加载中...
共找到 39,120 条相关资讯
Operator: Welcome to the Merck & Co., Inc. Rahway, New Jersey, U.S.A. Third Quarter Sales and Earnings Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Peter Dannenbaum, Senior Vice President, Investor Relations. Sir, you may begin. Peter Dannenbaum: Thank you, Julie, and good morning, everyone. Welcome to the Third Quarter 2025 Conference Call for Merck & Co, Inc., Rahway, New Jersey, U.S.A. Speaking on today's call will be Rob Davis, Chairman and Chief Executive Officer; Caroline Litchfield, Chief Financial Officer; and Dr. Dean Li, President of Research Labs. Before we get started, I'd like to point out that we have items in our GAAP results such as acquisition-related charges, restructuring costs and certain other items that we have excluded from our non-GAAP results. There is a reconciliation in our press release. I will also remind you that some of the statements that we make today may be considered forward-looking statements within the meaning of the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are made based on the current beliefs of our company's management and are subject to significant risks and uncertainties. If our underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statements. Our SEC filings, including Item 1A in the 2024 10-K, identify certain risk factors and cautionary statements that could cause the company's actual results to differ materially from those projected in any of our forward-looking statements made this morning. Merck & Co, Inc., Rahway, New Jersey, U.S.A, undertakes no obligation to publicly update any forward-looking statements. During today's call, a slide presentation will accompany our speakers' prepared remarks. These slides, along with the earnings release, today's prepared remarks and our SEC filings are all posted to the Investor Relations section of our company's website. With that, I'd like to turn the call over to Rob. Robert Davis: Thank you, Peter. Good morning, and thank you for joining today's call. We continue to make meaningful progress in using the power of leading-edge science to save and improve lives around the world. We're delivering value to patients and customers today through our innovative portfolio of medicines and vaccines, and we're securing our future by making important investments in our pipeline, the strongest and deepest in recent memory. We now have approximately 80 Phase III trials underway across a diverse array of therapeutic areas, with important readouts coming over the next year in cardio-pulmonary, immunology, HIV, ophthalmology and, of course, oncology. We're investing behind more than 20 compelling launch opportunities, some already underway. These programs will transform our commercial portfolio and fuel future growth, with over $50 billion of revenue opportunity by the mid-2030s, and we remain committed to the pursuit of disciplined, science- and value-driven business development to further augment our expansive pipeline. In the third quarter, we continued to successfully execute on our strategy with important pipeline advancements, significant approvals, and successful new product launches. Additionally, in October, we completed the strategic acquisition of Verona Pharma. This provides us yet another important growth driver with multibillion-dollar commercial potential into the next decade. We're making strong progress across the business, and I remain confident in our ability to further broaden our impact to patients and deliver long-term growth and value for shareholders. With respect to U.S. health care policy, as I've said before, we share the administration's goal of decreasing patient out-of-pocket costs for our products in the U.S. while at the same time, realizing greater prices for our medicines and vaccines in countries that have not been paying fair value for the innovation we provide. We're actively engaged with the administration in an effort to find a path forward that achieves these objectives. We also want to preserve our ability to invest in the breakthrough innovations we intend to bring to patients in the future while ensuring the sustainability of our business long term, and we're optimistic about our ability to do so. We continue to make significant investments in manufacturing in the United States. Last week, we announced a groundbreaking event at our Elkton, Virginia site as part of a broader plan that will result in the investment of more than $70 billion in expanded domestic manufacturing and R&D. These investments will support our plans to drive long-term growth and will strengthen the U.S. as a global leader in biopharmaceutical innovation. Turning to our third quarter results. We're pleased to deliver solid performance, with continued strength across Oncology and Animal Health as well as increasing contributions from our new product launches, WINREVAIR, CAPVAXIVE, and most recently, ENFLONSIA. In research, several notable updates highlight our strong progress. In cardiovascular, we announced positive top line results from the CORALreef Lipids trial, the third and largest Phase III study evaluating enlicitide, our investigational oral PCSK9 inhibitor, in the treatment of hyperlipidemia. We look forward to sharing these results at the American Heart Association meeting next week and submitting these data to regulatory authorities. In pulmonary arterial hypertension, full results from the HYPERION study in recently diagnosed patients reinforce our confidence in the practice-changing potential of WINREVAIR. Additionally, we secured FDA approval for our supplemental BLA for WINREVAIR based on the strong results of the ZENITH trial. In oncology, we're pleased that the FDA approved subcutaneous pembrolizumab, or KEYTRUDA QLEX, and that the CHMP granted a positive opinion. KEYTRUDA QLEX will provide patients and providers an important new option that can be injected in as little as one minute. We're working relentlessly to continue to develop and deliver new treatment options for patients with cancer. At ESMO, we presented data across a broad range of oncology medicines and candidates, including important findings from breakthrough therapy-designated ADCs. Finally, we continue to expand our efforts in immunology, including for another of our important late-stage candidates, tulisokibart, where we initiated Phase IIb trials in three immune-mediated inflammatory diseases. These add to the Phase II study already underway in SSc-ILD and the ongoing Phase IIIs in ulcerative colitis and Crohn's disease. We're pleased to welcome our new colleagues from Verona Pharma and look forward to adding our commercial capabilities and scale to accelerate the launch of OHTUVAYRE, a novel, first-in-class maintenance treatment for chronic obstructive pulmonary disease. Strategic business development remains a top priority. We're assessing potential targets with urgency given our desire to make additional compelling investments when both science and value align. In summary, we remain highly focused on building on the strong clinical and commercial progress we made in the quarter. The investments we're making to advance and expand our pipeline are increasingly translating into positive clinical results and successful new product launches. This is giving us improved line of sight towards the transformation of our portfolio to one with a far more diversified set of growth drivers. With each milestone we achieved, including compelling strategic business development, my conviction that we're well positioned to drive the next chapter of success for our company increases. I want to recognize the commitment and effort of our teams across the world. Together, I'm confident we'll achieve long-term growth and create sustainable value for both patients and shareholders. With that, I'll turn the call over to Caroline. Caroline Litchfield: Thank you, Rob. Good morning. As Rob noted, we delivered solid performance in the quarter, with growth driven by continued strength in Oncology and Animal Health as well as increasing contributions from our many new product launches. These results reinforce the conviction we have in our science-led strategy and in our outlook for continued growth. We remain confident in our ability to deliver strong results in the near term and are committed to making disciplined investments in compelling science to drive long-term value for patients, customers and shareholders. Now turning to our third quarter results. Total company revenues were $17.3 billion, an increase of 4% or 3% excluding the impact of foreign exchange. The following revenue comments will be on an ex-exchange basis. In oncology, sales of KEYTRUDA increased 8% to $8.1 billion, with global growth driven by strong demand from metastatic indications and robust uptake in earlier-stage cancers. Usage in tumors that primarily affects women, including cervical, breast, and endometrial cancers, was a key contributor to growth. In addition, we saw increased use of KEYTRUDA in combination with Padcev in first-line, locally advanced or metastatic urothelial cancer. In the U.S., growth benefited by approximately $100 million from an extra Tuesday of shipments, partially offset by other channel movements. We are also excited by the recent FDA approval and launch of KEYTRUDA QLEX, which occurred at the end of the quarter. Our broader oncology portfolio achieved another quarter of strong growth, driven by WELIREG with sales increasing 41% to $196 million, predominantly driven by increased use in certain patients with previously treated advanced renal cell carcinoma in the U.S. as well as continued uptake from ongoing launches in certain international markets. In vaccines, GARDASIL sales were $1.7 billion, a decrease of 25%. Excluding China, sales declined 3%, primarily due to lower sales in Japan, reflecting the expiration of reimbursement for the catch-up cohort, partially offset by sales growth of 13% in the U.S. which was attributable to price and CDC purchasing patterns. In pneumococcal, CAPVAXIVE sales were $244 million, driven by demand from both retail pharmacies and non-retail customers as well as the expected seasonal inventory build. We look forward to helping protect more adults from invasive pneumococcal disease and to driving continued growth of this important product. VAXNEUVANCE sales decreased 7% due to a competitive preferential recommendation in Japan, which more than offset growth in certain international markets. In the U.S., sales were roughly flat as competitive pressures were largely offset by favorable CDC stockpile activity. In RSV, ENFLONSIA sales of $79 million reflects initial stocking ahead of expected demand. We look forward to helping protect infants born during or entering their first RSV season. In cardiovascular, WINREVAIR continued its strong momentum with global sales of $360 million. In the U.S., approximately 1,500 new patients received the prescription and over 24,000 total prescriptions were dispensed in the quarter, a testament to the continued strong demand for this important treatment option. There was also an approximate $40 million negative impact from the timing of distributor purchases, which fully reversed in October. Compelling additional data from ongoing studies, which Dean will speak to in a moment, further support our outlook for steady new patient starts. Over time, we expect an increasing proportion of use in patients whose background therapies do not include a prostacyclin. Outside the U.S., we continue to make progress with securing approvals and reimbursement, including the recent launch in Japan, which is off to a good start. Overall, we look forward to positively impacting the lives of more patients with PAH. Our Animal Health business again delivered strong growth, with sales increasing 7%. Livestock sales grew 14%, driven by higher demand across all species as well as a benefit from timing of sales. Companion animal sales declined 3% due to a reduction in vet visits and competition in parasiticides, partially offset by price, improved supply and new product launches. I will now walk you through the remainder of our P&L, and my comments will be on a non-GAAP basis. Gross margin was 81.9%, an increase of 1.4 percentage points driven by favorable product mix. Operating expenses decreased to $6.6 billion. There were $300 million in business development charges in the quarter, compared with $2.2 billion in charges a year ago. Excluding these charges, operating expenses were flat, reflecting an increase in investments in support of our robust early- and late-phase pipeline as well as key growth drivers, offset by the timing of expenses. Other expense was $106 million. Our tax rate of 13.4% benefited from certain discrete items. Taken together, earnings per share were $2.58. Now turning to our 2025 non-GAAP guidance, which now includes the acquisition of Verona Pharma, as well as the restructured agreement for Koselugo. We expect full year revenue to be between $64.5 billion and $65 billion. This range represents growth of 1% to 2%, excluding a negative impact from foreign exchange of approximately 0.5% using mid-October rates. Our gross margin assumption remains approximately 82%, including an updated estimate of less than $100 million in costs related to the impact of tariffs. Operating expenses are now assumed to be between $25.9 billion and $26.4 billion. This guidance does not assume additional significant potential business development transactions. Other expense is now expected to be between $400 million and $500 million. We now assume a full year tax rate between 14% and 15%. We assume approximately 2.51 billion shares outstanding. Taken together, our EPS guidance is $8.93 to $8.98. Relative to 2024, this range includes a negative impact from foreign exchange of approximately $0.15, using mid-October rates. Recall, our prior guidance midpoint was $8.92. Our current guidance midpoint of $8.96 reflects a benefit from the restructured agreement for Koselugo of $0.09, partially offset by an estimated negative impact related to the acquisition of Verona of $0.04. As you consider your models, there are a few items to keep in mind. For KEYTRUDA, as previously communicated, year-over-year growth in the U.S. in the fourth quarter is expected to be negatively impacted by approximately $200 million due to the timing of wholesaler purchases. For ENFLONSIA, we are pleased with the initial purchases in the U.S. Keep in mind that most of this was stocking ahead of expected usage in this RSV season. Lastly, as Rob noted, we have one of the most robust pipelines in our recent history. Importantly, all of our major programs are advancing and we are excited about the additional opportunities in front of us. As we have said before, we intend to fully invest behind these opportunities, and as we look to 2026, we expect an acceleration in underlying operating expense growth driven by investments in both R&D and SG&A to fuel our pipeline and new launches, including more than $0.5 billion of investment to maximize the potential of OHTUVAYRE. This will enable us to continue to bring forward innovative medicines and vaccines to make a difference in the lives of patients and drive growth for our company. Now turning to capital allocation, where our strategy remains unchanged. We will prioritize investments in our business to drive near- and long-term growth. We will continue to invest in our key growth drivers and expansive pipeline of novel candidates, each of which has significant potential to address important unmet medical needs. We remain committed to our dividend with the goal of increasing it over time. Business development remains a high priority, and we are well positioned to pursue additional science-driven value-enhancing transactions. We are maintaining our increased pace of share repurchases and expect approximately $5 billion for the full year. To conclude, as we finish the year, we are confident in the outlook of our business driven by global demand for our innovative in-line portfolio, the exciting progress we are seeing with our many product launches and our exceptional pipeline. With continued investment in innovation and our ongoing focus on execution, we remain well positioned to deliver value to patients, customers and shareholders now and well into the future. With that, I'd now like to turn the call over to Dean. Dean Li: Thank you, Caroline. Good morning, everyone. The third quarter was marked by several notable clinical and regulatory milestones. I will start with updates in oncology, followed by vaccines and infectious disease, immunology, ophthalmology, and then cover advancements in our cardiovascular and pulmonary programs. I will close by highlighting key upcoming events through the first half of 2026. Progress continues across our diverse oncology portfolio. Last month, we received FDA approval for KEYTRUDA QLEX injection for subcutaneous administration of pembrolizumab. KEYTRUDA QLEX offers a substantially quicker administration time than intravenous infusion of KEYTRUDA, and can be administered subcutaneously by a health care provider in as little as one minute when given every 3 weeks. It has the potential to provide flexibility in the site of care while helping to increase efficiency in and access to health care systems. We also see opportunity for use in certain patients with earlier stage disease. To date, KEYTRUDA-based regimens have received FDA approval for 10 indications in the earlier setting. Last month, the European Medicines Agency's Committee for Medicinal Products for Human Use granted a positive opinion for subcutaneous administration of KEYTRUDA. The European Commission has approved KEYTRUDA as part of a perioperative regimen for the treatment of certain adult patients with resectable, locally advanced head and neck squamous cell carcinoma based on the Phase III KEYNOTE-689 trial. We continue to build upon the extensive body of evidence for KEYTRUDA in multiple indications spanning both earlier and metastatic stages of disease. At the European Society for Medical Oncology Congress, data from the KEYTRUDA program were showcased in two Presidential Symposium sessions. These include progression-free and overall survival results from KEYNOTE-B96 in certain patients with platinum-resistant recurrent ovarian cancer. The FDA has accepted our sBLA for priority review and set a PDUFA date of February 20. Also at ESMO, event-free and overall survival data from KEYNOTE-905 in patients with muscle-invasive bladder cancer who were ineligible for cisplatin-based chemotherapy, conducted in collaboration with Astellas and Pfizer, were presented. The FDA has also accepted this sBLA for priority review with a PDUFA date of April 7. The success of KEYTRUDA has enabled us to build a diversified oncology pipeline. At ESMO, data from our growing portfolio of antibody drug conjugate candidates were also presented, including: results for sac-TMT, our TROP2 targeting ADC, from the Phase III OptiTROP-Lung04 study in patients with EGFR-mutated non-small cell lung cancer conducted by our collaborator, Kelun. Findings from Kelun's Phase III OptiTROP-Breast02 study evaluating sac-TMT in locally advanced or metastatic HR-positive, HER2-negative breast cancer, as well as results from the Phase II/III REJOICE-Ovarian01 study evaluating R-DXd, our CDH6 targeting ADC, in certain patients with platinum-resistant ovarian, primary peritoneal or fallopian tube cancer in collaboration with Daiichi Sankyo. Also, earlier this week, we were pleased to announce positive results for WELIREG, our first-in-class oral HIF-2 alpha inhibitor, across adjuvant and advanced renal cell carcinoma based on 2 Phase III trials: LITESPARK-022 in combination with KEYTRUDA, and LITESPARK-011 in combination with Lenvima in collaboration with Eisai. Next, to vaccines and infectious disease. Starting with CAPVAXIVE, our 21 valent pneumococcal conjugate vaccine. Following the approval in the U.S. and EU, in August, the Japanese Ministry of Health, Labor and Welfare granted approval for CAPVAXIVE for the prevention of pneumococcal infections in the elderly and adults at high risk. We are also evaluating the potential of CAPVAXIVE in additional patient types. At the European Society of Clinical Microbiology and Infectious Diseases Conference on vaccines, results of the Phase III STRIDE-13 trial, examining the safety, tolerability and immunogenicity in children and adolescents aged 2 to 17 years who are at increased risk of pneumococcal disease were presented. The FDA has accepted for review the sBLA and set a PDUFA date of June 18. Regarding RSV, following approval in June, ENFLONSIA, our long-acting monoclonal antibody for the prevention of RSV disease in infants entering or during their first RSV season is now available. Earlier this month, we received a positive CHMP opinion from the European Medicines Agency. Turning to HIV. We have development programs spanning both treatment and PrEP settings anchored by our investigational NRTTIs islatravir and MK-8527. Earlier this month, new findings were presented at the European AIDS Conference including: 48-week Phase III data for doravirine and islatravir as a once-daily, oral 2-drug regimen for the treatment of adults with virologically suppressed HIV-1 infection on antiretroviral therapy; and 96-week Phase II outcomes data for the investigation of once-weekly oral combination of islatravir with lenacapavir for adults with virologically suppressed HIV-1 infection, in collaboration with Gilead. Moving to immunology, then ophthalmology. Tulisokibart is a humanized monoclonal antibody that targets tumor necrosis factor like cytokine 1A, that is associated with inflammation and fibrosis. The Phase III ATLAS trial in ulcerative colitis recently completed enrollment, and the Phase III ARES trial in Crohn's disease remains on track. Building on these studies, we recently announced an expansion of the development program evaluating tulisokibart in dermatology and rheumatology indications with the initiation of 3 Phase IIb trials. Since the acquisition of EyeBio last year, we have made significant progress advancing the Phase III clinical development program for MK-3000. Our novel candidate targeting the Wnt pathways for certain retinal diseases. Enrollment in the Phase III BRUNELLO study in patients with diabetic macular edema is complete and the study's primary completion date has been accelerated to September 2026. SUPER TUSCAN, a Phase II study evaluating MK-3000 in patients with neovascular age-related macular degeneration as well as retinal vein occlusion is currently enrolling. In addition, earlier this month, at the Eyecelerator event hosted by the American Academy of Ophthalmology, we presented promising first-time Phase I data from the RIOJA study evaluating MK-8748, our tetravalent bi-specific antibody targeting Tie2 and VEGF, in patients with macular edema secondary to branch retinal vein occlusion and neovascular age-related macular degeneration. Based on these data, we plan to initiate late-stage trials in 2026. Next, to our cardiovascular and pulmonary programs. WINREVAIR, the first and only activin signaling inhibitor for the treatment of adults with pulmonary arterial hypertension, continues to generate evidence for benefit across a broad spectrum of patients with PAH. Results from the Phase III HYPERION trial in recently diagnosed adults with PAH were presented at the European Respiratory Society meeting. Adding WINREVAIR on top of background therapy showed a significant 76% reduction in risk of clinical worsening events compared to background therapy alone, despite early termination of the study due to loss of clinical equipoise. The findings were also published in the New England Journal of Medicine. The FDA also recently approved an update to the WINREVAIR product label based on the results of the Phase III ZENITH trial. With the expanded indication, WINREVAIR is the first PAH therapy to have an indication that includes components of the clinical worsening event, hospitalization for PAH, lung transplantation and death. With the closing of the Verona Pharma acquisition, we welcomed new colleagues to the team. Together, we are well positioned to build upon the success of OHTUVAYRE, a first-in-class dual phosphodiesterase 3 and 4 inhibitor for the maintenance treatment of chronic obstructive pulmonary disease. We plan to advance the ongoing work in bronchiectasis and evaluate utility in additional indications, combination therapies and alternative formulations. Despite advances in the screening and treatment, there continues to be a cardiovascular disease epidemic with ASCVD as the leading cause of death globally. In September, we announced that enlicitide, our investigational oral PCSK9 inhibitor, met all primary and key secondary end points in the CORALreef Lipids study, demonstrating statistically significant and clinically meaningful reduction in LDL cholesterol for the treatment of adults with hypercholesterolemia on a moderate or high-intensity statin or with documented statin intolerance. This is the third positive Phase III trial for enlicitide. We look forward to presenting the detailed results of the CORALreef Lipid study as well as the CORALreef study focused on familial heterozygous hypercholesterolemia at the American Heart Association Scientific Sessions meeting next week in New Orleans. Please mark your calendars for an investor event at AHA on the evening of Sunday, November 9, where we will highlight these results and provide an overview of our cardiovascular and pulmonary program. We continue to see strong momentum across the pipeline. As Rob noted, there are approximately 80 Phase III trials underway across multiple therapeutic areas. We have initiated more than 15 Phase III trials this year and expect to have an increasing number in 2026. As we look through the first half of 2026, we anticipate a regular cadence of milestones across therapeutic areas, including: in oncology, the February 20 PDUFA date for certain patients with platinum-resistant recurrent ovarian cancer based on KEYNOTE-B96; the April 7 PDUFA date for certain patients with earlier-stage MIBC based on KEYNOTE-905. In HIV: the April 28 PDUFA date for the combination of doravirine and islatravir, an oral once-daily treatment regimen; and data from the Phase III ISLEND-1 and 2 trials evaluating islatravir in combination with lenacapavir, as a once-weekly oral treatment regimen. In immunology: Phase II data for tulisokibart from the ATHENA study in SSc-ILD; in cardiopulmonary: for WINREVAIR, data from the Phase II CADENCE study in pulmonary hypertension due to left heart disease; for enlicitide: presentation of detailed results from 3 Phase III trials from the CORALreef development program. We continue to make progress with a diversified pipeline across multiple therapeutic areas, and I look forward to providing further updates on our programs in 2026. And now I turn the call back to Peter. Peter Dannenbaum: Thank you, Dean. Julie, we're now ready for Q&A. [Operator Instructions] Thank you. Operator: [Operator Instructions] Our first question comes from Asad Haider with Goldman Sachs. Asad Haider: Maybe for Rob on BD. I was reassured to hear in the prepared remarks that you are assessing potential targets with urgency. And certainly, your Verona deal seems well received, and it seems that the market wants to see more of those types of transactions from you. So I guess any updated framing on what you're looking for would be helpful. And then related, there's also been an ongoing pickup in discussions about the potential reemergence of potentially transformative larger transactions in the industry, just given the external environment. So curious if you could share your updated views there. Robert Davis: Great. Asad, thanks for the question. As it relates to business development, as you point out, we were very excited about getting the closure of the deal with Verona. And as you know, we continue to see OHTUVAYRE as a multibillion-dollar opportunity. So excited about that. But as we've also said, we're not done, we do need to do more. We continue to look across all therapeutic areas. I would say, obviously, the areas of focus for us continue to be aligned with what is our key therapeutic areas from the business perspective. Oncology continues to see a lot of opportunities, immunology, cardiometabolic and the like are where we're continuing to focus. As is always the case, science will drive us. And when we see a scientific opportunity where there's an unmet need that we think strategically aligns with our approach, if we see value, we'll move. So no change in our approach. And as you think about deal size, we continue to be focused in that $1 billion to $15 billion range as the primary area. But as we've been clear to say in the past, we are willing to go larger than that, but always with the focus on science and always understanding that if we look and see an opportunity, we're going to do it based on that unmet need. As you think forward to your broader question on the reemergence of potential larger scale deals, our view of that has not changed. We do not think that a transformative acquisition, a synergy-driven deal is something that we need to do nor aligns with our future because as you know, we have one of the most robust pipelines we've ever had, and we see large synergy-driven deals as disruptive to that activity. And so our focus will be on bringing in pipeline assets not on those types of deals. But as you think about that, as we've said in the past, we're open to Phase I all the way through Phase III, and where we can find it, commercial opportunities. So we look across the full spectrum. Operator: Our next question comes from Geoff Meacham with Citibank. Geoffrey Meacham: I had a pipeline one for Dean. So on the expanding development of your TLL1 (sic) [ TL1A ] immunology, I'm assuming that a broad development program was already in place surrounding the Prometheus deal. But maybe talk about the selection of the indications that you just announced from a mechanism perspective and maybe what additional development opportunities do you like across the I&I space. Dean Li: Yes. Thank you very much for the question. I mean the focus initially was in the GI space, and we're -- our ambition is to be the first and best-in-class TL1A. We've always talked about that expansion. We've always thought about that expansion, and that expansion has been recently sort of outlined with recent Phase IIb studies in rheumatology and dermatology. The question is, could we see more? I will always leave that open. I do think that the Phase III for ulcerative colitis and especially for Crohn's disease is very important to me, not just because it's in GI, but in Crohn's, there's an element of fibrosis. And the other one is the Phase II in SSc-ILD. I will need to see that because if I see that in Crohn's disease, then you all of a sudden start talking about not just similar to other anti-cytokines, dampening down inflammation, you then have a leverage in terms of fibrosis. And that would steer us in relationship to what we would do next. Operator: Our next question comes from Akash Tewari with Jefferies. Akash Tewari: So your team has talked about a 1.0 and 2.0 solid tumor strategy, with 1.0 being sac-TM3 -- sorry, sac-TMT and then 2.0 is combining the ADCs with the PD-1 VEGF. At ESMO, it looked like your TROP2 is showing a 6- to 12-month benefit on overall survival, at least it's trending that way in second line. And that's triple what we're seeing with the PD-1 VEGF. So what gets you more excited? The signal you're seeing with your TROP2 or the PD-1 VEGF class? And how does that impact your appetite to potentially run another round of Phase III combo trials with the LaNova asset? Dean Li: Yes. So I should probably reset. I don't believe that we've said anything in relationship to how you've talked about it in terms of the different phases. We are extremely excited about the TROP2, the sac-TMT, and we've had a productive relationship with Kelun. One of the things I would just emphasize is it's very easy to sit there and say, "Oh, this is a TROP2 ADC, and we throw all the TROP2 ADCs in a bucket as if they're not different." I think the recent data suggests that there may be differences, and we're really interested as we move 15 Phase III studies, but 10 of them are actually in places where the other TROP2s haven't gone. So we're very interested in pushing the sac-TMT with and in the appropriate place with IO or with other precision targeted. In relationship to the PD-1 VEGF, we're also interested in advancing that and seeing that data just evolve not just with us, but from the outside world. And that will define to us where we would put the PD-1 VEGF in relationship to PD-1. But I just want to just make sure that we're very excited about the sac-TMT. We've shown data, Kelun has shown data. You've highlighted how it's different. We believe that we're eager to see the trials that can drive that in -- not just in the Chinese patient populations, but in the U.S. and globally. Operator: Our next question comes from Evan Seigerman with BMO Capital Markets. Evan Seigerman: I wanted to just touch on the ENFLONSIA launch in the United States. Heading into RSV season, can you just talk about the initial feedback, say, versus the competition and kind of what you're seeing in terms of potential uptake as we head into RSV season. Robert Davis: Yes. Maybe I'll start, and then if Caroline wants to jump in, she can as well. Overall, we feel good about where we are with ENFLONSIA. If you look at how that launch has progressed, I would point out that while we did receive, obviously, all the full approvals we were a couple of weeks later than initially expected. So that did play into this because it put us a little bit later into the season. We did highlight, as Caroline pointed out in the prepared remarks, there was $75 million -- or $79 million of initial stocking, and that really was the seeding order from the VFC as well as other wholesaler distributor stocking. So as we sit here right now looking at the season and into next year, we really continue to see an opportunity. I would point out, if you think about the benefits ENFLONSIA brings, there's no weight-based dosing, our ability to look at our total contracted portfolio of vaccines. All of the things we've talked about continue to make us believe this will be a very important vaccine. And as we look forward into '26 and beyond, we continue to see that. We'll see where the rest of '25 plays out, but it's -- all in all, given the timing of when we started, we feel good. Caroline Litchfield: And just to add to Rob's comments, we had the seeding order in the third quarter. We expect that to be utilized during the fourth quarter. Feedback from customers has been very good, and we look forward to having an impact this season and much more of an impact as we go into 2026. Operator: Our next question comes from Daina Graybosch with Leerink Partners. Daina Graybosch: I wonder if you could give us an update on KEYTRUDA and the proportion of the sales that you have from early-stage settings and a breakdown of which of those tumor types of the 10 approved is driving that revenue? Robert Davis: Yes. I'll start, Daina, and then Caroline can jump in as well. So if you recall, if you look at where we are in the earlier-stage setting, we have currently 10 approved indications, now 5 with overall survival, which is important. And if you look at where we are going forward, the drivers of that in that cervical continues to be important, RCC, we continue to see TNBC and non-small cell lung cancer, all are important drivers. We're obviously excited. We don't have approval yet, but you heard that we have yet another potential OS benefit coming, 905, I believe it is, that Dean spoke about earlier. So yet more coming, and that's in muscle invasive bladder cancer. So a lot out there, we're excited about where it goes. It's driving over half of our growth. Right now, it's coming from earlier-stage indications. And we achieved -- if you look back to -- we indicated we would be at 25% in 2024, and '25, we're now -- we're exceeding 25%. We have not given specific targets, but we see it growing as a percent overall of total sales, and it's over half of our growth. So it is an important driver, especially as we think about the QLEX launch that is just starting to get underway. Operator: Our next question comes from Chris Schott with JPMorgan. Christopher Schott: Just Rob, a question on MFN. I appreciate the color in the prepared remarks. But just following some of the recent deals with the administration, both with Pfizer and Astra, should we be thinking about this type of structure as a reasonable framework for the industry? And just any updates in terms of where Merck is in terms of its discussion with the administration on MFN. Robert Davis: Yes, Chris, thanks for the question. As I said in the prepared remarks, overall, we're aligned with what the administration is trying to achieve, which is to lower the out-of-pocket cost for patients at the pharmacy counter and at the same time, to get foreign prices up to ensure that foreign governments are paying their fair share. So those broad-based principles, we're aligned with. We are in continuing discussions with the administration. I'm not going to give any specific updates other than to say, I am very optimistic that we're going to have a constructive outcome to those discussions. And the framework, we'll wait until we actually have something to talk about there to be more specific to how we see ours coming out. Operator: Our next question comes from Carter Gould with Cantor. Carter Gould: You had a pair of good WELIREG data recently. So Dean, I wanted to ask you around your confidence in ultimately hitting on OS in the 022 study and the importance of that in moving the needle on adoption in that setting. Dean Li: Yes. So we are equally excited about the WELIREG. It's a first-in-class treatment. We've announced the top line Phase III for the second line as well as the adjuvant. And I also think it's important that in one of the trials, the ability of a HIF-2 alpha to do something on top of the VEGF blocking agent is important. In relationship to OS, I think OS is always really important. It's important for the FDA, but most importantly, it's important for patients. So we are really eagerly awaiting to see if and when we cross that boundary. And so yes, we are excited, and we have a broad portfolio program in WELIREG. And so we'll be anxious to share those results when we get them. Operator: Our next question comes from Terence Flynn with Morgan Stanley. Terence Flynn: Caroline, I know you commented somewhat on expenses for 2026. I was just wondering if you can give us any comments on the top line in terms of some of the pushes and pulls as we think about that, recognizing you probably don't want to give guidance yet at this point, but just maybe help us think through some of the levers there. Caroline Litchfield: Yes. Of course, Terence. So as we go into 2026, we are expecting solid top line growth for our company, and that growth will increasingly be fueled by the number of new launches that we have. So we're expecting continued patient impact and revenue growth from WINREVAIR. OHTUVAYRE now is also part of the Merck portfolio. We have CAPVAXIVE, which is off to a very strong start, and ENFLONSIA. And on top of that, we have our Animal Health business, where growth will also be driven by new launches, including BRAVECTO QUANTUM, the 12-month injection, as well as NUMELVI, our new dermatology product. We also have the expectation of continued growth in oncology. To the last question, WELIREG, has strong growth with greater potential ahead of it as we get into other successful studies and treat a broader range of patients. And we do expect continued growth in KEYTRUDA, albeit at a slightly slower pace than we've seen as we are getting to peak penetration in some of the indications, and we do expect some headwind from price in our ex-U.S. markets. The other headwinds that we will face will be related to loss of exclusivity and generic entrants. And that really is DIFICID that's seen generic entrant halfway through 2025 in the U.S., BRIDION, which will have its LOE partway through 2026. And we also expect the headwind of IRA price setting on the JANUVIA family and the generic entrant for JANUVIA midway through next year. But overall, confident in our ability to continue to positively impact patients and drive solid growth. Operator: Our next question comes from Umer Raffat with Evercore. Umer Raffat: I was wondering if I should ask about Organon situation, but I realize it's multiple years removed, stand-alone company. So maybe there's not a whole lot you could say anyways. So let me focus instead on CADENCE trial instead. And Dean, my question is, it finished late September. You're indicating first half '26. It sounds to me like that's a little longer than I would have expected to get the readout out there on 150-patient trial. So could you just catch us up on your thought process there? Dean Li: Yes. So just as everyone knows, we have ZENITH, HYPERION earlier in disease, those data have come through. We have a primary completion date of CADENCE this year, and we said that we would be presenting it to the data in a meeting. I believe that we will be putting out a top line once we know it as well. So when we talked about the first half of -- or the first quarter or first half of 2026, we were talking about the full data at a medical meeting. We are eager to see that result because that result will suggest to us how much we can use WINREVAIR outside of the patient population that's formally PAH. And so we're eager to see those results as well. Operator: Our next question comes from Courtney Breen with Bernstein. Courtney Breen: Just coming back to some of the White House price policy pressures and comments you've made already. I wanted to ask this in a slightly different way. If we look at kind of Merck's ratio of revenue today, it's about 50-50 inside the U.S. versus outside the U.S. How different do you expect that to be in 5 years' time? And how much of that could be attributed to product mix? And how much down to kind of equalization of price? Robert Davis: Yes, Courtney, thanks for the question. I'm not going to get into specific guidance. Obviously, if you look at where our business is driving, we're excited about the diversity of the pipeline we're bringing. A lot of those opportunities disproportionately will be U.S. based, primarily just because of the nature of the drugs and the uptakes and the value you can assert to the U.S. market. So mix will affect how we look forward. How MFN or other pricing dynamics change, it's too early to say because we need to see what it is. And so I would leave it at that for right now. Operator: Our next question comes from Vamil Divan with Guggenheim Securities. Vamil Divan: So I appreciate the comments around 2026 and how to think about some of the driver there. I had a question just more on GARDASIL. Maybe it's a good thing that we haven't talked much about GARDASIL on this call, but just obviously a challenging year for that product. I'm curious how you think about that product sort of in 2026 and beyond, both in the U.S., where obviously, there's been sort of evolving sentiment around vaccinations and maybe some -- could be an adjustment to the guidelines around the U.S. recommendations, but also then ex-U.S., given you'll be annualizing out of the China and Japan impact. So just any sense of -- I think consensus is expecting a sort of robust return to growth for that product over the next several years. Just curious how you're thinking about that. Caroline Litchfield: Thank you for the question, Vamil. So GARDASIL still remains a very important product, and we're really proud of the impact that we're having in helping protect people from certain HPV-related cancers. As we look forward, in the United States indeed today, we are seeing growth in our vaccinations in the 9, 10 age group as well as the mid-adult segment. And that's being offset by a lower level in the adolescent segment, and that's really driven by a reduction in the eligible population, and there are some macro factors there. As we look forward for the United States, we are hopeful for growth. But clearly, as you mentioned, the ACIP recommendation around that dosing schedule will very much impact whether we do or don't grow in the United States. And as we've said before, we will always look at having the appropriate price point in the United States based on the value that we are providing society. Outside of the United States, you rightly note that we will lap the impact of China as well as the reduction in the cohort for the catch-up in Japan as we go through 2026. So we look forward to protecting more people around the world. What we're seeing in countries outside of the United States, some of the public programs have really reached maturity. So we expect a routine cohort to be vaccinated each and every year. The private market is a great opportunity for growth for us. And that's really in the mid-adult segment, age 27 through 45, where we're creating the system to enable people to get vaccinated in many countries around the world. And it's also in some countries in the broad age cohort. So we will be working to activate that cohort. It does take time, but we'll be activating that cohort to drive growth in the private segment as we go forward. Overall, we expect modest growth for GARDASIL in the near term. Operator: Our next question comes from Luisa Hector with Berenberg. Luisa Hector: Just back to KEYTRUDA. Could you just update us on your latest expectations for conversion from IV to subcutaneous and the kind of pace that we could expect? And with that in mind, Caroline, you made a comment on KEYTRUDA growth at a slower pace for '26. So just to check whether that is the overall franchise or IV only? And will you report the sales separately? Robert Davis: Yes. Luisa, this is Rob. I'll maybe start and then Caroline can address the last part of your question. So if you look at expectations for QLEX, as we've said, it's early in the launch, but everything appears to be on track. And there's no changes to what we previously communicated. We continue to expect that we're going to achieve 30% to 40% patient adoption and that, that will take us out to 18 to 24 months to achieve that. So nothing has changed there. I would highlight, as we've pointed out in the past, that we will have a permanent J-code, but we won't get that probably for 6 months. And during that first 6-month window, you can anticipate a slower uptick just because with people using temporary J-codes, there can be longer reimbursement windows. And so some people will hesitate to order until they have the permanent J-code. We've done everything we can to learn from the other subcutaneous products that have launched ahead of us. I can tell you that we've put in place, I believe, a commercial contracting strategy that really will make it frictionless to convert patients over, or in the cases of new patients, to adopt the therapy, and that's important to make sure that we are driving this because access and conversion are what is our goal or adoption is the goal we have moving forward. I'll let Caroline speak to her comments about the overall growth next year. Caroline Litchfield: Yes. So Luisa, the comments I gave were with regards to KEYTRUDA in its entirety, where we expect KEYTRUDA to slow although it'd be an important contributor to growth for our company. Within that, to Rob's point, we are really excited about the contributions that QLEX can bring as we do provide treatment options for more and more patients as next year unfolds. Peter Dannenbaum: And we will anticipate reporting separately in 2026. Operator: Our last question comes from Alex Hammond with Wolfe Research. Alexandria Hammond: On EyeBio, can you help with the Phase III BRUNELLO result in context? What's the bar to deem the trial a success? And I guess given the competitive nature of this indication, how do you plan to execute commercially? Dean Li: Well, let me just say that we're really excited about pushing this first-in-class MK-3000 novel candidate targeting the Wnt pathway. I would just remind, I believe this is the first time a novel mechanism has been pushed through in relationship to having clear human genetic evidence for it, and we plan to evaluate that MK-3000, not just in diabetic macular edema, but also neovascular age-related macular degeneration as well. In terms of commercial sort of execution, I would hold off until we see the data from these trials, but we're pushing very fast and very forward in relationship to this because this could be one of the first new mechanisms, kind of like the WINREVAIR story, where it's the first generally new mechanism that can make a profound effect on such a broad disease. Robert Davis: Yes. And maybe just to add a little bit on the commercial opportunity. And if you look at where we are today in the United States, there's about 1.6 million patients with diabetic macular edema. So this is the leading cause of vision loss in people with diabetes. And so as you look at that population, still, there's a very large opportunity because 30% to 40% of patients on therapy are not responsive to the current anti-VEGF. So the ability potentially to see conversions is significant. If you look, it's about a $13 billion market today, and we believe that our ability to drive that kind of conversion with this new molecular entity is important. As far as the commercial infrastructure, we're really combining the EyeBio's leadership strengths and our expertise in ophthalmology and pushing these forward, and I'm quite confident that we will have the global infrastructure to be able to drive this. We're investing pretty heavily behind this. And when you look at this and combined with the Tiespectus, this is a multibillion-dollar opportunity for the company. We're very excited. I think this is one of the underappreciated areas of what we have, and I credit Dean and the team, they've advanced these by a couple of years from what we originally anticipated when we did the deal. So this is a win in my book. Peter Dannenbaum: Great. Thank you Alex. Thank you all for your great questions, and we'll end the call there. Please reach out to the IR team if you have any follow-ups. Operator: Thank you for your participation. Participants, you may disconnect at this time.
Operator: Welcome to the Aris Mining Third Quarter 2025 Results Call. We will begin with an overview from management followed by a question-and-answer period. [Operator Instructions] The conference is being recorded. [Operator Instructions] Please note that the accompanying presentation that management will refer to during today's call can be found in the Events and Presentations section of Aris Mining's website at aris-mining.com. Also, Aris Mining's Third Quarter 2025 financials can be -- have been filed on SEDAR+ and EDGAR and can also be found on their website. I would now like to turn the conference over to Mr. Neil Woodyer, Chief Executive Officer. Please go ahead. Neil Woodyer: Thank you, operator, and welcome, everyone. Thank you for joining us for our third quarter 2025 earnings call. I'm joined today by members of the management team, including Richard Thomas, Cam Paterson, Oliver Dachsel, Alejandro Jimenez, and we'll be able to answer your questions at the end of the call. Before we begin, please take note of the disclaimers on Slide 2 as we will be making forward-looking statements throughout today's presentation. Now starting on Slide 3. Following the strong first half year's performance, I'm delighted to report that we have delivered an excellent third quarter. Gold production in Q3 totaled 73,236 ounces, a 25% increase over Q2. Segovia has been ramping up production in line with the expectations following the commission of the second ball mill in June, while Marmato has maintained its solid production levels. This brings our total production for the 9 months of '25 to 187,000 ounces. So we're tracking about the midpoint of our full year production guidance of 230,000 to 270,000 ounces. Against the backdrop of rising gold prices, our strong operational performance has driven record financial performance in the third quarter, putting us in a strong position to fund our growth plans. Gold revenue totaled $253 million in Q3, up 27% over Q2. Adjusted EBITDA was $131 million for Q3 and more than $350 million on a trailing 12-month basis. And we ended the third quarter with a cash balance of $418 million. Meanwhile, the construction of the Marmato Bulk Mining Zone continues to advance with first gold pour expected in the second half of 2026. Lastly, we published 2 major technical studies. First, a pre-feasibility study for Soto Norte in September, confirming it as one of the most attractive gold projects in the Americas. And second, a preliminary economic assessment for Toroparu, which outlines a long-life, low-cost open pit gold project with strong financial returns. Our strategy from here is therefore straightforward. We'll advance Toroparu to a pre-feasibility study over the next 10 months or so. And then we will plan to start construction. In parallel, we're advancing the permitting process for Soto Norte. Together, these projects demonstrate the depth of our growth pipeline beyond Segovia and Marmato and position Aris Mining to become a very significant gold producer. Before I hand over, I'd like to share a quick update from our meetings in Guyana last week, where I presented the results of the Toroparu PEA study to Guyana's Minister of Natural Resources and the Minister of Finance. The meeting gave the project strong support and have confidence that Toroparu can become one of the next major gold mines in Guyana. We're focused on making this happen. With that, I'll pass over to Cam for an update on our financial performance. Cameron Paterson: Thank you, Neil. Turning to Slide 4. Aris Mining reported strong financial results in the third quarter, driven by increased production volumes and a strong gold price environment. As Neil mentioned, this quarter, we generated record revenue of $253 million and record adjusted EBITDA of $131 million, which drove record adjusted net earnings of $72 million or $0.36 per share. We closed the quarter with cash of $418 million, up from the $310 million held at Q2. This increase reflects $91 million of cash flow after sustaining capital and income taxes, $60 million of proceeds from the exercise of warrants, 99% of which got exercised before they expired in July and $13 million of proceeds from closing the sale of the Juby Gold Project on September 29, partially offset by $48 million we invested in growth capital. Moving on to Slide 5. Our AISC margin increased by 36% compared to Q2, reflecting increased production with the successful commissioning of the second mill at Segovia, higher realized gold prices and continued cost controls. Taxes paid totaled $13 million in the quarter compared to $42 million in Q2. Taxes paid in Q2 were substantially higher as a result of the settlement of our 2024 Colombia income tax liability. In Q3, we generated $43 million in free cash flow from operations after expansion capital. That's after investing $48 million in our growth projects, including $31 million at Marmato, which includes $23 million related to the construction of the bulk mining zone, $10 million at Segovia spent on underground exploration and development, completion activities for the mill installation that followed its June commissioning as well as ongoing work on the tailings storage facility and $7 million invested at Toroparu and Soto Norte, which included the technical studies mentioned by Neil earlier. Financing activities driven mainly by the warrant exercises, as I alluded to earlier, resulted in cash inflows of $65 million in the quarter, which together with free cash flow from operations resulted in a net increase to our cash position of $108 million in Q3. With a continued strong gold price environment and solid operational performance, Aris Mining remains well positioned to deliver robust cash flows to organically fund growth initiatives. I'd like to now hand the call over to Richard to discuss our operational results and growth projects. Richard Thomas: Thank you, Cam. Moving to Slide 6, please. As mentioned by Neil earlier, we delivered total gold production of 73,236 ounces across our operations in the third quarter, an increase of 25% from quarter 2, resulting in total gold production of 187,000 ounces for the first 9 months of 2025. Segovia accounted for 65,500 ounces of gold produced, driven by the following 3 things: an increase in gold throughput following the commissioning of the second mill in June, an average gold grade of 9.9 grams per tonne and finally, splendid recoveries of 96.1%. In monetary terms, Segovia's strong performance in the third quarter can be summarized as follows: Segovia's all-in sustaining cost margin totaled $121.5 million, an increase of 39% compared to quarter 2. On a trailing 12-month basis, its all-in sustaining cost margin has reached $328 million. Owner mining all-in sustaining cost was $1,452 per ounce in quarter 3, resulting in an average of $1,482 per ounce for the first 9 months of 2025, trending towards the lower end of the company's full year 2025 guidance of $1,450 to $1,600 per ounce. Gold produced from Contract Mining Partners, mill feed generated an all-in sustaining cost sales margin of 44% in Q3, bringing the average for the first 9 months of the year to 43%, above the top end of the company's full year 2025 guidance range of 35% to 40%. Turning your attention to the bottom right. Rising realized gold prices and continued cost discipline continue to drive the all-in sustaining cost margin expansion at Segovia. In quarter 3, Segovia generated an all-in sustaining cost margin of $1,853 per ounce. Moving on to Slide #7. I'm pleased to report that Segovia's production ramp-up following the installation of the second ball mill in June continues to progress as planned. The new ball mill has increased the plant's throughput capacity from 2,000 tonnes a day to 3,000 tonnes per day, and we're making good progress with our gradual production ramp-up as evidenced by the increase in tonnes milled per month since July, as shown in the chart in the bottom right-hand corner. Comparing tonnes milled per month in September of 79,471 to the average monthly of quarter 2 of 55,987 tonnes milled implies an increase of 42%. Importantly, as highlighted in the chart on the top right-hand corner, we didn't sacrifice grade to increase throughput. The grade of our mill feed in quarter 3 was even marginally higher than in quarter 2. Lastly, our recovery rate has remained at an excellent 96.1%. These 3 factors together have allowed us to meaningfully increase gold production in quarter 3 to 65,549 ounces. Based on gold production year-to-date and expectations of a continued gradual ramp-up, Segovia is tracking about the midpoint of our 2025 production guidance of 210,000 to 250,000 ounces. With increased processing capacity and underground development advancing, Segovia is targeting gold production of around 300,000 ounces in 2026. Moving on to Slide #8. At Marmato, construction of the Bulk Mining Zone continues progressing, and I'd like to use this opportunity to give you an update on the different work streams of the project. We have to date completed 580 meters of the main decline, which equates to 34% of the full length of the 1.7 kilometer decline. Current development rates are at 72 meters per month and are expected to increase to approximately 150 meters per month once we have transitioned through the fault zone. Completion of the decline is targeted for August 2026. Los Indios crosscut is advancing towards the connection with the main decline, which is now approximately 320 meters away. As you will see in the project design on the left of the slide. This horizontal development will provide additional access and ventilation pathway, enabling ore and waste haulage between existing workings and the new infrastructure. Importantly, completion of the crosscut will enhance operational flexibility and derisk the project's ramp-up phase by allowing multiple access points for early development and production sequencing. On surface, bulk earthworks for the process plant platform have reached 95% completion and the retaining wall is over 75% complete. Final shaping of the carbon-in-pulp plant platform is expected during the first week of November. Construction activities continue to advance safely with over 2 million man work hours completed to date. Major equipment, including the primary crusher, the SAG mill, the ball mill and filter press has arrived in Cartagena. Approximately 95% of long lead items have been ordered. The contract for the main civil, mechanical and electrical works is in place with the contractor mobilized and construction activities having commenced in October. Preparations for the new power line continue to advance well. Land acquisition is complete and the environmental impact study has been submitted for approval, enabling construction to commence in March 2026 following the issuance of the permit. To ensure continuity of commissioning and early operations, backup generators are included in the site power plan to mitigate any potential delay in the grid power connection. At the end of quarter 3, the estimated cost to complete the project was $250 million, of which $82 million will be funded by the remaining installments under the Wheaton streaming agreement and bringing the total, which Aris Mining has to fund to $168 million. The project remains on schedule with first gold expected in the second half of 2026, followed by a ramp-up period to steady-state operations. Moving on to Slide #9. As Neil mentioned at the beginning of the call, we completed a feasibility study for Soto Norte, which we believe is one of the most attractive gold projects in the Americas. With the PFS complete, we are advancing the required studies to apply for an environmental license in the first half of 2026. The PFS outlines a long-life underground gold mine with robust economics, low operating costs and industry-leading environmental and social design features. We went to great lengths to strike the right balance between scale, profitability and responsible development considerations, which I will discuss in greater detail in the following 2 slides. Before moving on, I would like to draw your attention to the charts at the bottom left and bottom right-hand side of the slides. Starting on the left, Soto Norte has 7 million ounces of measured and indicated resources at a grade of 5.6 grams per tonne, of which 4.6 million ounces at a grade of 7 grams per tonne have been converted to proven and probable reserves, confirming that the Soto Norte is a high-grade, long-life project. As a reminder, Aris owns 51% of Soto Norte and hence, our attributable share of measured and indicated resources and proven and probable reserves are 3.6 million ounces and 2.3 million ounces, respectively. Turning to the right-hand side, we can see that the production and process grade profile over the first 10 years of the project. The mine plan has been calibrated such that we will be mining higher grade ore of the ore body first, resulting in process grade in those years being above the reserve grade. This, in turn, drives higher annual gold production in the first 10 years compared to the life of mine average, which enhances Soto Norte's net present value and payback period. Turning to Slide 10. The new study has reduced Soto Norte's processing capacity from about half from more than 7,000 tonnes per day previously to 3,500 tonnes. Of that, more than 20% of Soto Norte's plant capacity will be made available to process mill feed from local community miners, mirroring our successful partnership model with Contract Mining Partners at Segovia and Marmato. The 3,500 tonne per day design requires $625 million of initial capital expenditure. All other metrics on this slide are based on operating Soto Norte at the owner mining rate of 2,750 tonnes per day. Said differently, we chose not to incorporate the upside associated with the contract mining partner component of the study. The results based on owner mining alone are highly attractive and deliver the following results: a 22-year life of mine based on mineral reserves, annual gold production of 263,000 ounces over years 2 to 10 and 203,000 ounces over years 1 to 21. all-in sustaining costs of $534 per ounce over the life of mine. Annual EBITDA averaging from $547 million over years 2 to 10 and $410 million over years 1 to '21 at an assumed gold price of $2,600 per ounce. At that base case gold price, the project delivers an after-tax net present value of $2.7 billion and an internal rate of return of 35.4% with a payback period of 2.3 years. At a gold price of $3,000, the NPV increases to $3.3 billion and the IRR to 40%. As a reminder, all those metrics have been quoted on a 100% basis and Aris share is 51%. Let us move now to Slide #11. It is important to highlight that we have listened to Soto Norte's constituents very carefully and have gone to great length to design a project that addresses their concerns. We believe our PFS design adheres to the highest standards of safety, water protection and environmental management while delivering significant long-term value for our shareholders and for our community and government partners. As I've mentioned, 750 tonnes per day, which is more than 20% of the plant capacity will be dedicated to processing material purchased from the local community miners, replacing the informal mills that pollute water courses with safe license processing. Development of Soto Norte will generate significant employment. During peak project construction, about 2,300 jobs will be created with long-term operations requiring about 675 employees. Colombia will also benefit from $3 billion in taxes and royalties over the life of mine, assuming a gold price of $2,600. Clearly, if the current gold prices are here to stay for the long term, the project's fiscal contribution would be even more significant. Equally important, the project is designed to protect the local water, including a recycling system, allowing for 96.5% of water reuse. Other important features include a flow sheet requiring no cyanide or mercury reuse, a paste backfill plant to reduce tailing storage requirements on surface and a filtered tailings storage facility designed following international best practice. We're confident that this project strikes an appropriate balance between scale, profitability, responsible development considerations, and we're proud of Soto Norte's industry-leading environmental and social design features. We look forward to progressing studies that will enable us to submit our environmental license application for Soto Norte in the first half of next year and continue advancing what we believe is one of the most attractive gold projects in the Americas. Now turning to Slide 12. As Neil mentioned, we published the preliminary economic assessment for Toroparu, our 100% owned gold development project in Guyana, the second major technical study within 2 months. And like with Soto Norte, this PEA for Toroparu represents the first time that Aris Mining management team has articulated its vision for how this project should be designed, built and operated. After the merger of Gran Colombia and Aris Gold and the arrival of our management team in September 2022, the company paused the project's previous construction plans to reassess the project on a first principles basis, which included completing a new geological interpretation, updating the mineral resource estimate and undertaking optimization studies. As a result, this is a robust PEA that outlines a major new growth and diversification opportunity for Aris Mining. Toroparu has measured and indicated resources of 5.3 million ounces of gold at a grade of 1.3 grams a tonne and an inferred resource of 1.2 million ounces of gold at a grade of 1.6. The chart on the right-hand side of the slide illustrates Toroparu's planned gold production and process grade profile over the 21-year life of mine outlined in the PEA. The average gold production projected is 235,000 ounces per year, supported by a consistent mill grade ranging from 1 to 1.3 grams per tonne. The long steady production profile demonstrates the grade continuity of the project. Turning to Slide 13. I'd like to go over some of the key project parameters and the economics. Mill capacity of 7 million tonnes per annum, a scale that supports an attractive investment return and results in a life of mine of over 20 years, an annual life of mine gold production of 235,000 ounces with significant byproduct credits from silver and copper. Average all-in sustaining costs of $1,289 per ounce and annual EBITDA averaging from $443 million over the life of mine, assuming a gold price of $3,000 per ounce. Initial construction capital is estimated at $820 million, including preproduction costs and $96 million of contingency. After-tax net present value at 5% of $1.8 billion, an internal rate of return of 25.2% and a payback period of 3 years, assuming a gold price of $3,000. The PEA results confirm Toroparu as a large-scale, long-life open pit project with robust economics. Based on these results, we've initiated a PFS for Toroparu, targeting a completion in 2026 with the goal of advancing towards construction. With that, I'd like to pass over to Oliver for an update on our capital structure. Oliver Dachsel: Thank you, Richard. Moving to our cap table on Slide 14. Our strong operational and financial performance in Q3 has increased our adjusted trailing 12-month EBITDA to $352 million and further strengthened our balance sheet. Our liquidity position has increased to $418 million, and our net debt has decreased to $64 million as of September 30. Total leverage has decreased to 1.4x, which is 1.6 turns lower compared to Q4 2024. Net leverage has decreased to 0.2x, which is 1.3 turns lower compared to Q4 2024. With low and decreasing financial leverage, no meaningful debt maturities until October 2029, stable credit ratings at B1/B+/B+. Our balance sheet is in even stronger shape to support our growth strategy. With that, I'd like to hand over the call to Neil for closing remarks. Neil Woodyer: I'd like to conclude our prepared remarks on Slide 15. And our message is straightforward as it's exciting. Aris Mining is in a strong position to deliver exceptional growth in the near term to more than 500,000 ounces of annual gold production while advancing Toroparu and Soto Norte, which could potentially unlock 370,000 ounces of additional annual gold production on an attributable basis. We have the building blocks in place to create a leading gold mining company in South America. And importantly, we also have the team and the balance sheet to do it. Looking ahead, we are committed to building on our solid operational and financial momentum, finishing the year strongly and positioning Aris Mining for a successful 2026 and beyond. With that, I'd like to thank you for your time today and look forward to your questions. I'll now turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] Our first question is from Carey MacRury with Canaccord Genuity. Carey MacRury: On the great quarter. Just wondering if you could give us a bit more color on how the Segovia mill expansion is going now that we're through October, just sort of what the run rate is sitting at? And should we still expect 3,000 tonnes a day by the end of the year? Richard Thomas: Absolutely. It's going very well. At the moment, we're taking very nicely at about 2,500 to 2,600. As we -- as our development improves and increases to the end of the year, we get to 2,800 to 2,900 and then early next year, we'll be at 3,000 tonnes per day. Carey MacRury: Okay. Great. And do you have all the Contract Mining Partners lined up to deliver the tonnes that you're expecting? Richard Thomas: Yes, we do. We're adding additional 6 contracts in early in next year. The quotas and all the contracts are in place, so we're ready for that. But the bulk of that increase will come from our own operations, and we are well on track for that. Carey MacRury: Okay. Great. And then maybe one final one. In terms of Toroparu or Soto Norte, I'm assuming you would sequence those, you wouldn't do them at the same time. Is that fair? Neil Woodyer: Toroparu pre-feasibility, feasibility should be complete within about 10 months. We will be putting in the license on Soto Norte about midyear. That's going to take 18 months to go through. So Toroparu is a little bit ahead of Soto Norte. So we will see where we are as to which to build, probably Toroparu straight into it. Operator: [Operator Instructions] The next question is from Don DeMarco with National Bank Financial. Don DeMarco: Congratulations on the quarter and also on the Toroparu PEA. I'll just continue with the questions on Toroparu from the last caller. Do you see this asset as a -- I mean, what your bias appears to be in favor of developing it? But is it also potentially a divestment candidate? And what are your thinking on those 2 or potentially other options? Neil Woodyer: It is not a diversification. It's an ideal mine for us to build. It's the right size. We have the cash. We have the team. It fits in very nicely after Marmato. It's totally within our financial capability building. It's another 200,000 ounces, and it is geographic diversification. Very clear in my mind, this is a mine for us to build. Don DeMarco: Okay. And then for my next question, just looking at the development of the Marmato Bulk Mining Zone. What level of CapEx should we be modeling in the home stretch? I see that first pour is still on track for late next year, maybe $30 million was spent in Q3. So should we model an increase in CapEx going forward? Will it be more heavy lifting as we get into 2026 and get closer to first pour? Richard Thomas: Definitely, Don. So at the moment, we've completed the pad. So we are now ready for the construction of the mill. So you can expect a sharp increase in the capital spend rate going forward. We have signed a contract with our main contractor. They have mobilized on site and they are starting the foundations as early as next week on the 4th of November. So once that starts, the amount of money we'll be spending on a monthly basis will increase. Operator: This concludes the question-and-answer session. I'd like to turn the conference back over to Mr. Woodyer for any closing remarks. Neil Woodyer: Well, thank you, everybody, for joining us today. We appreciate your interest, and please don't hesitate to reach out to Oliver if you have any questions. And again, thank you very much. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning all, and thank you for joining us for the Insight Enterprises Third Quarter 2025 Operating Results Call. My name is Carly, and I'll be coordinating your call today. [Operator Instructions] I'd now like to hand over to our host, Ryan Miyasato. Please go ahead. Ryan Miyasato: Welcome, everyone, and thank you for joining the Insight Enterprises earnings conference call. Today, we will be discussing the company's operating results for the quarter ended September 30, 2025. I'm Ryan Miyasato, Investor Relations Director of Insight, and joining me is Joyce Mullen, President and Chief Executive Officer; and James Morgado, Chief Financial Officer. If you do not have a copy of the earnings release or the accompanying slide presentation that was posted this morning and filed with the Securities and Exchange Commission on Form 8-K, you will find it on our website at insight.com under the Investor Relations section. Today's call, including the question-and-answer period, is being webcast live and can also be accessed via the Investor Relations page of our website at insight.com. An archived copy of the conference call will be available approximately 2 hours after completion of the call and will remain on our website for a limited time. This conference call and the associated webcast contain time-sensitive information that is accurate only as of today, October 30, 2025. This call is the property of Insight Enterprises. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Insight Enterprises is strictly prohibited. In today's conference call, we will be referring to non-GAAP financial measures as we discuss the third quarter 2025 financial results. When discussing non-GAAP measures, we will refer to them as adjusted. You will find a reconciliation of these adjusted measures to our actual GAAP results included in both the press release and the accompanying slide presentation issued earlier today. Please note that all growth comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. Also, unless highlighted as constant currency, all amounts and growth rates discussed are in U.S. dollar terms. As a reminder, all forward-looking statements that are made during this conference call are subject to risks and uncertainties that could cause our actual results to differ materially. These risks are discussed in today's press release and in greater detail in our most recently filed periodic reports and subsequent filings with the SEC. All forward-looking statements are made as of the date of this call, and except as required by law, we undertake no obligation to update any forward-looking statement made on this call, whether as a result of new information, future events or otherwise. With that, I will now turn the call over to Joyce. And if you're following along with our slide presentation, we will begin on Slide 4. Joyce? Joyce Mullen: Thank you very much, Ryan. Good morning, everyone, and thank you for joining us today. In Q3, we grew adjusted earnings from operations in every geography and delivered 11% growth in adjusted diluted earnings per share, in line with our expectations. Commercial revenue was up for the sixth consecutive quarter, and we delivered record gross margin. Additionally, cloud gross profit was above our expectations, and we continue to manage our adjusted expenses well. These results were offset by lower-than-expected gross profit performance in core services and hardware. Specifically, in the quarter, overall revenue was down 4%, driven by the netting impact of on-prem software migrating to cloud. Our influence with partners and clients continues to expand, which you can see on our balance sheet. Revenue from our commercial clients grew 5%, offset by a decline in corporate and large enterprise clients. The subdued demand from our large clients also impacted Insight Core services revenue, which was down 3%. Macro and technology uncertainty continued to delay decision-making and spending in this client group. However, we are encouraged by the strength of our services bookings in Q3. Hardware revenue grew 1% with growth in both infrastructure and devices. Cloud gross profit increased 7% and was ahead of our expectations, driven by double-digit growth in SaaS and Infrastructure as a Service. This performance was partially offset by the partner program changes we previously discussed. As we exit 2025, we believe this impact will be largely behind us. We expanded total gross margin again this quarter to a record 21.7%. And by prudently managing our adjusted expenses, we delivered adjusted earnings from operations growth and adjusted earnings per share growth of 11%. We are pleased with the structural improvements we are making to our services business and the performance of the services practices we have acquired over the past 2 years. Incorporating best practices from these acquisitions is the foundation of our services growth strategy that we've been working on for the past few quarters. First, over the past 2 quarters, we have added new leaders to our services business. Second, we have implemented a more disciplined and repeatable methodology. This framework simplifies our offers, increases delivery consistency and speed to outcome and has already resulted in increased partner leads and bookings. Third, we are expanding our pipeline of cross-sell opportunities across our various practice areas. This reinforces our solutions integrator strategy and unlocks the potential from both new and existing customers. Most importantly, AI is top of mind for our clients. There is widespread interest in our solutions as our clients move out of experimentation mode and into projects to go after new use cases and value creation. Our strength in the hyperscaler platforms, security, data and business consulting positions us well for this emerging market. We are investing in an aggressive approach to seize this market opportunity with dedicated selling resources and unique IP to accelerate time to value for our clients. We have made progress on our own internal AI transformation as well and plan on leveraging this to help Insight become our best reference case to utilize with our clients. We will introduce our Insight AI offerings in the next few weeks, and we'll highlight specific AI capabilities, governance, training and IP to help determine client ROI and prioritization among other assets. Clients need help figuring this out, and we are the partner to do it. Services are critical to our strategy. We continue to invest in expanding our advisory, business transformation, data and cybersecurity capabilities to deliver solutions our clients need. Earlier this month, we announced the acquisition of Inspire 11, a North America data and AI services consultancy recognized for its outcome-driven approach. An example of the capabilities Inspire 11 brings us is their work with Thompson Machinery, which delivers heavy equipment solutions to keep industries like construction, mining and agriculture moving forward. Thompson Machinery partnered with Inspire 11 to transform how they manage their extensive rental fleet and make data a competitive asset. Together, they created Rentel, a predictive AI-powered platform that converts raw operational data into actionable intelligence. The platform optimizes fleet decisions by helping leaders quickly decide which equipment to buy, sell or transfer and provides real-time insight into utilization and financial performance. The platform also provides a financial value tied to each decision. What once required manual analysis now happens instantly, empowering better and faster decisions across the organization. As a result, Thompson Machinery is operating with greater agility, higher utilization and stronger return on assets, turning a historically operational process into a driver of growth. The ability to offer AI-enabled solutions across our portfolio is essential to delivering the outcomes our clients require. Importantly, outcomes like these require modern infrastructure, an area where we have significant expertise and deep relationships with partners. As an example, GTT is a leading player in the global telecommunications and networking space and has one of the world's largest Internet backbones. This client is in the middle of a paradigm shift with AI. We've been chosen as their partner in a strategic collaboration with NVIDIA to implement a comprehensive AI-powered architecture built on 3 core pillars: transforming the customer experience, accelerating new product innovation with AI-driven insights and scaling employee productivity through generative and agentic AI. With our support in integrating a complex ecosystem of hardware, software and services, GTT is rapidly moving from AI-enabled vision to production-ready value, creating a powerful competitive advantage. And since security is top of mind for all clients, we have expanded our security portfolio. Last week, we signed a definitive agreement to acquire Sekuro, a global provider of cybersecurity services for enterprise and government clients across the APAC region with a strong presence in Australia. Sekuro was named CrowdStrike's APJ Partner of the Year and earned numerous prestigious cybersecurity accolades. Security remains a top priority for our clients, and we are excited to expand our capabilities, especially the clients adopt AI. Inspire 11 and Sekuro support our ambition to become the leading AI-first solutions integrator as they bolster our capabilities in designing, building, deploying and managing solutions to support our clients' transformations, increase our pool of technical resources focused on security, data and AI and drive cross-sell opportunities in our broad global client base. Our partner ecosystem is fundamental to our success and a key enabler of our strategy. These collaborations not only enhance our capabilities across technology, platforms and services, but also ensure we remain agile and responsive to evolving market demands. We've recently received a variety of industry and partner recognitions, including Gartner's 2025 Magic Quadrant for Public Cloud IT Transformation Services as well as their emerging market quadrant for generative AI consulting and implementation services. Additionally, we were recognized as a major player in IDC's MarketScape's Worldwide Device-as-a-Service 2025 Vendor Assessment and a premium business partner by Apple. Our teammates deliver the value we create for our clients. We foster a collaborative environment, and Insight continues to be recognized as the best employer by Forbes, Fortune and Great Place to Work. This year has been marked by a mix of macro uncertainty and persistent delays in large enterprise spending across the industry. And as we have discussed, the hyperscaler program changes created substantial headwinds we've been mitigating this year. Our updated 2025 guidance reflects continued caution among our large clients. Corporate and enterprise customers continue to grapple with the investment decisions as they explore AI alternatives and deal with ongoing macro uncertainty. However, for 2026, while macroeconomic challenges persist, we believe we are positioned for growth. The hyperscaler program changes will be largely behind us. We anticipate the PC refresh cycle will continue into 2026. The improvements in our services businesses are expected to take hold and AI projects will begin to scale. We're well positioned to drive AI adoption through our broad partner base and technical capabilities. This begins with strong fundamentals, policy, governance, security, training, use case prioritization built through our client zero approach. Microsoft calls this being a frontier firm, and we're proud to be one. As we move to deliver faster time to value with AI solutions that feature built-in automation, we expect to transform traditional time and material models into agile, outcome-driven approaches. I am proud of the capabilities we have built, and we are excited to change the game with our clients. With that, I'll turn the call over to James. James? James Morgado: Thank you, Joyce, and good morning, everyone. Our Q3 results were mixed with services and hardware performing below expectations, partially offset by outperformance in cloud. Combined with disciplined SG&A management, we drove a 5% increase in adjusted earnings from operations and an 11% increase in adjusted earnings per share. Net revenue was $2 billion, a decrease of 4%. The decrease was driven by a 6% decline in product, primarily due to on-prem software, which declined 19% and was a result of partner consolidation last year that shifted gross product revenue to net agency services. Hardware revenue increased 1%, the third consecutive quarter of growth, though below our expectations compared to earlier in the year. Gross profit was flat with mixed performance. Hardware gross profit was down 5%, reflecting pricing, mix and a challenging compare in EMEA. Hardware gross margin was flat sequentially. Insight Core Services gross profit was $79 million, a decrease of 3%, primarily due to a decline in large enterprise client spending. Cloud gross profit was $130 million, an increase of 7% with growth in both SaaS and Infrastructure as a Service, partially offset by the partner program changes we've previously discussed. Gross margin was 21.7%, an increase of 100 basis points due to mix. Adjusted SG&A declined 1%, driven by prudent expense management. This resulted in adjusted EBITDA of $137 million, up 6%, while margin expanded 60 basis points to 6.8%. And adjusted diluted earnings per share were $2.43, up 11%. For the quarter, we generated $249 million in cash flow from operations. This strong result is primarily related to working capital requirements between Q2 and Q3, as previously discussed. For the year, we continue to anticipate cash flow from operations in the range of $300 million to $400 million. In Q3, we repurchased approximately $75 million of shares. And as of the end of the quarter, we have $149 million remaining on our share repurchase program. We intend to opportunistically repurchase shares while balancing organic and inorganic investments. While we settled $333 million of convertible notes in Q1, we still have approximately 600,000 associated warrants outstanding, which will be settled before the end of the year. During the first 3 quarters of the year, we settled 3.6 million warrants for $222 million in cash and settled another 900,000 warrants in shares. The net impact of the settlement of the warrants for the year has been reflected in our outstanding diluted share count. Year-to-date, the combined effect of the share repurchases and settlement of the warrants associated with the convert had the effect of reducing our adjusted diluted share count by approximately 2.7 million shares. Subsequent to the end of the quarter, on October 1, we acquired Inspire 11 for a preliminary cash purchase price of approximately $212 million. The purchase agreement also includes earnout payments, which provide an incentive opportunity for sellers of up to $66 million, contingent upon Inspire 11 achieving certain EBITDA performance targets through 2027. Additionally, on October 16, we signed an agreement to acquire Sekuro, a global provider of end-to-end cybersecurity services for an estimated cash purchase price of approximately AUD 130 million. The purchase agreement also includes up to AUD 123 million in earnout's and incentives contingent upon Sekuro achieving certain EBITDA and net revenue performance targets through October 2027. We exited Q3 with total debt of approximately $1.4 billion compared to $1.1 billion a year ago. The increase in debt was primarily related to a drawdown on our ABL ahead of the closing of the acquisition of Inspire 11 on October 1, which is reflected in our ending cash balance. As of the end of Q3, we had access to the full $1.8 billion capacity under our ABL facility, of which approximately $900 million was available. We have ample liquidity to meet our needs. Our adjusted return on invested capital for the trailing 12 months at the end of Q3 was 14.8% compared to 16.3% a year ago, reflecting lower adjusted net income and an increase in invested capital. Looking at our year-to-date performance, gross profit has fallen short of expectations, partially offset by disciplined expense control. Although recent partner program changes have impacted our cloud performance, we continue to make steady progress in pivoting towards the corporate and mid-market space and have navigated the partner program changes well. Hardware and core services are below our expectations due to muted large enterprise client demand, partially offset by multiple quarters of strong commercial growth. As we think about the rest of 2025, we expect macro uncertainty and have considered the following factors in our guidance. We expect demand with our large clients will improve slightly in Q4. We believe hardware gross profit will grow modestly in Q4 and will be approximately flat for the year. We anticipate cloud performance to continue to grow and now expect cloud gross profit to be flat to slightly up for the year. We still anticipate an approximately $70 million impact for the year related to the partner program changes we have previously discussed. Including the recent acquisitions, we expect core services will return to growth in Q4. And for the year, core services gross profit will be approximately flat. Our recent and anticipated acquisitions of Inspire 11 and Sekuro will be primarily accounted for in core services. While we expect both to contribute positively to adjusted EBITDA, the impact on adjusted diluted EPS is projected to be slightly dilutive due to interest expense. And we will continue to prudently manage SG&A and expect growth slower than gross profit. As a reminder, we identified incremental opportunities, including those driven by AI that will deliver improved operating expense leverage over the next 12 months. We continue to execute on that plan. Considering these factors, for the full year, our guidance is as follows: We now expect gross profit to be slightly down from 2024 and that our gross margin will be approximately 21%. And our adjusted diluted earnings per share will be between $9.60 to $9.90. This guidance includes interest and other expenses will be approximately $85 million, reflecting incremental interest related to the acquisitions of Inspire 11 and Sekuro, an effective tax rate of 25% to 26% for the full year, capital expenditures of approximately $25 million and an average share count for the full year of approximately 32 million shares, reflecting the settlement of the remaining warrants associated with our convertible notes. This outlook excludes acquisition-related intangible amortization expense of approximately $74 million. The impact from recent acquisitions is not factored into this number. Assumes no acquisition-related costs, severance and restructuring or transformation expenses and assumes no change in our debt instruments and no meaningful change in the macroeconomic outlook, either as a result of tariffs or otherwise. I will now turn the call back to Joyce. Joyce? Joyce Mullen: Thank you, James. As we work to close out this year, 2025 has been challenging, and we have navigated some of the most difficult business changes in recent memory. We faced macro headwinds, evolving client needs and significant program changes. I believe it's exactly in these environments that strong companies distinguish themselves. We've been busy retooling our team, sharpening our focus, driving efficiencies and preparing for the emerging AI opportunities. As we look to 2026, we are positioned very well to take advantage of the changing landscape. We are proud of the underlying strength and profitability of this business. This gives us a clear runway to demonstrate the power of our business model, portfolio of solutions and our expertise. Our future is bright. As you may have seen in the 8-K filing this morning, the Board and I have been talking about my retirement from Insight since the beginning of the year. We began the process of preparing for an orderly transition in earnest earlier this year when we engaged a search firm. Our next step is to begin a public external search for my successor given the AI opportunity in front of us and the transformation required. I fully expect that between now and when we name the next CEO of Insight, we will continue to make progress towards delivering on the promise of becoming the leading AI solutions integrator. I will ensure a smooth transition and then we'll continue on as an adviser to the new CEO. I want to thank our teammates for their unwavering commitment to our clients, partners and each other, our clients for trusting Insight to help them with their transformational journeys and our partners for their continued collaboration and support in delivering innovative solutions to our clients. This concludes my comments, and we will now open the line for your questions. Operator: [Operator Instructions] Our first question comes from Joseph Cardoso from JPMorgan. Joseph Cardoso: Maybe for my first, obviously, ticking down the guide here in the back half. I was hoping if we could have help understanding what's behind the shift in the outlook here. Maybe specifically, can you give us an update on how the large project headwinds to court services are tracking today? Are they tracking better or worse? And then it also sounds like on the hardware side, it's a bit more sluggish than you expected 90 days ago. Can you provide any more color on the drivers behind that as well? And what's kind of triangulating this more muted view there? And then I have a follow-up. Joyce Mullen: So I'll start. Joe, thanks for the question. So I think what we have been seeing is enterprises -- large enterprises grappling with this a change in kind of how their IT budgets are being allocated. And the macro uncertainty. So they're trying to figure out how to pay for the cloud bills that they have. There's some increases in some other -- some of the software that they've been buying in terms of pricing, and they're trying to make sure that they can allocate investment to AI. So they're all -- they're sort of reprioritizing their spend, and they're taking a bit longer to engage in big services projects. We are really encouraged by the bookings that we're seeing in services, and we feel like that's turning. But it's been really slow as we've been talking about this whole year. On the hardware side, it is a little bit of the same story. I mean they're trying to figure out how to prioritize their budgets in the most effective way. They are wondering and thinking through kind of what their long-term investment strategies are going to be around PCs as they try to understand kind of what's going on with their headcount projections, et cetera, again, related to AI and also the macro trends. So you're right, hardware is a little slower than we were expecting a bit more uptick in the enterprise customers. We think that still is coming, but we believe it's just -- there's -- we've seen continued delays. Joseph Cardoso: Got it. Appreciate the color, Joyce. And then maybe just on the other side, cloud gross profit returning to mid- to high single-digit growth here in the quarter on a gross profit basis. Just curious, though, how does that growth look like ex the partner changes? I think the last couple of quarters, you were in kind of the mid- to high teens. Is that where we're tracking this quarter as well? And then how should we think about approaching year-end going into next year? Is that underlying growth rate what we should be kind of aiming for in terms of the growth of this business, particularly now that we should be cycling past the easier comps? Or what other variables should we be considering there? James Morgado: Yes. Joe, thanks for the question. It's James. Yes, the underlying growth in cloud has been -- is -- in Q3 was similar to what it's been all year. It's been in the higher teens level again in Q3, really ultimately, we're really pleased with the pivot that we've undertaken this year around the cloud business. As we head into next -- as we head into Q4, as we've mentioned, the $70 million gross headwind largely normalizes as we exit Q4. There's still a little bit of an overhang into it into '26. Not ready to guide '26, but just as a rough indication, what we would expect is that underlying growth that we're seeing would largely show through into next year. So I think it returns largely to what we've been historically, and I think it leads all areas of growth for us into next year. Operator: Our next question comes from Adam Tindle from Raymond James. Adam Tindle: Early congrats, Joyce. I just wanted to start with the 2 acquisitions and maybe a bigger picture question on those. And if I add them up, it's more than $300 million in capital deployment and compare that to your current market cap, you could make an argument you could buyback 10% of the company or so. So I just was wondering how you thought about those acquisitions, given they're, I think, currently dilutive relative to a share repurchase and bigger picture, how you're thinking about capital allocation going forward? Joyce Mullen: So why don't I start with the strategic piece, and then I'll turn it over to James on the capital allocation piece. So we thought long and hard about this. And of course, we understand the dynamics that you just talked about, Adam. Look, we believe that in AI is not going to wait. The ability to actually deliver outcomes and understand how to sell AI to not only the IT team, but also to the business users and the business unit leaders across our clients is increasingly important, something like 65% of those decisions are being made outside of the IT department. And the other thing that's dramatically changing with AI is much more focused on an outcomes-based pricing, for example, and less -- I think we're going to see a significant move away from time and material. Insight was really excited about Inspire 11 because it is an outcome-based consultancy that is very, very data-oriented with really, really strong skills, very specific outcomes, and it's a capability that adds to our overall portfolio. We also have seen, as we've looked really carefully at the work we're doing in EMEA with a very small acquisition that we did about 1.5 years ago, we have -- NWT, it was called -- it is called. And we've seen really a spectacular pull-through of the rest of the portfolio with that sort of tip of the spear advisory capability. So we're replicating that model in North America, and we have a lot of excitement and a lot of enthusiasm around these capabilities with our clients. So that is the strategic rationale around Inspire 11. We've been working really, really hard on security to expand our security capabilities because security also isn't going anywhere. It's a very significant growth opportunity. We know we had -- we know we've been talking about it for years that we needed to augment our security capabilities. Sekuro is a way for us to do that, really exciting opportunity. We've looked at lots and lots and lots and lots of security companies over the years. So we think that there's a certain timing element to M&A. And if you find a great company that's making money and has happy clients and has a little bit of IP like Sekuro, we are very excited to add that to our portfolio. All in, we think these are 2 areas that are going to fuel our growth going forward. And while we recognize the multiple issue that you mentioned, we think you still got to focus on delivering long-term value to shareholders. James Morgado: Yes. And Joe, just to add to that, that's exactly the way we think about this when we look at M&A. Obviously, the strategic lens, but then what generates the greater long-term value that clearly factors into the calculus when we do M&A. As I think about this year, to answer your question in terms of evaluation of M&A versus share buybacks, I think we've been very balanced this year. If I look at it, we've done $150 million of direct share repurchases this year. We've also used cash to settle the warrants. And this has manifested itself in a reduction of outstanding share count by almost $3 million. That's about 10% reduction in share count year-over-year. So I think as I look at our capital allocation this year, it's been quite balanced with both M&A and what we've done to reduce share count. Long-term priorities, I think when I think about capital allocation, the long-term priorities don't change. M&A is still absolutely critical to the strategy and where we're going. So as we look at this over a longer-term lens, it will still be the primary use of capital. We will always opportunistically repurchase shares, and that will always be in my capital allocation strategy. In the shorter term, to be more descriptive in the shorter term, I'm aware of where we are from a debt leverage standpoint. So in the shorter term, my priority is probably to pay down debt. But however, we're going to be very balanced in terms of this. And we remain -- I think we keep our optionality. So in the shorter term, we have the ability to do share repurchases. We have the ability to do M&A. But as I think about this, I'm very careful around managing the debt profile of the company as well. But long-term M&A is still the primary use of capital. Joyce Mullen: And I think [indiscernible] sorry, Adam, one more thing. We expect both of these to be accretive by the end of the year from an EBITDA point of view. James Morgado: End of next year. Joyce Mullen: Yes, sorry. End of... James Morgado: Yes. Within -- actually, with these 2 acquisitions from an EPS standpoint, we would expect them to be accretive within the 4 quarters. And then from an EBITDA standpoint, they're obviously accretive from day 1. Adam Tindle: Got it. Okay. Perfect. And maybe just as a follow-up, Joyce, double-clicking on the services commentary. It's just not as clear to me, you talked about the willing or desire to scale more in that business, which makes sense. And then we're talking about moving from time and materials to outcomes-based. As I think about outcomes-based services businesses, those are typically harder to scale because every project is different. Maybe just double-click on the scale aspect of the services. And then secondly, the changes from a management perspective, is that going to drive maybe additional opportunities to change either KPIs or compensation metrics and things like that? Joyce Mullen: Yes. So the discipline and the methodology that I talked about earlier, which is -- so there's a few points. One is the leadership changes that we've driven a lot of those are taking tried and true leaders and putting them in different parts of the business in order to drive the same kind of discipline, the same kind of methodology, the same kind of scale that we've seen in, for example, our Infocenter acquisition, which has been a tremendous asset for us and a great success. We also added a brand-new leader of our infrastructure business, which is really important to us, and we're excited about that. So there's leadership, there's disciplined methodology. And the methodology that we're talking about, and we'll talk a lot more about this when we release our AI capabilities that I mentioned a couple a little bit earlier. But it is really around making sure that we have defined outcomes. And those outcomes are going to be tweaked a little bit, as you noted, by -- for each customer, but we're really simplifying our offers in a way that we can drive the repeatability of administering those offers across our entire set of customers. So for example, we have adopted these -- the technology, and I can spend more time on it, but to deliver something called RADIUS for AI. RADIUS is what we use. It's a disciplined assessment with a set of deliverables. We use it every single time across our portfolio now to start work and deliver proof of concepts, but then actually MVPs really, really quickly. And then we follow that on with something we've talked about as DEVSHOP internally, which is an optimization program to deliver a road map. We're finding that when we adopt that Infocenter type technology, we're really able to scale the business. It improves the profitability, but most importantly, it improves the time to value for our clients, and it delivers specific KPIs. So that's what we're talking about when we talk about this much more disciplined and simplified methodology, and that does allow us to scale. In terms of KPIs, we do know that we will likely be working on updates to our KPIs for next year. James talked about us putting together in Investor Day next year sometime, and we will be doing that, and we will update our KPIs for not only our teammates, but also for investors at that time. James Morgado: Adam, I would just add around the Scale conversation. AI does change the equation around Scale, too. Capabilities become really critical. And if you look at the acquisitions of both Sekuro and Inspire, they give us capabilities that are really critical to the future. On the scaling side, AI is going to change, I think, as it continues to be adopted, is going to change the Scale required for services business. I mean, yesterday's services business required really deep presence people-wise in terms of locations like in India, et cetera. As we move forward, Scale becomes less relevant to the equation, but the capabilities that you have around AI and data become far more important. And that's what you're seeing us put our M&A dollars to work. Both -- and this actually goes back to -- if you look at Infocenter capabilities around ServiceNow, those capabilities are critical. You look at what we've done with Amdaris, capabilities are critical there. And so that's what you're seeing us in terms of our capital allocation strategy where we're putting our dollars to work. Joyce Mullen: Yes. disassociating the revenue growth from the people, time and materials piece is the holy grail we've been thinking about and looking for in services for a really long time. And I think with AI, we actually start to realize that promise. Operator: [Operator Instructions] Joyce Mullen: All right. I think that's it. Okay. Thank you very much to everybody. Appreciate your questions and interest. We're pretty -- we're very optimistic about the opportunities ahead of us, and I look forward to sharing our continued progress on our journey to become the leading AI-first solutions integrator. Thanks, operator. You can close the call. Thanks. Operator: As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.
Operator: Hello, and welcome to Xcel Energy Third Quarter 2025 Earnings Conference Call. My name is George, and I'll be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions] I'd like to call you over now to Roopesh Aggarwal, Vice President, Investor Relations, to begin today's conference. Please go ahead, sir. Roopesh Aggarwal: Thank you, George, and good morning. Welcome to Xcel Energy's Third Quarter 2025 Earnings Call. Joining me today are Bob Frenzel, Chairman, President and Chief Executive Officer; and Brian Van Abel, Executive Vice President and Chief Financial Officer. In addition, we have other members of the management team in the room to answer your questions if needed. This morning, we will review our third quarter 2025 results and highlights, share recent business and regulatory updates, update our 5-year capital and financing plan, and provide updated 2025 assumptions and 2026 guidance. Slides that accompany today's call are available on our website. Some comments during today's call may contain forward-looking information. Significant factors that could cause results to differ from those anticipated are described in our earnings release and SEC filings. Today, we will discuss certain metrics that are non-GAAP measures. Information on the comparable GAAP measures and reconciliations are included in our earnings release. In the third quarter of 2025, Xcel Energy recorded a charge of $290 million or $0.36 per share, reflecting the settlement in principle reached with plaintiffs in the Marshall wildfire. Given the nonrecurring nature of this item, it has been excluded from third quarter and year-to-date ongoing earnings. As a result, our GAAP earnings for the third quarter of 2025 were $0.88 per share, while our ongoing earnings which exclude this nonrecurring charge, were $1.24 per share. All further references to earnings, drivers and variances in our discussion today will refer to ongoing earnings. For more information on this, please see the disclosure in our earnings release. I will now turn the call over to Bob. Robert Frenzel: Thank you, Roopesh, and good morning, everybody. In the third quarter of 2025, Xcel Energy continued our commitment to our customers, our investors and our communities to make energy work better. During the quarter, we delivered solid earnings of $1.24 per share. We invested over $3 billion and $8 billion year-to-date in resilient and reliable energy infrastructure for our customers. We reached a comprehensive and constructive settlement with plaintiffs in the Marshall wildfire that helped our customers and our communities to move forward. And we accelerated our wildfire risk reduction efforts to protect our communities from volatile weather. Based on our results through the third quarter, we are reaffirming our earnings guidance for 2025 and remain confident in our ability to deliver on earnings guidance for the 21st year in a row, one of the best track records in the industry. As per our usual Q3 rhythm, today, we are introducing our updated 5-year infrastructure investment plan designed to serve increased energy demand, make needed investments to strengthen our transmission and distribution systems, provide a cleaner and more sustainable energy portfolio and to keep energy safe, reliable and affordable for all of our customers. In total, we expect this plan to deliver 7,500 megawatts of zero-carbon renewable generation, 3,000 megawatts of natural gas-fired generation and almost 2,000 megawatts of energy storage to ensure system reliability, 1,500 new high-voltage transmission line miles to support demand growth in regional delivery and approximately $5 billion of investment in our distribution and transmission systems to improve resiliency and reduce future risk from wildfires. We're able to accomplish this plan because we have one of the best utility, development and supply chain teams in the industry. And in combination with our strong balance sheet, we can deliver infrastructure timely and affordably for our customers. In connection with this forecast, we have safe harbored all renewable and storage projects in our base capital plan and expect the same for the projects in our incremental plan to ensure that we can capture available tax credits and help keep customers' bills low natural gas CTs on order, which will provide over 4 gigawatts of natural gas generation to help ensure reliability and affordability. Our ability to deliver infrastructure with excellence in our strategic geographic advantage allows our customers to benefit from some of the lowest energy bills in the country. Over the past 5 years, our residential electric and natural gas bills have been 28% and 12% below the national average, respectively. Our residential electric customers in Colorado have the lowest share of wallet out of all 50 states. And the average residential bills in our other states occupy 5 of the next 11 spots. Since 2014, our residential electric and natural gas bill growth has been well under the rate of inflation. In fact, a typical residential Xcel Energy electric and natural gas bill is 14% and 20% lower than it was in 2014 when adjusted for inflation. Our Steel For Fuel program has saved customers nearly $6 billion through 2025. And our one Xcel Energy Way Continuous Improvement Program has realized over $1 billion in cumulative savings since 2020, while improving customer and operating outcomes. Our industry-leading demand side management programs have saved enough energy to avoid building 30 average-sized power plants. And as customers continue to electrify transportation in other parts of their lives that can further reduce their overall monthly energy costs with lower electric rates. We also continue to support critical programs to help our customers who may need assistance with their energy bills. Since 2024, Xcel Energy has connected over 200,000 customers with almost $300 million in financial resources. We're also exploring new opportunities to help even more customers across our jurisdictions, including proposals in our current Minnesota, Wisconsin and upcoming Colorado rate cases. Moving to the topic of artificial intelligent -- artificial intelligence, opportunities for Xcel Energy go well beyond our ability to power data centers. Of course, our load interconnection queue continues to grow even as we move some of our backlog into the contracted category. But across Xcel Energy, we are in early stages of using AI in the business to bend the cost curve and to provide improvements in both customer satisfaction and operational outcomes. We're harnessing AI to empower our people, accelerate innovation and build a smarter, more resilient energy future for our customers and communities. Automated analysis across our diverse enterprise data sources is delivering actionable insights that strengthen security, improve operations and planning and drive process improvement. We're bridging knowledge gaps in empowering faster, more informed decision-making across the organization. And we're leveraging AI built by others to advance our business, including high-resolution imagery to transform how we inspect and maintain our distribution infrastructure. Through drone-based data collection and automated image analysis, AI-enabled processes can identify defects and assess risks and enable our teams to prioritize maintenance with greater speed and accuracy. And with wildfire mitigation, AI is transforming our risk models. By leveraging internal models and tools like Technosylva, we significantly improved our model coverage and accuracy as well as reduced analytical times to a fraction. This means faster, more reliable risk assessments protecting communities and infrastructure in real time. AI is truly an engine that's driving enterprise-wide innovation and transformation in Xcel Energy, making energy work better for our employees, our customers and our communities. Moving to Marshall. On September 23, Xcel Energy, Qwest Corporation and Teleport Communications America reached settlement agreements in principle that resolve all claims asserted by the subrogation insurers, the public entity plaintiffs and individual plaintiffs. And while Xcel Energy does not admit any fault or wrongdoing and disputes that our equipment caused the second ignition, we believe this provides a positive outcome for our communities and our investors. Looking forward, Xcel Energy continues to significant progress to mitigate risk from wildfires and extreme weather with public-facing wildfire mitigation plans in each of our states. This includes investments in situational awareness tools like weather stations and Pano AI cameras, advanced meteorology, fire science and AI-enabled risk modeling tools, hardening our systems and deploying advanced wildfire safety operations and PSPS capabilities and operational actions, including daily stand-ups to address the threat from extreme weather across every part of our system and taking proactive actions as appropriate. Finally, each September, Xcel Energy employees and community members come together to honor the spirit of service. This year marked the 15th annual day of service for Xcel Energy with nearly 3,000 volunteers from across the company and the communities we serve coming together to support local nonprofit organizations. Together, volunteers dedicated almost 9,000 hours of service across more than 100 projects. This is one of my favorite days of the year and it exemplifies the spirit and dedication of our employees and partners who show up every day to provide safe, clean, reliable and affordable energy to our customers and our communities. With that, I'll turn it over to Brian. Brian Van Abel: Thanks, Bob, and good morning, everyone. Starting with our financial results, Xcel Energy delivered earnings of $1.24 per share for the third quarter of 2025 compared to earnings of $1.25 per share in the third quarter of 2024. The most significant earnings drivers for the quarter include the following: Regulatory outcomes in electric and natural gas sales growth increased earnings by $0.18 and higher AFUDC increased earnings by $0.08. Offsetting these positive drivers, higher financing costs decreased earnings by $0.15, reflecting the funding of our infrastructure investments and our financial discipline of maintaining a strong balance sheet. Higher depreciation and amortization decreased earnings by $0.09, driven by increased system investments and the higher O&M expenses decreased earnings by $0.05. Turning to sales. Weather normalized and leap year adjusted electric sales increased 2.5% through the third quarter of 2025, driven by strong residential sales growth across all OpCos and increased C&I load in SPS and PSCo. During the third quarter, we also energized Meta's new data center in Minnesota that will continue to scale in the coming years. In turn, for full year 2025, we continue to forecast 3% weather-normalized electric sales growth. In the third quarter, O&M expenses increased $37 million relative to 2024. This increase was largely driven by a $25 million increase in health and benefit costs for the quarter. For full year 2025, we now forecast that O&M expenses will increase 5%. Shifting to RFP and rate case activity. In Colorado, in partnership with Colorado Energy Office, UCA and commission staff, we issued a near-term procurement for 4,000 megawatts of renewable resources and 500 megawatts of thermal and firm dispatchable resources. This RFP is intended to accelerate the deployment of a portion of our Colorado IRP to capture production tax credits before they sunset. Bids were received this month, and we expect to file a recommendation in December 2025 with the commission decision by February of 2026. In SPS, we issued an all-source RFP to meet an 870-megawatt accredited capacity need. This represents 1,500 to 3,000 megawatts of nameplate capacity that will be online by 2032. Bids are due in January 2026 with an expected portfolio announcement by June 2026. In October, the Wisconsin commission verbally approved NSPW $725 million acquisition of the 375-megawatt Elk Creek solar storage project. Tomorrow, we expect to file a natural gas rate case in Minnesota requesting a $63 million total revenue increase based on a 10.65% ROE and a 52.5% equity ratio. Interim rates of $51 million will also be requested effective January 1, 2026. Regarding future cases, we expect to file a Colorado Electric and Natural Gas and New Mexico electric rate case later this year. Moving to data centers. We remain on track to contract the remainder of our original 2 gigawatt base plan by the end of the year. In addition, we have updated our total base plan to include approximately 3 gigawatts of data center capacity. Additional projects included in the base case, we consider high probability and expect of contracted by 2026. This will drive 3% of the 5% assumed annual sales growth in our 2026 to 2030 capital plan. We also continue to make strong progress on the Small Coast Creek wildfire claims process. We've resolved 212 of the 254 submitted claims, and we have settled or dismissed 21 of 34 lawsuits. We've updated the low end of our estimated liability to $410 million. We have made significant progress in the third quarter with the resolution of the 3 largest claims by acreage. We have committed $360 million in settlement agreements. So considering the low end estimated liability of $410 million, we're estimating approximately $50 million more on top of the $360 million that has been committed based on our current information. As a reminder, we have approximately $500 million of insurance coverage. Shifting to our investment plan. Today, we are providing an updated $60 billion 5-year capital expenditure forecast, which reflects annualized rate base growth of approximately 11%. These investments are critical to serving growing electric demand, meet clean energy goals and ensure safety and reliability of our system. We also have an additional pipeline of investments to our $60 billion plan, specifically from our recent RFPs across jurisdictions, incremental data center load and transmission projects from future MISO and SPP tranches. We're excited about our growth opportunities and will continue to finance accretive growth in a balanced manner. This year, we have issued or contracted approximately $3 billion of equity and equity-related content between our ATM program and our 2025 hybrid financing. Our updated '26 through 2030 capital plan reflects an additional $23 billion of debt and $7 billion of equity content. We anticipate that any incremental capital investments would be funded by approximately 40% equity content and 60% debt. We continue to maintain a balanced financing strategy, which includes a mix of debt and equity to fund accretive growth while maintaining a strong balance sheet and credit metrics. Moving to earnings. We're reaffirming our 2025 ongoing earnings guidance range of $3.75 to $3.85 per share. We're also initiating our 2026 earnings guidance range of $4.04 to $4.16 per share, which reflects approximately a midpoint of 8% growth from the midpoint of our 2025 guidance. Key assumptions are detailed in our earnings release. We are updating our long-term EPS growth objective to 6 to 8-plus percent with expectations to deliver 9% growth on average through 2030. This update reflects our significant investment needs to serve our customers and drive state policies along with confidence in our financial outlook. We are maintaining our dividend growth objective of 4% to 6% with the expectation to be at the low end of the range. Over our '26 to 2030 forecast period, we expect our dividend payout ratio will trend towards the bottom end of our updated payout ratio range of 45% to 55%, which allows greater financial flexibility and dry powder for the future. With that, I'll wrap up with a quick summary. We continue to lead the clean energy transition, ensuring safe, clean and reliable service and keeping customer bills as low as possible. We announced an updated 5-year capital investment program that provides strong, transparent rate base growth and significant customer value. We reached a constructive settlement in the Marshall wildfire and continue to make investments to reduce risk to our system and communities from extreme weather. Our customers have and will continue to enjoy some of the lowest bills in the country with our investment plan. We maintain a strong balance sheet and credit metrics using a balance of debt and equity to fund accretive growth. We reaffirm our 2025 EPS guidance of $3.75 to $3.85 and have initiated 2026 EPS guidance of $4.04 to $4.16, which reflects a midpoint of 8% growth from the midpoint of our 2025 guidance. And finally, we expect to deliver 9% EPS growth on average through 2030. This concludes our prepared remarks. Operator, we will now take questions. Operator: [Operator Instructions] And our first question is coming from Nicholas Campanella from Barclays. Nicholas Campanella: Just wanted to be clear, '26 at the midpoint, you did about 8%, and I hear you on the 9% through 2030. Does that start beyond '26? Or is that how you're kind of viewing this year? Brian Van Abel: Nick, I'll take that. No, that includes 2026, so 9% over the next 5 years, inclusive of '26 guidance. So that 9% would be based off the midpoint of this year, so $380 million. Nicholas Campanella: Okay. Great. I appreciate that. And then just one other clarification, $7 billion of equity in the plan. I know you talked about $1.3 billion already priced forward. Is that kind of net against that $7 billion? Or is it still $7 billion from here on out? Brian Van Abel: No. I think of it as we do is kind of $7 billion from here on out with our new '26 to 2030 plan. So if you kind of look at what we did this year relative to last year's plan, which had $4.5 billion in it and kind of take those 2 pieces, we're right online with kind of what we've been messaging around incremental capital that drives about 40% incremental equity content, so -- and feel really good about kind of our equity content plans and where we are in terms of manning our credit metrics and executing on the $60 billion investment plan. Operator: Our next question is coming from Steven Fleishman calling from Wolfe Research. Steven Fleishman: So I guess first on just kind of the profile of the growth rate or growth. When you look at the CapEx plan and the rate base growth, it's very heavily front-end loaded and then CapEx actually falls right now, '29, '30, a decent amount. A lot of the other companies are kind of the opposite, where it's lower now, and it's like ramping up. Could you maybe just kind of talk to that? And is a lot of that just -- we just don't know some of these RFPs and other factors out in '29, '30. Brian Van Abel: Yes, Steve, I can take that. That one, I think you're exactly right in terms of -- we're always conservative of what we put in capital plan and our SPS portfolio [indiscernible] process in there for the projects that were approved by our Minnesota Commission in Q1 of this year. But it really gets to in that '29 and '30, we launched RFPs with Colorado SPS that we're pretty early in the process. And that sits in the kind of our additional pipeline bucket that is as we move through that process kind of into next year and even beyond that we expect there will be opportunities to fill in there, both generation to serve load growth for our customers, but also transmission that we expect to see out of SPP in the near term here. The next tranche of SPP should be a Q4 event that we get visibility in, but then also longer term on MISO Tranche 2. Steven Fleishman: Okay. And I know just maybe related, the -- at times you've given kind of some rough idea of the range of spending on the upside cases and those different things that you mentioned there. Is there anything you can share on the potential capital and the upside case, things not in here? Brian Van Abel: Yes. I would say the slide we have in our deck here for today, that's going to be a range of 6,000 to 9,000 total megawatts, we think out of those RFPs plus some transmission. We've always guided people to being competitive in our generation processes and winning about half of that plus that transmission. So I see a $10 billion-plus sitting in that pipeline, not all will be in 2030. Some of those generation processes run through '31, '32, but really good opportunity as we look at the low growth and the transmission needs in our system. Robert Frenzel: Yes, Steve, I think -- this is Bob. I think you're right in terms of shape. The earnings generally will follow the capital investment plan with some amount of lag in financing costs, and then we look to fill in the back part of our plan with some of the incremental opportunities that Brian had. Operator: Next question will be coming from Jeremy Tonet of JPMorgan. It appears that he has just moved. We'll go to Carly Davenport. Okay, Carly, same thing. We'll go to Julien Dumoulin of Jefferies. Julien Dumoulin-Smith: Can you guys hear me? Robert Frenzel: Yes, sir. Julien Dumoulin-Smith: All right. Awesome, guys. Well done. Seriously. Look, if I can, just going back to where you left off with Steve, I'll just see it this way. Of those different points that you raised here, what are the more substantive pieces? I mean it seems like the SPP element could be more substantive that seems more front-loaded a; and then b, the acceleration of some of these renewable procurements in light of tax credit expirations could be more substantive and lumpy and don't seem to be in there. But again, you tell me what are the bigger pieces that are not yet in that 60%. Again, you've laid out a whole bunch of them. I'm just curious which one moves the needle more as best you see it initially. Robert Frenzel: Julien, I'll start and then Brian can chime in. So a large piece of the SPP, RFP is embedded into our base capital plan. There's a second RFP for SPP capacity and energy that is not included in the plan. And then when I think about Colorado generation, we have really 2 RFPs sitting in front of the commission out there. We have a near-term procurement portfolio that's designed to accelerate and take advantage of renewable credits and that looks like a $4.5 billion -- sorry, 4.5 gigawatt plan. And then there's the just transition solicitation that's been in progress with the commission for a while, which we expect some amount of adjudication later this year or early next, which had somewhere between 4 and 15 gigs of generation needs and it -- there's a bit of overlap between the NTP and the JTS in terms of what's needed in timing. So I wouldn't count those as additive, but there's a big piece of Colorado generation that's likely to come in the '28, '29, '30 time frame that's not included in our base capital plan. And then there's a handful of smaller RFPs in the upper Midwest for generation that are not included in our base plan as well. Secondly, with regard to transmission, we have ITP and MISO 2.1 embedded in there, although they are longer-dated capital plans and longer-dated in service spends that will result in stuff drifting through this time period and into -- later into the early 2030s. And then there are subsequent ITPs and MISO LRTPs that are coming that are not also embedded in this plan. So I think about Colorado Gen being probably the biggest driver of back-end investment in this 5-year plan. And transmission that's not announced out of the SPP, ITP process is sort of the second biggest. Brian, you got anything to add to that? Brian Van Abel: Yes. No. I think just absolutely in the Colorado side, we're working through the process, is a really good engaging with our stakeholders to accelerate procurement for these renewable resources given that we have the tax credit cliff in 2030 so we should get visibility into that portfolio in December with a commission decision in Q1. We've got the bids in, robust bid pool working through that. And so that's one of the big drivers. But also as we work through -- as we think about longer term, is incremental data center opportunities and working with our stakeholders in our states in terms of driving economic development and low growth, that can drive longer-term generation and transmission needs, which wouldn't be incorporated, but that's just a longer-term opportunity that I know the industry is seeing. Julien Dumoulin-Smith: Excellent. And I don't mean to -- but let me ask you it this way. The 6% to 8% plus versus the 9% that you guys have out there, is the idea that the 9% is sort of at this point in time and the 6% to 8% plus is designed to be for any eventual roll forwards or the sort of law of large numbers kind of drive some deviation from the 9% if you roll forward a couple of years? Brian Van Abel: Yes. Julien, we think about it this way is that 6% to 8%. Well, the 6% to 8% is what would you think about a long-term view on EPS growth, when you balance the investment needs of our system, the low growth we're seeing on opportunities and also affordability. But when we look at our current 5-year plan and the $60 billion of infrastructure projects for our customers, serving the low growth and the needs of our system, derisking our communities. That plus really represents the 9% that we see over the next 5 years. If that helps us differentiate in terms of how we're thinking about it. Operator: Next question comes from Carly Davenport of Goldman Sachs. Carly Davenport: Maybe just on the load growth outlook, looks like continued strength in SPS, which is great to see. And then a couple of the other opcos shifting a bit lower from the prior plan. So could you just talk a little bit about what's driving those moving pieces on load growth across the regions? Brian Van Abel: Yes. I think when we look at it, really, SPS continues to be strength in our oil and gas sector. We've seen that for years. this year out in New Mexico. We're going to see teens type of growth at this large C&I sector. And we continue to see that with electrification out of that industry in New Mexico. So strong growth there. Also, Fermi America is down in Texas and New Mexico. There's some opportunities there that we've talked about. And so we're seeing that. The other one is more just kind of shifting around potentially in timing of data centers as we think about it when they're coming in. But when you look at our sales growth across all opcos, all are in the, call it, 4% -- roughly 4% to 5% with SPS at 8% when we look at it. So we're pretty excited when we see our data center opportunity is really mixed across our service territory, strong opportunities in Minnesota working through some really good opportunities in Colorado and then we talked about some opportunities in Texas and New Mexico. The one other thing is -- thing I'd like to say is that 5% sales growth that we talked about, having the diversification is not all data centers. Only 3% of that 5% is data centers. So we also have 1.5% of that 5% is driven by the SPS oil and gas electrification, then we just have customer growth, residential customer growth. We're starting to see some electrification on the residential side. So that's about 0.5%. So really kind of diversified growth, which I think is important as we look forward. Carly Davenport: Great. That's really clear. And then maybe just a follow-up on kind of the financing and the balance sheet. Seems like you're targeting kind of now 16% to 17% FFO to debt targets. I guess can you just talk about sort of comfort level there with the cushion versus downgrade threshold levels? And how confident you are in the past to kind of squarely getting back to that 17% level on a longer-term basis? Brian Van Abel: Yes, Carly. The way I think about it is, no, we have not changed our long-term view on our credit metrics in that 17% level. That has not changed. It's -- it's important to maintain a strong balance sheet and healthy credit metrics. Just when you look at our spending over the next few years, we kind of grow into that 17%. And so it's really just we designed our equity plan and our equity content plan to get back to that 17% in the latter part of this forecast, which -- and all of that, that is our long-term view. So that has not fundamentally changed from a credit perspective, maintaining our balance sheet, protecting our metrics. Just when you have this type of elevated CapEx over the next few years, there is some pressure there. Operator: Next question will be coming from Jeremy Tonet of JPMorgan. Jeremy Tonet: I just want to step into equipment availability a little bit more, if I could, such as transformers, transmission, 2 CGPs and components there. Just wondering if you could frame for us how long the queues are there? And I guess, how you see aligning that with new data center interest or contracts? Robert Frenzel: Yes. Great question, very timely and very strategic. I said in my prepared remarks, I'm really proud of the team here at Xcel Energy. I think we have the best team working on this. We have been very, very progressive in terms of securing the assets that we need to build the infrastructure that sits in front of us. You're absolutely right. Lead times have elongated, and I'll let Brian comment on any particular components. But we think that given our scale, our scope and our approach to our major vendors, that we have access to inventory and supplies maybe that others don't have. We've taken a very progressive shift in how we work with our vendors, making sure that they see our entirety of our capital plan, they can plan for the work that they do with us. We find out who's best able to serve us both on the services side as well as the equipment side, and we backward integrate them into our capital plan in a way that is both we protect ourselves from pricing side as well as we get certainty of equipment and certainty of labor in a pretty tight market. That's been the strategic focus for the team for a year or 2 as we saw the market start to tighten, particularly with data center build. And maybe I'll let Brian just comment on what we're seeing in turbines and transformers and things like that. Brian Van Abel: Yes. I mean, I think it's absolutely no secret in terms of where the turbine market is, call it, 4 years out. As I Bob, mentioned though, we've gotten ahead of it in terms of having those 19 turbines on order and that's one of the benefits of scale is we can order a significant amount of equipment knowing that we will use it somewhere in our system and being able to deploy it throughout our system with the low growth we're seeing. Main power of transformers is another one that's taken -- that's these large-scale transformers 345 kV you outsource a few years. So it's really how do you get ahead of it and make sure that you have the right supplier relationships, working through all the potential tariffs and supply chain challenges that currently exist there. But we feel really good about where we are. And also, I think about that also within the context of our safe harbor strategy. In terms of having all the equipment for both our base plan and then the incremental projects that coming out of our incremental plan and ensuring that not only are the safe harbor, but we're compliant. So we feel really good about our overall place from a supply chain perspective. That's on the equipment side. There's also a labor side of it, too, from an EPC perspective and ensuring that we have top tier EPC firms lined up, not only for this year or next year, but for our 5-year plan and beyond and having those key partnerships is really, really important and I think, a differentiator as we go to market here in terms of executing on our plan. Jeremy Tonet: Got it. Very thoughtful process there. And I was just wondering if you might be able to align that a little bit more with the demand growth. It seems like the data center pipeline, as you described in the slides, stepped up quite nicely versus before. And just wondering what you see on the type of discussions and the speed to market world and how this all fits together. Robert Frenzel: Yes. Well, obviously, very strategic and timely as we watch our industry work very progressively to bring speed to power here and making sure that we energize this very critical national asset in terms of artificial intelligence and data center development. Not surprising. We've got great interest and our pipeline continues to build, and we continue to move stuff from highly probable into the contracted categories. We have some of the most affordable energy in the country, as I mentioned in my prepared remarks, we have an incredibly good strong development team. We're working through either ESAs or large load tariffs in all of our states and making sure that we protect our existing customers from the addition of new large loads, and we've laid out in the past, our principles around this in terms of cost causation and whose funding and if we trigger a transmission investment, new generation investments, making sure that we protect our customers along the way, and there's a net benefit for the entire of the system when you bring out some of these new large loans. I think that -- it should also be noted that I mentioned sort of strategic geographic advantage. In addition to low energy bills, we have enormous high clean energy content in our systems already. That's a very attractive component to these data center developers as well as their end-use customers. So I think that between our sustainability portfolio and where we're trending as a company across all of our states and making sure that we can deliver a cleaner energy product as well as a highly reliable and highly affordable product is very strategic as we approach economic development with data center developers. Operator: Next question will be coming from Anthony Crowdell of Mizuho. Anthony Crowdell: I just have, I guess, 2 super quick cleanups. I think to Steve's question, I think you mentioned about $10 billion of incremental CapEx. That is an addition or would be on top of current 9% EPS growth. Is that accurate? Brian Van Abel: That is accurate. Anthony Crowdell: Great. And then this one, and I probably should wait for EEI, but just the time is right. You're currently talking 9% growth, but you've kept the guidance at 6% to 8% plus. Just curious on why not readjusting the 6% to messaging that shows all the potential upside that you have? Like it doesn't even seem likely that you hit 6% or even 7% like I'm just curious on the thought process of keeping it 6% to 8% plus. Brian Van Abel: Yes. Anthony, look, we balance a lot of perspectives as we think through this in terms of what is the right long term. And when I say long term, 6% to 8% is beyond the 5 years about balancing affordability and anything else that goes into that. And so we thought the plus as a way to message that we do have a lot of infrastructure needs on behalf of our customers here in the next 5 years. But longer term, when you start to roll beyond 2030, we'll continue to evaluate that. And then just quick on your first question, we said $10 billion plus, but some of that could fall outside of this 5-year when you think about some of the generation procurement in some of the -- particularly the MISO transmission will be longer dated. But really excited about our overall 5-year opportunity and beyond that. Operator: Next question will be coming from Sophie Karp calling from KeyBanc. Sophie Karp: Congrats on the strong, I guess, guidance revision guys. A couple of questions for me. So maybe if you could talk a little bit about the trends in SPS. I know you continue to flag the electrification of Permian as one of the drivers of the volume growth there. With the oil prices like being kind of where they are, is there any reason to be concerned about that trend at all at this point? Robert Frenzel: Sophie, it's Bob. I think the growth you see in the Permian is probably a function of 2 things. One is continued strength in mining in the Permian Basin. So just more wells, more infrastructure, more fields being open. The second is the trend towards electrification of those fields and of existing field. So I think there's 2 big drivers out there. When I talk to our largest customers down in the Permian and the Delaware Basins, this continues to be their lowest cost resource around the globe. And so I think even when you start to see oil and gas prices fluctuate, I think these properties in the Southwest are still varying the money for them, and they'll continue to see mining and mining growth down in the Southwest. So I don't have a lot of concern about that load growth profile. And then as we talked about the data centers, that low growth profile, we feel very confident in and see opportunity to add to it. Sophie Karp: Got it. That's pretty clear. And then on the renewables versus gas, right? You guys are clearly stepping into more accelerating renewables to harvested tax credits. At the same time, a lot of your peers are actually going more towards gas and they're flagging that they need -- we will need to build more gas to firm up the system for data center demand. So I guess my question is, will we see this same trend play out in your service territories at some point? Or is it just the renewables are so attractive that you feel good by, I guess, still going full speed on renewables as opposed to more dispatchable generation? Robert Frenzel: Yes. A couple of themes in there for sure. One, as I said in my prepared remarks, we sit in one of the most geographically attractive areas for both wind and solar assets. And so we see real customer benefits from continuing down a trend of investing and taking advantage of those natural resources, particularly while tax credits help make them affordable for our customers. But you also see us adding -- we've got 4.5 gigs of natural gas capability coming into the plan in the next 5 years as well as, I think, probably north of 5 gigs of energy storage as well. So we are affirming the system backing the wind and the solar with attractively priced backup energy and making sure that we are both reliable, affordable and sustainable for our customers which is sort of the holy trinity of our business. Operator: Next question will be coming from Steven D’'Ambrisi from RBC Capital Markets. Stephen D’Ambrisi: I just had a quick one. Just had a quick one. I appreciate the color on the 9% because one of the things, I guess, I was scratching my head out and I was hoping to get a little color on was clearly '29 rate base moves up something in the order of 20-plus percent. And so if you run the midpoint of your EPS guidance out, now at 9% versus where you were previously in the plan. It implies a pretty significant compression in earned ROEs, implied earned ROEs. Now obviously, you're spending a lot more capital and spending it quicker. So that kind of makes sense to me, but you do have pretty good mechanisms. So can you talk about any embedded conservatism that's in the plan around assumed earned ROEs that you would get given the significant increase in rate base? Brian Van Abel: Steve, yes, I can answer that question for you. And I think that's really why I want to provide some color with 11% rate base growth that we expect 9% rate base growth or 9% earnings growth over the next 5 years to really highlight that we don't expect significant compression in ROEs by any means that we see. If you think we've talked about some of the rate cases that we have come up in terms of driving some ROE improvement because we've delayed some rate cases for some reasons. And so when I think about it, it's really -- we've always talked about when you get to this kind of high growth, we're at 11% rate base growth, significant CapEx comes with financing needs that you would see about a 200 basis points delta between your rate base profit and your earnings growth over a 5-year period. And so I think we wanted to just highlight that, that it's as we move through the next few years, our financing is lined up with kind of our CapEx spend and we're working through some regulatory proceedings over the next couple of years, you start to catch up on that rate base versus EPS growth. But over the 5-year period, we feel really good about where we are that the long-term EPS growth, coupled with our financing plan and maintaining a strong balance sheet is we feel good about that and don't see ROE compression at all. We certainly have conservative ROEs in our plan, but we don't see ROE compression as we sit here today and look at where we are today. Operator: Next question will be coming from Travis Miller calling from Morningstar. Travis Miller: Questions around the transmission spend. Obviously, this has been a big thing for you for many years. But wonder as you ramp that up and think about these large customers, how easy or difficult is it to identify specific customers who might pay for some of this transmission spend, i.e., we see contracts between generation and data centers. Can you think some of this transmission spend essentially off of residential commercial customer bills and identify specific customers to pay for it? Robert Frenzel: Yes. Great question. First, thanks for recognizing leadership and transmission. I'd like to say that we have been the leading builder of new transmission line miles over the last 15 years when you come from the state of hockey, you got to skate to where the puck is. And we feel like we've built a grid in an infrastructure system that is enabling us to energize data class. When I think about incremental people willing to spend incremental money on transmission, I think our first principle with regard to hooking up data centers is if they require a new transmission line, particularly a lateral, usually they're paying for that 100%, and we put that into sort of a kayak bucket as opposed to net rate base spend, and it's going to be attributable directly to that customer. And when you talk about can you identify those customers. Those customers are knocking on our door freely and willingly to spend the money, particularly on the transmission interconnection make sure that they can get service as quickly as possible. So this is really a management of the inbound as opposed to us having to go find people that are willing to do it. I think that's a pretty common approach that the data center developers and the hyperscalers are willing and able to do. We're protecting our customers from the transmission build. And then when you think about the net benefit, if you're taking the entirety of our system cost and adding more megawatts to it. That's a net benefit on a per kilowatt hour rate on the transmission system in totality and a benefit for all customers. Travis Miller: Okay. Okay. So not all of that transmission spend then is -- would go on commercial and residential bills? Robert Frenzel: So that the transmission spend that we highlighted in our plan is regional, super regional. We have stuff with connecting MISO and SPP markets. We have big regional transmission coming out of the long-range transmission planning of the MISO process that is regionally allocated, not necessarily coming directly on to our customers. Same with our SPP build out, a lot of that is regional cost allocated not coming into the -- directly 100% into retail rates. Travis Miller: Okay. Great. And then how much is you talked about that lateral, just to follow-up on that. Give us a scale or kind of share of how much that specific lateral type of demand you're getting relative to like what you just talked about the regional type of transmission spend. Brian Van Abel: Yes. Travis, those are really customer-specific system impact studies to just wherever that customer is locating on the transmission system, the size of that customer, the ramp of that customer. And so those are really specific, hard to put a number on it in a general sense. Operator: Next question will be coming from Alexia Kania calling from BTIG. Alex Kania, that is. Alexis Kania: Maybe just a question on the regulatory side. Obviously, it's great to see all this CapEx and also the transmission as well, but I'm just kind of thinking about also your comments about relative share of wallet and rates, but I'm just wondering kind of the nature of communications that you're having with regulators just on kind of expectations for where rate trends may be going over the next 5 years within this -- within this window, maybe just kind of the balance between revenue requirements and volume growth or whatnot, but I'm just kind of curious about what the reception is to those types of conversations. Robert Frenzel: Yes. Great. I think it's really fundamental and foundational for our team here to make sure that we keep our bills for our product as affordable as possible for our customers. So we wake up every day thinking about that. We have to balance that with other desires, reliability, sustainability, resiliency and safety across our system to make sure that we can meet those needs of our customers as well. I mean you don't have to look any further than Jamaica or Cuba to realize the devastating effect that communities have when our system and our product isn't available. So we are spending time and energy, as you say, with our regulators, with our legislators, making sure that we recognize all of the things that we're bringing to the system and that while affordability is a hugely important piece. We think a, we start from a very good spot. We think we've been a very good steward of our customers' money over the last decade. We'll continue to be very prudent, very focused on making sure that we can deliver the system that they need and want with the policy objectives that they need and want at a price that is as affordable as possible. So we work through that with each state and each class of customer and making sure that we keep our product very affordable and attractive. Operator: As we have no further questions. For closing remarks, I'll turn the call back over to CFO, Brian Van Abel for closing remarks. Thank you. Brian Van Abel: Thank you all for participating in our earnings call this morning. Please contact our Investor Relations team for any follow-up questions. Operator: Thank you very much, sir. Ladies and gentlemen, that concludes today's conference. We wish you a very good day. You may now disconnect. Have a good day.
Operator: Welcome to the Teekay Group Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to the company. Please go ahead. Lee Edwards: Before we begin, I would like to direct all participants to our website at www.teekay.com, where you'll find a copy of the Teekay Group's Third Quarter 2025 earnings presentation. Kenneth will review this presentation during today's conference call. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the third quarter 2025 Teekay Group earnings presentation available on our website. I will now turn the call over to Kenneth Hvid, Teekay Corporation and Teekay Tankers' President and CEO, to begin. Kenneth Hvid: Thank you, Ed. Hello, everyone, and thank you very much for joining us today for the Teekay Group's Third Quarter 2025 Earnings Conference Call. Joining me on the call today for the Q&A session is Brody Speers, Teekay Corporation's and Teekay Tankers' CFO; Ryan Hamilton, our VP, Finance and Corporate Development; and Christian Waldegrave, our Director of Research. Starting on Slide 3 of the presentation, we will cover Teekay Tankers' recent highlights. Teekay Tankers reported the best quarter in the last 12 months with GAAP net income of $92.1 million or $2.66 per share and adjusted net income of $53.3 million or $1.54 per share in the third quarter. Third quarter spot rates remained counter-seasonally strong with rates meaningfully above the historical average for third quarter. Further, with spot rates well above our free cash flow breakeven levels, the company generated approximately $69 million in free cash flow from operations and at the end of the quarter, had a cash position of $775 million with no debt. Teekay Tankers continues to execute on its fleet renewal strategy, delivering on its previously announced transactions. Since the beginning of the third quarter, we have completed the acquisition of 1 modern Suezmax and the remaining 50% ownership interest in a VLCC from our joint venture partner. In addition, the company completed the sales of 5 -- of 4 Suezmax tankers, which delivered to their new owners in the third and fourth quarters. The combined gross proceeds of the 5 vessel sales is $158.5 million, and we expect an estimated book gain on sales of approximately $47.5 million recorded in the third and fourth quarters. In addition, the strength in the spot market supported the time charter market and the company opportunistically out-chartered 1 Suezmax vessel for $42,500 per day and 2 Aframax-sized vessels for an average time charter rate of $33,275 per day for periods ranging from 12 to 18 months. Two of these charters have already commenced with the remaining charter set to start in November. Looking at our fourth quarter to date, we have secured spot rates of $63,700, $45,500 and $35,200 per day for our VLCC, Suezmax and Aframax/LR2 fleets, respectively, with approximately 47% to 54% of spot days booked. We believe the tanker market is well positioned for a firm winter market, which we'll discuss in more detail in the next few slides. Lastly, Teekay Tankers has declared its regular fixed dividend of $0.25 per share. Moving to Slide 4. We look at recent developments in the spot tanker market. Spot tanker rates improved during the third quarter of 2025 with rates on a par with the strong levels seen over the past 3 years and well above long-term average levels. An increase in global oil supply due to the unwinding of OPEC+ supply cuts and rising production in the Atlantic Basin led to a sharp increase in global seaborne crude trade volumes during September to the highest level since early 2020. Rates were further boosted by an increase in long-haul crude oil movements between the Atlantic and Pacific Basins, particularly in the Suezmax and VLCC segments. As shown by the chart on the right of the slide, spot tanker rates have strengthened further at the start of the fourth quarter with rates in October near the top of the 5-year range. Turning to Slide 5. We look at the growth in global crude oil production and exports, which is underpinning the recent strength in spot tanker rates. Global oil production has been rising throughout the year due to increases from both OPEC+ and non-OPEC+ sources. The OPEC+ group began unwinding some of the voluntary supply cuts, which have been in place since 2023 at the start of April and by September had completed the unwind of the first round of cuts totaling 2.2 million barrels per day. The group is now in the process of unwinding the next round of cuts totaling 1.65 million barrels per day at a rate of 137,000 barrels per day every month over the next year. Oil production has also been boosted by new supply coming online from non-OPEC+ countries, particularly in South America, where new offshore production in Brazil and Guyana is in the process of ramping up. The increase has been particularly evident during the third quarter with supply growing by 1.6 million barrels per day compared to Q2 levels. The net result of the higher oil production has been a sharp increase in seaborne crude oil trade volumes, most notably since September as more Middle East crude has been made available for export following the end of the summer direct crude burn season. In fact, if we exclude the period in early 2020 when Saudi Arabia and Russia flooded the market with oil during the brief oil price war, global seaborne crude oil trade volumes are currently at a record high. With OPEC+ expected to continue to unwind supply cuts in the coming months, we expect global seaborne trade volumes to increase further during the fourth quarter. Turning to Slide 6. We look at some of the near-term oil market fundamentals, which we believe will support spot tanker demand in the coming months. One of the consequences of higher oil production this year has been a decrease in crude oil prices, as shown by the chart on the left of the slide. For countries outside the United States, a weaker U.S. dollar has led to an even steeper drop in real oil prices. Lower oil prices are generally positive for tankers as it spurs oil consumption and lower bunker fuel prices, which is our largest operating cost. Low oil prices also stimulate demand for stockpiling, both for commercial and strategic purposes. Given that global oil inventories are below long-term average levels, we believe that there is enough spare capacity to absorb a prolonged period of excess oil supply. Should global oil supply growth continue to exceed demand in the coming months as many analysts predict, then we could even see a contango oil price structure emerge, which could further stimulate tanker demand. Turning to Slide 7. We look at the geopolitical events, which are creating trade inefficiencies and adding further volatility to what is already a firm underlying tanker market. In recent weeks, we've seen a number of announcements with regards to sanctions and port fees, which are serving to create uncertainty and inefficiency in the tanker market. It's positive that the U.S.-China trade agreement announced earlier today includes a postponement of the announced port and shipping fees by at least a year. As it relates to sanctions, we've seen an escalation of efforts to curb Russia's profits from oil sales via a series of new sanctions by both the EU and the United States, most notably the recent actions to sanction Rosneft and Lukoil who together control around 50% of Russian oil production and exports. While this is a fast-evolving situation, it is reported that some refiners in India and China are backing off from Russian imports and looking to alternative suppliers in the Middle East and Atlantic Basin. This is positive for tanker market as these volumes will need to be transported via the fleet of compliant tankers rather than the fleet of shadow tankers, which currently transport the majority of Russian crude oil to India and China. We believe that these factors, coupled with the strong crude oil trade volumes described earlier as well as normal winter seasonal factors will help drive a firm spot tanker market in the coming months. Turning to Slide 8. We review the key drivers for the medium-term outlook. Global oil demand is projected to increase by 1.1 million barrels per day in 2026 as per the average forecast from the 3 major oil agencies, which is in line with average growth level since the end of the COVID pandemic. Global oil supply is also set to rise with more production due to come online from non-OPEC countries. It remains to be seen how OPEC will respond, should oil inventories continue to fill and oil prices come under further pressure. However, we believe that there is still plenty of room for inventories to build in 2026, particularly in China, where the government is reportedly looking to add 169 million barrels of new strategic storage by the end of the year. The fleet supply side continues to look balanced with the order book size stable in recent months at around 16% of the existing fleet. A continued lack of tanker scrapping means that the fleet continues to age with the average age of the global tanker fleet now at its highest point since the 1990s. In the midsized tanker fleet, 344 vessels or 20% of the total fleet is now aged 20 years or older, most of which are sanctioned vessels engaged in shadow trades. We believe that these older tankers will not return to conventional trading even in the event that sanctions are lifted. While the medium-term tanker market outlook appears well balanced, there are a number of geopolitical uncertainties, which could influence the direction of the tanker market depending on how they unfold. These include the outcome of the war in Ukraine and the fate of the shadow fleet serving Russian trade, developments in the Middle East and disruptions to Red Sea transits, the impact of tariffs and trade barriers on the global economy and OPEC+ production policy. Turning to Slide 9, we highlight Teekay Tankers' value proposition. First, our operating leverage remains significant, and the company is well positioned to generate substantial cash flows in nearly any tanker market. With the 3 new out charters and no debt, we have lowered our fleet's free cash flow breakeven from $13,000 per day to $11,300 per day. With this low free cash flow breakeven, every $5,000 per day increase in spot rates above the threshold produces $1.66 per share of annual free cash flow or nearly 3% on a free cash flow yield basis. Second, Teekay Tankers has a strong balance sheet with no debt and a $775 million cash position, which provides capacity for disciplined accretive fleet growth. Third, we continue to return capital to shareholders in a disciplined manner through our quarterly dividend. And lastly, the company's performance is underpinned by our integrated platform. We believe our in-house commercial and technical management is a competitive advantage. Combined with our 50 years of operating experience in the tanker industry, we provide superior service to our customers and transparency through the value chain, which drives shareholder returns. In summary, the company's strategy over the last several years has been to maximize shareholder value through our exposure to the strong spot market. This year, we began taking measured action to renew our fleet by making incremental investments in more modern vessels, which at the same time -- while at the same time, selling some of our oldest tonnage. As we look ahead, our best-in-class operating platform and strong financial footing positions the company well to continue renewing our fleet, earning cash flow and building intrinsic value. With that, operator, we are now available to take questions. Operator: [Operator Instructions] We will go first to Omar Nokta with Jefferies. Omar Nokta: Thank you for the update. Just wanted to ask maybe -- I had a couple of questions, but maybe first just on the market and kind of where things sit right now. Clearly, things have gotten much stronger. And when we think -- I think a lot of times when we sort of talk about or think about rising OPEC production, we think a lot about the VLCCs. And certainly, those rates have been shot towards past 100,000 a day. But we're also seeing some real strength in the Suezmax and Aframax segments, which are your bread and butter. Can you just talk a little bit about how these segments maybe interact with each other or maybe move together? And what's really been driving some of the strength we've seen in the midsized segments here recently? Kenneth Hvid: Yes. Thanks, Omar. You are absolutely right. I mean, I think when we look at this year, I think the second half of the year has definitely been one going from strength to strength, and I would argue maybe even stronger than most of us expected. What we've seen just over the last week really is that, that strength just continues to pick up. So the week is finishing stronger both in the VLCC, the Suezmax and the Aframax segment as well as the LR2s, right? So it's really moving up in all of the categories. And if you look back over the last -- well, since April '22, what we had was that we had a period where the Aframax has absolutely outperformed all sectors, as you know. And I think what we've kind of reverted to is more of the traditional dynamics where the larger ships lead the way, that pull up the Suezmaxes and that pull up the Aframaxes. And underlying that, of course, is that we have a very strong product trade as well that's happening. So everything is really working in all of the different segments where maybe it's more a matter of that in the last 3 years, the Aframaxes were really the outliers because we really outperformed everything. But now we're kind of back to what you say would be the normal dynamics in a strong tanker market where everything is balanced. And I think what we're seeing now is that we have, as we say, a record number of barrels that are being transported on the water. Of course, most of these barrels in a traditional sense always goes on the most efficient vessels, which are VLCCs. But when there's this much oil and this tighter supply, then it just pulls up the whole market. And that's, I think, in all some places what we're seeing here. Omar Nokta: Yes. Helpful color. And I guess maybe just kind of thinking about where Teekay stands. Clearly, you guys have been in a very strong financial position for the past several quarters, perhaps several years. Cash is building. And you've reiterated several times be patient, be patient, which makes a whole lot of sense given all the unknowns. As we kind of think about where you're headed, I think it was last quarter or maybe the quarter before, you had talked when it came time to maybe reinvest or add more exposure, you were kind of looking to scale more perhaps into the MR segment into products. Is that still the case if you kind of think about where you stand if you wanted to deploy more capital or more net capital, would you want to go into products more deeply? Or do you feel you'd want to either scale up into the VLCCs or perhaps maybe just stay within your back to using the term bread and butter, but the Suezmax, Aframax segment? Kenneth Hvid: Yes, that's a great question. I mean, just to be very clear, our core business is absolutely the medium-sized tankers. And we constantly look for where there's -- where we can find incremental value both in our core, but also the adjacent sectors. I think when we had this call almost a year ago, we talked about the MR sector, which looked interesting at the time relative to some of the other sectors. I think as we're sitting here today, we are 1 year further down the road here and looking at how we renewed the fleet or have taken action on some of our older tankers have started to renew our core fleet. Our focus is -- our #1 priority right now is investing in our core franchise. I wouldn't say that there never would be an opportunity in MR. But relatively speaking now, we actually think that the better value for us is to allocate capital towards our core segments, which are Aframaxes and Suezmaxes. Operator: We'll go next to Ken Hoexter with Bank of America. Timothy Chiang: This is Tim Chiang on for Ken Hoexter. To kind of extend on Omar's question, you've sold 11 vessels year-to-date. And while sales kind of outpaced purchases thus far, you mentioned last quarter you're focusing on an accelerating pace of fleet renewal going forward. So do you feel you're close to the minimum fleet size now? And do you perhaps aim for purchases of new core Afras and Suez to offset any following sales? Kenneth Hvid: I think the short answer is yes. Timothy Chiang: Got it. And saw your new time charter out agreement with 3 vessels locking in very favorable rates. Do you expect to engage in more of those given elevated rates near term in 2026? Kenneth Hvid: Yes, that's a good question. I mean we look at every deal opportunistically. There's always a timing and we consider what is the outlook, and it's very dynamic. We think it's prudent when you see strong time charter rates to lock it in, especially if it's with good customers. So it's an ongoing dialogue. It's not a stated strategy that we need to have x percentage of our fleet. We're happy to have spot exposure. But these levels, we know in historical terms are very strong levels. So we can lock it in. And as we pointed out in our prepared remarks, every time we do that, we lower our free cash flow breakeven even further. So as you can see, it's a very, very strong position that we're in, in terms of generating cash flows in the spot market. But at the same time, even if we did another couple of these at these levels, then of course, our free cash flow breakeven would go down even further. So it's -- we look at it as a portfolio and on a deal-by-deal basis. Operator: We'll go next to Frode Morkedal with Clarksons Securities. Frode Morkedal: My first question is on this new -- well, China-U.S. deal. I guess the Aframax is under the previous USTR regulation was not extended, right? So now with the USTR port fees being suspended for a year, does that improve the Aframax opportunities for you guys? Maybe they -- of course, the exports out of the U.S. Gulf, but also maybe lightering opportunities? Any color you have on that, please? Kenneth Hvid: Yes. Obviously, the deal is very, very, very new. I think the position we took first when the USTR came in and recently also the China port fees is that with the way that our fleet is composed, we don't have massive exposure to either sector. And therefore, I think the outcome of this agreement, I think, overall is positive for the industry. But I don't think it has any significant impact on Teekay, per se, in the same way as the port fees didn't have a significant impact on us either. So overall, I think it's a positive as it was clearly driving some inefficiencies, which I don't think serves the industry well over the long-term. But let's see. I mean, so far, it's only 1 year we note that's been agreed. Frode Morkedal: Yes. Sure. Makes sense. Next question, I guess, more generally speaking, -- you've clearly proven, I guess, that you have high total shareholder returns, right, TSR, which doesn't really require a high payout model. So how confident are you that the stock market would appreciate that approach today? And given that there's still a slight discount to NAV, what might close the remaining valuation gap in your view? Kenneth Hvid: Yes. I think over the past 7 years, we have been very, very clear on that we first focus on value before we focus on valuation and valuation follows. And I think to your point, I think that is what we are -- we're happy to see that's actually being recognized by the market. So when we look at it through a 5-year lens, you're absolutely right. I think that model is right. Our company should always focus on value creation, and that's what we're focused on here. I think it's in any business in shipping, it is about that we continue to have a strong balance sheet that we can act at times when we see good buying opportunities that we can act when we see good selling opportunities and that we have a strong operating platform with low cash flow breakeven and that's the fortunate position that we, after many years of hard work, have put Teekay back in and operating with that model delivers value every day. And we think we're in a very strong position to continue to build intrinsic value, and we fundamentally believe that, that will always be recognized by the markets ultimately. Operator: With no additional questions holding, I'll now turn the conference back to the company for any additional or closing remarks. Kenneth Hvid: Thank you for listening into our call today. We look forward to reporting back to you next year. Have a great day. Operator: Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.
Operator: Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allied Properties REIT Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Cecilia Williams, President and CEO. Please go ahead. Cecilia Williams: Thanks, John. Good morning, and welcome to our Q3 conference call. I'll highlight our progress towards 2025 goals and what we're focusing on going forward. Nan will do the same from a financial perspective. JP will outline the positive leasing momentum by urban market. We're then pleased to answer any questions. We may, in the course of this conference call, make forward-looking statements about future events or future performance. By their nature, these statements are subject to risks and uncertainties that may cause actual events or results to differ materially, including those described under the heading Risks and Uncertainties in our 2024 annual report. Material assumptions underpinning any forward-looking statements we make include those described under forward-looking statements in our most recent quarterly report. We're focused on delivering long-term value through leasing, development completions and strengthening our balance sheet. Market fundamentals continue to improve as evidenced by the higher level of leasing activity, including the highest number of square feet of expansions in our portfolio in the last 5 years, increasing large-format space mandates and improving conversion rates. Our capital structure, specifically the temporarily higher level of debt we took on to complete development projects, put downward pressure on results in the quarter. While our portfolio remains resilient and strategically positioned to benefit from improving market dynamics, it will take us beyond year-end to achieve 90% occupied in leased area and our targeted 10x debt to EBITDA. We remain focused on those as milestones toward continued improvement in our metrics. First, leasing and operational results. Our leased area held in the quarter. We leased 882,000 square feet across the rental and development portfolios. Conversion from tours to signed deals was high at 81%. JP will elaborate on these metrics. These signs of improving operating fundamentals give us confidence that while we're not getting to our ambitious target of 90% occupied and leased area by this year's end, we'll make progress going forward. Second, we advanced on our development and upgrade activities. M4 in Vancouver is now 90% leased, driven by Netflix's expansion in the quarter. Fixturing is underway and rent commences in early 2026. At KING Toronto, we're heading towards successful completion by the end of 2026. Securing Whole Foods as the anchor of the commercial component is facilitating the lease-up of the remaining space. We're currently in various stages of negotiation with 7 retailers. Glazing continues on the fourth level and glazing for the fifth level will begin to arrive next week. It's truly a distinctive project that will elevate the entire King West Village neighborhood when it's completed next year. All the development and upgrade projects currently underway are on track for completion by the end of 2026. Last but certainly not least, our balance sheet. While we want to achieve our target of getting to 10x debt-to-EBITDA by this year-end, we're increasing our steps to get there. We've added Toronto House and Calgary House to our disposition pipeline. Those dispositions, together with the repayment of the 150 West Georgia loan in the first half of 2026 will strengthen our balance sheet as we'll be able to pay off more debt and moderate interest expense, accelerating progress going forward. We're improving liquidity and positioning Allied for the next phase of growth with a stronger foundation. Nan will now elaborate on our financial results and balance sheet management. Nanthini Mahalingam: Thank you, Cecilia. Good morning, everyone. Thank you for joining us today. I'll take a few minutes to highlight our financial performance and the continued efforts we're making to strengthen our balance sheet. Operating fundamentals are improving. Our occupied and leased area didn't increase at the pace we expected in the quarter. Along with elevated interest expense, slower lease finalization put downward pressure on our results. We remain cautiously optimistic as market fundamentals continue to evolve in our favor. Occupancy was impacted by nonrenewals, including Entertainment One at 134 Peter Street in Toronto. They consolidated space following their acquisition by Lionsgate, a decision that was made in 2023. More importantly, we offset much of this with new leasing in our portfolio, which drove our lease area from 87.2% to 87.4%. This will translate into earnings as tenants take occupancy. Our same-asset NOI was 0.2% up for the quarter, supported by development completions, including 20 Breithaupt, 700 Saint-Hubert, and 1001 Robert-Bourassa. Our results included a onetime lease termination fee of $2.1 million related to a space that was on the sublease market. The termination was strategically aligned with an expansion of an existing tenant in the building, resulting in no downtime, higher rental rates and an incremental 3-year lease extension, thereby preserving future recurring revenue. Our interest expense was higher due to timing of our dispositions. We expect our interest expense will decrease upon the completion of our disposition program and the receipt of the 150 West Georgia loan receivable. Excluding the sale of our rental residential assets, we expect to generate approximately $500 million from dispositions and the 150 West Georgia loan monetization. This is expected to close between the remainder of 2025 and first half of 2026. All these proceeds will be used to retire debt. Overall, despite pressure from higher interest expense and longer lease-up time lines, we maintained stable operating fundamentals, solid liquidity and continued progress towards our long-term balance sheet targets. Turning to the balance sheet. Liquidity remained strong at $903 million, up $168 million from the prior quarter. About 89% of our portfolio is unencumbered, giving us exceptional flexibility. During the quarter, we completed the extension of our unsecured facility to September 2028 and expanded our syndicate to include 6 major Canadian financial institutions. This highlights the support we have from our financial partners. We also updated our green financing framework, which was initially released in 2021 to ensure alignment with best practices. Subsequently, we completed the issuance of our Series N debenture for $450 million, which was 5x oversubscribed with a 6-year term at a rate of 4.6%. This brings our total issuance for the year to $1.3 billion, of which $900 million was issued under the green financing framework, further highlighting the ongoing support that we have from the debt capital markets. Proceeds from this issuance were allocated to the retirement of variable rate construction debt and to pay down a portion of the $250 million term loan due in early 2026. At the same time, we extended the remaining $100 million of the term loan by 2 years to 2028 and retained the existing interest rate swap on the full $250 million at a favorable rate of 3.5%. In August, DBRS completed their annual review and maintained our credit rating. We remain committed to maintaining our investment-grade rating and our ongoing disposition initiatives will allow us to reduce leverage to our targeted levels over time. We have taken proactive steps to address most of our upcoming maturities for the end of 2026. We'll repay the upcoming $600 million debenture using proceeds from our dispositions and the monetization of 150 West Georgia loan receivable. Overall, this quarter was built on strong leasing momentum. strengthened liquidity and proactive management of upcoming debt maturities. All of this position us well for long-term value creation. Thank you. And with that, I'll pass it over to JP to discuss leasing. J.P. Mackay: Thanks, Nan. Over the past number of months, we've observed improving operating fundamentals throughout our portfolio, evidenced by 4 trends: one, an increase in leasing activity; 2, an increase in large-format space requirements; 3, an increase in expansion activity among existing users; and 4, an increase in our conversion rate. Our leased area remained stable in the quarter and outperformed each of the urban submarkets in which we operate, except for Vancouver, where we've made good progress in addressing acquired vacancy. In Q3, we completed 882,000 square feet of leasing activity, including 512,000 square feet of new leasing activity, the most since 2020, of which 426,000 was in our rental portfolio and 86,000 in our development portfolio. This represents an 81% conversion rate, the highest since 2020. The new leasing activity in the quarter included 187,000 square feet of expansions, a 150% increase compared to the previous quarter and the highest since 2020. The impact of our new leasing activity was partially offset by nonrenewals including a large known nonrenewal due to M&A activity that occurred in the prior year and not a reflection of current day space requirements. While the number of tours was lower compared to the prior quarter, the average tour size more than doubled and the number of tours with requirements greater than 25,000 square feet increased 83%, driven by touring activity in the modern segment of our Toronto and Montreal portfolios. Industries represented by touring organizations were technology, financial services, media, professional services, education and medical uses. We currently have 1.3 million square feet of leasing activity under negotiation or at the prospect stage, of which 970,000 square feet represents new leasing opportunities. Of the new leasing activity underway, 300,000 square feet is under negotiation and 670,000 square feet is at the prospect stage. Included in the leasing activity underway is 170,000 square feet of possible expansion activity as there are currently 17 existing users considering expansions. I'll now provide a brief overview of each market. In Montreal, we're currently working on 370,000 square feet of new leasing activity, of which 100,000 is under negotiation and 270,000 is at the prospect stage. Most of our vacancy in Montreal is concentrated at La Cité, a portfolio of assets located between Old Montreal and Griffintown, comprising 8 buildings totaling more than 1.2 million square feet. We've seen a material increase in leasing activity at La Cité in the second half of the year. In Q3, we completed 100,000 square feet of new leasing and currently have 100,000 at the prospect stage. The upgrade activity at 1001 Robert-Bourassa continues to attract large and sophisticated users. In Q3, we completed 150,000 square feet of new leasing and currently have 130,000 at the prospect stage. The new leasing completed in Q3 included the expansion of an existing user by 100,000 square feet to accommodate their utilization requirements by backfilling much of the National Bank sublease space. In Toronto and Kitchener, we're currently working on 550,000 square feet of new leasing activity, of which 165,000 is under negotiation and 385,000 is at the prospect stage. In Toronto, there are several large organizations looking to sublease the Shopify space at the Well. Shopify is currently finalizing a sublease for a large portion of their premises with the user that will be new to our portfolio. The remaining demand exceeds the balance of space available materially. In Kitchener, Google renewed its lease of 195,000 square feet in The Breithaupt Block, a large heritage complex in which we own 50%. Google represented our largest lease maturity in 2026. In Calgary, we're currently working on 30,000 square feet of new leasing activity, of which 20,000 is under negotiation and 10,000 is at the prospect stage. In Vancouver, we're currently working on 20,000 square feet of new leasing activity, of which 15,000 is under negotiation and 5,000 is at the prospect stage. At 400 West Georgia, we finalized the long-term lease of 49,000 square feet with a global educational institution, subject only to routine regulatory approvals expected before the end of November. The asset is now 96% leased. At M4, we finalized the lease expansion of 26,000 square feet with Netflix, bringing Netflix's footprint to 137,000 square feet. The asset is now 90% leased. Our leasing performance in Q3 reflects improving operating fundamentals, driven by higher physical utilization and diminishing supply of distinctive urban workspace, resulting in an increase in leasing activity, rising demand for large-format space requirements, increased expansion activity among existing users and improved conversion rates across our portfolio. I will now turn the call back to Cecilia. Cecilia Williams: Thanks, JP. Before we turn to questions, I want to reiterate my confidence in our portfolio and our team, especially as market dynamics are improving. We're staying focused on leasing, paying down debt and completing development projects. Our targets are in sight and are achievable. With our offering of both heritage and modern workspace, our urban portfolio is unique and strategically positioned for the growing demand and the lack of new supply will highlight this. I say this as Canadian cities are increasingly concentrating in centers of creativity, innovation and opportunity and urban workspace plays a critical role in that, making Allied well positioned to meet the growing demand. Our team is focused, patient and confident that our fundamentals will ultimately be recognized. We'd now be pleased to answer any questions. Operator: [Operator Instructions] Our first question comes from the line of Jonathan Kelcher with TD Cowen. Jonathan Kelcher: First, just one little clarification. When you talk about, JP, when you talk about a conversion rate, 81% conversion rate, is that off of leases that are in negotiation or the total sort of $1.3 million you talked about? J.P. Mackay: Jonathan, it's in relation to what we would have represented last quarter as new leasing opportunities that we were pursuing at the time. Jonathan Kelcher: Okay. So just to be sure, it includes like prospect and stuff under negotiation? J.P. Mackay: That's correct. That's correct. Jonathan Kelcher: Okay. And then I guess a couple of weeks ago, you guys took hitting 90% occupancy off the table for this year and I think you addressed it a little bit. Based on what you're seeing, and that was a pretty positive sort of update you gave, JP. Is that a target that you think you get to some point in '26? Cecilia Williams: Jonathan, yes, we do have line of sight to 90% in 2026. Jonathan Kelcher: Okay. That's helpful. And then lastly, just looking at where your leverage currently sits versus where you guys wanted, the slower pace of the occupancy recovery that we're seeing. How is management and the Board looking at the distribution level right now? Cecilia Williams: So, we are considering many options. And one of those options is a distribution cut in 2026, so as to strengthen the balance sheet. We haven't made a formal decision yet. We haven't made a formal recommendation, but it is one of the scenarios that is under consideration. Operator: Your next question comes from the line of Mario Saric from Scotiabank. Mario Saric: Just wanted to focus on the disposition pipeline a little bit. You've added Toronto and Calgary House to the list at $450 million. So that increases the total expected dispositions from about $500 million before to, call it, $675 million, give or take. That would imply that about $275 million on prior assets that were deemed for sale will remain in place going forward. So, can you walk through how you think about sizing the disposition pipeline? Like is it simply a matter of doing what you need to do to hit target leverage metrics? Or do other factors play a role in the decision process such as being able to get IFRS values for those assets and et cetera? Cecilia Williams: Mario, so we've outlined $270 million on Page 2 of the press release. On top of that, it's the proceeds from 150 West Georgia, and that's about $240 million roughly. And then on top of that, it would be the proceeds from the disposition from Toronto House and Calgary House, which we're not quantifying, but it would more than double the proceeds that we get from our sales, which would all be applied towards debt reduction. Mario Saric: Okay. But it seems like there were maybe some assets that you think you were considering selling previously that you're no longer considering selling. Is that a fair comment? And then I guess, if so, what are some of the factors that kind of drive those decisions? Cecilia Williams: It's just, it's based on what we rather than later. And the update, it's opportunistic based to some extent. We have our noncore assets identified. And as we get IFRS value or higher, we sell them. And the update is as we've outlined it in the press release, but there weren't material changes. Mario Saric: Okay. And then just on the $239 million West Bank loan receivable underpinned by 150 West Georgia, how would you characterize your confidence level today in terms of collecting on that receivable relative to 3 months ago? And what factors would you highlight that kind of underpin that confidence? Cecilia Williams: We remain very confident in collecting that, Mario, and it's based on the zoning that's in place and the parties that are interested in the opportunity. Operator: Your next question comes from the line of Roger Lafontaine with Nugget Capital Partners. Roger Lafontaine: I had a question whether you're seeing improved transaction liquidity within the office market, and that's really just my question, whether it pertains to smaller buildings or larger buildings. If you could touch base on that. Cecilia Williams: Sorry, are you asking about, I couldn't hear the first part of your question, sales volume? Roger Lafontaine: Yes. Are you seeing improved transaction liquidity as you seek to dispose of any assets or offices, whether you're still more buyers on the market? Cecilia Williams: Thank you. Yes, for the assets that we are looking to dispose of our smaller noncore assets, we certainly are. I think it's, our buyers are seeing this as an opportunity to get access to buying these types of assets, which aren't, isn't normally an opportunity for them. So yes, we are absolutely seeing higher levels of interest. Operator: Your next question comes from the line of Lorne Kalmar with Desjardins Securities Inc. Lorne Kalmar: Just on King Toronto, I think going back, the closings were initially set for, I think, 4Q '25 has kind of been pushed back. I was just wondering if you could give us some color as to what's really been driving those delays? Like is there issues with purchasers that are in default on their agreements? Or what's really happening there? Cecilia Williams: No, it's nothing to do with any defaults. We haven't had any to date. It's really the pace of construction activity, which was recently impacted by some rain, and it prevented us from getting some of the glazing up. But for the most part, things are progressing as expected. Lorne Kalmar: Okay. Okay. And then I might have missed this, so apologies if I did. But do you guys have a kind of a target yield on Toronto House and Calgary House based on the unsolicited inbounds you've gotten? Cecilia Williams: Not that we're disclosing, Lorne. Operator: Your next question comes from the line of Matt Kornack with National Bank Financial. Matt Kornack: Just back on Toronto, not Toronto, King Toronto. You revised the expected proceeds a bit lower there. Is that a function of what you think you'll get on the sale price? Or is that a thought around maybe some condos that closed not collecting on them? Or just what was behind that assumption at the end of the day? Cecilia Williams: It's just to reflect market value on the remaining 8% of units that have to be sold. So, as you know, we're 92% sold. So that pricing is locked in. And we just, we need to just adjust on the remaining 8%. Matt Kornack: Okay. Makes sense. And then, there was, I think, I'm not sure if it was in your same-property NOI number or not, but it sounds like you collected a prior bad debt provision of around $1.3 million on an asset in Calgary. Would that have been in same-property NOI? And was there an offsetting negative? Or should we view that as kind of onetime in nature? Nanthini Mahalingam: Matt, it's Nan. That was a reversal in Calgary, but there was the normal course bad debt that's in our results as usual, which offsets that. So that should not be something that should be backed out because if you're backing out the reversal, you got to back out the provisions. If you look at Note 10, it's very clear, the provisions actually in the quarter were higher than the reversal. Matt Kornack: Okay. That's fair. And then I guess on 1001 Robert-Bourassa, the lease termination income, I know it's $2.1 million, but was there anything that we should net against that in terms of the new lease that's going to be signed relative to the older? Kind of what would be the net impact if we wanted to get to a normalized number in the quarter for future quarters on a run rate? Nanthini Mahalingam: That is $3 per square foot higher than the current lease. Matt Kornack: Okay. And then lastly for me, I appreciate the disclosure in terms of the incremental NOI coming from the ground-up development. I think it was $1 million in Q4 and $10 million in 2026. Does that include anything from the redevelopment portfolio? Or would that be incremental on top of those figures? Cecilia Williams: There's a little bit from 1001 Robert-Bourassa and RCA in those numbers. Matt Kornack: In those numbers. Okay. So that's the total expected kind of incremental to just general same-property NOI growth in the portfolio. Cecilia Williams: Yes. Operator: Your next question comes from the line of Tal Woolley with CIBC Capital Markets. Tal Woolley: Just on King condos, so how much capital do you expect to be getting back in 2026 from, because it seems like the closings may bleed into 2027 as well. Cecilia Williams: So from the condo sales? Tal Woolley: Yes. Cecilia Williams: Yes. It's just a note, it's about $240 million at our share. Tal Woolley: Okay. And that's in '26 or that's total? Cecilia Williams: That's the total. So occupancy will be in place. The closing is based on city permits in place. So we are, right now, we're expecting late 2026 to early 2027, so cash proceeds. Tal Woolley: Okay. Got it. And just on leasing in general, I guess I feel like maybe I or the market getting a little surprised with just trying to reconcile the commentary you guys have around leasing with what's getting rendered in the quarters. And so, if you're seeing increasing leasing, increasing large-format tenant demand, improved existing user demand and the conversion rate, I wouldn't necessarily, it sounds like all good things and yet occupancy is down quarter-over-quarter and your revised outlook doesn't really have much of an occupancy lift baked in next quarter either. And so when are the wheels going to start to turn positively for occupancy despite all the sort of green shoots, I'll call it, commentary that we're getting? Cecilia Williams: Yes. There's a few quarters of a delay between getting the leasing locked down and then having occupancy and then having rent commencement. So, it unfortunately doesn't happen immediately. There is a lag effect. And so, we are seeing that. We are seeing the leasing momentum in the TAMI sector. The bank mandates are kind of the latest, but we started seeing things starting to pick up before the bank mandates. And unfortunately, it takes a few quarters for it to start being reflected in our numbers and then for the cash rent commencement to start hitting our statements. So there is a bit of a lag that has to be taken into account. Tal Woolley: Okay. So like middle of 2026, you would feel comfortable that occupancy should be above where it is right now? Cecilia Williams: I would expect 2026 to be improved over 2025, but I'm not going to start speaking to 2026 on this call, Tal, although I appreciate that you are asking from a good place. updating on what we expect for 2026 as we always do on our year-end call. But we certainly, as we sit here today, we have line of sight to improved metrics in 2026. Tal Woolley: Okay. And then just lastly on 150 West Georgia. So, do you have a data center partner prospected or in place already? Or does that, are you just saying basically you have a powered land site that could be used for that and that person will still need to go get site plan approval and all that stuff? J.P. Mackay: We have entitlements and there are prospective parties at advanced stages of their due diligence. Tal Woolley: Okay. So your, and then your goal here is just 100% monetize that loan and be out of this site forever. Cecilia Williams: Absolutely. Yes. Operator: Your next question comes from the line of Pammi Bir with RBC Capital Markets. Pammi Bir: Just with respect to dispositions, the $270 million that you mentioned plus, I guess, Toronto and Calgary House, would this collectively sort of mark the end of the disposition program for, I guess, if you think about 2026? Or would you consider just continuing to perhaps upsize that program? Cecilia Williams: No. As we sit here today, we see that as being the end of the disposition program, Pammi. Pammi Bir: And then I guess, tied to that with the, I guess, anticipated repayment of the Westbank loan, would that get you to effectively that 10x debt-to-EBITDA target? Is that enough? Cecilia Williams: We have line of sight to being in the 10x range by the end of 2026. Pammi Bir: Okay. Maybe just switching gears, coming back to the comments around the distribution. I don't think this was asked, but if it was, I apologize. But what are some of the parameters or goalposts that you're focused on, on whether to cut? Is it leverage, occupancy, the payout ratio, et cetera? Or just maybe some color around how you're approaching it at this point? Cecilia Williams: It's really looking at getting the balance sheet where we feel it needs to be at and accelerating the progress towards that goal. And certainly, payout ratios and debt to EBITDA and those kinds of metrics, but it's about strengthening the balance sheet. Pammi Bir: I guess the other way to think about it is, why not just cut now? I mean, how much could, I know there's a lot happening and a lot of stuff in the works from, with all this capital that you expect to repatriate. But why not just do it now and just drive on and the rest sort of strengthens the balance sheet further? Cecilia Williams: Yes. It's, we just, we have a process that has worked for us since we went public in 2003, and it's a decision that the Board makes annually for the following year at the end of every calendar year, and we don't see the need to go off process. And so we will be meeting with our Board at the end of November and making our decision within the usual time lines. Pammi Bir: Okay. And then just lastly, the, to clarify the comment that you made on getting to 90% occupancy next year. Is that in place? Or is that committed? Cecilia Williams: So I was speaking to lease area, and we will also stick with our usual process, Pammi, of talking about 2026 on our year-end call. My reference to having line of sight to lease area of 90% by the end of 2026 is based on the improving market fundamentals that we have in front of us today, and it's something that we'll reaffirm on our year-end call. Pammi Bir: Okay. Okay. And then just lastly here, okay, without commenting on 2026 growth, you see today is, do you see 2025 as the low watermark on FFO in this cycle for Allied? Cecilia Williams: I think that's something that I'll have to leave for part of our year-end call, Pammi. We're focused on the metrics, and we want to provide a comprehensive update in terms of our outlook for next year. So I just. I'm not trying to put you off. I just, I don't want to start giving piecemeal information on next year. All I can say is that with the improving fundamentals, we absolutely expect an improving set of operating metrics in 2026. Operator: The next question comes from the line of Shalabh Garg with Veritas Research. Shalabh Garg: I was just wondering, there's an expectation of maintaining the occupancy rate flat over Q3 and Q4. And I see you have net lease maturities of 390,000 with some offset by fixture commencements. So where is this roughly 100 basis points or 90 basis points of occupancy going to come from? Is it new leasing? Or is it renewals for whatever is maturing in this quarter? J.P. Mackay: So, it comes from term commencement as a result of contractual leasing activity achieved year-to-date that will commence in Q4. Shalabh Garg: And then thing on renewals out of that 391,000 square foot? J.P. Mackay: Of the 391,000 square feet, we expect that we will be successful in renewing approximately half, and we expect approximately half will mature for circumstances specific to each organization and exit the portfolio. Shalabh Garg: Okay. And the other question I have, and I think, Nan, you touched on it, of the $600 million maturity up in Feb 2026, do you expect it to fully repay through asset sales? Or is there going to be some refinancing through unsecured debt? Nanthini Mahalingam: It's expected to be fully repaid. Operator: The next question comes from the line of Brad Sturges with Raymond James. Bradley Sturges: Just a couple of quick questions for me. Just going back to King Toronto. I think you talked about total proceeds of $240 million. What kind of default rate would you assume as a base case scenario for condo closings as those progress over the balance of '26? Cecilia Williams: We understand that our regular default rate is between 7% to 10%, Brad. So I wouldn't expect it to be higher on that project. If anything, it might be modestly lower. Bradley Sturges: Okay. That's helpful. Second question, just on the remaining asset sales to complete. Can you just talk about maybe an average yield or expected exit cap rate on a blended basis of what that potentially could look like for remaining transactions? Cecilia Williams: We're not going to be doing that at this time. We'll disclose as we always do as the dispositions are completed. All I can say is that we've been, we've had our IFRS values being validated through the disposition program to date. Operator: And it seems that we have no further questions at this time. I will now turn the call back over to Cecilia Williams for closing remarks. Cecilia Williams: Thanks, John, and thanks, everyone, for attending our conference call. My final message is this. Market dynamics are shifting in our favor. And with the team staying focused on what we can control, we're successfully operating our way through the improving environment and remain on the path to our goals. We're leasing up space, executing a plan to reduce debt and completing developments that will strengthen our ability to serve knowledge-based organizations for years to come. Our portfolio is unique. It's deeply urban and deeply connected to the cities that are driving Canada's economic and creative future. As these cities get stronger, so does Allied. We'll keep you updated on our progress going forward. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. We thank you for your participation. Have a great day.
Operator: Good morning, and welcome to the Regal Rexnord Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Robert Barry, Vice President, Investor Relations. Please go ahead. Robert Barry: Great. Thank you, operator. Good morning, and welcome to Regal Rexnord's Third Quarter 2025 Earnings Conference Call. Joining me today are Louis Pinkham, our Chief Executive Officer; Robert Rehard, our Chief Financial Officer; and Rakesh Sachdev, Chairman of our Board of Directors. I would like to remind you that during today's call, you may hear forward-looking statements related to our future financial results, plans and business operations. Our actual results may differ materially from these projected or implied due to a variety of factors, which we described in greater detail in today's press release and in our reports filed with the SEC, which are available on the regalrexnord.com website. Also on this slide, we state that we are presenting certain non-GAAP financial measures that we believe are useful to our investors, and we have included reconciliations between the non-GAAP financial information and the GAAP equivalent in the press release and in these presentation materials. Turning to Slide 3. Let me briefly review the agenda for today's call. Louis will lead off with opening comments and overview of our 3Q performance and an update on our data center business. Rob Rehard will then present our third quarter financial results in more detail, review our 2025 guidance, provide an update on tariffs and offer some initial thoughts on 2026. We will then move to Q&A, after which, Louis will have some closing remarks. And with that, I'll turn the call over to Louis. Louis Pinkham: Great. Thanks, Rob, and good morning, everyone. Thanks for joining us to discuss our third quarter results and to get an update on our business. We appreciate your continued interest in Regal Rexnord. Before discussing our third quarter results, I would like to make some brief comments about the news regarding my succession, which we announced last night concurrently with our third quarter earnings release. It has been an immense honor to lead the company for the past 6-plus years. We have achieved a lot, inclusive of two major acquisitions and the divestiture of the Industrial segment, transformation of our portfolio, significant revenue growth, gross margin expansion and free cash flow acceleration and have positioned Regal Rexnord as a valued partner serving our customers' most critical needs. We have assembled a strong team of leaders who have built great teams that are focused on leveraging the 80/20, expanding secular growth opportunities and driving continuous improvement. Our portfolio is well positioned to grow, especially when the ISM returns to an expansionary period for industrial production. With third quarter sales up about 2% and orders up about 10%, along with our improving top line momentum, there is a lot to be excited about. So with that, and in light of some personal decisions that I recently made, the Board and I have agreed that this is a good time to initiate a transition plan to pass the baton to a new leader who will guide Regal Rexnord through the next phase of our growth journey over the coming several years. I look forward to continuing to lead the company until the Board identifies my successor. Rest assured, we have a strong team, and we'll continue to execute on our profitable growth initiatives for the benefit of our customers, our associates and our shareholders. In short, it is business as usual. And now on to the quarter. Our team delivered solid third quarter performance, nicely ahead of our expectations on orders, and roughly in line on sales and adjusted EBITDA, driven by over execution in PES and strong execution in IPS and AMC. Performance would have tracked even stronger if it were not for larger-than-expected pressures from two items out of our control: additional tariffs announced in August just after our Q2 earnings call and incremental challenges in sourcing rare earth magnets. Looking forward, our growth potential took a significant step higher in the quarter, driven by strong orders. These results, plus our expectation for further order strength in fourth quarter are setting us up for solid growth in 2026. In short, good results, great momentum. So before continuing, I want to take a moment to thank our 30,000 Regal Rexnord associates for their hard work and disciplined execution. Our associates continue to overmanage the impacts of tariffs and rare earth magnet constraints and are doing a great job working our commercial funnels to drive improved orders and performance. Now let me provide some specifics on our third quarter. Orders in the quarter on a daily basis were up 9.8% versus prior year, and book-to-bill was 1.05. We ended the quarter with our backlog up 6% versus the prior year. As I will elaborate on shortly, in the quarter, we booked $135 million of data center orders and then an additional $16 million order in October. This is a market where we are clearly gaining traction, and we are investing to support further growth. We also saw strong order growth in discrete automation and in our air moving business in PES for the data center and semicon markets, while IPS posted its fifth quarter in a row of positive orders growth against the backdrop of generally sluggish end markets. Our sales in the quarter were up 70 basis points versus the prior year on an organic basis, in line with our expectations for an inflection to growth. In the quarter, we saw particular strength in energy markets, discrete automation and aerospace, net of headwinds in medical as well as some project timing in data center. The latter clearly temporary as recent orders show we are building tremendous momentum in our data center business. For reference, on a year-to-date basis, enterprise organic sales are up slightly and are expected to be up low single digits for the year. Turning to margins. Our third quarter adjusted gross margin was 37.6%, down 80 basis points versus the prior year period on mix and impacts related to rare earth magnet availability and tariffs. Adjusted EBITDA margin was 22.7%, roughly flat versus prior year and reflects an $11 million synergy benefit, mostly offset by mix, tariffs and rare earth magnet pressure. Adjusted earnings per share for the quarter was $2.51, up versus the prior year. And lastly, we generated $174 million of free cash flow in the third quarter, which was used primarily to pay down debt. We ended the quarter with no variable rate debt. In summary, a solid third quarter, during which we delivered strong orders and a rising backlog, which keeps us optimistic about accelerating top line and earnings growth in fourth quarter and into 2026. Next, I'd like to elaborate on the significant momentum we are gaining in the data center market, which we believe can be needle moving to our enterprise sales growth. On the left side of this slide, we provide an overview of our diverse capabilities in the data center market. You can see that all three segments play, but our largest presence today is in our Thomson Power Systems business in AMC, where we are providing switchgear and transfer switches to support standby and backup power in data centers. This was a $30 million business 5 years ago and is on track to hit $130 million this year. The traction we are seeing in this fast-growing secular market is being driven by the success factors listed on the lower left of this slide. It starts with the quality of our products, demonstrated over 5 decades of service. What differentiates us is our ability and willingness to customize the system designed to best meet the needs of our customer. Our lead times are competitive, and in a market being fueled by remarkable levels of AI investment, lead times matter a lot. Our enterprise scale has been critical to getting us in the door with new and larger customers because it helps them get comfortable that we can deliver on our service and delivery commitments. Aftermarket service capabilities are a growing part of our value proposition as we invest in our service footprint. Lastly, and highly relevant in today's market, we are willing and able to make investments to flex our manufacturing capacity, which supports future growth and bolsters our service levels. On the right side of the slide, we describe our recent wins in the data center market worth $195 million. We have been very focused on building our commercial organization, which combined with our enterprise scale has allowed us to grow our bid pipeline to what today is approaching $1 billion. We are also seeing good data center growth in PES, which won a $20 million order in the quarter to provide HVAC chiller subsystems to cool hyperscale data centers. For perspective, PES' commercial HVAC business has been benefiting from data center growth for some time, especially in North America. What is different with this order is its scale. In short, our value proposition of technology differentiated subsystems to achieve the high levels of energy efficiency required by data center operators is resonating. You may remember that part of our growth strategy for PES is leveraging proven technologies in new secular markets. While not mentioned on this slide, the PES team also won a $7 million project in the quarter for a semicon clean room customer that included multiple fan solutions, including fan filter units. Our PES team is gaining traction, growing its business in new secular markets. And as you can see on the slide, is currently working a $100 million data center-related bid pipeline. As you know, we have been directing the majority of our growth investment to secular markets. In data center, that has included funding portfolio expansion into modular electrical pods or e-Pods. These turnkey power management solutions can help expedite data center construction by making the installation of critical power management content more plug-and-play. These e-Pods would typically contain our switchgear, transfer switches, power distribution units as well as air moving content. Regal is also project managing assembly of these e-Pods, including content from third parties. So part of our value proposition is providing a single source of contact for the customer and allowing the customer to procure power management content with a single SKU. We estimate the market size for e-Pods is roughly $10 billion. There are two particularly compelling attributes of this opportunity. One, it helps customers expedite their installation of new hyperscale data centers today. And two, it positions us to serve a market that many expect will evolve towards a network of smaller data centers that sit closer to the applications they are supporting. These edge data centers are forecast to number in the thousands and will likely be constructed using a few modular building blocks that contain all the requisite data center content. Our commercial team has been actively engaged with potential e-Pods customers, and our bid pipeline currently exceeds $400 million. So nearly half of AMC's total $1 billion data center bid pipeline I referenced earlier. In short, a tremendous new product opportunity for our customers and for Regal. To support the growth we have secured in our bidding on, we are investing to expand our capacity, both in our legacy power management systems and to support e-Pods. As you can see on this slide, the current footprint for our data center business in AMC includes two locations, one in British Columbia and one in Mexico. We recently started developing new capacity by expanding our British Columbia footprint and also developing a new site near Dallas, Texas, which will grow our footprint by over 50%. The Dallas facility is scheduled to begin shipping product by mid-2026. As a reminder, this business is relatively CapEx light, and so our investment is centered on light manufacturing, assembly and test equipment as well as adding the talent to support our expanding operations. This is a good example of how our significant enterprise resources allow us to respond quickly to attractive market opportunities. While our data center business today represents a small percentage of our enterprise sales, it is growing quickly, and we are investing across the spectrum of resources needed to support and fuel further growth. Starting in the coming quarters, we believe our data center business can contribute a point or more of growth to our enterprise growth rate at company accretive margins. In short, a huge opportunity for Regal that we are extremely excited about. And with that, I'll turn the call over to Rob. Robert Rehard: Thanks, Louis, and good morning, everyone. Now let's review our operating performance by segment. Starting with Automation & Motion Control, or AMC. Sales in the third quarter were down 1% versus the prior year period on an organic basis, which was just shy of our expectations. The performance primarily reflects project timing in data center, weakness in the medical end market and further challenges sourcing rare earth magnets, which continued to limit our ability to ship certain high-margin products in the medical and defense markets. These headwinds were largely offset by strength in discrete automation and in aerospace. Regarding the challenges around rare earths, last quarter, we expected these were diminishing, especially for nondefense products, where we were making good progress with license approvals for exports from China and with our efforts to find alternative sources of supply. However, the situation worsened in the quarter as the rate of China license approvals slowed considerably. And it became clear that even in the absence of an official policy change, China was not approving export license applications for India, where we have a large facility making product for surgical applications. At this point, we are continuing to work on securing alternative sources of supply and making strategic production moves that facilitate exports from China. Given our experience navigating rare earth magnet approvals we've described, which is worse than we anticipated coming out of the second quarter, we now believe these headwinds will impact us through the end of the year and into early 2026. After which, we expect to see net benefits in the P&L from working down our past due backlog associated with these impacted products. I'll share more on this in the guidance section. Turning to margins. AMC's adjusted EBITDA margin in the quarter was 20.5%, which was on the lower end of our guidance range. The primary pressure was related to securing rare earth magnets. Orders in AMC in the third quarter were up a strong 31.7% versus prior year on a daily basis for a book-to-bill of 1.23. As discussed earlier, this performance is largely tied to winning two large orders in the data center market, worth a combined $115 million. Excluding these orders, orders in AMC would have been up 1%, reflecting strength in discrete automation with orders up 17%, net of weakness in medical and order lumpiness in the aerospace business. As Louis indicated earlier, this strong momentum in data center continued in October when we booked an additional order worth $60 million for a total of $175 million of recent data center orders in AMC. Of further note in the quarter, we received our first electromechanical actuator production order for eVTOL, and we booked $8 million of humanoid-related orders, adding to our momentum in both of these spaces. As a reminder, to the extent humanoid or eVTOL adoption grows, we are very well positioned to address this demand. Turning to Industrial Powertrain Solutions or IPS. Sales in the third quarter were up 1.6% versus the prior year on an organic basis, which was modestly above our expectations. The growth largely reflects strength in energy and metals and mining, with the segment's other markets relatively flat. Adjusted EBITDA margin for IPS in the quarter was 26.4%, about 50 basis points below our expectation and down slightly versus the prior year. Performance reflects synergy gains, offset by weaker-than-expected mix, including product and channel mix, along with the impact of tariffs. Orders in IPS on a daily basis were up 2.3% in the third quarter. This marks the fifth quarter in a row of positive orders growth for the segment and has contributed to the backlog growing 5% year-over-year. Book-to-bill in the third quarter for IPS was 0.96. Turning to Power Efficiency Solutions or PES. Sales in the third quarter were up just under 1% versus the prior year on an organic basis, which was in line with our expectations. The result primarily reflects strong growth in pool and in commercial HVAC. Within the residential HVAC portion of this -- of the business, which represents roughly 1/3 of the segment, sales of air conditioning units were down over 20%, which was offset by strength in furnace, resulting in residential HVAC overall being flat in the quarter. We would attribute the relative outperformance to our continued strong position in this market. Turning to margins. Adjusted EBITDA margin in the quarter for PES was 19%, which was above our expectation and up 120 basis points versus the prior year period, aided by favorable mix and strong cost management. Orders in PES for the third quarter were up 1.7% on a daily basis. As Louis highlighted in his remarks, this team is accelerating its growth in new secular markets such as semicon and data center. Book-to-bill in the quarter for PES was 1.02. Turning to the outlook on Slide 13. We are narrowing and lowering our adjusted EPS guidance to the range of $9.50 to $9.80 or $9.65 at the midpoint. Our revised assumptions are outlined in the table on this slide. Notably, our sales guidance is rising modestly, primarily to reflect initial revenue from our recent data center project wins and some additional tariff pricing net of incremental impacts from delayed shipments of products with rare earth magnets. Our adjusted EBITDA margin is now expected to be 22% versus our prior assumption of 22.5%, factoring what we now forecast to be net unfavorable tariff impacts in the year on a dollar basis and the mixed impacts of rare earth magnet-related shipment delays. We have also made some adjustments to certain below-the-line items, which are outlined in the table. With all of this said, the majority of our guidance changes due to margin headwinds caused by newly introduced and increased tariffs, along with additional rare earth magnet supply chain constraints. Regarding free cash flow, we are now expecting to generate $625 million this year. The decline versus our prior guidance largely reflects the impact of the following three items: one, higher tariff costs associated with the expanded scope of Section 232 tariffs, coupled with the significantly increased India tariffs; two, the impact of strategic working capital investments, particularly those tied to the large data center orders we announced, along with supply assurance inventory for rare earth magnets; and three, higher cash interest costs given the timing and amount of cash flows relative to prior expectations. We see both the tariffs and the working capital investments as timing related as we expect the impact of pricing on tariffs to flow through once that inventory is sold in the first half of 2026. On Slide 14, we are updating our expectations regarding tariff impacts. The gross annual unmitigated cost impact from tariffs as of our last update when we reported second quarter was $125 million. Based on tariffs in place today, that value has risen to $175 million, largely reflecting the rise in India tariffs to 50% and the expanded scope of Section 232 tariffs on steel, aluminum and copper. Given the extent of the tariff increases and the limited time left in the year to implement mitigation actions and price changes, we now expect to have a net tariff impact on a dollar cost basis of approximately $17 million this year. Furthermore, we now expect to be dollar cost neutral on tariffs by the middle of next year and to be margin neutral on tariffs by the end of next year. We see opportunity for this to accelerate, especially if the India tariff is meaningfully reduced. On the right-hand side of the slide, we lay out our principal mitigation actions, which we shared last quarter and which our teams continue to overmanage on a daily basis. On Slide 15, we provide more specific expectations for our performance by segment, on revenue and adjusted EBITDA margin for fourth quarter and for the full year. Let me outline the primary changes to our full year outlook since our last update by segment. For AMC, we are now expecting sales to be up low single digits versus flat to up single previously, reflecting stronger shipments in data center and discrete automation, net of impacts from rare earth availability on shipments to the medical and defense markets. Our adjusted EBITDA margin outlook for AMC is now 50 basis points lower at the midpoint, mainly reflecting incremental rare earth volume and mix impacts worth approximately $8 million, of which we recognized about $3 million in third quarter. We expect the recovery of rare earth magnet supply to continue into early 2026 versus by the end of this year, as discussed in our last earnings call, through resourcing efforts aimed at eliminating the need for China to approve export licenses for shipments to India. For IPS, our outlook for the segment's adjusted EBITDA margin is now 50 basis points lower at the midpoint, mainly factoring in an unfavorable net tariff impact, primarily associated with the expanded scope of the Section 232 tariffs. Lastly, for PES, our outlook for the segment's adjusted EBITDA margin is now 50 basis points lower at the midpoint, also factoring an unfavorable net tariff impact primarily associated with the increase in tariff rates on India to 50%, including a 25% penalty tariff added in August. While we are experiencing some margin pressures from tariffs and rare earths, we remain confident in our midterm ability to achieve our 40% gross margin and 25% adjusted EBITDA margin targets. Our teams continue to execute well on what is in our control. Finally, as I wrap up my prepared remarks, I would like to share a few high-level thoughts on our outlook for 2026. From a sales perspective, we are clearly building momentum as we enter next year, given our strong orders in third quarter, the order strength we're already seeing in fourth quarter, sizable 2026 shippable backlogs in our IPS and AMC segments and growing tailwinds from our cross-sell synergies. Tariff pricing should also be a tailwind, as with any recovery in our end markets, which, for the most part, we believe are at or near trough levels of demand. Given ongoing macro and tariff-related uncertainties, we are going to remain measured in our approach to framing out the year. And for now, we think sales in 2026 should grow at a low to mid-single-digit rate. From a margin perspective, we have an additional $40 million of cost synergies anticipated in 2026 and would expect upside from achieving price/cost and then margin neutrality on tariff headwinds. But again, the margin neutrality is not expected until the end of 2026. We would expect organic growth to lever at roughly 35% overall, higher in AMC and IPS and lower in PES, consistent with the gross margin differences between these businesses. Finally, from a balance sheet perspective, we expect meaningful further progress in 2026 on delevering and for our net debt leverage to end the year at roughly 2.5x. This assumes we generate almost $900 million of free cash flow in the year, which would represent free cash flow margins in the low teens. In short, we are increasingly enthusiastic about our prospects in 2026, especially the potential for improved top line performance, but also more broadly about an ability to drive improvements throughout the P&L, on the balance sheet and in our cash flow performance. And with that, operator, we are now ready to take questions. Operator: [Operator Instructions] The first question today is from Michael Halloran with Baird. Michael Halloran: First off, Louis, thanks for everything. Sorry hear you leaving, but you're absolutely leaving the company in a better spot, and I wish you nothing but the best moving forward. Louis Pinkham: Really appreciate that. Thanks, Mike. Michael Halloran: So first, I certainly appreciate Rob's comments on the puts and takes in the fourth quarter. Could you reframe that a little bit and talk more about what that looks like sequentially? What is accelerating from 3Q? How are you framing the furnace versus the air cooling piece within PES? How do the data center pieces roll in? And just maybe talk about what's getting better, what's getting worse and some of the assumptions around the sequentials. Louis Pinkham: Yes. Happy to do that, Mike. When you first look at PES, a solid third quarter. Fourth quarter, we're expecting resi-HVAC to be down low double digits. Air conditioning will be down closer to 30% though, but furnace will be up high teens. On top of that, we're expecting commercial HVAC to be up mid-single digits, pool down low single digits and general commercial should be slightly up as well. And so when you think about the sequential -- the biggest driver of the sequential change and why we're now guiding PES down about 1%, it's really the fact that resi-HVAC in the third quarter was flat, and it will be down low double digits in fourth quarter. If you then go to AMC, Mike, it's really -- a big part of the discussion is data centers. Data center actually was down for us in third quarter by 40%. It's going to be up more than 50% in fourth quarter. We have it in the backlog. It's just around timing and scheduled shipments. That's the biggest driver of what's driving fourth quarter and some nice improvements that we're continuing to see in discrete automation in aerospace, but we will continue to have headwinds in medical, and we're starting to ramp production in anything that uses rare earth magnets. And we saw some slight improvement in Q3, and we're getting stronger in Q4, as Rob commented in his prepared remarks. And then lastly, going to IPS and the sequential for IPS. It's really project orders that are in our backlog. Actually, distribution for us in Q3 was down. So aftermarket, we would define aftermarket was down about 1% in Q3. We're not expecting that to tick up in Q4. What we are expecting is to execute on our project backlog that's in the backlog. So that's how we're thinking about the guide for Q4. Michael Halloran: Yes. No, super helpful. And then a follow-up is just the data center content you put out there. I mean, obviously, those are some pretty big numbers you're putting on the table as far as what the opportunity set looks like. I think you said this year is somewhere around $130 million. You had $190 million plus of orders. What does that look like from a ramp in the next year based on what you see now? And then maybe more importantly, this $1.1 billion between the couple of segments of potential -- how does that shake out in terms of being meaningful to the Regal portfolio over the next few years? Like what kind of ramp are we talking to? What's the win rate, entitlement, things like that? Just kind of any framing that you can give us on a multiyear would be helpful. Louis Pinkham: Yes. Let me try to give you my thoughts on it. We're really excited. We're excited. We've been investing, and it's kind of all coming to some fruition here. First, I want to -- and I said in my prepared remarks, but our Thomson data center business has actually been growing at a very nice CAGR over the last 5 years. It's at about $130 million. We would expect that to actually grow maybe even double, over the next 2 years. And so that will give you a little perspective of how we're thinking that translates. The backlog is strong. We're winning because of our -- the scale of our company, our commitment to service, but also our willingness to customize to the specific needs of our customers. And some of our competitors are not as willing to do that. And so that has been a benefit. I think there -- and of course, right, we're investing in capacity expansion in both Texas and in our facility in British Columbia. Probably the biggest challenge in the market is the supply chain, though, of components and switching components. But beyond that, we feel really good about our potential here. And so we're -- as I said in my prepared remarks, we would expect this to have meaningful impact on our growth, maybe 1.5 -- 1 to 1.5 points for next year. And we'll continue to invest and grow here. I think it could be a large part of Regal Rexnord overall business for the future. Hopefully, that's helpful, Mike. Operator: The next question is from Julian Mitchell with Barclays. Julian Mitchell: Louis, sorry to see you go, but I wish you well and thanks for all the efforts down the years. Louis Pinkham: Thanks, Julian. Julian Mitchell: Just wanted to start off with the commentary sort of into next year. You've spoken to that low to mid-single-digit organic sales growth firm-wide. It seems like 1 to 1.5 points of that is coming from data center, so a couple of points from the rest of the company. So maybe a couple of things. One is, help us understand the sort of data center overall percent of revenue or dollar revenue this year, so we can understand the jumping off point into 2026. And then should we expect the operating leverage on that volume growth is very limited in the first half because of tariffs and rare earths and so forth? Louis Pinkham: Well, specific to data center, tariff in rare earth wouldn't have an impact, Julian. Data center for us today is -- the Thomson business, as I spoke to, is about $130 million. Outside of that, data center is about 3% of all of Regal. So you would say about an incremental $50 million. We do expect that to become a more meaningful part in '26 and as we move forward. I think that answers the majority of your... Robert Rehard: I think the only other part would be that the margins on the data center business will be roughly segment average. And so we see that to be accretive -- margin accretive for the enterprise. Louis Pinkham: Yes, great point. Julian Mitchell: That's helpful. And yes, just a follow-up, sorry. My question was on the operating leverage for next -- it was more around total enterprise because I guess you've got this extra headwind affecting the 2025 guidance from rare earths and tariffs for Regal firm-wide. So maybe help us understand kind of the phasing of that headwind to profits as we step through the next couple of quarters versus what you saw in Q3. I'm just trying to understand if there should be overall much margin expansion in the next few quarters from volume leverage, or it's all offset by the tariffs and rare earth headwinds? Robert Rehard: Well, overall, the leverage we expect around 35%, overall for the business. I'm going to give you -- there's two parts to my answer. 35% in the business. It's roughly 40% to 45% for AMC and IPS and lower for PES. The way that would phase in is you'd get a little better benefit in the back half, obviously, as we become more -- as we get to margin neutrality. So it would be more back half weighted than front half weighted. But overall, about 30% to 35% for the year is what our expectation would be. But the first couple of quarters will be margin challenged as we expect to be dollar cost neutral, as we talked about, by the time we get to the end of the first half of next year and margin neutral, not until the back half. So that's the way it would phase from half to half. Operator: The next question is from Jeff Hammond with KeyBanc. Jeffrey Hammond: Louis, best of luck, and I'll echo Julian and Mike's comments. Louis Pinkham: Thanks, Jeff. Jeffrey Hammond: Just maybe staying on the margin dynamic. I think you said $40 million of integration savings. And then, Rob, I think you said you think the tariff thing is maybe a net -- or price cost is maybe a net tailwind into '26. So how should we think about price cost or this tariff noise maybe getting less bad or better, and the rare earth kind of fixing itself in terms of a delta '25 to '26? Robert Rehard: I think it's a bit early to get too specific at this time. I think that the -- we do absolutely expect that rare earths, we will get through the rare earth challenges early in '26. That should not be a problem. As I said, we've got about $13 million now of rare earth headwinds as we exit this year, which is an incremental $8 million from what we said coming out of the second quarter. We do think that most of that we'll be able to get through pretty quickly, maybe by the first half of next year, and then we'll move through the back half at a much better rate than we're seeing first half. But as far as more detail than that, we're not ready to get to that level of detail until we put out fourth quarter results and provide official guidance. Jeffrey Hammond: Okay. Great. And then I guess as your tariff -- I know India may come down, but I guess as your tariff pressure kind of moved higher, are you finding it harder to get price, and maybe more particularly in PES, given the customer concentration? And then just separately, if you could just touch on what's driving the furnace growth? I don't know if there's share gains or there's no destocking dynamic or what? Louis Pinkham: Yes. So let me comment on tariffs first, outside of PES. We will be price -- we will be tariff neutral, and we'll work to be margin neutral. It's just the timing of that, the 232 derivative tariff coming out right after our last earnings call, it just takes time to implement for IPS and AMC. And so we would expect, as Rob said, that will ramp in the first half of next year. Same for PES. However, a little bit more pressure because of the India influence. And so we feel good about -- and we've talked about this, our global footprint and the differentiation of that global footprint. If tariffs stay at 50% for India, we will need to move that production. But we have not made that decision yet. But if we have to, we will. And so I'm not worried about our ability to offset it. But to Rob's point, it will be margin neutral by the end of next year, and cost neutral by the middle of next year. That gives us a little time to manage. Now let me address your furnace question. Furnace is about 40% of our resi-HVAC business. And I'll just remind you that furnace was down pretty significantly in '23, a little bit stronger in '24. And we think there's actually some more room to return to normal levels. We believe our outperformance in this market, though, is we are gaining share due to our differentiated and IP-protected technology. And so from that standpoint, we feel very good about furnace and our position in that marketplace. Hopefully, Jeff, that helps. Operator: The next question is from Kyle Menges with Citigroup. Kyle Menges: And Louis, sad to see you go. It was great working with you and best of luck. Louis Pinkham: Yes, thank you. Kyle Menges: Yes. I mean I would love to just maybe unpack the $1 billion or so of data center pipeline that you identified. I suppose how did you guys kind of arrive at that figure? And then just what's your sense of what? Win rate could be -- or maybe what a respectable win rate would be for you guys, would be helpful. Louis Pinkham: Yes, Kyle, it's really quite a great question, but it's hard to give you a very clear answer. I can tell you though that the funnel is made up of a number of large projects with a number of customers. We have been investing significantly in our commercial team. And so this is not a focused view. There's a number out there. There's a couple that are -- big projects that are hyperscale related. We've also invested pretty significantly in expanding our portfolio into e-Pods and being able to provide that solution set. To give you a number on win rate would be tough. It really would. The recent two really nice bigger orders that we received, we were hopeful in negotiating and feeling good, but that was a big win for us. And so I think where I would go with this for now is be assured, we're investing -- we've invested in our commercial teams, we're investing in capacity, and we're going to continue to drive growth in this space. And so we believe it will be a meaningful part of Regal for the future. And then we'll have to come back to give you a little more clarity on how we think about win rates after a bit of time. Operator: Makes sense. And then maybe turning to free cash flow. I can appreciate some of the reasons why free cash flow guide was lowered for this year. But I am just curious, your confidence level in free cash flow being better next year and then ability to execute on further deleveraging. And I guess, it would be helpful to hear a ballpark of how much lower interest expense could potentially be next year as well. Robert Rehard: Yes. So the free cash flow going into next year, so if we bridge off of this year, which we're saying $625 million, and I said in my prepared remarks that we expect to be at almost $900 million next year. The way we get there is we would expect some growth, so some EBITDA expansion, and then we would expect maybe another $60 million, $70 million coming through working capital to help us bridge the gap a bit, along with lower cash restructuring. Cash interest comes down, we expect by a good $40 million next year. And then there's some offsets, of course, on cash taxes and a bit of CapEx, but those are the main bridge items to get to $900 million. So we feel pretty good. I mean the free cash flow this year was certainly hampered by some of the inventory challenges that I've talked about. And while we're still expecting this year that we'll get some improvement in working capital as we close out the year, it was not where we expected it to be as we entered the year from a working capital standpoint. And so we feel good about next year being able to drive out more of that inventory and bridging more of that gap. As far as the leverage standpoint. From a leverage standpoint, we expect that we'll end next year at roughly 2.5x. That incorporates the $900 million that we have in free cash flow. Helping to pay down the debt, we have a bond that's coming due, that we are currently working through the -- and finalizing the strategy. Here, we expect to have that done here in the next month or so. And then we will have a term loan that is also prepayable. We expect that to be as much -- maybe about $900 million. And so that should execute in the first quarter, and we will then make progress paying down that loan, which would come from the $900 million of free cash. So that's the way we're thinking about it. And so our ability to get down to 2.5x, we think, is very good. And we do expect that we can generate this cash flow and have good visibility on how to get there. Operator: The next question is from Tomo Sano with JPMorgan. Tomohiko Sano: This is Tomo. Louis, although we have only just recently met, I wanted to say thank you for your leadership and wish you continued success. Louis Pinkham: Thank you, Tomo. Thank you so much. Tomohiko Sano: My question is, could you share more details on the CEO succession process, including timeline, criteria for the new leader, and how you are ensuring continuity in strategies and execution, please? Louis Pinkham: Yes. Tom, thank you. And I'm actually going to pass it initially to Rakesh Sachdev, our Chairman of the Board, who has some prepared remarks that he'd like to share. So Rakesh? Rakesh Sachdev: Thanks, Louis. Yes. I think as you look at where the company is and the work that Louis and the team have done over the last 6 years, it's really quite remarkable, the transformation that has taken place. This is a company that is now very decentralized. There's a strong bench of leaders. You can -- you heard Louis talk about the cash flow generation in this business. It's a high gross margin business. We've got scale, and we are at the heels of seeing some significant growth. So we are in a great place. Louis and the Board, we've been having this discussion about the next phase of growth in this company for the next several years. And we decided this might be a good time. And we have started a process. We have recruited a leading executive search firm. We have kicked off the process just now. And we'll be very thoughtful and very deliberate in appointing the succession -- successor to Louis. And Louis is, of course, going to stay on, and he's -- as we said, it's business as usual until we find and appoint the new CEO leader. So I expect it will take about 4 to 6 months before we appoint somebody, but there is no rush. We want to make sure we find and appoint the best leader. We have a search committee in the Board. There are four of us, three CEOs, one active CEO, two former CEOs. So we've got some great eyes on making this decision. And rest assured, we will find a great person to fill in this role. So with that, Louis, I'll turn it back to you. Louis Pinkham: Yes. Thanks, Rakesh. And Tomo, just to emphasize Rakesh's point there and as I said earlier, we are going to ensure it's a smooth and orderly transition. And with our team -- our team has never been stronger, deep into the organization. And the message is business as usual. That's where we're going to be focused on what's in our control and continue to execute as we have done in the past. So hopefully, that was helpful, Tomo. Operator: The next question is from Nigel Coe with Wolfe Research. Nigel Coe: Maybe a question for the Chairman again. Are you fully committed to an external candidate? Or are there other internal options as well? And when you think about the profile of the person you're seeking, would it be with a very similar background to Louis in terms of operational chops? Or are you looking for maybe slightly different attributes? Rakesh Sachdev: Thanks for the question. Yes, absolutely. We are doing a comprehensive search. We are looking at external candidates. We're not going to rule out internal candidates, but you can imagine that this is going to be a very comprehensive search, a thoughtful search. And yes, we will be looking for a candidate who has demonstrated strong leadership skills, like Louis has had, running complex global businesses. We're going to be focused on growth. Operations has always been in the DNA of Regal Rexnord, and we've got some great folks who are leading that. But we also need commercial and growth leadership, which we'll be looking for in the next leader who is going to lead this company. So -- and the cultural aspect is also very important. We have created a great culture in this company, and we want to make sure that whoever leads this company will continue to foster that culture going forward. Nigel Coe: That's great. And Louis, look, I've covered the stock for 20 years. And the last 7 years have easily been the best. So you've done an incredible job of really changing the game for this company. So it will be sad to see you go. Louis Pinkham: Thank you, Nigel. Nigel Coe: But no [Audio Gap] the data center. I mean I know we've [Audio Gap] how should we think about the contribution margins on the backlog you're building? And can you maybe just be a little bit -- kind of a bit more precise on when you expect to have this new facility up and running? Louis Pinkham: Yes. So we're -- so I'm going to go backwards. And Nigel, you're cutting out a little bit, but I think I got the intent here. We are initiating the program for setting up that new facility as we speak. We will be hiring personnel through this quarter into next, starting training. And we would expect that we will have product flowing through the facility in Q1, but not shipping until Q2 and later part of Q2. That's the initial project plan. From a contribution margin perspective, all of our evaluation at this point, Nigel, based on what we've bid and quoted is that this will be fleet average margins for AMC, which is actually accretive for Regal. This will be a benefit for Regal as a total business. Now realize, when you think about these pods, a big part of the bill of material is our Regal product, our parallel and switchgear, our automatic transfer switches, our PDUs. And also, I want to emphasize that we're going to put our air moving products in these systems as well. And so we feel really good about where they're positioned and the margins that we will receive. Robert Rehard: And I would just add that, the investments we're making today that we mentioned earlier are very CapEx light. This is more of assembly and test. And so that's important to note. This should not weigh on margins as we move forward. Operator: The next question is from Christopher Glynn with Oppenheimer. Christopher Glynn: Louis, it's been a pleasure working with you and best of luck there. Louis Pinkham: Thanks, Chris. Christopher Glynn: And it sounds like we'll be with you for a couple more quarters anyway. I had a question on the discrete automation orders. I think you said they're up 17%. Just curious how you characterize that narrow, big project, lumpy or pretty diversified? Is it a hockey stick? Or did you have a pretty -- an easier comparison? I can't recall 3Q last year. Is this just a significant sequential move, is really kind of the [Audio Gap]. Louis Pinkham: [Audio Gap] And on top of that, that -- and we talked about this at our Investor Day, we did lose [Audio Gap]. We are starting to get orders, and this is just another indicator of we are investing more in technology. We're trying to expand our served market and feel really good about our position in discrete automation. But again, probably the one piece I would call out to emphasize the point is, defense was quite strong in the quarter. Christopher Glynn: And then a quick follow-up on the eVTOL initial order there. Is that going to be kind of very sporadic? Or is that starting to ramp? Louis Pinkham: It's sporadic for now. It's not ramping. The point of emphasizing it, though, and I know you all know this, but in the aerospace industry, when you start a production order, that means you're moving forward. And if you listened to some of the announcements, for example, the LA Olympics has a contract out for 50 eVTOLs for taxis. We'll see if that comes to true fruition. But this is a market that if it accelerates, Regal Rexnord is well positioned. So that's why we shared it in the prepared remarks. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Louis Pinkham for any closing remarks. Louis Pinkham: Thank you, operator, and thanks to our investors and analysts for joining us today. Our team delivered strong performance in third quarter in all segments for what was in our control. Most importantly, strong orders in the quarter and order strength in fourth quarter should set us up for solid growth in 2026. Stronger growth, anticipated additional margin gains, including improved tariff and rare earth mitigation, expectations for further cash flow growth and plans to reduce net leverage ratios below 3x means we are poised to create increasingly significant value for our shareholders and other key stakeholders in 2026 and beyond. Thank you again for joining us today, and thank you for your interest in Regal Rexnord. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the WTW Third Quarter 2025 Earnings Call. Please refer to the wtwco.com for the press release and supplemental information that was issued earlier today. Today's call is being recorded and will be available for the next 3 months on WTW's website. Some of the comments in today's call may constitute forward-looking statements within the meaning of the Private Securities Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from those discussed today, and the company undertakes no obligation to update these statements unless required by law. For a more detailed discussion of these and other risk factors, investors should review the forward-looking statements section of the earnings press release issued this morning as well as in the most recent Form 10-K and other subsequent WTW securities filings, SEC filings. During the call, certain non-GAAP financial measures may be discussed to provide direct comparability with period -- prior periods all complement regarding the company's revenue growth results will be on a non-GAAP organic basis, unless specifically stated otherwise. For reconciliations of the non-GAAP measures as well as other information regarding these measures please refer to the most recent earnings release and other materials in the Investor Relations section of the company's website. I'll now turn the call over to Carl Hess, WTW Executive Officer. Please go ahead, sir. Carl Hess, you may begin. Carl A. Hess: Good morning, everyone, and thank you for joining us for WTW's Third Quarter 2025 Earnings Call. Joining me today is Andrew Krasner, our Chief Financial Officer; Julie Gebauer, our President of Health, Wealth & Career; and Lucy Clarke, our President of Risk & Broking, are also joining us for our Q&A session. We delivered another quarter of solid results, driven by consistent and strong execution of our strategy. In the third quarter, we generated 5% organic growth, 230 basis points of adjusted operating margin expansion and adjusted EPS of $3.07, up 11% year-over-year. We've sustained our momentum in the market and remain on track to deliver our full year financial objectives. I want to thank all my WTW colleagues for their hard work and dedication to achieving our strategic and financial goals. As these results show, the strategy we laid out nearly 1 year ago to accelerate performance, enhance efficiency and optimize our portfolio continues to drive value for all our stakeholders despite the volatile macroeconomic environment. Against that backdrop, I'd like to provide some observations on current market conditions. Concerns about global trade, inflation and geopolitical conditions remain, creating both opportunities and challenges. On one hand, some clients are looking for support to manage the related people and risk issues, and on the other, some companies are continuing to limit discretionary spending. We continue to monitor relevant economic indicators such as employment levels, which may affect our business prospects over the short term. In addition, we're facing headwinds from declining rates in certain segments of the commercial insurance market across various geographies. In the face of this dynamic environment, our businesses continue to be resilient as we remain intensely focused on providing relevant services that deliver value to our clients. Health, Wealth & Career career delivered steady 4% organic growth or 5% when excluding book of business settlement activity and interest income with strong margin expansion. These results reflect our diversified and recurring revenue base and disciplined cost management. Like last quarter, we saw robust demand for our solutions that help clients manage their health care costs, derisk their defined benefit pension plans and adapt to new legislative and regulatory requirements such as the EU pay transparency directive. We also experienced an increase in M&A due diligence and integration work as well as in workforce management support. Our suite of technology tools continues to be a prominent factor in our success. For example, our talent flow analysis utilizes web crawling and data mining to identify clients' real competition for talent, which is essential for meaningful benchmarking. And our Health and Benefit scout tool informs health plan design through an in-depth evaluation of health care access, quality and cost based on a client's workforce location, demographics, claim experience and more. Through predictive analytics, we help forecast benefits cost and attrition risks, identify skills gap and detect pay equity issues. We're also using AI tools to improve the employee experience. In Risk & Broking, we generated 6% organic growth in the quarter and expanded adjusted operating margins by 70 basis points. This marks the 11th consecutive quarter that our Corporate Risk & Broking business recorded high single-digit growth, excluding the impacts of book of business activity and interest income. I'm pleased with the strong returns on our investments in talent and innovation, and we continue to look for opportunities to invest further. In particular, our investments in digital tools, AI and automation have helped R&B capture growth opportunities and create efficiencies. As declining rates continue to pressure certain areas of the market, the impact of these investments has been increasingly valuable in driving meaningful efficiency gains and advancing our progress on delivering 100 basis points of annual average adjusted operating margin expansion in R&D over the medium term. We continue to launch a steady cadence of new tools and products that support our growth and margin objectives. For example, we recently launched the newest version of Radar, an end-to-end rating and analytics software widely used by insurers. Radar 5 brings advanced capabilities, including GenAI techniques, to provide greater speed and agility for pricing, portfolio management, claims and underwriting, enabling insurers to unlock smarter data-driven decision-making at scale. We also launched Gemini, our global digital placement facility in the quarter. This innovative solution provides efficient access to additional insurance capacity, addresses the increasing complexity of risk and market volatility, offers competitive pricing declines at a guaranteed discount and is backed by A+ rated void syndicates. Now I'll turn to some of our new business wins in the quarter. In Health, Wealth & Career are customer-centric solutions, differentiated technology and focus on making smart connections continue to drive growth across all our businesses. In a notable example, we unseated the long-time incumbent providing global actuarial work for our Fortune 250 engineering company, not only because of consistent actuarial expertise and tools across our global network, but also because of the innovative ideas we brought them to better manage pension risks around the world and to address retirement readiness for their workforce. In a win featuring smart connections across HWC we were selected to support the planned spin-off of a global Fortune 50 company with overall program management, communication and change management and the implementation and administration of a new U.S. health plan. We won this business, which encompasses 40,000 employees after building a strong reputation as a trusted partner to the parent organization. Another innovative HWC win involves the extension of our Embark Employee Experience portal to potential new hires of a health system to showcase their total rewards and culture with the aim of boosting new higher acceptance rates. In Risk and Broking, our specialization strategy and our ability to offer differentiated value through our technical expertise, global collaboration and client-centric solutions continue to be key factors in bringing in new business. For example, in CRB, despite a challenging risk environment, we covered property damage, business interruption and liability insurance for an energy portfolio in Eastern Europe. The client reached out to us directly as our technical knowledge of these types of assets and our global industry relationships are well known in the marketplace, highlighting the value of our specialization strategy. We also secured a significant new mandate in Europe covering property damage and business interruption for a leader in the electric vehicle sector. Teams from different regions coordinated to identify and address gaps in the clients' coverage while achieving a premium reduction all in just 3 weeks. This win underscores our ability to deliver cost-efficient solutions to support high-growth, innovation-driven clients with complex coverage needs. Before turning it over to Andrew, I want to provide an update on WE DO, our enterprise delivery organization. We were especially pleased with the margin expansion we delivered this quarter across the business. Over the past quarter and as we look ahead, WE DO is helping us continue to improve how we operate, leveraging automation and AI to enhance efficiency and deliver savings. Our approach combines generative and analytical technologies to identify opportunities, design more efficient solutions and automate processes. With WE DO-backed automation projects, we've streamlined billing, collections and payments to drive stronger margins and free cash flow, which were reflected in our results this quarter. Overall, I'm pleased with how we performed this quarter. We delivered solid financial results in line with our expectations with mid-single-digit organic growth and meaningful margin expansion across both segments. We have good momentum across the business, giving us added confidence in our ability to deliver on our 2025 targets. And now I'll pass it on to Andrew for a more detailed discussion of the financials. Andrew Krasner: Thanks, Carl. Good morning, and thanks, everyone, for joining us today. In the third quarter, we delivered solid organic revenue growth of 5% and expanded adjusted operating margin by 230 basis points year-over-year to 20.4% or 120 basis points of year-over-year improvement when excluding TRANZACT. Adjusted diluted earnings per share were $3.07, which is an increase of approximately 11% over the prior year. As a reminder, we completed the divestiture of TRANZACT on December 31, 2024. And for the full year 2025, this will create a headwind to adjusted diluted earnings per share of $1.14. As Carl discussed, our solid third quarter results reflect the strong foundation we've built and the benefits of our investments in talent and technology. Our strategy is resonating with clients and colleagues and our businesses remain highly resilient despite the macro uncertainty. We remain firmly focused on our strategic objectives and the financial framework outlined at Investor Day to create long-term shareholder value. Turning to our segment results. Health, Wealth & Career revenue grew 4% compared to the third quarter of last year. Excluding the impact of book of business settlement activity and interest income growth was 5%. Our results for the third quarter are in line with our expectations, and we remain on track to deliver mid-single-digit growth and margin expansion for HWC in 2025. As a reminder, the vast majority of HWC's business is recurring, with only a small portion being more economically sensitive and discretionary. Our Health business achieved strong growth of 7% this quarter or 8% growth, excluding the impact of book of business settlement activity and interest income. This growth was primarily driven by double-digit increases in International and solid performance in North America. Results in International were driven by new global benefit management and local appointments, successful renewals, health care inflation and market expansion. In North America, focused sales efforts generated growth across all market segments. In Europe, growth was offset by a significant book of business sale in the prior year third quarter. Excluding the impact of interest income and book of business settlement activity, Health has grown 8% year-to-date. We continue to expect strong demand across the global business driven by health care inflation and employers' continued focus on managing costs while maintaining competitive employee benefits. With a healthy pipeline for the remainder of the year, we continue to expect high single-digit growth for the full year, even with a high double-digit growth rate in the fourth quarter of last year. Wealth had revenue growth 5% in the third quarter primarily from strong levels of retirement work in Great Britain and North America. Demand for our core defined benefit work, including financial forecasting, compliance support and data projects remain strong. We also saw growth in project work to support pension derisking, surplus utilization and workforce restructuring. Our investments business delivered growth primarily from new products and client wins. We continue to expect low single-digit growth in the Wealth business for the year. Career growth was 2% in the third quarter, with solid growth in Europe, driven by strong demand for EU pay transparency support and employee communication projects. While compensation benchmarking survey work increased across all regions, a change in the survey delivery pattern limited growth this quarter when compared to the same period last year. We are confident revenue growth will increase meaningfully in the fourth quarter due to this change in the pattern combined with the continued demand for advisory work related to the EU pay transparency directive that goes into effect mid-2026. We continue to expect Career to grow low to mid-single digits in 2025. Over the long term, we expect mid-single-digit growth based on our track record and continued focus on product and technology offerings alongside recurring services. Benefits, Delivery & Outsourcing, or BD&O, grew 2% versus last year's third quarter, driven by growth in outsourcing due to increased project and core administration work in Europe which was partially offset by lower commission revenue in the individual marketplace, our B2B2C Medicare Exchange business. Keep in mind that our Medicare Exchange generates about 80% of its revenue in the fourth quarter due to the timing of the Medicare enrollment period. In combination with the timing of new business, BD&O overall generates nearly half of its revenue in the fourth quarter. Accordingly, we forecast BD&O growth to be strongest in the fourth quarter of the year, reflecting the expected timing of commissions, new client implementations and new projects to support regulatory changes. We continue to expect BD&O to grow at mid-single digits for the year. HWC's operating margin in the third quarter was 28.6%, an increase of 390 basis points compared to the prior year or an increase of 100 basis points, excluding the impact of the TRANZACT divestiture. This result demonstrates our ability to consistently deliver incremental margin expansion regardless of cyclical macro conditions and supports our strong track record of margin expansion in HWC. Let me move on to Risk & Broking, which had revenue growth of 6%, underscoring the continued momentum in the business. Our specialization strategy and our investments in talent, data and technology continue to drive sustainable growth. Corporate Risk & Broking grew 6% or 7% when excluding both book of business activity and interest income. This was on top of the 10% growth rate achieved in the prior year comparable quarter. As Carl mentioned, this is the 11th consecutive quarter of high single-digit growth when excluding both book of business activity and interest income. CRB's growth this quarter was primarily driven by our global specialization strategy which continued to support expansion amid the more challenging rate environment. Of note, we generated significant new business across a number of markets this quarter as well as project revenue recognized in our Global Specialty businesses, with notable contributions from construction, surety and credit risk solutions. This illustrates that our commitment to global specialization continues to generate value for clients and drive growth. From a macro perspective, and relative to last quarter, we are seeing a more challenging growth environment as market rates continue to soften across various lines. Nonetheless, our specialization strategy is resonating in the market and we are pleased by the results we are seeing from our Global Specialty businesses. We continue to expect mid- to high single-digit growth in CRB for 2025. While industry-wide pricing pressure is making high single-digit growth harder, we believe it is still attainable. In our Insurance, Consulting & Technology business, revenue was flat versus last year's third quarter when ICT delivered 7% growth. Our combined approach of Consulting & Technology continues to add value. However, trends we highlighted last quarter persist as the consulting environment has remained weak and clients continue to demonstrate caution for making large multiyear technology implementation decisions. While we are encouraged by our pipeline on the technology sales side, we do not expect to see a meaningful pickup in consulting activity in the fourth quarter. For the full year, we continue to expect low to mid-single-digit growth. Turning back to R&B's results overall. We are pleased with our momentum year-to-date, which gives us confidence in our ability to deliver mid- to high single-digit growth for the full year. As I mentioned a moment ago, although the path to achieving high single-digit growth is more challenging given the current pricing environment, we believe it is still possible. R&B's operating margin was 18.8% for the third quarter, a 70 basis point improvement over the prior year or a 100 basis point improvement when excluding the impact of foreign exchange rates. This was primarily driven by operating leverage from strong organic growth performance, coupled with continued expense discipline. Foreign exchange rates were a headwind of 30 basis points to R&B's operating margin in the third quarter due to weakening U.S. dollar, but we expect the full year foreign exchange impact to be slightly more modest. So far this year, we achieved 90 basis points of operating margin improvement in R&B or 120 basis points, excluding the impact of foreign currency and we are committed to delivering 100 basis points of average annual adjusted operating margin expansion over the next 3 years. As Carl highlighted earlier, investments we've made in our technology capabilities continue to provide value and provide a strong platform for us to deliver ongoing operating leverage and efficiencies across the business. Finally, I will give some additional color on our enterprise level results. Adjusted operating margin for the third quarter was 20.4%, a 230 basis point improvement over the prior year, reflecting strong margin expansion in the segments and prudent business expense management supported in part by our WE DO initiative. This result includes a 110 basis point tailwind from the TRANZACT divestiture. As we enter Q4, our seasonally strongest quarter of the year, all our businesses are operating with continued discipline and rigor, giving us confident in our ability to continue to expand margins. Foreign currency was a $0.04 tailwind to adjusted EPS for the quarter and a $0.05 headwind year-to-date in 2025. The U.S. dollar has been weakening during the quarter. So I want to give you some additional color on foreign exchange. At the current spot rates, we expect a foreign currency tailwind to adjusted EPS of approximately $0.15 in the fourth quarter and approximately $0.10 for the full year. Of course, the impact may fluctuate throughout the remainder of the year. Our U.S. GAAP tax rate for the quarter was 19.7% versus 16.1% in the prior year. Our adjusted tax rate for the quarter was 22.4% compared to 19.7% for the third quarter of 2024. We expect our full year 2025 tax rate to be relatively consistent with the prior full year rate. We generated free cash flow of $838 million for the 9 months ending September 30, 2025, an increase of $114 million from the prior year. This was driven by operating margin expansion and reduced transformation program cash costs. The favorable second half setup we anticipated began to play out this quarter. As we previously noted, the remaining transformation costs continue to abate and the divestiture of TRANZACT will act as a tailwind to free cash flow as we lap the prior year fourth quarter in which that business recorded net cash outflows. We remain on track to deliver our objective of annual free cash flow margin expansion. During the quarter, we returned $690 million to our shareholders via share repurchases of $600 million and dividends of $90 million. We continue to view share repurchases as one of our primary methods of capital return and an attractive use of capital to efficiently deliver value to WTW shareholders. We continue to expect share repurchases to total approximately $1.5 billion in 2025, subject to market conditions and potential capital allocation to inorganic investment opportunities. Looking ahead, we're confident our balanced and disciplined capital allocation approach will generate long-term shareholder value. We'll continue to be selective as we invest in talent and in our platform to ensure we're driving sustainable growth and margin expansion. In closing, we are pleased by our performance year-to-date in 2025. We are increasingly seeing the execution of our strategy manifest in our results, giving us solid momentum as we enter the fourth quarter. We remain confident in delivering on our 2025 financial objectives of mid-single-digit organic growth, adjusted operating margin expansion, adjusted EPS growth and ongoing improvement in free cash flow margin. With that, let's open it up for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Gregory Peters from Raymond James. Charles Peters: So for the first question, I'm going to focusing in on the Risk & Broking organic revenue results. I appreciate the color, both you made, both you, Carl and Andrew made specifically on the new business. And I guess what I'm getting at is how much of the third quarter result reflected sort of unusual wins that won't recur or come at it a different way. You mentioned project-based placements. Were those unusual relative to other quarters? And maybe you can just build on that by line of business? Is there something nuanced or geographies that's driving what I would characterize as a better-than-market result? Carl A. Hess: Thanks for the question. We were really pleased with the 6% growth we achieved for the R&B segment. That was on top of, right, a 10% for a solid growth result in Q3 '24. CRB delivered 6% organic or 7% when you exclude both book of business activity and fiduciary income. I think our specialization strategy and our investments in talent, data and technology continue to drive sustainable growth. Lucy, can you give us some color commentary on that? Lucy Clarke: Yes. Sure, Carl. Hi, Greg. Yes, let me just start by reiterating we had another good quarter overall. Within CRB, we've generated strong new business in all of our global markets and across almost every single specialty line. We saw particularly meaningful contributions from construction, M&A, surety, credit risk solutions and remain committed to delivering mid-single-digit to high single-digit growth in R&B for the year. As you know, of course, our clients are benefiting from an improving rate environment, which can translate to a revenue headwind for us. Naturally, this industry-wide dynamic will make the path to high single-digit growth for the year more challenging but not out of reach. In terms of the project-based placements, it's just important to keep in mind that the nature of our work in specialty is always a combination of recurring and one-off work. So as we noted in those prepared remarks, we did see increased contributions from placements for multiyear projects undertaken by some of our clients. Normal part of growth in our specialty businesses, particularly in construction, M&A, surety and natural resources. That specialization approach has been a key driver of growth for us in R&B, and we expect that to continue. Thanks, Greg. Charles Peters: I'm going to follow up just because it's important. I know part of your expectation going forward is to expand your margins in Risk & Broking each year and both Andrew and Lucy now have previewed that it's becoming more difficult to get to the higher end of your organic revenue results in Risk & Broking. Should we be worried that if we go from mid-single digit to high single digit, just to mid-single digit, that there might be some pressure on your ability to generate that 100 basis points of margin improvement in the next 2 years? Andrew Krasner: Greg, it's Andrew. I'll take that one. So we did see a strong margin improvement in the R&B segment of 70 basis points or 100 basis points, excluding the impact of foreign currency. So year-to-date, 90 basis points of operating improvement or 120 basis points, excluding the impact of foreign currency. We're not going to sort of guide to a specific number for the full year, but we do remain absolutely committed to what we laid out in Investor Day of the 100 basis points on average over the next 3 years per year. And we feel like we're on track to achieve that. It's really driven by some of the investments in technology that we've made really looking at process improvement, things of that nature, that's really going to help drive those efficiencies. So I think despite the top line, we feel like we have the appropriate tools and levers to be able to get there. Operator: Our next question comes from the line of Elyse Greenspan from Wells Fargo. Elyse Greenspan: My first question was on free cash flow. If you can just provide more expectations for the year and the fourth quarter. I think in your prepared remarks, you commented about how the favorable second half began to play out this quarter. I just was hoping to get more comments there. Andrew Krasner: Yes. Perfect. Thanks, Elyse. Our view has not changed from what we shared last quarter. The favorable second half setup that we flagged continues to play out. Through the third quarter year-to-date, we had $838 million in free cash flow, which is $114 million year-over-year increase, that was driven by operating margin expansion and reduced transformation cash costs. Looking at the fourth quarter, the remaining transformation cash cost will continue to abate and the divestiture of TRANZACT will act as a tailwind as we lap the prior year fourth quarter. So taken together, we remain confident in our ability to deliver free cash flow margin expansion, not just in 2025, but beyond as well and just continue to build on that momentum. Elyse Greenspan: And then my second question, I was just hoping you guys could provide what the insurance pricing headwind was in the third quarter? And also, was that similar to the second quarter or worse? Lucy Clarke: Elyse, it's Lucy. Thanks for the question. So sure, pricing pressure has continued in certain areas of the market, and it's becoming more meaningful as we make progress through the year. From our perspective, property is the most impacted class, particularly in the large and complex segments but most lines are showing softening other than, of course, North American casualty where pricing continues to rise. Important to remember that these pricing improvements follow 5 years of pricing increases. So many of the markets still see these levels as rate adequate, and it's a welcome relief for our clients. So we're still expecting mid- to high single-digit organic revenue growth in Risk & Broking for the year in spite of any of the pricing developments. Operator: And our next question comes from the line of Rob Cox from Goldman Sachs. Robert Cox: First question on HWC margins. I think if we exclude the impact of TRANZACT, the margins improved 100 basis points, as you all mentioned. If we do that in the first half of 2025, I think the margins contracted. So I was just curious sort of what changed in the quarter and how you guys are thinking about margin expansion, excluding TRANZACT in the fourth quarter and beyond? Andrew Krasner: Yes, sure. I mean, as we laid out in Investor Day, we're committed to incremental margin improvement across that sector over the long term. Over the full year here, we'll have some tailwinds, right, from the divestiture of TRANZACT, but everything is playing out exactly as we expected. And maybe, Julie, you want to comment on some of the drivers of sort of how we're going to sustain that performance going forward. Julie Gebauer: I would, Andrew. But first, I want to highlight that so far this year, excluding the TRANZACT divestiture, we added 40 basis points of margin in Q1, 20 basis points in Q2 and now 100 basis points in Q3, as you mentioned, in line with our commitment to build on our strong track record. We've been able to do this consistently over a lot of years for a few reasons, and that the foundation of this performance is the way that we focused our portfolio. We got businesses where we can not only differentiate but also scale and generate leverage. And then on top of that, we have a really clear view of our top line and a firm command of our cost structure. We take a very disciplined approach to resource management. And then finally, we still see opportunities with process optimization, automation and right shoring to add to margin. So while we take pride in what we like to say are industry-leading margins in HWC, we are very confident in our ability to build on that. Robert Cox: Great. And then I just want to follow up on the BD&O business. It sounds like the guidance is being maintained for mid-single-digit organic growth for the full year. Just looking at what you guys have done year-to-date, it looks like you might need something like high single digits organic in the fourth quarter. Could you tell us what gives you confidence on the improvement there? Julie Gebauer: Yes, Rob, I'll take that. I'm going to start with a reminder that BD&O overall generates nearly half of its revenue in the fourth quarter. And in addition to typically our outsourcing clients going -- new outsourcing clients going live in that quarter. About 1/3 of our revenue in this business comes from our individual marketplace business, and in that business, we generate about 80% of our revenue in the fourth quarter, as Andrew mentioned, during open enrollment that happens from October until early December. And given the new clients that we've added, our expectations for Medicare retirees to review and switch coverage during that enrollment period, we expect to see increases in commissions and fees and solid growth in the quarter ahead. So overall, we expect mid-single-digit growth for the full year and over the longer term. Operator: And our next question comes from the line of Michael Zaremski from BMO. Michael Zaremski: Looking at the interest income levels, very healthy, better than expected. Is that the run rate or any one-timers we should be considering? Andrew Krasner: No specific one-timers, but I just -- it's important to keep in mind that some of the investment income is driven by sort of where the cash balances are held across jurisdictions and interest rates vary by geography. So sometimes geographic mix of business can have an impact there. So I think that's the only nuance I'd call out there. Michael Zaremski: Okay. So we'll -- I guess I'll take it as a kind of use it as directionally at the run rate. A follow-up to Greg Peter's question earlier and just not trying to split hairs and we love when you give extra color. But in the R&B segment, when you mentioned the project based placements in specialty, which is great color. It just leads to the question, is project-based mean like more nonrecurring or onetime that we should kind of be considering in our run rate on a go forward? So just wanted to try to ask that one last time to make sure we're not -- new wording. Lucy Clarke: It's just one last time. It's Lucy. Thanks for the question. Yes, you're right, it does mean onetime revenue. But we always have onetime revenue. The nature of our work in specialty is a combination of recurring and onetime revenue. We just saw increased contributions from the placement of multiyear projects in the quarter, so we hold it out. It's a normal part of the growth in Specialty business. Operator: And our next question comes from the line of Paul Newsome from Piper. Jon Paul Newsome: I was hoping you could talk a little bit about the war for talent. We see a lot of headlines, particularly on the property casualty side of the house about books getting hired back and forth. And where do you think Willis fits within that? And do you think we're seeing a heightened level of poaching back and forth? Carl A. Hess: Yes. Thanks for the question. We are really happy with our ability to attract and retain top talent. As Lucy shared after she joined last year, right, the success of our strategy over the last 4 years and the world-class resources we've developed to serve clients, they're highly attractive to prospective employees. We continue to hire strategically with a focus on bringing in accretive talent, especially within our Specialty lines and geographies. More broadly, we continue to make investments in the fastest-growing and most profitable areas of our business. And so we remain very excited about the innovation fostered by both these investments and the new talent in the organization. It's helping us realize significant opportunities to accelerate profitable growth and to enhance our margins. Jon Paul Newsome: So do you think you're getting kind of more than a fair share at this point? Or do you think you've sort of reached a point where you're kind of at your steady state of continued growth? Lucy Clarke: I'll just pick up on that. Thanks. So of course, our people are it for us, and our business is built around talent. Incredibly proud of the people who work here and how they look after our clients. That really strong focus on talent has been the key driver of our organic growth and, of course, particularly for new business growth over the last few years. We will continue to complement our existing talent by making strategic hires in the areas we think that they'll be most impactful both in terms of geography and specialty. It's proven to be a real successful strategy for us, and we'll continue to execute on that. Operator: And our next question comes from the line of David Motemaden from Evercore ISI. David Motemaden: I had a question just on some of the R&B commentary just around the path to achieving the high single-digit growth, just getting more challenging, given the current pricing environment. And I'm not so much focused on fourth quarter, but just thinking bigger picture about the mid-single-digit to high single-digit growth targets you guys had laid out at your Investor Day about a year ago within R&B. Just given the current environment and the direction of travel, I guess, how are you thinking about that target? Is it still that mid-single to high single, mid-single, is low single digit on the table? Just interested in your thoughts on that. Carl A. Hess: Yes. I mean, stepping back, right, our solid performance this year reflects the success of the specialization strategy and demonstrated by 6%, the solid 6% we got out of CRB, that 7% we do exclude book of business and fiduciary income for the quarter. Given our performance year-to-date, we remain committed to mid- to high single-digit growth in R&B for the year. But as we've said, right, we acknowledge that high single digits, a bit more challenging now with the current environment. Lucy Clarke: Yes. Let me just add to that. Thanks, Carl. Yes, so we've made the comments about where we expect '25 to end up. And obviously, we're not going to comment on '26 until next quarter. But we still have plenty of room to grow across Risk & Broking. We expect client demand and the attractiveness of the specialty structure to continue to generate growth rates that continue to lead the market. So we see a lot to be optimistic about, but we'll talk about '26 next quarter. David Motemaden: Got it. Okay. And then just following up, just seeing an economy that looks like capital spending and spending is still solid, but then employment growth, which Carl, you mentioned that's slowed a bit. And I hear you loud and clear that HWC is vastly recurring in nature, if I think about their revenues. But could you just help me think about just general employment levels and how that might impact some of the contracts that you have, particularly in BD&O even if it is recurring. Are there different bands there that can tweak up and down based on your client employment levels? Or could you just help me think through the sensitivity of your businesses to that? Julie Gebauer: David, I'll pick up on that one. Look, overall, we haven't seen softening employment impact our revenue overall. And I can tell you that even with a softening employment landscape, we expect to deliver mid-single-digit revenue growth in HWC this year. And while it's worth noting that employee turnover has dropped across industry, there is still high competition for certain jobs and skills. We've got -- we do these talent intelligence reports that found that organizations are investing heavily in technology, talent, data roles, customer service jobs. And then balancing that alongside other external factors like things I've mentioned before have been mentioned before, health care inflation, healthy pension-funded status new legislation where our clients need support, we believe that overall environment is generally favorable for our HWC services, and that includes BD&O that you specifically mentioned. Operator: And our next question comes from the line of Mark Hughes from Truist. Mark Hughes: In the Health business, I talked about the strong pipeline. How much of that do you think is you're taking share versus there's just a lot of movement, a lot of folks looking for solutions given health care inflation. Carl A. Hess: Thanks for the question. Just to take this one step back, right? The Health business at 7% for the quarter, and that's 8% before when you exclude book settlement and really reflecting broad-based growth across all regions. We think our strategy is continuing to yield meaningful results. This is the sixth consecutive quarter of growth in the high single digits range. Our expectation is that demand is going to remain solid for the rest of the year driven by a very solid pipeline and supportive external trends. And though we do recognize we have a strong comp in Q4. We continue to expect to deliver high single-digit growth for the full year. But maybe if Julie could give a bit more commentary about what we're seeing in Health. Julie Gebauer: Yes. Sure, Carl. And Mark, to pick up on your point, I'll start with the external environment. Health care inflation is still front and center for a lot of organizations due to the higher cost driven by things like increased utilization, technological advances, prescription drug cost increases and the list goes on. In fact, we've done some recent research that shows that 73% of company, 73% are feeling more cost pressure in this area than at any point in the last 10 years. So it isn't a surprise that they're turning to us for help in managing these costs, whether that's to take health plans out for competitive bids or considering more significant changes. So this environment has been favorable. And we've been successful with focused sales efforts and a strong service and that has generated strong retention new business and good results for some of our solutions like global benefits management and our middle market offerings. And so our pipeline is strong. And to repeat what Carl said, we are confident in delivering high single-digit growth for the full year. Mark Hughes: Very good. And then on the -- in the retirement business, what is the prospects for continued project work if interest rates are going to be declining here? Presumably, most pension funds are pretty -- doing pretty well. But what is -- how does 2026 shape up relative to 2025 on that front? Carl A. Hess: Yes. And again, let's ground this where we're starting from. Wealth generated 5% organic for the quarter, driven by strength in retirement. New clients and core DB services and LifeSight to your point, expanded project work for existing clients, right? Our investments business is delivering growth from new products and client wins. We continue to expect low single-digit growth for the year and over the long term. And Julie, what are we seeing on the ground and what do we think about the future? Julie Gebauer: Yes. Yes. I'd like to actually break this into 3 pieces. The core defined benefit work emerging work in the defined contribution area and then developing product solutions in the investments area. So starting with core defined benefit, we have added more clients in our target market. And to the point that's been made already conducted more project work. That includes not only derisking, which is interest rate dependent, but derisking readiness for the future, doing things like data cleanup, helping clients with workforce management projects and doing work to support the adoption of new legislation. We have very good momentum going in this area, and we expect these trends to continue. Now in defined contribution, we are live with our LifeSight Solution in 12 countries now, and we continue to add clients and assets under management. At the end of the quarter, last quarter, our assets under management across our Master Trust type arrangement with over $42 billion. And then we've seen strong performance in our new product launches in our Investments business. I want to highlight what I think is a really exciting example where we launched funds in collaboration with BlackRock for our clients' international defined contribution pension plans. And that has been seeded with over $1 billion in assets from a client headquartered in the Middle East. So with developments like this, we expect our Wealth businesses to grow revenue steadily in the short to medium term. Growth is expected to accelerate over the medium to long term as we build in some of these faster-growing areas that I've mentioned. And I'll just close with the momentum that we have this year, we're expecting results to be at the top end of the low single-digit range. Operator: Our next question comes from the line of Ryan Tunis from Cantor. Ryan Tunis: Just one for me. So in Risk & Broking, the 7% organic. Can you give us some idea of geographically, how the U.S. fits in there versus International? Andrew Krasner: Yes. So we saw growth across all of our geographies. We're happy with how all of the businesses performed but don't get into the detail on geography by geography basis. The U.S. is about less than half of the total portfolio that we have within that business. So again, well diversified across geographies, lines of business markets and property casualty splits, and that's served us well. Ryan Tunis: Sorry. But like seems like broadly, that's where we're seeing some pressure on brokerage, organic just on the U.S. side. So you're saying that we should assume that U.S. is running somewhere in your 7% organic? Lucy Clarke: No, that's not what we're saying. We saw particularly good performances from the U.K. and our GB and International, and we had some outperformance there. Operator: And our next question comes from the line of Mark Marcon from Robert W. Baird. Mark Marcon: One for Julie and one for Lucy. Julie, just with regards to the health insurance pressures that employers are facing. Typically, when we go through these time periods, how long do you see elevated levels of continued requirements for help from your clients? It seems to me like it would be a multiyear process to try to optimize benefit plans and things of that nature. But I'm wondering what your perspective is on that. And then for Lucy, obviously, we all know that we're going into a softer cycle, how would you characterize this softer cycle relative to others? And to what extent does that impact your ability to gain new clients from competitors? Julie Gebauer: Mark, thank you. On the health care front, you're right that this is typically a multiyear phenomenon where we have higher health care inflation around the world. We're already looking out at estimates for 2026, and it is still expected to be high. Lucy, you want to comment on... Lucy Clarke: I would love to Julie. Thank you. Yes, thanks Mark, for the question. So how would I characterize this soft cycle compared to other soft cycles? I guess I would just make the note that we are talking about it being a softer cycle, but it's important to remember where we've come from. We had 5 years of rating increase. And so where we are is softer, but it is still considered rate adequate in most -- by most carriers. And in terms of how does it affect our ability to attract clients. Well, I mean, clients aren't only looking for the lowest price. They will get better pricing from brokers across the board. But we think that the biggest thing we have to offer clients is the differentiation in our specialization strategy. Operator: Our next question comes from the line of Meyer Shields from KBW. Meyer Shields: Two quick ones, hopefully. And I apologize if this has been covered before. But given the fact that you've done $1.3 billion of repurchases year-to-date and fourth quarter is the strongest free cash flow quarter. Why is $1.5 billion the right number for 2025? [indiscernible] Shouldn't it be higher? Andrew Krasner: Yes, sure. So as we mentioned in the prepared remarks, we're still targeting $1.5 billion in subject to market conditions and, of course, potential capital allocation to organic or inorganic investment opportunities. In terms of timing and potential upside, we continuously monitor our cash levels and market conditions to take advantage of opportunities to accelerate repurchases. And will lean in if the opportunity presents itself, and we think it's a prudent thing to do. As we always have, we evaluate all of our options for capital allocation, which does include share buybacks, internal investment and carefully consider strategic M&A to make sure that we're maximizing value creation for our shareholders. Meyer Shields: Okay. That's fair. Second question, with the survey-related results or revenues that are being deferred to the fourth quarter, were the associated expenses still booked in the third quarter? Andrew Krasner: Yes. The simple answer to that question. So we expect some revenue to bleed over into Q4 related to that sort of temporary shift in timing. Operator: Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Carl Hess for any further remarks. Carl A. Hess: Thanks, everyone, for participating today. Before we wrap up, I'd like to acknowledge the destruction caused by Hurricane Melissa and express our deepest sympathy to all of those affected. For our clients and business partners in the areas impacted our thoughts are with you, and we'll continue to lend our support through this difficult time. Thank you all for joining us this morning. I do want to thank once again all our WTW colleagues again for their hard work and dedication, and thank you to our shareholders for their continued support of our efforts. Have a great day. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good day, and welcome to the National CineMedia, Inc. Q3 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chan Park, Senior Vice President of Finance. Please go ahead. Chan Park: Thank you, operator, and good afternoon. I'm joined today by our Chief Executive Officer, Tom Lesinski; and our Chief Financial Officer, Ronnie Ng. I would like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended. All statements other than statements of historical facts communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the company's expectations are disclosed in the risk factors contained in the company's filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors. Further, our discussion today includes some non-GAAP measures. In accordance with Regulation G, we have reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found at the end of today's earnings release or on the Investor Relations page of our website at ncm.com. Now I'll turn the call over to Tom. Thomas Lesinski: Thank you, Chan. Hello, everyone, and thank you for joining our fiscal 2025 third quarter earnings call. As we shared on our last call, advertiser sentiment stabilized through the summer as brands regained confidence navigating the broader economic landscape. We are encouraged to see that momentum carry into the third quarter, where we saw a clear rebound in demand across key advertising categories, including retail, automotive, wireless and government, reflecting a return to normalized spending patterns after the tariff-related pullback earlier this year. Driven by July's strong slate, including Jurassic World Rebirth, Superman and the Fantastic 4 First Steps, we delivered results in line with our expectations, achieving top line growth despite a softer late summer box office and industry-wide decline in attendance. NCM's quarterly audience was 109 million across our network, down 11% compared with the third quarter of 2024, in line with the third quarter box office. Our overall attendance was lower, 11 films in the quarter grossed more than 50 million domestically, up from 9 titles last year, highlighting the strength and continued draw of tentpole releases even in a slower market. The successes of July's hit releases underscored the continued cultural relevance of cinema and reaffirm the enduring power of our platform to connect brands with deeply engaged audiences. Importantly, attendance trends improved toward the back half of September, finishing on par with 2024 strong performance, which was the highest level since 2019. As such, we remain optimistic that the strong holiday slate ahead, featuring several highly anticipated titles will reignite theater attendance in the fourth quarter. Despite the overall decline in both the domestic box office and attendance, NCM delivered year-over-year growth in the third quarter with total revenue of $63.4 million and adjusted OIBDA of $10.2 million, both in line with our expectations and primarily driven by an increase in inventory utilization. This performance reflects the resilience of our business, one that continues to translate audience engagement into meaningful advertiser value even in a weaker industry environment. Throughout the third quarter, we continued to advance our key growth initiatives, scaling our Programmatic offering, expanding our self-serve platform and strengthening our local sales organization. On the Programmatic front, we continue to see strong year-over-year acceleration. This quarter, we delivered approximately 4x the Programmatic revenue compared to last year, achieving our strongest Programmatic quarter ever. With additional platforms coming online early next year, we will significantly expand our Programmatic footprint and unlock an even larger addressable market. We anticipate the growth trajectory will continue as advertisers embrace our platform's ability to deliver targeted measurable campaigns at scale. In self-serve, we continue to gain traction with midsized and regional advertisers who value cinema's attention environment and the ease of direct booking. Our self-serve platform continues to accelerate adoption with third quarter revenue up 23% quarter-over-quarter, driven by expanded business development outreach and CRM-based activation. Behind the scenes, predictive AI models now identify, score and route high-value local leads, powering scalable small and medium businesses and mid-market expansion and helping our teams engage advertisers more efficiently. Together, our Programmatic and self-serve channels are broadening NCM's reach, deepening relationships with brands and positioning us to capture a greater share of the evolving advertising landscape. Our local sales transformation is also progressing. We continue to work to enhance our team's capabilities, adding senior talent with deep regional expertise and refining our structure to align more closely with market opportunities. These changes are enabling a more data-informed consultative approach to engaging high-value local and regional advertisers, helping us connect cinema scale and storytelling power with the precision of locally relevant campaigns. We believe this refined strategy positions us to reduce churn and attract new advertisers to our platform. Across our network, NCM's valuable inventory led by our premium Platinum Spot continues to stand out among advertisers who recognize the environment, reach and measurement capabilities of NCM's unique platform. Platinum continues to deliver exceptional results, achieving an impressive 89% ad recall in a recent tech advertisers' campaign, surpassing industry benchmarks and driving strong gains across brand relevance, excitement and preference. These benchmarks reinforce its position as the most engaging and high-impact placement within the theatrical experience. Additionally, we enhanced our Platinum offering at select theaters by reducing added flexibility within the ad spot, which has driven higher utilization and improved advertiser satisfaction. Our 4DX format is also exceeding expectations, achieving approximately 85% ad recall in a recent automotive advertisers' campaign and generating triple-digit lifts in awareness, reaffirming the power of immersive cinematic experiences in driving superior brand outcomes. Complementing this inventory is our NCMX data platform, which continues to enhance advertisers' campaigns with data-driven targeting, insights and digital extensions. Last quarter, we announced the launch of our Bullseye product, which is already seeing strong traction in the marketplace and demonstrating the power of localized data-driven storytelling. A recent cellular campaign delivered more than 283,000 verified incremental store visits, representing a 110% lift, underscoring Bullseye's ability to seamlessly integrate into our tech stack and enable scalable, high-impact local activations. Alongside Bullseye, our Boost solution leverages our proprietary moviegoing data and new geo-triggered capabilities to target consumers near campaign-specific locations, connecting brands with verified audiences in high purchase intent moments to drive measurable off-line actions. Together, these initiatives strengthen our differentiated position as a performance-driven media platform that combines the power of the movies with data-enabled precision. As we invest in our platform and innovation, we also remain focused on expanding NCM's advertiser base. In the third quarter, we strengthened our full funnel attribution through our partnership with iSpot, a leading real-time TV and video ad measurement platform. This integration incorporates theatrical exposure data into iSPot's cross-screen measurement framework, enabling advertisers to quantify cinema's incremental reach and conversion velocity alongside linear and streaming channels. Early results are very compelling. The recent travel industry advertisers campaign delivered 3x faster conversion rates than linear TV. 95% efficiency at 10% the cost of TV and more than 8.4 million incremental impressions among audiences unexposed to television. These results validate cinema's role as a high-performing cost-efficient channel within diversified media mixes and reinforce the measurable impact of the theatrical experience in driving both upper and lower funnel performance. We are optimistic about the months ahead as we entered what is historically NCM's strongest period of the year. Upcoming tentpoles, including Wicked for Good, Avatar Fire & Ash and Zootopia 2 are already driving significant advertiser excitement and early commitments across multiple categories. Demand for Wicked for Good has been exceptionally strong with inventory approaching sellout levels a month ahead of the film's upcoming release date. The robust lineup, coupled with steady improvements in pacing and demand reinforces our confidence in a strong finish to the year. Importantly, we expect sustained momentum through year-end to further reinforce advertiser confidence in cinema as a high-performing media channel that delivers both attention and measurable impact. With increased advertiser demand, a healthy box office pipeline and continued traction across our Programmatic and self-serve platforms, we are well positioned to capitalize on expected strong attendance in the fourth quarter and execute against our strategic priorities for long-term growth. With that, I'll now turn the call over to Ronnie. Ronnie Ng: Thank you, Tom, and good afternoon, everyone. For the third quarter, NCM delivered results consistent with our expectations, reflecting the continued momentum we saw towards the end of the second quarter and stability in the demand for cinema advertising, which led to the highest third quarter monetization in the last 5 years. As Tom noted, the tariff-driven uncertainty that weighed on earlier quarters subsided during the period, with brands showing renewed confidence navigating the current macroeconomic environment. That stability translated into improved advertiser demand, particularly across several key categories, signaling progress from the pullback we experienced earlier in the year. NCM's total revenue for the third quarter was $63.4 million, within our guidance range of $62 million to $67 million and up 2% year-over-year. This increase was driven by stronger national advertising demand, improved inventory utilization and continued traction across our Programmatic and self-serve channels, partially offset by lower local and regional spending and softer beverage revenue. While the third quarter box office underperformed versus industry expectations with inconsistent performance among new releases, the stabilization of advertiser demand drove higher monetization in July and August, offsetting some of the softness in attendance. National advertising revenue totaled $49.9 million, up 6.6% from $46.8 million in the prior year period. This was driven by strong scatter demand and improved utilization of inventory as well as increased adoption of our digital buying platforms, partially offset by a decline in CPMs and lower overall attendance. Compared to the prior year, national CPMs held firm in the upfront marketplace, but declined in the scatter market due to an increase in Programmatic buying and improved demand in the seasonally slower September month when compared to historical periods. That said, the third quarter marks our strongest Programmatic performance since its launch, growing 82% sequentially. Additionally, Platinum revenue was up 19% compared to the prior year, achieving the highest third quarter Platinum sales in NCM's history. Platinum monetization grew significantly with revenue per attendee up 33% year-over-year, driven by strong growth in inventory utilization and a slight increase in CPMs, an encouraging sign that our amended AMC deal, which has been in effect for only a short 3 months is already driving results. Overall, national revenue per attendee was $0.46, up 20% year-over-year and the highest third quarter national ad revenue per attendee in the last 5 years, reflecting the success of our ongoing efforts to optimize pricing and yield through our Programmatic and self-serve capabilities. Local and regional advertising revenue was $9.6 million compared to $11.4 million in the prior year period. While local markets continue to recover more gradually, we are encouraged by improving activity in government and travel categories, which partially offset lingering softness in health care and professional services. As Tom outlined, we remain focused on strengthening this channel by enhancing our sales talent, new coverage models and data-driven insights that better connect local advertisers with NCM's engaged audiences. Turning to our expenses. Third quarter total operating expenses were $65.2 million, down from $69.9 million in the same period last year. Excluding onetime items, depreciation, amortization and noncash share-based compensation, our adjusted operating expenses were approximately $53.2 million, a slight decrease year-over-year, primarily attributable to lower attendance-driven costs. Due to our continued disciplined cost management efforts, SG&A expenses remained relatively flat in the third quarter as we strategically offset important investment dollars elsewhere in the business. Personnel-related expenses were slightly lower compared to the prior year period and theater access fees decreased year-over-year, reflecting lower attendance levels. Third quarter adjusted OIBDA was $10.2 million, in line with our guidance range of $7.5 million to $11.5 million and exceeding $8.8 million in the same period last year, driven by the modest top line growth. Total unlevered free cash flow for the quarter, as defined by cash flow from operations less capital expenditures, was negative $1.8 million compared to negative $2.4 million in the prior year period, driven by slight year-over-year increases in capital expenditures and system optimization costs, offset by improved adjusted OIBDA. Year-to-date, NCM has generated total revenue of $150 million compared to $154.5 million in the same period last year. National advertising revenues were flat, while local advertising revenues declined 22%, primarily reflecting macroeconomic uncertainty in the second quarter and offset by the third quarter stabilization in national advertising. Total adjusted OIBDA for the period was $1.9 million compared to $10.7 million in the prior year, driven by the top line headwinds, offset by normalization following prior year cost reductions. Turning to our consolidated balance sheet. At the end of the third quarter, the company had $32.9 million of cash, cash equivalents, restricted cash and marketable securities compared to $40.3 million at the end of the second quarter of 2025. We had 0 total debt outstanding at quarter end. Our capital allocation priorities remain focused on returning capital to our shareholders, while investing in technology and talent to enhance our advertising platform. Specifically, we continue to invest in expanding inventory monetization tools, improving our self-serve and Programmatic capabilities and deepening advertiser relationships through new sales initiatives and training. Under the dividend program, we reinstated this year, we announced a quarterly dividend of $0.03 per share today, amounting to $2.8 million. This quarter's dividend will be paid on November 26, 2025, to stockholders of record as of November 10, 2025. There were no share repurchases during the third quarter as we had accelerated repurchases opportunistically in the first half of the year and manage liquidity through a seasonally higher use of cash for working capital. Year-to-date through September 25, 2025, NCM has repurchased 3.3 million shares at an average price per share of $5.78 for a total of approximately $18.8 million. Since quarter end, we've repurchased over 100,000 additional shares at an average price per share of $4.08, reflecting our continued confidence in the business. We are optimistic that the advertising momentum from this quarter will continue heading into the fourth quarter. The remainder of the year includes a number of highly anticipated releases scheduled for the holiday release window. In particular, blockbuster events such as Wicked for Good, Avatar Fire & Ash and Zootopia 2 have each generated strong advertiser demand and upfront sponsorship commitments. These releases are expected to drive both attendance and related revenues, positioning us for a strong close to the year. Turning to our guidance. For the fourth quarter, we expect revenue to be between $91 million and $98 million and adjusted OIBDA to be between $30 million and $35 million. Notably, our fiscal fourth quarter includes an additional week compared to the prior year. As a result, we expect total attendance growth to outpace industry trends and lead to a correspondingly lower revenue per attendee. We anticipate a strong holiday box office slate with optimism that greater consistency in film release cadence and performance will continue to attract advertisers to NCM's platform for our differentiated offerings and unmatched reach with sought-after audiences. With advertisers already showing heightened interest in the Thanksgiving to Christmas slate, continued recovery at the box office and regaining advertiser confidence against the macroeconomic backdrop, we remain well positioned to capture demand and deliver value for our shareholders. Operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from Patrick Scholl from Barrington Research. Patrick Sholl: I just wonder if you could talk a little bit more about the Programmatic and the ad categories that are adopting that. I guess to the extent that you maybe talk about like just if you're seeing expanded budgets from existing partners or maybe just some of the ad categories that you are seeing, adopt that format. Thomas Lesinski: So, Patrick, thanks for the question. So, we're really happy with the performance of Programmatic. We've been investing in it for over a year now. Our Programmatic business was approximately 4x higher than it was a year ago. And I think importantly, the vast majority of clients who are coming in from Programmatic are new clients. And the categories, I can tell you, are all over the map in terms of different segments. But I think the most important thing is we're literally reaching people who had never been cinema advertisers before. And as Programmatic grows as an industry level phenomenon, as it continues to grow, we actually couldn't be happier with our investment in Programmatic and the growth we're seeing, especially driving new client relationships. Patrick Sholl: Okay. And then on the guidance that you provided with -- on EBITDA, with the revenue growth is the renewal with AMC kind of the main driver of like the maybe lower conversion of the revenue growth to profit growth? Or can you just maybe talk about like what sort of revenue increases you kind of need to get that positive trend on EBITDA? Ronnie Ng: Yes. So Patrick, this is Ronnie here. So thanks for the question. So as we noted in our prepared remarks that this quarter versus the prior year period -- prior year, there is an extra week here. And so, our fiscal quarter year will end this year on January 1 versus last year, it was December 26. So, what you have is this extra week between essentially Christmas and New Year's that will have really high attendance. And so, because of that, we obviously would be paying more dealer access fees versus the prior year and thus, the margins will reflect that. As comparison, if you were to -- if you look back at last year, if you were to add that extra week, the attendance would increase almost 14%, when you look at last year's fourth quarter. Operator: Your next question comes from Eric Wold from Texas Capital Securities. Eric Wold: A couple of questions. One quick one, just to follow up on that last comment, Ronnie, on the incremental attendance in the extra week between Christmas and New Year. Obviously, typically a high attendance period of the year with people hitting movies and high attendance. Is the assumption that it's just the mix of films and maybe the mix of attendance is just not as valuable of an advertising attendance. And so yes, it's high attendance may be not as valuable to advertisers for you to advertise in front of. Is that the thought process there in terms of the impact on the quarter? Ronnie Ng: So I think the way to think about it is that, obviously, the fourth quarter is very attractive to advertisers. That period really starts mid-November all the way up to Christmas essentially. And that's the high seasons. We have consistent sellout demand, especially in Platinum, post-show periods are mostly sold out. And when you get past that Christmas holiday season, that demand tends to soften a little bit despite kind of a lot of more attendance showing up because a lot of families take their kids to the movies. So, the demand is not -- although still high, it's just not anywhere near the same as the weeks leading up to the holidays. Eric Wold: Got it. And then maybe a high-level question, but there's been obviously a lot of press, and this is obviously nothing new. There's always been the question of known franchises versus new IP at the theater. And recently, there's been a lot of press around smaller titles, new IP, not doing well at the theater. Are you seeing any trend from advertisers? Obviously, the blockbuster films, you mentioned Wicked selling out almost a month ahead of time. And I assume that's the case in most blockbuster films. So with the new IP, are you seeing any patterns from advertisers maybe waiting a little bit closer now to release date and tracking and getting a better sense of tracking, especially now that they have the ability to use Programmatic to latch on to it before they want to maybe commit to a campaign to get a better sense of how that film is likely to do before they want to commit their advertising to it. And if that is the case, how are you kind of planning around that? Ronnie Ng: I actually think, Eric, it's really not the case. People generally are buying impressions and they're buying forecasts and estimates. People are not really being that specific when it comes to a smaller independent release or a new IP and avoiding it. Generally speaking, people are buying the entire flight across a variety of movies. So, while obviously, there's overperformance on things like Wicked and Avatar and Zootopia, there's not a reverse effect on unknown IP. So we're not seeing that phenomenon. And yes, when a movie does really well that no one's heard of, there is incremental buying happening on it the following week, weekend. And some of that's Programmatic or just bought in our regular scatter market. Operator: Your next question comes from Mike Hickey from the Benchmark Company. Michael Hickey: Just curious, Tom, when you look at -- obviously, we've got a pretty good view of '25 here. It's been some opportunities and challenges for you guys. Just when you think about '26, Tom, can you sort of paint the picture? I think you're probably optimistic on attendance, but I'm just curious how NCM from a growth perspective fits into '26, looking at national local, your Programmatic and maybe the key catalysts that we should look forward to in terms of driving growth and leverage from your model? Thomas Lesinski: So, what I would say is that first thing first. So, the fourth quarter is pacing very well, up in a way -- not up -- up a fair amount from the prior year. So I see the momentum from Q3 going into Q4 and the advertisers are back. Any of the tariff issues that we highlighted in Q2 have gone away. So we're looking at really good momentum from Q3 going into Q4, and we expect that to follow in through '26. The box office estimates for next year look actually quite good. I think it's been pretty well documented that it's going to be another growth year in box office and attendance. So I think, fortunately, the momentum is really good right now and the confidence we're seeing from advertisers and the relationships they're growing, especially with the addition of Programmatic and self-serve. And we're pretty confident that local is going to rebound as well. So, I think the third quarter and the fourth quarter are really setting up for momentum into next year. And we're confident that '26 is going to be a great year for us and for the box office. Michael Hickey: Is your decision to put back the dividend here versus maybe a more aggressive buyback or M&A? Just curious, Ronnie, your view on capital allocation here and into '26. Ronnie Ng: Yes. So, on capital allocation, obviously, we're committed to our dividend, and we continue to do that this quarter. We believe that's an important part of our capital allocation strategy and more a way to reward our shareholders on a more consistent basis. In terms of the buybacks, like we always said, obviously, we're opportunistic when it presents ourselves with that. We were doing that fairly aggressively in the first half of the year, buying up to nearly $19 million worth of stock. Obviously, we slowed down here, but that's really in cadence with the negative unlevered free cash flow that we're seeing in this period. And we're just mindful of the working capital needs of the company in the third quarter, especially in July and August is typically where we see a lot of uses of cash due to working capital. I'll say that, though, like we said in our prepared remarks, post the third quarter after September 25, we were -- we did pick up additional over $100,000 -- or 100,000 shares in the market. So I think it's really -- we'll continue to utilize and look at all of the options available to us in terms of capital allocation and then also be mindful about the free cash flow nature seasonally throughout the year as well. Michael Hickey: And then last question. How are you guys thinking about your cost structure here? Obviously, you've taken it down a lot. Are you comfortable with where you're at? Or do you think there's opportunities here, AI or otherwise in terms of getting maybe some incremental cost savings into '26? Thomas Lesinski: Yes. I think it's a little early to really talk about '26, but I do think we've taken a hard look at efficiencies in AI. Every year, I think we've done a good job of managing our expenses. We've been fairly engaged with AI opportunities. So more on that soon. But clearly, there's some opportunities for us. I think not just for efficiencies, but also to generate more opportunity. AI is not just a cost savings tool. It's also a lead generation CRM tool that can enhance our ability to reach in clients. So we're looking at that and we'll be able to give you more update on that next quarter. Operator: There are no further questions at this time. I would now like to hand the call back over to management for any closing remarks. Thomas Lesinski: Yes. So I want to thank you guys all for joining us today. NCM continues to attract top advertisers with our unmatched reach among the most sought-after audiences and our differentiated inventory complemented by our industry-wide leading data capabilities. So after navigating a challenging second quarter, our clear focus and discipline in our strategic execution enabled us to deliver solid results as the advertising market stabilized in the third quarter. Looking ahead, we're well positioned to capitalize on the exciting holiday film slate, and we're very optimistic that we'll carry positive momentum through the remainder of the year. We're grateful for your support, and we look forward to seeing you all at the movies. Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, everyone, and welcome to the CMS Energy 2025 Third Quarter Results. The earnings news release issued earlier today and the presentation used in this webcast are available on CMS Energy's website in the Investor Relations section. This call is being recorded. [Operator Instructions] Just a reminder that there will be a rebroadcast of this conference call today beginning at 12:00 p.m. Eastern Time running through to November 6. This presentation is also being webcast and is available on CMS Energy's website in the Investor Relations section. At this time, I'd like to turn the call over to Mr. Jason Shore, Treasurer and Vice President of Investor Relations. Jason Shore: Thank you, Alex. Good morning, everyone, and thank you for joining us today. With me are Garrick Rochow, President and Chief Executive Officer; and Rejji Hayes, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements, which are subject to risks and uncertainties. Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non-GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in the appendix and posted on our website. And now I'll turn the call over to Garrick. Garrick Rochow: Thank you, Jason, and thank you, everyone, for joining us today. A strong quarter at CMS Energy from an operational, regulatory and financial perspective. I am very pleased with the results and continue to see us well positioned for the full year and in the long term. Our consistent industry-leading performance is rooted in our investment thesis that delivers for customers, coworkers and investors. Speaking of strong performance and consistency, throughout the quarter, we delivered key regulatory outcomes, which highlight the positive and constructive regulatory environment in Michigan. We received a final order in our renewable energy plan that approved an additional 8 gigawatts of solar and 2.8 gigawatts of wind through 2035 and ensures we will meet Michigan's clean energy law. A portion of these investments will be woven into our next 5-year plan. This order also provides further certainty and confidence for our long-term customer investments. And as a reminder, this renewable energy plan is a key input into our Integrated Resource Plan that we will file mid-2026. We also received a constructive order in our gas rate case, approving approximately 75% of the final ask and 95% of infrastructure investments for work like domain and vintage service replacements, which are critical to ensuring a safe, affordable and cleaner natural gas system. Chair Scripps comments from that meeting continue to support thoughtful and deliberate adjustments in ROE and suggested we have reached the floor for ROEs and in his words, driven out any excess. Recently, on the electric side, staff filed their position in our pending rate case, supporting approximately 75% of our revised and approximately 90% of our capital ask. This case includes investments supporting reliability and resiliency, which benefits our customers and are well aligned with our Reliability Roadmap and MPSC direction. Again, one of many proof points in our supportive regulatory environment and a strong starting position for a constructive outcome. As shared in previous quarterly calls, we continue to see strong economic growth in Michigan. As I highlighted in the Q2 call, we have an agreement with a data center and continue to see growth with manufacturing as well as a robust pipeline. Year-to-date, we have connected approximately 450 megawatts of the planned 900 megawatts of industrial growth in our 5-year plan. I'm also pleased to share that we've been successful adding another approximately 100 megawatts of signed contracts year-to-date. This growth is coming from new projects, expansion from existing customers in the areas of food processing, aerospace and defense and advanced manufacturing. These projects bring jobs and supply chains, home starts and commercial opportunities to the state and create further visibility to our 2% to 3% forecasted annual sales growth over the next 5 years. On the slide, we're showing our economic growth pipeline. You'll note we continue to move projects into and along the pipeline, bolstering our confidence in additional growth from data centers and other diverse industries. As I mentioned on our Q2 call, we have an agreement with a data center with up to 1 gigawatt of load planning to come to our service territory beginning in early 2030 and ramping up from there. You'll see that project in the final stage of our process at near final terms and conditions. I expect further progress, specifically contract signature as the large load tariff is finalized in November when we expect an order from the MPSC. You'll also see other large data centers in the final and advanced stages of development, which speaks to the robust nature of our pipeline. I continue to be confident and excited about the growth coming to our service territory. The data center and manufacturing pipeline is robust and advancing, and we are well equipped to serve and meet their needs as they advance. On the left side of the next slide, you see our current 5-year $20 billion customer investment plan. On the right side, you see the robust and diverse additional investment opportunities we have going forward. Over $25 billion of additional customer investments supported by our Electric Reliability Roadmap, renewable energy plan and Integrated Resource Plan. As a result of more load growth, we're focused on resource adequacy and the clean energy law, which means more renewables, battery storage and natural gas generation to meet growing demand. And as I shared earlier, our recently approved renewable energy plan provides visibility and certainty on our plan for future investments. Our Integrated Resource Plan that we will file in mid-2026 will also detail additional capacity needed to replace retired plants and support existing and future growth we are realizing. As we see that full plan come together, we anticipate needing more battery storage and gas capacity. And as a side note, you can expect further growth from capital-light mechanisms like our financial compensation mechanism on PPAs and our energy waste reduction program. On our distribution system, we see a significant need for investment in pole replacement, undergrounding and system hardening as we work to significantly improve customer reliability and resiliency. And again, well aligned with our Reliability Roadmap and MPSC direction. As I shared before, a robust and growing capital plan, which will continue to provide investment opportunities to serve customers and deliver value for investors. Now this long runway of customer investments must be balanced with affordability. We have demonstrated our excellence in reducing cost, and we do this better than most through the CE Way, digital and automation, episodic cost-saving opportunities, low growth and energy waste reduction. This is a significant advantage for us to maintain affordability as we make needed investments in our system. Today, our customers' utility bill remains roughly 3% of their total expenses or what is often referred to as share of wallet. This is down 150 basis points from a decade ago while investing significantly in our system to the tune of $20 billion. Our residential bills are solidly below the national average and continue to be over the 5-year plan period as we continue to make thoughtful customer investments across the system. Affordability is an area where we will continue to focus and deliver cost savings for customers, keeping customer rates at or below inflation and bills below the national average. I am proud of the work we have done to develop excellence in this area. We have built strong cost management muscle across the company, and it continues to benefit customers today and well into the future. As I shared in my opening, a strong quarter. For the first 9 months, we reported adjusted earnings per share of $2.66, up $0.19 versus the same period in 2024, largely driven by the constructive outcomes in our electric and gas rate cases and a return to more normal weather. Given our confidence in the year, we're raising the bottom end of this year's guidance range to $3.56 to $3.60 per share from $3.54 to $3.60 per share with continued confidence toward the high end. We are initiating our full year guidance for 2026 at $3.80 to $3.87 per share, reflecting 6% to 8% growth of the midpoint of this year's revised range, and we are well positioned to be toward the high end of that range. It is important to remember, we always rebase guidance off our actuals on the Q4 call, compounding our growth. And like we've done in previous years, we'll provide a refresh of our 5-year capital and financial plans on the Q4 call. With that, I'll hand the call over to Rejji. Rejji Hayes: Thank you, Garrick, and good morning, everyone. On Slide 9, you'll see our standard waterfall chart, which illustrates the key drivers impacting our financial performance for the first 9 months of 2025 and our year-to-go expectations. For clarification purposes, all of the variance analyses herein are in comparison to 2024, both on a year-to-date and a year-to-go basis. In summary, for the third quarter, we delivered adjusted net income of $797 million or $2.66 per share, which compares favorably to the first 9 months of 2024, largely due to higher rate relief net of investment costs and favorable weather-related sales. With respect to the latter, we experienced a warm summer in Michigan, which in part drove the $0.37 per share of positive variance on a year-to-date basis. Rate relief net of investment costs, resulted in $0.28 per share of positive variance due to constructive outcomes achieved in our electric rate order received in March and the residual benefits of last year's gas rate case settlement. From a cost perspective, you'll notice in the third bar on the left-hand side of the chart, $0.04 per share of negative variance versus the comparable period in 2024. Our year-to-date cost performance was largely driven by increased vegetation management expense due to higher spending levels approved in our March electric rate order and in accordance with our Electric Reliability Roadmap. Before we leave the cost bucket, I'd be remiss if I didn't mention that given our strong financial performance to date, we put several operational pull aheads in motion across the business over the course of the quarter. These discretionary measures provided additional funding for gas system projects, electric reliability and programs catered to our most vulnerable customers. A portion of these costs were incurred during the quarter, while the balance will flow through our forecasted year-to-go operating expenses, delivering incremental value for customers while derisking our financial plan and the product year to the benefit of investors. Rounding out the first 9 months of the year, you'll note the $0.42 per share of negative variance highlighted in the catch-all bucket in the middle of the chart. The primary drivers of the negative variance were related to the planned outage of our Dearborn Industrial Generation or DIG facility earlier in the year and the timing of select renewable projects at NorthStar, which I'll note remain on track, coupled with higher parent financing costs. Looking ahead, as always, we plan for normal weather, which equates to $0.15 per share of positive variance for the remaining 3 months of the year, given the roll-off of mild temperatures experienced in the last 3 months of 2024. From a regulatory perspective, we'll realize $0.03 per share of positive variance, driven in large part by the constructive outcome achieved in our gas rate order in September, which will go into effect on November 1. On the cost side, we anticipate $0.06 per share of negative variance for the remaining 3 months of 2025 due to our ongoing vegetation management efforts as well as the aforementioned supplemental spending on operational and customer initiatives at the utility. Closing out the glide path for the remainder of the year in the penultimate bar on the right-hand side, you'll note an estimated range of $0.05 to $0.09 per share of negative variance, which largely consists of the absence of select onetime countermeasures from last year, partially offset by nonutility performance fueled by achievement of key economic milestones on select renewable projects, among other items. As Garrick highlighted, we are well positioned to deliver on our financial objectives for the year and are establishing a solid foundation for 2026 through prudent contingency deployment as we head into the final 2 months of the year. Moving on to the balance sheet on Slide 10. I'll note our recently reaffirmed credit ratings at the utility from S&P in September, and we anticipate a reaffirmation of the parent's credit ratings in the coming weeks. From a financial planning perspective, we continue to target mid-teens FFO to debt on a consolidated basis to preserve our solid investment-grade credit ratings as per long-standing guidance from the rating agencies. As always, we remain focused on maintaining a strong financial position, which, coupled with a supportive rate construct and predictable cash flow generation minimizes our funding costs to the benefit of our customers and investors. Slide 11 offers an update to our funding needs in 2025 at the utility and at the parent. I am pleased to report that we have completed virtually all of our planned financings for 2025, the latest tranche of which was our settlement of approximately $500 million of forward equity contracts at share price levels favorable to our plan. Given the attractive market conditions, we'll continue to evaluate potential pull-ahead opportunities for some of our 2026 financing needs at the parent. As I've said before, our approach to our financing plan is similar to how we run the business. We plan conservatively and capitalize on opportunities as they arise. This approach has been tried and true year in and year out and has enabled us to deliver on our operational and financial objectives, irrespective of the circumstances to the benefit of our customers and investors, and this year is no different. And with that, I'll hand it back to Garrick for his final remarks before the Q&A session. Garrick Rochow: Thanks, Rejji. At CMS Energy, we deliver a strong first 9 months of the year and well positioned for the full year. Our strong pipeline of new and expanding load bolsters our confidence in our growth and provides us with opportunity to invest in infrastructure across both our gas and electric businesses to serve customers with safe, affordable, reliable and clean energy. It is an exciting time in this industry, and CMS Energy is well positioned. With that, Alex, please open the lines for Q&A. Operator: [Operator Instructions] Our first question for today comes from Julien Dumoulin-Smith of Jefferies. Julien Dumoulin-Smith: Nicely done, continued progress here. If I can, team, can you elaborate a little bit on just what the timing is on the large load tariff? Just again, I suspect that this is more mundane in process than anything else. But just elaborate there. And then more importantly, can you speak to the opportunity that exists behind this, right? Clearly, this is something of a gating item just to deal with process. What are those conversations looking like to the extent to which that something were to manifest itself here in the next couple of months? Garrick Rochow: There are -- Julien, it's great to hear from you. There are 3 large data centers in the final stages. That's up to 2 gigawatts of opportunity there. We've talked in Q2 about one of those. And you can see that at the bottom of that pipeline or at the bottom of that funnel, and we're really at final terms and conditions. It's important to get this gating item done, the tariff, the large load tariff. We expect that November 7. And that will be important. That obviously looks through the terms -- other terms and conditions, the length of the contract and minimum demands and those types of things. And so I would expect that, that one at the bottom of the funnel, the one we talked about in Q2, we will move through that funnel and move through that pipeline in short order after that tariff is in place. The other 2 large ones, I would also expect to move forward within that pipeline. Just to give you some clarity on those projects, they have land, they have zoning. We've worked through the red lines and some of the basic terms and conditions, continue to see good progress there. And they're also -- it's also important, this gating item on the tariffs. And so I would expect them to move forward further in the pipeline. So hopefully, that helps, Julien. It's an exciting pipeline. It's an exciting time in this industry. Julien Dumoulin-Smith: Absolutely. So it sounds like you could potentially see developments on all 3 here shortly after that were resolved here on November 7 or again, focus first on the initial contract shortly thereafter and then in coming months on the others? Garrick Rochow: We like the direction of all 3. And certainly, there's one further in the funnel like we shared at the Q2 call. And so again, plenty of opportunities for data centers here. But I'd also point to the funnel has semiconductors, it has manufacturing, and we continue to land those as well. And those bring with it, as we've talked in the past, a number of benefits. And so a really robust pipeline of opportunity here in Michigan and across our service territory. Julien Dumoulin-Smith: Excellent. And maybe a little bit more of a strategic question, if I can clarify this. I mean, obviously, having this level of confidence potentially gives you more latitude within the plan in the 5 years. When and how do you think about being able to leverage that and reflect it in the plan? And what I'm getting at is potentially maybe there's some upside even within the 6% to 8% or above the 6% to 8%? Or would you be thinking more about, again, doing something that would be more offensive in as much as you guys transacted on EnerBank earlier to improve the overall quality of your earnings. Could you do something similar to that again? Garrick Rochow: We've got a 5 -- if I just step back and look at our capital plans for just a minute, 5 years right now, $20 billion, and we got $25 billion plus knocking at the door, just wanting to get into that plan. And all this data centers would be incremental. So you can imagine that $25 billion growing. And so that's a great opportunity as we land these data centers, incremental to the plan from a capital perspective, incremental from a sales perspective as well. We're delivering. Like CMS Energy, we deliver. And that is this context of for '22 going on 23 years, we've delivered industry-leading financial performance, where others have been at 4% to 6% and 5% to 7%, I'm glad they're finally catching up with us. We've been at 6% to 8%. We've been at the high end of that, and we're compounding off that. That's pretty -- like compounding off actuals, you see that in other industries. That's pretty unique in this industry, and we do that. That's a higher quality of earnings and we get and our investors see that. So we really play the long game here. We have confidence in that in our guidance. But of course, we're competitive. We always look at our capital plan. We always look at affordability. We look at the ability to achieve that capital plan. There's a lot of things that go into that. And certainly, you'll hear more about that capital plan and further data center advancements in our Q4 call. Operator: Our next question comes from Jeremy Tonet of JPMorgan. Jeremy Tonet: I was just wondering if I could pick up with that $20 billion of CapEx knocking on the door. Just wondering how quickly could the door be opened here? Over what type of time line do you think that could be folded in given all these opportunities? Garrick Rochow: Well, first of all, it's $25-plus billion knocking out the door. So it's even better than the $20 billion. And so you'll have like building a little suspense here for the Q4 call. You'll see that in the Q4 call. And here's what I anticipate. You're going to see more in electric reliability. We're already foreshadowing that in our current electric rate case. That's important to improve service for all our customers. We're committed to that. We've shared that. It's lined up with the Liberty audit report. It's lined up with the MPSC direction and our Reliability Roadmap. You'll see more in that plan in the electric distribution space. We have approved renewable energy plan. It is an additional 8 gigawatts of solar and 2.8 gigawatt of wind that's been approved through 2035. And you can imagine we're going to want to take advantage of tax credits and the safe harboring. So that's going to be -- that 5-year plan is going to be healthy with those type of investments. And so that will be evident in Q4. And then we'll file our Integrated Resource Plan in '26, mid-'26. Of course, that will play out over the next 10 months, so an order in '27. But you've got to start stacking that plan to be able to do the capacity -- build the capacity that you need. So I would anticipate battery storage and as well as natural gas capacity will start to filter into that 5-year plan. So really across all 3. So hopefully, that's helpful, Jeremy. Jeremy Tonet: Got it. And just want to pick up, I guess, with the gas plant, as you mentioned there, the potential for that. Would that be simple or combined? Or any other thoughts there, especially with regards to turbine slots? Garrick Rochow: We continue to work through that. I want to be really clear about this. When we look at what we need in this next Integrated Resource Plan, it's both battery capacity and natural gas capacity. And that's for retiring facilities as well as existing load growth. And so the more we add in terms of data centers, that will continue to grow. And we're evaluating what that mix looks like from a simple cycle and combined cycle perspective. But you can expect, like we always do, that we're well planned, well prepared, and we're moving along in that direction. Operator: Our next question comes from Shar Pourreza of Wells Fargo. Garrick Rochow: Oh my, Shar. You're back. You're back, Shar. Shahriar Pourreza: I just start -- just a follow-up on the prior two questions. I guess the $25 billion you have there, does any of that $25 billion plus of upside, does any of that kind of overlap before the '29 time frame? Garrick Rochow: Yes. The short answer to that is yes. You'll see in our next 5-year plan, you're going to see some of that $25 billion move into the next 5 years. Rejji Hayes: This is Rejji. Shar, just if I could add to Garrick's comments, all I would add is I'd be surprised actually in this next vintage of 5-year plan that we'll roll out in our fourth quarter call early next year. I'd be surprised if we're not dipping into each of those 3 components of that $25 billion. We're going to be in a steady march of reliability and resiliency-related work. And so that's part of that $10 billion bucket of electric distribution. We will continue to chip away at the renewable energy targets embedded in the clean energy law. And we have an upcoming milestone of 50% renewables by 2030. And so we will definitely be dipping into that 8 gigawatts of solar that Garrick noted, 2.8 gigawatts of wind that will certainly be incorporated into the plan. And then with respect to the IRP-related opportunities, that $5 billion bucket, remember, as I'm sure you know, the harvesting period for building out, whether it's simple cycle or combined cycle, you really have to do a lot of work upfront. And so we've already done the siting work. We are in the interconnection queue, but you do have to start spending money to really get on the front end of the gas turbine procurement. And so there will be dollars associated there with embedded in this next plan. And so it's a long-winded way of saying we'll be dipping into each of those buckets. And that will -- and those related costs and investments will be incorporated in this next, what I'll call a '26 through 2035-year plan. Shahriar Pourreza: Got it. And then just, Rejji, maybe just help me bridge, I guess, because you're getting a lot of questions around the CAGR this morning and it's just the way the math works given the base plan already grows at the higher end. I guess what is the offsetting factor on this CapEx being put into the plan potentially before '29 and it doesn't move the trajectory or accretive to this trajectory, I guess, what are the offsetting factors we should be thinking about? Rejji Hayes: Yes, it's a great question, as always. So let me just start with just, as you know, how we build the plan. We always talk about the governors of our capital and our financial plan. And so we have to obviously chin the affordability bar and make sure that our rates are growing commensurate with inflation. And so there's a lot of hard work that goes into that. And so we'll lean heavily into the CE Way as we always do. As Garrick noted in his prepared remarks, we've got a lot of continued opportunity in terms of episodic cost reductions. And we also think that this -- the third leg of the affordability stool is now these economic development opportunities, which we will certainly convert on over this 5-year period. And so look forward to having good news on that in the coming months and quarters. And so that's how we'll manage to deliver on the affordability side to, again, appease that governor. From a balance sheet perspective, we'll fund the plan as cost efficiently as possible. So we've really done a nice job reducing or minimizing equity needs to fund the growth. And so we try to fund the plan as efficiently as possible from a balance sheet perspective. And then we're going to be really focused on workforce planning and productivity to make sure that while we're executing the capital plan, we're doing it in a thoughtful way in terms of staffing and things of that nature. And so that just speaks to the confidence of our ability to weave in more capital investment into the plan. And I know the spirit of your question is, well, when will that lead to a higher growth CAGR? And I think the offsets we have to be mindful of is, first and foremost, as Garrick noted in his prepared remarks, we do compound off of actuals. And so we do take that quite seriously in delivering every year when we say 6% to 8% towards the high end, which for all intents and purposes is 7% to 8%. We plan to do that every year. So '26, then '27, then, '28. Think of it 7% to 8% for all intents and purposes toward that high end. And so we do have to take into account just the difficulty in achieving that. And so that is where we add in a little conservatism. The other reality is when you think about the nature of our rate construct, we're not decoupled. We don't have any type of service restoration deferral mechanism, even though we effectively got one put in place this year. And so we do have to bake in a little bit of margin or contingency just given the uncertainty around weather, and that's both from a margin perspective as well as storm activity, which seems to intensify year-over-year. And so that has to be taken into account when we think about the offsets that would potentially prohibit us from growing at a higher clip. That said, if I go down memory lane, remember, we were one of the first utilities to go to 6% to 8% in 2016 when it was a 5% to 7% world. So we're not afraid to grow at a higher clip if we can sustain it, but it has to be sustainable over a 5-year period. And so we have to be mindful of that. And again, we have to take into account some of those natural offsets that impact our business that I just enumerated. Is that helpful? Operator: Our next question comes from Andrew Weisel of Scotiabank. Andrew Weisel: First, I just want to clarify something. The IRP-related spending opportunity of $5 billion, am I right, that won't be included in the February update for CapEx, right? I think that's what you said in the past given the timing of the regulatory approval. But the way you're talking about it this morning, I'm a little unsure. Is that still how you're thinking about it? Garrick Rochow: There has to be -- just like as Rejji enumerated, like when you look at the -- what it takes to put a turbine in the ground and when you look at some of these longer-term items like that in terms of EPC contracts as well as MISO queue, you have to be investing right now to be able to deliver over that 5 years. And so I see a portion of that filtering into this 5-year plan on the IRP and particularly in the tail end of it, too, as you look to put some of this important equipment online. Andrew Weisel: Okay. Great. Good to hear, and that's helpful. Next question on the economic growth. You're still -- you have 450 megawatts out of the 900 megawatts in the plan. That certainly seems conservative. Maybe I'll just leave that as a comment. My question is, how much excess capacity do you currently have to serve that load with a couple of gigawatts potentially coming soon, how much slack do you have in the system versus how much would you need to match megawatt for megawatt. Garrick Rochow: That's connected load. So that's not to be delivered or on the way. And so that's connected. And so we have the capacity to serve that today. And then there's a bit of excess capacity. And I'll just remind everyone, we continue to build out as a result of the clean energy law, additional capacity. So we're upwards of 1 gigawatt of renewables we're building this year. It will be a similar pattern next year. We're -- there's a number of battery storage projects that are underway as well, both self-build as well as purchase or power purchase agreements. And so a number of those things are already underway. So that capacity profile is expanding as we speak. Andrew Weisel: Okay. Very good. Then lastly, if I can, a question on Campbell. I know you haven't made any final decisions, but there have been some conversations about the plant potentially continuing to run maybe as long as the duration of President Trump's administration. So can you just kind of explain what kind of shape is the plant in? What kind of maintenance might be required if it were to run through 2028? And how does the accounting work for the economics? I believe you're booking all the costs on the balance sheet, but maybe just kind of walk us through from a MISO perspective, from a tariff perspective, how does all that work in terms of cash and earnings impact for investors and for customers? Garrick Rochow: Yes, Andrew, great question. I'll start and then certainly hand it over to Rejji too. And so I first want to start from a people perspective. And that team out there has been absolutely amazing. As you might imagine, think about this from -- you're thinking about retirement in the plant in your next role, wherever it might be in the company, some going to retirement. And we just had a very flexible workforce that is committed to the success of that plant and following through with this order through the Department of Energy. So I can't say enough about our people and how they've responded. We're really in a great space from a people perspective. And so we continue to see orders from the Department of Energy through the Federal Power Act. We expect those to continue for the long term, and we're prepared to continue to operate the plant and comply with those orders. And I want to remind everybody that what we proposed was that those costs be shared because the benefits go to MISO and not just to our customers, they go to MISO and the FERC supported that. And so those costs as well as the offsetting revenue are spread across 9 MISO states, the North and Central regions, the MISO appropriately. And that order from the Department of Energy has laid out a clear path to cost recovery. And we're heading down that path and have great confidence in our ability to recover. And so that's the nature of it. We'll continue to invest in the plant thoughtfully. Those costs would be incurred and we've recovered those through that process. But let me hand it over to Rejji to talk a little more about this. Rejji Hayes: Yes. Thank you, Derrick, and thank you, Andrew, for the question. Yes. So we're currently treating all the costs associated with operating the Campbell units as a regulatory asset. And so operating and maintenance expense, there have been minimal capital investment. But if we did incur capital investments, that would all flow through regulatory asset line item, which we've established. And then as it pertains to -- and that would amortize over time as we get recovery. And so it's important to note, too, from a customer bill perspective, first and foremost, once we have started to receive recovery of the investments and of the spend from MISO North and Central customers based on the construct we outlined with FERC, which they approved in our 202 complaint, we would refund Michigan customers for their share that they've already contributed. And so I think it's important to note that we are trying our best to make sure that Michigan customers are held harmless as we continue to operate the plants to the benefit of the region, as Garrick noted. And so again, regulatory asset treatment that would amortize down as we get recovery on the spend, and we would be basically refunding Michigan customers who have already paid for some of those investments and some of that spend. And that refund of Michigan customers would be funded by MISO North and Central customers. Is that helpful? Operator: Our next question comes from Travis Miller of Morningstar. Travis Miller: So now that you have that REP in hand, I was wondering if you could characterize some of how you're thinking about the timing and the mix between the self-build and the PPA. So can you walk me through -- obviously, you've got that $10 billion number out there, but what does that mean in terms of what you plan to build timing and then PPA mix? Garrick Rochow: We're very pleased with the outcome from that renewable energy plan. As I stated, additional 8 gigawatts of solar, 2.8 gigawatts of wind. And just given the safe harbor provisions, we're going to want more of that in the first 5 years, right? That makes sense from a cost to our customers' perspective. And we've got those assets with those projects laid out. So we have safe harbor really out to 2029. And so that will be the plan. And it will be competitively bid. And we've been doing that for a long time. And more often than not, we win the competitive bid because of the projects we're putting together and our familiarity with Michigan. And so there's going to be a good portion of self-build in that mix. But remember, I'm not opposed to a PPA either because I really view that as a capital-light way of earnings, right? We're going to earn roughly 9%. It's capital-light. It's a derisked process. I'll let a developer build an asset, build wind, build solar, it will be a mix. And we'll take the offtake of that. And so again, that's going to -- that's kind of how we see it playing out going forward. And so when I say we're building about a gigawatt now and we'll have a gigawatt next year, we'll be building. It will be a mix of self-build as well as developers. Rejji Hayes: Yes. And Travis, this is Rejji. All I would add to just give you some of the underlying assumptions that support the $10 billion that we have in that sort of CapEx or customer investment opportunity section of the slide. We're assuming just for analytical purposes, about 50-50 owned versus PPA. And so that $10 billion assumes 50% of the solar opportunity. So think about that 8 gigawatts. We're assuming half of that we would own. And for the wind, the 2.8 gigawatts, it's a greater assumption of 50%. I'd say it's closer to 100%, but I don't want to split hairs here. And so that's the working assumption. So clearly, if we end up owning more of that solar opportunity, there could be upward pressure in that $10 billion estimate. If we end up PPA more through a competitive bid structure, then there could be some downward pressure on that. But as Garrick noted, there's just great financial flexibility inherent in the law, and it's nice to have the opportunity to earn in a CapEx-light fashion, and that gives us more balance sheet capacity to deploy potentially to the IRP opportunity, the $5 billion on the page and/or the $10 billion of distribution-related investment opportunities. Travis Miller: Okay. Perfect. You answered my follow-up question. So I appreciate that. I'll throw one more other follow-up question, different subject, but the manufacturing growth, the new customers you're seeing there and the new pipeline customers, can you characterize that, not just industry, but are these expansion of existing? Are these brand-new customers coming from somewhere else? Are they onshoring, reshoring, however you want to say that? Garrick Rochow: Yes, it's all of the above. It's all of the above. And I mentioned like here's a little surprising fact about Michigan. There are over 4,000 businesses in the aerospace and defense industry in Michigan. And so that's an example of where we're seeing new customers and existing customers grow in Michigan and just manufacturing. We're seeing advanced manufacturing. We're seeing a lot of food processing. One of the unique facts about Michigan is the second most diverse state when it comes to an agriculture perspective, and there's been a general trend with food processing to move closer to the fields, to move closer to the farms. And so we're seeing everything from dairy products to baked goods that are continuing to grow in the state, which is a nice business for Michigan and really is a nice path to jobs, supply chains, home starts and the like. Operator: Our next question comes from Michael Sullivan of Wolfe Research. Michael Sullivan: Circling back on the data center or large load customer pipeline. Can we just get more of a feel for the time line of the ramp for some of these? I think you had said on the last call, the 1 gigawatt was like a '29, '30 type time frame, but maybe the rest of that final stage bucket, what sort of ramp time line are we looking at? Garrick Rochow: You're correct in what we shared on the one -- the Q2 one, the one that's the bottom of the funnel at the end of the pipeline there, late 2029, early 2030 for the, I would call it, first electrons and then ramp up thereafter. I will share with you the other 2 that are referenced there are a little earlier in the process in the 5-year window, and we're able to deliver on those from a supply perspective, from an infrastructure perspective as well. So that gives you -- hopefully gives you enough look into the pipeline and final stages, Michael. Michael Sullivan: Okay. Very helpful. And then, Rejji, I know you get asked this all the time, but just how to think about how much incremental equity comes with each dollar of incremental CapEx as you get ready to refresh all that? And is there anything in the low tariff that's pending here that maybe helps with some of that in terms of cash recovery? Rejji Hayes: Yes, Michael, thanks for the question, as always. Yes. So I would say that the historical sensitivity between CapEx and common equity is still, I think, a good working assumption. And so for those who are unfamiliar with it, for every dollar of CapEx that's incremental to our plan, assume about $0.40 of common equity would need to be issued. We always try to put downward pressure on that, and we've been quite effective. Obviously, over the last couple of years after the enactment of the Inflation Reduction Act, we've been monetizing tax credits, which has been a helpful vehicle for financing. We also, just given the nature of our rate construct in a forward-looking test year, we have very strong cash flow generation. And so I tend to not need quite as much equity for CapEx. And with these other mechanisms, and I think it just is always worth repeating that we earn 9% on PPAs, and that's codified in the statute. That also offers an opportunity to put downward pressure on equity needs. But again, the rule of thumb for now should be for every dollar of CapEx, we'll probably have to raise about $0.40 or so of equity and hybrids offering opportunities as well, I'd be remiss if I didn't mention that we don't usually incorporate that into our plan, but it does create an opportunity. And so those are the ways in which we could put downward pressure on that sensitivity. But again, in the absence of any new information, just assume for now $0.40 of equity for every dollar of CapEx. With respect to the data center tariff, while certainly, we have been very focused on making sure that we are minimizing stranded asset risk for an incumbent customers and making sure we have the right protections in place. And there's a little bit more margin given that it's a general primary demand rate versus our most aggressive economic development rates. So you get a little more margin for that. I don't think there's really, at the moment, any working assumptions you should add where we would see significant cash flow generation that would reduce our equity needs if there's additional CapEx. Now who knows over time, based on discussions with select data centers, there may be things that we can incorporate into a potential agreement with the data center. But for now, I would assume, again, most of the provisions in the data center tariff are focused on protecting our incumbent customers. Is that helpful, Michael? Operator: We currently have no further questions. So I'll turn the call back over to Mr. Garrick Rochow for any further remarks. Garrick Rochow: Thanks, Alex. I'd like to thank you for joining us today. I look forward to seeing you at EEI. Take care. Stay safe. Operator: This concludes today's conference. We thank everyone for your participation. You may now disconnect.
Essi Nikitin: Hi, everyone. Welcome to YIT's Third Quarter 2025 results webcast. My name is Essi Nikitin, and I'm heading the Investor Relations at YIT. The results will be presented to you by our CEO, Heikki Vuorenmaa; and CFO, Tuomas Makipeska. Without further ado, I will hand over to Heikki now to go through the latest developments in the company. Please go ahead, Heikki. Heikki Vuorenmaa: Yes. Thank you very much, Essi. And welcome also from my behalf to the third quarter '25 webcast. In third quarter, we overall delivered solid performance, in line with our expectations. The contracting segment's profitability continues to improve, and they were the main profit drivers during the third quarter. Our apartment sales and production keeps' increasing in the residential segments. And CEE has taken the role as our primary market in terms of revenue, volume and profits. Order book for the contracting segments are developing well and broader demand environment remains healthy as we move into the fourth quarter. In fact, our next year order book is stronger than in the recent years. Our recently executed employee survey indicates strong commitment from the team towards our new strategy. And supported by the good operative progress, we revised our full year guidance. But let me share numbers and some key highlights from the quarter. The low amount of apartment completions in the residential business impacted our numbers on a group level as expected. The revenue declined to EUR 402 million, burdened by the residential segment volumes. Also, it impacted our adjusted operating profit, which was on the level of EUR 12 million. What we are really pleased is that, our contracting segments' trend is improving all the time, and the contribution to profitability is increasing. Infra revenues continues to increase during the quarter to EUR 127 million, increasing 30% compared to last year. Adjusted operating profit reached almost 6% in Infra and 4.5% in the Building Construction segment. But as we then look our business performance over the past 12 months, we can clearly see how the 3 out of 4 segments are delivering as they operate in the favorable market. Revenue is still primarily coming from the contracting segments, and representing altogether 65% of the rolling 12 months revenue. The residential operation in the CEE are expected to grow strongly, as you can see here. The project completion schedule for that next year, worth of EUR 450 million, would imply or indicate even almost 60% volume growth compared to the rolling 12 months figures. And of course, those starts, what we have been doing, those are done with a healthy gross margin levels. The resilience of the group is increasing and the dependency to single market or a single segment is declining. Our Contracting segment operates with a strong order book. So all-in-all, the company is heading to right direction. Let's move then to individual segments, and we start with the Residential Finland. As I mentioned already, the revenue has been on the declining trend. And the same trend continued this quarter as we didn't have any completions during the third quarter '25. We mostly sold apartments from our inventory during the quarter and focused to launch new projects that will be then completed during '26 and '25. Key for us is to ensure that our product designs meet the market expectations and consumer preferences. And the team here is working on with the internal efficiencies to manage the costs and identify further opportunities across the operations. The inventory of unsold apartments is reaching a normal level. Helsinki Metropolitan Area still carries excess from the decisions done during the '22. Our focus on reducing the inventory has now yielded results, and the inventory is no longer an issue for us. Actually, when we look outside of the capital area, we start to already have some shortages like in Oulu, Turku, Jyvaskyla to mention a few of the cities. Altogether, we started 224 new apartments during the quarter. And those were done mostly on the -- outside of the capital area. And the reason is on the previous slide, as discussed that we still carry an excess supply, and that we make those starts on the regions where we see that demand is healthy and we are convinced that those products are on a good micro locations that will be sold to consumers during the construction period. And as I mentioned here, the story actually is quite the same as in the second quarter. So, no completions and it had the implications that we already discussed. Our revenue and profits on this segment, same is in the CEE, is based on completion, and it has been a meaningful impact on our profitability. The completions -- overall completions this year, if we look 274 units, this could be actually the lowest point in time. This is just 20% of the completions on 2023 when we are comparing to the previous years. And here, we can see the implications where the residential business bottomed out. Now we have been starting new projects and gradually, we see that the market is improving and heading towards better times. But then we move to the residential CEE, which is our primary residential business in the future. The segment performance is very strong, which is hard to observe from our IFRS numbers as this reports revenue only at completion. It's also good to note that this team at the moment is managing a substantial amount of new projects and the future revenues, which is not yet visible on the pages here or the figures here. And as said, this has been now become our principal market. There is about 60 million people living on the operating countries that we are building the homes for consumers, and we see that there are future opportunities still to grow. Revenue and profits for the segment are heavily tilted towards the Q4 this year. The sales speed continues to increase and reach new levels. Now over 1,200 units in a rolling 12-month basis. We also continued with the new starts, a bit more than 300 units during the quarter. And by now, projects valued almost EUR 450 million are in production that are estimated to be completed in 2026. And the sales of those projects are progressing well. Favorable market conditions will reinforce the segment's roles as a key driver for the growth in the future during our strategic period. We actually had one project completion during the Q3 ahead of schedule, and that was the city in Krakow, Poland. It was one of our newest cities that we opened, and I'm very pleased that the team were able to find lead time acceleration opportunities to get the project completed already ahead of schedule. However, majority of the completions are scheduled for the final quarter this year. And total, we talk about 10% more during 2025 than what we had in 2024 in terms of completions. But let's leave the residential segments and we move to the contracting segments, starting with our Infra operations. Infra, solid performance continues. Top line and profitability continue to grow. The rolling 12 months revenue is to reach EUR 0.5 billion level soon. Actually, during the quarter, we saw already again, a 30% growth in revenue. The business has a strong order book, tendering pipeline extremely active and the customer NPS is increasing. And I'd like to double-click on one part of the market, what the segment is operating in. This is one of the megatrends what we have highlighted and it relates to the data centers. The data center investments may play a big role for the Finnish construction companies in the coming years. We have already publicly announced 3 data center partnerships by now. The market in Finland strongly increasing, investment plans announced reaching already EUR 12 billion. We made a decision a couple of years ago to invest in capabilities, both in our project management, in general terms, but also in the MEP, and that decision is now yielding results. Data center market offers great potential for us. And we are happy to work with the close cooperation with customers to deliver the solutions on time under the tight schedules that the data centers typically has. Our recent wins further strengthens YIT's position as the leading data builders -- builder of data centers here in Finland. And this is supporting our strategic focus. We are capable to actually offer full EPC solutions for the data centers as well through our diverse capabilities, and as we have capabilities both in Infra as well as the Building Construction segment. And as we combine all that, so that makes us competitive in those tendering processes. But coming back to Infra order book, and it has remained on that steady level, but the content here is a bit shifting. We actually observe increasing amount of orders from B2B customers in our order book. We still see that we have probably one of the strongest order books among the industry players, and it's approximately 19 months of work. It gives us an opportunity to develop the projects with our customers in such a way that we will find the best solutions for them, which suits for their projects. But before moving to Building Construction, I have to say that it's yet again a solid quarter from our Infra team. We also have positive news from our Building Construction segment. The revenue growth is still ahead of us, but the profitability of the segment is taking steady steps forward. This quarter, we recorded EUR 7 million profit and on the rolling 12-month basis, we are approaching 3% level. The balance sheet continues to have a lot of opportunities to release the capital, yet it also negatively impacts the segment's profitability. The negative impact from the capital employed, what we have, exceeds the gains from the balance sheet, which is the fair value gains that we are reporting during the quarter. We have secured a good level of new orders, and we are looking actually ahead with a quite positive outlook. We have about 17 months of work in our books, and we're enabling us here again also to focus on the long-term customer development activities. The market continues active and so does the tendering. Then a view to our operations. Overall, our operations are running smoothly, even though we have significantly scaled up our production volume in the residential segments. The production has now increased 60% in the residential business year-on-year, above 4,000 homes in production today. Project margin net deviations are positive in the contracting segments and supports the profitability. Our supply chain is under control. However, we start to observe workforce availability tightness in our operations, especially in Slovakia and Czechia, which needs attention from our supply chain teams going forward. Then to overall market view before handing over to Tuomas. We have actually updated our view on infrastructure market here in Finland from normal to good. Our operations in the Central Eastern Europe benefits from the favorable market conditions and the strong demand that we are seeing, especially on the residential segment, but also there is a normal to good market in the building construction segment, depending a bit on the specific country. The residential market in Finland is improving. However, it is still on the weak level and there's still way to go before we are reaching a normal level of residential market here in Finland. But that concludes my first part and time to hand over to you, Tuomas, to cover our financial performance for the quarter. Tuomas Mäkipeska: Yes. Thank you, Heikki. Let's go through our financial development in the third quarter and start with a summary of our key metrics there. So, our return on capital employed was at 3% and gearing at 85% at the end of the third quarter. Our key assets amounted to well over EUR 1.6 billion, while the net debt decreased to EUR 669 million at the end of the third quarter. The cash flow for the quarter was EUR 0 million. So all-in-all, the quarter was very stable and according to the plan also from the financial perspective. And as a result of the stable performance year-to-date, actually, we revised our guidance, and we now expect the adjusted operating profit for the year to be between EUR 40 million to EUR 60 million. But let's look at each of these topics in more detail in the following slides. Our return on capital employed improved from the comparison period but was at a lower level than in the past 2 quarters. The low amount of consumer apartment completions during the quarter, which impacted adjusted operating profit in both residential segments is visible in this metric. We will continue to drive profits and capital turnover to reach our financial target of at least 15% by the end of 2029. But some highlights regarding capital employed from the segments. So, in Residential Finland, the capital employed has been on a downward trend supported by the efficient use of our plot portfolio and sale of completed apartments from the inventory. In Residential CEE, we have been able to release EUR 75 million of capital over the past 12 months, even though at the same time, our apartments under production have increased by over 70%. So, this is mainly thanks to our strong plot portfolio, solid apartment sales and other capital efficiency measures. The Infrastructure segment continues to operate with negative capital employed, supporting the whole group's financial performance. And the capital employed in Building Construction continues to include noncore assets, which burdened the segment's profitability, as Heikki mentioned before. Let's move on to the cash flow development. Cash flow after investments for the third quarter was 0, and we can see from the graph that the cash flow in our business is cyclical and typically heavily tilted towards Q4. When looking at the longer period, the 12 months rolling cash flow was almost EUR 70 million positive at the end of the third quarter and has now been actually positive for the last 7 quarters. Cash flow from plot investments in the third quarter was minus EUR 9 million, and the plots we invested in during the third quarter were mainly located in Poland, which supports our growth in the region in the future. So, this demonstrates our ability to operate the businesses with a positive cash flow while investing in growth where the returns are the highest. Net interest-bearing debt decreased from the comparison period and remained stable when comparing to the previous quarter amounting to EUR 669 million at the end of Q3. Gearing was at 85% and decreased from the comparison period. In addition to the positive rolling 12 months cash flow, the decrease was supported by hybrid bond issuance, which took place during the second quarter this year. The net interest-bearing debt included IFRS 16 lease liabilities of EUR 260 million, as well as housing company loans of EUR 138 million. And the combined amount of these items has decreased by over EUR 80 million from the comparison period. This is thanks to our decreasing inventory of unsold apartments as well as capital efficiency actions relating to leased plots. When excluding the before mentioned lease liabilities and the loan maturity housing company loans from our net debt, the adjusted net debt amounted to some EUR 270 million. This translates to an adjusted gearing ratio of 35%. We remain determined to reduce the indebtedness of the group and operate within the set financial framework of 30% to 70% gearing. We have an asset rich balance sheet. Our key assets amount to well over 2x the net debt. When comparing the components of our key assets to the year ago situation, the changes in the company are clearly reflected there. Production has increased by around EUR 60 million, as we have accelerated our production, especially in the favorable markets of the CEE countries. As we have accelerated starts, our plot reserve has decreased by some EUR 100 million, but it continues to remain strong, enabling the construction of approximately 30,000 apartments across our operating countries. Completed inventory in our balance sheet has decreased by over EUR 80 million from a year ago as we have continued to successfully sell the excess apartment stock. So all-in-all, we have effectively used our balance sheet and will continue to do so going forward. Capital released from the balance sheet and capital efficiency in business operations continue to be top priorities in our strategy. As communicated, we identify potential to release up to EUR 500 million of capital from our current apartment inventory and through divestments of the noncore assets. These noncore assets include real estate, plots and ownerships in associated companies that are not in the core of our current strategy. And the released capital will be reallocated to fund residential segment's profitable growth and reduce indebtedness of the company, which will consequently lower the financing cost and support the net profit generation. In maturity structure of the interest-bearing debt having only limited amortizations scheduled for this and next year allow us to focus on profitable growth of the businesses. The amortizations maturing in 2027 and 2028 will be addressed as a part of normal refinancing planning. Then to the guidance, which has been revised. We have narrowed the range for the adjusted operating profit guidance. We now expect group adjusted operating profit for continuing operations to be between EUR 40 million to EUR 60 million in 2025. Previously, we expected the adjusted operating profits to be between EUR 30 million to EUR 60 million. The guidance update is a result of the stable financial performance of the businesses during the first 9 months of the year. Our outlook, however, remains unchanged. So, to summarize the Q3 financial development before handing back over to you, Heikki. The stable financial performance across our businesses seen during the first half of the year continued in the third quarter. Our plot portfolio continues to be strong, which enables us to start new residential projects and consequently support profitable and capital-efficient growth. And releasing capital is a strategic priority as we continue to allocate capital to our most profitable businesses. So based on these facts, our current financial position clearly serves as a basis for the targeted profitable growth according to the strategy. So that covers the finance part of the presentation. So now back to you, Heikki. Heikki Vuorenmaa: Thank you, Tuomas. And I think there's also other reason to say thank you. As we have announced, you have taken the opportunity to join another great company as a CFO in a couple of months, and this is opportunity for me to say thank you for the intensive 3 years that we have time to spend together. And I think that I could not have imagined a better person on that 3 years to work with in order to successfully turn around the company and reset the new strategy and put the foundations in place for the growth of the company is or has ahead of it. So, a big thank you for all the work and the commitment that you have done for the YIT. Tuomas Mäkipeska: Thanks, Heikki, for the kind words, and thank you. It's been a pleasure. And it's been an absolute pleasure working with you and working for YIT for these roughly 4 years. And I think we have accomplished a lot together, and we have really transformed the company during the last couple of years. So, I think it's been quite a ride together. And I think it also makes me sad a bit to leave the company, but I will be following you. And I think YIT has the right strategy, the skilled management and absolute professional employees throughout the segment. So, I think these are the ingredients for the future success of the company under your management. So, I'm really confident that you will keep up the good work and be successful in the future. So that's what I think from the future perspective as well. So, thank you. Heikki Vuorenmaa: Thank you very much. And I think now it's -- as we have introduced the third musketeer along the team that Markus Pietikainen, and you haven't been so visible in this stage, but of course, you have been on a close cooperation that what we have been working with you already for 2 years, given the financing and in terms of the whole group but also project financing. And we have a strong leadership bench and it's my privilege, and I'm really excited also to announce you as our interim CFO. And as you maybe introduce a bit about your personal background. So next, we're also covering the strategic progress. So you've been now with kind of seeing the first full year of the strategy. So how do you are looking forward, the implementation and execution of that as well. So please, Markus. Markus Pietikainen: Thank you, Heikki, and thank you for the opportunity. So, a few words on my background. I'm a finance major from Helsinki. I worked 12 years with Wartsila in different positions. I worked in Group Controlling, Corporate Development. I ran the Treasury, Group Treasury, and also ran a Business Unit out of Houston. So that's my Wartsila background. I also worked for JPMorgan for 5-years in different investment banking positions in London, and then also as Chief Investment Officer for Finnfund. So, this is, in brief, my background. And to your question on the strategy, I think that the first year into the 5 year strategy, we are clearly now seeing results of the strategy working out. We have a very strong outlook in the CEE countries on the residential side. This is a good margin business with tremendous growth opportunities. If you look at the 2 contracting segments, which we have, both have very robust order books, clearly, headwinds from -- and a good support from data centers, and also the defense sector. So, we see good trends supporting these 2 contracting businesses. And then fourth, the Residential Finland. I think that there clearly the trough is behind us. We've, I think, announced today the tenth self-developed project. So clearly, we are past the difficult times. And obviously, there is opportunities there going forward. So, this is a great opportunity for me to join the leadership team and really excited about this opportunity and looking forward to working with you all. Heikki Vuorenmaa: Very good, and welcome, Markus, to our team. Same time sadness but also joy and excitement, it's the today's feeling that I'm having. But now it's the time for us to go into the section that has been already promised, so how we are executing our strategy during the third quarter. First, high-level look on our revenue and profitability as well as return on capital employed. We covered this already on the early part of the presentation. The revenue is still yet to start to show the growth trends due to the low amount of completions, what we are having this year. Same thing is impacting our adjusted operating profit margin on a rolling 12-months basis during this quarter. And the return on capital employed, while it has been trending in the right direction, took a bit step back during the quarter. And it requires, of course, the profit to come, but also capital release actions that we have in the pipeline to be executed. But the highlights from our strategy during the Q3 comes from actually our strategic focus to elevate the customer and employee experience to next level. When we look on our customer feedback and NPS, it has been continued on a very high level already for the several quarters. We have also made changes in terms of how are we serving our customers that has maybe liability repairs in the Residential Finland. And the lead-times on that side has been decreasing already 60% compared to '23. And this is then, of course, reflecting as a better customer feedback, as well as when the issues that has been identified are closed on a faster pace. Also, we have been working a lot with our apartment designs, not just one apartment but also the floor layouts in order to introduce new designs in this type of a market, and it has been also what our efficiencies we have been taking. So, it has provided us opportunity to price those with a lower price than before into that market when we have been launching the new starts. And investing to our own capabilities and teams. So, we have been becoming the leading pillar of the data centers in Finland, as mentioned that we have already announced the 3 projects. But the key big highlights from this quarter is our -- the commitment of our employees towards our new strategy. We're measuring our employee satisfaction on an annual basis, and the Net Promoter Score from our employees increased from level of 30 to level of 37, and that is a significant increase compared to a year ago. The main drivers was how our teams are understanding the strategy but also how they are seeing the future of the company to develop. 98% of trainees would like to continue working at YIT after we are -- after the summer or the period of time that they have been working with us, and we continue to invest in our people. And most recently, all of our leaders are going through the leadership training, which is then building more competencies and capabilities to their toolbox in order to lead the construction side, the projects, but also the teams on desired manner. So good progress also on this during the quarter. And operator, I think now it's already time to open up and start to have the questions Operator: [Operator Instructions] The next question comes from Anssi Raussi from SEB. Anssi Raussi: A couple of questions from me. So, first about these so-called noncore assets you are targeting to divest in the future. So, can you give us any ballpark like how much these assets are currently generating earnings? Tuomas Mäkipeska: I can start and continue, if you wish then. So actually as you, Heikki, mentioned, so altogether, if you look at the noncore assets, noncore assets on our balance sheet and the costs that they actually create and comparing that one to the benefits of having a kind of fair value gains there. So, these costs are offsetting the gains and are exceeding the gains. So that is what we have publicly communicated. We are not disclosing any numbers regarding the noncore assets piece-by-piece, or the operational costs related to them. But in a big picture, so as we say that, they continue to burden our profitability, so that effectively means that the costs exceed the benefits. Heikki Vuorenmaa: Yes. Anssi Raussi: Okay. Got it. And maybe then about your cash flow. So, as you mentioned that the Q4 is typically the strongest quarter in terms of seasonality. So, could you give us any estimate like, should we look at, 2024 Q4 or 2023 or something like we have seen in the previous years? Heikki Vuorenmaa: I'll take this one. We're not guiding quarterly cash flows or even yearly cash flow for this year. But as we have -- throughout our presentation, we have explained that our growth in CEE countries is not tying more capital or be cash negative largely. Then also the increase in -- or growth in the contracting segments are actually supporting the positive cash flow generation, and we are confident that we have a strong cash flow for the Q4. So that we can say. But anyway, so we're not giving any ballpark on a number basis. Anssi Raussi: Okay. That's clear. And by the way, thank you, Tuomas for now. So happy to continue our cooperation in the future as well. Tuomas Mäkipeska: Likewise, Anssi. Operator: [Operator Instructions] There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments. Heikki Vuorenmaa: I would actually -- before we close, so I would actually like to thank also the cooperation with the analysts throughout these years. So, it's been also a pleasure working a very smooth cooperation with you during this phase. And most of or part of you will, of course, meet in the next roles as well. So, thank you very much for the cooperation on my behalf. Essi Nikitin: Okay. Thank you. As there are no more questions, we thank you all for participation and wish you a great rest of the day. Heikki Vuorenmaa: Thank you very much. Tuomas Mäkipeska: Thank you.
Operator: Good afternoon. This is the conference operator. Welcome and thank you for joining the Technip Energies Third Quarter 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Phillip Lindsay, Head of Investor Relations. Please go ahead, sir. Phillip Lindsay: Thank you, Maria. Hello and welcome to Technip Energies financial results for the first 9 months of 2025. On the call today, our CEO, Arnaud Pieton, will discuss our 9-month performance and business highlights. This will be followed by CFO, Bruno Vibert, who will discuss our financials. Arnaud will then return for the outlook and conclusion before opening for questions. Before we start, I would urge you to take note of the forward-looking statements on Slide 3. I will now pass the call over to Arnaud. Arnaud Pieton: Thank you, Phil, and welcome, everyone, to our results presentation for the first 9 months. Let me begin with the key highlights. I am pleased to report that Technip Energies has delivered a solid financial performance for the first 9 months of this year. We recorded year-over-year revenue growth of 9%, we maintained strong profitability and we generated a significant uplift in free cash flow. These results reflect our disciplined execution, the strength of our asset-light business model and the commitment of our teams worldwide. Based on these results, we confirm our full year guidance. On the commercial front, we strengthened our global leadership in LNG and modularization. Notably, we were awarded a major contract in U.S. for Commonwealth LNG using our modular SnapLNG solution, a topic I will expand upon shortly. Finally, in line with our strategy to enhance our Technology, Products and Services segment; we announced the acquisition of Ecovyst's Advanced Materials & Catalysts. The transaction broadens our capabilities across the catalyst value chain and upon completion will be immediately accretive to T.EN's financial profile. Turning now to our theme for 2025 and our foremost priority, execution. On Project Delivery portfolio, it continues to deliver solid progress as evidenced by year-to-date revenue trends and margin resilience. We are transitioning into pre-commissioning activities for the first of our 4 trains on the NFE project. Simultaneously, we are intensifying activities on the adjacent project, NFS, which continues to ramp up. Alongside this progress, we are advancing towards completion of downstream projects, including the Assiut cleaner fuels refinery in Egypt and the Borouge ethylene plant in the UAE. In TPS, we have been achieving important milestones across a range of decarbonization projects. We have successfully started up the first plant deploying our innovative Canopy by T.EN solution for Carbon Centric in Norway. And for the TPS scope of Net Zero Teesside, we are progressing with the CO2 absorber module fabrication at our facility in India. In summary, the third quarter has seen strong execution across important energy and decarbonization contracts. Let me now provide an update on our recent commercial successes, which have further cemented T.EN's global leadership in LNG and modularization. I am delighted to confirm that we signed another major LNG contract in the U.S. with Commonwealth LNG. This milestone follows the execution by T.EN of the front-end engineering and design. The delivery model for Commonwealth LNG leverages SnapLNG by T.EN, our innovative modular pre-engineered and standardized solution. The Commonwealth LNG facility will feature 6 identical liquefaction trains to deliver a total capacity of 9.5 million tons per annum. We have initiated the project under a limited notice to proceed. This allows us to begin preliminary activities such as placing purchase orders for key equipment. It is important to note that the full value of this contract will only be reflected in our order book upon issuance of the full notice to proceed, at which point it will make a significant contribution to the company's backlog. In conclusion, a very positive development for T.EN, one that enables us to enter the U.S. LNG market on our own terms through early engagement, the application of modular solutions and a disciplined contractual approach. Beyond our recent success in the U.S., I would like to draw attention to several other important awards in LNG and circularity markets. First, our position as a leader in deep offshore floating gas liquefaction has once again been reaffirmed. In August, we secured a large contract for Coral Norte, a floating LNG unit in Mozambique for Eni. This initial scope covers preliminary activities with further order intake anticipated upon full contract award. Second, our early engagement approach continues to be a cornerstone of our success. It positions us strongly for future awards and helps derisk project execution. In line with this strategy, we have been awarded 2 FEED contracts for the Abadi LNG development in Indonesia for INPEX. First, for the liquefaction facilities to deliver annualized production of 9.5 million tons and the second is for the modularized floating gas infrastructure. We remain very confident in our medium-term outlook for further LNG awards. Lastly, we have secured a key service role for the Ecoplanta waste-to-methanol project in Spain for Repsol. This award builds on the strategic collaboration between Technip Energies and Enerkem and illustrates the strength of the partnership in accelerating the deployment of circular solutions at scale. Turning now to September's announcement of the acquisition of Ecovyst's Advanced Materials & Catalysts, AM&C. The acquisition supports Technip Energies' strategy for disciplined growth of our TPS segment. It demonstrates our value-driven approach to M&A, it is financially accretive and it benefits from positive long-term market trends. It will bring in differentiated capabilities in catalyst technologies and advanced materials, enhancing our ability to deliver high performance process critical solutions to our clients. It also adds a new dimension to our catalyst business, unlocking avenues for product development and market expansion. Post completion, a talent pool of 330 people will join Technip Energies bringing complementary skills and expertise into the company and we will ensure the entrepreneurial culture and business momentum of AM&C is preserved through the integration process. Now importantly, the deal will have no impact on our investment-grade credit rating. T.EN will retain a substantial net cash position providing capital allocation flexibility for other opportunities. Before passing to Bruno to review our 9-month performance, I'd like to take a moment to outline how the AM&C acquisition will, following completion, materially enhance our TPS offering across the asset life cycle. With catalyst IP at the core of many process technologies, catalysts serve as a key differentiator in process technology development and are highly complementary to our existing offerings. One of the compelling aspects of catalyst is their consumable nature, which opens multiple recurring revenue streams throughout the OpEx phase. Where T.EN would typically sell process technology once per project, catalysts are replenished multiple times throughout the lifespan of a plant. As such, around 70% of AM&C revenues are tied to operating expenditures, which will improve our long-term revenue visibility. In terms of financial impact, the addition of AM&C will increase the technology and product component of our TPS revenues from 40% to over 45% based on 2024 pro forma. Furthermore, AM&C generates EBITDA margins substantially higher than our TPS segment. In summary, the transaction is all about advancing TPS, accelerating its growth, enhancing profitability and providing T.EN with a platform to unlock further value for all stakeholders. I will now pass to Bruno to discuss the financials. Bruno Vibert: Thanks, Arnaud. Good morning and good afternoon, everyone. I am pleased to present the key highlights of our solid financial performance for the first 9 months of 2025 reported on an adjusted IFRS basis. Our revenues increased by 9% year-over-year reaching EUR 5.4 billion. This growth was underpinned by strong activity levels across our LNG portfolio and offshore projects. Recurring EBITDA rose also by 9% to EUR 478 million delivering a healthy margin of 8.8%, which is stable versus last year. The improvement in TPS profitability was notable although it was offset by a rebalancing of the project delivery portfolio towards more early stage work. EPS recorded a modest increase of 2% year-over-year supported by strength in EBITDA. This was partially offset by lower financial income and an increase in nonrecurring costs mainly attributable to planned investment in Reju and other strategic initiatives, which are more capital allocation in nature. Excluding these strategic investment costs, EPS growth would have been double digit. Free cash flow conversion from EBITDA remained robust at 87%. This strong conversion rate supported free cash flow growth in the midteens compared to last year. In summary, a very solid first 9 months and I'm pleased to confirm that we are on track to achieve our full year guidance. Turning to the performance of our segments. Let me begin with Project Delivery. Revenues have grown substantially rising by 16% year-over-year to reach EUR 4.1 billion. This uplift has been driven by strong activity across LNG projects and growth in contribution from recently awarded projects, including GranMorgu and Net Zero Teesside. On profitability metrics, both recurring EBITDA and EBIT have recorded strong increases with growth rates at or approaching double digits. Recurring EBITDA margins experienced a modest contraction of 30 basis points year-over-year. This movement primarily reflects portfolio rebalancing with a higher proportion of early phase projects, which typically contribute limited margin at this stage. We continue to see the full year EBITDA margin to be consistent with the 9-month performance at around 8%. Finally, our backlog remains reassuringly strong at over EUR 15 billion equating to more than 3x our 2024 segment revenue. This resilience persists despite the absence of major awards during the third quarter and the impact of adverse foreign exchange movements. Encouragingly, our commercial pipeline remains well populated with good proximity to major awards in the coming months and quarters. In summary, Project Delivery continues to demonstrate robust momentum underpinned by solid revenue growth, a healthy backlog and very strong positioning for future opportunities. Turning now to our Technology, Products and Services segment, TPS. TPS revenues declined by 9% year-over-year. Strong volumes in consultancy services and studies and ramp-up of assembly on our carbon capture products were more than offset by a lower contribution from our ethylene furnace deliveries. Additionally, foreign exchange movement had a significant impact on our revenues. In fact approximately half of the overall revenue decline can be attributed to these currency effects with the weaker U.S. dollar being a notable factor. Despite the reduction in revenue, recurring EBITDA increased by 6% year-over-year driven by an impressive 200 basis point margin expansion to 14.8%. This improvement was driven by a strong performance in our productivity activities. Furthermore, catalyst supply and strength in project management consultancy also contributed to this margin expansion. Looking at our order intake. The book-to-bill ratio on a trailing 12-month basis remained above 1, which is a positive indicator. Nevertheless, commercial activity through 2025 has been affected by the broader macroeconomic environment leading to some delays in the awarding of several anticipated larger product and services contracts. As a result, TPS backlog has reduced by [ 16% ] since the start of the year standing at EUR 1.7 billion as of period end. Despite these short-term headwinds, our teams are actively engaged with clients and we see healthy pipeline of tangible opportunities across our core markets. Turning to other key financial metrics beginning with the income statement. Corporate cost for the first 9 months of 2025 totaled EUR 46 million with a return to more normalized pattern in Q3 following the specific factors that impacted long-term incentive plans in the first half of the year. Net financial income remained very positive at EUR 70 million, but trending modestly lower compared to the prior year aligned with the broader movement in global interest rates. Finally, on the P&L, nonrecurring expenses has increased year-over-year presenting a headwind to our EPS growth. As I highlighted last quarter, the majority of these costs are associated with capital allocation decisions. Approximately EUR 35 million relates to the investment in adjacent business models, including Reju, as well as strategic initiatives such as M&A activity. Moving on to the balance sheet. Our financial position remains very healthy. Key line items, including cash, debt and net contract liability are stable compared to our year-end position. Before handing back to Arnaud, let's take a closer look at our cash flows. Free cash flow, excluding working capital, totaled EUR 416 million for the first 9 months corresponding to a robust cash conversion from EBITDA of 87%. This strong result underscores our disciplined execution, the strength of our asset-light business model and the favorable contribution from net financial income. Working capital year-to-date is slightly positive. Capital expenditure at EUR 60 million was modestly up compared to last year. The main investments were directed towards the ongoing expansion of our Dahej facility in India as well as the continued modernization of our facilities and labs. Finally, despite a foreign exchange impact of EUR 201 million, cash and cash equivalents at the end of September stood at EUR 4.1 billion, which is consistent with the year-end position. With that, I now hand back the call to Arnaud. Arnaud Pieton: Thank you, Bruno. And turning now to our outlook. Last November at our Capital Markets Day, I spoke about the global megatrends of population expansion, urbanization and rising economic output; all driving demand for more energy and infrastructure. I talked about the need to supply more energy derivatives like fertilizers and plastics and about producing more with less emissions and less waste. In other words, the critical need for a pragmatic decarbonization with greater circularity. Despite the macroeconomic and geopolitical backdrop, these trends are robust and enduring and as T.EN has the solutions to these challenges, we see opportunities across our markets to build upon our growth potential. Traditional energy sources, particularly natural gas, continue to play a vital role in ensuring energy security and affordability for the foreseeable future. This reality is creating compelling opportunities for T.EN in the near, medium and long-term horizons, notably in LNG and selective offshore developments. The chemical sector, especially ethylene where T.EN is a leader, is seeing early signs of recovery. Plans for greenfield projects and retrofit work are firming up with major investments ahead, notably in markets like India. In decarbonization, the blue molecule space is already a source of opportunity for T.EN where carbon capture remains the preeminent solution for decarbonizing many sectors, notably power generation and cement. In summary, T.EN remains opportunity rich, naturally hedged and positioned to thrive in any energy scenario. So to conclude, our performance for the first 9 months delivered solid year-over-year growth in revenue, EBITDA and free cash flow. We have very notable near-term prospects with potential to strengthen our medium-term outlook and we have excellent visibility for 2026 with already close to EUR 7 billion scheduled for execution next year. As we pursue further growth, we remain disciplined in managing the company's capital allocation and our cost base. We are focused on building for the long term, investing to enhance our differentiation and delivering value creation for our shareholders. With that, we can now open for questions. Operator: This is the conference operator. [Operator Instructions] The first question is from Sebastian Erskine of Rothschild & Co Redburn. Sebastian Erskine: The first one just on TPS and the performance so far. So I'm thinking about the full year, it looks towards the bottom end of the EUR 1.8 billion to EUR 2.2 billion. I'd appreciate to get your thoughts on specifically what's kind of disappointed year-to-date versus your expectations. And then I was intrigued to note in the presentation, you mentioned kind of early signs of recovery in ethylene. I'm just thinking kind of given the supply of polyolefins driven by China and some kind of supply consolidation in Europe and North America, it appears a difficult market. So I appreciate some more details on that and what you're seeing so far. Arnaud Pieton: So let's start with the TPS performance. I'll start with making a bit of a statement in a sense that, yes, TPS 2025 is a bit of a blip, we may call it this way, in a sense and I'll remind everyone of a few things. Technip Energies we were creating in 2021 and since our creation, we have dedicated our investment R&D efforts to low carbon solutions. So we have invested with notable successes and continued successes to bring to the market new solutions and new solutions were mostly in future growth markets such as SAF, carbon capture, circularity for example. And it's fair to say that the environment in 2025 hasn't really been supportive of more CapEx in those areas. But when I look at what is coming our way, I must say that the trend is undisputed. So it's a bit of a game of resilience. We, as a company, must find the right solution, make them investable and affordable for our clients and everyone around. So in the short term, this has impacted 2025. You've heard from Bruno that the services part of our TPS segment has remained really strong. The blip or the disappointment is more coming from the amount of CapEx in solutions for decarbonization and SAF and carbon capture in 2025. But we remain extremely confident for the future. Again, the trend is undisputed. So I will take advantage of your question and my answer to your question to also say that in the short term, this CapEx trend for low carbon solution may impact the growth momentum for TPS in 2026 as well. So in the same way as we have been trending towards the bottom end of the 2025 guidance for this year, I think it might be fair to consider that the same trend will apply to 2026. So maybe calling for a bit of a rebaseline for TPS towards the bottom half of the 2025 guidance for 2026 on a pure organic basis. I'll take advantage of your question as well to remind everyone that during our Capital Markets Day, we also said that we needed to continue to invest in our traditional markets. So in 2026 you will see, I would say, a larger share of our R&D investment being directed towards what people may consider more traditional markets so a bit less decarbonization and a bit more ethylene maybe even though even in ethylene, we are innovating through low emission furnaces. And we continue to invest in all markets, hence also the acquisition of AM&C, which covers both the traditional and the future growth markets. So really, look, the important is maybe a little bit of a blip in terms of the top line, but TPS should not be about top line. It should be about bottom line and we are delivering on the bottom line for TPS as well as for the whole company. And it highlights again the benefits of our model, which combines long cycle Project Delivery and a short-cycle TPS. So I think it speaks to the strength of the company overall. In terms of ethylene, yes, indeed, we see an increased visibility on ethylene and we are anticipating order intake in 2026 based on our various discussions with series of clients. This includes green and brownfield opportunities. The key ethylene opportunities with technology and license selections will happen as early as Q4 2025 so in the weeks to come. Of course if it's pure technical license selection, it will not have a significant impact to our order intake just as yet, but it will follow with potential proprietary equipment award in 2026 and this will be more clearly visible in our order intake for TPS next year and the main areas, as indicated, are India, Middle East, China and Africa. The global ethylene industry today has a capacity that is north of 200 million metric ton per annum and again, ethylene is GDP led and with the expansion driven by demand in packaging, construction, automotive, consumer goods sectors. The global growth forecast at 3% to 4% per annum of this GDP would see the industry capacity grow to north of 300 MTPA by 2040. So there's a large volume of work that is required in terms of greenfield and brownfield in the ethylene sector and we are starting to see those early signs of work and recovery coming our way. Operator: The next question is from Bertrand Hodee of Kepler Cheuvreux . Bertrand Hodee: So I have many question on your LNG potential awards. You've been highly successful commercially, but yet there are significant awards that are not yet in the backlog. And probably can you give us some color on U.S. Commonwealth LNG? Specifically, you've been ordered limited notice to proceed. The project is very close to FID, but had a setback 2 weeks ago in terms of permitting in Louisiana. Maybe you can share your view on that and also whether you think that the client could be in a position of taking FID without having these permits on board? And then if you can give us some color also on Coral, why it's not, I'd say, in the backlog as Eni has taken full FID? And then probably the last one to make the world too on Rovuma LNG, it looks like Exxon is targeting now an FID in Q1. Can you confirm that you've performed the FEED and that the FEED is complete? And probably if you can also give us some color on the FEED, whether it is on the SnapLNG concept or not? Arnaud Pieton: So I'll start with stating that our overall environment and commercial pipeline has not really changed. You're right to say that we haven't seen large awards in Q3 or even through 2025 with the exception of our very large -- I mean the largest blue ammonia plant in U.S. that we signed in Q1. But 2025, we always stated that it would be a year of execution and that not controlling the FID, awards could come very late in '25 or could actually be in 2026. But the long-term fundamentals and the medium-term fundamentals of our markets really remain strong. So the commercial pipeline has not weakened at all and it's not the first year in 2025 where we are seeing a bit of a weak order intake until FIDs are coming, in which case, all of a sudden there is a very nice spike of new awards coming to -- making it to our backlog. So specifically on Commonwealth LNG, first of all, the team is mobilized. We are progressing the work through limited notice to proceed and we continue to be very confident with the project. We obviously don't control the FID. Whether it's this quarter or next makes very little difference for us. We continue and our client is very confident that they can address the small concern that was maybe caused by a permit situation and they are very confident that there is no impact whatsoever on their path to FID from this permit vacation. I will also state that earlier this year, the project was really strengthened with Mubadala Energy agreeing to acquire about 25% stake in the project. So it's giving a lot of credibility to this project. And I mean our contract with Commonwealth LNG also allows for, I would say, a next or an extended limit notice to proceed if the FID is not reached in the weeks or months to come or before year-end. Then we will enter into another phase of limit notice to proceed with, I would say, more money being spent and more investment being made into the project and the team continuing to progress the project. So I would say what you're hearing from me is a high level of confidence in this project because of its progress, its stakeholders and the money that is flowing into progressing the work at this stage. On Coral floating LNG, why not in the backlog? There has been a lot of press about this one. FID has been taken. It's not yet in the backlog because there's a bit of an administrative technicality that needs to happen for the full notice to proceed to be provided. In other words, there's a bit of SPV or special purpose vehicle in Mozambique that needs to be formed and we will receive our purchase order, if I may say, from this SPV. It's a pure administrative exercise and we are very confident that it will happen in the early part of next year. So it will come into -- join our backlog by then. On Rovuma LNG, a very exciting project for Exxon in Mozambique. We have indeed executed the FEED and so therefore, following our guiding principles, we are competing for the project execution. It's a competitive process, as you know, it's all over the press. So our association with JGC is competing against another consortium or JV and we are in, I would say, final stage of finalizing our price. That will be submitted to Exxon in the weeks to come. The concept that is selected is, I would say, very similar to SnapLNG even though it's not totally Snap because there are a few variations in technologies, but nothing major. So it's a concept that we like and that we know really well now because we've worked on the field for the past couple of years. Bertrand Hodee: And just a very small follow-up. Obviously there is some market concern on the low level of revenues for TPS in Q3. I noted that you have EUR 480 million something of revenue for execution for TPS in Q4. It looks to me that something around EUR 500 million or even above is likely within reach for Q4 for TPS now? Arnaud Pieton: Yes. And that's why you've heard from Bruno and myself that we are confirming guidance for the year. So we will be within the range that we provided for 2025, absolutely. Operator: The next question is from Alejandra Magana of JPMorgan. Alejandra Magana: Just 2 quick ones from my end. After the Ecovyst AM&C deal, are you seeing other bolt-on opportunities at similarly attractive multiples or does it make more sense to focus on integration before adding more? And my second one, what is the current share of recurring technology and services within TPS currently? Arnaud Pieton: So to start, I'll start with AM&C and then I'll hand over to Bruno on the level of recurring revenue within TPS. So AM&C, it's a super attractive acquisition that we are making. We are focusing in the short term on integration of course; first of all on the closing and then on the integration. Now I want to characterize a little bit AM&C. AM&C is a business that is, first of all, self-sufficient and performing. That's why in my prepared remarks, I really insisted on the fact that we will be focusing on making sure that we are through integration, maintaining AM&C's ability to operate and be, I would say, entrepreneurial and provide them with the means to invest. So there isn't, I would say, too much integration to do and therefore, I think this speaks in favor of preserving nicely AMC's ability to perform. This addition actually opens the door to actually more avenues and things we can now contemplate to complement the AM&C offering. So it's probably not the end of the journey. But with always some prerequisite, as Technip Energies, we want to preserve investment grade. We will remain selective and disciplined and our M&A targets are focusing on techno product and catalyst and maybe opportunistic in services, but the technology is our priority. So we are contemplating adding complementary technologies and solutions to AM&C and our existing portfolio. So yes, we continue to scout like any good and healthy company is probably doing and we feel really good about AM&C in particular as there isn't a massive herculean effort of integration to do. We will preserve the AM&C objective, if I may say, once it is part of the Technip Energies family. Bruno on... Bruno Vibert: Yes, sure. So on the recurring revenue aspect and contribution within TPS to your point. And as Arnaud mentioned in his remarks, one of the attributes for AM&C and the quality of earnings was the fact that this was 70% OpEx related in terms of revenue generation, which is for us something which is interesting because today, we would be far below in terms of this. When it gets to the current TPS portfolio in terms of services, we may have a few master service framework and we may have very limited operation and maintenance services. So the bulk of our services are really associated to new CapEx. And in the variation of revenues that we've seen this year and the 9% reduction of TPS, as I said, part of it -- almost half of it is FX. But a significant component was the fact that over the last couple of years, we've had a low petrochemical cycle so ethylene cycle, which has resulted to some extent in this movement. So as explained in the CMD, the replication of the ethylene model was I think a good way for us to derisk that we were less dependent on the cycle so to have carbon capture, sustainable fuels, circularity. All these are building blocks to make us a little less dependent on one industry cycle. But second, to your point, yes, having a bit more exposure to the OpEx element such as the catalyst and what it brings in terms of proximity to clients, that's an interesting bolt-on and add-on as a platform to our revenues. So that will absolutely increase the quality of earnings of TPS. Operator: The next question is from Richard Dawson of Berenberg. Richard Dawson: Just a couple of follow-ups from my side. So margins in TPS actually have been running above the top end of guidance year-to-date. Clearly, you had a very strong result in Q2. But looking into Q4, do you still see pretty good sort of solid margins there for TPS? And then secondly, just coming back to the U.S. LNG opportunities and particularly Lake Charles. We saw the client delay FID to Q1 2026, which, to your point, doesn't really matter for earnings estimates going forward. But does this have anything to do with the price refresh campaign on that project concluding? Bruno Vibert: Richard, I'll start with the first question and I think Arnaud will cover the second one. So on TPS margin, yes, to your point, we've seen high margin. That's why at the end of H1 in July, we upgraded guidance in terms of EBITDA percentages and we're absolutely on track there. It was the outcome of good performance from the services aspect of TPS that you should absolutely expect this to continue. And the fact that by the delivery of the furnaces and some of that, we had a bit less contribution from the top line, but then more contribution from the bottom line. As Arnaud mentioned, I think the trajectory and the kind of rebaseline, we are around the same track is in continuity. So yes, although revenues are expected to pick up from TPS on Q4 versus Q3 in terms of bottom line, the bottom line of TPS should continue to be strong. And then when the closing of AM&C is done, we will have a further upside coming from the contribution from AM&C, which will be a further improvement of TPS margin. Arnaud Pieton: So on U.S. LNG and your follow-up question. So we have 2 opportunities in the U.S. on LNG. The first one, which I discussed a bit earlier, which is Commonwealth and on which we have a team already mobilized and therefore, working on this limited notice to proceed. By the way, this limited notice to proceed is the same, I would say, avenue or system that is being used by Eni to allow the progress to happen on Coral Norte. So it's not unusual. And there's on Commonwealth again, money spent and there isn't subject around price or budget. The price verification campaign, that was a contractual phase agreed with our client on Lake Charles LNG, was completed. The good news is that you may have heard from Lake Charles LNG themselves, our client, that the price that we came up with was actually well per expectation for the lack of better word. So this price verification done, the ball is in the hands of our clients and no concerns with regard to cost. The price verification results basically to qualify it as per our client was right. So that's super encouraging. And obviously while we don't control FID, we are hopeful and very hopeful that this FID will be taken next year. Operator: The next question is from Victoria McCulloch of RBC. Victoria McCulloch: And just to follow-up on that point about Lake Charles. Does that mean the price verification that you've done lasts until the end of 2026? Is there a time that you can give us that that lasts for? Obviously we've seen lots of delays to the U.S. LNG FIDs and with respect that continues. So it would be helpful to understand when exactly the refresh lasts until. And then we haven't really talked about SAF today. Can you give us a view on the contracting outlook maybe for the next 6 to 12 months? I think there has been discussed a reported opportunity coming up at some point in this year. Has that slipped again to the right into next year? That would be helpful. Arnaud Pieton: So again, on Lake Charles, the price verification comes with, I would say, the mechanism for price adjustments depending on the delay or the time the client takes from the submission of the price refresh and the actual time for FID. So there is a frame and we are absolutely within the frame in a very controlled manner. So everything is accounted for, if I may say, and planned. So the validity remains because the contract allows for the price adjustment depending on the timing between submission of the budget and actual FID. So no exposure for T.EN and I would say, a constant monitoring of the situation there. When it comes to SAF, so indeed, you're right. We had signaled that SAF was and is an opportunity. So I'm happy to report that SAF remains an opportunity for 2025 and 2026, but including for Q4 2025. So yes, let's see. We are well advanced with one, which I won't share too much on right here, but many and good building blocks for potential FID within this quarter. And more generally speaking, when you think about SAF and you need to think about scale, the SAF projects are kind of feedstock constrained and most will be local plants serving local needs. So don't expect big export projects like for LNG for example. SAF is not about that scale, but there's a lot of SAF needed going forward with -- it's a theme for the long term for sure. EU is 6% by blending by 2030 and 20% by 2035. So that's 15 million ton per annum by 2035. So it's a huge investment required. So even if there was to be a bit of a slowdown as policies can be challenged, there's still a massive potential and it's important to know that T.EN is part of it and it remains an opportunity, including for this quarter. Operator: The next question is from Guilherme Levy of Morgan Stanley. Guilherme Levy: I have 2, please. The first one on a topic that we haven't spoken about today, Reju. You talked about the pace of -- you talked about the nonrecurring expenses this quarter related to this one. So I was just curious about the pace of spending there over the coming quarters. And if you can provide us with an update on FID conversations in terms of service [ Reju ] partners, that would be great. And then the second one thinking about your backlog. Can you quantify to us how much of the TPS backlog and how much of the Project Delivery backlog are denominated in euros or U.S. dollars? Arnaud Pieton: So I'll start with the easy part, if I may. So on Reju in particular, before handing over to Bruno, a bit of -- I'm happy to offer a bit of an update on the progress. So we've continued to progress on Reju development and this progress is coinciding with progress on regulation and policies, which is extremely encouraging for our Reju initiative and the brand that we have created. So in this quarter, we've produced from our demo plant in Germany the first batch of yarn made of RPET or recycled polyethylene and this yarn was subsequently converted into fabric. And we have now the first Reju fabric that has been made available to a series of brands for them to conduct their testing and, I would say, the characterization and the qualification of the product. So really super encouraging and good progress on Reju this quarter and more to come. All that progress is taking us closer to FID of course. Now as we've mentioned in the past, FID remains dependent on of course the level of subsidies that we will and we can benefit from and from the countries in which we've applied for subsidies and contemplated the installation of the first plant. So that is work in progress and we are a few months away from, I would say, finding out what and how many subsidies will be coming our way. Bruno? Bruno Vibert: Yes. So on the FX, of course it's a moving element because of project change and so on and they have a bit of a different setup. On project, most of the projects are delivered with what we call multicurrency, which means back-to-back we invoice to the client the cost of our cost base in a specific currency and this is then recharged as part of the selling mechanism. So a lot of USD, but there is a bit of a hedge which is made through these elements. So Project Delivery is slightly less impacted to some extent by FX on a given year. For TPS, and as I said, about half of the year-on-year movement can be assessed to be associated to FX. When we do services in the U.S., in the Middle East; it's very much USD denominated. So that's why year-to-date you would have close to 50%, for instance, of TPS that was run through USD services. Arnaud Pieton: Maybe on Reju and nonrecurring, Bruno Vibert: Yes. Sure. On nonrecurring, so EUR 49 million and what I said about EUR 35 million being Reju, also adjacent business models and also cost for the quarter that we've incurred notably for consulting and so on for the AM&C transaction. I think it was a very good investment. Part of when I recall the question earlier on having good multiples, it's also the very thorough due diligence that we made on all aspects to get to this point and to cover our base. So overall, I think Reju and adjacent business models are well on track. I think we said EUR 50 million max as an expenditure for 2025. That's what we expressed at the time of the CMD. We are actually on a run rate slightly lower than that. I think we are closer to EUR 10 million over the last couple of quarters as a run rate. And the incremental for this quarter, it was a bit of summer, was around the ad hoc expenses associated to the transaction. The rest of nonrecurring is as always some small restructuring and so on, which is as we have our backlog shift and so on, we always slightly addressed. We are not presenting EPS on an adjusted basis so that's why when you have such an increase in EBIT or EBITDA at 9%, you don't see the full -- this doesn't follow through to the bottom line. But as I said, if you take out the EUR 35 million, which are really investments in capital allocation, you will have close to 15% actually of EPS growth year-on-year. So that's where you see the traction. Arnaud Pieton: We are really investing for the future here and I think it's one of the attributes of Technip Energies is that we have the ability to invest for our future and unlock future value creation. Operator: The next question is from Guillaume Delaby of Bernstein. Guillaume Delaby: I have many questions, but I'm going to stick to one. If I understand correctly, since the beginning of the year within TPS, you've been actually surprised by your carbon capture business, but slightly disappointed by your ethylene business. If I understand correctly, this is about to reverse, i.e., over the coming quarters ethylene could accelerate while CCUS may or might slow down a little bit. Just a confirmation that my understanding is correct. And second point, I understand that there are only very early signs, but should we assume that the provision -- the forecast you made for the ethylene market at the Capital Market Day is still valid? Arnaud Pieton: Yes. So first of all, the forecast is still valid as far as we see. Yes, absolutely. So back to TPS. I mean you're right to say that in the year we've seen some acceleration recently in carbon capture and while ethylene was low and it is about to reverse. Very clear early signs of reengagement and new investments in brownfield and greenfield and also decarbonization with the replacement of furnaces by low emission furnaces for existing infrastructure. Now I wouldn't be, I would say, so negative as to say that carbon capture will slow down. Carbon capture, we have some significant opportunities on the horizon with FID in 2026 probably for projects of significant size. So it's still there. For sure, I think where we would have hoped further acceleration, it's in the space of green hydrogen for example where the business plan is not exactly as we would have expected despite the fact that we were successful last year with the largest green ammonia project in the world in India. Well, the momentum is we have those spikes, but I would say it's not a very recurring trend of awards in that space. So a bit of a disappointment in some of those new markets. Now I think the 2035 trajectory is there for decarbonization. It's here to stay. It's happening maybe not at the pace that we would have preferred or we could have hoped, but it's happening. So I think the fundamentals are here and it's important to -- it's a bit of a game of resilience as I explained earlier. Operator: The next question is from Paul Redman of BNP Paribas. Paul Redman: Two questions, please. The first one is I can see some phasing going on in the backlog for TPS so it looks like some phasing forward. There might be other movements. I just wanted to see whether from '27 into '26, whether you can give any guidance on kind of what's going on there? And then secondly, I just want to ask about the conversations you're having with possible LNG customers and whether you're hearing any growing concerns about gas price outlook in the next decade 2030 plus and whether you think that could have an impact on LNG project sanctions from here? Arnaud Pieton: I'll start with LNG and then I'll hand over to Bruno on the phasing of the TPS backlog. So LNG, the sentiment, as you read the press, is indeed on a potential surplus. But as far as we are concerned, what we're observing is that the energy demand and the coal to gas switching will continue to support the long-term demand growth for LNG. A reminder of the fact that LNG is a supply-led market and very long cycle. So while there might be an oversupply in 2028 when the new trains currently under construction are coming on stream or a lot of them are coming on stream. Well, we are not LNG producers and our customers, they take their investment decision not based on an oversupply that will be probably temporary. They take their investment decision based on their Vision 2040 to meet the demand by then. So LNG is a supply-led market long cycle. If prices do soften, then it will attract a new breed of customers and buyers of LNG and therefore, it will trigger another wave of investment. So we continue to see the total liquefaction capacity needing to be around or north of 900 million tons per annum by the middle of the next decade. So a very healthy pipeline for Technip Energies in spite or despite the short-term softening on price of LNG. And this is not exactly what we are subject to at Technip Energies. The investments are really for the long term and when you take investment decision in 2025, you start producing depending on the size of your project in 2030. So you really look beyond the short-term softening of the price and, if anything, it would just attract more customers. And gas would be a good idea to replace coal and displace coal and gas is very needed for all the data centers. And so yes, that's why we've put and we are putting this 900 million ton number out for the middle of the next decade. Bruno? Bruno Vibert: Yes. In terms of TPS and phasing and backlog scheduling, as always, TPS is a shorter cycle. So you will always have more of the TPS backlog incurred over a short period of time. And usually you have basically the backlog, which represents about 1 year of revenues. In terms of services, you may have some services which are spread out for master service agreements or master services. And then we've seen a bit of acceleration for some project management consultancy. Now where you have somewhat an extended backlog in TPS, it's for construction scopes of equipment and here I think, as I said in my remarks and as Arnaud mentioned also, the work done for the TPS scope of Net Zero Teesside has started well notably at our fabrication yard in India. So firming this up meant that we've been able to reassess the backlog scheduling and certainly more on moving it forward versus backwards due to good progress and good execution. Arnaud Pieton: And I know we are reaching the top of the hour, but I want to take maybe 1 more minute to insist again on the quality of the coverage that we have for 2026 Technip Energies and notably in Project Delivery. We have a large and qualitative coverage for 2026 at EUR 7 billion as I stated during my prepared remarks. So it's putting us well ahead of the curve, if I may say, for achieving our 2028 framework that we declared last year at our Capital Markets Day. So it speaks to the strength of the model we have. And it's not the first time that we see delayed FIDs, but this is not a source of anxiety for us. We continue to remain calm and focus on the right opportunities, the derisked one and those that are compatible with the level of financial performance and profitability that we want to achieve as Technip Energies. Operator: Mr. Lindsay, I'll turn the call back to you for closing remarks. Phillip Lindsay: Thank you, Maria. That concludes today's call. Please contact the IR team with any follow-up questions. Thank you and goodbye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good day, and thank you for standing by. Welcome to the CCC Intelligent Solutions Third Quarter Fiscal 2025 Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand the conference over to your first speaker today, Bill Warmington, Vice President of Investor Relations. Please go ahead. William Warmington: Thank you, operator. Good morning, and thank you all for joining us today to review CCC's Third Quarter 2025 Financial Results, which we announced in the press release issued earlier this morning. Joining me on the call are Githesh Ramamurthy, CCC's Chairman and CEO; and Brian Herb, CCC's CFO. The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties that may cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the earnings releases available on our Investor Relations website and under the heading Risk Factors in our 2024 annual report on Form 10-K filed with the SEC. Further, these comments and the Q&A that follows are copyrighted today by CCC Intelligent Solutions Holdings, Inc. Any recording, retransmission or reproduction or other use of the same for profit or otherwise without prior consent of CCC is prohibited and a violation of United States copyright and other laws. Additionally, while we will provide a transcript of portions of this call, and we have approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in the transcripts. Please note that the discussion on today's call includes certain non-GAAP financial measures as defined by the SEC. The company believes that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the company's financial condition and the results of operations. A reconciliation of GAAP to non-GAAP measures is available in our earnings release that is available on our Investor Relations website. Thank you. I'll now turn the call over to Githesh. Githesh Ramamurthy: Thank you, Bill, and thanks to all of you for joining us today. I'm pleased to report that CCC delivered another quarter of strong top and bottom line results. In the third quarter of 2025, total revenue was $267 million, up 12% year-over-year and ahead of our guidance range. Adjusted EBITDA was $110 million, also ahead of our guidance range, and our adjusted EBITDA margin was 41%. These results underscore the strength of our platform and the scalability of our model and the growing demand for AI-driven innovation across the insurance economy. On today's call, I'll focus on 2 key themes that define our Q3 performance and outlook. First, adoption continued to improve across our platform, particularly among our largest and most sophisticated customers. This momentum builds on the strong trends we observed in Q2 and reflects customers' growing confidence in CCC's ability to help deliver measurable ROI and operational efficiency at scale. Second, we are proactively investing in our organization to harness this momentum to accelerate value creation across the insurance claim and repair ecosystem, enhancing our go-to-market capabilities, deepening client and partner relationships and strengthening our multisided network. We believe these investments position CCC for continued durable long-term growth. Let's start with the first theme, the accelerating adoption of CCC's platform across our customer base. In Q3, we saw momentum across our customer base with multiple renewals, relationship expansions and new business wins. These results reflect the value our solutions deliver and the trust our clients place in CCC. A recurring theme in CCC's 4 decades is the evolution of individual solutions into a connected platform. The most recent evolution is with our AI-based solutions, which are following a similar trajectory as previous growth cycles. Starting with the launch of Estimate-STP in late 2021, we've expanded vision AI use cases to create a powerful AI layer that enhances our core software with advanced capabilities in routing, estimating and workflow. These capabilities are seamlessly connected through our event-based overlay, IX Cloud, which links more than 35,000 businesses across the CCC network. When multiple solutions are used together, it creates a compounding effect, reducing cycle time across the ecosystem and improving outcomes for insurers, repairers and consumers alike. We continue to see good engagement from our auto physical damage or APD insurance clients in Q3 with multiple renewals and contract expansions. For example, a top 20 insurer signed on for Intelligent Reinspection, our workflow AI solution, demonstrating the growing demand for intelligent automation across the claim life cycle. Adoption of these solutions continues to scale, driven by their proven ability to deliver meaningful ROI and operational efficiency. As I have said before, our largest and most sophisticated customers put new technologies, including our solutions through rigorous testing and piloting before full adoption. Our customers consider these processes to be essential to validate their specific ROI to identify internal process improvements and to align stakeholders across their organization. We're now seeing evidence that working with our customers through these diligence processes contributes to increased adoption of our solutions. Over the past year, a top 10 insurer has increased the number of AI-based solutions in use and the volume of claims being affected by those different AI use cases. As a result, this customer increased the number of claims leveraging at least one CCC AI model from roughly 15% of their claims to about 40%. This is a clear example of CCC turning innovation into operational impact, delivering measurable gains across the claims journey. Following the progress in APD, let's turn to casualty, an exciting growth area where our investments in technology, talent and product innovation are paying increasing dividends. For example, Liberty Mutual, the sixth largest auto insurer in the United States by 2024 direct premium written has signed with CCC and is actively transitioning a substantial portion of their casualty business to our platform. This decision was based on the strength of CCC's platform capabilities, the breadth of our extended ecosystem and our ability to deliver operating performance through ease of use, actionable analytics and continuous innovation, including AI. This transition has just started and will not be at full run rate until mid-2026. In addition to the Liberty Mutual contract, we had multiple renewals and contract expansions across our casualty client base, including a top 5 insurer for both first and third-party claims. Growth in our casualty business is outpacing overall company growth and represents one of CCC's most compelling long-term opportunities, which we believe may reach or even exceed the scale of our auto physical damage insurance business over time. Part of our confidence in the casualty opportunity comes from the fact that its total addressable market is similar in scale to APD, but its customer count is currently just 1/5 that of APD and contributes approximately 10% of our revenue. Medical inflation and complexity are also increasing rapidly with our insurance customers increasingly focused on addressing this area of claims. We're also advancing tools to help our insurers manage injury claims, an area where EvolutionIQ is already delivering results. EvolutionIQ saw good momentum in Q3, renewing and expanding contracts with multiple top 15 disability carriers, launching Medhub for auto casualty and adding its first workers' compensation cross-sell into an existing CCC customer. A central pillar of our investment thesis in EvolutionIQ was the integration of its AI-powered injury claims resolution capabilities into CCC's auto casualty suite. This strategic alignment positions us to accelerate our momentum in casualty and unlock new cross-sell opportunities across our APD client base of over 300 insurers. The first milestone in this integration journey was Medhub, EvolutionIQ's AI-powered medical record synthesis solution becoming generally available for auto casualty in Q3. Medhub's ability to decode complex medical documentation and surface actionable insights is generating strong interest from multiple top 10 insurers. In the past 12 months, Medhub has processed 6 million documents, 5.5 million full summaries and 82 million pages. Another strategic rationale for our acquisition of EvolutionIQ was the opportunity to deploy EvolutionIQ solutions, particularly its emerging workers' compensation product line into CCC's existing insurance client base. With 7 of the top 10 workers' comp P&C insurers already CCC clients, we are excited to announce that in Q3, a top 25 CCC APD and casualty client became a new customer for EvolutionIQ's workers' comp solution. Together, CCC and EvolutionIQ are enabling insurers to harness AI more broadly, driving meaningful improvements in operational efficiency, customer experience and claim outcomes. Over time, we plan to scale these capabilities across our client base, unlocking new pathways for growth and long-term value creation. This integration is a natural extension of our platform strategy, uniting data, AI and workflow automation to address complex challenges in injury claims resolution. While insurers are scaling adoption of our AI solutions, repair facilities are also embracing innovation to meet the challenges of increasingly complex vehicles and higher consumer expectations. As vehicles become more advanced and customers demand faster, more accurate and more transparent service, repair facilities face growing pressure to deliver. CCC's platform is designed to help repairers thrive in today's demanding environment. This quarter, we saw continued momentum of repair facilities adopting our latest solutions. For example, Build Sheets, our accuracy-enhancing part selection tool has now been adopted by over 5,500 repair facilities, up from about 5,000 last quarter. Usage of our photo AI-powered estimating tool, Mobile Jumpstart is also accelerating. In September, we surpassed an annualized run rate of over 1 million AI-based repair estimates generated using Mobile Jumpstart. Jumpstart enables repairs to cut estimate preparation time from 30 minutes to under 2, freeing up technicians and accelerating cycle times. With tools like JumpStart and Build Sheets, CCC is helping define what modern, efficient and consumer-centric repair looks like. We believe our AI-driven tools and the connectivity of our network are driving a widening gap in operating efficiency and consumer experience between repair facilities on the CCC platform and those that are not, a gap that we anticipate will continue to expand as adoption and expectations rise. Let's take CCC's routing AI solution, First Look as an example. It helps insurers only route vehicles to a repair facility if they're truly repairable, preventing shops from losing valuable time and space on vehicles that will ultimately be declared total losses. Our workflow AI solution, Intelligent Reinspection is another example. It reviews supplement requests, which now occur in about 2/3 of repair claims. With CCC's new solution, roughly 40% of those supplement requests are auto approved, significantly shortening cycle time for repairs. We will continue to introduce new solutions that combine the connectivity of our multisided network and the power of AI to deliver even greater efficiency and consumer experience gains for our customers. As a result, we expect the productivity and service gap between those on the CCC network and those who are not to expand over time. This brings me to the second theme of today's call, the organizational investments we are making to accelerate value creation across the insurance claim and repair ecosystem. In addition to getting to know many of our team members during his first 6 months at CCC, our new President, Tim Welsh and I have met with dozens of clients. These conversations were invaluable and had 3 takeaways. The first is that our insurance customers are increasingly focused on the affordability of their products. A recent Guardian service study found that 1 in 4 Americans have downgraded or dropped insurance to free up cash and 1 in 3 would temporarily go without coverage to afford basic necessities. This underscores a critical question our clients are asking, how can CCC help improve operational cost efficiency to make insurance more affordable for consumers? The second takeaway is that our clients are intent on leveraging the opportunities presented by the current wave of technology-driven transformation. AI creates new possibilities for handling claims and new opportunities for participants in the CCC ecosystem to collaborate. Insurers, repair facilities, OEMs and other participants in the ecosystem are looking to us for strategic guidance on how to leverage AI to streamline workflows and navigate the organizational change required to implement these innovations. They are not looking for incremental gains. They want a step change, and they want CCC to help them achieve it. The third takeaway is that our clients want us to do more with them. Over time, we've built long-term relationships by supporting their mission-critical processes and consistently delivering platform-driven innovation. As a result, our role has evolved into a trusted adviser and innovation partner. Clients are asking us to provide solutions that integrate more deeply across their operations and ecosystems as well as work closely with them to help shape the future of insurance. These client conversations reaffirm the strength of our product investments and highlight CCC's growing role as a transformation partner of choice. Combined with strong adoption momentum we're seeing across our platform, this gives us the confidence to invest behind the demand, positioning CCC to capitalize on what we believe is a transformative era of growth and innovation. One of the key investments we're making is a refinement of our go-to-market strategy to better engage customers around the broader value of the CCC platform. As we shared on our February call, early changes included simplifying our solution packaging by combining insurance offerings into a more holistic outcome-driven bundles, enhancing change management support to accelerate adoption of newer innovations and consolidating all market-facing and service functions under Tim Welsh's leadership to drive alignment and accountability. The next phase of this evolution involves augmenting our teams with new skill sets. bringing in talent that can help us build broader, deeper and more strategic relationships across key clients. One way that we are doing this is augmenting our existing teams with new client leaders that have proven expertise in deep strategic consultative platform sales, which will allow us to engage higher and more broadly across the organization. We are funding these investments by reallocating existing spend to these higher ROI opportunities. These moves reflect our confidence in our long-term growth potential and are guided by what our clients need most. As part of our broader effort to align the organization for scale, we have also separated the previously combined roles of Chief Product Officer and Chief Technology Officer and are actively recruiting to fill both positions. This structural change enables greater focus and specialization across both functions, which we believe will drive stronger execution, enhance client satisfaction and elevate the consumer experience. In parallel, we are continuing to invest in our multisided network, adding new capabilities, expanding participation and integrating advanced AI features that enhance our ability to deliver differentiated value at scale. With over 200 partner organizations, we see significant opportunity to deepen existing relationships and forge new ones, further strengthening the CCC ecosystem. Taken together, these investments reflect our commitment to scaling CCC's impact by aligning our organization more closely with client needs, deepening strategic relationships and strengthening the ecosystem that powers our platform. We are confident that these steps position us to lead in a rapidly evolving market and deliver meaningful durable value for our customers, partners and shareholders. Every day, CCC's solutions help our customers support over 50,000 people affected by vehicle accidents and over 10,000 impacted by workplace injuries, helping them get their lives back on track as quickly as possible. Since going public in 2021, we've doubled the annual dollar value of claims processed in our system from slightly over $100 billion to over $200 billion. For this, we are truly grateful to the growing trust and reliance from our customers across the insurance economy. We saw clear traction in Q3, particularly among some of our largest and most sophisticated customers. Their adoption trends reinforce our confidence in the structural changes we're making to scale our impact and deliver against a compelling long-term growth opportunity. As the insurance economy continues its digital transformation, CCC remains deeply committed to providing our customers with solutions to shape a future where innovation drives better outcomes for businesses, consumers and communities. We are excited about the road ahead and confident in our ability to deliver strong results and lasting value. I will now turn the call over to Brian, who will walk you through our results in more detail. Brian Herb: Thanks, Githesh. As Githesh highlighted, Q3 was a strong quarter with meaningful new business wins, renewals, contract expansions and a continuation of the adoption momentum we saw in Q2. These results reflected the continued execution of our platform strategy and the strategic investments we're making to support long-term growth. Now let's turn to the numbers. I will review our third quarter 2025 results and then provide guidance for the fourth quarter and the full year of 2025. Total revenue in the third quarter was $267 million, which is up 12% from the prior year period. In the third quarter of 2025, approximately 5 points of growth was driven by cross-sell, upsell and adoption of our solutions across our client base. including repair shop upgrades, the continued adoption of our emerging solutions and casualty. Approximately 3 points of growth came from our new logos, mostly repair facilities and parts suppliers and about 4 points of growth came from EvolutionIQ. In the quarter, contribution from our emerging solution expanded to just over 2 points of growth, mainly driven by our AI-based APD solutions, subrogation, diagnostics and Build Sheets. Emerging solutions represent about 4 percentage points of our total revenue in Q3 of 2025, and these solutions continue to be the fastest-growing portion of our portfolio. Industry claim volumes in Q3 declined 6% year-over-year. That compares to 9% decline in Q1 and an 8% decline in Q2. The trend continues to represent approximately a 1 percentage point headwind to growth, consistent with the impact we experienced in the first half of the year. Turning to our key metrics of software gross dollar retention or GDR and software net dollar retention or NDR, please note that both of these metrics now include EvolutionIQ, and we're using an annualized software revenue on a combined basis for the prior year to provide a baseline for annualized revenue growth. GDR captures the amount of revenue retained from our client base compared to the prior year period. In Q3 2025, our gross dollar retention was 99%, which is in line with the last couple of years. We believe that GDR reflects the value we provide and the significant benefits that accrue to our clients from participating in the broader CCC network, our strong GDR is a core tenet to our predictable and resilient revenue model. Net dollar retention captures the amount of cross-sell and upsell from our existing clients compared to the prior year period as well as volume movements in our auto physical damage client base. In Q3 2025, our NDR was 105%, which is down from 107% in Q2 2025, primarily due to timing of deals. Now I'd like to turn to the income statement in more detail. As a reminder, unless otherwise noted, all metrics are non-GAAP. We provide a reconciliation of GAAP to non-GAAP metrics in our press release. Adjusted gross profit in the quarter was $199 million. Adjusted gross profit margin was 75%, which is down from 78% last quarter and against Q3 of 2024. The lower adjusted gross profit margin is mostly driven by higher depreciation from newly launched solutions and software enhancements. Other impacts include a onetime impact of the write-off of a discontinued solution and revenue mix. Overall, we feel good about the leverage and scalability of the business and making progress towards our long-term target of 80% over time, but this percent can move around quarter-to-quarter. In terms of expenses, adjusted operating expense in Q3 2025 was $106 million, which is up 12% year-over-year, including the acquisition of EvolutionIQ. Excluding EvolutionIQ, adjusted operating expense increased 3% year-over-year, primarily driven by higher resource-related expenses and professional fees. Adjusted EBITDA for the quarter was $110 million, up 8% year-over-year with an adjusted EBITDA margin of 41%, this was above the high end of the range, which was $104 million to $107 million, reflecting the revenue that flowed through in the quarter and some phasing of costs that have moved into the fourth quarter. Stock-based compensation as a percent of revenue declined to 15% in Q3. That's down from 24% of revenue in Q1 and 18% of revenue in Q2. We expect stock-based compensation as a percent of revenue to continue to trend down in Q4, and in 2026 to reach high single digits in 2027. That's subject to further business needs and market conditions. Now let's turn to the balance sheet and cash flow. We ended the quarter with $97 million in cash and cash equivalents and $993 million of debt. At the end of the quarter, our net leverage was 2.1x adjusted EBITDA. We continue to show improving trends in free cash flow generation. Free cash flow in Q3 was strong at $79 million. That compares to $49 million in the prior year period. This reflects strong collections and favorable timing on working capital. Free cash flow on a trailing 12-month basis was $255 million, which is up 28% year-over-year. Our trailing 12-month free cash flow margin as of Q3 2025 was 25%. That's up from 22% in Q3 of '24. We have used our strong free cash flow performance to return capital to shareholders through the share repurchases. In Q3, we completed open market repurchases of 4.8 million shares of CCC common stock for about $45 million. We continue to be active buyers in October, bringing the total year-to-date repurchase to approximately 30 million shares for approximately $280 million under our previously announced $300 million share repurchase program. I'll now turn to guidance. Beginning with Q4 2025, we expect revenue of $272 million to $277 million, which represents a 10% to 12% growth year-over-year. We expect adjusted EBITDA of $106 million to $111 million, a 40% adjusted EBITDA margin at the midpoint. For the full year 2025, we are raising the low end of our guidance range and maintaining the upper end for both revenue and adjusted EBITDA. We are now expecting revenue of $1.051 billion to $1.056 billion, which is a 12% year-over-year growth at both the midpoint at the high end of the range. For adjusted EBITDA, we're now expecting between $423 million to $428 million, a 40% adjusted EBITDA margin at the midpoint and a 41% margin at the high end of the range. This includes a moderate EBITDA loss from EvolutionIQ. Excluding EvolutionIQ, our guidance implies about 100 basis points of year-over-year margin expansion at the midpoint. So a couple of things to keep in mind as you think about our Q4 and full year guide. First, our Q4 revenue forecast for the core remains in line with our previous guidance. We are raising the low end of our full year revenue guidance range to reflect strong performance in Q3 and maintaining the upper end of the range because of a slightly softer contribution from EvolutionIQ. Overall, the pace and scale of new business wins, renewals, contract expansion across the core business and EvolutionIQ reinforces our confidence in our long-term growth as we head into 2026. Second, we are raising the low end of our full year adjusted EBITDA guidance to reflect Q3 outperformance while keeping the upper end unchanged as we expect to absorb Q4 cost tied to the organizational investments Githesh outlined, which include some onetime consulting recruiting fees as well as exit and onboarding costs. As a result, we do not expect these investments to impact margins going forward, and we remain on track to resume margin progression in 2026. So as we wrap up, I'd like to reiterate our confidence in the strength of our business and our ability to deliver against our long-term strategic priorities. Our Q3 results and positive momentum underscore our commitment to support our clients as they advance their digital transformation. We're encouraged by the growth of emerging solutions and the disciplined execution that is driving margin expansion and strong free cash flow. As we look ahead, we believe our durable business model, expanding portfolio of AI-enabled solutions and strategic investments, including continued investments in our core platforms and the teams that support them position us well to create long-term value for both our customers and our shareholders. Operator, we're now ready to take questions. Thank you. Operator: Thank you. [Operator Instructions] Our first question today comes from Kirk Materne with Evercore ISI. S. Kirk Materne: Congrats on a nice quarter. I guess, Githesh, one of the things that stood out was the customer you alluded to that has gone from 15% of his sort of business being touched by AI to 40%. Can you just talk, I guess, at a high level about what that means from a monetization perspective for you all? Meaning when we think about the kind of revenue contribution on an ACV basis from that client, is there sort of a linear scale for you all as sort of your AI solutions penetrate that client? And then, Brian, could you just clarify a little bit on the EvolutionIQ? I think it was 4% contribution. I think you guys were looking at 5%. Can you just sort of -- it might have just been some little things, but could you just give us a little bit more color on that front? Githesh Ramamurthy: Thanks, Kirk. The main theme here is that as we've expanded our vision AI we have expanded the use cases across a broader spectrum of the claims. So as the quality, the caliber of the vision AI to help guide and make decisions all the way from the consumer at the front end, helping decide whether the car should be repaired, totaled, using it for Estimate-STP, using it for Intelligent Reinspection. So there's a lot of different places in the workflow that the solution is now being applied in addition to subro. In terms of the specifics, in terms of the impact on financial, I'll let Brian pick that up. But we're super excited about the uptake and how we've been able to expand that core AI vision capability across many other facets of the claim. Brian Herb: Yes. So if you think about AI and AI touching the claim, there is an incremental opportunity or an upcharge that we have. If you think about in our APD client set, if they take our core solutions, think about kind of estimating valuation workflow, and they're using those today. Now they're deploying -- if they deploy our AI layer that sits on the top of those, such as Estimate-STP that's on the top of our estimating solution or our reinspection, which sits with workflow, you could think about that client fully rolled out, could increase about 50% of their revenue across the APD solution set. So that's how to think about the sizing of the AI impact on our clients. Your second question on EvolutionIQ, I can take as well. So yes, you're right. We saw 4 points of contribution in the quarter. That will step up slightly in Q4. So we will see a larger contribution from EvolutionIQ. It will look more like 5% of the overall growth in the fourth quarter. The slight slippage that we saw in Q4 really comes down to timing of deployments and when clients are going live. These are signed clients, but there's been some timing and delays when they're going live, and that has pushed the revenue out. It's not revenue leakage or revenue loss, it's really a timing point on the revenue. Operator: Our next question comes from Gabriela Borges with Goldman Sachs. Gabriela Borges: A question Brian, I want to understand a little bit of your growth profile into next year in the context of some of the changes you're making. If I think through the commentary from this year, some of the things outside of your control have led you to be, call it, in that 7%, 8% lower half of the revenue target -- the long-term revenue target of 7% to 10%. So my question for you is, what are the scenarios where we can be closer to the high end versus the low end of that long-term target for next year? And the timing of the changes that you're making in the organization, why now? And do you think they can contribute to you being towards the higher end of the revenue growth target range for next year? Githesh Ramamurthy: Okay. Thanks, Gabriela. Let me take the last part of your question first. So if you look at -- when I look back at the last 20-plus years of how we've been doing this, we've always focused first on building out a high-quality set of solutions for essentially the next generation of the next wave. That was true when the Internet came along, that was true when mobile came along, that was true as we delivered new solutions. And we have, as you know, invested substantially over the last 4 years, 5 years, in fact, much, much longer on a set of AI solutions. And those are now starting to scale. We talked about that in Q2, we talked about that in Q3, and one of the things that we have seen as we've started to deploy solutions, clients starting to adopt them is really 2 out of the 3 things that, as Tim and I have been going around talking to people, our customers are asking us for. Customers are saying, we want to use these tools to deliver a step function change, not a linear incremental change. And that also means we need you guys to help us with more because it requires process changes, change management on our end. And so that is actually one of the key reasons why we're making these changes now and now -- for 2 reasons, right? Tim now had significant opportunity to spend time in the business. And the feedback from clients is the breadth of the solutions have increased where clients are saying, we need you to do more and we need you to help us. And so therefore, we need to be working at higher levels in the organization because it affects so many other components of the organization. And that's why we are making the augmentation. And remember, this is an addition and augmentation of our core capabilities as opposed to any whole scale changes. Does that help with that part and then the answer... Gabriela Borges: Yes, absolutely. Githesh Ramamurthy: And then the answer to the second part of your question about growth rate is, yes, this, as Brian pointed out, claim -- the drop in claim frequency has moderated -- starting to moderate. But most important for us, what really drives the growth is the adoption of really, if you think about it, our emerging solutions. We're continuing to build on the core insurance, adoption of emerging, as you followed us for a while, you've seen the breadth of the adoption in really 2 dimensions. One, clients expanding use of Estimate-STP, Intelligent Reinspection, a lot of our solutions. So that's one dimension. And the second dimension is as our most sophisticated customers deploy these solutions and we see great references, adoption by more and more clients. So those are 2 dimensions for emerging solutions. And then for casualty, we've said that's a sizable opportunity. And as large as customers start to come on for casualty, we think that will help drive the growth. And then on EIQ, that as we go from 2025 into 2026, we see the core disability solution continuing to chug along well. But one of the things we pointed out is one of our traditional CCC clients using the workers' comp solution. So that's a nice new -- a new -- brand-new product that can be rolled out to our existing customers. So at a very macro level, we're looking at growth from a whole series of these new solutions. That's really more we believe will start driving growth. Operator: Our next question is from Dylan Becker with William Blair. Dylan Becker: Appreciate it. Maybe, Githesh, starting with you on casualty, talking about it kind of continuing to grow faster than the aggregate business here. I'm wondering how much of the emphasis that you're seeing from customers on the casualty side is driven by like the market factors around inflation and the need for kind of tech modernization and data there versus or maybe pairing that with the maturation of your platform and the differentiation of being able to kind of pair all of the APD data that you have there. It feels like it's kind of a combination of both, but wonder if maybe one is helping accelerate the other, they're kind of working in tandem together, how you guys maybe think about it. Githesh Ramamurthy: Thanks, Dylan. The way we think about it is really at 2 levels. So first and foremost, when you think about it at a macro level, medical inflation is really running very aggressively out of control. And there's a whole host of things happening with our clients when it comes to the medical, what's happening with medical inflation and its impact on the affordability of insurance for consumers. So that's one macro fundamental thing that's changing. Second, and perhaps as important is that the investments we have made in our casualty platform over the last several years, similar to what we've been able to do on the auto physical damage side, where we have given customers tools, technologies and capabilities to be able to manage this, the maturity enhancements and honestly, some of the very uniquely differentiated features we have in casualty are also helping with adoption. Dylan Becker: Perfect. Okay. Great. And then maybe another way of kind of asking for Brian here, too. If we net out the EIQ contribution piece, it looks like the core accelerated again here kind of closer to 8%. It's a function, it seems like of emerging stepping up as well, but you still maybe have the call option of claims volume normalization. I guess, is that first a fair characterization? And as you start to see more of these kind of like large customer multiproduct components and maybe some stuff that's already signed layering in next year, can you give us a sense of kind of the conviction of kind of that steady-state model here playing out as you guys had kind of laid it out or see it taking place, if that makes sense? Brian Herb: Yes, it makes sense. Thanks, Dylan. Yes, so you're right. I mean the last 2 quarters, if you pull out EvolutionIQ in both Q2 and Q3, we're doing about 8% in the core on an organic basis. And in that, as you alluded to, we're seeing about 1 point of headwind drag on claim volume. So that's running through the numbers as well. When you think about what we talked about last quarter on Q2 call and then the call today regarding some of the client wins, the expansion, the new casualty win, the adoption of emerging solutions, it certainly gives us confidence as we exit the year and the momentum in the business. So we're feeling good on the exit run rate coming out of the year and setting us up for 2026. That said, each year, we need to grow about $100 million of revenue. So although it gives us good momentum and feeling confident about delivering against the position, there's still more to do next year. But overall, there's a lot of positive momentum in the business. Operator: Our next one comes from Josh Baer with Morgan Stanley. Josh Baer: First, on the contribution from new logos, it seems to be tracking slightly better than some of the frameworks that you've laid out. Just hoping you could dig in a little bit there and talk about types of customers you're landing, the size of those lands. Any other context on new logo contribution? Brian Herb: Yes, I can take that. Hi, Josh. So yes, we're really happy and pleased with the new logo performance. We've been seeing about 3 points of growth from new logos over the past couple of years, and that's been very consistent. As you alluded to, over time, we do expect that to moderate. And in our long-term framework, we expect that to be more like 2 points of growth just because of the market leadership position we have both on the carrier side of the business and the shop side of the business. But we're really happy with the performance that we've been seeing. It remains to be distributed. It's a combination of repair facilities, part suppliers, and we are still bringing in new carriers. We talked about a carrier win earlier in the year that's contributing to the new logo as well. So yes, we're pleased with the performance and feeling good on how that's playing through. Josh Baer: Got it. And a follow-up on the claims headwind. I assume it's just rounding. I did want to check. Did the headwind get smaller following the lighter declines in claims? Or is there anything else going on there? And then if you could talk about any of the monthly trends from July through October. Brian Herb: Yes. I mean we're seeing -- I'll let Githesh reference the second part. But as far as the drag that we're seeing in growth, I mean, claims were down 9% in Q1. They were down 8% in Q2, and we saw about 1 point of headwind in the first half. In Q3, it's down 6%. We're still seeing roughly 1 point. There is some rounding in that. I'd also say and we've talked about this in the past that the claim decline isn't perfectly correlated with our revenue model. So it just doesn't work out mathematically -- it perfectly correlated. It matters on client mix, product mix and also timing of true-ups and whatnot. So there's kind of a lot of factors that play into it. I think you can say there's a slight benefit in rounding, but it's pretty marginal. And we're still facing kind of the 1% headwind. We're assuming that as we go into Q4 as well. Within the guide position, we are assuming a 1 point drag in Q4 as well. I don't know, Githesh, if there's anything you want to... Githesh Ramamurthy: No, I think this is also correlated to, I'd say, 2 macro things I'd point out. One is the cost of the increase in claim inflation, that's moderated significantly in 2025. So our numbers show, and you see that in our reports and crash course that claim inflation has moderated. And also the second thing we're noticing is that there are more filings for rate decreases by carriers than there are for rate increases. So we think from a consumer and affordability standpoint, those 2 other macro factors are starting to play in. And -- but with that said, the other point we also look at is the number of consumer self-paid claims versus insurance filed claims. We still think the consumer self-paid claims are at significantly elevated levels compared to where they were 2 or 3 years ago. Operator: Our next question is from Saket Kalia with Barclays. Saket Kalia: You have nice quarter. Githesh Ramamurthy: Thanks Saket. Brian Herb: Hi, Saket. Saket Kalia: Yes, sure. Githesh, great to see the Liberty Mutual win on the casualty side and just generally momentum build in that business. You talked about how the TAM there is similar in size to APD. I was curious though, maybe on the market share side, right? What does the market share look like in the casualty business? And specifically, how much of that market is maybe done manually or through homegrown solutions versus maybe incumbent software vendors that you would have to displace? Even anecdotally, kind of how you think about that? Githesh Ramamurthy: Yes. So I would say at a very high level, I'd say the majority of claims processed today, even on the casualty side, are using some kind of software. So over the last couple of decades, that's the vast majority. I wouldn't put any specific percentage other than the vast majority. But there are still pockets where many elements are still done manually, and we're seeing that with a few customer adoptions. But for the most part, it's done using existing providers. You know... Saket Kalia: Got it. That's helpful. Githesh Ramamurthy: You know, as we've talked about this, we feel very good about the solutions we've been building, and it's been several years in the works. Saket Kalia: Understood. Brian, maybe for my follow-up for you. You talked about the net dollar retention and maybe how timing of deals there impacted a little bit. Can you just dig into that? Maybe that's on the EvolutionIQ side, but can you just dig into sort of that timing impact and either talk about sort of what NDR would have been this quarter adjusting for that timing or maybe on the other side, maybe talk about how that NDR could trend into Q4 when presumably that timing sort of corrects. Does that make sense? Brian Herb: Yes, it does. Yes, happy to cover it, Saket. Yes, so we've talked about it in the past, and you see it run through the numbers. I mean, NDR will just move around quarter-to-quarter. It really has dependency on deal flow phasing, timing of deals that come home in the quarter, the deals you're lapping from the prior year. So there's just a dynamic of the deals that are playing through. The second part is product mix matters as well. So as you know, casualty solutions and our part solutions do not go into our NDR calculation, but they are in total growth. And casualty was very strong in the quarter, so it contributed to total growth, but that's not running through the NDR. So that's a factor as well. And then third, I'd highlight that EIQ was softer in the quarter in this quarter Q3 than it was in the prior 2 quarters. So that's playing through. And that really is on the implementation of their deals as well. So all those factors are playing through the NDR in the quarter. Operator: Our next question is from Tyler Radke with Citi. Tyler Radke: Githesh, I wanted to go back to some of the comments you had around reinvesting in certain areas of the business. I know you were sort of on a listening tour with your newly appointed President, and it sounds like customers sort of want to see higher-level solutions to the problems they have. And so I imagine part of tackling that is investing in the right heads on the go-to-market side. But I guess a couple of questions. Like how are you thinking about any changes on the product side? Does this sort of need -- is this just sort of a messaging and positioning thing from the go-to-market team? Or are there sort of product level changes you need to make to be able to sort of tackle these problems more holistically? And then, Brian, as you think about those investments, how are you sort of weighing that versus sort of the framework you have around expanding margins? Is this something that you feel like you can absorb by offsetting costs elsewhere? Just how you kind of think about that on the margin side heading into next year? Githesh Ramamurthy: Tyler, I'll take the second part of your question first, and then Brian will take the third, and I'll do the first part of your question. So to start with, let's talk about product. One of the things that we are seeing is that the solutions that we are building, deploying, and remember, we first came to market with our AI in November of 2021. And so we are now almost 4 years into -- after 7 years of development, and we are seeing true differentiation for our customers. Our customers who deploy these solutions are getting better results, better operating performance than those that don't. And those results are actually validating for us that the core solutions that we've built are delivering results. And with the other part of what we also feel we need to do is with IX Cloud, as we continue to expand the ecosystem, merging really 3 things from a product standpoint, the deep workflows we are involved in, the use of very -- moving information to the right person at the right time for the right claim in the right location for the right customer, that is another layer. And then third, as we integrate AI into really every facet of what we do, these are going to require continued development. And it's no different from when I look back 5 years, 10 years, et cetera. This is just a natural next step in our evolution. And this is one of the reasons we pointed out that we are also separating out the Chief Product Officer role from the Chief Technology Officer role because we think more dedication to those activities will be super helpful based on the client feedback. And then in terms of your first question in terms of go-to-market and what we're seeing is it just very simply comes down to our customers telling us, we need you to do more for us, and we need you to work in a broader scale across our companies, which is honestly very gratifying to hear and exciting to hear. And therefore, we're making the investments to really augment that side of the business. And then I'll turn it over to Brian for the margin question. Brian Herb: Yes, absolutely. Tyler, so the way to think about these changes that we're doing in go-to-market, think about them, they're strategically and operationally important, but they're not financially material. We are reallocating resources to higher ROI opportunities. And there are some onetime costs associated with the actions that I referenced. We're absorbing those costs into our Q4 position. So our guide didn't change for the year. But think about this reinvestment, it's not focused on cost reductions, but there are efficiencies which will offset some of the investments that we're making. So when you think about kind of coming out of Q4 and into next year, we are expected to deliver margin expansion next year, consistent with the margin progression that we talk about in our guidance framework. And so that's how you should think about kind of the impact as we roll out of this year into next year and how it will play through the margins. Tyler Radke: Okay. And apologies for the 3-part question. So I'll keep it to one follow-up here. Githesh Ramamurthy: No problem whatsoever. Tyler Radke: So Liberty Mutual, exciting announcement there. Just remind us like where are you at with other top 20 carriers? And do you think that kind of creates a referenceability halo effect? And apologies if that was 2 questions, but just related to that big customer. Githesh Ramamurthy: Yes. Look, we don't comment on -- we generally, by and large, don't comment on any specific customers or deals. And so this was a bit of an exception for us. I would say, even when you think about the Liberty Mutual decision, references did play a huge role in even their decision. And obviously, this helps us for sure. They've been a wonderful partner, just like many other wonderful partners we have. And the only point is every -- this is why we focus on high-quality, high-caliber implementations. It also feels great. It's a validation of the tremendous investments we've made in casualty that is most importantly being recognized by our customers. Operator: [Operator Instructions] And our next question comes from Samad Samana with Jefferies. Jeremy Sahler: This is Jeremy on for Samad Samana. It's good to see the decline in auto claims volumes moderating a bit. I guess, is there a cyclicality element to the medical insurance claims as well? I know you called out that medical insurance is experiencing a very high inflation right now. I guess where are we in that cycle? Is there maybe upside to the volume you're seeing in medical that might align with the recovery in auto down the line? Githesh Ramamurthy: Yes. I would say the pattern, to keep it very short, there is less of a pattern in medical than it has been in auto physical damage. The reason is medical claims tend to be much higher dollar claims. And therefore, people -- when those claims happen, people do file the claims, whereas for auto physical damage because of higher deductibles and people's propensity to pay for the claims out of pocket is a lot higher for auto physical damage than it is for casualty. Jeremy Sahler: Got it. That makes sense. And on gross margins, it came in a little lower than we expected. I know you gave a few factors. I guess, can you help us size the impacts from some of the more structural impacts like higher depreciation? I know you called out some software enhancements versus that write-off on a discontinued solution. And then maybe what is that discontinued solution as well? Brian Herb: Yes. Happy to cover it. Yes. So 75% in the quarter, which is slightly down from where we've been trending. We talked about kind of 3 things that are driving. The largest one that's driving it is the higher depreciation associated with putting new solutions or enhancements of solutions into the market. Once we go live with those solutions, we then start to run the depreciation through and that hit gross profit. That was by far the largest impact in the gross profit. There's also product mix. Casualty has a higher cost of revenue component than some of our APD solutions. Casualty was strong in the quarter, so that had an impact. And then we did have revenue -- or I'm sorry, depreciation acceleration when we took a solution out of the market. The size of that was about $2 million overall. And it wasn't a material solution, we just sunsetted a product as part of our regular assessment across our portfolio. So that's how to think about the size of the solution that we took out of the market. Operator: And our next question comes from Gary Prestopino with Barrington. Gary Prestopino: Two-part question here or 2 just separate questions. But could you maybe give us some idea of on the transactional revenue side, what was the absolute decline in those revenues versus the decline in claims volumes or even if they did decline? Brian Herb: Yes, Gary, it's Brian. I mean the way to think about it, remember, our business is largely subscription-based. So 80% plus of our revenue is subscription, not tied to transactional. Of the 20% transactional, the decline in claims had about 1 point of impact on the growth in the quarter. That is similar to the impact -- roughly similar to the impact that we saw through the first half. So we are seeing a 1 point headwind through the year. As I mentioned earlier, we are also assuming that headwind stays for Q4, and that's baked into our guide position. So our transactional revenue overall has that 1 point of impact across the total company. Gary Prestopino: Yes. I guess what I'm getting at, though, is a concern about the impact of claims declining, and it's definitely affected your stock price. And what I'm trying to get at is, despite these claims declining, are your sales on the transactional side declining at a lesser rate? I mean if it's 1 point, and it's 20% of revenue, then I would kind of do the pencil on paper and it would be maybe a 5% decline in revenue. That's what I'm trying to get at. Githesh Ramamurthy: Yes. Gary, we've grown on an overall basis. On an absolute basis, we've actually grown. So I'm not sure we understand the specifics of your question. Brian Herb: Yes. May I -- let me -- Gary, let me cover it. I mean your math is out of the 20%, we are -- there's an impact on claims volume within that, which is down in the quarter, it was down 6%. So when you just take 6% on 20%, that's roughly what you're getting at, which is just about 1 point. So that is the right math. What we're saying is we are absorbing that. But as we continue to grow adoption of new solutions, the scaling of emerging solutions, the new logo, we're clearly offsetting that. It's certainly playing through the overall position. Our 8%, you could say, would have been 9% if we didn't have that claim volume. But that's how to think about the impact on the claim volume decline running through our transactional side of the business. Gary Prestopino: Okay. And then I'll just sneak one more quick one here. In terms of the casualty business, is your competition more or less companies that have a single point solution in casualty, but nothing in APD? I guess is there anybody out there like you that can sell both APD and casualty claims processing? Githesh Ramamurthy: Gary, as you know, we generally stay away from commenting about casualty, much rather speak about what we do. But by and large, there's a mix. There's a mix. There are -- it's a mix of providers. It's a competitive market, and we need to -- that's why we need to invest and keep staying ahead with our solutions. Operator: Thank you. I'm showing no further questions at this time. So I would like to turn it back to Githesh Ramamurthy for final remarks. Githesh Ramamurthy: Thank you all for joining us today. And on behalf of the entire CCC team, I want to express our sincere appreciation for your continued investment, interest and support. We're also pleased with the third quarter performance and remain confident in our ability to deliver on our strategic and financial objectives. And as we look ahead, we remain focused on scaling innovation, deepening client partnerships and delivering differentiated value across the economy. But most importantly, we're proud to help people get back on track when the unexpected happens, helping life move forward. I'd like to take a moment to thank our customers for their trust, our team members for their dedication and our shareholders for their continued support. We're excited about the opportunities ahead and look forward to updating you on our next quarterly call. Thanks, everybody. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Githesh Ramamurthy: Thank you.
Operator: Good morning, and welcome to S&P Global's Third Quarter 2025 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. [Operator Instructions] To access the webcast and slides, go to investor.spglobal.com. [Operator Instructions]. I would now like to introduce Mr. Mark Grant, Senior Vice President of Investor Relations and Treasurer for S&P Global. Sir, you may begin. Mark Grant: Good morning, and thank you for joining today's S&P Global Third Quarter 2025 Earnings Call. Presenting on today's call are Martina Cheung, President and Chief Executive Officer; and Eric Aboaf, Chief Financial Officer. We issued a press release with our results earlier today. In addition, we have posted a supplemental slide deck with additional information on our results and guidance. If you need a copy of the release and financial schedules or the supplemental deck, they can be downloaded at investor.spglobal.com. The matters discussed in today's conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. Additional information concerning these risks and uncertainties can be found in our Forms 10-K and 10-Q filed with the U.S. Securities and Exchange Commission. In today's earnings release and during the conference call, we are providing non-GAAP adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the company's operating performance between periods and to view the company's business from the same perspective as management. The earnings release contains financial measures calculated in accordance with GAAP that corresponds to the non-GAAP measures we are providing, and the press release and the supplemental deck contain reconciliations of such GAAP and non-GAAP measures. The financial metrics we'll be discussing today refer to non-GAAP adjusted metrics unless explicitly noted otherwise. I would also like to call your attention to certain European regulations. Any investor who has or expects to obtain ownership of 5% or more of S&P Global should contact Investor Relations to better understand the potential impact of this legislation on the investor and the company. We are aware that we have some media representatives with us on the call. However, this call is intended for investors, and we would ask that questions from the media be directed to our Media Relations team whose contact information can be found in the press release. At this time, I would like to turn the call over to Martina Cheung. Martina? Martina Cheung: Thank you, Mark. In the third quarter, we delivered record revenue, record operating profit and record EPS. On every headline financial metric, it was the strongest quarter we've ever had. Revenue increased 9% year-over-year with subscription revenue increasing 6%. We continue to make important strategic investments while focusing on productivity and disciplined execution. This allowed us to deliver 180 basis points of margin expansion on a trailing 12-month basis and increased our adjusted EPS by 22%. We also returned nearly $1.5 billion to shareholders through dividends and buybacks since our last earnings call. We're also announcing today that we expect to launch an additional $2.5 billion share repurchase during the fourth quarter following our Investor Day. This will allow us to return approximately 85% of 2025 adjusted free cash flow while still using the net proceeds from the OSTTRA divestiture for additional share repurchases. We now expect to fund the acquisition of With Intelligence through a combination of $1 billion in incremental debt and cash on hand. The double-digit revenue growth in our Ratings and Indices businesses really highlight the incredible value of our global franchises. The investments we've made in prior years, particularly in capacity, new products and technology, allow us to efficiently meet market demand in these periods of favorable market conditions. Market Intelligence also saw another quarter of revenue acceleration on both a reported and organic basis. Improvements in productivity and execution have supported the acceleration of revenue growth and margin expansion in the quarter. We continue to be pleased with the results the teams are delivering. We've been focused on innovation across the company, and we made some very exciting announcements recently that we believe will accelerate our leadership in strategically important areas. As I'll discuss in a moment, we've announced a number of important advancements in AI. We also announced the planned acquisition of With Intelligence, and we announced an exciting partnership with both Cambridge Associates and Mercer. This multipronged approach to innovation and growth allows us to be nimble and decisive in our approach to strategic growth and combine assets in unique ways to serve our customers. We also wanted to call attention to our progress in artificial intelligence. And later in the call, I'll give a bit of a preview into some of what we'll be discussing at Investor Day. This morning, we announced in our press release that we have signed an agreement to divest our Enterprise Data Management and thinkFolio businesses, subject to customary closing conditions. This is a continuation of our efforts to streamline and simplify our business while making sure that our products and services are strategically aligned. We will always strive to be good stewards of our portfolio of businesses, and we may continue to make tactical divestitures from time to time. However, with these announcements, we can say that this multiyear exercise of portfolio optimization within Market Intelligence is substantially complete. Before I get into further details of our performance this quarter, I want to touch on some leadership announcements we've made recently. First, Dan Draper and Swamy Kocherlakota will be departing, as previously announced; and second, Mark Eramo will be retiring. I want to extend my heartfelt thanks to each of them for their meaningful contributions and leadership over the years and for their help to ensure a smooth transition. With Mark's retirement, Dave Ernsberger will assume the role of sole President of Commodity Insights. We're also thrilled to welcome Catherine Clay as the new CEO of S&P Dow Jones Indices, who will be joining next week. Now turning to the current market conditions. Billed issuance increased 13% year-over-year in the quarter with particular strength in high-yield and structured finance. Equity markets continued to perform well in the third quarter as equity prices and equity inflows both contributed to a very strong quarter in our indices business. With volatility tempering from the elevated levels we saw in the second quarter, our ETD growth moderated somewhat as well, but remained positive against a difficult compare from last year. While we have seen some pull forward of high-yield refinancing from the 2026 maturity wall, we remain encouraged by the fact that for high-yield specifically, the Q4 maturity wall is 6% higher than what we saw at this point last year, while the 1-year forward maturity wall also remains healthy. In investment grade, the Q4 wall is very modestly lower than what we saw last year, while the 1-year forward maturity wall is still higher. Our outlook for the rest of the year assumes billed issuance growth in the mid- to high-teens range in the fourth quarter and assumes that U.S. equity markets are flat from September 30. Eric will walk through what that means for guidance in a moment. Now turning to some very exciting news from earlier this month. We announced the planned acquisition of With Intelligence, which we expect to close by early 2026, subject to customary conditions. With Intelligence brings an incredible amount of differentiated data on private markets, including extensive data in private equity, private credit, infrastructure, hedge funds and family offices. Importantly, this data is sourced directly from asset allocators and fund managers. S&P Global can combine that contributory data with our already massive data estate covering more than 50 million private companies, our pricing and valuation data from MI, credit ratings and estimates, energy data from CI, and infrastructure and data center information from 451 Research. This unique combination of differentiated private markets data will allow S&P Global to provide essential intelligence to customers that they will not be able to get from any other provider. The team at With Intelligence has built a truly incredible company, and we believe that we will be able to accelerate the growth of With Intelligence as part of S&P Global's Market Intelligence division. Our goal is to create the most comprehensive solution for private markets participants anywhere in the world. We're excited to tell you more about our long-term vision for private markets at Investor Day in a couple of weeks, but this acquisition helps us take another meaningful step towards turning that vision into reality. The acquisition of With Intelligence is just one of the many ways we are adding to innovation. In the last few months, we've also made some very exciting announcements around our organic product innovation. In the third quarter, we announced AI-powered document search within iLEVEL. This comes quickly after the launch of automated data ingestion, or ADI, in iLEVEL earlier this year. iLEVEL is already the leading platform for private markets portfolio monitoring. And while ADI made it easier for users to bring new data into the platform, Document Search makes it easier for them to get portfolio intelligence out of the platform. Just last week, we announced the launch of Document Intelligence 2.0 within Capital IQ Pro. The new Document Intelligence allows users to extract real insights across multiple documents simultaneously. We brought deep research functionality and allowed users to leverage that within our data and content without ever having to leave the Capital IQ platform. Users can now analyze multiple documents from different sources, including filings, transcripts, investor presentations, news and proprietary research, all simultaneously through a familiar conversational interface. We're not just making our products better either, we're also innovating new ways to let users interact with our data and content. In recent months, we've announced collaborations with Microsoft, Anthropic, Google, Salesforce, IBM and others to make sure that wherever our customers are working, they are doing it with S&P Global's differentiated data. While still in early stages and with strong IP protections in place, we view these collaborations as important ways to reach new customers and help our existing customers to get the most out of the leading tools in the market. We'll have demos of all of these innovations available in the product showcase at our Investor Day in just a few weeks. Back in September, we announced a strategic collaboration with investment firms, Cambridge Associates and Mercer, to deliver comprehensive private markets performance analytics, and we expect to launch a beta by year-end. We also announced a collaboration with Centrifuge to bring the S&P 500 Index on chain, expanding access to the world's most widely recognized benchmark. Centrifuge is a decentralized infrastructure provider specializing in real-world asset integration. And this collaboration lets us enter the fund tokenization space by licensing the S&P 500 Index. In addition to the acquisition of With Intelligence, we also recently announced the completion of our acquisition of ARC Research. ARC Research is the leading independent provider of investment performance data, benchmarking capabilities and insights in the private wealth market. It maintains the world's largest proprietary data set of more than 500,000 private client portfolios with decades of history. We're thrilled to add ARC Research's impressive capabilities to our wealth initiatives within S&P Dow Jones Indices. We continue to look for new ways to meet our customers' needs and these recent announcements of organic innovation, strong partnerships and the acquisition of truly differentiated assets are all examples of S&P Global driving greater customer value. We're seeing that show up in our customer conversations as well. In the third quarter, we had another major investment bank adopt Capital IQ Pro as its primary desktop solution in a competitive displacement, driven by the value in our data transparency, modeling flexibility and strategic support through a full migration to Capital IQ Pro, Visible Alpha and our GenAI capabilities. We also had a very strong expansion with a large global asset manager in the quarter, where we were able to demonstrate clear customer value across multiple products, particularly within the software solutions of Market Intelligence and more than triple the total value of the contract. Perhaps the best example of S&P Global moving from strength to strength is in the area of artificial intelligence. S&P moved early and powerfully into the AI space many years ago, and we have continued to grow the business profitably ever since. As many of our investors will recall, we acquired Kensho back in 2018. Including that acquisition since 2018, we have invested over $1 billion in AI innovation across 3 developmental stages. From 2018 through 2021, we invested to build out foundational capabilities through products like Kensho Link, Kensho Scribe, Kensho NERD and Kensho Extract. These tools have enabled us to look across our global data estate, scrub, process and tag data and link that data across multiple data sets. We can also create machine readable files from unstructured data like audio recordings of earnings transcripts and automate the ingestion and tagging of new data sets. These foundational capabilities are incredibly important in a world where machine readable metadata is a prerequisite for usage of any data in an LLM. In 2022, we shifted to early innovation in GenAI. With the advent of large language models, our early actions in AI positioned us very well to leverage our expertise in the field and find exciting applications of LLMs in our ecosystem. We launched the first version of Document Intelligence as well as ChatIQ within Capital IQ Pro and conversational search in our S&P Global marketplace. As more and more of our customers were coming to us for help finding ways to marry S&P data with rapidly evolving technology, we accelerated the deployment of GenAI in our products over the last 3 years. You can see that on the slide. Almost all of the new GenAI-powered products, features and enhancements were built leveraging the foundational AI technology built by Kensho over the past 7 years. Importantly, our AI innovation serves as a powerful example of our ability to leverage our scale, our expertise and our fiscal discipline. The fact that we made such bold investments early on means that we've been able to innovate very efficiently from a financial perspective. Aside from 2022, we have delivered meaningful margin expansion every year since we acquired Kensho in 2018, while still accelerating our AI innovation. We are confident we'll be able to continue driving both technological innovation and margin expansion in the years to come, which brings me back to our stellar financial results in the third quarter. Eric will provide more details shortly, but our results in the third quarter really spotlight the hard work, dedication and spectacular execution of our teams around the world. Not only did we see accelerating revenue growth for S&P Global, but we saw another consecutive quarter of acceleration in MI on both a reported and an organic basis. We also achieved meaningful margin expansion on a trailing 12-month basis in every single one of our divisions. We are pleased with the results in the quarter and look forward to seeing many of you at our Investor Day in just a couple of weeks. Eric, over to you. Eric Aboaf: Thank you, Martina, and good morning, everyone. Starting with Slide 12. The third quarter demonstrated the power of our business as we delivered accelerating revenue growth and very significant margin expansion while still reinvesting in product innovation. Reported and organic constant currency revenue both grew 9%, while expenses grew 2%, enabling us to deliver 330 basis points of year-on-year margin expansion to 52.1%. Excluding the contribution from OSTTRA, which was divested earlier this month, adjusted margins would have been 51.6% and margin expansion would have been slightly higher. Through our disciplined execution and continued capital returns, we delivered 22% growth in adjusted diluted EPS. While this slide demonstrates the diversity of our revenue streams across the divisions, we also want to provide some additional insight into the different types of products and services that generate that revenue for us. The majority of our revenue comes from the benchmarks we provide, all of Ratings, all of Indices, all of Platts within Commodity Insights, as well as the distribution of our Ratings content through Credit and Risk Solutions in MI. We also generate revenue from workload tools and software like Capital IQ and the Enterprise Solutions business in Market Intelligence and a portion of the upstream business in Commodity Insights. Our proprietary content, research and data sets as well as data that is heavily curated, enhanced and linked makes up the rest of the Commodity Insights' and a large portion of MI's Data, Analytics & Insights business. What is left is data that is publicly available and not materially enhanced by S&P Global. That portion makes up about 12% of Market Intelligence and less than 5% of the company's total revenue. That means that over 95% of the revenue is derived from proprietary sources, and the value that we generate for our customers really can't be replicated by any other single company. We plan to provide more detail around this breakdown at our Investor Day, but we thought it would be helpful in the current environment to at least provide this early view. Slide 13 illustrates the progress we are making in key strategic growth areas. Energy Transition & Sustainability revenue grew 6% to $96 million in the quarter, driven by demand for data and insights from Commodity Insights and sustainability products in our Indices division. Moving to Private Markets. Our revenue growth doubled from last quarter, accelerating to 22% year-over-year to $164 million. Growth was primarily driven by Ratings benefiting from strength in private debt issuance and middle market CLOs. S&P is committed to bringing increased transparency to the private markets and our acquisition of With Intelligence as well as our recent partnerships will enable us to further deliver on this mission while reinforcing our leadership position and accelerating our revenue growth. We are very excited to announce that in the third quarter, we achieved our merger revenue synergy target on a run rate basis, well in advance of the time line we laid out back in 2022. We exited the quarter with $355 million of run rate synergies and thus no longer expect to report on these synergies going forward. Finally, our ability to innovate across our business remained a key growth driver in the third quarter. We continued to deliver a vitality index at or above our 10% target. Turning to our divisions. On Slide 14, Market Intelligence accelerated revenue growth on both the reported and organic basis in the third quarter. We are particularly encouraged by the 8% organic constant currency growth, which represents the strongest organic growth in MI in 6 quarters. Continued strength in subscription was augmented by double-digit growth in our volume-driven products. We look forward to finishing the year strong. Data, Analytics & Insights had revenue growth of 5%, with organic revenue growth up 6% year-over-year, aided by especially strong demand for industry and company data. Enterprise Solutions benefited from an increase in issuance volumes in the secondary loan markets and strong demand for our lending workflow solutions as well as robust growth in subscription products. Reported revenue growth of 9% included the impact of $10 million in Fincentric revenue in the year-ago period. Excluding that impact, organic growth accelerated to 13% year-over-year. Credit & Risk Solutions grew 6% on a reported and organic basis, continuing to benefit from demand for Ratings data feeds that are catering to client needs for digitization and automation. Adjusted expenses increased 1% year-over-year, largely driven by higher base compensation expense, partially offset by productivity savings and elevated incentive compensation last year. This resulted in Market Intelligence's very significant operating margin expansion of 360 basis points to 35.6%. We are raising the low end of the guidance range for revenue growth given the acceleration in organic growth we've seen over the last 2 quarters. While we continue to expect some incremental investment expense to land in the fourth quarter, we are raising our guidance range for MI margins by 75 basis points at the midpoint for the full year. Now turning to Ratings on Slide 15. In the third quarter, strong investor demand and resilient market sentiment contributed to a favorable financing environment and supported our growth in issuance volumes. Ratings revenue increased 12% year-over-year, well above our internal expectations and with the growth balanced between both transaction and non-transaction revenues. Transaction revenue grew 12% in the third quarter, benefiting from particular strength in high-yield and bank loan issuance. Favorable market conditions supported refinancing activity as high-yield issuers took advantage of spreads, and we continue to see elevated demand in structured finance. Non-transaction revenue also increased by 12%, driven primarily by higher annual fee revenue. Contributions from initial Issuer Credit Ratings, or ICRs, and Rating Evaluation Services, or RES, were both above our expectations as well. In fact, the third quarter was a record for us in RES revenue. Adjusted expenses declined 4% based on the lapping of elevated incentive compensation last year and continued productivity improvements. This contributed to the division's 540 basis points of margin expansion to 67.1%. We are raising our outlook to reflect the third quarter's outperformance and our assumption of continued favorable market conditions in the fourth quarter. We expect billed issuance growth in the mid- to high-teens range in the fourth quarter, driven by continued refinancing activity and opportunistic issuance. While we expect M&A volumes to improve going forward, we continue to expect 2025 volumes to be below historical norms, including in the fourth quarter. And now turning to Commodity Insights on Slide 16. Revenue increased 6%, largely driven by the eighth consecutive quarter of double-digit growth in Energy & Resources Data & Insights. Energy & Resources Data & Insights and Price Assessments grew 11% and 7%, respectively. Our commercial momentum persists as we continue to transition more customers to enterprise contract relationships, though growth was somewhat tempered by the incremental sanctions we called out last quarter. As I'm sure many of you saw, the United States recently introduced additional sanctions just last week, and I'll walk you through the expected impact shortly. Advisory & Transactional Services revenue grew 4%. We had another record quarter in Global Trading Services. However, we continue to see the impact of headwinds we called out last quarter, primarily in consulting and non-subscription revenue associated with the uncertainty in the energy markets. Upstream Data & Insights revenue declined 2% year-over-year as expected. The decline was driven by customer consolidation in the energy space and lower oil prices weighed on discretionary spending. We expect these headwinds to persist through the fourth quarter and likely into next year. The Upstream business has some truly valuable and differentiated data, and we're working diligently to help our customers realize the value of our offering. As we mentioned last quarter, we are actively intervening by engaging with clients, accelerating product innovations and aligning commercial incentives to stabilize the business and reposition it for growth. Adjusted expenses increased 6%, largely driven by the lap of a onetime credit related to higher royalty and conference costs and higher compensation expense, partially offset by productivity initiatives. Operating profit for Commodity Insights increased 7% and operating margin expanded by 30 basis points year-over-year to 48.1%. We are tightening the ranges for both revenue growth and operating margin for the full year. While we continue to expect strong revenue growth and margin expansion in CI for full year 2025 and beyond, we do expect the modest headwinds we discussed today to persist into at least the early part of next year. As I mentioned a moment ago, we have seen some additional sanctions introduced recently that could impact our Commodity Insights business. In total, we expect the sanctions introduced since we gave our initial guidance in February to contribute a headwind of approximately $6 million to Commodity Insights in 2025 and approximately $20 million of headwinds in 2026. This, of course, assumes the current sanctions remain in place and no new sanctions are introduced. Now turning to Mobility on Slide 17. Revenue grew 8% year-over-year, highlighting the mission-critical nature of the division's products and strong execution, notwithstanding the ongoing tariff and regulatory uncertainty lingering across the OEM and manufacturing end markets. Dealer revenue increased 10% year-over-year, driven by strong performance in products such as CARFAX and automotiveMastermind. Manufacturing revenue declined 3% year-over-year as tariffs and related uncertainty weighed on consulting revenues and discretionary spending at automotive OEMs. Financials & Other increased 12% as the business line continues to benefit from the strong underwriting volumes and commercial momentum. Adjusted expenses grew 6%, driven by continued advertising and promotional investment, but offset by strong operating leverage and the lapping of elevated incentive compensation last year. Segment margins improved 110 basis points year-over-year to 43.3%. Lastly, we remain on track to meet our key milestones for our spin-off of our Mobility division. We will continue to keep investors updated on the progress of the separation. Now turning to S&P Dow Jones Indices on Slide 18. Revenue increased 11% with double-digit growth in Asset-Linked Fees, which benefited from both higher AUM and net inflows and in Data & Custom Subscriptions revenue. Revenue associated with Asset-Linked Fees grew 14% in the third quarter. This was driven by higher equity market appreciation and strong net inflows into products based on S&P Dow Jones Indices. Exchange-traded derivatives revenue were up 1% against a difficult year-over-year comparison, supported by higher average daily volumes in our SPX ETDs. Data & Custom Subscriptions increased 10% year-over-year, driven by new business growth in end-of-day contracts, which posted low double-digit growth and growth in our real-time offerings. Adjusted expenses were up 7% year-over-year, driven by strategic investments, partially offset by lower incentives. Indices operating profit grew 12% and operating margin expanded 100 basis points to 71.2%. Our outlook for 2025 assumes U.S. equity markets are flat from September 30 through the end of the year, and we expect modest year-over-year growth in ETD volumes in the fourth quarter. Now turning to guidance. Slide 19 outlines our enterprise guidance on a GAAP and adjusted basis. We are raising our enterprise outlook for total revenue growth and margins. We now expect total revenue growth in the range of 7% to 8%, and we expect adjusted margins in the range of 50% to 50.5%. We're also showing guidance for margin, ex OSTTRA, for year-on-year comparability purposes. As I'll discuss in the next slide, we expect higher revenue growth for Ratings and Indices and we tightened our ranges to the upper end for Market Intelligence and Mobility, while we slightly lowered the higher end of the range for Commodity Insights. We now expect adjusted diluted EPS in the range of $17.60 to $17.85, 4 percentage points above the initial guidance we provided back in February and representing growth of 12% to 14% year-over-year. We expect the additional share repurchases we announced this morning to be neutral to adjusted EPS in 2025, given how late we are in the year, but we expect the reduction in share count to more than offset the additional interest expense in 2026 and beyond and be slightly accretive to EPS. Moving to the division outlook on Slide 20. Our revenue guidance for Market Intelligence was lifted towards the upper end of our prior range to 5.5% to 6.5%, reflecting our strong execution and the acceleration in organic growth year-to-date. For Ratings, based on the current expectation for mid- to high-teens Billed Issuance in the fourth quarter, we expect revenue growth of 6.5% to 8.5%, which is above previous guidance, including our outperformance in the third quarter. We trimmed our outlook for Commodity Insights at the upper end of our prior range due to the sanctions and the other factors I discussed previously. For Mobility, we raised the revenue guidance range towards the upper end of our prior range. For Indices, we now expect 10% to 12% revenue growth, reflecting market strength and higher net inflows. Our updated outlook is now well above our initial 8% to 10% outlook in February. On the next slide, we are raising our margin outlook for the enterprise with higher margins in nearly every division, as I discussed previously. We are pleased with the financial results the team delivered in the third quarter. These results highlight the vital importance of our products to our customers, especially in the dynamic environment we've seen thus far in 2025. We continue to focus on rapid innovation, prudent strategic investment and disciplined execution. We saw the results of that focus in the third quarter. As we look forward to Investor Day in a couple of weeks, we're excited to tell you more about what's coming next. We have a compelling strategy that we believe will drive revenue growth and margin expansion in the years to come. With that, I'll turn the call back over to Mark for your questions. Mark Grant: Thank you, Eric. [Operator Instructions] Operator, we will now take the first question. Operator: Our first question comes from Toni Kaplan with Morgan Stanley. Toni Kaplan: Market Intelligence organic growth of 8% was really a standout this quarter. I was hoping you could expand more on the success there, whether you're seeing a better market environment, higher pricing or just more success with your new product introductions. And thanks for the color on sort of the AI and everything associated there. It sounds like you have been investing nicely in those types of technologies. It sounds like you've continuously invested there and don't need to like really ramp that up, that it will scale. So just wanted to sort of hear your thoughts on MI in terms of growth drivers and investment. Martina Cheung: Toni, it's Martina. Thanks so much for the question. And let me first respond and then I'll hand over to Eric. So yes, we were extremely pleased with the results in the quarter, and it is a continuation of the strong execution that we've seen from the Market Intelligence leadership team throughout the course of this year. You'll recall that we've talked a lot about the revenue transformation that the team has undergone. That includes greater alignment, reducing the silos amongst the sales teams, and reducing the incentives and simplifying the overall revenue model. And in addition to that, as you said, we've had incredible product innovation that we're very excited about. So all those things have contributed. We also have worked very closely -- or see work very closely between the Market Intelligence sales teams as well as the Chief Client Office. And as a result of that, we've seen competitive wins, and we've seen some really great deals in the quarter. So maybe just one example of the competitive win with a major investment bank who chose Capital IQ Pro as their primary desktop, and did that because we could bring not just the comprehensive nature of the desktop, but also Visible Alpha as well as great excitement in the Generative AI capabilities that we've announced. And so those are some good examples of the growth drivers in focus. The other point that I would make and, yes, in response to your observation around the fact that we've been innovating and investing for a decade now. We see that with the acquisition of Kensho and really the foundational capabilities that Kensho has developed over many years. And as I said in the prepared remarks, that's allowed us to build and innovate very economically from a financial perspective. We'd anticipate continuing to do that going forward. Eric, maybe over to you as well for more comments. Eric Aboaf: Sure. Toni, we've been really pleased with the momentum around growth in MI. Pipeline has been healthy. Sales are up around 10% on a year-to-date basis. So we've got good momentum. That's translated into nice ACV growth. ACV has been ticking up quarter after quarter after quarter. In the first quarter, we said it was a bit over reported revenue. In the second quarter, we said it had ticked up. In the third quarter, I can also confirm that it's up again. And on an organic ACV basis, which is how we describe the business, we're growing in the 6.5% to 7% range. There's always a bit of ups and down in the reported growth because of the volumetric and transaction revenues that come in. That's what got us to 8% reported -- I'm sorry, 8% organic this quarter. But we're seeing the momentum that we [indiscernible] see, and it's a result of a lot of the actions that Martina just summarized. Operator: Our next question comes from Faiza Alwy with Deutsche Bank. Faiza Alwy: I wanted to ask about Ratings. I think you made some comments around the maturity wall for 2026 and some pull forward in high-yield and lower maturity wall for investment grade. And then you also said that RES revenue was strongest ever. So I'm curious how you would characterize sort of where we are in terms of normalization of Ratings issuance and how we should think about growth over the next few years in Ratings. Martina Cheung: Faiza, thank you for the question. So we have seen this year growth beyond what we actually expected at the beginning of the year. And it's quite remarkable given the record issuance that we saw in 2024. Q3, as we have said and you pointed out, there are very strong high-yields and bank loans. We saw opportunistic issuance. We saw M&A, again, not at historical averages but more than we would have anticipated earlier in the year, and those are all contributing to the Billed Issuance growth that we saw. The second point I would make around Q4 is, seasonally, we would have usually seen maybe not as fast growth from an issuance perspective in Q4. However, we are expecting Q4 to look more or less similar to Q3, probably 1% or 2% below or above Q3, which is why we guided to mid- to high-teens there for issuance. And that would be a combination of factors. We are seeing opportunistic issuance with spreads at really record levels. And we're seeing a little bit of pull forward from 2026 from a refinancing perspective. And we do expect issuance across both investment grade and high-yield. I would just mention the investment grade may fall into our frequent issuer fees. So you wouldn't see that necessarily in our transaction fees in Q4. And maybe just again there, consistent levels of M&A that we saw in Q3. I think as it relates to your overall question on how we feel about the outlook, look, at this point, we're looking at maturity walls through 2026 that are about 8% higher than they were this time last year, and our maturity walls through 2028 are quite strong. And so we're excited about the Ratings business going forward. Let me maybe pass over to Eric to talk a little bit about the non-transaction revenue as well. Eric Aboaf: Faiza, what I like about the Ratings business is it's got both that transactional component that Martina just described and the non-transactional, which is really around surveillance and, I'll call it, the accumulated set of clients and ratings that we support and monitor for our clients. And so what that creates is a bit of a flywheel or a ballast to growth that creates continuity for us that's quite strong. It includes both RES and ICRs, which were up over 20% this quarter. It includes some of the CP monitoring. CP was up strongly. So the 12% up this quarter on a year-on-year basis was really quite strong. We don't expect it to be that strong every quarter, but it's the kind of continued revenue momentum that -- or revenue engine, I would say, that really creates continued growth in the business at a nice and consistent pace and is a really important part of our franchise. Operator: Our next question comes from Manav Patnaik with Barclays. Manav Patnaik: Thank you for the slide on the AI spend over the years and how that's helped margins. I wanted to just ask within MI itself going forward, how big a role do you think AI will have in helping expand those margins in a meaningful way? Because it's always been, obviously, one of the more competitive areas that you've always had to invest. So just trying to think about how that changes that balance. Martina Cheung: Manav, let me start, and I'll hand over to Eric as well. We're excited about AI, and we have been for quite some time. And we do think that our historical investment there and innovations over the last decade have positioned us extraordinarily well, especially in Market Intelligence. I'd characterize the benefit there in 2 ways because, of course, we will be able to innovate economically from a financial perspective, as I've mentioned in the prepared remarks, based on the foundational capabilities that we have. But bear in mind, we'll get growth and we'll get productivity in both cases in Market Intelligence. And so on the growth side, you'll see us continuing the rapid pace of innovation within our current product estate. And we monetize that in 2 ways. The first would be in features and enhancements that we wouldn't separately monetize, but would be part of ongoing conversations around how we create value for customers. The second will be in actual add-on. So a good example of that would be the ADI, or automated document ingestion, that we launched for iLEVEL, which has really great uptake in our iLEVEL customer base as an add-on. And then, of course, we will launch new products. In the quarter, for example, we launched a new product combining ProntoNLP's capabilities with our machine readable transcripts, and it really allows users to extract sentiment and characteristics from -- excuse me, filings, not transcripts in a much more efficient way. And then remember that we will also partner with new distribution channels, the hyperscale partners and others such as Salesforce and IBM to ensure that we can monetize there as well. One example I wanted to give you there is a way in which we would think about these partners as greater channels for customer acquisition is that with the IBM partnership, we will make S&P Global agents available within IBM's systems so that IBM's customers can actually access S&P Global maritime and trade insights, procurement insights and economic and country risk insights. And so these are all ways in which we're increasing the monetization capabilities, which will drive commercial value. Maybe let me hand over to Eric on the productivity side. Eric Aboaf: Manav, it's Eric. As much as we're interested in AI on driving top line growth, and there are just a series of examples there and more to come. The benefits around productivity, I think, are beginning and are real. And I'll give you a couple of examples. For example, MI and our other businesses, together we consolidated our data operations into an enterprise data office, about 6,000 employees within MI that moved into that group. It's now 8,000 in total across the company. And what we're able to do is begin to reduce some of the redundant activities, consolidate workflows, process map and begin to actually consolidate tools. And a lot of those tools that we're now using are, in fact, AI-driven. We actually moved about 6,000 of our data operators onto an internally developed content workflow tool that was vibe coded, and actually then reduce some of our licensing costs for some of the fragmented or, I guess, multiplicity of tools that we previously had. And that in and of itself has actually driven multiple millions of dollars of savings this year. But it's not just in MI. We're doing this across the company. In Commodity Insights, as you know, we have a large pool of researchers where they leverage off of our data. But we've started to use AI tools for content creation, for first drafts of research reports, to update and synthesize data sets, so both structured and unstructured data. And that, too, has already created multimillions of dollars of savings this year and it's part of what's actually helping with the margin expansion. So we see the benefit of GenAI at the beginning with more to come. And in truth, it's a real aid to the business, both for accelerating top line growth, but also to expand margins at the same time. Operator: Our next question comes from Scott Wurtzel with Wolfe Research. Scott Wurtzel: Martina, just wondering if you can talk a little bit more about the strength of the private markets growth that you saw given the meaningful acceleration there. And following the partnerships that you made with Cambridge and Mercer and the pending acquisition of With Intelligence, just how you feel about the overall positioning of your private market data sets as we head towards the end of the year here. Martina Cheung: Scott, yes, we had a strong quarter, and that was driven largely by very strong issuance within Ratings. And in there, it was across a multitude of products, not just debt ratings but also structured finance. We saw data center securitizations, middle market CLOs and other issuance driven by private markets participants. And so very good performance. We're excited as well, to your point, around the growth opportunities that we are afforded with the announcement of the partnership of Cambridge and Mercer, but also With Intelligence. And this is an area where we are responding to needs of customers in the market and gaps in the market. So I'll give you one example here first with Cambridge and Mercer. There is a gap in the market right now to be able to actually get like-for-like comparisons for benchmark performance at the fund level, the deal level, the asset level. And with Cambridge and Mercer, we've worked with them. They are 2 leading companies in the space, and we've created a common classification system and really a global standard so that when companies report in iLEVEL, without needing to change their own reporting formats, we can interpret and concord their outcomes with this global standard, which Cambridge and Mercer have helped us to tune with their data. And that gives them more accurate and easy like-for-like comparisons to do benchmarking and understand exposures, et cetera. So that's wonderful. With Intelligence is bringing us data that has been critical for us in areas for use cases around deal sourcing, allocation, and also performance benchmarking. And these are areas that we've been developing organically over the last many years. And With Intelligence really allows us to accelerate those initiatives. The team has built an incredible database also with some very unique data. And as we looked at it, the more closely we looked at it, the more excited we got about the quality of the data. So you put all those things together and it gives us a great story and a great opportunity to expand our private markets revenues going forward. And we're excited to talk about it more at Investor Day. Thanks for the question. Operator: Our next question comes from Ashish Sabadra with RBC Capital Markets. Ashish Sabadra: One quick housekeeping question. Can you help us size the EDM and thinkFolio divestiture? But more importantly, I also wanted to follow up on an earlier question regarding MI, like with the 8% organic constant currency growth this quarter and improving ACV growth, the enterprise wins that you've talked about, and then when we blend in the acquisition of With Intelligence, how do you view your prior midterm guidance of 7% to 9% MI revenue growth going forward? Eric Aboaf: Ashish, it's Eric. Let me tackle those in order. But as you know, we're still in 2025. And so it's a little premature to get into 2026. EDM and thinkFolio were not material to our consolidated financials. The revenues are relatively small, even relative to MI. And so to us, it was a good opportunity to exit. It will be slightly accretive to MI revenue growth on an organic basis and slightly accretive to margin to MI as well in 2026. So we're pleased with how this helps us reshape the portfolio. But as you said, for 2026, what we'll do is be quite transparent about our guidance. We'll make sure that there's clarity around the expected impact around each of the divestitures and the With Intelligence acquisition, which we're really quite excited about as another vehicle for accelerating our growth in MI going into the future. Operator: Our next question comes from Alex Kramm with UBS. Alex Kramm: Just wanted to come back on the AI discussion for a minute. I probably need to go back and read the transcript, but I think you gave a lot of detail here on how you think your business is breaking down. And if I heard the number correctly, I think in Market Intelligence, you think maybe just 12% of the business is maybe not as proprietary as the rest of it. So can you just speak to that a little bit more? What makes you comfortable that, that's the right number as, obviously, there's a lot of change coming from AI, maybe workflows change, maybe certain things will get in-sourced over time by some of the largest customers? So maybe help us a little bit if the message is, hey, almost 90% of Market Intelligence, you feel really strong around the AI defensiveness. Eric Aboaf: [indiscernible] describe that in a little more detail. MI really is a composition of a number of different product lines. And maybe think about how we report, because it gives you a window into how we think about what is really unique to our franchise. So the first business, Credit & Risk Solutions is really around our own benchmarks and models. It's the data feeds, RatingsXpress, RatingsDirect and really completely proprietary in nature. The next portion of MI is Enterprise Solutions. That's really workflow and software tools. And we've got some of our premier assets in there, WSO, iLEVEL, ClearPar, Debtdomain. I mean you can go on and on. But each one of those is a unique construct that clients have embedded deeply into their own workflows and their own processes and so are quite important to what they do. And I don't think there's an easy way to replicate those from the outside given that they are both embedded and they have proprietary data within them. And then there's our Data, Analytics & Insights business, which is really the mix of data feeds and desktop. And I think on that one, you've got to think about it in a couple of parts. About half of that is literally proprietary, curated, enhanced data and advisory kind of information. And so you've got just the examples of our franchise that you know well. It could be some of the fixed income pricing, Compustat, the maritime data; if you operate in the commodity space, the valuation analytics, the advisory solutions, the events. That's literally half of Data, Insights & Analytics. We've got 1/4 of that product line that is a mix of workflow tools and benchmark models. A good portion of Cap IQ is in that, and that's, again, integrated into our clients and has a mix of workflow tools, but it has been built up off of that proprietary and enriched and enhanced data that we provide that I just mentioned. And then the last quarter of Data, Analytics & Insights, I think, is what you would describe as not as defensible. It's the undifferentiated data. It's things like the ownership data that comes in 13F filings that you can get from the SEC or you can get from us. It's the directories information. It's the transactional data. It's the assemblage of press releases that we provide to clients. And we even put a portion of Cap IQ in there, because we think some of that can be replicated in pieces. But we took a conservative assessment there as well. So all in all, it adds up to about 12% of MI, about 5% of the total company. And our view is -- our business really is about adding more and more data and, in particular, proprietary enhanced data every year, and expanding and deepening our workflow integration with our clients. And so in a way, it's a moving process that's always being enhanced and enriched, and it's what keeps us -- what's kept us differentiated in this business for decades. And we need to be vigilant. We need to be careful. We need to be active in this area, but we also feel it's really quite defensible and strong and foundational, what we provide, and not something that can be replicated. Operator: Our next question comes from Jeff Silber with BMO Capital Markets. Jeffrey Silber: Just wanted to go back to the quarterly results. The adjusted operating margin was really impressive, especially when looking at Ratings and the Market Intelligence business. Were there any onetime items in there? And I'm just wondering how sustainable you think that margin expansion is? Eric Aboaf: Jeff, it's Eric. I think that was a particularly strong margin expansion quarter. If you recall, a year ago, there were some incentive compensation adds that we made. And on a year-on-year basis, kind of the impact of those incentive changes was about a 3 percentage point tailwind to expenses. And that's not something that necessarily repeats. It happens when it happens. And so you've got to just factor that into our expense growth rate. I think even with that, we feel quite strong and quite confident about [indiscernible] revenue growth substantially exceeded expense growth even adjusted for the incentives. I would say that if you're thinking about margin expansion, the trailing 12 months data that we provide is actually probably even more indicative of overall performance and something to take another look at as well. Operator: Our next question comes from Craig Huber with Huber Research Partners. Craig Huber: Martina, to your company's credit, for many, many years, you guys have had most of your contracts with clients on an enterprise-wide basis as opposed to a per seat model. Can you talk about that a little bit here? There's obviously a lot of fears out there in the marketplace that AI is going to displace a lot of the white-collar workers out there, et cetera, and that could hurt payments to data providers, analytics companies, et cetera, like your company. So just talk about that competitive moat, if you would, that you guys have had in place for well over 10 years now. Martina Cheung: Thanks, Craig, for the question. What I would say is that the nature of our enterprise subscription models really protects us from, I would say, volatility in many forms. And we've seen, as you know, over the last 10 years, headcounts in end markets go up and go down and go up and go down. And so I'm not making any predictions around the impact of AI on our end users because I think it's not the only factor, quite frankly, that will impact drivers of increases or decreases. What I would say is that we are really thoughtful in how we add to the quality of what we do and the usability of what we do with our products, whether it is in Commodity Insights, in Market Intelligence and Ratings and Index. And as you know, we are actually really bringing to bear not just AI capabilities, but agentic workflows there as well, which we're being asked to do by our clients to help them to be as efficient as they can possibly be. And so our view is create value, be proactive with our customers and helping them to realize value from AI as well and an overall focus on higher levels of engagement with our customers and making sure that we can get the best experience for them as possible. Thanks for the question. Operator: Our next question comes from Andrew Steinerman with JPMorgan. Andrew Steinerman: Martina, I know you spoke just a little bit about the With Intelligence acquisition already. I'd like to hear a little bit more here. We're definitely intrigued by the private data space. There's a lot of providers in that space. So if you could help us compare With Intelligence to BlackRock's Preqin, who I see as the closest peer in terms of relative data coverage across asset classes. I know With Intelligence's heritage, which is further back, started with hedge fund data and then expanded through acquisitions into other asset classes. And so if you could just compare the 2 providers and give us that kind of insight, I think we'll understand the positioning better. Martina Cheung: Andrew, thanks for the question. Yes, we are very excited about the acquisition. And the team indeed has emerged or matured, let's say, from their hedge fund beginnings into being a truly multi-asset class platform. It's private equity, private credit and areas that are very, very fast growing as well, like infrastructure and then quite unique data around family offices, for example. And so true multi-asset class scales covering the largest funds, information on 30,000 managers, 30,000 investors. And the quality of the data, quite frankly, is something that got us very, very excited. And that's really a testament to the phenomenal execution of the With Intelligence team. I think when you take that with the combination of what we already have within Market Intelligence and the organic growth that we've had there with our company data and with the data we've been collecting over the last several years, you've got something quite compelling. And then, of course, you tag on the potential with the Cambridge, Mercer partnership as well. And look, ultimately, we are confident that we can expand and accelerate the growth of with Intelligence within the Market Intelligence team. And the teams are really just sort of itching to get going here. So very exciting for us. Thanks, Andrew. Operator: Our next question comes from Jason Haas with Wells Fargo. Jason Haas: In response to an earlier question, you said that the Market Intelligence ACV has grown 6.5% to 7.5%. So I take it to mean that that's a good indicator for the underlying subscription growth of that business. But you also currently have a long-term target for 7% to 9% growth for Market Intelligence. So I'm curious if that long-term target still holds or if that's under review. Eric Aboaf: Jason, it's Eric. We did go into ACV growth, which is a real, I think, important proxy for organic revenue growth on a consistent basis. And as we described, it's been ticking up over the last few quarters, which is the kind of trajectory we'd like to see. It's particularly in line with the trajectory of adding to sales, right? As sales are up each year, you'd expect ACV to actually continue to increase and accelerate. And we've seen that from the low 6% range in the beginning of the year to the 6.5% to 7% range now. The work hasn't finished. We continue to sharpen our execution. We continue to invest in a broad range of products in MI, as Martina described. And it's a little premature to get into '26 guidance or multiyear targets, but that's exactly what we'll cover at Investor Day in just a few weeks. But we're quite, I think, proud and confident in that stabilization phase that we navigated through late last year and the beginning of this year in MI and the acceleration quarter after quarter after quarter. And so I think it bodes quite well for revenue growth, organic revenue growth, organic ACV growth in the coming quarters. And we'll just -- why don't we just talk more about it at Investor Day when we see you there. Operator: Our next question comes from Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: Martina, I just wanted to ask you a little bit about the pace of portfolio moves. You said you're kind of getting to an end state of what you expected in Market Intelligence, and I'm looking forward to hearing kind of the vision over there at Analyst Day. But I wanted to ask, once you're done with that and kind of the spin-off of the Mobility division, is there going to be a focus on other divisions in the same way? In other words, should we see -- do you see yourself making portfolio moves within the Commodity Insights in a way that -- you just wouldn't do so much at the same time. So should we be seeing more of it but just focused in other areas? And then, also, if you don't mind just circling back to what Toni asked about in terms of the market growth in -- market improvement in Market Intelligence versus your execution, it just wasn't clear to me whether you're seeing improvement in the end markets or not, if you could just address that as well. Martina Cheung: Shlomo, thanks for the question. Well, we are, I think, as we said, substantially complete with the portfolio optimization that we embarked on within Market Intelligence over the last several years with the announcement of EDM and thinkFolio. And look, we are always going to be good stewards of shareholder dollars. We're going to make sure that our products align with our strategy, our customers' needs and balance that with value realization for our shareholders. And so from time to time, we may do tactical divestitures, certainly nothing at the level of something like Mobility, for example. And we'll continue to do that very tactically as we go forward. I think in terms of the end market conditions in Market Intelligence, I would really just point you to how we think about our business. And look, a great example there is the desktop. The Capital IQ Pro desktop continues to perform strongly and actually it's growing faster than the end market. And so we're very focused on our execution. We're very focused on the strength that we bring in our products, the partnership that MI has with the Chief Client Office and our ability to really consolidate as much as we can for our customers with us so that they can reduce their spend and we can increase our value with them. So we're quite committed to that course of action and the team is executing very well. Thanks for the question. Operator: Our next question comes from Russell Quelch with Rothschild & Co. Russell Quelch: I think you mentioned on the last call, Martina, that you've started to distribute data via Microsoft Copilot, but it was limited to some of your Commodity Insights data. So my question here is, have you made any progress in integrating any more of S&P's data sets into that platform? Are you seeing any sort of notable uptick in data usage as you leverage this in some of those other AI-based distribution channels you mentioned earlier? And perhaps when should we expect to see this in revenue? Martina Cheung: Russell, thanks for the question. Yes, so the Commodity Insights data availability in Copilot has really captured quite a bit of attention with our Commodity Insights customers, and the team has been able to monetize that as an add-on to subscriptions with existing clients. So that's been great. And we've been working with Microsoft on getting additional data sets in there, for example, with Market Intelligence. Now we have been on a journey, as you know, and you can see, to partner with many of these players around the industry. And the method and approach there is to ensure that we're enabling our clients to maximize the value they get out of these various channels. Today, this is licensing additional channels for customers. And it's actually quite common for our customers to license our content via multiple channels already. So very consistent with what we've done in the past. And many of these players have actually approached us. So after our first few announcements, we actually got quite a bit of reverse inquiry from the LLMs and hyperscale players to work with them also. And we have a huge amount of interaction with our clients, depending on which partner it is that they want to work with and work with us as well. And as I mentioned, with the example of IBM and there are other examples beyond that, we look at this as a means to tap into new clients as well, so new client acquisition channels also. Look, the last point I'd make is we're learning as much about these players as they're learning with us as we go through these partnerships. In many cases, the strategies for the LLM players and the hyperscale players are actually quite unique and different. So we don't necessarily see any one of these players with exactly the same strategy as another. And as we evolve, we're very flexible in how we can work and how we can create additional value. And as we evolve, we'll likely see these relationships evolving with the pace of the technology as well. So exciting time. One additional point I would make here and just for the absence of doubt, we are very conscious of how we protect our IP in all of these arrangements. And importantly, we don't add all of our data into these channels either. There are some data that we think are best provided through our own platforms. So more to come on that, I would say, Russell, in a couple of weeks, but it's definitely creating quite a bit of value for us and our clients. Thanks for the question. Operator: Our next question comes from Jeff Meuler with Baird. Jeffrey Meuler: Can you just run through where you have revenue sensitivity to IPO volumes just with the backlog, I guess, building into '26, but also does the materiality even rise to a level where we see it in numbers as we think through the short-term impact? Obviously, really good MI numbers in Q3, government shutdown potentially impacting Q4. Eric Aboaf: Jeff, it's Eric. I think the revenue sensitivity to IPO volumes specifically are primarily in MI around some of the volumetric and transactional usage revenues that we report. In fact, if you look at our supplement, as the capital markets accelerated in third quarter, you would have seen that, what we call, the non-subscription transaction revenue growth in MI was 13%. The non -- the recurring variable revenue was up 11%, right? Those are really coming through, in particular, in the Enterprise Solutions space, where you've got kind of usage metering and pricing in effect on a number of the products and subproducts. So that's, I think, the immediate one. The broader one is, as you have more IPOs in the marketplace, there'll be more debt and equity issuances, and those tend to help the franchise broadly as well. Operator: Our next question comes from George Tong with Goldman Sachs. Keen Fai Tong: Historically, you've delivered pricing increases in the 3% to 4% range. As you increasingly include AI functionalities into your products and drive product upgrade cycles, how do you see your pricing increases trending going forward? Martina Cheung: George, it's Martina. I'll start there and hand over to Eric. We will always base any pricing conversations that we have with our clients on the value that we generate from our clients. And we certainly see and hear a lot of very positive feedback from our clients from not just the AI enhancements, but the additions to content, the additions to various different features and enhancements that we've got across the entire portfolio. And so that can show up in multiple ways. It can show up in retention. It can show up in new sales, and it can show up in actual price increases. This wouldn't be something we'd expect to actually break out separately, but let me turn over to Eric and see what else he has to add here. Eric Aboaf: George, I would just add that the AI benefits will come through the revenues over time in a multiplicity of ways, as Martina described. The execution focus that we have right now is actually rolling out those offerings within products as new products, et cetera, and then really monitoring and surveilling the usage of those offerings, right? Just we want to see them each go up an S-curve of usage, usage by our existing clients, the usage by new clients, the amount and depth of usage and repeat usage. That's the way we can ensure that we monitor and see where clients are getting the value that they're looking for. And playing that back to clients is exactly what they like to see because they're trying to understand how to get the benefits of AI through their ecosystem and ours, and it's a natural way to do it. So that's the focus right now, and I think will pay dividends over time. Martina Cheung: Yes. And George, maybe just one other point I would add is, don't forget that we will also launch new products using Generative AI. So think about us launching agents, think about the reference I made to the ProntoNLP filings product as well. And so those are other ways that we would think about commercial value from Generative AI and product related. Thanks for the question. Operator: Our final question will come from Sean Kennedy with Mizuho. Sean Kennedy: Really nice results, especially in Market Intelligence. Great to see. So I had a follow-up question on the data partnerships. How do we think about the incremental margin profile from the current and future partnerships? You touched on this a bit earlier, but do the potential new customers still need an S&P subscription? Or are you exploring different revenue models like consumption to help fully unlock the value of your data assets in the GenAI era? Martina Cheung: Sean, thanks. I'll start and certainly, we can -- Eric, if there's anything else you want to add, you can chime in as well. So right now, Sean, all of this has been done off the basis of customer needing to have a license with us. Frankly, some of that is actually because some of the capabilities may not yet exist depending on the partner in question to actually license a new customer over that channel. So that's why we say we look forward to customer acquisition with new customers on a go-forward basis. So right now, it's very much on the current license base. The revenue model going forward, look, I mean we may consider additional ways to monetize. We're a little far away from that at this point. Again, some of it is just where the LLMs and hyperscale partners are in their own journeys, but we're being proactive in thinking about that and the full opportunity there as well. Eric, anything else that you'd add to that? Eric Aboaf: No, I think that's really a clear summary. We're excited about this space. The protections we have between permissioning and licensing and the paywall are just natural, both defensive mechanisms, but also ways to monitor usage. And as we get more usage, there's more value, and that has a very virtuous and positive benefit to our results, including the financial results and growth over time. Martina Cheung: Okay. Well, I do want to say a huge thank you to all of the colleagues at S&P who delivered a phenomenal Q3. I'm very proud of everyone and a huge thanks to all of you. Thank you to all of our participants on the call today for your questions, and we're excited to see you in 2 weeks. Thanks again. Take care. Operator: Thank you. That concludes this morning's call. A PDF version of the presenter slides is available for downloading from investor.spglobal.com. Replays of the entire call will be available in about 2 hours. The webcast with audio and slides will be maintained on S&P Global's website for 1 year. The audio-only telephone replay will be maintained for 1 month. On behalf of S&P Global, we thank you for participating and wish you a good day.
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: Good afternoon, and welcome to Garanti BBVA's Third Quarter 2021 Financial Results Webcast. Thank you for joining us today. Our CFO, Mr. Aydin Guler; and our Head of Investor Relations, Ms. Ceyda Akinç, will be presenting today. [Operator Instructions] With that, I would now like to hand over to management for their presentation. Ceyda Akinç: Hello, everyone, and thank you for joining us. We are excited to be with you on another earnings call. Before getting into our financial performance, let's, as usual, go over the [Audio Gap]. Turkish economy grew by 1.6% Q-on-Q in the second quarter. And for the third quarter, we nowcast 0.5% to 1% Q-on-Q growth. This implies a slowdown on a quarterly basis, yet it could still generate 4% to 4.5% annual growth. Therefore, we view risks to our full year GDP growth forecast as balanced and keep our forecast at 3.7% for '25 and 4% for '26. In terms of inflation and monetary policy, following September inflation reading, we revised up our year-end inflation expectation to nearly 33% and policy rate assumption to 38.5%. Pace of rate cuts will depend on disinflation gains and we evaluate the ex-post 6, 7 percentage points real rate can be required due to sticky service inflation and uncertainty on pool inflation. We expect CBRT to maintain gradual rate cuts with ongoing reliance on macro prudential measures for longer. In terms of current account deficit, we assume private consumption staying much lower than its long-term trend, thus keeping current account deficit moderate in short term. We forecast current account deficit to be 1.2% of GDP in '25 and 1.5% of GDP in '26, which can be easily financed. Led by moderating noninterest spending below inflation trend and still strong tax revenues, cash primary deficit to GDP came down to 0.6% of GDP in September. We observed an increasing effort on fiscal consolidation since April, resulting in a negative fiscal impulse. Accordingly, in our current macro baseline, we assume 3.6% of budget deficit to GDP in '25 and 3.7% in '26. Now moving into our financials. I will start with the headline figures. At Garanti BBVA, we could sustain the quarterly growth in earnings also in the third quarter. With a 9% quarterly growth, third quarter net income reached a new record level of TRY 30.9 billion. This brought our 9 months net earnings to TRY 84.5 billion, which translates into 31% ROE with relatively low leverage. During the quarter, strong NII improvement and stellar fee generation more than offset the increase in net provisions. Earnings outperformance once again enabled by core banking revenues. Moving on to Page 7. We delivered consistent growth for 7 consecutive quarters in core banking revenue. As we will discuss in the following slides, recovery in core margin was better than expected on the back of opportunistic liquidity management and well-managed spreads. Trading income increased supported by securities trading and the absence of derivative transactions, mark-to-market losses that paid on second quarter base. Net fees also held up well, growing 11% on the back of payment systems and strong lending activity. As a consequence, our core banking revenues to assets reached 7.8% in 9 months, which suggests the highest level among peers. A big part of this success comes from our asset mix. Now moving on Slide 8. Our asset growth continued to be fueled by customer-driven sources, namely loans. Performing loan share in assets remained strong at 57% and lending growth was across the board. In securities, we had opportunistic foreign currency security additions and realized some gain from TL fixed rate security portfolio. Moving into Slide 9 for further insights on loan portfolio. In the third quarter, we recorded 10% growth in TL loans. Credit cards and consumer loans were the front runners with 15% and 12% growth, respectively. Our market share in TL loans increased further to 22% with outperformance in consumer GPL and mortgage loans. Our SME focus remains intact, and we preserved our market position in micro and small enterprises with around 24% market share among private banks. We continue growing in profitable way, focused on segments where we see more value. Now let's look at the evolution of our asset quality. In the third quarter, there was retail restructuring-related increase in Stage 2 loans. As you may know, in line with our prudent provisioning strategy, once loan is restructured, we classify this loan under Stage 2. Due to the respective regulation, restructuring in consumer loans gained pace notably in the third quarter, and thus, our restructuring loans under Stage 2 increased. However, please also note that as of October, this regulation has been terminated. Our Stage 2 coverage ratio declined due to improved repayment performance of some individual assessed firms. While our Stage 2 coverage is now 9%, if we look at TL and foreign currency breakdown, our foreign currency Stage 2 loans coverage remains healthy at 18%. Now let's walk through the evolution of NPLs. Our NPL ratio rose modestly to 2.8%, in line with the expectations. We are witnessing the national consequence of robust consumer and credit card growth that sector registered in the last couple of years. Retail and credit card portfolio still accounted for around 70% of net NPL flows. If we move on to the net cost of risk on Page 12. In the third quarter, net provisions increased Q-on-Q, mainly due to the exceptionally low base of second quarter, which has benefited from large ticket provision reversals. Yet on a cumulative basis, net provisions continue to perform better than expected. As a result of this trend, we also revised down our net cost of risk expectation for this year-end, which I will explain in more detail in final slide. Now moving to the other side of the balance sheet, how we are funding our balance sheet growth. Not only in assets, but also in funding, we rely on customer-driven sources. Total deposits make up 69% of total assets and remain TL heavy. This quarter, in TL time deposits, our growth was flattish due to cost optimization to support spreads. On an average basis, TL deposit growth was strong, and we continue to meet the required regulation in TL deposits rate. Growing demand deposit base in line with our expanding customer base supported TL deposit growth. On foreign currency side, deposits increased by 14% due to gold price increase and flow from maturing KKM deposits. Excluding subsidiaries impact, foreign currency deposit growth was 10% and 40% of quarterly increase was purely coming from surge in gold prices. Our active funding management is also visible in net interest income on Page 14. In the third quarter, our core margin recovered better than expected by 44 basis points with the support of opportunistic liquidity management. Let me elaborate on this. In the third quarter, we created excess TL liquidity with utilizing more repo and swap funding and then placed this TL liquidity to depo facility at better yields. On spreads, as you can see on the right-hand side of the slide, our TL loan to time deposit spreads remained flat in the third quarter. We managed to fully reflect 300 basis points July rate cut to our funding costs. However, in September, pace of decline in TL time deposits was more gradual than expected, mainly due to the impact of TL deposit regulations. In the fourth quarter, on average, we expect spreads to progressively improve. We are expecting another 100 bps cut in December, which may bring down fourth quarter average TL time deposit cost to below third quarter average. Another component of NIM was swaps. You may notice the increase in swap costs as we utilized more swaps in the third quarter due to its funding cost advantage relative to TL time deposit costs. Lastly, in terms of CPI linker income, CPI rate used in the valuation increased to 30% from 28% following September inflation data, yet CPI linker income contribution to NIM remained flat due to redemptions from the portfolio. Here, I would like to mention that October CPI reading will be announced in the coming days, and we are expecting October CPI rate to be around 33%. If it realizes at this level, we will once again adjust our CPI linker income valuation and reflect the full year adjustment into the fourth quarter. Putting all this together with the help of lending growth, we were able to register 20% growth in NII base. As you can see on the left-hand side, with 5.3% net interest margin and TRY 46.5 billion NII, including swap, we have the highest net interest margin and NII level among Tier 1 private peers. And our balance sheet positioning lie at the heart of this unmatched performance. We would like to present this slide every quarter in order to underline that our margin reliance is rooted in high share of TL loans and TL deposits. First, TL loans make up 62% of TL assets. In a current environment where loan yields are about 2x higher than securities, this presents a sustainable revenue advantage. Please also note that while our securities share in assets is the lowest among peers, when we look at the components, it's mainly because of low share of CPI linkers. We are not lagging behind peers in terms of fixed rate securities. CPI linker share is only 38% and in a disinflationary environment, yield gap may widen further. And 58% of TL securities are fixed rate securities at attractive rates, which will again serve as a hedge in a declining interest rate environment. On liabilities, TL time deposits represent 69% of TL liabilities. And here, we continue to preserve our funding cost benefit versus repo in the 9 months. Here, I would like to underline that, as you know, there are 3 main funding sources for us: customer deposits, repo funding and swap funding. On a daily basis, we manage our funding sources by taking into consideration margin and risk metrics. As our track record shows, we have operational agility, and we are well positioned to respond. Now let's move on to the other P&L items, fees. Our fee base remains robust, up by 54% year-over-year. On an annual basis, payment system fees continued to lead to growth. On a quarterly basis, strong cash and noncash loan growth, which supports lending-related and insurance fees, followed by increasing wealth management fees. Digital engagement continues to rise and number of active -- digital active customers reached 17.6 million. Moving to our operating expenses. Our OpEx base growing in line with expectation. OpEx base increased by 70% in the 9 months due to planned investments to fuel sustainable revenue generation streams. As we have been communicating, we have been investing in customer acquisition through salary promotions and to enhance customer experience and to increase customer penetration, we have been leveraging the power of artificial intelligence and digitalization, which in return supports our revenue generation capability. Hence, our OpEx base is largely covered by fees, and we continue to have the lowest level of cost/income ratio among peers. As per our capital strength, in the third quarter, our solvency ratios improved with strong support from profitability and Tier 2 issues we had in July. As you know, in October to support our capital base for future growth, we successfully issued $700 million Tier 2 in October, which will provide 92 basis points uplift to our capital adequacy ratio and reduce currency sensitivity by 5 basis points. Let's now summarize our performance before closing. We sustained our unmatched leadership in earnings generation capability. Backed by our customer-driven balance sheet growth, we defended our NII well. Remarkable fee performance enabled us to cover 84% of operating expenses, better-than-expected net cost of risk trend sustained with exceptionally high provision reversals. As a result, we ended the first 9 months with 30.9% ROE while maintaining sound capital ratios. Now let's look briefly at what's ahead. In terms of guidance, our message remains fully aligned with what we communicated in the second quarter call. In this quarter, to enhance transparency, we quantified the underlying impacts and formally revised our guidance for select PL items. Yet our ROE guidance remains unchanged. Let's take a closer look at what we revised. We lowered our year-end net cost of risk expectation to below 2%, given exceptionally high provision reversals recorded during the year. Due to the change in policy rate expectation and the impact of TL deposit regulations, we revised our NIM expansion guidance down to 1.5% to 2%. Please note that in the beginning of the year, our policy rate assumption for this year-end was 31%, which we now revised upward to 38.5%. On a year-to-date basis, we were able to increase our margin by 1% on a consolidated basis and by 1.3% on a bank-only basis. In the fourth quarter, we expect TL spreads to improve Q-on-Q, while the contribution from CPI linkers is also increased. Taken together, this gives us confidence that we will achieve NIM expansion within the revised range. Lastly, we revised up our fee growth guidance, and now we expect fee coverage of OpEx to be 90% to 95% on a [Audio Gap] better-than-expected trend in net provisions and fees will mitigate headwinds on net interest margin. As a result, ROE is likely to settle near the lower bound of the guided range. This concludes my presentation. Thank you for listening. Now we can take your questions. Operator: [Operator Instructions] We have first question coming from [indiscernible], HSBC. Seems like there's a problem with the line. So now as we have no further questions, this concludes our Q&A session. I would now like to hand the floor back to our management for their closing remarks. Aydin Güler: I think Ceyda probably explained everything very clearly. So we don't have any written even questions, right? So let me conclude the meeting by saying thank you all for joining us today. We are pleased to close another strong quarter that reflects our solid fundamentals and disciplined execution in a dynamic environment. So numbers speaks for themselves. That's what we are saying. During the third quarter, we managed our margin effectively, strengthened our leadership in Turkish lira loans and continue to expand our deposit base as well. Clear indicators that we remain our customers' primary bank. We also continue to advance our digital transformation and sustainability efforts, consistently creating long-term value through innovation and operational excellence. With our strong capital position and focus on balanced TL-driven growth, we are confident in our ability to continue delivering sustainable value for all our stakeholders. Thank you once again for your participation. Have a nice day. Thank you.
Joanna Filipkowska: Good morning, ladies and gentlemen. My name is Joanna Filipkowska, Investor Relations. Today, we are presenting the results of mBank Group in the third quarter of 2025. The speakers today are Mr. Pascal Ruhland, Chief Financial Officer; Mr. Marek Lusztyn, Chief Risk Officer; and Mr. Marcin Mazurek, Chief Economist. After the presentation, we will answer the questions that you can put into the chat box. Pascal, over to you. Pascal Ruhland: Also good morning from my side, and welcome to our results presentation. And I'm really pleased to share that we continue to deliver strong volume momentum and a robust financial results. And let's begin with a few achievements we are especially proud of and let's start with Slide 4. First, in the 9 months of '25, we generated revenues exceeding PLN 9.4 billion, a solid 5% increase year-on-year. Each quarter, revenue surpassed PLN 3 billion despite a 100 basis points drop in interest rates between May and September. Second, we maintained our best-in-class efficiency with a normalized cost-to-income ratio of below 30%, and this despite a strong increase in contribution to the bank guarantee fund. Third, our net profit reached PLN 2.5 billion, translating into a return on tangible equity of 20%. So you see we are firmly on track with our strategic priorities. So let's continue on Slide 5. Number four, our core gross loans, excluding reverse repo and FX mortgage loans grew by 11% year-on-year, reaching nearly PLN 134 billion now by the end of September. Fifth, our active Swiss franc loan portfolio is further shrinking to 7,500. Legal risk costs related to FX mortgage loans dropped by over 50% year-on-year, totaling PLN 1.66 billion in the first 3 quarters. Both new court cases and pending lawsuits continue to decline. And sixth, thanks to our successful PLN 400 million Tier 2 issuance in Q2 and our retained earnings, give significantly bolstered our capital base creating a solid buffer for our future growth expectations. Now moving to Slide 6. As announced at our Capital Markets Day, our ambition is to exceed 10% market share in all our key products by 2030. Since January, we have gained shares in house loans, mortgage loans, household deposits and enterprise loans. So we are growing faster than the market. In corporate deposits, we've already surpassed the 10% threshold. But for strong liquidity, we focus on client satisfaction and transactionality rather than price competition. Let's move now to Slide 7. And here, we share 2 mBank unique topics. Starting on the left side. We are very proud that we have been recognized by Forrester's Technology Strategy Impact Awards '25 for the EMEA region. This award acknowledges the scale and impact of our recent technology transformation, and please believe us that is more than just a tech upgrade. This is the foundation of our strategy enabling us to scale, innovate and deliver even greater value to our clients. Our second topic on the right hand of the chart is our world-first innovation. We introduced the first palm payment ring that combines payment functionality with health and activity tracking. This combination of finance and health fits also perfectly to our strategic ambition. And now I'm handing over to you, Marek who will elaborate about our recently announced transition plan. Marek Lusztyn: Yes. Thank you, Pascal. Good morning, everyone. So as Pascal just highlighted, just this week, we have published our transition plan. This is the foundation of our resilient business model. It well combines our target to get to the net 0 emissions with some business target we have announced last month. And we are proud to announce that we are the first bank in Poland with decarbonization targets, validated by the science-based initiative that ensures alignment with the Paris agreement on getting to 1.5 centigrades pathway. Transition plan of mBank translates our climate ambitions into the concrete business actions, sector-specific initiatives and measurable targets. And it is fully embedded into the business strategy for 2026 and 2030. What are our key milestones for 2030? First milestone is the absolute Scope 1 and 2 greenhouse gas insurance reduction by 42% by 2030 when compared with 2022 as a base year. And sectoral decarbonization targets are sector level are set for commercial real estate, power generation and residential real estate as well as for our assets under management and leasing. And on that, we would like also to recall how it is integrated with the business strategy that we have communicated last month. We assume that sales volume of mortgage loans for energy-efficient properties will double when compared to 2024 and 15% of corporate loan portfolio will be allocated to sustainable transition and impact finance. And Pascal, over to you. Pascal Ruhland: Thank you, Marek. So let's now turn to our Q3 financial performance on Slide 10. Total income remained nearly flat quarter-over-quarter with net interest income down 1.4% due to lower yields on loans and floating rate securities. The net interest margin declined by 23 basis points to 3.89%, reflecting the impact of rate cuts. Fee income held be steady, supported by strong payment card-related fees, and a one-off in connection to payment card company in the magnitude of PLN 42 million. Net trading and other income was nearly 17% quarter-over-quarter, driven by gains in hedge accounting and equity stake revaluation. For Q4, we expect revenues to decline NII will be pressured by lower rates despite expected volume growth. Fee income will be impacted by year-end adjustments and the absence of any one-offs. Going to the costs. Our operating cost increased 3.3% quarter-over-quarter, mainly due to double marketing spend. Personnel costs remained stable and depreciation normalized. For Q4, we expect a moderate quarter-on-quarter cost increase. It will mainly reflect planned regulatory and business project spending. Personnel costs will rise due to higher salaries from increased headcounts. Cost of risk stood at 61 basis points below our full year guidance, and as anticipated, higher than the very low previous quarters. Marek will go later into the details, but we expect the cost of risk to remain below 65 basis points for the full year '25 and due to seasonal corporate write-offs, Q4 is likely to exceed Q3. Legal risk related to the FX loans continued to decline, reaching PLN 455 million, the lowest since Q4 2022. So we saw now the seventh consecutive quarter to dropping impact. We clearly expect the trend to continue and guide that the next quarter is expected to be lower than Q3. As a result, net profit reached PLN 837 million, down 13% quarter-on-quarter, but up 46% year-on-year. The decline was driven by a higher effective tax rate, which rose nearly to 40%. And as you know, we calculate tax according to IAS 34 and the driver of the high tax rate are the barely tax-deductible Swiss franc-related legal risk costs. Nevertheless, we saw strong results with an ROE of 16.4% and a royalty of 18.9%. Let me skip the balance sheet slide and we jump directly to Slide 12, our new lending business. In Q3, we continued to expand our lending volumes. Our mortgage loan sales reached a record PLN 4.6 billion, up 24% quarter-on-quarter and 37% year-on-year. Over the first 9 months, volumes were up 35% higher than in the same period last year. Fixed rate loans dominated. Over 80% of the new PLN denominated mortgages in July and August and 75% in September. This now represents 52% of our PLN mortgage loan portfolio. The new sales leads us to the top 3 in the country. News in September is our first stage of our digital mortgage, enabling active clients with mBank personal accounts to transfer mortgages from other banks. The record time to a positive decision on mortgage transfers is below 7 minutes. Nonmortgage lending remained solid at PLN 3.4 billion in Q3, up 20% year-on-year. Sales over 9 months were up 22% higher than year-on-year. Turning now to the corporate loans. Loan sales rose 5% quarter-on-quarter with a strong growth in structured finance, especially in renewable energy, construction and district heating. Overdrafts and trade finance also increased. Looking at the 9-month period, corporate loans rose 23% year-on-year with the K1 segment, so our biggest customers, up over 60%. Structured finance accounted for 45% of the new sales, growing 34% year-on-year. The result of the sales efforts are reflecting the growth of the loan portfolio by 2.2% quarter-on-quarter and 9.6% year-on-year, visible on this Slide 13. We are seeing strong activity across all client groups. The result is that we're gradually enhancing our market share across all key products as presented on the right-hand side of the slide. These results demonstrate that the growth of our household and corporate loan portfolio is outpacing the broader market which is and remains our strategic priority. Now let's have a look at the group's deposit developments on the next slide. We recorded deposits growth of 4% quarter-on-quarter and 10.6% year-on-year. This was primarily driven by retail current and saving accounts. And as you can see on the left side of the slide, we've managed to improve our market share in household loan deposits while in the segment of enterprises, we observed mBank's market shares fluctuating between 10% to 11% over the past year. And as I've guided the income already before, we skip the next slide and go directly to Slide 16 and to our cost development. In Q3 2025, the group's operating cost rose by 3.3% quarter-over-quarter primarily due to the 12% increase in material costs. The most significant driver was on marketing expense, which doubled compared to Q2, reflecting strategic initiatives such as the cybersecurity campaign and the promotion of investment products for our retail clients. Personnel expenses remained stable despite a net increase of 60 FTEs since June. This stability underscores effective cost containment amidst strategic hiring. Depreciation declined normalized after the elevated Q2 levels that had included accelerated amortization of IT systems. And this leads us to a cost/income ratio below 30%. And with this, I'm again handing back to Marek for the risk result. Marek Lusztyn: Thank you, Pascal. So on the following slide, we can see our risk results. You can see a normalization of the risk costs, along with the rise of the credit provisions, in particular, for the corporate exposures as compared with Q2 2025. When just as a reminder, Q2 results were positively impacted by a few one-offs in corporate book, so that was not a normalized cost of risk for ourselves. Overall, as Pascal alluded to earlier, we guide our cost of risk for 2025 at under 65 basis points for the entire year. So that is a bit higher than what you have seen in Q3. But on the following slide, we would also like to point out that cost of risk led to an improved coverage ratio and coverage ratio of mBank Group improved both quarter-on-quarter and year-on-year. And overall, we have seen in Q3 improvement of the loan quality as demonstrated by decline in mBank Group impaired loan portfolio decline in mBank group nonperforming loans ratio, both year-on-year and quarter-to-quarter both in corporate and retail segments. Also going forward, as it comes to legal risk of mBank going beyond credit risk, that risk is decreasing as well. We are happy to report that a number of settlements concluded by mBank increases quarter-on-quarter. We have concluded additional 2,000 settlements in Q3 and over 11,000 settlements between September '24 and September '25. And based on publicly available data of the peers, it shows that we have the highest share of settlements when compared to the total number of loans in the peer group. Also, looking at new court cases, we see another quarter of a steady decline. The number of new Swiss franc-related court cancers went down by 15% to just over 600 in Q3 and that is the decline of the quarterly number of new cases by 52% when compared to the Q3 of the previous year. And that leads us also to a very significant decline of loan contracts in court. That is also the fastest drop when compared to the peer group. So the number of contracts in court declined by 62% year-on-year and 26% quarter-on-quarter. So overall, the number of court cases and number of active -- not yet certain cases, dropped below 10,000. You can see that on the following slide, and that's a massive decline compared to the starting point. Also, we are happy to report that outstanding balance sheet value of Swiss franc mortgage loans dropped almost to 0 in September 2025. So Pascal, back to you on our net results and profitability. Pascal Ruhland: Yes. Thank you. So all that development, we explained delivers us a net profit of PLN 837 million in Q3. And I just want to highlight that excluding the noncore segment, excluding the Swiss franc impact, the net profit in Q3 reached PLN 1.44 billion. As you can see, we are highly profitable for the 9 months, an ROE of 17.3% and a ROTE of 20%. Let's now go to our capital position on the next slide. Starting on the left of the chart. At the end of Q3, consolidated own funds reached PLN 20.2 billion, so up PLN 2.3 billion versus Q2. The increase was driven by 2 factors. The first one is retrospective inclusion of our profit of Q2, so the PLN 960 million. And the second topic was the inclusion of our PLN 400 million subordinated bond issued in June, which posted Capital Tier 2 which were partly offset by a PLN 0.2 billion early repayment of other subordinated bonds and the Tier 2 amortization. Moving now to our risk total exposure in the middle of the slide, which rose by 1.8% quarter-on-quarter and 18.3% year-to-date. This growth resulted from strong business growth and regulatory changes, including our implementation of the CRR provisions. Consequently, we show comfortable buffers above the PFSA minimum requirements. Now forward-looking. In Q4, we expect CET1 ratio remain relatively stable. RWA will increase due to further business expansion, and we might face an impact from operational risk RWA related to the Swiss franc as we're still analyzing the latest RTS. This RWA growth would be significantly offset by our securitizations, which we just issued in October. We issued our fifth securitization based on a portfolio of PLN 3.8 billion. This was the largest project finance securitization from the CEE region with a 75% focus on wind and solar renewables. And this, plus a ramp-up of an existing portfolio leads to an improved CET1 between 0.3 and 0.4 percentage points in Q4. Therefore, at the end of 2025, we expect to remain well above our strategic target of 2.5 percentage points above the CET1 requirements. Looking ahead to '26, our new strategy, Full Speed Ahead is expected to drive further RWA growth. The pace of this increase will depend on how quickly we can expand our market share. Most of the growth will be volume driven while the remainder is linked to the implementation of the group definition of default and the calculation of this past due, the timing and impact of these changes will depend on the supervisory decision. The estimated impact is approximately 4% of today's RWA. And let me now close my part here before I'm handing over to Marcin for the economic side, and we jump to Slide 28 for our outlook. You see here, first, we expect total income for 2025 to be fairly above PLN 12 billion, driven by our excellent performance of the business model which will result in the best year of mBank's history. Second, we maintain our view that '25 is going to be the last year with a significant cost of legal risk related to the FX mortgage loans. Third, we definitely focus further on business expansion and growing market shares. And four, we continue also our efforts to strengthen our capital and funding position. So before year-end, we plan to conduct an issuance of a nonpreferred senior in green format and a benchmark size of PLN 500 million. And now Marcin, the floor is your for the economic view. Marcin Mazurek: Thank you, Pascal. Good morning, everyone. So I have only good news today. So with regard to Polish growth, we are heading towards much higher numbers with a 4 ahead. So the next year is going to end up 4.2%. This is a significant acceleration from this year. What is driving this growth? So consumer stays strong. The consumer moods are high. Wages are running also quite high. And well, consumer behaves much better than we could have expected a year ago. Additionally, unemployment rate stays low and well. What we are waiting for is mostly acceleration of investment activity. And it's going to happen due to the fact that we will have a huge inflow of EU funds in 2026. So we are also going to see double-digit growth in investment spending. So with this a bit higher growth, also inflation is going to be a bit higher. And what's most important trajectory is going to be upward sloping. So with the trough at around 2% in the first quarter of 2026, we expect inflation to slowly drift towards almost 4% in the end of 2026. So it's not a big deal with respect to inflationary processes. Inflation is not going to be exactly at NDP target, but it makes its effect on interest rates. So we expect 2 more rate cuts from the NPC and they are going to end the cycle at 4%. And this is going to happen at the start of 2026. It is important to note because the markets are pricing in much lower rates at the moment and also the consensus is lower. So summing up the economic parts it seems that we are above the consensus with respect to GDP, a little above the consensus for both inflation and clearly above the consensus with regard to interest rates. When you look at monetary aggregates, it seems that everything is firing on all cylinders. So loans are slowly accelerating. Deposit growth is holding up. So we are seeing, I would say, standard activity given the phase of the cycle, and it's going to be continued at least through 2026. As far as financial markets are concerned, we see some decrease in bond yields recently. But overall risk metrics like asset swap spread stay relatively high due to the prospects of relatively expansionary fiscal policy. As far as zloty is concerned, Polish currency is stable recently, it got appreciated towards the U.S. dollar, but it was not about the strength of the zloty, but rather the weakness of the dollar. Overall, it seems that we are having a quite rosy outlook ahead and good conditions for functioning of the banking system in 2026. Thank you very much. Joanna Filipkowska: Thank you very much, Marcin. Now we can start our Q&A session. The first question is regarding the tax line. Can you guide us through the tax line in the third quarter and the potential EBITDA effect in Q4? Pascal Ruhland: So the tax line, as I was alluding to was elevated because we are calculating after IAS 34. So what we do is we, every time calculate the full year tax impact. And the normalized corporate income tax or the tax you could expect from us is around 25%. If you're not taking into account that we are heavily burdened from our Swiss franc-related legal provisions because they are to the vast majority, not tax deductible. And while we have now a change between the 2 quarters is because some parts of the Swiss franc-related topics, for instance, settlements are tax deductible. But as we also see that settlements are slowing down and also the way of settlements are slightly changing, it was less favorable for us than in the previous quarter. The second question towards DTA effect or DTA revaluation in the Q4 with related to the Swiss franc, we do not expect that there is a major change in that respect. Joanna Filipkowska: Which portion of Q1, Q3 2025 net profit has been recognized at CET1? Can you provide any guidance on the extraordinary effect on risk-weighted assets for Q4? Pascal Ruhland: Yes. So what we have already included in our capital is the Q1 and the Q2 net profits we have gained. And every time you just include it after you have the content for including from the regulator. So we also planned for Q4, obviously, that we include Q3. But in our figures, Q3 is not yet included. With respect to the RWAs, I've guided that we expect further volume growth, which will fuel our RWAs plus that in Q4, we might face an increase of RTS, which is related to the CRR and also would then impact our op risk, but this is not yet certain. And nevertheless, the bottom line is that we do not expect a big change of our capital position, and therefore, the buffers we would see from today's perspective in Q4. Joanna Filipkowska: Thank you, Pascal. What level of Swiss franc portfolio costs should we expect in 2026? What would you define as significant Swiss franc provisions? . Pascal Ruhland: So first of all, we expect clearly the trend is going down. So every quarter to come, supposed to be lower than the quarter before hand. And we are very pleased that we are ending now, as Marek was saying it, with our active approach towards settlements, the incoming flows because we are really reducing the leftover risk. And in 2026, we expect that we less talk about the numbers, and therefore, it is less significant. Joanna Filipkowska: You mentioned that NII would be under pressure despite balance sheet growth. Are you concerned NII will be declining going forward? Pascal Ruhland: As Marcin was from an economic point of view saying it, we expect that interest rate further to decline. And obviously, as interest rates are declining, net interest income is under pressure. From today's perspective, we don't expect that 2026 will be a harsh increase of NII further, as we have seen in the last years because the volume will partly compensate the negative impact from the interest rate environment. Joanna Filipkowska: Thank you, Pascal. What is the nature of PLN 43 million, actually a little bit less than PLN 33 million, PLN 41 million, Q3 '25 card one-off. Pascal Ruhland: I mean that's a structural commitment from one of the payment providers, which is onetime paid towards us why we engaged with this payment provider. And as you said, it's PLN 41 million, PLN 42 million, and it's not recurring. Joanna Filipkowska: Then we have 2 questions that are quite detailed about our volumes of mortgage loan sales. So the first one is what was the volume of mortgages originated fully remotely? And the other one, what share of your mortgage or origination is attributed to refinancing and what's the new mortgages? Marek Lusztyn: So starting on the refinancing. I mean we see this trend picking up in the Polish banking sector. I'm happy to say that the refinancing balance is favorable for mBank. mBank refinances more loans from the other brands than we lose to our competitors. And that positive net balance is in tens of millions in terms of the volume year-to-date. And most -- more than 80% of clients refinancing externally were our affluent clients. What we actively monitor is to which banks our clients are moving to and also the key drivers of the mortgage prepayments. And on that, we clearly see that rising wages that margin was alluding to dropping interest rates and the gap between the deposit interest rates and higher loan mortgage rates, the lack of early repayment fees or fixed rate loans, which is a Polish specificity, full repayment of loans after selling the previous property are the key drivers. Joanna Filipkowska: Yes. And the last one, what share of your mortgage origination is attributed to the financing -- sorry, what was the volume of mortgages originated fully remotely? This one was not covered yet. Pascal Ruhland: That's something we, I guess, not disclosing to the external is we are very proud that we especially started and I said it, with a really fully digital refinancing as the first from a to set in-house, walk through in a digital manner to really get the mortgage done because I believe nowadays, most of the banks giving you an online platform, which on a front end looks like that it's digital, but in the end, there are lots of manual work, and we wanted to go the route as we are known for that this is a fully digital process. And therefore, we are very proud that we have started, and we expect that this channel will grow fast. Joanna Filipkowska: Thank you, Pascal. It seems that we don't have any more questions. So thank you very much for your attention and for the questions, and have a nice day. Bye-bye. Pascal Ruhland: Thank you very much. See you next year.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Q3 2025 Conference Call of Raiffeisen Bank International. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Johann Strobl, Chief Executive Officer. Please go ahead. Johann Strobl: Thank you very much. Good afternoon, ladies and gentlemen. Thank you for being with us this afternoon. We are pleased to report a good set of results this morning and in particular growth across the region, which continued the pace in the third quarter. We can report a consolidated profit of EUR 1.027 billion for the first 9 months of the year, excluding Russia, equal to a return on equity of 10%, in line with our guidance for 2025. When we think about the future of RBI and exclude both Russia and Poland, we have achieved a 13.5% ROE in the first 9 months. We can confirm our ambition to earn around 13% on this basis in 2025 and beyond. We will discuss this again on the outlook slide. Finally, our CET1 ratio remained stable at 15.7%. On Slide 5, we can report 3% loan growth in the first 9 months of this year and the positive momentum that we have seen across our network in Q3 leads us to confirming our 6% to 7% loan growth guidance for 2025. NII and NFCI have performed well, and the guidance is unchanged here as well. OpEx have increased 7% year-on-year to September 2025, which combined to some headwinds in trading income mainly from the moves in our own credit spreads lead to a slight deterioration of our cost income ratio target to 53%. Let's now move to our slide on the rundown in Russia. First of all, I can confirm that we are ahead of schedule when measured against the milestones agreed with our supervisor. It is worth taking a step back to see how significantly we have shrunk our business in Russia. Since the start of the war, the loan book in ruble terms is down nearly 60% and deposits from customers are down almost 40%. Our payments business out of Russia is merely a fraction of what it was, and this is entirely reported to our supervisor. The balance sheet of our Russia business now carries more equity than loans to customers. Our corporate loan book specifically is down nearly 85% in ruble terms since the start of the war and is now under EUR 1 billion. There's a little I can share with you by way of an update on our claim against Rasperia in Austria to be precise, on our right to file a claim in Austria to seek compensation for the damages that our Russian subsidiary has suffered there. I hope you will understand that we cannot discuss our litigation strategy here, but I would also like to reconfirm our belief in the strength of our claim and our intention to file it at the appropriate moment. Thank you for your understanding. Moving to Slide 7. I'm happy to report a decent NII result in the third quarter, largely driven by better volumes on both the asset and liability side, and we are seeing less headwinds from rate cuts across our markets. As mentioned, I can confirm our guidance for NII in 2025 at around EUR 4.15 billion. Fee income was stable in the quarter, driven by good FX volumes in the third quarter, good inflows in asset management and encouragingly, fees from loan commitments and guarantees in the group corporates and markets. On the next slide, let's take a closer look at loan growth in the quarter with 3% to 5% loan growth in our key CEE and SEE markets, a positive momentum, which we observed early in the year is confirmed. Notably, retail lending in Czech and Slovakia was strong and across most of our markets, we could grow above market average. Corporate activity is improving across most markets, while group GCM remained sluggish, impacted by some repayments in the quarter as well as lower repo volumes. On the bright side, we are starting to see a healthy pipeline in our GC&M segment, which will help us to meet our 6% or so guidance for 2025. On the liability side, we're seeing strong retail deposit inflow, which further strengthens liquidity, but also will support NII. Speaking of liquidity, let's flip to Slide 9. where our ratios are all very stable, both on group level, but also for each major unit, including head office. I won't spend much time on Slide 10 and 11, showing stable CET1 development for the group, excluding Russia and our price book zero scenario, where we assume a worst case out of Russia and what is -- what this would mean for CET1 and our full capital stack, including AT1 and Tier 2. On Slide 12, our CET1 ratio outlook, excluding Russia is unchanged with the strong credit growth explaining most of the RWA increases expected in Q4. Let's jump to Slide 14 with our MREL ratios above target in all countries. On the funding side, 2025 plan is complete and 2026 has started. I should mention that we still may consider issuing a senior preferred bond still in Q4 to get a head start on 2026. Moving to our macro outlook on Slides 15 and 16, we are generally encouraged by the growth trends ahead. Of course, the environment remains uncertain, not least from trade policy and geopolitics. Finally, our outlook is broadly unchanged with slightly better risk costs expected, but the cost/income ratio at [indiscernible]. Overall, we can confirm our ROE for the group, excluding Russia, 10%. And looking through the future -- into the future of about 13%, excluding Russia and Poland. And with this, I turn to Hannes, please. Hannes Mosenbacher: Thank you, Johann. Good afternoon, ladies and gentlemen. Thank you for joining us today. Allow me to briefly run you through a few risk items before we open up the call for Q&A. Johann has just mentioned the positive trends in the new business generation, both in retail and in corporate. And I'm also encouraged by these dynamics. Growth in the region appears to be well established, and I'm glad to see that we are capturing our share, and I'm satisfied that the new business that we are underwriting is comfortable within our risk appetite. At the same time, the risks from trade restrictions and, of course, geopolitical developments have not disappeared. On de-risk specifically, we continue to review our portfolio and besides minor rating adjustments, there has been no deterioration in our assessment. We booked overlays earlier in the year. These remain available to us, and we do not see the need to add to them. Risk costs were again very low this quarter. Defaults and insolvency remain very low, leading to a very few Stage 3 provisions. Furthermore, we made minor changes to our models and benefited from some of our securitizations. After 9 months this year, our provisioning ratio for the year stands at 14 basis points. We currently do not foresee the need to aid overlays in the fourth quarter, and we can, therefore, bring our risk cost guidance down to around 30 basis points. Asset quality continues to improve and our NPE ratio has reached a new low for us at 1.7% with a Stage 3 coverage ratio stable around 50%. In Poland, we have booked a further EUR 66 million of provision for litigation on FX mortgages, bringing us to a EUR 295 million year-to-date. In the fourth quarter, we do not expect significant model changes. And on the positive side, we expect to be able to release some of the provisions for penalty interest. Accordingly, we can confirm our guidance of around EUR 300 million for 2025 or perhaps a touch above. Well, ladies and gentlemen, this was my very brief update, and we are now more than happy to take your questions. Operator: Our first question comes from Benoit Petrarque with Kepler Cheuvreux. Benoit Petrarque: So a few questions on my side. The first one will be maybe just to get an update on this European Commission process to size Russian assets, especially the STRABAG shares. I think behind the screen, there have been a lot of political negotiations. I just wanted to get the latest on that. What is the intention from, let's say, Europe vis-a-vis the STRABAG shares. So that's the first question. And I will not ask any questions on Rasperia. On the second question will be on Poland. If you think the EUR 300 million will be kind of enough? Or do you expect still some remaining losses or litigation provisions in '26? So that's the second question. The third one is actually on the CET1 ratio expected at 15.2% by year-end. That suggests very important growth and loan growth in the fourth quarter. So just trying to understand the moving parts between the 15.7% to 15.2%. And then just lastly, just on the NII, a few questions on Czech Republic, which was very strong. Just wondering here if it's just a very strong loan growth in Czech Republic or are there other items? And on the contrary, the Corporate and Market division on NII was a bit weak. We were down EUR 20 million quarter-on-quarter. I just wanted to understand what happened there. Johann Strobl: Thank you. So I agreed with Hannes that we share the questions and, of course, the answers. And I start with the Rasperia, STRABAG and the sanction package. I assume you're referring to the 19th sanctioned package. Our way of viewing it is that yes, sanctions follow several goals, and we had assumed that within these goals, it would be reasonable to suggest and promote the idea to unfreeze the sanctioned STRABAG shares. So if this would have happened, and I have to say, then we would very quickly could recover a big part of the damages depending then on some results. We have to -- I understand that the whole -- our whole topic is viewed on a large broader scale than we have thought. So with as many, many discussions in general about sanctioned assets. Again, I see the connects, but it has happened during that discussion. We will see if we can make progress maybe in the future, potentially around 20 sanctioned package if it would come. But I don't give here any guidance or probability of whatsoever. I can only confirm what I said in my introduction. We believe we have a very good case here in the Austrian court being aware that it would take much longer and it's with some -- yes, with some challenges, of course, in moving along the procedures what we have. So that would be my view on your first question. I hand over to Hannes for your Poland question. Hannes Mosenbacher: Well, Poland, just to reconfirm the guidance for 2025, it's, as I said, this round about EUR 300 million, maybe a touch above. When thinking about 2026, I think you have to keep in mind that we now see also a little bit more dynamic when it comes to inflows towards euro. So we believe that 2026 guidance should be lower than the EUR 300 million, which were needed for the year 2025. At the same time, usually, we give detailed guidance on the Q4 call. But at this moment, I think you could think a bit lower than the EUR 300 million, could be in the range of EUR 220 million, EUR 250 million, somewhere around these numbers. This is our current thinking. We will be more precise or confirming this range by the Q4 call. Thanks for the question, Johann. Johann Strobl: Yes. Thank you. Coming to your next question, which is the explanation where is the loan growth indeed. Why is the CET1 where comes the RWA growth and therefore, the drop in the CET1 compared to end of Q3. A bigger part of that, of course, comes from the increasing loan book. I mean, clear, we have said that having now reached year-to-date 3%, and we are aiming for 6 or maybe a little bit more. So this will come with additional RWAs. But you're right, there are some, some elements also from rating migrations in it. So still some corporates are feeling some, some pressure with all these geopolitical and trade developments and whatever you have. So we have built in some migration impact as well. Moving to your fourth question, which is the NII in Czechia indeed, we see in some countries, especially in Czechia, also in the recent quarters, a significant increase in the loan growth, mainly in the retail area. So we had seen picking up the mortgage business, but also what we saw is a good consumer loan growth. So both we are more than happy what we have seen there. And one has to say that also liability, on liability in this normal rate environment, you can earn a little bit. But the average volume, if you compare Q3 with Q2, then it was a nice growth. When talking about the second part of your question, GC&M, so the Austrian business, if I may say so, why is NII down? Yes, it's -- the report here, I agree it's a little bit difficult to read because here, it's not only the entity level, but it's also built on funds transfer pricing and similar. But of course, we have seen also a lower loan book as well. So it's both elements, which needs to be considered. Operator: We'll take our next question from Gabor Kemeny with Autonomous Research. Gabor Kemeny: My first question is on NII, I believe, decent growth in your core NII in Q3, together with loans and you even expanded your net interest margin a bit. Can you share your initial thoughts on the NII outlook going into 2026, shall we model NII growth which is kind of aligned with loan growth, for example. And that's the first one. Second one on the overlay provisions you flagged from Ukraine. I believe the wording is that you increase the risk zone Ukraine. Can you elaborate a little bit further on this? Why this triggered additional -- how this triggered additional provisions? And was the likelihood of recurrence in the coming period? And my final question is on Czechia, New government is being formed with some maybe more populistic measures on its agenda. What do you think is the likelihood of a bank tax maybe a more effective bank tax being introduced in the near future? Johann Strobl: Thank you, Gabor. Coming to your first question. I -- we -- at this point in time, we do not speak too much about the outlook in 2026. So I'm sure, as you're following so long, you are not that much disappointed or surprised. What we can share is that, yes, in all the markets, we see -- we expect loan growth in retail area because the employment rate is good in all the markets, which means in combination with wage increases. This gives a higher potential for customers to also take more loans. So this is the one. And as I indicated before, also incorporates, we see some adjustments. You have seen our assumptions on the -- in the presentation on the rate development, okay, there we see some negative impact on the NII. But we still assume now, I would say, as of today, a slightly improvement and, of course, also in the NFCI. Hannes Mosenbacher: Gabor, I was once sharing with you that when we look at Ukraine, we have -- we look in the -- at Ukraine in sort of 3 regions, green, where there's almost no war-related activity, yellow, where there is war-related activity and red where there is really intense fighting. And since we now see an increase of the FX over the entire Ukraine, we have thought that it's prudent to increase our overlay provisions in Q3 by this EUR 15 million, given that this dividing the country in these 3 zones only is not anymore good enough. So this was a motivation for increasing the overlay bookings by EUR 50 million for the entire Ukraine. Thanks for the question. Yes. And then there is a question which is difficult for me to answer. It's about Czech politics, let us observe the coming weeks and then come to a final comment on that. I would agree with you that -- we are in a situation that every country feels encouraged to increase bank tax. But I hope this is more speak than real action. Operator: We'll take our next question from Riccardo Rovere with Mediobanca. Riccardo Rovere: 2 or 3, if I may. The first one is on -- again, sorry, in loan growth. RBI core, excluding Russia and Belarus year-on-year, the book is up just a little less than in 4% according to your Excel file. And what could bring -- why that should go to kind of 6% to 7% in only 3 months. This is the first question. The second question I had is on deposit growth, which is honestly amazing because it's doubling -- double debt of loan book at the moment, more than 7%, if I'm not mistaken. I was just wondering what is driving that? And if you think this will have to slow down at some point. The other question I have is on NIM. It was 2.31% in Q1. Then fell a little bit to 2.27% in Q2 now is back to 2.3%. So basically, you're not suffering any kind of margin pressure over the past 6 months. And given that rate cuts should be more or less done, not everywhere, but in most of the countries where you operate or affecting most of your loan book. Is it fair to assume that it is hard to believe that severe margin pressure should be visible on the next and medium term. Thank you. Johann Strobl: Riccardo, so to your first question, loan growth, indeed, that's -- given where we are and what is ahead of us, it's -- it's very optimistic. I agree. On the other hand, how do we judge it. We have seen that retail is still doing fine, and so they will contribute their part -- but of course, the bigger volume now has to come from the corporate books and -- we have a strong pipeline. This does not mean that the end of the day, we will get all what we have now in the pipeline as competition is significant in this area as well. . But the best what we can say is it seems to be possible. And this is, of course, a bigger part has to come from head office in absolute to volume for sure. But also we see quite good pipelines in most of the corporate areas of our retail -- of our network banks. Now to the deposit growth. Yes, we see that customers are earning nicely, and they put quite a lot of their wages on their account. So this is the drivers, quite good liquidity in many of the markets. So forward looking, is there some risk that one or the other market, the Central Bank might reduce a little bit the liquidity and thus putting also on the pricing of deposits, some pressure, this can happen. And we also see now an increasing competition even without the special impact, what I have mentioned. So -- to your third question, NIM, very stable. Can there be the way I understood it -- could there be pressure coming from somewhere. Indeed, as I said, competition could be one pressure. The other is, yes, we compare then banks have their model books, have their historic run rates in the book. So probably you always have a combination of all this, but it looks positive as of today. Thank you. Operator: We'll take our next question from Máté Nemes with UBS. Mate Nemes: I have 3 questions, please. The first one would be on overlays. Hannes, you mentioned that you see no reason that overlays presently. Can I ask you about the approach to overlays in 2026? What would drive your decision to either add or potentially to release some of these substantial overlays for the ex-Russia business? That's the first one. The second one would be on corporate loan growth and the pipeline in GC&M. You clearly mentioned that the bulk of the corporate lending growth in Q4 would have to come from there. Can you talk a little bit about the nature of the pipeline? What sort of deals -- what sort of lending do you expect materializing? And the last question is on Poland and the euro mortgages. The numbers I mentioned below the EUR 300 million guidance for this year, so something around EUR 220 million or EUR 250 million, if I'm not mistaken. Can you talk about the assumptions or the expectations for those provisions in 2026? What would drive them? Where do you feel the adequate provisions level would be? Hannes Mosenbacher: Well, Máté, thanks for all the questions. I may start with the question number one, when you're talking about the overlays on 2026. So just to remind the audience, we have some EUR 100 million of overlays for Ukraine. And we have another EUR 100 million of overlays for Russia, which remains for the core group of RBI Group and overlay of around about EUR 300 million. So when would we release and also before I go to the details on when and why we would release or why we would see good motivation for releasing. I'm now referring to the financial stability report, and I think you all have seen that, of course, some leading indicators, PMIs are looking constructive. At the same time, uncertainty index stays elevated. So when would we feel encouraged to release some of these overlays. This would be, of course, if we see materialization on Stage 3, if we see a clear change in the risk perception. And of course, whenever there is a substantial change towards sanctions in war-related risks, we would be more than eager to adjust our overlays in our overlay amounts what we have created. So this is our thinking when it comes to the overlays. Johann, if this is final, I also would immediately take the #3 question, Poland, Euro and our current way of thinking how do we come to this EUR 225 million, EUR 200 million, a little bit up to EUR 225 million, EUR 250 million, maybe. The one is we always we are sharing with you our Swiss franc guidance, and this was always around about EUR 150 million, EUR 170 million. And if I look at how you have modeled this number into your assessment, I think we have been well understood. And what has been now new, Máté, is that we see that the in the local industry, when it comes to litigation provisions, have now moved on also on the euro part of the portfolio. So we see not yet an elevated inflow, but we see a higher inflow of euro litigation, and this was the reason for us not to leave you in the belief that the EUR 150 million is good enough for the next year. But that's the reason why we added this round about EUR 80 million on the euro side, and it could come mainly from the active euro loans outstanding. Of course, here, amounts would be less pronounced than compared to the Swiss franc. First, the portfolio was a smaller one. And second one, the FX-related devaluation part is a smaller one. But this is our way of thinking how we come to this guidance on EUR 220 million to EUR 250 million. So the confirming the previous guided EUR 150 million for the Swiss Franc but being more prudent when talking about euro, hope this helps in understanding our thinking. Thanks for the question, Máté. Johann Strobl: Yes. And to your other question now in GC&M, where should it come from? I would say, broad over all sectors with some larger tickets, of course, as well. So people will be busy, but I cannot in the head office here, pick out a specific industry or so where we would see it. It's rather broadly, and of course, larger tickets than what we have in the network banks but also in the network banks, the corporate part is lining up. And given the size of what they have in some of them significantly, I mean maybe I was not so precise enough that the retail -- we recently have been growing above the market. And I think this, this at least will continue till end of the year. So from all areas positively supported. Operator: We go next to Ben Maher with KBW. Benjamin Maher: I just got 2. I think you mentioned you were growing ahead of the market in particularly retail lending. I was just interested to get your thoughts on why that is, that's around pricing or something else? And then my second question is just on fee growth. That's been very strong, particularly this quarter. Again, I just want to get a better understanding of what's driving that and whether you expect that momentum to continue into the final quarter. And I know you're reluctant to give any numbers for next year, but if there's any color you think you can give for next year, that would be helpful. . Johann Strobl: Yes. I think our -- we got it right in retail. Recently, I would say we had periods where we are holding back with the mortgage business as for a period of time, margins were very, very thin. And as the margins are now in an area where we are fine with it, so we can -- we can get to our market potential or slightly above. So I think what paid off is that we -- usually, when you hold back, then it takes quite some time until the customers perceive you that you are back again in the market. And this, we have achieved in the beginning of this year, and we are building on that. And with the margin in this business, we are fine. The fees, what you're referring in the Q3, indeed, they were good for us. And what can I say? I think -- and I did cut comes to some extent also in Q3 because of the tourism season, which is good in some of our quarters and with this also some as in our region, sorry, and some also from the tourism and therefore, the FX. Yes. And of course, you always have to be aware that part of this is, how shall I say, a little bit higher than the core of it because of part of the transaction tax, what you have in Hungary goes also in this line. But overall, we are very fine with the development. Operator: [Operator Instructions] We'll go next to Riccardo Rovere with Mediobanca. Riccardo Rovere: 2, if I may. The first one is it is on cutting Russian exposure. You mentioned at the beginning of the call that you're running ahead of schedule that you have agreed with your supervisor. Still looks to me that over the last quarter, at least, the decline, especially in the deposit side seems to have come to a sudden stop, if I may say so. So I was wondering what is driving that? This is the first question. The second question is on your capital, the way you see your capital at the end of 2025, what kind of target do you think the bank should have assuming Russia one day will be solved? Johann Strobl: Thank you, Riccardo. To your first question, the development of deposits. I mean, one has to say, of course, this is always driven by opportunity costs, what customer face. And it's more than difficult to -- I mean, if you look at to forecast, if you look at the reduction, 38% is huge. Nevertheless, it could have even been more. So it's -- I think it's less -- for us, it's not a big thing as usually when you think about the runoff of deposits, it's then the question to long-term funding and liquidity. You have seen that there is no need for this. So it's from the income, it's rather opportunistic. It's placed with the Russian Central Bank. So difficult to say what keeps -- this opportunity cost keeps customer with us. I would not make any, any forecast to this, how this develops further. We have done everything to incentivize and now I have to say the rest is in the hand of the customers. When talking about the capital at year-end, so the 15.2%, we are comfortable with this. I think we are -- we are a little bit away from the scenario you outlined about Russia. And then of course, it's also a question of how will then be the operational RWA impact from Russia be treated by the, the Central Bank, but we are around 15% is for this point in time, a good number, I think. Riccardo Rovere: Sorry for follow-up. On both questions, if I may. The first one, your -- are you basically saying that what RBI is measured on is more the reduction of the loan book than on the deposit side when it comes to cutting the Russian exposures because I understand at some point, it's the customer decision to withdraw money from you or not, while maybe you have more control on the loan side. So is this the way the supervisor looks at things? Or do they want also you to bring the deposit down? And the second question is a follow-up, 15.2% is a high number. So I was wondering, do you think this is the target of the bank in normal conditions or could it be lower given the risk profile of RBI excluding Russia? Johann Strobl: Coming to your first question the whole story about Russia is always what is totally in our hands or let's say, in the hands of the Russian bank and what is -- what is done in other hands being it by institutions who give us a framework where we can act in our customers. Now in the loan book, we have the planned run down. So the expected rundown, the quality of the portfolio is very good. Customers are repaying to a large extent as scheduled. And -- but not more. I mean, you might be -- you might remember that in the past, we had quite a lot of fixed rate loans. And whenever the, the rate cycle went down then customers were very quick in refinancing at a lower rate. Now given the rate level where we have, so this is not to be expected also not in the near future. So we had seen in the corporate loan book, some faster repays than were scheduled, but everything else is according to the schedule. So and we don't grant new loans, so this is why this is following that. And as I said, we have to offer in Russia and account and then it's the only thing we can do that we don't pay interest for none of the accounts. And then as I said, it's the decision of the customers how much money they keep with us. And this is communicated analyzed and also shared by the Russian -- by the ECB or supervisor. So this is clear. Now probably it's not the right point in time to think about the different CET1 ratio for the group without Russia as Russia is -- the Russian bank is still with us. And yes, you point us in a direction to adjust it somewhere in the future. And when we feel the point in time we will then speak about it. Thank you. Operator: [Operator Instructions] We'll go next to Simon Nellis with Citibank. Simon Nellis: Just a quick one from me. Can you perhaps share some thoughts on the dividend that you're looking to pay out of this year's earnings and the negotiations or discussions with the regulator, given that your performance is quite nice. I assume that you think you can deliver a nice increase in the dividend. And also, it'd be interesting to know what the dividend accrual for the first 9 months was in your capital that you reported? Johann Strobl: Yes, I'll start with the second part, and this is we accrued EUR 1.20 per share. So in the first 9 months. So as this is a very mechanical thing, you then see also that we just formally will accrue also until the end of the year, another EUR 0.40, so EUR 1.60. This is what we have in our calculation and talks with at least on my level with the supervisor have not started yet. So yes, that's always an interesting discussion -- what is the parameter for this discussion group, core group or all this. So work in progress starting at a later point in time. Operator: [Operator Instructions] As there are no further questions at this time, we will now conclude today's conference call. Thank you for your participation. Johann Strobl: Thank you, moderator, and thank you to all participants for showing interest, devoting sometime. I wish you a good afternoon. Thank you. Goodbye. Operator: You may now disconnect.
Operator: Hello, everyone, and thank you for joining us today for the Landmark Bancorp, Inc. Third Quarter Earnings Call. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is my now my pleasure to hand over to your host, Abby Wendel, President and CEO, to begin. Please go ahead. Abigail Wendel: Thank you, Lucy. Good morning, and thank you for joining our call today to discuss Landmark's earnings and operating results for the third quarter of 2025. My name is Abby Wendel, President and CEO of Landmark Bancorp. On the call with me to discuss various aspects of our third quarter performance are Mark Herpich, Chief Financial Officer; and Raymond McLanahan, Chief Credit Officer. As we start, I would like to remind our listeners that some of the information we will provide today falls under the guidelines for forward-looking statements as defined by the Securities and Exchange Commission. As part of these guidelines, I must point out that any statements made during this presentation that discuss our hopes, beliefs, expectations or predictions of the future are forward-looking statements, and our actual results could differ materially from those expressed. We include more information on these factors from time to time in our 10-K and 10-Q filings, which can be obtained by contacting the company or the SEC. By now, we hope you have had a chance to review our press release, which announced our financial results for the third quarter of 2025 yesterday afternoon. You can find it on our website at www.banklandmark.com in the Investors section. Landmark reported another solid quarter of results, which reflect the hard work and commitment of our associates whose efforts continue to elevate Landmark's position in the market. Net income for the third quarter totaled $4.9 million or $0.85 per diluted share compared to $3.9 million or $0.68 per diluted share in the same period last year, an increase of 24.1% in diluted earnings per share. This year-over-year increase in earnings primarily reflects growth in net interest income and prudently managed expenses. Our return on average assets improved to 1.21% for the quarter and return on average equity improved to 13.0%. We maintained a steady net interest margin and improved our efficiency ratio to 60.7% in the third quarter while simultaneously investing in new talent throughout the bank and across our footprint. Total loans were flat this quarter based on period-end balances, while average loans grew nearly 10% on an annualized basis compared to the prior quarter. Brokered deposits were the primary driver of deposit growth in the third quarter. However, we also saw solid growth in noninterest-bearing demand deposits, and we reduced our reliance on FHLB and other borrowing sources. I'm happy to announce we made significant improvements in our overall credit quality this quarter as nonperforming loans declined by almost $7 million, mostly from the resolution of a large commercial loan on nonaccrual status discussed in previous quarters. Our tangible book value per share increased to $20.96, up 6.6% on a linked-quarter basis and 15.7% from the end of the third quarter of 2024, primarily -- due primarily to solid growth in retained earnings and a reduction in our accumulated other comprehensive loss. I am pleased to report as well that our Board of Directors has declared a cash dividend of $0.21 per share to be paid November 26, 2025, to shareholders of record as of November 12, 2025. This represents the 97th consecutive quarterly cash dividend since the company's formation in 2001. The Board also declared a 5% stock dividend to be issued December 15, 2025, to shareholders of record on December 1, 2025. This represents the 25th consecutive year that the Board has declared a 5% stock dividend, a continued demonstration of our long-term commitment to support growth in value and liquidity for our shareholders. Landmark's capital and liquidity measures are strong, and we have a stable low-cost core deposit base, thanks to the network of community-based banking centers we operate and our relationship banking model. We remain risk-averse in both monitoring the company's interest rate and concentration risks and in maintaining a strong credit discipline. As we look ahead, we look forward to building on the momentum of the third quarter. We will continue to invest in talented associates and make infrastructure upgrades to support continued customer growth while making Landmark an exceptional place to work and bank. I will now turn the call over to Mark Herpich, our CFO, who will review the financial results in detail with you. Mark Herpich: Thanks, Abby, and good morning to everyone. While Abby has just provided a highlight of our overall strong financial performance in the third quarter of 2025, I'll provide some additional details on these results. Net income in the third quarter of 2025 totaled $4.9 million compared to $4.4 million in the prior quarter and $3.9 million in the third quarter of 2024. Compared to the prior quarter, the solid growth in net income this quarter was mainly due to continued increases in net interest income and higher noninterest income. In the third quarter of 2025, net interest income totaled $14.1 million, an increase of $411,000 compared to the second quarter of 2025 due to higher interest income. Total interest income on loans increased $597,000 this quarter to $17.8 million due to higher average loan balances. Average loans increased by $26.7 million and while the tax equivalent yield on the loan portfolio remained steady at 6.37%. Interest income on investment securities increased slightly to $2.9 million this quarter due to a small improvement in our yield earned on our investment securities balances, while our average investment securities balance declined slightly by $1.2 million. The yield on investment securities totaled 3.35% in the current quarter compared to 2.99% in the third quarter of 2024. Interest expense on deposits in the third quarter of 2025 increased $266,000 due to a mix -- a shift mix in our interest-bearing deposits, which grew by $19.1 million. Interest expense on borrowed funds decreased by $36,000 due to lower average balances. The average rate on interest-bearing deposits increased 4 basis points to 2.18%, mainly due to growth in certificates of deposits, which have higher rates. The average rate on our other borrowed funds increased 11 basis points to 5.09% in the third quarter as our lower cost repurchase agreement balances dropped. Total cost of funds was 2.44% for the quarter ended September 30, 2025, a decrease of 38 basis points as compared to the third quarter of 2024. Landmark's net interest margin on a tax equivalent basis held steady at 3.83% in the third quarter of 2025 as compared to the second quarter of 2025. In comparison to the comparable third quarter of 2024, our net interest margin improved by 53 basis points. This quarter, we provided $850,000 to our allowance for credit losses after taking a $1 million provision in the prior quarter. Net charge-offs totaled $2.3 million in the third quarter of 2025, which mostly pertains to the resolution of a previously disclosed commercial loan. This compares to net charge-offs of $40,000 in the prior quarter. At September 30, 2025, our allowance for credit losses of $12.3 million remains strong and represents 1.10% of gross loans. Noninterest income totaled $4.1 million this quarter, an increase of $442,000 compared to the prior quarter. The increase was primarily due to growth in gains of $208,000 on sales of mortgage loans, coupled with a $184,000 increase in fees and service charges related to higher deposit-related fee income. Noninterest expense for the third quarter of 2025 totaled $11.3 million, an increase of $290,000 compared to the prior quarter. This increase related primarily to increases of $206,000 in professional fees, $120,000 in occupancy and equipment expense and $70,000 in compensation and benefits expense. The increase in professional fees was driven by higher consulting costs during the quarter. Partially offsetting these increases was a decrease in data processing expense this quarter. The combination of growth in noninterest income, coupled with control over our expenses has resulted in our efficiency ratio improving to 60.7% for the third quarter of 2025 as compared to 66.5% in the third quarter of 2024. This quarter, we recorded a tax expense of $1.1 million, resulting in an effective tax rate of 18.7% as compared to tax expense of $944,000 in the second quarter of this year or an effective tax rate of 17.7%. Gross loans remained relatively flat in comparison to the second quarter at $1.1 billion. However, our average loans grew by $26.7 million or approximately 10% annualized during the third quarter. During the quarter, actual loan growth was primarily comprised of an increase in our commercial and residential real estate loan portfolios, but offset by lower commercial and construction loan portfolios. Investment securities decreased $2.4 million during the third quarter of 2025, mainly due to maturities exceeding our level of purchases. Pretax unrealized net losses on our investment portfolio declined by $4.7 million to $9.2 million this quarter, and our investment portfolio has an average duration of 3.7 years with a projected 12-month cash flow of $85.8 million. Deposits totaled $1.3 billion at September 30, 2025, and increased by $51.6 million on a linked-quarter basis. Compared to the prior quarter, certificates of deposits grew by $22.9 million. Interest checking and money market deposits increased by $16.5 million and noninterest checking grew by $14 million. Average interest-bearing deposits, however, increased by $19.1 million in the third quarter of 2025, while average borrowings declined by $6.0 million during the quarter. Our loan-to-deposit ratio totaled 83.4% at September 30 and continues to provide us sufficient liquidity to fund future loan growth. Stockholders' equity increased $7.4 million during the third quarter to $155.7 million at September 30, 2025, and our book value increased to $26.92 per share at September 30 compared to $25.66 per share at June 30. The increase in stockholders' equity this quarter mainly resulted from a decline in our other comprehensive losses driven by lower net unrealized losses on our investment securities, along with net earnings from the quarter. Our consolidated and bank regulatory capital ratios as of September 30, 2025, are strong and exceed the regulatory levels considered well capitalized. Now let me turn the call over to Raymond to review highlights of our loan portfolio and credit risk outlook. Raymond McLanahan: Thank you, Mark, and good morning to everyone. As noted earlier, loan growth for the third quarter was relatively flat on a period-end basis, although average loans grew $26.7 million or 9.8% on an annualized basis. We saw increases in our commercial real estate, mortgage and consumer portfolios. However, these were offset by reductions in our commercial, construction and land and agricultural loan portfolios. Our commercial real estate portfolio grew by $19 million this quarter, while our mortgage and consumer portfolios increased $4.5 million and $1.4 million, respectively. However, commercial and construction and land loans declined by $17.6 million and $6.6 million, respectively. Turning to credit quality. Nonaccrual loans declined by $7 million this quarter, while net loan charge-offs totaled $2.3 million, mostly driven by the resolution of a large commercial loan relationship we previously disclosed in Q3 of last year and had been on nonaccrual. Excluding this commercial loan, net loan losses remained low. Additionally, a $1 million commercial real estate loan was placed on nonaccrual last quarter has now been fully collected. The balance of past due loans between 30 and 89 days still accruing interest increased slightly, totaling $4.9 million or 0.43% of gross loans. Net loan charge-offs for Q3 totaled $2.3 million compared to just $9,000 in Q3 of 2024. Year-to-date net loan charge-offs represented 0.29% of average loans. Our allowance for credit losses stood at $12.3 million or 1.10% of gross loans. Our Kansas economy has remained healthy. As of August 31, the seasonally adjusted unemployment rate was 3.8% according to the Bureau of Labor Statistics. Regarding housing, the Kansas Association of REALTORS recently reported that home sales in the state increased 1.2% year-over-year in September. The median sale price rose 5.5% from a year earlier, and the association also reported that homes sold in September were typically on the market for 15 days and sold for 100% of their list prices. We recognize that investors are closely watching asset quality across the banking sector. We remain vigilant in our underwriting, portfolio monitoring and recovery efforts. Our strategy continues to emphasize a resilient relationship-driven approach. We're confident in the strength of our portfolio and our ability to navigate evolving market dynamics. With that, I thank you. I'll turn the call back over to Abby. Abigail Wendel: Thanks, Raymond. Before we go to questions, I want to summarize by saying we were pleased with our results in the third quarter. Growth in average loan balances, a steady margin and higher noninterest income all contributed to solid revenue growth this quarter. We are focused on maintaining solid credit quality given the uncertainties in the economy, and we continually look for efficiencies in our operations. With the operating success we've had over the past few years and the high-quality banking products and services we offer, our bank is well positioned to further grow our business and add to our customer base. We continue to work on strengthening our existing customer relationships and are focused on growing lending and fee businesses across all our markets. Finally, I'd like to thank all the associates at Landmark National Bank. Their daily focus on executing our strategies, delivering extraordinary service to our customers and communities is key to our success. And with that, I'll open up the questions -- I'll open up the call to questions that anyone might have. Operator: [Operator Instructions] We currently have no questions submitted. So I'd like to hand back to Abby for closing remarks. Abigail Wendel: Thank you. I want to thank everyone for participating in today's earnings call. I appreciate your continued support and confidence in the company, and I look forward to sharing news related to our fourth quarter 2025 results at our next earnings conference call. I hope everyone has a great day. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Greetings, and welcome to Public Storage Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ryan Burke. Thank you. You may begin. Ryan Burke: Thank you, Rob. Hello, everyone. Thank you for joining us for our third quarter 2025 earnings call. I'm here with Joe Russell; and Tom Boyle. Before we begin, we want to remind you that certain matters discussed during this call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. All forward-looking statements speak only as of today, October 30, 2025, and we assume no obligation to update, revise or supplement statements that become untrue because of subsequent events. A reconciliation to GAAP of the non-GAAP financial measures we provide on this call is included in our earnings release. You can find our press release, supplement report, SEC reports and an audio replay of this conference call on our website, publicstorage.com. We do ask that you initially limit yourself to 2 questions. Of course, if you have more after that, please feel free to jump in queue. With that, I'll turn the call over to Joe. Joseph Russell: Thank you, Ryan, and thank you all for joining us today. Public Storage's third quarter results reflect differentiated strategies that continue to drive our outperformance in addition to encouraging industry trends, including operational stabilization, lower competition from new supply and increasing acquisition activity. We are raising our 2025 outlook for the second consecutive quarter based on outperformance in same-store and nonsame-store NOI growth, acquisition volume and core FFO growth per share. Public Storage's industry leadership is proven by, among other things, the highest revenue generation per square foot with the most profitable operating platform, the strongest portfolio expansion through our best-in-class teams and backed by our growth-oriented balance sheet, the highest retained cash flow generation, which we utilized to invest back into our business to drive earnings, and FFO growth in excess of stabilized same-store growth driven by our compounding returns platform. We have been actively advancing the pillars of this platform, which include our leading operations, capital allocation and capital access. Just a few of many examples in terms of our operating innovation include: first, we have the industry's leading omnichannel customer experience through which we offer digital options across their entire journey. The success is evident with customers now choosing digital path and 85% of their interactions and transactions with us. Second, with the shift to digital, we are modernizing our field operations by utilizing AI to directly provide customer service and staff our properties more appropriately. The days of needing a property manager on site all day, every day are behind us. Instead, we now have people on site, when and where customers need help. To date, this has reduced labor hours by more than 30%, while also increasing employee engagement and lowering turnover. And third, we are deploying new technology-based strategies across the entire organization, including customer search and generative engine optimization, unit pricing and revenue management, asset management including security, vendors and maintenance, identifying and executing development opportunities and putting the right tools in our field and corporate teams hands to even more effectively drive revenues and control expenses. Collectively, these initiatives are driving higher revenues, margins and core FFO per share growth. Now I'll turn the call over to Tom. H. Boyle: Thanks, Joe. We are leaning into our platform strength. Joe spoke to our industry-leading operations and technology initiatives. I'll now touch on capital allocation, capital access and performance specifics. On capital allocation, we have accelerated portfolio growth with more than $1.3 billion in wholly owned acquisitions and developments already announced this year. The acquisition opportunities are relatively broad-based across size, geography as well as seller type. We will continue expanding the non-same-store pool through additional acquisitions and our $650 million development pipeline to be delivered over the next 2 years. We are built to execute on this activity based on our industry relationships, data-driven underwriting and strong capital position. With leverage at 4.2x net debt and preferred to EBITDA and retained cash flow reaching about $650 million this year, we will continue using our advantageous cost of capital to fund portfolio expansion and drive core FFO per share growth. Now shifting to financial performance for the quarter and our improved outlook. Revenue growth in the same-store pool came in ahead of our expectations, primarily due to strong in-place customer behavior. Overall, in-place rents were up 0.6%, offset by lower occupancy. From a market perspective, Chicago, Minneapolis, Tampa, Honolulu and the West Coast are standouts with revenue growth in the 2% to 4% same-store revenue range. Speaking specifically to the West Coast, our strong presence top to bottom from Seattle down to San Diego, representing 1/3 of our NOI, serves us well with good demand trends and more limited new supply. Los Angeles will return to strong growth when the state of emergency price restrictions expire. Our expense control across the same-store pool continues to be strong as well, held flat for the quarter and driven by reductions across most line items. Continuing declines in property payroll and utilities are direct results of the differentiated initiatives that Joe spoke to. Accordingly, same-store NOI growth came in better than we anticipated. Outside of the same-store pool, outperformance in our high-growth non-same-store pool helped drive core FFO per share higher by 2.6%. This is a 560 basis point acceleration from the growth level achieved in the third quarter of last year. As Joe mentioned, our strategic focus continues to drive core FFO per share growth well in excess of our stabilized same-store growth. We adjusted our full year guidance to reflect the positive trends I just spoke to with increased outlooks for same-store revenue, same-store NOI and nonsame-store NOI. All in, we increased core FFO per share growth by nearly 1% with 1 quarter left in the year. Looking forward, we are very well positioned to continue driving performance with differentiated strategies that will further enhance our compounding returns platform. With that, Rob, let's open it up for questions. Operator: [Operator Instructions] Our first question comes from Eric Wolfe with Citi. Eric Wolfe: As we get closer to year-end, could you maybe just talk about the process you go through in setting your budgets for 2026? And sort of how you go about determining things like where move-in rents to go, occupancy and sort of all the main variables that are going to make up growth for next year? H. Boyle: Yes, sure. We can talk about that. I mean, we're continuously forecasting and updating our forecast for the business as we move through any given year, obviously, starting with 2026 process, something we started several months ago, and people are forecasting their businesses. In terms of some of the line items you spoke to we're using data-driven processes and historical trends as well as predictive analytics to drive those forecasts. We certainly challenge our teams to come up with new initiatives to drive the business going forward into the new year, and that process is well underway. Joseph Russell: And Eric, I'd add that it's a robust process across literally every function within the company. It's fluid. It doesn't end and begin even as we speak, it builds, and we have a lot of analytics relative to the things that we're doing from a deployment standpoint as we've spoken to, we have a whole host of efficiency efforts that are tied to investments in digital and otherwise, it continues to drive our margins to the level that we attain. And then to Tom's point, the whole host of things that we do tied to revenue optimization across the entire portfolio with not only our same-store but our non-same-store portfolio. Eric Wolfe: Got it. That's helpful. And I think in the press release, you characterized things as sort of stabilizing. I don't know if you feel like maybe there's a path of things getting back to more sort of a normal run rate growth or what it would take to get there. But just sort of curious how you're thinking about sort of the trends that you've seen recently in October, over the last couple of months. If you're starting to get a little bit closer back to normal, if it's more of a just kind of like a stabilization and sort of a little bit more of a muted rebound? H. Boyle: Yes, a good question. I think as we look ahead, we do see steady stabilization. And as we've moved through 2025, we've seen demand bouncing off the bottoms of '24. We see new supply continuing to be coming down just given the challenges associated with new development in many of the markets we operate. But I'd probably point you most notably to the fact that what I commented on earlier around some of our stronger markets where we're stable, but we're growing at a healthy clip as well. And just highlighting the West Coast again, with growth in the 2% to 4% same-store revenue growth range and good fundamentals. So some of the markets aren't quite there yet, but we're seeing a good and healthy customer and overall operational performance in many of the markets we operate today. Operator: Our next question comes from Michael Griffin with Evercore. Michael Griffin: I'm curious if you can give us any insight into whether new customer behavior has changed at all. It seems like the revenue this quarter was mainly driven by that existing customer, which seems to remain sticky. But as these move-in rents decline on a year-over-year basis, do you feel like we're starting to hit a trough there? Or do you think there's potentially further to go in terms of new move-in rents? H. Boyle: Yes. I'd say taking a step back, I think there's too much focus related to move-in rents is one particular element of revenue, right? Overall, across the organization, we are focused on revenue as the most important metric. And that is a combination of what you're highlighting, yes move-in rents but also move-in volumes, move-out activity existing customer behavior and rent increases. And it continues to be a competitive operating environment for new customer move-ins and you could see that through the quarter. But the focus here is certainly around revenue is the most important metric and that goes throughout the organization from the property managers and property staff, all the way through the home office organization. So we continue to make investments through our platform to drive revenue in a competitive environment. And I would point you not to one particular metric. Michael Griffin: Tom, I appreciate the context there. And then maybe just on the revised guidance, it seems like you're trending in the more favorable range, both on expenses being towards the low end and NOI being toward the high end, at least on a year-to-date basis. So maybe are there any puts and takes we should think about when looking at the fourth quarter sort of implied guidance? Maybe tougher comps in certain line items? Or any clarification there would be helpful. H. Boyle: Yes, sure. Every quarter has got its own set of comps. I do think the fourth quarter specifically Property tax is a tough comp. We had a number of healthy refunds last year. We'll see whether the team can execute on similar amounts this year, but that's a pretty tough comp. And then as we think about same-store revenue, we've been consistent highlighting that the impact on Los Angeles will grow as the year progresses. And so we do anticipate that to occur in the fourth quarter. Otherwise, those would be the 2 items I'd highlight for you. Operator: Our next question comes from Samir Khanal with Bank of America. Samir Khanal: I guess just sticking to that topic about L.A. and the impact. I mean, kind of what are you hearing on the ground given the pricing restrictions and the burn-off in Jan? I mean, what are your channel checks kind of telling you at this point? Joseph Russell: Yes, Samir, not probably anything deterently than you're hearing, which it's completely in the hands of the Governor. And the decision time frame, he's looking to come back to announce whatever next set of decisions would be very early January. So no additional color or context beyond it could result in a whole range of outcomes, but nothing specific at this point. Samir Khanal: Got it. And then I guess, Tom, on the expense side, when you look at expense growth, kind of that 3% range, you guys have done a great job in terms of controlling expenses. I mean how much room do you have there to kind of still kind of grow at that sort of 2% into next year, at least the next 12 to 24 months? H. Boyle: Yes, sure. And I appreciate the comments. The team is focused around a number of different initiatives to drive operating expense performance while also driving revenue in the overall business. And the couple that we continuously highlight and we're seeing bear fruit again this year, continue to be the digital investments that we've been making. One of the side effects of those digital investments is the ability to think holistically differently about our property staffing and customer interaction, so we saw some fruit borne from that this year, more to come there as the team continues to drive evolution in our operating model. And then I think the other one clearly to highlight is our solar power initiatives, which we'll have solar on over 1,100 -- or we have solar on over 1,100 of our properties today and continue to drive forward with that initiative. And we'll continue to see the benefits from that. But in this environment, we're looking for all those ways to invest in the platform and drive better OpEx performance. Operator: Our next question comes from Caitlin Burrows with Goldman Sachs. Caitlin Burrows: I was wondering if you could talk through your current expectations for supply and maybe how you expect the next 12 months will compare to the last 12 months and what's driving that? Joseph Russell: Yes. Sure, Caitlin. The trajectory continues to be the same, meaning on a year-by-year basis, we see the pressure creating fewer and fewer developments as a whole industry-wide. There are here and there are certain markets that have a number of additional assets coming to market. But clearly and nationally in a very positive context that supply delivery momentum continues to go down. And we've seen it throughout 2025, we're going to see it into '26. And I would even say we're continuing to '27. The basis for that outlook continues to be first and foremost, we're in that business nationally. We see the complexity and the friction that comes from any kind of a development. It's tied to the things that you have to do from an entitlement standpoint, becoming more and more complicated, the cost structure of assets themselves and then, again, formulating and understanding the risk that would be tied to going into the development process that in and of itself could take anywhere from 2 to 3 years if not longer. And then going to a stabilized asset that could take another 2, 3 or 4 years. So the risk factors for any kind of developer out there are much higher today and they continue to go a direction that's actually very good for the industry as a whole. Meaning there are going to be fewer and fewer deliveries even going in the next couple of years. Caitlin Burrows: Got it. And then so I guess then leading into PSA's on development activity. It does sound though like you guys want to kind of maintain or backfill your pipeline of activity. So other than, I guess, size, what do you think differentiates your strategy and ability to kind of get past all of those issues? And how is your kind of stabilization over the past few years been going versus underwriting? Joseph Russell: Sure. I'll take the first part and I'll have Tom talk to the stabilization, which is quite good as well. So no question, we have very different capabilities. It starts with inherent and deep-seated knowledge, market-to-market, with the amount of inherent operational data that we get, we have an ability to underwrite assets from a development and risk standpoint far differently than others do. We have the data set that guides us to optimize not only property size but also configuration within properties, unit, size, mix, et cetera. We can find pockets of assets quite effectively or pockets of asset development very differently than most developers. We've got a good national team working aggressively out finding in developing assets in a window that I just spoke to, that is far more difficult. So in a reverse way for us uniquely, it's providing the opportunity to go in and find very powerful development opportunities in a whole host of markets nationally. So our confidence and our commitment to the business has never been higher, but at the same time, it's never been a more difficult business. So it is a very good and unique window for us to continue to deploy capital, and it continues to lead to substantial and the highest returns that we see from any capital allocation effort. Tom, you can go ahead and talk about some of the metrics cited out, which continue to be quite good. H. Boyle: Yes. Our lease-up of our developments that have been recently delivered continues to do well, actually pacing a little bit ahead of expectations year-to-date. And you can see in the sub the yields produced by those vintages to Joe's point earlier, it does take 2 to 4 years for those vintages to stabilize, but we're seeing good trajectory across those vintages today and achieving those strong risk-adjusted returns that Joe spoke to. Operator: Next question comes from Ron Kamdem with Morgan Stanley. Ronald Kamdem: Just 2 quick ones. The guide -- I think this came up earlier, but the guidance sort of assumes a little bit of decel as you get into sort of 4Q. And I guess the obvious question is just as you're thinking about top of the funnel demand, whether it's some of the web search data or anything like that, are you seeing anything from that standpoint that's showing that demand may be slowing? Or how do you sort of think about that? H. Boyle: Yes. Thanks, Ron. Nothing implied there as it relates to demand overall. We continue to see a healthy customer activity to date. I think the item that I would highlight as it relates to same-store revenue, if that's where your focus is what I highlighted to Michael Griffin earlier around, the cumulative impact of the rental rate restrictions on Los Angeles, which will be holding us back a little bit more in the fourth quarter compared to the third quarter. And then that property tax, tough comps as well. But otherwise, the non-same-store pool is set to continue to accelerate given the activities to date and the capital allocation that we've been putting for forth. Ronald Kamdem: Great. And then, yes, my second question was just on the acquisition pace picking up. Just maybe talk about the product that you're seeing stabilized, nonstabilized and sort of cap rates and returns expectations. Joseph Russell: Sure, Ron. It's a combination of all of those things. So we had an active quarter, obviously, and pleased to see the range of different types of sellers that have come to us either through off-market transactions and/or assets that we've been [trolling] or in dialogue for some period of time. So it's a combination of some larger portfolios that we've curated to match some of our own investment requirements, market to market. It's also been a combination of some smaller portfolios that have resulted from some of our off-market and/or private conversations with them, always a healthy way to do some additional business. And then as we typically do with our national focus and the team that's out working nationally, relationships and otherwise, we're doing a whole host of one-off or a much smaller transaction. So it's a whole combination. It's, again, a market focus that we have to stay very close to and we're well suited to do so. We have unique capabilities to underwrite these assets with, again, going back to our development processes, knowing and understanding markets very deeply and been very pleased with a whole host of different types of assets that are either on one end of the spectrum stabilized or others that we're very comfortable bringing in the portfolio that are not stabilized, but once we put them on our platform, very comfortable and confident we're going to get the kinds of returns and meet expectations from, again, the invested capital going into those assets as well. So we're seeing a fair amount of good activity based on a lot of hard work that continues to go in that process, but it's bearing some good fruit. Operator: Our next question is from Eric Luebchow with Wells Fargo. Eric Luebchow: Great. Appreciate the question. So maybe could you update us a little bit on operating trends through October in terms of occupancy moving rates? Anything you're seeing as we kind of move into the fourth quarter here? H. Boyle: Yes, sure. Happy to do that. I'll provide a couple of elements. And as I spoke earlier, focus continues to be on revenue overall. But specifically, talking about new customer activity. I'd maybe frame it as if you look at the third quarter and the rate and volume associated with new customer activity is down about 9% year-over-year. And each of the months throughout the quarter a little bit different in terms of volume versus rate, et cetera. October is doing a touch better than that, down 9%. So some improving from that standpoint. Really driven in this particular month, driven by stronger move-in activity, and we're achieving that with less discounts but also lower rates. So better net outcome there. I'd point you to move-in rates that again are driving that volume being in the down 10%, 11% ZIP code, but driving good volume up 3%, 4%. In terms of occupancy, because of that move-in volume, occupancy closed, Eric, is sitting today down about 40 basis points year-over-year. But again, I reiterate the revenue focus versus occupancy or rental rate. And we feel like we're in a very good place from an occupancy standpoint to drive revenue in a steady stabilizing and hopefully improving operating fundamental picture. Eric Luebchow: Great. And maybe just a follow-up. I know you touched on this a little bit, but the LA rent restriction headwinds, you had guided to about 100 basis point headwind. So maybe you could just update us on what you're expecting kind of as we look into Q4 and what you see underlying demand looking like on the West Coast? And I guess a related question. I mean, there has been some recent news about rent restrictions related to immigration activity in LA County with ICE. And so just wondering if you expect that to have any impact in the region. H. Boyle: Yes, sure. So 2 components there. One, related to LA performance for the year, it is trending a little better than what we had expected at the start of the year. And I think last quarter, I provided some perspective around revenue growth expectations for Los Angeles for the year being down close to down 3% for the year. We think based on where we are right now, it's probably going to be down in the 1s, meaning negative 1% and negative 2% for the year. So some better improvements there. In terms of -- and I would point to the drivers there really being what we spoke to earlier around really top to bottom, the West Coast, good customer activity, less new supply in those marketplaces and good trends. So good customer activity there. And then the second part of your question, the more recent state of emergency is going to have a negligible impact on our operating performance in the fourth quarter just as you think about a state of emergency already being in place through the start of January. So no change there, but we're certainly still in an environment with pricing restrictions associated with those state of emergencies. Operator: Our next question comes from Spenser Allaway with Green Street Advisors. Spenser Allaway: Just one for me. Can you talk about the amount of NOI upside you guys are currently underwriting when you're acquiring from mom-and-pop operators today? Maybe just broadly, I know that it varies asset to asset. And then with the increasing prevalence and uses for AI, do you think that, that upside is going to increase meaningfully in the years coming, just particularly as we think about the amount of data PSA has to work with and enter into like algorithms? H. Boyle: Yes. Sure, Spenser. So in terms of cash flow that we can earn from assets that we fold into the portfolio. That's an important component to our capital allocation strategy as we continue to make investments in our operating platform and drive performance there. We can utilize that advantage as we deploy capital. And the most visible thing that I would point to is the margin advantage that we have in and out of the marketplaces that we operate in and that gives you a sense. Generally speaking, that margin advantage for new assets is both the revenue side and the OpEx side driving that margin performance. And so consistently getting towards 10% sort of margin enhancement for lots of the assets that we acquire. In terms of going forward, I noted earlier, we continue to make investments in the platform, both from a revenue and OpEx side. And so we do anticipate that we'll continue to drive performance within our operating platform and that will then immediately have the same impact on the assets that we're putting into the pool, both for our wholly-owned assets as well as for the benefit of our third-party management customers, we drive our operating platform. Operator: Our next question comes from Todd Thomas with KeyBanc Capital Markets. Todd Thomas: First, 2 quick follow-ups on acquisitions. Your volume is approaching $1 billion for the year, so a fairly active year. First, what's the outlook for that pace to continue into 2026? And then second, you've had very active years in the past, you did more than $5 billion in '21 and nearly $3 billion in '23. Is now a good time to lean in ahead of a recovery? I'm just curious what the appetite is like today to do something more sizable or strategic? H. Boyle: Yes. So a number of components to that question. So Joe and I will probably tag team this one. But I think we have seen an improving transaction market this year, Joe, spoke to that a little earlier. I do think the improving debt market trends set up for more active transaction volumes going forward. And so I think that's an opportunity set. In terms of our appetite continues to be very strong. We look back at 2021 and the $5 billion of acquisitions that we acquired there and would love to do that again. So it's a question of what the opportunity set is ahead of us, but we're built to be able to integrate that level of activity and fold those assets into the operating platform that we're speaking to. So we're excited about the potential for increased activity. We'll have to see what 2026 brings. Joseph Russell: Yes. And Todd, I'd just add, the balance sheet is well positioned to service as we, again, unlock those range of opportunities. To Tom's point, we've proven over the last 5 years in particular, that whether we're in a process where we're taking down one individual very large portfolio or a whole collection of smaller assets. All of our systems and digital investments, et cetera, allow us to integrate these assets incredibly smoothly in many cases, within a 24-hour time frame from one platform to another. So we've got the technique, the scale and now time and again the experience to continue to aggregate these assets, and we are going to continue to look for any and all ways to do just that. Todd Thomas: Okay. That's helpful. And then Joe, just sticking -- your comments around technology. So you mentioned a number of things, employee efficiencies, the rental process, Generative AI search. Clearly, expenses are an area where you've seen technology have a big impact. Is there a lot more room there? Or do you feel you sort of rung out a lot of the efficiencies at this point with maybe more benefits accruing toward acquisitions, mainly going forward? And what do you think might have the biggest impact in the next 3 to 5 years as you look out? Joseph Russell: It's top to bottom, Todd, and continues -- from an investment standpoint, we are making a whole host of priorities around impacts to the business that starts right at revenue, all the things that we can do through our technology and investments tied to revenue and then it's optimization. Clearly, you can see that with the efficiency and continued outperformance on margin achievement. But again, to give you color on where we are on this road map, we're very confident. We have only just begun. I mean there are very meaningful things that the team continues to invest in, literally every part of the company. It's very empowering. It's not easy, but we have the fortitude and we continue to display the ability to use these tools very effectively in many times, a much shorter time frame than we may have originally estimated, as we've spoken to now for some time. 85% of our customers now transact with us digitally, where 4, 5 years ago that number was basically 0. And with, again, the migration to more and more data-driven processes that creates iterative and in some cases, compounding opportunities to drive efficiency much sooner and more effectively than we may have even envisioned at the front end. And we are encouraged by the team-by-team effort that continues to play through. We are no question, a self-storage company, but we have a focus on data optimization that continues to serve us quite well, and we're very committed to that. Todd Thomas: What kind of margin upside do you think is ultimately achievable? Joseph Russell: Well, we'll see how that plays. But confident we're not done. Operator: [Operator Instructions] Our next question comes from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just wanted to follow up on L.A. quickly. You talked about feeling a bit better about the drag that L.A. is going to see for the year. Just curious if you could translate that down 3% to now down 1% to 2% on the overall portfolio? And is there any offsets from the strength in L.A. on the West Coast, the same-store revenues? H. Boyle: Yes. No, and I think giving you the guidepost as it relates to the markets should be helpful. I think the fourth quarter, obviously implied number associated with that, as I've noted a couple of times, will be holding us back a little bit further as it relates to the impact to the overall same-store. The demand associated with new customer as well as one of the things we've seen in Los Angeles is less vacate activity, and we've seen that up and down many of our markets and nationally, less vacate activity also helpful. So occupancy is up a little bit in Los Angeles. And so a lot of the same trends that Joe and I have already spoken to on this call in terms of good customer activity, very challenging new development environment continue to support Los Angeles despite the fact that we can't charge the rents that we otherwise would charge in a competitive marketplace. Juan Sanabria: And then just cap rate wise, how should we think about going in yields and targeted stabilized yields on the investments you're making at around $1 billion year-to-date? H. Boyle: Yes. No, the yields that we've been targeting are pretty consistent with what we highlighted last quarter. So we're likely to achieve going in yields in the kind of 5.25% ZIP code on a mix of stabilized and unstabilized activities year-to-date. And so the points we've been making on this call, we have the opportunity to plug those assets into our operating platform. And as we do that, we'll achieve more cash flow from those assets. And so those will stabilize into the 6s. Operator: Our next question comes from Michael Goldsmith with UBS. Michael Goldsmith: Sticking with the transaction market, can you talk about the opportunity that you see with lease-up properties, you'll be able to operate them better, maybe there's the appetite to purchase that? And then also the increase in the non-same-store NOI guidance was higher by $10 million. Does that reflect improved performance of the previously owned properties? Or does that reflect the newly acquired ones? Joseph Russell: Okay. I'll take the first part, and Tom can take the second, Michael. But no question we have continue to deploy capital into many assets that are far from stabilization from some that literally are vacant to 30%, 50%, 70% occupied and otherwise. And time and again, have proven the ability to lift the performance of those assets very confidently, just like I spoke about earlier, tied to the knowledge that we have from a market standpoint, all of the techniques that we're using from revenue management, operational efficiency, knowledge of customer dynamics, knowledge of the market itself. So no question, we have a high degree of confidence in any range of stabilization from an asset standpoint. So we will continue to entertain all different asset types based on that level of knowledge and skill and that is continuing to produce the kinds of returns that we're very confident will not only continue, but it will give us more running room as we grow the non-same-store portfolio just like we have in 2025. Tom, you can take the second part. H. Boyle: Yes, the second part of your question, just related to nonsame-store performance. Part of that is better performance and lease-up of some of the assets that you're speaking to. And then the other portion is obviously closing on some incremental assets than what we had closed under contracts. So that combination leads to better outlook for nonsame-store for this year. But you also know we included an update to the incremental NOI from after '25 to stabilization, which reflects the future engine of growth associated with this pool of assets as they stabilize and lease up. So that's increased to $130 million for '26 and beyond. Michael Goldsmith: And my follow-up question, your marketing spend is down year-over-year. I believe your promotions given is also down. So can you just walk through kind of like the thought process around using these levers as top or as a top-of-funnel demand driver? And just is there a reason why pulling back on some of these factors, this is the right time to do that versus maybe leaning in at a time with demand being kind of uneven? H. Boyle: Yes. Thanks, Michael. I'd say we consistently use all the tools you highlighted in order to drive the right kind of customer volumes and behavior over time. So we're active in utilizing advertising as well as promotional activity, lowering our rental rates, increasing our rental rates. And as I noted earlier, it all goes into a focus on optimizing and maximizing revenue as the one metric that we're focused on versus individual line items. And that's the focus of the team, and we'll continue to use all those tools in order to focus on that revenue metric. Operator: Our next question is from Mike Mueller with JPMorgan. Michael Mueller: I guess for some of the stronger markets that you talked about in your initial comments, can you talk a little bit about how different were the, I guess, the move-in rent comparisons to the year-over-year comps in those markets compared to the roll-up number we see in the South? H. Boyle: Yes, Michael, I mean, I spoke earlier to the fact that many of those markets I highlighted are performing well, steady, strong growth from many of them. And associated with that, you have better move-in trends, but you also have better trends from existing customers and good behavior amongst the existing customer base. So it's a combination of things as always, but no question, seeing some good strength across many of our markets today. Michael Mueller: Got it. Okay. And as a quick follow-up, and I apologize if I missed this one. The -- any changes in terms of the pushback from customers on ECRI or ECRI levels in general? H. Boyle: No. The existing customer continues to perform quite well. You can see vacates were down in the quarter. Price sensitivity remains consistent with our expectations and our modeling. So no shifts there, and we continue to be encouraged by the storage consumer as they rent with us. Operator: Our next question comes from Brendan Lynch with Barclays Bank. Brendan Lynch: Clearly, you guys are making good progress on the efficiency initiatives, especially on labor. How do you evaluate though, if you cut too much? I'd imagine there's some sort of A/B testing. But any details on your approach to overage or underage of labor would be helpful. Joseph Russell: Yes, Brendan, we're in a now multiyear integration, which has included, to your point, a whole host of testing relative to the efficacy of optimized labor. And we very conscientiously and first and foremost, used customer interaction and customer service as a guidepost to see and understand, to your point, how far to go. The components of that also, though, include on a per market basis, and even a submarket basis, the kind of scale that we have. And with that, the effectiveness of the digital ecosystem that guides us to the predictability factor of this. And the tools that we're using from a predictability standpoint continue to become more and more effective. So those kinds of tools are the tools that we invest in completely from a labor standpoint that does a multitude of things from an output standpoint. One, again, tied to customer service; number two, the effectiveness of the team member themselves, ironically, but intentionally, it's also led to a much higher level of employee satisfaction relative to the way that they're operating their day-in-day environment. It's also and very intentionally provided good expense optimization and we continue to see more and more tools, particularly with the amount of data that we're dealing with, where we're moving in, for instance, north of 100,000 customers a month to guide us to the effectiveness of this. I mentioned earlier that now 85% of our customers are transacting with us digitally, but there are many customers that want to do the opposite and we're servicing them quite well with, again, a whole host of even different tools that they had to conduct business with us 2, 3 or 4 years ago. So more evolution in this entire process, but very good traction, meaning that we've got more to do, and we're excited about it. Brendan Lynch: Great. That's helpful. I also wanted to ask on housing-related demand. Obviously, that's kind of been a missing element for a couple of years now. Are you seeing any signs of improvement yet or any reason to be more optimistic that 2026 would be better than 2025 or 2024? H. Boyle: Yes, sure. I mean I think housing is a component of our demand. It's been relatively stable over the last couple of years as housing transaction volumes have been relatively stable after the step lower several years ago. Clearly, interest rates are a touch lower, mortgage rates are a touch lower, that should be helpful as we think about activity going forward. We haven't seen anything on the ground yet that would dictate that there's any meaningful shifts currently. And our in-house perspective is that it's going to take some time for the housing market to continue to work through it's adjustment with a big shift in mortgage rates over the last couple of years. So I think it's probably a steady as she goes environment in housing, maybe a touch better than that. Operator: We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Ryan Burke for closing comments. Ryan Burke: Thanks, Rob, and thanks to all of you for joining us today. Have a great day. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.