Earl Austin: I mean I think it's all of the above when you look at these things. Some of it, we're certain on. We don't have any issues with. We can -- as long as we can scope it and feel good about it, we're happy to have lump sum on things. It doesn't -- we can do that. But if it's stuff that we don't understand. we'll derisk ourselves. You can expect that. I mean I've said it publicly, we're not going to take risk on these larger projects with our labor and our labor force and everything we have for certainty, it's not the right answer for the client. And so I think us working together preplanning early and upfront is extremely important for us when we look at the future of how we build things, especially today. Operator: Our next question is from Sherif El-Sabbahy from Bank of America. Sherif El-Sabbahy: I just wanted to touch on M&A a bit. Just as your backlog builds on multiyear demand, would you ever consider shifting your M&A focus to complement your craft labor pool by acquiring smaller service providers? Or do you feel that the steps you've taken internally to grow the labor pool are able to match the workload that you want to take on in the coming years? Earl Austin: Yes. I mean we don't buy for capacity. We never have a strategy totally. And so when we think about it, we're filling a strategic gap, you could expect us to do so. I think we've done a nice job with that. We've stayed in front of vertical supply chain. We don't talk about that much, but I think we've done a really nice job of our vertical supply chain and what we can do with that. We continue to add there. I think we have probably 10 projects ongoing that are enhancing our vertical supply chain that doesn't get talked about. And so we're going to -- from our standpoint, we're filling the needs of the solution-based approach for our clients. And we'll continue to do so. We're adding fabrication. We're adding just about everywhere, but it's all strategic around the client. And look, I would say we're ahead in that, and we'll continue to buy great family companies and make huge difference in how we think about it. The culture and the company means so much more than anything else. And then we start there and then does it fit the strategies next and then the financials will be after. But as far as I'm concerned, we pay a nice, what I consider, multiple for a great company. And you've seen us go from civil to transformers to other things. They all have a purpose and they all have a strategy. We'll continue to leverage that strategy as we move forward in great markets that we have with technology and utilities. Operator: Our next question is from Brent Thielman from D.A. Davidson. Brent Thielman: A bit of a follow-on to that last question. But when you look across this sort of massive craft workforce you've accumulated here, are there trades in particular where you see real scarcity such that it's actually somewhat of a limiting factor to our growth? The growth has been good, obviously. And maybe where you're especially focused on sort of recruiting talented folks out there? Earl Austin: Yes. I think we've added about 6,000 with acquisitions this year, a little over, quarter -- year-over-year. So when you think about it, I mean, we've invested in that craft-skilled workforce in our colleges and our campuses and everything we've done [ via ] curriculum. We can move that curriculum into all phases of craft. Now I mean we're early in our technology piece, Cupertino acquisition was a great platform. That inside wireman like as far as I'm concerned, is scarce, it's probably where you see scarcity. We've been able to add fabrication. We continue to add premanufacturing, let's call it, premanufactured products that are allowing us to scale it. But I think that's probably when I think through it, we'll continue to beef that program up and add faster to our inside wireman. And now we're in plumbing, mechanical all kinds of trades there from our mechanical business. So that's next, and we'll continue to add curriculum. Some kids don't want to get in the air. And some of these businesses are more local than others. So on our high voltage, we travel, we can't -- they're starting to do more of that on the inside, but it was predominantly local. So we have to build these locals much, much stronger. And you'll see us do that. You'll see us add there. But in general, I would tell you the inside piece of it and the mechanical piece, we're early. So that's where the gap is for us and try to enhance that as quick as possible. Operator: Our next question is from Mike Dudas from Vertical Research Partners. Michael Dudas: Duke, given the extraordinary demand you're seeing and the tightness in capacity, are your customers starting to recognize they need to secure your time, your MSA, your resources at a more quicker rate? And does that lead to maybe better scale and execution on margins as we move forward? And maybe an ancillary to that, any concern on how the industry is going to pay for all this capacity that's coming through, certainly living in New Jersey, we've been seeing a lot of issues on rates going up, et cetera. Just wanted to get your thoughts on how that's plays through as you're talking to utilities and your developers? Earl Austin: Yes. I mean I think affordability is always an issue. Fuel is a big piece of the bill, I mean, 60%, and interest. Interest going down, you got to look at your fuel as well. And so that's -- those 2 are big pieces of a bill. Now I do think you're going to see large transmission get built and things of that nature, PJM is [ sharing ] infrastructure. So there's different models out there. But I'll go back to -- I think if you look at technology and look at where the loads coming, you haven't built the transmission line in the United States, it's not NPV-positive, number one. Number two, generation the more generation, you can see it with the NiSource example, where the ratepayer is actually benefiting from the load. Those models are out there. And I do think technology is going to pay their way. So you're seeing utilities and technology come together for what I think is the benefit of the ratepayer here. And it's taken a little bit of time. But as that goes forward, look, we all have to be prudent and watch the affordability piece of this, but the NPV on the other side of it is a downward trajectory. So I like what I see. I think we'll get there, and you'll see a positive effect to the ratepayer. We all have to be cognizant of. Operator: Our next question is from Alex Rygiel from Texas Capital Securities. Alexander Rygiel: Nuclear power is gaining momentum here. Can you talk about how Quanta might get involved in that? Earl Austin: Yes. I mean, look, as long as we don't have to go behind that, what I would consider [ NERC-fence and the nuc-fence ], we're good. I mean I think once you get behind there, we have to derisk ourselves and think hard about it. It's not something that the company is jumping up and down to take a risk on. So we're always around the edges on things. And I think as long as we can do the things that we know how to do and stay out of the nuclear fence, we feel real comfortable that we're not the reactor person, and we're not the person inside the fence. There's a lot of ancillary things we can do and will do. But once we cross the line of that fence, it's not us. Operator: Our next question is from Brian Brophy from Stifel, Nicolaus. Brian Brophy: Just following up on the NiSource project. Curious if you can comment on whether that is structured as a cost plus or a fixed price project. I would assume it's fixed price, but I think you've alluded to in the past, potentially structuring those on a cost-plus basis to derisk it. Just curious if you can provide any color. Earl Austin: Yes. I mean, we're not going to get involved in what kind of contract structure we have. But I would just say, look, I'll stand by my comments previously that the company on these type of projects are not -- we're not going to take certain kinds of risk on them. And so I feel comfortable with where we sit there. I feel comfortable with the conduct. And I can look everyone, all the investors in the eyes and say, everything I've said about risk on a combined cycle, we have not taken that. So I'm happy with where we sit, happy with the contract structure that it's a collaborative structure with the client that allows both to come out in a way that we can derisk both of ourselves and give the right answer to the ratepayer as well as a large load customer. So I like where it sits. I'm not going to get into exactly what the structure looks like. Abbey did a great job there, and I'm extremely pleased with where we sit. And we have a great offering with Zachary built 100 plants and ourselves have built 8 gigs of generation. I'm super happy with how we sit in Indiana and what we're doing there for the local economy. It's a great partnership with NiSource. I hope it continues and it should. Operator: Our next question is from Maheep Mandloi from Mizuho Securities. Maheep Mandloi: Maybe just one question on the JV and maybe this is for Jayshree. Can you just talk about the accounting here? It seems like 50-50 JV and NiSource talked about like a $6 billion, $7 billion CapEx. Could we assume that $3 billion coming to some backlog here? And in terms of the rev rec, could you share that? Or how to think about that here? Earl Austin: I think the backlog will be incremental on that. So you can -- I would tell you, the larger piece to that is air permits. It will hit second half of next year, that will come into backlog. And you should look at our piece of it similar to SunZia, how it kind of stacked up, and that's how we look at the thing. And then as far as the combined cycle, it's 50-50. Jayshree Desai: Yes. And the accounting on that, as we said, will be proportional. So we'll just -- the income statement will reflect our share of that work on -- from the revenue all the way down to the profit and balance sheet as well. Earl Austin: There's parts of the it with the battery and things like that are straight to Quanta and parts of it that are part of the JV. Jayshree Desai: Yes. And just to make sure that, as Duke said earlier, we -- the backlog will reflect as the work progresses. So we're in LNTP phase now. We'll move forward in those things. As Duke mentioned, there's an air permit that has to get -- has to be obtained middle of next year. That's when it really hits FNTP. So you can expect most of the revenue pickup. And as Duke was saying, it starts in the back half of '26 and really more into '27 and '28. Earl Austin: Yes. There won't be anything meaningful -- I mean as far as going to construction or revenues in '26. Jayshree Desai: Correct. Operator: Our next question is from Adam Thalhimer from Thompson, Davis. Adam Thalhimer: Guys, nice quarter. Jayshree Desai: Thank you. Adam Thalhimer: If you can comment on the Dynamic acquisition, how the integration is going? What kind of demand you're seeing generally in Texas? And what would be your appetite for more mechanical construction acquisitions? Earl Austin: I mean I think we're extremely pleased with the acquisition. We bought a great family business, long-standing, everything that we thought, we do it 10 times over. I feel like as far as how it's integrated with our offering now, I mean the inbounds and what we can do certainly picked up on the mechanical side. We're addressing and investing them. We can do a lot from fabrication. They already had large facilities and broad-based service offering. So we'll expand it very quickly, much like we've done with Cupertino and Blattner. So I think you can see that type of expansion with DSI. As far as mechanical, look, it's trades -- as long as it fits the profiles and the trades, we would look at it. It's something we're starting. We'll work with DSI to look at opportunities as they come in. Nothing imminent, but we'll continue to look at that offering. I like the business. It's obviously -- we have peers there, and they've done a really nice job. They're ahead of us, but we're catching up pretty quick. And I like where we're going. Operator: Next from Joe Osha from Guggenheim Partners. Joseph Osha: Lots of talk about combined cycle gas. I'm a little curious, we hear a lot about single cycle going inside the fence alongside some of these big data centers to complement [ grid ] scale renewables. I'm wondering if that's perhaps part of the work that you're seeing or perhaps contemplating. Earl Austin: Yes. I mean we said that before. I mean when we started putting this group together, it was really around the single cycle. So we felt like that was something right down the road for us. But it's led to where we're at today and having more of a total solution to it. But we have a nice group that we're looking at it all. I mean, I think it's important for us not only for the technology or the large load customer on the other side, but the utility as well and how we interface that and speed this process up. Everyone right now is around speed. And I think we can provide a unique solution with the moat around the utility and helping both sides of this. So like I said, it comes together at generation and craft skill, which we check both boxes and the certainty thereof. And can we move faster with single cycles? It's speed to market, whether it's solar, batteries, single cycle, the combined cycle lead times, if you have the engines, just all those things matter here. It's a race. And I think in general, for generation, and we're right in the middle of it. So I'm pleased with where we sit. Operator: Our last question is from Laura Maher from B. Riley. Laura Maher: My question is, are there -- the utility seeing any regulatory pushback to fund T&D growth? Earl Austin: I mean I think you would see affordability issues that are in certain places. But most of the commissions are really as long as it's a positive to the ratepayer. And like I said, I mean, most transmissions NPV positive. Every commission is different and every state is different, so they approach it in different ways. But for the most part, I mean, everyone the need for infrastructure is there, and we want a modern, robust grid. I mean, in order to have an economy that we see today, the grid has to be modern. And not only are we seeing these new projects, but just you still have an ongoing -- I mean, we performed very nicely for 3 decades in negative load growth. And that business is still there. I mean we still have to operate these systems. And so you have that ongoing with the load in front of it, and it's broad-based. So I think the commissions we're there to serve, and we're going to make sure that the affordability of the ratepayer is there as an industry and everyone is cognizant of that. And fuel, how do you purchase fuel, your fuel source, taking risk on larger projects. I mean, I think everyone is looking at risk on the outer years in stranded assets, all kinds of different things that you can get into. And that's why you've seen the pace be a little slower with technology because they want to make sure that the stranded assets are not at the ratepayer. But as you see, I believe the models are there that will move much faster now that the models are in place to solidify the fact that the ratepayer benefits in most cases. Operator: Thank you. We have no further questions at this time. I will turn the call back over to management for closing remarks. Earl Austin: I want to thank the 68,176 men and women in the field who make these calls possible and our field leadership who continue to make us look good. And thank you for participating in our conference call. We appreciate your questions and your ongoing interest in Quanta Services. Thank you. This concludes our call.
Operator: Ladies and gentlemen, good day, and thank you for standing by. Welcome to TAL Education Group's Fiscal 2026 Second Quarter Earnings Conference Call. [Operator Instructions] Please be informed that today's conference is being recorded. I'd now like to hand the conference over to Ms. Fang Liu, Investor Relations Director. Thank you. Please go ahead. Fang Liu: Thank you all for joining us today for TAL Education Group's Second Quarter Fiscal Year 2026 Earnings Conference Call. The earnings release was distributed earlier today, and you may find a copy on the company's IR website or through the newswire. During this call, you will hear from Mr. Alex Peng, President and Chief Financial Officer, and Mr. Jackson Ding, Deputy Chief Financial Officer. Following the prepared remarks, Mr. Peng and Mr. Ding will be available to answer your questions. Before we continue, please note that today's discussions will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC. For more information about these risks and uncertainties, please refer to our filings with the SEC. Also, our earnings release and this call include discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures. I would like to turn the call over to Mr. Alex Peng. Alex, please go ahead. Zhuangzhuang Peng: Thank you, Fang, and thank all of you for participating in today's conference call. Over the past years, our focus has been on driving the holistic development of our students. We have consistently invested in products and service enhancements to deliver a quality learning experience while integrating cutting-edge technologies to fuel innovation and advanced learning models. These initiatives have built a solid foundation for our long-term sustainable growth. While we are encouraged by this momentum, we recognize the dynamic and competitive landscape. The learning devices market faces escalating competition, and AI-driven learning products continue to reshape education at an unprecedented pace. In navigating these opportunities, we embrace a long-term approach aimed at fortifying our competitive moats and ensuring sustained value creation for both our users and the society. Building our business is analogous to nurturing a tree. It demands patience, long-term commitment, and careful cultivation. Because some of our strategic initiatives are still in early stages, they require ongoing investment. Consequently, we may face occasional variability and limited visibility in our financial performance due to seasonal demand shifts, competitive pressures, and deliberate resource reallocation. While these factors may cause short-term fluctuations, we remain focused on building the long-term capabilities needed to seize the opportunities in the market. I will now provide detailed updates, starting with our second quarter FY 2026 performance. Our learning services achieved growth this quarter with both our off-line Peiyou programs and online enrichment offerings increasing year-over-year. This underscores our commitment to providing quality learning experiences while expanding our operational capacity. We are continuing to take a disciplined approach in managing our Peiyou learning center network, focusing on long-term sustainability. We evaluate factors such as local market demand, user acceptance of our products, and our operational capabilities and efficiency to ensure service quality. The effectiveness of this approach is reflected in the positive user feedback and key operating metrics such as retention rates. For online enrichment learning, we continuously optimize our services and expand our offerings by launching new programs tailored to diverse user groups. These initiatives aim to provide engaging and interactive experiences, improve learning outcomes, and ultimately create value for our users. At the same time, we've embraced a technology-focused approach to adapt to the evolving market landscape of the online learning sector. Guided by our strategic objectives, we've continued to integrate updated features like interactive sessions, personalized guidance, and real-time feedback to improve user engagement. These enhancements have made the learning experience more immersive and effective. The positive feedback we've received from both students and parents has underscored the value of our technology-focused approach. Alongside our learning, we are advancing our content solutions. Learning devices are a key component of the strategy, offering potential for integrating AI technology into education. Enhancing product capabilities is essential for developing this business. In response to a fast-changing and highly competitive market, we're continuously refining our product design, innovating functionality, and expanding our offerings. We're also dynamically adjusting our business strategies to maintain agile and well-positioned in the sector. Several months ago, we expanded our product portfolio by launching 3 new models of learning devices. This expansion has allowed us to reach a broader user base while delivering tailored solutions to meet their individual needs. Building on these efforts and strategies, this quarter, our learning device business grew its revenue on both a year-over-year and a sequential basis. By helping students learn well in class, practice well after class, and read well beyond class, our learning devices aim to motivate students to unlock their learning potential while fostering holistic development. Our content solutions have evolved into a diversified portfolio that encompasses learning devices, print and digital books and other content-based physical products and digital resources. This integrated ecosystem reflects our core mission of bringing quality learning resources to a wider audience, overcoming geographical and temporal limitations and narrowing the gap in access to education. Our ultimate goal is to empower learners to achieve their personal development objectives. So, with that overview, I'd like to turn to our financial performance for the quarter. Our net revenues were USD 861.4 million or RMB 6,180.4 million for the quarter, representing year-over-year increases of 39.1% and 38.1% in U.S. dollar and RMB terms, respectively. Our non-GAAP income from operations and non-GAAP net income attributable to TAL for the quarter were USD 107.8 million and USD 135.8 million, respectively. Now I'll hand the call over to Jackson, who will provide an update on the operational advancements we made in our core businesses. He will also review our financial performance for the second fiscal quarter. Jackson, over to you. Jackson Ding: Thank you, Alex. I'm pleased to share some details on progress we made in the second fiscal quarter across our core businesses. Please note that all financial data for the quarter are unaudited. During the second fiscal quarter, Peiyou small class enrichment programs continued its development path. Its year-over-year growth was fueled by higher enrollments, which were supported by the continued expansion of our offline learning center network. In terms of learning center expansion, we have maintained a dynamic and methodical approach. We struck a balance that allowed us to meet the demand during the summer vacation period while maintaining teaching quality, business sustainability and operational efficiency. By prioritizing the overall health of the business, Peiyou small class maintained its steady performance. As Alex mentioned, we're adopting a technology-driven approach to enhance our online enrichment learning programs. Our main goal is to boost user motivation, deepen engagement and improve the overall learning experience by integrating smart interactive features tailored to online learning habits. To that end, we have introduced a series of new initiatives that integrate technology into our in-class and out-class learning. For instance, we have created immersive online classrooms with role playing experiences in which students can take on roles such as class helper or subject representative. By empowering students with classroom management responsibilities, their engagement and interaction within the classroom have improved. In some of our humanities programs, we have used AI to bring to life over 100 historical authors, enabling students to interact with AI-powered versions of these figures. This allows students to gain a deeper understanding of the authors historical backgrounds and literacy contributions. We have also created AI-powered companion cartoons to assist with ad class exercises, making the learning process a more enjoyable experience. These initiatives have all been well received by our users. Looking ahead, we'll continue to enhance engagement tools and invest in content, products and services to meet the evolving needs of online learning. Next, I'd like to talk about our learning device business. Our goal is to empower users on their self-learning journeys by offering a wide selection of products with advanced smart features and comprehensive learning resources. To meet our users' diverse needs, we have expanded our product portfolio, introducing new models at various price points since 2023 that have gained market traction. This quarter, our learning devices delivered revenue and sales volume growth on both a year-over-year and a sequential basis. In June 2025, we officially launched AI Think 101, an interactive step-by-step tutoring AI companion for our learning devices that enables a seamless interaction between the screen-based and paper-based learning experience. Supported by an advanced camera system and AI technology, it is able to recognize questions, evaluate answers and dynamically adjust explanations in a timely manner to help students master problem-solving methods and provide support in various learning scenarios. Since its launch, learning device models equipped with AI Think 101 have been well received by users. In August 2025, the China Academy of Information and Communications Technology evaluated educational AI agents and awarded AI Thinking 101, the industry's highest rating Level 4. This recognition further established its position as an innovator of educational agents. Our continued focus on improving product capabilities has contributed to progress in our learning device business. As our product portfolios and user base have expanded, key engagement metrics such as weekly active rates and average weekly usage time have remained stable and healthy. This quarter, the average weekly active rate amongst all learning device users was approximately 80% and average daily usage time per active device exceeded an hour. The above concludes the operational update. Now I'd like to walk you through our key financial results for the second fiscal quarter. Our net revenues were USD 861.4 million or RMB 680.4 million, an increase of 39.1% and 38.1% year-over-year in U.S. dollar and RMB terms, respectively. Cost of revenues increased by 36.8% to USD 370.3 million from USD 270.6 million in the second quarter of fiscal year 2025. Non-GAAP cost of revenues, which excludes share-based compensation expenses, increased by 37.6% to USD 369.8 million from USD 268.8 million in the second quarter of fiscal year 2025. Gross profit increased in the second quarter of fiscal 2026, rising by 40.8% year-over-year to USD 491.0 million from USD 348.7 million for the same period last year. Gross margin increased to 57.0% from 56.3% for the same period last year. Selling and marketing expenses for the quarter were USD 267.3 million, representing an increase of 46.9% from USD 181.9 million for the same period last year. Non-GAAP selling and marketing expenses, which excludes share-based compensation expenses, increased by 48.6% to USD 264.4 million from USD 177.9 million for the same period last year. Non-GAAP selling and marketing expenses as a percentage of total net revenues increased from 28.7% to 30.7% year-over-year. General and administrative expenses increased by 8% to USD 129.1 million from USD 119.5 million in the same period of last year. Non-GAAP general and administrative expenses, which excludes share-based compensation costs, increased by 11.5% year-over-year to USD 120.8 million from USD 108.3 million for the same period of last year. Non-GAAP general and administrative expenses as a percentage of total net revenues decreased from 17.5% to 14.0% year-over-year. Total share-based compensation expenses allocated to related operating costs and expenses decreased by 30.5% to USD 11.8 million in the second quarter of fiscal year 2026 from USD 16.9 million in the same period of last year. Income from operations was USD 96.1 million in the second quarter of fiscal year 2026 compared with an income from operations of USD 47.6 million in the same period last year. Non-GAAP income from operations, which excludes share-based compensation expenses, was USD 107.8 million compared with a non-GAAP income from operations of USD 64.5 million in the same period last year. Net income attributable to TAL was USD 124.1 million in the second quarter of fiscal year 2026 compared to net income attributable to TAL of USD 57.4 million in the same period last year. Non-GAAP net income attributable to TAL, which excludes share-based compensation expenses, was USD 135.8 million compared to a non-GAAP net income attributable to TAL of USD 74.3 million in the same period last year. Moving on to our balance sheet. As of August 31, 2025, we had USD 1,542.2 million in cash and cash equivalents, USD 1,706.6 million in short-term investments and USD 239.2 million in current and noncurrent restricted cash. Our deferred revenue balance was USD 822.7 million as of the end of second fiscal quarter. Now turning to our cash flow statement. Net cash used in operating activities for the second quarter of fiscal year 2026 was USD 58.1 million. Finally, I would like to briefly address our share repurchase program. In July 2025, the company's Board of Directors authorized a new share repurchase program. Under the program, the company may spend up to approximately USD 600 million to purchase its common shares over the next 12 months. Between July 31 and October 29, 2025, the company has repurchased approximately 4.2 million common shares at an aggregate consideration of approximately USD 134.7 million. That concludes the financial section. I will now hand the call back to Alex to briefly update you on our business outlook and strategic priorities. Alex, please go ahead. Zhuangzhuang Peng: Thanks, Jackson. I'd like to share some thoughts on our outlook for the company's future development. The fiscal third quarter is generally not a peak season for enrichment learning demand, so we may experience fluctuations in our business performance due to seasonal factors. Nevertheless, we remain dedicated to driving sustainable long-term growth across all our business lines. Looking ahead, we'll continue to enhance our products and services to support students' holistic development. Our goal is to serve a broader user base while adhering to the quality standards for both our enrichment learning programs and content solutions. To achieve this, we are making continued investments in content and technology. This investment will fuel innovation and position us to meet the evolving needs of our users in the long-term. In addition, we are committed to exploring and building diverse sales channels to drive growth in our core business. In today's highly connected world, integrating online and offline user engagement is more crucial than ever. Offline touch points remain essential for fostering meaningful interactions with users. While we have established offline communication in learning services, newer areas such as the learning device business are still in the nascent stages. It is, therefore, essential that we strengthen our go-to-market capabilities in this area, which will take time and continued investment. Regarding our future financial performance outlook, as we've emphasized in recent quarters, our primary objective remains achieving sustainable long-term growth rather than focusing solely on short-term financial results. Accordingly, we will continue prioritizing resource allocation to critical areas aligned with our long-term strategic goals. We're committed to exploring expansion and innovation opportunities within our core businesses to enhance our competitiveness. To execute these strategies effectively, we will maintain flexibility in resource allocation, carefully considering factors such as business dynamics, product cycles, market conditions, seasonality, and organizational capabilities. These adjustments may result in financial performance fluctuations, with some peers exceeding or falling short of market expectations. Indeed, in recent quarters, we have experienced margin compression as we seed the new initiatives and scale emerging opportunities. Conversely, we've also seen periods of outperformance as these investments matured. This variability underscores our intentional focus on sustainable growth over short-term optimization while also reflecting limited visibility into near-term financial performance. Despite these dynamics, our commitment to long-term growth remains unwavering, particularly in the K-12 learning sector. Our ultimate goal is to deliver transformative learning solutions that empower students in their holistic development. So that concludes my prepared remarks. Operator, I think we're now ready to open the call for questions. Operator: [Operator Instructions] We will now take our first question from the line of Timothy Zhao from Goldman Sachs. Timothy Zhao: My question is regarding the Peiyou offline enrichment business. Just wondering if management can share with us some updates on the market dynamics and also the competitive landscape for this business. And also, could you offer some color on the second quarter performance, and also the expansion in the offline learning centers and offline business? So, for example, have you offered any discounts or promotions during the summer? And also looking ahead, just wondering if you can provide us with a growth outlook for the overall enrichment business for the offline business. Zhuangzhuang Peng: Thanks, Timothy. This is Alex. Let me take this one on. It's a multipart question. So, let me try to unpack that and address each component of that question, right? So, first of all, in the offline Peiyou market, we've really observed steady growth in our Peiyou enrichment programs. I think that mirrors learners' increasing interest in them. As with any market during its development, competition is inevitable. The offline small class enrichment learning market, if we define it like that, offline small class enrichment learning market, really, it's notably more fragmented than many other consumer or services markets, making it somewhat challenging to accurately assess the total market size and demand. So, to remain competitive in this fragmented landscape, the key really lies in developing high-quality products and services, which are supported by solid performance metrics. While we continue to monitor the broader trends and dynamics of the enrichment learning market, our primary focus really remains on strengthening our product capabilities to better meet the needs of learners and deliver long-term value. So, with regard to our performance in the second quarter, revenue for Peiyou offline enrichment programs has grown largely in line with our learning center footprint. For network expansion, we maintain the same operational approach as before. I think as I mentioned during the prepared remarks, we evaluated several key factors such as our organizational capability and efficiency, regional market demand, and user acceptance of our products. This quarter, we saw a moderate increase in offline enrichment learning centers. Given our disciplined approach to expansion, I think we are satisfied really with the overall health of the business. Regarding summer class pricing, the ASP of our summer courses remained stable really compared with the same period last year. And lastly, I think you asked for the outlook. So, looking ahead, we'll continue to prioritize sustainability and healthy growth over scale in our approach to expanding offline learning centers. As we open new centers, maintaining consistent service quality and efficiency is really critical. Given that scaling requires broader service coverage while upholding high-quality service, we expect Peiyou's year-over-year revenue growth to gradually taper off. So, Timothy, I hope that answered your question. Timothy Zhao: Congrats on the very solid results this quarter. Operator: We'll take our next question from the line of Felix Liu from UBS. Felix Liu: Congratulations on the very strong quarter. I have a few questions on the learning device business. Can management share some color on the business performance, especially on the sales volume and pricing for the devices? For your newly launched products, what are the user feedback so far and the product's overall performance? On the P&L side of this segment, are there notable differences in margins across various pricing points? And looking ahead, how does management see the competition landscape for learning devices? Zhuangzhuang Peng: Thanks, Felix. This is Alex again. Let me take on this. So, let's start with the performance of our learning devices business in the past quarter, right? So, for the past quarter, sales volumes increased year-over-year and quarter-over-quarter, I think primarily due to our product and channel efforts. On the other hand, we do note that the blended ASP declined both sequentially and year-over-year, mainly due to changes in the product mix, right? So let me add some color to this. In May, so a few months ago, we launched3 new models, the P4, the S4 and the T4, right? So, these target different price tiers. These products were well received, driving year-on-year sales growth. The sequential growth also benefited from Q2 seasonal strength. In terms of ASP, the blended ASP declined below RMB 4,000, and that really reflects the shift in the product mix. So, from a financial perspective, the BOM, the bill of materials cost ratios for our learning devices across different price points, I think that really remained stable in Q2. At the P&L level, our learning devices still incurred an adjusted operating loss. We'll continue to allocate resources to this line of business as ensuring our long-term competitiveness remains a key priority, right? So quarterly bottom line fluctuations are expected given market dynamics, given competition and the resource allocation point that I've been making. So, this focus, I'd like to add, is really critical in today's competitive smart education hardware landscape. You see major players continue to launch compelling learning tablet products. In addition, AI-driven learning products are reshaping education at an unprecedented pace. While we leverage our K-12 focused high-quality content, and continuously enhance product excellence and AI capabilities, really building hardware expertise and channels expertise, those require foundational level efforts, right? So rather than prioritizing short-term profitability, we remain like really focused on key areas that drive long-term competitiveness, things like user feedback, market share, brand influence and broader user engagement. We think the strategy really ensures a solid foundation for sustainable long-term growth. Based on our content solutions, including learning devices, books and other early initiatives, we'll continue to invest so that more students can access affordable, high-quality learning content and tools. Our goal really is to leverage technological innovation and quality content to reach a broader audience and provide meaningful value to society. So, Felix, I hope that answers your question. Operator: The next question comes from the line of Liping Zhao from CICC. Liping Zhao: Regarding your Q2 financial performance, I'm wondering, could you please provide a breakdown of top line growth and bottom line performance across different business lines? And how do we think about the trend for these business lines, for example, in Q3 or the second half of this fiscal year? Jackson Ding: Thank you, Liping. This is Jackson. Let me take this one. Let me start with the top line and then move on to the bottom line. So, on the top line, we expect year-over-year revenue growth of Peiyou small class to gradually taper off. This moderation really reflects a more normalized growth rate and will result in a measured pace of capacity expansion. As for learning devices, the business achieved year-over-year and quarter-over-quarter growth in Q2. However, please note that this business is still in its early stage. It is essential for fostering meaningful customer engagement, expanding our user base and encouraging broader adoption. We remain committed to driving business development, though performance may fluctuate due to market conditions, product cycles, seasonality and amongst other factors. From a broader perspective, we believe the company's growth and development depending on the value it creates for its users and the society as a whole. This principle underpins every aspect of our business, big and small. We view revenue growth at the company and industry levels as a result of continuous innovation, greater organizational capabilities and stronger operational execution. Now let's turn to the bottom line. As previously noted, we have established a presence across multiple business lines, including various learning -- enrichment learning programs, learning devices and other content solutions businesses. Notably, these businesses are at different stages of development, each with distinct priorities. On one hand, our Peiyou small class enrichment learning business has reached a more mature stage, delivering relatively stable profit margins. On the other hand, regarding our new initiatives such as learning devices, as we mentioned earlier that we prioritize long-term competitiveness over short-term profitability with a focus on operational metrics such as user feedback, market share, brand influence and broader user reach. At this stage, the timeline to achieve profitability of the learning device business remains uncertain. We will continue to invest in this area through new product launches, content enrichment, developing AI-powered experiences and making ongoing optimizations to drive performance improvements. Therefore, the company's overall margin profile reflects the mix of mature and emerging businesses, making it challenging to generalizing future margin trends. I would also like to mention that Q2 is typically a peak season for us in terms of profitability, and we should not expect this level of profit margins in the next couple of quarters to come. Liping, I hope that answers your question. Operator: Our next question comes from the line of Elsie Sheng from CLSA. Yiran Sheng: Congratulations on the strong results. My question is on the plan of allocation in cash because we noted that following the launch of the new share repurchase plan, you have repurchased about 4.2 million common shares. So, could you provide an outlook on the pace of share repurchase for the rest of the year? Jackson Ding: Thank you, Elsie. This is Jackson. I'll take this one. Let me share some updates on our capital allocation plans. As of August 31, 2025, the company held approximately USD 3.5 billion in cash and cash equivalents, short-term investments and restricted cash. We have always taken a prudent and balanced approach to capital allocation. We carefully evaluate potential uses of cash, striving to strike the balance between short-term needs and long-term development. Regarding shareholder returns, we launched our first USD 1 billion share repurchase program in April 2021, later extending it through 2025. In July 2025, that program was nearly completed, and we announced a new USD 600 million repurchase program. Between July 31st and October 29, 2025, the company has repurchased 4.2 million common shares for a total consideration of USD 134.7 million. We will continue to execute the program in line with market conditions and may or may not utilize the full authorization over the next 12 months. Looking ahead, we take a long-term perspective, we're making strategic investments to promote sustainable and healthy growth. We'll maintain steady investments in content, learning devices and other new initiatives as we believe these efforts will create long-term value for shareholders. Backed by our cash position, we're confident in our ability to fund business expansion while delivering returns to shareholders. As we drive business development, we will also remain attentive to shareholder interests. The specific level of shareholder returns will be comprehensively evaluated and periodically adjusted, taking into account dynamic factors such as market conditions, investment opportunities, business outlook and capital allocation priorities. We will provide timely and appropriate disclosures to ensure investors are well informed on this matter. Elsie, I hope that answers your question. Operator: We have reached the end of the question-and-answer session. Thank you all very much for your questions. I'll now turn the conference back to the management team for closing comments. Zhuangzhuang Peng: So again, thanks to everyone for joining us today, and we look forward to seeing you all next quarter. Thanks. Bye-bye. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Operator: Good morning. My name is Adam, and I will be your conference facilitator today. Thank you for standing by, and welcome to the Janus Henderson Group Third Quarter 2025 Results Briefing. [Operator Instructions] In today's conference call, certain matters discussed may constitute forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements due to a number of factors, including, but not limited to, those described in the forward-looking statements and Risk Factors sections of the company's most recent Form 10-K and other more recent filings made with the SEC. Janus Henderson assumes no obligation to update any forward-looking statements made during the call. Thank you. Now, it is my pleasure to introduce Mr. Ali Dibadj, Chief Executive Officer of Janus Henderson. Mr. Dibadj, you may begin your conference. Ali Dibadj: Welcome, everyone, and thank you for joining us today on Janus Henderson's Third Quarter 2025 Earnings Call. I'm Ali Dibadj. I'm joined by our CFO, Roger Thompson. Before discussing the quarterly results, I wanted to comment briefly on the nonbinding proposal submitted by Trian, a 20.6% shareholder of Janus Henderson and General Catalyst, a growth venture capital firm earlier this week to acquire all outstanding ordinary shares of Janus Henderson that Trian does not already own or control. The Board of Directors has appointed a special committee, which will carefully consider the proposal. The company appreciates the history of constructive engagement with Trian since they first disclosed their investment in Janus Henderson in October 2020. We also appreciate the proposal desire for continuity for Janus Henderson's clients and other stakeholders. The offer will be evaluated by the special committee, and there is no assurance that any definitive agreement will result from the proposal without any transaction will be consummated. Janus Henderson does not intend to comment further about the proposal unless and until it deems further disclosure is appropriate. In the interim, and as always, our focus continues to be helping clients define and achieve superior financial outcomes and to deliver desired results for our clients, shareholders, employees and all our stakeholders. As you can understand, our remarks on this call must be focused on the quarterly results and progress across the business. And we ask that during Q&A, questions be limited to the business results. Now, turning to the quarterly results, where I'll start with some thoughts on the quarter before handing it over to Roger to run through the results in more detail. After Roger's comments, I'll provide an update on our progress in private markets and how we are meeting the evolving needs of our clients and their clients. We'll then take your questions on the quarterly results following our prepared remarks. Turning to Slide 2. Janus Henderson delivered another good set of quarterly results, building upon tangible momentum in the business. Results reflect the sixth consecutive quarter of positive net flows delivered by dedicated client groups, market gains, solid investment performance produced by world-class investment professionals and the efforts and productivity from all operating and support areas. Longer-term investment performance is consistently solid with over 60% of assets beating respective benchmarks on a 3-, 5- and 10-year basis. Against peers, long-term investment performance is even stronger with over 70% of AUM in the top 2 Morningstar quartiles across the 3-, 5-, 10-year time periods. Assets under management of $483.8 billion increased 6% over the prior quarter and compared to a year ago, AUM has increased 27%. September AUM is our highest quarterly figure ever at nearly $0.5 trillion in AUM. Switching to flows. The third quarter marked our sixth consecutive quarter of positive net flows and represented a 7% organic growth rate. Positive net flow results demonstrates our truly global distribution footprint and the broad range of strategies and vehicles we offer. Moving to our financial results, which remain solid. Adjusted diluted EPS of $1.09 is 20% higher compared to the same period a year ago. Our financial performance and strong balance sheet continue to provide us the flexibility to invest in the business, both organically and inorganically and return cash to shareholders. On Slide 3, I want to provide an update on progress being made in the business. We continue to be in the execution phase of our strategic vision, which consists of 3 pillars: protect and grow our core businesses, amplify our strengths not fully leveraged and diversify where clients give us the right to win. In Protect & Grow, we are actively upskilling and utilizing data, people and process best practices across the organization to drive market share improvement and diversification of organic growth across regions and strategies. For example, in the third quarter, there were 21 strategies that each had at least $100 million of net inflows. This compares to 11 strategies just a year ago. These 21 strategies reflect a broad range of capabilities and vehicles across Protect & Grow and Amplify strategic efforts, including 6 ETFs, 6 equity strategies, the fully tokenized Janus Henderson [indiscernible] AAA CLO fund, regional fixed income strategies, absolute return, Victory Park Capital's Asset Backed opportunistic credit fund and Privacore within our alternatives businesses and the adaptive capital preservation strategy within multi-asset. Under Amplify itself, we also announced a partnership with CNO Financial Group for providing long-term capital, which we believe will further accelerate the growth of Vicky Park Capital and expand and scale its investment capabilities for the benefits of our clients. With CNO and Guardian, we now have almost $50 billion in very long-term capital or roughly 10% of our overall AUM. We also continue to leverage our investment expertise through the launches of active ETFs that allow us to cater to client demands globally. During the third quarter in the U.S., we launched our Asset Backed securities ETF, JABS or JABS, and the global artificial intelligence ETF, JHAI. In Europe, we launched our transformational growth equity EUFIT ETF, JTXX, complementing our U.S. launch of transformational growth equity, JXX. Within the diversified pillar, we announced the successful first closing of a non-U.S. direct lending vehicle by our emerging markets private investment team. I'll talk more about the VPC partnership with CNO and our emerging markets private investment team later in the presentation. Along with executing our strategic vision, we are making progress in other areas of the business. As I mentioned, we delivered several consecutive quarters of positive net flows and delivered market share gains in key regions, which demonstrates that we are on the path to delivering consistent growth over the long term. In addition to the net flows this quarter, importantly, Janus Henderson also generated positive organic net new revenue growth in the third quarter. Fee pressures are persistent in this industry and not all AUMs created equally. We're pleased with that result. Elsewhere in the business, we've made the strategic decision to transition our investment management system to Aladdin. This multiyear transition is expected to deliver a more scalable operating model through consistent and integrated technology infrastructure and investment management platform. Transitions of this nature are not uncommon in our industry, and we expect this transition will deliver enhanced services to our funds and our clients and enable strategic growth. Our focus is on making this transition seamless for our clients, maintaining the consistent level of service they expect from us. While we anticipate an approximately 1% increase in adjusted operating costs for 2026 and 2027 from this transition, all else equal, in 2028 and beyond, we expect this transition to deliver ongoing operational improvements and efficiencies and an attractive ROI. We'll provide an update on 2026 expense expectations, including the net impact of this shift in ongoing costs on the next quarter's earnings call. Shifting to capital stewardship. Our solid financial results and cash flow generation, along with a strong and stable balance sheet has enabled us to return nearly $130 million this quarter through dividends and share buybacks. Our cumulative share count reduction is 23% since we started the accretive buyback program in the third quarter of 2018. Janus Henderson's strong liquidity profile continues to provide us the flexibility to invest in the business, both organically and inorganically as well as return cash to shareholders. I'll now turn the call over to Roger to run you through more of the financial results. Roger Thompson: Thanks, Ali, and thank you for joining us on today's call. Starting on Slide 4 and investment performance. As Ali mentioned, longer-term investment performance versus benchmark remains solid with at least 60% of AUM beating their respective benchmarks over the 3-, 5- and 10-year time periods. Looking at further detail, at least half of each capabilities AUM is ahead of benchmarks over medium and long-term periods, reflecting consistent longer-term investment performance across capabilities. Overall, investment performance compared to peers continues to be very competitive with over 70% of AUM in the top 2 Morningstar quartiles over the 3-, 5- and 10-year time periods. Slide 5 shows total company flows by quarter. Net inflows for the quarter were $7.8 billion, which improved significantly over the net inflows of $400 million a year ago. Excluding the onetime impact from the Guardian general account funding last quarter, our gross sales increased for the fourth consecutive quarter and improved by 86% compared to the third quarter of last year. All 3 channels and regions experienced an increase in gross sales compared to the prior year across a broad range of capabilities, including ETFs, U.S. buy and maintain credit, Australian fixed income, U.S. research, our tokenized AAA CLO fund and Asset Backed opportunistic credit from VPC. Turning to Slide 6 and flows by client type. Third quarter net flows for the intermediary channel were positive $5.1 billion, equating to a 9% organic growth rate. In the third quarter, net flows were positive in the U.S. and Asia Pacific with net outflows in EMEA. To set expectations, we do not expect to repeat this level of net flow in Q4. In the U.S., net flows were positive for the ninth consecutive quarter with inflows in several strategies, including most of the active ETFs, U.S. research, multi-sector income, U.S. Mid-Cap Growth and Privacore. U.S. intermediary is a key initiative under our Protect & Grow strategic pillar, and we're pleased that we gained market share on a year-over-year basis. Additionally, whilst negative, the third quarter net flows for U.S. mutual funds within the intermediary channel was the best result in several years. Under our Amplify strategic pillar, we've talked about amplifying our investment and client service strengths using various means, including vehicles through which we deliver to our clients. In addition to active ETFs, flows into CITs and hedge funds in this channel were positive in the third quarter. In EMEA, Continental Europe and the Middle East delivered net inflows, while the U.K. had net outflows, primarily driven by a single outflow in investment trusts. Institutional net inflows were $3.1 billion, marking the fourth consecutive quarter of positive flows. Gross sales were the best result in over 2 years and reflect fundings across all capabilities covering corporates, pensions, insurance and private credit clients. Net outflows for the self-directed channel, which includes direct and supermarket investors, were $400 million. The third quarter includes approximately $600 million of ETF net inflows from our supermarket clients. Excluding ETFs, self-directed net outflows were roughly flat to the prior year. Slide 7 shows our flows in the quarter by capability. Equity flows were negative $3.3 billion compared to $2.6 billion of net outflows in the prior quarter. The current quarter was impacted by the merger of the Henderson European Trust into another third-party trust, which resulted in $900 million of net outflows. The environment remains challenging for active equities across all regions. Whilst net flows for equities were negative in aggregate, CITs, active equity ETFs and Horizon SICAV funds all delivered positive net flows in the quarter. Elsewhere, while still negative, the U.S. equity mutual funds had their best flow results in over 2 years. Third quarter net inflows for fixed income were $9.7 billion compared to $49.7 billion of net inflows in the Guardian-boosted prior quarter. Several strategies contributed to positive fixed income flows. Active fixed income ETFs delivered over $5 billion in the quarter and included 5 active ETFs with at least $100 million of net inflows, including JAAA, JMBS, JSI, JBBB and VNLA or [indiscernible]. Other strategies contributing to positive flows were Australian fixed income, U.S. buy and maintain credit, the tokenized JAAA fund and multi-sector credit. Net flows for the multi-asset capability were breakeven, primarily due to net outflows in the balanced strategy, which were offset by an institutional win in our adaptive capital preservation strategy. And finally, net inflows in the alternative capability were $1.4 billion, driven primarily by absolute return, biotech hedge fund, VPC's Asset Backed opportunistic credit strategy and Privacore. Moving on to the financials. Slide 8 is our U.S. GAAP statement of income. Before moving on to the adjusted financial results, GAAP results this quarter include an approximately $28 million charge related to the strategic decision to transition our investment management platform to Aladdin. This charge is removed from our adjusted results and the majority is noncash. Continuing to Slide 9 and our adjusted financial results. Adjusted financial results improved compared to the prior quarter and the prior year. The improvement was primarily due to higher average AUM and good investment performance generating higher performance fees. Adjusted operating income improved 22% and EPS improved 21% quarter-over-quarter. Improvements over prior year were similar with operating income and EPS both up 20%. Looking at the detail. Adjusted revenue increased 11% compared to the prior quarter and 14% compared to the prior year, primarily due to higher management fees on higher average AUM and improved performance fees. Net management fee margin was 42.7 basis points in the third quarter. The expected and communicated decline from the prior quarter was primarily a result of the successful integration of lower fee Guardian AUM. We are also very pleased with positive firm-wide organic net new revenue generation in the third quarter, which demonstrates our success across a broad range of strategies and regions. Third quarter performance fees were positive $16 million, primarily reflecting the SICAV absolute return strategy in U.S. mutual funds. The U.S. mutual fund performance fees were positive this quarter at over $3 million, which is the best result in over 10 years. This result compares favorably to negative $9 million of U.S. mutual fund performance fees over the same period a year ago. We currently expect Q4 2025 performance fees to be at or above the Q4 '24 total, reflecting very strong performance of our hedge funds, but final amounts will be dependent on performance over the remainder of the year. Continuing to expenses. Adjusted operating expenses in the third quarter increased 6% to $350 million, primarily reflecting higher profit-based compensation, LTI expense and investments supporting strategic initiatives. Adjusted LTI increased 20% compared to the prior quarter, largely due to mark-to-market on mutual fund share awards. In the appendix, we provided the usual table on the expected future amortization of existing grants due to use in your models. The third quarter adjusted comp to revenue ratio was 43.3%, which is flat to the prior year and in line with our guidance. Our 2025 expectation and an adjusted compensation range of 43% to 44% remains unchanged. Adjusted noncomp operating expenses decreased 5% compared to the prior quarter, primarily from seasonally lower marketing and G&A expenses. For non-compensation guidance, our expectation of high single-digit percentage growth in full year non-comp expenses compared to 2024 remains unchanged, reflecting investments supporting our ongoing strategic initiatives and operational efficiencies, inflation, the full year impact of the consolidation of VPC, NBK, Tabula and Guardian and the FX impact of a weaker U.S. dollar year-to-date in 2025. Our expectation of high single-digit percentage growth in non-comp expenses implies growth in the fourth quarter. We do expect to invest a little bit further in high ROI investments, supporting areas of momentum in our business, examples being marketing and advertising as well as client-related expenses such as T&E. We remain committed to strong cost discipline, ensuring that we manage our cost base while continuing to support the long-term growth objectives of the business. Our expectation of the firm's tax rate on adjusted net income attributable to JHG remains unchanged in the range of 23% to 25%. And finally, we'll give 2026 guidance on our full year call. But as Ali mentioned, our transition to Aladdin will result in higher costs in 2026 and 2027 before we deliver the improvements and efficiencies for the future in 2028 and beyond. Our third quarter adjusted operating margin was 36.9%, an increase of 200 basis points from a year ago. And finally, adjusted diluted EPS was $1.09, up 20% from the comparable third quarter 2024 period. The increase in adjusted diluted EPS primarily reflects higher operating income and operating leverage. Skipping over Slide 10 and moving to Slide 11 and a look at our liquidity profile. Our balance sheet remains strong and stable. Cash and cash equivalents were $1 billion as of the 30th of September compared to $395 million of outstanding debt. During the quarter, we funded our quarterly dividends and repurchased 1.5 million shares as part of our corporate buyback program for approximately $67 million. The Board has also declared a $0.40 per share dividend to be paid on the 26th of November to shareholders of record as at the 10th of November. Slide 12 looks in more detail at our consistent return of capital to shareholders. We've maintained a healthy quarterly dividend and have reduced shares outstanding by almost 23% since 2018. During the first 9 months of 2025, we've returned $331 million, including $143 million via share repurchases. The buyback program and dividends do not alter our ability to invest in the business organically and inorganically as well as return cash to shareholders. Currently, our liquidity profile allows us to do both. Our return of excess cash is consistent with our capital allocation framework. We'll continue to look to return capital to shareholders where there isn't an immediately more compelling investment in the business. With that, I'd like to turn it back over to Ali to give an update on our strategic progress in private markets. Ali Dibadj: Thanks, Roger. Turning to Slide 13 and an update on our progress in private markets. We've made progress in the private market space through Privacore, Victory Park Capital and our emerging markets private investment team. Starting with Privacore, which seeks to take advantage of and be the leader in the democratization of private alternatives in the private wealth channel. Year-to-date, Privacore has advised on $1.4 billion raised in the private wealth channel. Privacore is now selling on 5 wirehouses and platforms, and the team is expanding into RIAs and broker-dealers. In addition to advising on third-party products through its open architecture model, Privacore has also recently launched 2 proprietary funds, the Privacore VPC Asset Backed Credit Fund, AltsABF, which is sub-advised by our very own Victory Park Capital and the Privacore PCAM Alternative Growth Fund, Alts Grow, sub-advised by Partners Capital. In addition to these advised third-party and proprietary funds, Privacore expects to have more products coming online in the upcoming months and is working with Janus Henderson to expand its reach. In September, we announced that CNO Financial Group, a nationwide life and health insurer and financial services provider with $37 billion in total assets would acquire a minority interest in VPC. As part of the partnership, CNO will provide a minimum of $600 million in long-term capital commitments to new and existing VPC investment strategies. One of these strategies will be the Privacore Victory Park Capital Asset Backed Credit Fund I previously mentioned. This collaboration with CNO reinforces our shared belief in the long-term potential of asset backed private credit markets and further deepens Janus Henderson and VPC's insurance presence. CNO's investment of long-term capital speak to VPC's strong track record of providing private credit solutions across industries, their differentiated expertise in highly developed sourcing channels and the significant value VPC brings to its investors and portfolio companies. The transaction was completed on October 1, and Janus Henderson remains the happy majority owner of VPC. The transaction with CNO builds on Janus Henderson's recent momentum in the insurance space with our previously announced multifaceted strategic partnership with Guardian, which is working well. Lastly, in early October, our emerging markets private investment team, formerly NBK Capital Partners, marked a strategic milestone with the announcement of the successful first close of the $300 million Shariah-compliant fund, the Janus Henderson MENA Private Credit Fund IV with $125.5 million committed. The vehicle, which attracted strong demand from global and regional institutional clients and family offices, provides investors with access to emerging market private credit opportunities that deliver attractive cash yield and total risk-adjusted returns. The second close is planned for year-end 2025 with the final close in mid-2026. The successful first close of this direct lending vehicle underscores our commitment to investors in the Middle East and the growing number of companies in the region seeking access to flexible values-driven financing. It also highlights the important role of private credit plays in connecting capital with opportunities across dynamic growth markets. This business also strategically complements our emerging market public credit business, which is now at almost $2 billion of assets under management. Privacore, Victory Park Capital and Emerging Markets Private Investments underscores Janus Henderson's commitment to private capital as a key strategic growth area as we continue to diversify our capabilities and deliver differentiated solutions for our clients. Now wrapping up on Slide 14. We are making meaningful progress across the business, although we're not firing on all cylinders yet and have more improvement to go. We're executing against our strategic objectives, including capturing market share in key regions, diversifying our flows across regions and strategies, establishing new strategic partnerships and developing newly added pieces of our business. Investment performance is solid versus benchmark and peers. Net inflows were positive $7.8 billion, marking our sixth consecutive quarter of net inflows and the best quarterly results ever, excluding the Guardian net inflows of last quarter. While we are very pleased with the quarterly results, it's worth noting for modelers that these flows also reflect several fundings, which have depleted the near-term existing pipeline opportunities. Our financial performance and strong balance sheet allow us to continue returning cash to shareholders through dividends and share buybacks while reinvesting in the business for future growth. Our focus continues to be helping clients define and achieve superior financial outcomes and to deliver desired results for our clients, shareholders, employees and all our stakeholders. Finally, before I turn it over to the operator for questions, I want to acknowledge our CFO, Roger Thompson, who will start a well-deserved retirement beginning April 1 of next year. Roger joined the firm in 2013 as CFO and began leading the APAC Client Group in 2022. He is a valued member of our Executive Committee, a director on several of our Boards, has been a strong supporter of several of our employee resource groups, a friend and mentor to many people and a true culture carrier within our firm. He personifies all 5 of the Janus Henderson values. On a very personal note, the successes we've seen over the past few years with Janus Henderson could not have happened without Roger. He's been an incredible feedback giver, strategic thinker and all-around partner to me. I also want to thank him for the collaboration and fun on many of our client and investor meetings, earnings calls, town halls, travels even when we missed transcontinental flights and so much more. And I and the firm owe Roger an incredible debt of gratitude. While sad to see Roger go, we're very excited for his next phase in life. Pleasingly, and demonstrating the talent we have within Janus Henderson, I'm delighted that our Head of Corporate Development and Strategy, Sukh Grewal, will become our CFO and joins our Executive Committee. Sukh joined the firm in 2022 and through each of our recent acquisitions of Tabula, NBK Capital and Victory Park Capital and partnerships with Privacore, Guardian and CNO Financial Group, he's been instrumental in helping to define and deliver our strategy to protect and grow our core, amplify our strengths and diversify where we have the right. As a reminder, as we turn the call over to the operator for questions, we're unable to comment further on the nonbinding proposal and ask that you focus questions on the business results. With that, let me now turn the call back over to the operator to take your questions. Operator: [Operator Instructions] And our first question comes from Ken Wellington from JPMorgan. Kenneth Worthington: Roger, congrats to you. We'll see if farewells for later. But maybe first, in terms of net flows, clearly seeing a nice improvement in the intermediary and institutional channels. You highlighted the products that contributed. What I'm really after is like what is the story behind the numbers? Like what's the story behind the improved gross sales? Is it possible to help us better understand how and maybe which of the initiatives seems to be translating into what we can obviously see are the better results? Ali Dibadj: Ken, thanks for the question. Look, as you pointed out, we feel pretty good about what we delivered in the quarter on flows. You're right, it's a lot of thought process to get there. If you start with the intermediary side of things, the $5.1 billion of flows in the third quarter were certainly positive. We -- again, as we said in the prepared remarks, we want to make sure that people don't expect that to continue at that pace consistently. You've seen some of the public ETF data. But the whys are actually coming into play. The whys are actually certainly helping. And on the intermediary side, we've done many things, right? One is we've made sure that we have the right people in the right places. We've then made sure that we actually pay them the right way, incentivize them to grow and get new products on shelves and make sure they're the right products for the end client. We then are making sure that we have the right product. Now that comes in 2 flavors. One is ensuring that the performance is right. You'll see that our performance continues to be solid and versus several years ago, has certainly improved on average. And also make sure that the right wrappers, whether they be ETFs or CIPs or mutual funds, which we still are big believers in or SMAs or other wrappers as well, to make sure the product is right. And of course, then we want to make sure that we're calling the right people and are productive about it. So we're using a lot of data, including some newer technologies to make sure that folks are targeting the right people. So you put all that stuff together to your question, it's not just the outputs, but the inputs and wise. We feel pretty comfortable that we're on the right track. And obviously, in the U.S., that certainly started to show. This is our, I think, ninth consecutive quarter of positive flows, and it's starting to show outside of the U.S. as we transport that thought process on the intermediary side. On the institutional side, the $3.1 billion of flows this quarter marked the fourth consecutive quarter of positive flows. Gross sales were the best results we've had in something like 2 years. We're going to continue to build on that momentum. Again, there, too, I think we depleted some of our future pipeline and what happened this quarter. But still, the whys are a lot of the same, as I talked about on the intermediary side, around product, around vehicle, et cetera. But very importantly, it's also building relationships with our clients that are more than just transactional relationships. That's true in intermediary, but it's even more true in institutional, where we focus on building more nodes of connectivity between the firms. It might not just be delivering investment performance. It's also delivering ourselves, what we know about technology, what we know about AI, what we know about regulatory environments. And that's also part and parcel. You may have seen this to our brand campaign that's out there that is resonating. Again, both for intermediary and institutional, which is this Ampersand, right? This Ampersand is the symbolism of how we work with our clients. It's this together concept of Janus Henderson that our clients told us we were special about. So it's together, this Ampersand, it's their goals and our solutions. It's their problems and our hopes to deliver solutions for their problems. So it's all of those things together. It's not just one thing. It's never just one thing. As you know, there's no silver bullet, but we're certainly pulling all this together and hoping to continue to build over time, not overnight. I'm not sure we're there yet. We're not firing all cylinders, but over time, a very sustainable growth for us on a consistent basis. Kenneth Worthington: Okay. And I'm always looking for the silver bullet. So -- and just in terms of product performance, it generally looks very good, have seen some deterioration in equities. Can you talk about the themes you're seeing in the equity franchise that are impacting performance? Roger Thompson: Okay. Let me pick up on that first. I think you're right. The 1-year performance in equity is a little lower, but it's -- the longer-term time periods remain really solid, at least 50% ahead of benchmark. And against competition, the figures are even better with over 80% over 3 and 10 years ahead of competition or top 2 Morningstar quartiles. As you say, it's very concentrated. The move in Q3 over Q2 is really due to U.S. concentrated growth and U.S. research moving below benchmark over 1 year. I think really importantly, that is really to do with a poor Q4 last year. Our year-to-date performance is strong. Both of those are ahead of benchmark over year-to-date. Overall, equity is 63% ahead of benchmark year-to-date at the end of September. So it's a short-term number with, as you say, some really tricky markets that our excellent investors are working through, which again, I think, continues to be where active management is important. It is essential for client portfolios, 350 investment professionals and intensely focused on delivering between good and bad, as we always say, separating the week from the chat. That is a tough market at the moment, and you will get short-term blips, but it's that long-term performance, which is really critical to what clients look at. And then we're really proud of the reinvestment performance that we've got. Operator: The next question comes from Bill Katz at TD Cowen. William Katz: I apologize for my voice. So maybe first question is a 2-parter. I was wondering if you could comment about the ability to drive expenses and growth in the business and what hurdles you face as a public company? And then within that, I'm curious with the Aladdin opportunity, how do we think about the incremental leverage into '28 relative to the spend in '26 and '27? Ali Dibadj: Bill, thanks for the question. So first on the first one, look, we're clearly investing in the business to our guidance for this year of high single-digit growth, high single percentage growth in non-comp. We're seeing opportunities to invest. And as we see opportunities to invest, we constantly look at ROI. We look at where we invest, what's the return on that investment. I mentioned marketing spend and branding a second ago. I mentioned some of the investments we made in our people from a compensation and growth driving perspective. We constantly look at ROI. Roger is great at that. And so we look at where we get the benefit out of it. We think we can continue to do that and get good ROI, which is why we continue to spend more. Again, not peanut butter, not blanket, but in particular areas, we found that we can deliver value and value for our clients leads to growth. On your Aladdin question, as we mentioned, we'll give you more detail on the next quarterly call. We expect the short-term costs, as we said, to go up by about 1% of our overall expense base for 2026 and 2027. And then after that, we would tend to see some benefits. It's early days to know exactly what that is, but certainly, we'd like to see some benefits. And we're doing it, yes, for cost benefits, sure, but also really, really importantly because we think we can deliver better for our investors. We think we can deliver better for our funds, our mutual fund trustees and mutual fund shareholders, which are very important to us. We believe we can deliver better to our clients more broadly. And so we're doing it for all sorts of reasons. For us, this was the right match to work with Aladdin, may not be for everybody. For us, that was the right match. William Katz: Okay. And just as a follow-up, maybe on capital priorities from here. Balance sheet is in great shape. You bought back a lot of stock in the quarter. A, does the offer from Trian take you out of the market temporarily? And b, more broadly, how are you thinking about capital return from here? Maybe if you could comment on where you stand on the M&A pipeline. Roger Thompson: So let me pick up on that, Bill. Yes, so I guess the short answer is nothing changes. Our current expectation is we'll complete the full $200 million buyback by the Annual General Meeting of next year. In the third quarter, we bought another $67 million worth of stocks, 1.5 million shares. Cumulatively since we started the buyback in 2018, we've now bought back 23% of the stock, and that consistency is something we've talked about. We've got $83 million of the buyback outstanding. And we have an ongoing 10b5-1 plan that's in place, which is unaffected by Monday's nonbinding acquisition proposal. Ali, I'll pass back to you on M&A. But again, as we said, our capital philosophy remains completely unchanged and has been for a very long time that we will invest in the business but return cash to shareholders where we don't have an immediate need or near immediate need for that. Again, in terms of individual items, Ali? Ali Dibadj: Well, just we have the flexibility, obviously, to continue to do M&A and invest back in the business organically and return cash to shareholders. So we're in a privileged position. Operator: The next question comes from Craig Siegenthaler from Bank of America. Craig Siegenthaler: And Roger, best wishes for your retirement. Our question is on Victory Park. There's so many positive levers currently between Guardian Life, the CNO partnership and even capital raising at Private Core and probably a few that I'm actually missing. So how has Victory Park's AUM grown since the deal closed? And then how do you think about future growth of Victory Park over the next few years? Ali Dibadj: Craig, thanks for the question. We are very pleased with the Victory Park Capital acquisition. Just to take a step back, as you might remember, we targeted 3 areas from a private perspective that we wanted to go after. One of them was the democratization of alternatives into the wealth channel, and that's how we stood up. To your point, Privacore. We have a team that is doing extraordinarily well and driving flows appropriately from the wealth channel into the appropriate products from GPs. They're on 5 different platforms or wirehouses right now and with product in the marketplace. And so that's one piece of the puzzle for us to get wealth more exposed into the opportunities in the alternatives landscape. And that certainly includes some element of Victory Park Capital. As I mentioned, one of the proprietary products Privacore is delivering is with Victory Park Capital in that wealth channel. So that's one element. The second element is in private credit. But private credit in the U.S. from a direct lending perspective, we thought was rather oversaturated at this point. There may be opportunities in the future, but at this point, direct lending in the U.S. was not a place we wanted to go. So we certainly want to focus on outside the U.S. direct lending and in particular, the MENA private credit business that we brought on board, which has done extraordinarily well. I was just out in the Middle East a couple of weeks ago now, and the interest is very, very high for our product because they are a group of folks who've been doing this for basically 2 decades and have been able to show very, very good results. That's why we did our first close on this, probably $300 million total Fund IV for them and first one for Janus Henderson, but Fund IV for the team -- and the close, I think, certainly suggested that there's more to come in that piece of the business. So that's the non-U.S. private credit. And then to your point, not direct lending in the U.S., but we're certainly looking at asset-backed in the U.S. and globally, and that's where we come across Victory Park Capital. Victory Park Capital is a firm where the culture fits Janus Henderson, i.e., client-focused, i.e. growth-oriented, i.e. deep, deep research with deep diligence on the companies that they lend to and a lot of history with them. And we thought they were the best of the bunch. And so we did bring them on board. And to answer your question, if you note, out of the 21 products that delivered more than $100 million of flows this quarter, they have been one of them. And so they're mid-rise right now. I can't comment too much about the full raise. But if you think about that, which does not include CNO, right, which comes in, in likely Q4 here or has come in, in Q4. I do think that, to your point, we think there's enormous opportunity for Park Capital, not just in Privacore, but more broadly, especially with the insurance relationships. And the insurance relationship we have with Guardian is going fantastically well. And with CNO as well, we feel that it's another firm that we had really a culture match, really thoughtful, deep thinking, great management team, great people. And so partnering with them also makes a ton of sense. So I think you're right to suggest that there's a lot of opportunity here. We have to make the right moves and step by step, we'll get there. Again, this is one of those not overnight things, but over time, perhaps we'll get there. Craig Siegenthaler: Thanks, Ali. Just for our follow-up on investing. So year-to-date expenses have grown by 20% over the last 2 years, and that really doesn't account for CapEx either. So we're curious, do you feel your ability to invest has been constrained by being public balancing both growth objectives with the desire to show operating leverage. Ali Dibadj: Again, thanks for the question. We're investing where we see that there's ROIs. And so we'll continue to do that. You've clearly seen that in our numbers. You're right, we're investing in the business, and we're getting return off of it. When we stop getting a return, we'll stop. Don't forget that a lot of that operating cost growth is due to the M&A that we brought on board, again, a different type of investment, but investment nonetheless in growth and most importantly, delivering for our clients a broader suite of high-caliber investment products and client service. Operator: The next question comes from Patrick Davitt from Autonomous. Patrick Davitt: First question, we saw some big credit wobbles in the bank loan market in October. And clearly, you mentioned that had an immediate impact on bank loan and CLO fund flows. At a high level, I'm just curious how your bank loan and CLO teams are reacting to those specific issues, how they're scrubbing the portfolio and to what extent those issues are having any impact on your discussions with the distributors of those products for you? Ali Dibadj: Patrick, thanks for the question. So exactly as you described it, the wobbles are precisely why active asset management, particularly in fixed income is so critical across the board, particularly in fixed income. You mentioned there are a couple of companies that wobbles out there. I mean, Tricolor First Brands are the ones that hit everybody's radar screens. And without active asset management, perhaps one would have been index exposed to those names. And we, in fact, were significantly below index exposed, some areas not at all exposed to those businesses. So we very much espouse active asset management. We select based on criteria and understanding the companies underlying. And we certainly think that in any world, separating the wheat from the chat, which we do and 350 people at our firm do every day, including fixed income folks, is very important. Now remember also how we operate. We operate in the CLO world disproportionately. If you think about our securitized franchise and think about the 5 ETFs that we have that are over $1 billion, the largest one is the AAA CLOs. And just to remind folks about the construct of those, the CLO exposure generally, no matter what grade it is, the CLO exposure generally has better cash flow protections to it. And if you're in the AAA CLOs, if you're going to get hit, that basically means something like 70% or 75% of the loan portfolio in its entirety would have to default for you get impacted. So it's actually a relatively safe area. Now again, back in April, we saw some stresses in the market, obviously. And what we found also is JAAA, JBBB, given their size, given their competitive advantage in terms of the moat that they've built, sort of became the price discovery method for AAA and BBB CLOs overall. And at that time -- and again, at this time, nothing in our price action nothing in our spread moves suggests that there is any feeling of contagion or sense of contagion in the marketplace. So again, active asset management, Patrick, to your core answer to your question, active asset management is why we've been able to do well in this environment and an environment going forward, hopefully. Patrick Davitt: And any sense that the distributors are more or less concerned in distributing the product because of what's going on in the broader bank loan market? Ali Dibadj: We're not hearing anything to be fair. I mean you see the public ETF numbers, but I'm not hearing anything different at this point. Roger Thompson: I think Patrick, all volatility is different. Again, as Ali said, in March and April, we had a dip there with some outflows in the CLO ETFs. But from May all the way through the summer through September, we had obviously very, very strong inflows. So again, everything is different, but short-term volatility. And as Ali said, with the sort of -- we are the market in these things, so you'd expect to see some price discovery. Operator: Next question comes from Brennan Hawken from BMO. Brennan Hawken: Very much, Ali, I appreciate the comments about being limited in what you can say on the bid. But I had some questions that are more process, not really about opining on the offer. I was hoping you could maybe walk us through the special committee's process and time line. How will updates be communicated as you progress and whether or not there's been any interest expressed by strategic buyers now that Janus is formally in play? Ali Dibadj: Thanks for your question. I really appreciate it. From a process perspective, as best as I can tell, what I've been told is that the special committee will be going through a process over months, not weeks. But beyond that, we aren't commenting on the proposal at this time. Brennan Hawken: Okay. Had to give it a try. All right. So your ETF progress has been great. Look, obviously, JAAA is a spread-sensitive product, right? And so when you get concerns about spreads, the flows they will oscillate. But really encouraging to see how many products you've got now above $1 billion. And specifically, you've got your first equity product, I believe, JSMD, which is approaching that threshold. Can you walk through your strategy for equity products within the active ETF construct? And what your launch plans are as you progress and widen out the suite? Roger Thompson: Sure. Let me just -- I was going to say, well, Ali, while you're thinking about the sort of strategic answer, let me just make sure that, again, everyone's got the grounded facts. Yes, you're right. We're now operating a pretty sizable ETF franchise. It's about $40 billion as of the end of September. That's 8%. That will be up from -- I don't have the number in front of me, but something like 2% or 3% a couple of years ago. Net flows into ETFs in the third quarter were $5.7 billion. And yes, the largest of those was JAAA in the high 3s. But JMBS, securitized income, JBBB, you're right, SMidCap growth, short duration were all in the hundreds of millions of dollars of flows. So we're seeing some real diversification of flow behind JAAA, which is now a $25-plus billion product. Ali Dibadj: And just to add to that, look, our philosophy is relatively simple and pretty consistent. We do things in a client-led way. What we believe our core competency is investing in the right companies, delivering investable -- good investment performance for folks with differentiated insights, disciplined investments and delivering world-class service. We're happy to put in different packaging if clients want that different packaging. For example, we put in ETFs. We put it in CITs, we put in SMAs to deliver on what our clients want. But to be very, very clear, we're not believers in cloning. We don't think that makes sense. The products that we currently have in mutual funds are in mutual funds for a reason. There are some real benefits of being in mutual funds in terms of the accessibility, for example, that people can get mutual funds in. So cloning it doesn't really make sense because it's not necessarily client-led needs. We haven't heard of our clients at least, maybe for others, but our clients at least saying, "Hey, let's turn these things into ETFs necessarily. But for some areas, exactly as Roger described it, some of those businesses like JSMD, JSML as well as some of the more exciting ones that we launched just very, very recently, JHAI, which is an AI ETF it's not just the kind of high flyer ETF. It's a really thoughtful longer-term place to take advantage of AI shifts more broadly, so picks and shovels and everything else that we think from a longer-term perspective will benefit JXX in the U.S. and JTXX in Europe, again, based on the UCIT platform there. Those are transformational businesses that we invest in, in a very concentrated manner in delivering ETF form. Again, we are client-led in the way we develop our products, and they can take many, many different forms. ETF certainly is one of them that seems to be for the right investment strategy for the right client, the packaging that people are preferential to at this point. Operator: [Operator Instructions] Final question. This will come from the line of Michael Cyprys from Morgan Stanley. Michael Cyprys: Just Ali, you're making investments across the business to drive growth. Curious how you would characterize the level of speed at which you're investing in the business versus, say, a year ago? And how do you see that evolving into '26? Does that stay at a similar pace? -- might that accelerate? How do you think about that? Ali Dibadj: Yes, Michael, thank you very much for the question. It's a really insightful question actually because what typically happens, and I think we're there now, is that at the start of a kind of new strategy, which we started, call it, 3 years ago, almost to your point, you invest a little bit and you wait for the reaction, right? It's kind of like a scientific method, right? You have a hypothesis, you try it, you see what happens and you get the response and then you kind of add more fuel to the fire or not, right? And when we started off the strategy, we had spread out a little bit, I guess, of where we're investing because we didn't really know what would hit, what would hit. We didn't know how the clients would respond, et cetera. And so now we're in the process effectively of culling and focusing, for lack of a better word. And so you look at your overall expenses, you look at where they're going, you look at what the returns are from a growth perspective or other elements, right? Risk mitigation could be an element, future cost savings is an element, et cetera, and you readjust. And so you can do that on a micro level on a day-to-day basis, but you certainly have to look at it from a broader basis as well. And that's the stage we're at right now, which is not so much from a quantum perspective, but from where we're going to invest a much more focused look. So it's a very good question, Michael. And I think you're right, we're at this point where we have now some experience. We have now some data. We know what's responding or not, and we can kind of focus in and hopefully get some ROI out of the business in particular areas and not kind of get lower ROIs in other areas. Hopefully, that helps. Michael Cyprys: Great. And then just as a follow-up question. When you're thinking about the investments you're making in the business, how long of the list of items that do not make the cut to get funded, don't get funded in maybe the manner that you'd like? What's the rationale for why those don't get funded? If you had more resources, might those be able to be funded? Or imagine at some point, organizational capacity bandwidth comes into play? I guess how close are you running into that organizational capacity constraint? Ali Dibadj: Roger can chime in on this. I think -- look, I think we are spending in the right areas and seeing the results come through. So to your earlier question, you're right. Some of the areas we just are unable to spend more, like we can't launch 100 products, right? Maybe we can, but we can't launch 1,000 products, right? We can only launch a few of them. So there's some organizational capacity there. By the way, some of that is why we're looking at Aladdin as an underlying tool to be able to allow us to get more capacity on things. That's why we're, as I've talked before, using technology more broadly to help us do things more efficiently. I mentioned the RFPs, for example, RFPs have gone up about 100% since a couple of years ago, and we haven't added more costs there because we're using technology to help us out. So we're trying to find ways and we are finding ways to do that. I couldn't tell you how long the list is. I mean, as you can imagine, an organization our size, everybody wants something, but we're always focused on the ROI of it. So I think we're being pretty disciplined and spending in the right ways. Roger Thompson: Yes, I think that's quite right, Ali. I'm not the most popular guy around here because we are pretty strict on ROIs. And there are -- pleasingly, there is more demand than supply. But as you -- exactly as you said, Mike, that is 2 things. It is both money and it is the ability to do things. So prioritizing things and prioritizing some things are independent, some things are interrelated. So you really need to understand those things in order to be able to say, yes, we can do this one or we have to go a bit slower with this one because we're doing something else. So that combination of capacity and cost is really critical to look at, but we are very disciplined in that. Operator: With this, I'll now hand back to Ali Dibadj for any concluding comments. Ali Dibadj: Okay. Thanks, Adam. Thank you all for joining the call today. I know it's a busy day. I think this quarter continues to show our momentum step by step, not overnight, but we are building towards sustainable growth. And that's thanks to our IT, ops, legal, finance, people, risk and compliance and other support functions. It's thanks to our world-class 500-plus client service teams. Thanks to our outstanding group of 350-plus investment managers. And to all of them, thank you, and let's continue to finish the year strongly on behalf of our clients, our shareholders and our other stakeholders. Thanks, everybody.