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Jakub Cerný: Hello and good afternoon, ladies and gentlemen. Welcome from Komercni banka, and thank you for sharing your time with us. Today, it is the 30th of October, 2025, and we are going to discuss the results of Komercni banka Group for the first 9 months and third quarter of 2025. Please note that this call is being recorded. Our speakers today will be Jan Juchelka, Chairman of the Board of Directors and CEO of Komercni banka; Jiri Sperl, our Chief Financial Officer; and Anne de Kouchkovsky, Chief Risk Officer. Standing by in case you have questions from them are Miroslav Hirsl, Head of Retail Banking; Katarina Kurucova, Head of Corporate and Investment Banking; and Margus Simson, Chief Digital Officer. As always, we will begin with the presentation of results, which will be followed by the questions-and-answer session. [Operator Instructions] Now let me ask the CEO, Jan Juchelka, to begin the presentation. Thank you. Jan Juchelka: All right. Hello, good morning or good afternoon. Thank you for giving us the opportunity and sharing the time with us for the presentation of Komercni banka results for the first 9 months and for the third quarter. Together with me, there will be Jiri Sperl speaking and Anne de Kouchkovsky speaking either for financial performance or for quality of assets. We can jump directly into Page #4, please. So Komercni, in the first 9 months, was growing nicely its loan book by 3.6% on a year-over-year basis with a strong driver coming from housing loans. Here we were achieving, on a year-over-year basis, almost 50% growth. And we are -- in nominal values, we are coming back to the record high numbers on that particular product. Let me also reiterate for the fact that it's Modra pyramida, the subsidiary which is completely and entirely in charge of this product, and that we have, in parallel with this strong business performance, achieved super high productivity gain when joining together or merging together the 2 product lines, the historical product lines: one from the bank, one from Modra itself. I will come back to it in detail. Deposits were up only mildly by 0.1% on a year-over-year basis. The third quarter, though, injected 2.6% growth. And what we are happy to see is that current accounts are growing by 3.2%, and we hope it's the beginning of a trend, it's not an ad hoc event. Other assets under management, which is, in our case, is pension schemes, insurance schemes, Amundi product, or private banking products were growing by 6.6%. Inside this category, the mutual funds were growing by almost 10%. The bank remained very strong on capital, so 18.4%. Core Tier 1 was 17.6%. Loan-to-deposit ratio in very, I would say, safe territory, 82%. Both short-term and long-term indicators of liquidity being safely high above the required levels. Obviously, and this is something what we will present in detail, there was the asset quality playing important role in the composition of the net profit. The net profit was totaling at CZK 13.6 billion. On reported basis, we are growing by 8.3%. If we take out the one-off effect of sale of our headquarter building exactly in the third quarter of 2024, on a recurring basis, the net profit would be growing at the level of 35.1%. Cost-to-income ratio, also thanks to very strict cost management, was landing at 46.4%. ROE, 14.5% on a standalone basis. What happened also on the side of our business and our financial performance is that we are successfully approaching the very last stage of transferring clients from old to the new world. As of end of September, there was 1.46 million customers already in the new systems, out of which almost 300,000 were newly onboarded customers, so numbers which have never been seen before in the reality of KB. We successfully continue on that front, we are above 1.5 million, and we are above 300,000 newly onboarded clients. On the corporate governance side, we have a new Chairperson of our Supervisory Board, Cecile Bartenieff, also recently appointed Head of Mobility and International Banking and Financial Services at Societe Generale. And we will -- we have announced a new CFO, Etienne Loulergue, to some extent, alumini of Komercni banka because he used to serve as Deputy to Jiri Sperl approximately 5 years ago, will become the CFO of KB Group starting 15 of December, 2025. And as we have Jiri Sperl at his probably last presentation of results today, I wanted to thank him warmly for his professional service, and I am encouraging everyone around this call to enjoy Jiri's presentation today. We were ranked #1 cash management bank in Czech Republic by Euromoney survey, which was conducted in the third quarter of this year. We can move to next page. As we are approaching the advanced stage or very final stage for retail banking of the transformation program, we wanted to refresh everybody's memory of how monumental piece of work is behind us and where is it heading to. So let me say that the light motive of our transformation was simplification. The significant simplification of products and the clients' proposition, including the same users' environment in the mobile phone, in the desktop solution, and in the branch, i.e., relationship manager solution, is one of those aspects. You know, probably, that we have replaced -- we have put in place a new core banking system. We have completely created the analytical layer above that, and as I have already mentioned, these front-end solutions including. The application, which is named KB+, is bringing a new customer experience to either our existing customers or future customers. When a person is equipped by bank ID, which is a dedicated identity, digital identity provided by a joint venture established by banks in Czech Republic, the onboarding takes less than 10 minutes and there is fully functional account immediately at hand to the new customer. The account is, depending on the subscription plan, multicurrency. It's covering 15 currencies and it is holding also, I would say, dynamic exchange rate functionality inside. We are fully equipped with this mobile application by instant payments in Czech koruna, incoming and outgoing, instant currency exchange with preferential rates for those who are paying for their subscriptions. We have terms and saving deposits embedded, building saving embedded, domestic and international ATM withdrawals, and deposits free of charge, travel insurance, insurance of personal belongings, and payment cards. We have a dedicated button for chat and video call. We have virtual assistant insight. We have dividend credit cards, overdrafts, mortgages, consumer loans, loan consolidation inside the solution. We have pension savings, mutual funds, and investment contracts inside the solution. We have periodic cash flow reviews inside the solution, and we will chip in the online brokerage soon in 2026. All of this, because we were launching the new bank in April 2023, was built from scratch, in fact, as a greenfield solution, and I'm very proud of everyone who contributed into this monumental piece of work in favor of our clients. How our clients are liking it? The Net Promoter Score is at 38 positive points. More they use the application, higher the NPS score is recorded. It is #1 most downloaded banking application in the country. We are currently beating also the international challengers and all our competitors. In App Store and Google Play, we are getting 4.3 or 4.5 respectively as a feedback on the quality and satisfaction from the users. One of the less attractive indicators, but super important for us and even more important for our clients is the vital process availability for KB+ customers, which is achieving 99.8%. And again, something what is given or perceived as automatic, I would praise highly everyone who is in charge and who is behind this excellent process stability and availability for the customers. On the side of marketing, we brought to the market, amongst the first banks, the dedicated bracelet for kids and youngsters where they can get the first impression and feelings about taking care of their own money without using mobile phone, without using any other feature. We went out with a series of excellent, if not even artistic set of cards, of payment cards, in co-operation with students of one of the famous artistic universities in Prague. Obviously, as we are staying the ice hockey bank of the Czech Republic, we are also coming out with a dedicated card, payment card, which is dedicated to ice hockey and ice hockey in the Olympic -- in combination with the Olympic Games. Next page is bringing us a bit closer to the numbers and graphs sort of related to the transformation story. So on the left-hand side upper part, you can see that we are sprinting to the finish line of transferring, or migrating if you wish, our retail clients from the old world to the new world. We are almost there. We are confident that we will be delivering what is the key indicator for that, which is 90% of the total number of our clients, whilst onboarding heavily new clients in the system. The predominant share of mobile banking in the new solution is sort of given. So the numbers are very high. 84% of the total interactions with the bank are done from mobile, only 16% from the PC, and 1% from other channels. We are increasing number of clients interactions. So, we have more often and more frequently our clients in the application, which is a great news because it seems that it's designed as more like user-friendly, the ergonomy of the solution is better, and we don't use it only as a service tool, but also as a sales channel. When speaking about sales through a digital solution, let me bring your attention to the lower part of the -- the lower graph at the left-hand side, where we have a school case, if I may say, from both the growth of digital sales and the productivity gain stemming from that. So we have started back in 2020 somewhere around 16.5%. If we moved the X close to 2018, it was probably 14% of our capability of digital sales, which was growing and massively growing after the launch of new era of banking in 2023 to the today's levels of 54%. In parallel with that, thanks to very hard work of our management in retail banking, but also in operations and other parts of the bank, we were constantly pushing down the number of FTEs related to the same activities. So here, you see the results. As far as digital sales per product are concerned, you see that, for example, investment contracts are fully digitized by 100%, overdraft 65% or 66% respectively, et cetera, et cetera, when reading from the right to the left. Starting recently, we are putting the target numbers for digital sales for each of those products individually. Not always, we will be trying to achieve 100%, but what is probably more important that the overall number of 54% will be further growing. And it will be us deciding what is the targeted level. Next page, please. So when speaking about the transformation, it's digital, it's simplification, but it's also searching for other efficiency gain and productivity gain inside the group. One of them, one of the cases was the complete adoption of KB Poradenstvi, which is the network of tied agents originally acting below the name of Modra where we were unifying the brand, where we were simplifying the product portfolio, where we were engaging with the agents and equipping them with the proper proposition, not only from Modra but from the entire KB Group, harmonizing the IT environment for them in order to make them fully integrated into our system, centralizing the -- everything what is back office on that particular activity, and bringing them to the campus of the headquarter of Komercni. We did it also with other companies. Everyone who is 100% owned went through the same process. Modra on its own went through an incredible story for the last couple of years when we were changing the systems, fully digitizing the customer journey, or almost fully digitizing because we don't have still digitized solution for the [ cadaster ] of real estate, but soon to be there. And we have merged everything what was mortgages with Modra pyramida. So instead of having 2 product lines, we are having 1 product line. And again, the achieved productivity gain will be above 100% once the overall transformation is being finalized. SGEF, SG Equipment Finance, Czech and Slovak Republic was fully acquired by KB Group. You probably know that above our heads, there was the disposal of SGEF International by Societe Generale. And as a result, we are 100% owner. So again, the OneGroup principle will be applied, and we will unlock additional potential for both commercial and business activities, as well as the synergies on the side of the back offices. We have picked up also upvest. Why? Because it's a super successful platform for raising money and investing them into real estate development. These guys are able to subscribe high multiples of the previous year, and they do it for a couple of consecutive years already, and we became 100% owner here. So we can move to the next page. And here, I'm bringing you back to the reality of today. So Czech Republic, Czech Republic is a very stable country from both economic and I hope we will confirm also from the political point of view. We are like a couple of weeks after the general elections and the new government is to be established. When speaking about the new government, what we hear from the nominees or from the main representatives of the political movements and parties who won the elections, there should be a fiscal stimulus for Czech economy stemming from this new government. So we will see how that will work. But we very much see investment-oriented -- or public investment or infrastructure investment-oriented group of people preparing themselves to step into the government. If you combine that with the expected or already existing fiscal stimulus for German economy, the overall environment of making business in Czech Republic is being improved more or less as we speak. In combination with that, the representatives of the winners of the election -- of the general elections are also speaking about compressing the energy prices, which might help also with lower level of imposes towards the inflation. So let's see, but at least the first signals are from, let's say, business perspective, pretty promising. The GDP was growing by 2.6% on a year-over-year basis. Industrial production was down, a combination of weakening Germany performance plus a bit of mess on the supply chain part and the impact of tariffs imposed by the United States is bringing a little bit down the industrial production, which is perfectly balanced by strongly growing construction output by 17.1% back in August 2025. This is stemming from infrastructure investments and also pretty booming investments on the side of real estate housing, but not only. The unemployment rates remains very low. On the other side, the wages are growing and beating the inflation. So 7.8% nominal value -- nominal growth, but 5.3% real growth of wages in the country, which is also giving the answer of who is the main engine of the growth of GDP, which is the title remaining in hands of Czech households. The inflation, as I have mentioned, was at 2.3% level in September. Czech National Bank is remaining calm for the time being and is keeping the repo rate at 3.5%, which is minus 50 bps on year-to-date basis, but was not changed for -- at the latest pricing session of the Board of [indiscernible]. Czech koruna is strengthening vis-a-vis Europe and even more vis-a-vis U.S. dollar. Probably, we can move to next page. And this is already the business performance. So as I have already mentioned, the gross loans were up by 3.6%, very strong dynamics related to mortgages and Modra loans, so housing loans in general, 55.2% when you compare Q3 '24 versus Q3 '25. We believe that the finetuning of the capacity of processing the new requests, combined with the fact that the dynamics of the market will remain strong, will bring us to slightly higher market share as KB Group. The rest of the segments were growing at approximately -- we're growing at around 2%, 2.5%, 2.6%, 2.7%. So, I would say, in general, the businesses, the households were taking, let's say, appropriate part of the new financing from KB. When zooming on corporate financing or corporate loans, we are witnessing the growth of 2.7% Q3 versus Q3. Inside that, the SGEF solutions were growing slightly higher than small businesses and corporates. So next page, please. All of this obviously was translated into KB being at and servicing its clients with the main transformative transactions. You can see public sector represented by Elektrarna Dukovany. Also private sector represented by almost the entire rest of the transactions you see in front of you with the exception of 2, which are municipal driven. Everything what is green here represents the format of green financing or green bonds. We can move to the next page, which is bringing us to deposits. It remained stable, plus 0.1%. I would say we would love to see that higher, and we took appropriate measures and established concrete tasks to get higher portion from deposits. When decomposing the deposits on the side of -- by the category, we are happy to see that the dynamics of growth of nonpaid, i.e., current accounts, is coming back to, let's say, better levels, 3.2%, whereas the saving accounts are in competition, mainly with investment solutions. When speaking about investment solutions on the left-hand side, you see that overall, we were growing by 6.6%, the assets under management in mutual funds by almost 10%, whereas the life insurance and pension schemes 2.1% and 2.3% respectively. So next page is bringing us to financial performance, and it's my pleasure to hand over the word to Jiri Sperl. Thank you. Jirí perl: Thank you very much, Jan. Indeed, a very good financial performance in Q3 and first 9 months of the year. I want to repeat key figures once again. So KB Group generated almost CZK 13.6 billion net profit after tax, which is 8.3% more than 1 year ago. And if we put aside the one-off coming from the sale of Vaclavske namesti in Q3 last year, the growth would be even much higher at 35%. It's visible from the waterfall chart on the left-hand side that basically all categories contributed positively. That's true that highest year-on-year impact is coming from super positive cost of risk that thanks to excellent asset quality of KB loan portfolios and also due to release of part of retail overlay provisions switched from the creation of the provision in 2024 to net release in 2025. And so the impact is massive. It is around CZK 2.3 billion. It's also very much worth to mention that also the top line was growing in first 9 months by almost 3%, while costs went down by 4.3% and thus generating very strong positive jaws. Also the quarter-over-quarter perspective, our trend is positive, that's right upper chart, and growing as seen there, i.e., quarter-over-quarter plus 3.3%. Naturally, the very good P&L result transposed also to the solid profitability indicators, ROTE being at 16.5% which -- and this should be reminded as well. At the same time, strong CET1 ratio at almost 18%, exactly 17.6%. This is bringing me to the balance sheet evolution. So the balance sheet shrink a bit year-on-year by 2.3%, which is, however, almost solely due to the very volatile repo operations with the clients. So if we compare the balance sheets year-over-year, it would be roughly CZK 80 billion less in Q3 this year versus 1 year ago. So this is basically explaining full variation. On the liability side, still, there is not a covered bond worth roughly -- or exactly EUR 750 million that was successfully issued in mid of October. And of course, you will see it in the balance sheet during the Q4 results presentation. On the asset side, there are basically no changes in trends, only to mention that the volumes of the [indiscernible] continue to decline a bit year-to-date as we are preferring for the time being investments into repo with the Czech National Bank, and of course, swapped into longer maturities following the long-term duration of our liabilities. Now let me go briefly through the main categories as usual. Although I would say there are not too many surprises, the positive trends do continue and will continue, including mainly positive jaws generation. So let's start with the net interest income. So, to say, despite the fact that NII was, I would say, severely hit by doubling of mandatory reserve requirement as of January 1 this year, it is growing. It is growing solid pace by 3.3% year-on-year. And it's basically the case both for key categories, [ checklist ]. So what I mean is income from the deposits and income from the loans, and both growing by roughly 4%. The drivers behind are, however, a bit different. NII from deposits is positively influenced mainly by spread effect -- by spreads, supported by improved structure of the deposits, while the income from loans is driven solely by volumes and the spreads remains basically flattish. Similar trends are visible also from the quarterly perspective, that's right bottom chart. On quarterly perspective, NII is growing by plus 1.5%. NIM, the chart on the upper left-hand side, on a year-to-date basis, it is 1.70. It is flattish quarter-over-quarter, but positive year-on-year by 6 bps, which is a positive news after some time. On top of that, we are expecting that the trend of the rise is going to continue also in Q4 this year, and I can touch it during the Q&As if needed. Let's move to the fees income. So income from fees and commissions is also growing by plus 3.4%. And there are, again, the usual suspects in terms of growth, i.e., mainly fees from cross-selling and specialized financial services, both growing on a 9-month basis by 13% to 14%. In the area of the cross-sell fees, it is a reflection of both volume growth of nonbank assets under management, but also improved structure, which is still continuing improving. And what I mean is that there is kind of [indiscernible] from more money market type of mutual funds to more dynamic. Quarterly perspective, that's right bottom chart, it's growing 1.3% quarter-over-quarter, and here almost solely supported by the cross-sell fees. At the same time, we also see first signs of improvements on the deposit product fees where the income from new packages/tariffs are classified. The mirror of course can be seen in the transactional fees. Financial operation is growing pretty dynamically year-over-year by 7.6% again on 9 months basis. And here it is solely influenced by the capital markets activities and mainly boosted by interest rates hedging activities, while the FX income from the payments is more or less flattish. That's the blue part of the chart. The dynamics is even higher on a quarter-over-quarter basis, growing by strong 15.4%. And here both elements contributed strongly, including those of the FX from the structured book growing by a strong 10%. Here, to say the jump in FX income from the structural book was somehow expected due to the seasonality or seasonally strong FX convers as I was somehow indicating over 3 months ago. And finally, before passing words to Anne, OpEx. So on 9 months basis, OpEx is declining strongly by 4.3% year-on-year, supported by -- basically by all components, except the depreciation and amortization. So let's go briefly into the structure. So personnel expenses, it's almost solely down on character by the decrease -- by the increased efficiency of the bank and thus decreased the number of the employees. So year-on-year, the number of FTEs is by almost 6% lower. First. Second, administrative costs also declining by minus 4%. But here, that is not the main, let's say, candidate or driver of the growth of the decline. And basically the savings go across all main categories. Skipping to regulatory funds, it was already commented in detail during the Q1 this year presentation, and the exception is depreciation and amortization. And again, here, no surprise. It is still reflecting main investments in digitization and our transformation in more general sense. All in all, this led to the further improvement of our cost-to-income ratio to the level and here commenting 9 months basis as well of 46.1%, while 1 year ago it was 49.2%. And that's the output of the positive jaws as I was commenting briefly before. Having said that, simply the trends are further continuing even in this chapter, and a good evidence is that the quarterly cost-to-income ratio, that's the very bottom part of the chart, that the quarterly cost-to-income ratio in Q3 into this year is the lowest at least since last 2 years. Now let me pass the words to Anne, who is going to comment quality of the assets and cost of risk. Thank you. Unknown Executive: Thank you. Good afternoon to everyone. So as it was mentioned, the loan portfolio grew up by 3.6%, and this is in the context of a very stable credit risk profile. So this is attested in several metrics. So first of all, you see that stage 2 is now below 10%. So this is obviously driven by the release of the inflation overlay that was put on the retail in 2024. So we decided to release in Q3 the part related to the small business segment. We also have a very, I would say, stable NPL share at low level, which is at 1.8% this quarter. And together with this NPL provision coverage ratio is very stable as well. It shows that the portfolio is well performing, well covered, and demonstrating the asset quality. If I go in more, I would say, maybe brief details in the segment on SME and small business and consumer loans, it's a very resilient portfolio. And mortgage loans and large corporates, we are in the low -- even 0 default area. So if we can move to the next slide. Cost of risk, as it was mentioned, it's -- release of cost of risk at CZK 328 million this quarter. I already mentioned and it was also mentioned by Jiri that it's very well driven by the release of this overlay that we had on the retail. But it's also driven by some successful recovery on the non-retail exposures, which led us to recover 100% of our exposure and consequently release the provisions. So all in all, we end the -- for the 9 months at cost of risk of minus 20 basis points. And for the next quarter, we intend to continue to release the remaining part of the inflation overlay on the retail, which is still in place for consumer loans, that will be then released for the fourth quarter, and will lead us to the minus low-teens in the cost of risk for the full year probably as we do not expect, as attested by the portfolio quality, any big event before the year-end. So that's about it on my side. Jirí perl: Yes. Thank you, Anne. And let me complete the presentation with last 2 slides, first one focusing on the capital. So capital remains very strong at 18.43%. There is a slight decline year-to-date, mainly due to the slight negative impact on OCI related to the release of the provisions as commented by Anne, so-called lack of provisions. Still, however, the capital adequacy is safely in the upper part of our management buffer, maybe better said almost at the upper edge of the management buffer, despite accruing [ 100% ] net profit as a dividend and the new methodology, i.e., Basel IV. Also MREL, adequacy is safely within regulatory limits at 28.8%. And this is bringing me to the full year outlook as usual. So there aren't too many changes in the macro, only 2 slight adjustments. First, no cuts of repo rate is expected by the end of this year, which was the case 3 months ago in terms of outlook. And second, there is slightly positive adjustments in the economic growth from 1.9% to 2.1% this year and also for next -- for the years to come. In terms of banking market growth, we keep fully the guidance, i.e., both lending and deposits, at a mid-single-digit pace. In terms of growth of KB, we stick to the original guidance at lending side, i.e., mid-single digit. In terms of deposits, we downgraded the guidance from mid-single digit rather to low- to mid-single digit, but at the same time, the structure of the deposits is expected to improve further. Revenues and OpEx are basically confirmed. Maybe one comment to the top line, probably more precise would be to say lower edge of low- to mid-single digit growth. OpEx as confirmed, i.e., mid-single digit decline -- decrease. And finally, cost of risk guidance, Anne has briefly touched that before, but it significantly improved from around 0 3 months ago to the level of low-teens. Well, that's it. Now before passing word back to studio, probably let me use this opportunity and to say also a couple of words on my side. First, thank you, Jan, for your kind words, and thanks also to all you connected. Indeed, this is my last earnings call in a position of KB's CFO. I have to admit that it has been a great 10 years serving at this position. And I truly appreciated every opportunity to meet with you and discuss the bank's performance and time to time also everything around. As Jan mentioned, Etienne will be stepping into the role as my successor starting mid-December, and I don't have any doubts he will successfully take over. He knows the bank perfect well and has all the qualities needed to help lead KB towards, how to say that, towards its bright future. So, Etienne, all the best in this exciting position. Thank you all once again. And now returning the word to studio. Jan Juchelka: Okay. Thank you. Thank you, Jiri. I will just conclude the call very -- the presentation part of the call very quickly. So we can say that the combination of strong capital base, the already delivered very strict management of costs, the fact that we are approaching the very final stage of the transformation and we have fully functional, very stable, and attractive solution for our retail clients, combined also with the operating efficiency, further, let's say, simplification and scalability of the new digital platform will create a good base for improvement in the commercial momentum of the bank further on. We believe that the cost of risk, which is in negative territory and is commenting by many of you as the good contributor but not like sustainable contributor into the profitability, will turn into enabler for further commercial and business growth in the next months and quarters. We will also free up additional energy and time of our bankers. They were super busy with assisting our clients with migrating from the old to the new world. They will now put all their energy on sales and servicing the clients in day-to-day reality. This is what is somehow framing our hope for the next -- and determination for the next steps, which will be driven by our activity and our, I would say, full dedication to -- for the growth of the bank on the side of business and commercial and financial performance. Thank you very much. I'm giving back the words to Jakub Cerny, and we are ready to answer your questions. Thank you. Jakub Cerný: Thank you to all the speakers. Let me add that we have been also joined by Jitka Haubova, our Chief Operations Officer. So we have the complete Board of Directors with us today, and you can ask Jitka as well. It means that in the next part of today's meeting, we will be happy to answer your questions. Let me remind you that this meeting is being recorded. [Operator Instructions] So our first question comes from the line of Mate Nemes from UBS. Jan Juchelka: We cannot hear you, Mate. Mate Nemes: Can you hear me now? Jan Juchelka: Yes. Mate Nemes: Excellent. Perfect. First of all, I wanted to say thank you to Jiri for years of hard work, transparent commentary and help you provided to analysts in capital markets, and we'll be dearly missing you. My question would be on loan growth. It's good to see that there is acceleration quarter-on-quarter and also year-on-year in loan growth. I think you've been quite clear that that's a focus area for the second half of the year, Jan, to your comments about freeing up time for the bankers, certainly starting to be visible and sales volume of housing loans visibly picking up. I'm wondering if you could give us perhaps some flavor of what you're seeing in the last quarter of the year and expectations also going into 2026. Can we expect this momentum to continue and maybe also see a much awaited recovery in business loan volumes? I think, Jan, last quarter, you were quite positive about potential infrastructure projects and lending towards that. When can we see that in the numbers? Jirí perl: I can probably start and then my colleagues, the heads of business [indiscernible] will complete me. So a couple of comments on first 9 months of the year. I would say that the retail loans were growing relatively strong. It's mainly the case of mortgage loans. So I gave you through that there is a space for improvement in the area of consumer loans. That's one thing. In terms of corporate loans, to say the growth was a bit subdued, but at the same time, we are expecting by the end of the year relatively dynamic move. Why? Because the pipeline is relatively rich and strong. And I'm sure Katarina is going to comment on that. In terms of 2026, we are providing the detailed guidance at the end of the year results, i.e., end of January next year. But I can indicate that the strategy of KB is very much growing, and it will be very much the case for retail as currently all tools are available. So retail is going to be the market shares growing mid- to high-single digit. In terms of corporate, it will be more about the sticking to the market shares, at the same time gaining a bit, but definitely not as dynamic as retail in 2026. Now I'm passing words to my colleagues who will probably go into deeper details of component to me. Thank you. Unknown Executive: Okay. So if I might add a few words on the corporate, not to repeat what was already said. We do see strong pipeline. We are actually seeing acceleration in the lending business for the SMEs. So we are pretty confident towards the year-end. In terms of the large corporates, it's kind of a little shaky market because we are seeing a strong and very lively bond market, which is nice on the fee side also for us. But it also has a negative impact because some of the loans are being refinanced by the bonds issued by the big groups, and also there is a strong pressure on the margins arising from the high appetite on the bond side. So on the large clients, we are optimistic more towards the next year because as you mentioned yourself, there is still quite a huge infrastructure project loading up in Czech Republic, and we are confident to be participating in those. And that should be definitely a very nice contributor to the large segment of our clients in terms of both volumes and profitability. Jan Juchelka: I will probably add one sentence. You probably saw the pages with the tombstones that we were the instrumental bank when financing the preparation of the new nuclear project of the country under the name of EDU II together with other banks, but we were, let's say, the main driving force there. There will be more to come on this side of energy sector. You might recall that there were 2 large transactions. One of them concluded beginning of the year where state was taking over part of the storage capacities and transmission of gas, whereas [ Czech ] as the state-owned -- majority state-owned company was taking over GasNet, which is a distribution of -- regional distribution of gas, et cetera. So we are around these transactions. We will be continuing with that. What is slightly delayed on that front is the transport-related infrastructure project, which partly maybe also because of the elections we're a little bit lagging behind the original schedule and original calendar. The rhetoric of the new representation of the majority in the parliament, at least, is that they will continue intensively on that front, and we want to be part of it as well. Mate Nemes: That's very helpful. Can I have a follow-up perhaps, as you mentioned, the new forming government? Can you share your thoughts on probabilities around a more effective banking tax? Jan Juchelka: With strong disclaimer that we don't have the crystal ball and we don't see the future, the reality is that we don't evidence any strong push on that front and/or any traces of planning or projecting that into the budgetary exercise or in the preparation of the budget. So the Czech Banking Association is obviously acting preventively and trying to get the right feeling about -- around that because rightly you are picking up one of the potential risks for the entire market. For the time being, we don't see anything happening. Jakub Cerný: Our next question comes from the line of David Taranto from Bank of America Securities. David Taranto: I have a quick one. Are there any regulatory headwinds or tailwinds on the capital side over the next year? Anything that could affect the Board's appetite to sustain the 100% payout aside from the internal capital generation? Jirí perl: Should I take it, Jan, or you will? Okay. Well, there was a big methodology change starting this year. I mean, implementation of Basel IV. Probably, you noticed that at the end of the day, the impact of Basel IV for KB was basically neutral. Having said that, almost all components of that have been incorporated even before. For the time being, we are not expecting any regulatory changes. But with the same disclaimer like I was mentioning before, we do not have a crystal ball, but currently nothing is on the table. Maybe here to mention that Basel IV was implemented starting from 2025, but not fully, i.e., it was related to credit risk and operational risk. But still the capital needs for market risk is coming, and you will see that at the beginning of next year. I can just indicate that the impact will be rather positive. Thank you. Jakub Cerný: So the next question comes from the line of [ MC ]. So I would like to ask you to introduce yourself and then ask your question. Jirí perl: That's Marta Czajkowska? Marta Czajkowska-Baldyga: Yes. Sorry. No, it's Marta Czajkowska-Baldyga from IPOPEMA. Sorry for that. So I have 2 questions. [ Audio Gap] Jirí perl: We cannot hear you. Jakub Cerný: Sorry, Marta, could you unmute yourself? Sorry. Marta Czajkowska-Baldyga: Yes. I think that it's -- do you hear me now? Jakub Cerný: We can hear you now, yes. Marta Czajkowska-Baldyga: Okay. So, first of all, thank you, Jiri, for your transparency and your hard work. And 2 questions from my side. First, on the deposit market and the situation right now. Could you please discuss this? I mean, we hear from the competitors that there is increased competition on this market and KB itself lowered its outlook for deposit growth this year. And could you please discuss this development in the context also of potential pressure on the margin? And the second question is on the cost of risk. Could you please disclose how much of the management overlays related to retail segment do you still have on your books to be released in the fourth quarter? And just related to that, would you say that 2026 outlook would still be below the -- through the cycle level in terms of cost of risk? Jirí perl: If I may, I will start again about the deposits, and again, no doubt my colleagues will complement. So based on the growth of deposits in first 9 months or even year-over-year was rather subdued. We are partially commenting on that same answer ago. And by the way, it was the case both for retail and corporate. And one of the reasons on the corporate -- on the retail side was that the branch network was heavily migrating according to the plans and succeeded. We are getting -- or the migration is going to be completed by the end of the year. I'm talking about individuals. But of course, it was about not negligible capacities on our side. For corporate, and that's probably what you are referring to, there was -- in the first half of the year, specifically [indiscernible] competition on the market. And our interpretation at the time was that this was linked to the fact that not all incorporated the impact of the doubling of obligatory reserves as of January this year into the client rates pricing. Now it seems it is going to be normalized. And I believe that at the end of Q3, we can see the first fruits of the change. The Q3 dynamics is much higher. On top of my head, that is around 2.6% where both key segments are growing. And to be frank, we expect that this trend is going to continue. Maybe, to mention here one more point. This was also visible in the market shares for the last 3 months. I don't have in front of me September ones. They should be available by the way today, but August, July and June, KB was gaining market shares in terms of deposits. And now I will have my colleagues to comment further. Thank you. Unknown Executive: So, on retail side, I don't have much to add. Maybe to give you a few details from inside the structure of the deposits, we are doing pretty well on unpaid deposits, current account balances, and you saw it in the presentation. Recently, we stabilized the development of term deposits. So we are now, like, flattish to slow growth again. We are doing really, really well on saving accounts. And I have to admit that some time ago, we probably slightly underestimated the role saving accounts play in collection of deposits. It was all fixed. And now we can see basically week by week how well we cumulated deposits on saving accounts. And we have a few more bullets to shoot to make it even faster. So I'm rather on optimistic side for deposit development on retail. Jan Juchelka: But probably in more general terms, what we see, what is happening on the deposits, we can probably confirm what you heard from the other players that the hunt for the deposits is more visible on the market, plus the clients have changed their management of spurred money, if I may say. They do search for returns. By definition, we are in the Czech Republic. They are searching the safe returns, if I may say. So saving accounts highly probably will be the field where the whole battle will be happening at the highest intensity. There was also one sub-question on overlays and cost of risk until the year-end. I don't know, Anne, if you want to react on that. Unknown Executive: Yes. So your question was the remaining part on the retail, right? So I don't know if the amounts were mentioned earlier, but -- yes, it was mentioned earlier. So we have remaining CZK 100 million, if I'm not mistaken. Jiri, please help me because I'm still struggling a bit between euros and Czech koruna, sorry, as I just joined 2 months ago. And as I said, it is on the consumer lending and we intend to release. And then we have still an overlay on corporate, which is in a bigger amount. This is under discussion because it was created as well on inflation assumption that are not, today, really relevant. But still, given the very unstable environment we are living now in, we will intend to keep overlay on the corporate part. But I cannot really comment because it's really under discussion on the, I would say, which amount, but it should be more or less the same as we have today, but on different assumptions, broader assumptions, like more international geopolitical instability, tariff threats, not only inflation. Jirí perl: Exactly, as Anne was commenting on that. Maybe let me complement by 2, 3 sentences because one of the questions was that the years to come. That [indiscernible] is not sustainable to be in a materialize part data sustainable. So starting from 2026, we are getting back to normal cost of risk, i.e., reverberation. Some of you might remember that according to risk [indiscernible] statement, some are [indiscernible] like through the cycle cost of risk, we are targeting 25 basis points, but it's very likely will not be the case for next year. If I should indicate, you should probably expect, let's say, high-teens in terms of bps. Unknown Executive: Complement -- as it was mentioned by my colleagues from business, we want to push on some segments that are, by definition, creating more cost of risk, which is small business, I mean, SMEs in the corporate and consumer lending in the retail. So that's why we expect to go back more in our limits that are in the risk appetite of the bank. Jakub Cerný: So we don't seem to have further questions as through the platform. So now I would like invite participants who are connected through telephone. [Operator Instructions] So, Marta, you have the floor. Marta Czajkowska-Baldyga: If you could discuss the outlook for remaining part of the year for NII, and if you could be kind enough to tell us if there is any change in that for 2026 going forward? Jirí perl: Yes. I was talking to [indiscernible]. Well, again, I will start – probably, let's start with the main drivers, which are, first, growing of the client base -- further growing of the client base. Of course, critical will be to make them active, first. Second, material increase of the digital sales. First one I would mention would be the continuing change in the structure of our deposits in favor of current accounts. At the same time, let me be very clear that we are not aggressive in that regard. Of course, 5 years ago, it was current accounts portion, and the total deposits was 80%. Now we are closer to 50 and are using very conservative assumptions. On top of that, we are expecting continuing growth of the volumes basically in line with the dynamics visible in Q3, and it is relevant both for loans and deposits. And probably last point to mention is slight improvement of NIM. If I'm saying slight, I compared to, let's say, year-over-year. It will be around, let's say, 5 basis points plus/minus. And the main drivers here will be already mentioned improved structure of the deposits. That's -- for 2026, the story is a bit similar, i.e., the main driver of the growth in the area of net interest income will be shared volumes. As I was mentioning before, a very dynamic growth of both loans and deposits. And also we will see there, let's say, outputs or results of the improved structure of deposit because it is in the P&L for the time being only partially. So in 2026, we should see more visible impact. So in terms of NPIs, we are expecting mid- to high-single digit, and of course, the main driver of that, at least in absolute terms, will be income from net interest income. I'm not sure. Did it help? Or -- okay, [indiscernible]. Jakub Cerný: So let's wait a few moments if anyone has another question, either through the platform or directly asking via telephone. There does not seem so. So I would like to hand back to Jan for a concluding remark. Jan Juchelka: All right. Thank you, everyone, for being with us today. It was a big pleasure for us to share with you our views on not only the results, but some of the key aspects of making banking business in the Czech Republic in the context of the macroeconomic reality. And we do believe that going forward towards 2026, there might be new emphasis for the entire market, and we want to play a significant role as we have done until now. Obviously, and thank you again for very precise questions. You somehow spotted the main aspects or points of our interest of -- not only interest, but of our activities. So we will definitely hunt for higher volumes on both the side of financing, as I will just repeat the words of Anne, mainly in those categories where we are lagging behind our natural market share. So it's more like consumer lending and financing the small businesses and mid-caps. On the side of hunt for deposits, we will definitely continue making our improved propositions for the clients, and work on the appropriate balance between paid and unpaid deposits. Speaking about all the means how to get there is mainly, I would say, favorable starting point on the side of cost of risk and the normalization Anne is mentioning is simply stemming from the fact that we are constantly flying below our line of risk appetite statement. So we have space to grow and the space to grow is mainly in the categories I have already mentioned. Let me also reiterate on the fact that we have made very hard work and series of unpopular decisions on the side of cost management during 2025. Some of the effects will be visible a bit later than in the third quarter. But I need to thank all of my colleagues who have implemented the necessary measures on keeping the positive jaws in place. We feel strong on that discipline and we will continue working on it further on. So we are very much looking forward to meeting you a quarter from now or at your request any time in between you would be interested in knowing more about Komercni banka. Thank you very much for paying attention to our bank, and we are super committed, and we are looking forward to speak to you soon. Thank you. Unknown Executive: Thank you very much. Jakub Cerný: Thank you. This concluded our call today. You can now disconnect.
Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to DTE Energy Q3 2025 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Matt Krupinski, Director of Investor Relations. You may... Matt Krupinski: Thank you, and good morning, everyone. Before we get started, I'd like to remind you to read the safe harbor statement on Page 2 of the presentation, including the reference to forward-looking statements. Our presentation also includes references to operating earnings, which is a non-GAAP financial measure. Please refer to the reconciliation of GAAP earnings to operating earnings provided in the appendix. With us this morning are Joi Harris, President and CEO; and Dave Ruud, CFO. And now I'll turn it over to Joi to start our call this morning. Joi Harris: Thanks, Matt. Good morning, everyone, and thank you for joining us. While this is my first time leading our earnings call as CEO, I've had the privilege of engaging with many of you over the past couple of years and appreciate the dialogue. I'm off to a running start and continuing to build on the strong foundation we've established. I have a number of exciting updates to share with you today, which include highlighting the progress we're making on achieving our 2025 financial goals, providing a strong 2026 operating EPS outlook and outlining our enhanced 5-year plan that now extends through 2030. A highlight of our strategy is the transformational growth we're seeing in data center demand. I am pleased to announce we finalized an agreement with a leading hyperscaler to support 1.4 gigawatts of data center loads. This is an exciting milestone that I'll expand on as we walk through our updated strategic plan. Aside from the 1.4 gigawatts of new load, we are still in late-stage negotiations with an additional 3 gigawatts of data center load providing potential further upside to our capital plan as we advance these negotiations. As a result of this first data center transaction and continued need to modernize our utility assets, our updated plan includes significant increases in utility investments for our customers and deliver 6% to 8% operating EPS growth through 2030. We are confident we will reach the high end of our targeted range in each year, driven by R&D tax credits and the flexibility they provide. This plan supports our continued strategic shift toward higher-quality utility earnings fueled by increased demand, continues our efforts to build the grid of the future while transitioning to a cleaner generation and demonstrates our ongoing commitment to affordability for our customers. Thanks, Matt. Good morning, everyone, and thank you for joining us. While this is my first time leading our earnings call as CEO, I've had the privilege of engaging with many of you over the past couple of years and appreciate the dialogue. I'm off to a running start and continuing to build on the strong foundation we've established. I have a number of exciting updates to share with you today, which include highlighting the progress we're making on achieving our 2025 financial goals, providing a strong 2026 operating EPS outlook and outlining our enhanced 5-year plan that now extends through 2030. A highlight of our strategy is the transformational growth we're seeing in data center demand. I am pleased to announce we finalized an agreement with a leading hyperscaler to support 1.4 gigawatts of data center loads. This is an exciting milestone that I'll expand on as we walk through our updated strategic plan. Aside from the 1.4 gigawatts of new load, we are still in late-stage negotiations with an additional 3 gigawatts of data center load providing potential further upside to our capital plan as we advance these negotiations. As a result of this first data center transaction and continued need to modernize our utility assets, our updated plan includes significant increases in utility investments for our customers and deliver 6% to 8% operating EPS growth through 2030. We are confident we will reach the high end of our targeted range in each year, driven by R&D tax credits and the flexibility they provide. This plan supports our continued strategic shift toward higher-quality utility earnings fueled by increased demand, continues our efforts to build the grid of the future while transitioning to a cleaner generation and demonstrates our ongoing commitment to affordability for our customers. I will share additional details of our plan over the next few slides. Dave will give an overview of our third quarter results 2025 guidance and 2026 early outlook, and then we will open it up for your questions. I'll start on Slide 4 by saying that we are continuing to deliver strong results in 2025 and we are well positioned to hit the high end of the guidance this year. As always, our success is a testament to our dedicated and engaged team committed to serving our customers and communities. I am extremely proud that our team was recognized by the Gallup organization for the 13th consecutive year with A Great Workplace Award and our employee engagement ranks in the 94 percentile globally among thousands of organizations. We are well positioned to achieve the high end of our 2025 operating EPS guidance range. Looking ahead to 2026, our early outlook reflects operating EPS growth of 6% to 8% over our 2025 guidance midpoint, and we are confident in our ability to deliver at the higher end of that range. Let me move to Slide 5 to provide more details on our long-term plan. We are in an exciting time for our industry and for DTE and we are focused on seizing the opportunity to deliver for our customers, communities and investors. We're increasing our 5-year capital investment plan by $6.5 billion compared to the prior plan, driven by the data center transaction and the continued need to modernize our utility assets. At DTE Electric, the additional investments are strategically focused to support data center low growth, advanced cleaner generation and to enhance distribution infrastructure that will drive continued improvements in reliability. DTE Gas is focused on system reliability and infrastructure renewal, ensuring safe, efficient service for our customers while modernizing our network. DTE Vantage will continue to prioritize investments in utility-like long-term fixed-fee contracted projects, which aligns well with our strategy to deliver stable, predictable earnings for our investors. Our investment plan supports a further strategic shift towards higher-quality utility earnings over the next 5 years, targeting utility operating earnings to increase to 93% of our overall earnings by 2030. Importantly, data center opportunities are helping drive this shift as we allocate additional capital to serve this load, which further supports affordability for our existing customers. We have incorporated a more conservative growth outlook for DTE Vantage, which is largely influenced by commodity pricing assumptions in our longer-term forecast. As part of our most recent strategic analysis, we evaluated a range of pathways to drive sustainable long-term value. This effort reinforced our conviction that leaning into our core utility business, while taking a more conservative view at DTE Vantage will best position us to deliver value for our customers and for our investors. As you can see in the appendix of this presentation, the 2030 outlook for Vantage is flat to 2025 guidance. As our solid project development pipeline offset the expected roll-off of 45Z production tax credits after 2029. We're confident this approach also positions us well for consistent future growth as we expect to continue to make progress on additional data center opportunities that will deliver upside to our base plan. Let me move to Slide 6 to highlight updates to our capital plan at DTE Electric. Our updated capital investment plan at DTE Electric provides a $6 billion increase over the prior plan driven by the data center transaction and customer-focused initiatives that align with our long-term strategy. A key component of this plan is new storage investment to support the increased data center load. Importantly, this incremental storage investment is fully funded by the data center customers. The plan also includes renewable investments that support the continued success of our MIGreen Power voluntary renewables program and fulfill the requirements of the legislative clean energy plan. And to ensure reliable baseload generation as we transition away from coal, we are planning the construction of a combined cycle gas turbine to replace our retiring coal plants. We are submitting a competitive bid for the 2026 Integrated Resource Plan, all-source RFP for a new CCGT to replace Monroe power plants. We're also continuing to invest in distribution infrastructure to harden the grid and improve reliability for our customers. These grid investments are already delivering results, driving a nearly 90% improvement in the duration of outages since 2023 as we make strong progress toward our goal of reducing power outages by 30% and cutting outage time in half by 2029. Our current rate case filing supports these reliability investments while remaining focused on customer affordability. This filing includes a request for approximately $1 billion in distribution spending to be included in the infrastructure recovery mechanism by 2029 which was largely supported by the MPSC staff in its recent testimony. The IRM will help drive consistent, predictable investments in grid modernization to improve reliability for our customers, while also simplifying future regulatory proceedings. The order for this case is expected at the end of February. Overall, I'm thrilled about the opportunities ahead for DTE Electric. As we continue our efforts to improve reliability for our customers, transition to cleaner generation and execute on economic development opportunities to drive low growth and support affordability for our customers. Let me move to Slide 7 to provide an update on our advancement of data center opportunities. As I mentioned, we successfully executed a significant agreement to support 1.4 gigawatts of new data center load, representing a major step forward in our utility growth strategy while also delivering meaningful affordability benefits to our existing customers. The demand is expected to ramp up over the next 2 to 3 years, giving us a clear runway to align infrastructure development and resource planning with customer needs. While we can use existing capacity to support this ramp, we'll also need to invest in new energy storage solutions to meet the full capacity requirements. Our updated plan includes nearly $2 billion of incremental energy storage investments and additional tolling agreements to support this data center load. Given our excess capacity, we will use our existing industrial tariff for this customer and combine it with an energy storage contract to support the incremental storage investment. We are including key terms in these agreements that will protect existing customers, including a 19-year power supply contract with minimum monthly charges. The data center will fund its own storage needs through a 15-year energy storage contract. These terms are important to us and our customers as we ensure the data center revenue supports the required investment to meet this new demand. We plan to submit our regulatory filing tomorrow requesting approval of the data center contract. Energy storage investments will begin ramping in 2026 to align with the projected increase in data center load. As I mentioned, we also have additional data center opportunities beyond this initial 1.4 gigawatts. We are in advanced discussions with additional hyperscalers for over 3 gigawatts of new load, and we have a pipeline of an additional 3 to 4 gigawatts behind that. We also expect longer-term growth opportunities through the expansion of these initial hyperscaler projects. The generation investments that will be needed these additional opportunities could very well come into the back end of our 5-year plan, providing incremental capital investments above what we are laying out for you today. A key step in preparing for the development of new generation to support large data center loads is integrating these requirements into our next IRP filing, which we expect to file next year. So a lot of great opportunities ahead of us on the data center front. We will continue to provide updates along the way as things progress. Let me move to Slide 8 to discuss our commitment to customer affordability. We have a history of executing on our investment plan with a sharp focus on customer affordability. As you can see on the chart, our average annual bill increase over the last 4 years is significantly lower than the national average and Great Lakes average. We remain committed to maintaining this focus on affordability throughout our plan. We are advancing on a number of initiatives to support affordability for our customers while continuing to invest and support our key priority. Importantly, near-term data center growth will help create substantial affordability headroom for our existing customers as we sell our excess generation. Our continuous improvement culture will ensure O&M and capital investments remain efficient. The shift from coal to natural gas and renewables also helped to further reduce O&M costs while our diverse energy mix ensures economic fuel costs for our customers. And finally, the IRA provisions support the renewable energy investments while supporting customer affordability goals. So to wrap up my comments, I'll say I'm very excited about our long-term plan and the opportunities we have ahead of us to continue to deliver for all of our stakeholders, including excellent service to our customers and communities and continued strong financial performance for our investors. I'm looking forward to spending more time with many of you at EEI to discuss our updated plan. With that, I'll hand it over to Dave. Over to you, Dave. David Ruud: Thanks, Joi, and good morning, everyone. Let me start on Slide 9 to review our third quarter financial results. Operating earnings for the quarter were $468 million. This translates into $2.25 per share. You can find a detailed breakdown of EPS by segment, including our reconciliation to GAAP reported earnings in the appendix. I'll start the review at the top of the page with our utilities. DTE Electric earnings were $541 million for the quarter. Earnings were $104 million higher than the third quarter of 2024. The main drivers of the variance were timing of taxes and rate implementation, partially offset by higher O&M and rate base costs. The impact from the timing of tax for the quarter was fairly significant at $63 million favorable relative to third quarter 2024. This is due to the timing of investment tax credits associated with when our solar projects are placed in service. This timing was known and built into our plan and the remaining year-to-date timing favorability of $33 million relative to 2024 will reverse in the fourth quarter. Moving on to DTE Gas. Operating earnings were unfavorable $38 million, which is $25 million lower than the third quarter of 2024. The earnings variance was primarily driven by higher O&M and rate base costs. With our confidence that we will hit the top end of our overall DTE operating EPS guidance range this year, we've been able to unwind onetime lean operational measures and other unsustainable reductions that were implemented over the past few years at DTE Gas to counteract warmer weather. This will likely bring this segment in below its guidance range in 2025. Let me move to DTE Vantage on the third row. Operating earnings were $41 million for the third quarter of 2025. This is an $8 million increase from 2024, driven by RNG production tax credits in 2025, partially offset by lower steel-related revenues. We remain on track for the full year guidance at DTE Vantage. On the next row, you can see Energy Trading earned $23 million for the quarter. We continue to experience strong margins in our contracted and hedged physical power and gas portfolios. On a year-to-date basis, we are currently above the high end of operating earnings guidance for this segment. This strong performance places us in a favorable position to leverage any potential further upside across DTE to continue to provide flexibility for future years. Finally, Corporate and Other was unfavorable by $77 million quarter-over-quarter due primarily to the timing of taxes, which will reverse by year-end as well as higher interest expense. Overall, DTE earned $2.25 per share in the third quarter of 2025, which positions us well to achieve the high end of our guidance range in 2025. Let's move on to Slide 10 to discuss our 2026 outlook. As Joi mentioned, we are well positioned to deliver another strong year in 2026. Our 2026 early outlook range, $7.59 per share to $7.73 per share, which provides 6% to 8% growth over our 2025 guidance midpoint. And we are confident that we will deliver at the high end of the guidance range due to the flexibility that the 45Z tax credits provide. Utility growth will be driven by customer-focused investments, including distribution and cleaner generation investments at DTE Electric and main Renewal and other infrastructure improvements at DTE Gas. DTE Vantage will see growth from the development of new custom energy solutions projects and continued contributions from RNG production tax credits. And at Energy Trading, we continue to see strength in both our structured physical power and physical gas portfolios, giving us confidence in our targets as we head into 2026. We will share additional details on 2026 during our fourth quarter call following the close of a strong 2025. Let's turn to Slide 11 to discuss our balance sheet and equity issuance plan. We continue to focus on maintaining solid balance sheet metrics. To support the significant increase to our capital investment plan that we need to execute for our customers, we've increased our planned equity issuances. We are targeting annual issuances of $500 million to $600 million in 2026 through 2028. This level of equity supports the capital that is now coming earlier in this plan relative to our prior plan. The increased equity will help fund the increase in our capital plan, including the storage investments related to our data center agreement while ensuring that we maintain a strong balance sheet. We will continue to maximize the use of internal mechanisms to issue equity, but will also incorporate manageable external issuances. Our 5-year plan fully incorporates the equity needs and continues to deliver 6% to 8% operating EPS growth with a bias toward the upper end each year through 2030. Our long-term plan also includes debt refinancing and new debt issuances. We expect to strategically utilize hybrid securities to support our financing plan, and we will continue to manage future debt issuances through interest rate hedging and other opportunities. Importantly, we continue to focus on maintaining our strong investment-grade credit rating and solid balance sheet metrics as we target an FFO to debt ratio of approximately 15% -- this plan ensures that DTE continues to be well positioned to make the necessary investments for our customers while delivering the premium total shareholder returns that our investors have come to expect over the past decade with strong utility growth and a dividend growing with operating EPS. Let me wrap up on Slide 12, and then we will open the line for questions. Our team continues our commitment to deliver for all of our stakeholders. We are delivering solid results in 2025. We are on track to achieve the high end of our operating EPS guidance range, and we are confident we will achieve the high end of our 2026 early outlook, again, due to the flexibility that the 45Z tax credits provide. Our updated 5-year plan provides high-quality long-term 6% to 8% EPS growth through increased customer-focused utility investment, which increases our utility operating earnings to 93% of our overall earnings by 2030. This plan increases our 5-year capital investment by $6.5 billion over the previous plan, supported by the data center transaction and the continued need to modernize our utility assets. Additional data center opportunities provide potential upside to this 5-year capital investment and EPS growth plan. We continue to target 6% to 8% long-term operating EPS growth with 2026 operating EPS midpoint as a base for this growth. We are confident that we will reach the high end of our target range in each year, driven by RNG tax credits and the flexibility they provide. we continue to target a strong dividend that grows with operating EPS. Overall, we are well positioned to deliver the premium total shareholder returns that our investors have come to expect with a strong balance sheet that supports our capital investment plan. With that, thank you for joining us today and look forward to seeing many of you at EEI. We can open the line for questions. Operator: [Operator Instructions]. Your first question comes from the line of Shar Pourreza with Wells Fargo. Shahriar Pourreza: So obviously, the upside slide, it seems fairly material around incremental data center opportunities. Are the data center deals kind of are they an inflection point to rebase higher or shift that 6% to 8% CAGR? Or should we still kind of assume lengthen and strengthen? I guess, what do you need to see to revisit that guided trajectory, especially since some of it can hit the back end of the plan and you're already growing at the higher end? Joi Harris: Thanks for the question. Yes, we're really excited about the first 1.4 gigawatt deal we have on the table, and we feel well positioned to execute on that. We're continuing conversations. As I mentioned in the intro, we've got 4 gigawatts -- well, 3 to 4 gigawatts that we're continuing to work with hyperscalers with a total pipeline of roughly 7. That said, as we are advancing these negotiations, our intent would be to find terms that we can then -- and the ramp that we can then incorporate into our next year's IRP and then determine the generating resource to support that load. It could be a large generating load or a combination of batteries and renewables. But the intent would be to get it into the 5-year plan, if at all possible, and that would give us growth opportunities above and beyond where we are today. So we feel really good about the deal we have on the table and our ability to execute on it. Shahriar Pourreza: Okay. Got it. But just -- I guess, just to -- is it accretive to the 6% to 8%, I guess, how do we sort of think about how you currently guide? Joi Harris: Yes. I think that is a fair assumption that it would be upside to our current 6% to 8%. Shahriar Pourreza: Perfect. And then just -- and obviously, you noted a more conservative outlook for Vantage due to commodity pricing. But I guess what are you seeing on the energy service side? And does it make sense to monetize certain assets, especially with the inflection of equity needs starting in '26? Joi Harris: Yes. We're continuing our focus on our energy service business line and Vantage. We're working on behind-the-meter project, in fact, outside of the state of Michigan for our data center, and that could be an additional vertical that we pursue. But Vantage has been a really great part of our portfolio for over 20 years with a really strong BD pipeline and opportunities for really good returns. So -- but as always, we look for ways to optimize value for shareholders. We don't have anything imminent right now, but it's something that we'll continue to examine. Shahriar Pourreza: Got it. Perfect. And big congrats, Joi, on your first earnings call. I know Jerry is listening. He's proud and just keep that dividend growing for him now that he's on a fixed income. Appreciate it, guys. Joi Harris: Thanks Shar. Operator: And your next question comes from the line of Jeremy Tonet with JPMorgan. Aidan Kelly: This is actually Aidan Kelly on for Jeremy. Yes. So just regarding the EPS CAGR, is the right math to think about like 2026 high end and then growing 8% off that until 2030? Or should we think about the EPS CAGR kind of being based off the midpoint each year? Joi Harris: So midpoint this year is the way we guide. And the 45Zs give us the potential to hit the top end of our range. And as you know, those 45Zs extend through 2029. Aidan Kelly: Got it. Okay. That's helpful. And then just on the incremental load, maybe just like how much should we think about like the load is needed to trigger a new gas plant versus just more energy storage at this point? I mean like when you look at the 7 gigawatt pipeline, how should we think about like what's needed for new base load versus just like incremental storage? Joi Harris: Yes. So think of it this way, any new data center load that we bring on after this 1.4 gigawatts will require additional resources. If we bring on something in the gigawatt range, it would require a combined cycle to support it. Anything lower than that, we could do a combination of either smaller CCGT and some renewables and batteries. But we'll know all of that for certain once we sign the deal and incorporate it into next year's IRP. And that will really dictate the resource requirements and the resource mix. Operator: Your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Congratulations again, Joi, and to the whole team here. Nicely done here, I got to say, and nicely done on firming up this contract here, as you say. Now with that said, and just to follow up on some of the last questions here, how do you think about the data center timing here? You talk about it being accretive to the plan. How do you think about the time line for its ramp? I know that you already cautioned that it wasn't entirely clear cut. But how do you think about it being accretive versus perhaps serial and an extension of the 6 to 8. We don't mean to nitpick too much here, but I think we heard your comments earlier, and I just wanted to come back and understand when that would really start to kick in and be accretive. Joi Harris: Yes. You can think of it toward the tail end, given just the lead times on some of the materials and the construction cycle Julien, you could think of it towards the back end of our plan. So call it, late 2029 into the early 2030s. Julien Dumoulin-Smith: Got it. So that uptick would potentially be probably that first year really would be that 2030 time frame. And then the question would be how sustained that elevated growth rate would be predicated on the success of the 3 gigawatts in late-stage negotiations? Joi Harris: Yes. And again, I'll repeat, we're going to take all of this and incorporate it into next year's IRP. And really, that will dictate not only the timing, but the right resource mix, which will then drive timing of construction, lead times for materials and such. Julien Dumoulin-Smith: Right. In your owned versus a contracted piece, et cetera, et cetera. Joi Harris: Exactly. Operator: Your next question comes from the line of David Arcaro with Morgan Stanley. David Arcaro: I was wondering just on the advanced stage data center pipeline. Is there any rough timing for when you'd expect the potential to finalize those deals and bring them forward or advance other projects maybe into the -- from the earlier stage pipeline into the advanced stage pipeline? What's the pace of crystallization of some of the projects? Joi Harris: Yes. Thanks for the question. So we're in active negotiations, and we have been for some time. We are still settling on some key terms and ramp rates. I would envision that we would have at least an idea of the ramp and firming up some of the terms before we file next year's IRP. We're pulling that forward. That's the idea into the third quarter. So we would want to be able to understand the ramp, understand exactly when that ramp would lay out over a 5-year plan and incorporate it into our modeling, so we can put it into the IRP. David Arcaro: Okay. Perfect. Yes, that's helpful. And then you piqued my interest with the behind-the-meter project that you're working on for Vantage for a data center. I was just wondering if you might be able to elaborate on maybe how big of a project that might be, what kind of power generation technology you're using? Any thoughts on maybe how returns stack up for that type of a project versus others in the Vantage pipeline? Yes, curious about that overall opportunity. Joi Harris: Yes. We're still in discussions with the data center provider. It's primary power. So it's behind the meter. You can think of that as more like CTs. And again, it's a little too early for us to give a lot of details around this deal. We haven't fully closed it yet, but it's a really good opportunity for the Vantage team and it's right down the fairway if you look at our skill set as an enterprise. So this is just a really good example of the type of projects Vantage has in the pipeline that supports their income targets, and we'll look for additional opportunities like that should they become available. We'll keep you posted, though, as things develop. Operator: Your next question comes from the line of Bill Appicelli with UBS. William Appicelli: Just a question around the rate case in the ERM. I guess what is the potential upside for investment there should more supportive regulation and decisions come your way around -- in terms of just the capital outlook on that mechanism? Joi Harris: Yes. So just to give clarity, the IRM, the investments are already in our plan. What we did hear back from the staff was strong support for the investment profile that we laid out in the case and the pace. So the -- our intent, though, is to continue to grow the IRM in future cases. So in this case, we requested up to $1 billion beginning in 2027. And what we were really happy to hear the staff support even a pull forward. So they did pull out maybe $200 million of the pull out maintenance and suggested that, that should get incorporated into our existing IRM in 2026. So that would be incremental IRM spend that would show up next year should we get that final ruling in 2026 in February. So again, it just showcases that we're aligned with the staff on the type of investments we need to make to improve reliability and the pace. William Appicelli: Okay. Great. And then just taking a step back, I mean, when we think about the broader growth rate through 2030, just to be clear, when you guys say bias to the upper end, that's with the plan as it stands here today? Or would that need to require some additional capital to push you to the upper end? Or I just want to clarify that? Or would that be then to the points made earlier, upside to the plan overall? David Ruud: That 6% to 8% through 2030 is our plan that we've laid out here today. And we say we have a bias to the upper end in each year, again, in that plan due to the 45Z tax credits and the flexibility that they provide. Joi talked about the additional opportunities we have with additional data centers that would drive some additional upside to that plan. William Appicelli: Okay. So then when we talk about the through 2030, which is post the tax credits, when you talk about the bias to the upper end extending out that far, that reflects just the capital plan as it stands today? David Ruud: Yes. Yes. We see -- when we get to 2030, because of the 45Zs also, you have flexibility year-to-year. So we think there's opportunity in 2030 to hit the upper end that year 2 of the 6% to 8% range. Operator: Your next question comes from the line of Michael Sullivan with Wolfe Research. Michael Sullivan: I just wanted to pick right up on that last question, Dave. So in 2030, when the 45Zs go away, what is it that pushes you to the high end? Or is there like some way you can continue to book those a year beyond the expiration? Or just a little more color on that would be helpful. David Ruud: Yes. What we see with these 45Zs is flexibility, right? So we've been able to -- as we've done this year is find ways to pull forward some expenses to help future years. And we just see that favorability from 2029, helping us in 2030 as well to be able to be in a good position to reach the higher end when we get out there, too. Michael Sullivan: Okay. That's really helpful. And then another one for you, Dave. I think in the past, you may have all pointed to more of like a 15% to 16% FFO to debt range and looks like now just 15%. Any color on what's going on there? David Ruud: Well, I'll just say, Mike, we have got great growth opportunity in our utility as we're doing this work that Joi described for reliability and cleaner generation also at the data center. So we're comfortable targeting this 15% range continues to give us the right cushion over the thresholds that we think. And it puts us in a really good place, remain committed to having a good balance sheet. And we're working with the rating agencies to ensure they fully understand our financing plan, really our strong cash flows, too, and they'll be comfortable with it going forward. Michael Sullivan: Okay. And one last quick one. Just the $2.5 billion for CCGT investment, I think you're building a 1.5 gigawatt plant. Is that the full amount? Or are you not capturing the full investment in the 5-year and the plant itself could cost a little more than that? Because that just seems a little on the lower end, I would have thought of what a combined cycle would cost. Joi Harris: Yes. It trails into '31, so beyond the 5 year. Operator: Your next question comes from the line of Andrew Weisel with Scotiabank. Andrew Weisel: Dave, a question for you first. You mentioned that at gas, you're unwinding some cost-cutting efforts from the past few years. I know that as a company, you're masterful about being nimble with O&M expenses, but I thought that was typically more short term, like within a year, maybe 2. So I'm a little surprised to hear you talk about it over a multiyear period. Can you discuss some examples of what might be included in there? What type of actions you're referring to? And then as we look to '26 and beyond, how should we think about the O&M outlook for the gas business? Joi Harris: Yes. We've essentially let some of the backlogs, maintenance backlogs we allowed those to rise, and we're unwinding a lot of that this year. So that's just an example of some of the things that we typically do in the gas company. And we were ahead of plan when -- before we saw warmer weather. So we had some opportunities to relax our maintenance efforts, and this is nonemergent maintenance backlog. And this year, we're just getting back on track. We're getting back to our normal run rate for maintenance and other expenses. David Ruud: And Andrew, I'll say like on our ability to be nimble, like we had a couple of years of warmer weather at gas. And so that did extend over a couple of years, but it still shows that we're able to balance things across our business to make sure we do everything to hit the numbers. Andrew Weisel: Okay. Great. And that is part of the outlook? Joi Harris: The outlook for Gas? Andrew Weisel: We think about O&M -- yes, the outlook for O&M at gas going forward? Joi Harris: Yes. The O&M for gas. This is -- I think this is a normal run rate that we would typically see. And then as usual, we build in some flexibility where we can lean if we need to or invest, should we see colder than normal temperatures. Andrew Weisel: Okay. Got it. And then, Joi, in your prepared remarks, I want to ask about affordability a bit. I think you said the 1.4 gigawatts of new data center load should bring meaningful affordability benefits the existing customers. But then you also talked about protecting them. So I'm just wondering, can you give more specific -- are you expecting the new data centers and this specific deal to be neutral to residential customer rates or monthly bills or deflationary? And how will that impact flow through? Will that go through rate cases or through the industrial tariff? How is that going to work for existing customers? Joi Harris: Yes. This is great for existing customers because we don't have to build anything substantial to support the load. We're using our excess capacity to support the load and building batteries on top of it just for peak shaving purposes. And the customers get that full benefit. So it will show up in the form of a lower ask over our next rate case cycle. So customers will get that flow through in that form. In terms of the protections, the contract terms protect our customers from stranded assets or rate shock over a period of time when we're serving the customers, the data center customers that is. Andrew Weisel: Thank you very much and congrats. Joi Harris: Thank you. Operator: Your next question comes from the line of Anthony Crowdell with Mizuho. Anthony Crowdell: Hope all is well. I just wanted to follow up 2 quick cleanups. One to Mike's question earlier on the FFO to debt, Dave. As Vantage becomes a smaller and smaller portion of the company's earnings mix, any conversation with the agencies of an improved or a lower downgrade threshold? David Ruud: We are in constant communication with the rating agencies I think right now -- and because we have a lot of really utility-like projects at Vantage, I don't know if that will lead to lower thresholds, but we will continue those conversations because we will be moving more into that going forward as well. Anthony Crowdell: And the current threshold is 14% or 15%? David Ruud: It's down around 14%. It depends -- the rating agency depends on the way they measure it also relative to how we do, but more in the 13% to 14%. Anthony Crowdell: Great. And then one of the earlier questions, I think Bill was asking on the IRM mechanism. You highlighted, I think, staff is $1.2 billion. I guess just is the cadence of spend, if you could just talk about that? And then also, the company previously or historically would file maybe an electric case every maybe 12 to 24 months. Does that stretch out the filings, the frequency of the filings? Joi Harris: Yes. So the way -- the IRM is $1 billion. It starts in 2027. We have an existing IRM, but it starts to ramp up in our filing in 2027 and grows to $1 billion over 3 years. And the way that we've laid this out, we would start to see that investment grow and make adjustments along the way based on performance. So in our next filing, we will look to update it and increase it even further. You asked about will that keep us out of rate cases. Where we have it right now, it would give us maybe 6 to 8 months worth of, I think, benefit that we could push out a rate case for that period of time. As it continues to grow, that time will lengthen. Anthony Crowdell: Great. Joi, such an improvement versus Jerry. Great move. Joi Harris: Thanks Anthony. Operator: Your next question comes from the line of Paul Fremont with Ladenburg. Paul Fremont: I guess my first question is the junior subordinated debt that you talked about, is that instead of or in addition to the planned equity -- annual issuance of equity? David Ruud: Yes. We do expect to have some junior sub that comes within our plan. We're going to look at that strategically, but that would be additional to the equity that is laid out. What we've laid out is what we would need to do for true equity issuances of $500 million to $600 million. Paul Fremont: Great. And then on the CCGT, what is the cost per kW that we should assume for the CCGT? Joi Harris: Well, we're seeing ranges. So right now, it's roughly $2,500, and we're still updating our estimates. We'll know for certain once we get the finalization of our RFPs and see what is coming out. We've got the IRPs for our power island, but there's still some additional work. But that's our initial estimate at this point. Paul Fremont: Great. And then turbine availability, if you get the 3 gigawatts that you're in advanced stage negotiation, do you see -- what time frame do you see sort of being able to get turbines? Joi Harris: Yes. Well, we're actually in the queue for our turbines that we want to bring on to replace Monroe only. And that CCGT we have in the plan, it only supports the retirement of Monroe has nothing to do with data centers. If we want to bring on another CCGT to support data centers, we're still seeing a 3- to 4-year time line for at least 1 gigawatt and above. There is some flexibility we're seeing for smaller turbines. It just depends on how big of a data center load we're trying to serve and when the ramp kind of gets to the top end. So we'll flesh all of this out in next year's IRP and again, pick the right resource mix to support the load. Paul Fremont: So I guess, just theoretically, if some of the 3 gigawatts were to be finalized, if their need were sort of before that 3- to 4-year time line, you would serve that load potentially through purchase power? Or how would that work? Joi Harris: Yes. The way that we're going to address these contracts is really get a sense of how quickly they want to ramp and then use the IRP modeling to tell us what is the optimal resource mix to support that load. It could be a combination of renewables and battery storage, similar to what we're doing with this -- the deal that we have on the table or it could require a CCGT. Still too early to say. All of that will get fleshed out as we finalize the negotiations and incorporate it into the IRP next year. Paul Fremont: Great. And then last question for me. You're looking at potentially higher trading contributions in '25. Can you give us a sense of how much? And will next year's trading contribution be sort of back at the 50 to 60 level that it was this year? David Ruud: Right, Paul, Trading is having a really good year. We're seeing these strong margins. We talked about both gas and physical power portfolio, again, structured and hedged. Right now, our year-to-date is above the range, and that's given us some flexibility across our business. We don't plan for earnings to continue at that pace. We put in the $50 million to $60 million, as you mentioned. However, because some of these contracts are longer term, we do see some favorability that could come into '26, but we don't forecast that long term. We forecast around the 50 to 60 still. Operator: Your next question comes from the line of Angie Storozynski with Seaport. Agnieszka Storozynski: So lots of questions ahead of me. But can you give me a sense the 1.5 gig or the current data center contract that you just finalized 1.4 and then the additional contracts in the works. I mean, how do they compare versus the load that you currently serve? Yes, like a percentage-wise, how big of an impact is it? Joi Harris: Yes. So the 1.4 increases our load by 25%. So that should give you a sense of what an additional gigawatt could equate to if we were able to bring it on. Agnieszka Storozynski: Yes. I mean, yes, that puts it in perspective. Now on Vantage, I understand that you're shifting investments towards basically a higher multiple business, which makes sense. But I would -- it's kind of surprising to see that there is less of growth opportunities for Vantage in this day and age where you have this seemingly an explosion of behind-the-meter generation, like cogen seems to be such a hot investment right now. Omni because it's behind the meter, Omni because it's time to power. So again, you did mention some commodity price pressures, but I'm a little bit surprised to see this lower growth CAGR for that business. Joi Harris: Yes. Angie, we're going to continue to work the BD pipeline there. And this first deal that we're getting -- at least trying to get under our belt would inform if this is a vertical that we can pursue further. And again, this is outside of the state of Michigan. We're hearing more and more that this behind-the-meter option is something that data center providers want to pursue. And so to your point, we're going to keep working it and ensure that we've got the execution capability. We've settled on a design, we think that works, that gives the redundancy. So we think that could position us to be really attractive to data centers that are looking to pursue this type of solution. Agnieszka Storozynski: Okay. And Dave, could you comment on growth expectations for your dividend in this new higher CapEx environment? David Ruud: Yes, Andrew, we're going to continue to revisit the dividend growth. We said in our prepared remarks, we're going to grow them with our operating EPS. And right now, we're in a payout ratio that's right in the midpoint of our peers. But we're going to continue to look at that and make sure that it supports both growth and what our investors prefer here. Agnieszka Storozynski: Very good. Congrats, thank you. David Ruud: Thank you. Operator: Your last question comes from the line of Travis Miller with Morningstar. Travis Miller: Just want to confirm the cash flow and earnings mix here over the next couple of years. So do you hear it correctly, the ramp comes for this data center, the ramp comes next year. And then there's really no incremental capital that you would fund because they're funding the storage, right? So cash flow and earnings should be pretty close at least over the next 1 to 2 years as this data center contract ramps up. Is that correct? David Ruud: Well, we're investing the storage to fund the storage assets. And then we'll be getting the cash flows from the ramp, which does ramp up really quick. But we will be investing in those storage assets. And that's why one of the reasons why we're pulling some of our capital forward and need some of this additional equity. Travis Miller: Okay. Okay. And that would be over a short period of time though, right? David Ruud: Yes, short periods, few years time. Travis Miller: Okay. And what size is the storage? Investment? Not dollars, but how many gigawatts or megawatts? Joi Harris: It's a gigawatt of storage, and then we're going to use tolling agreements. So in accordance with our IRP settlements, we are going to build 2/3 of the requirement, and then we're going to use tolling agreements for the other 1/3, which are -- we'll get the FCM on the tolling agreements. Operator: There are no questions at this time. Joi Harris: All right. -- thank you, everyone, for joining us today. I'll just close out by saying DTE continues to have a really strong year in 2025, and we are well positioned for 2026. And I am just really excited about our long-term plan and the opportunities ahead. And I look forward to seeing many of you at EEI in just over a couple of weeks. So thank you all for joining us today. Have a great morning. Stay safe and be healthy. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. Everyone, have a great day.
Operator: Welcome to AB InBev's Third Quarter 2025 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Michel Doukeris, Chief Executive Officer; and Mr. Fernando Tennenbaum, Chief Financial Officer. To access the slides accompanying today's call, please visit AB InBev's website at www.ab-inbev.com and click on the Investors tab in the Reports and Results Center page. Today's webcast will be available for on demand playback later today. [Operator Instructions] Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that AB InBev's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect AB InBev's future results, see Risk Factors in the company's latest annual report on Form 20-F filed with the Securities and Exchange Commission on March 12, 2025. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Michel Doukeris. Sir, you may begin. Michel Doukeris: Thank you and welcome everyone to our Third Quarter 2025 Earnings Call. It is great pleasure to be speaking with you all today. Today, Fernando and I will take you through our operating highlights and provide you with an update on the progress we have made in executing our strategic priorities. After that, we'll be happy to answer your questions. Let's start with the key highlights. In the third quarter, we continue to navigate a dynamic operating environment with headwinds in China and unseasonable weather in the Americas, particularly in Brazil, constraining our results. After a slow start to the quarter in July and August, we saw improved performance in September. We remain focused on the consistent execution of our strategy and adapted where required. We maintained our disciplined revenue management plan and continued to deliver on our productivity initiatives. Consistent investments in our brands and innovations drove increased portfolio brand power and continued market share gains in key markets. Despite the challenging environment, we delivered another quarter of top and bottom-line growth, margin expansion, and U.S. dollar EPS growth. Our growth platforms of premium beer, non-alcohol beer, and Beyond Beer continue to outperform, and the quarterly GMV of BEES marketplace has reached nearly $1 billion. In the U.S., our portfolio is continuing to build momentum and gain share of the industry, led by Michelob Ultra, which is now the number one brand in the industry by volume year-to-date. Our solid financial results in the first nine months of the year reinforce our confidence in delivering our outlook for the year, given our deleveraging progress and strong free cash flow generation, the Board has approved a $6 billion share buyback program to be executed within the next 24 months, as well as an interim dividend of EUR 0.15 per share. We also continue to proactively manage our debt portfolio and have announced the redemption of $2 billion of outstanding bonds. In summary, we are confident in the resilience of our strategy and ability to deliver consistent results. We are investing to provide superior value to our consumers, and we are winning in key markets and growth segments. We are taking action where adjustments are required and are excited about the opportunities ahead to drive shareholder value creation through profitable growth and disciplined capital allocation decisions. Turning to our operating performance, while overall volumes were below potential, we grew revenue in 70% of our markets. The combination of our disciplined revenue management choices and portfolio of mega brands that command a premium price drove a revenue per hectoliter increase of 4.8%, resulting in top-line growth of 0.9% Our productivity initiatives more than offset transactional FX headwinds to drive an EBITDA increase of 3.3% with margin expansion of 85 bps. The strength of our diversified geographic footprint enables us to navigate the current environment and deliver profitable growth in the long term. Revenue increased in 70% of our markets this quarter, and we delivered bottom-line growth in four of our five operating regions. Now I'll take a few minutes to walk you through the operational highlights for the quarter from our key regions, starting with North America. In the U.S., the momentum of our portfolio continued, and we are increasing investments in our brands to fuel growth. In Beyond Beer, our portfolio growth accelerated with a revenue increase in the mid-40s led by Cutwater, which grew revenue in the triple digits. Cutwater is now one of the top 10 largest spirits brands in the U.S. and was the number one share gainer brand in the total spirits industry in August and September. In beer, our market share momentum was led by Michelob Ultra, the number one volume share gainer in the industry and now the largest brand year-to-date in both on and off-premise channels. Ultra has gained market share in all 50 states this quarter. The brand has 16% share of the industry in its top state and 8% average share nationally, but has less than 6% share of the industry in 20 states, so there remains a significant opportunity for further expansion and growth. Michelob Ultra Zero was launched early this year and is already the second largest non-alcohol beer brand and the number one fastest growing non-alcohol beer in the industry. Ultra is the superior light beer made for those who seek an active lifestyle and balanced choices. Now let's turn to Middle Americas. In Mexico, our revenue continued to grow, driven by disciplined revenue management choices. The industry was, however, impacted by a softer consumer environment and unseasonable weather, which resulted in our volumes declining by low single digits. With improved weather and consumer sentiment, our volumes improved sequentially throughout the quarter, gaining share and returning to growth in August and September. In Colombia, record high volumes drove low teens top-line and mid single digits bottom-line growth, with our portfolio estimated to have gained share of total alcohol beverages. In Brazil, market share gain and disciplined revenue and cost management offset a soft industry to deliver flat EBITDA with margin expansion. Our revenue declined by 1.9% driven by volume performance, which was negatively impacted by unseasonable weather and a softer consumer environment. When we look at our performance across both South America and Middle Americas, it is clear that the industry has been impacted by a combination of cyclical and one-off factors this quarter. Cyclical factors include inflationary pressures and low consumer sentiment, which have impacted demand not only for beer but all consumer categories to different degrees. What has perhaps been more acute for beer than other categories has been the unseasonable weather. Latin America accounts for 20% of the global beer volume, which is typically 1.5 to 2x the weight of other categories in the consumer goods area, and the region is even more relevant for our business while we are managing through the short-term headwinds. When we look ahead at the outlook for the category, the fundamental drivers are unchanged, and we see clear potential for industry volume growth as conditions normalize, as evidenced by Mexico where our volumes returned to growth in August and September. In Europe, continued market share gains and premiumization drove flattish volumes and margin recovery. We gained share of the industry in five of our six key markets, with our performance driven by our mega brands and non-alcohol beer. In South Africa, the underlying momentum of our business continued, maintaining share of beer and gaining share of Beyond Beer. Top-line grew by mid single digits and EBITDA grew by high single digits with margin expansion. Now moving to APAC. In China, revenue declined by 15.2% with our volumes underperforming the industry. While the overall industry has been impacted by a soft consumer environment, which has been even more pronounced in our footprint and key channels, we recognize that we have opportunities to enhance our execution and route to market to better align our results with our capabilities. We are a company of owners who strive for operational excellence. We have been working in China to right size inventories in line with the channel shifts, allocate resources towards areas of growth, and elevate our execution. We have a clear view of where to improve, and as we move forward, our priority is to reignite growth and rebuild our momentum. To achieve this, we are focused on increasing investments in our mega brands, leading innovation within the industry across packaging and liquids, strengthening our route to market in the in-home channels with an increased focus on online to offline, continuing our geographic expansion, and rebuilding our excellence in execution. We are moving with speed to ensure that our business emerges stronger and investing to be better positioned to outperform in the long term. Now let's take a look at the key highlights of our three strategic pillars, starting with leading and growing the category. Our megabrands continue to lead our growth with net revenue increasing by 3%. Corona continued to drive premiumization across our markets, growing revenue by 6.3% outside of Mexico and growing volumes by double digits in 33 markets. Through the consistent execution of our category expansion levers, we aim to increase participation across our markets by offering supreme core brands, innovating in balanced choices to provide consumers with no and low alcohol, low carb, zero sugar, and gluten-free options, and expanding our premium and Beyond Beer portfolios. On a rolling 12 months, participation of legal drinking age consumers within our portfolio was stable. In non alcohol beer, our portfolio momentum continued with net revenue growing by 27%, led by the growth of Corona Zero. We are now leaders in eight of our top 14 non alcohol beer markets and estimate to have gained share in 70% of them. Non alcohol beer is a key opportunity to develop new consumption occasions and increase participation, and we are investing and innovating to lead the growth. This quarter, we announced a partnership with Netflix, which is the world's most popular streaming service. They are creating content that shapes culture, and watching Netflix has become a new social occasion. Our iconic brands are part of the fabric of society in the markets in which we operate, and it is a perfect pairing to bring together beer and entertainment in this unprecedented way. What makes our partnership with Netflix unique is its global reach and scale of activations across our portfolio of brands. Consumers will see this come to life through co-marketing campaigns, activations, title integration, limited edition packaging, and even at live events. What we are most excited about is how this partnership will create more meaningful experiences for consumers across their passion points, including comedy, music, cooking, and live sport events. The beer and Beyond Beer category remains vibrant, and we are leading innovation to address emerging consumer needs, providing choice and superior value in different occasions and balanced choices. We are innovating liquids to provide consumers with different options to meet different lifestyles. From the rollout of Stella gluten-free in Brazil to Harbin Zero Sugar in China to Michelob Ultra Zero in the U.S. and Cass 4.0 in South Korea, we are leading the category in liquid innovation. In Beyond Beer, Cutwater continues to expand, growing volumes by triple digits, approaching $0.5 billion in annualized retail sales, and is now a top 10 spirits brand in the U.S. After a successful rollout in Africa, our flavored beer Flying Fish is now expanding to Europe and the Americas. In adjacent beverage categories, we are taking the learnings from developing a number of successful brands in the energy drink space in the U.S. and have launched Phorm Energy to participate directly in this segment. Let's now turn to our second strategic pillar, digitize and monetize our ecosystem. In the second quarter, BEES captured $13.3 billion in gross merchandising value, an 11% increase versus last year. The growth of BEES marketplace accelerated with more than 500 partners on the platform. Quarterly GMV increased by 66% versus last year and is now approaching $1 billion. In DTC, our digital platforms continue to enable a one-to-one connection with our consumers and help us in developing new occasions. Our digital platforms generated $138 million in revenue, serving 11.9 million consumers and generating close to 18 million orders online. With that, I would like to hand it over to Fernando to discuss the third pillar of our strategy, Optimize Our Business. Fernando Tennenbaum: Thank you, Michel. Good morning. Good afternoon, everyone. I will take a few minutes to discuss the progress we have made in optimizing our business. Our EBITDA margins improved by 85 basis points this quarter, with expansion in four of our five operating regions. We know that each quarter will be different, but we are confident that the combination of our leadership advantages, disciplined revenue management, continued premiumization, and efficient operating model create an opportunity for further margin expansion over time. Moving on to EPS, we delivered underlying EPS of $0.99 per share, a 1% increase in U.S. dollars and a 0.3% increase in constant currency versus last year. EBITDA growth accounted for a $0.09 per share increase, partially offset by higher other financial results, which increased due to a higher cost of FX movements and cost of hedging. The objective of our capital allocation framework is to maximize value creation for our shareholders. Given the progress we have made on our deleveraging and our solid year-to-date financial results, we have increased flexibility on our capital allocation choices. We remain confident in the long term growth and value of our business and have announced today a new $6 billion share buyback program to be executed within the next 24 months. In addition, we have announced an interim dividend of EUR 0.15 per share, our first interim dividend since 2019. We also continue to proactively manage our debt portfolio and have announced a bond redemption of $2 billion. Our bond portfolio remains well distributed with no relevant near and medium term refinancing needs. Upon completion of the bond redemption announced today, we will have no bonds maturing through 2026 and we have no financial covenants. Our results in the first nine months of the year, the resilience of our strategy and the strength of our megabrands all reinforce our confidence in our ability to deliver on our 2025 outlook of 4% to 8% EBITDA growth. With that, I would like to hand it back to Michel for some final comments. Michel Doukeris: Thanks, Fernando. Before opening for Q&A, I would like to take a moment to recap on our performance year-to-date. We are encouraged by our results for the first nine months of the year as we delivered EBITDA growth at the midpoint of our outlook range. Underlying EPS increased by mid single digits in U.S. dollar and by 12% in constant currency. While our volume performance has been below potential due to a combination of cyclical and short term factors, we remain confident in the long term fundamentals of our business. With strong free cash flow generation, we have increased capital allocation flexibility and announced a $6 billion share buyback program, an interim dividend of EUR 0.15 and a bond redemption of $2 billion. As Fernando just mentioned, our performance year-to-date and the strategic choices we have made position us well to deliver on our outlook for the year. Our brands have met consumers in some of the most iconic events in sports and culture this year, creating moments of celebration and cheers. But, as we look to 2026, there is an incredible opportunity to activate the beer category because next year, on top of our powerful lineup of mega platforms, we have the FIFA World Cup in North America. This iconic event encompasses 104 games across three countries. Each game is an opportunity to bring beer and sports together and create unforgettable moments for our consumers. With that, I'll hand it back to the operator for the Q&A. Operator: [Operator Instructions] Our first questions come from the line of Edward Mundy with Jefferies. Please proceed with your questions. Edward Mundy: Two questions for me please. The first is around the board's thinking around the shift to a two-year buyback program of $6 billion. Given the balance sheet repair, is it to signal clearer capital allocation priorities from here? Is there also a practical reason insofar as it gives you a little bit more flexibility in the pace of buybacks, given that historically you've tended to get your buybacks done ahead of schedule? That is my first question. My second question is around the broader category, the broader beer category. One of your peers recently highlighted a medium-term outlook for global beer of about 1% volumes. Putting the external environment to one side, how important is it that the rate of pricing required across the broader industry could start to moderate after the huge extremes over the last few years given inflation and negative transaction? How important is it that the pricing going forward might become less meaningful in helping to stimulate volume growth? Fernando Tennenbaum: Fernando here. Let me take the first question and then I will transition to Michel. When we talk about capital allocation, I think it's always important to put in context that the objective of the capital allocation is to create long term shareholder value. The framework is unchanged and remains very disciplined within our choices. What is evolving is that now that we have an improved balance sheet, we have increased flexibility and what you see is that we are exercising some flexibility. The share buyback in itself is an effective use of capital for shareholder value creation. If you think about it as we move from an inorganic to organic transition, I think the first thing that was important for us was to give a framework so people understand the sort of growth that we can deliver. That's the medium term outlook that we provided four years ago. If you look at what we did in the beginning of this year, we provide a framework with the ambition for a progressive dividend. I think now the share buyback is just another natural evolution on that, a two year share buyback of $6 billion, but that should not be seen on a standalone basis. It's the share buyback, it's also the interim dividend which is consistent with our ambition of progressive dividend over time and also the debt reduction that we announced which is consistent with our capital allocation priorities. Much more of an evolution and kind of the consequence of the additional flexibility that we have nowadays. Michel? Michel Doukeris: I think that just building on the share buyback point, there is a lot of consistency on the capital allocation choices and this, of course, is the return to shareholders, the debt, but that is the number one priority that we have, which is organic growth. We'll continue to invest for this number one priority, which is drive the category and the company forward on an organic basis. In terms of the category overall, I think that we shared with you during the capital markets day the view that we have around the category and the potential that we see for future growth coming from structural tailwinds related to economic growth, demographics, and where this growth most likely will come from developing and emerging markets where we have a strong footprint, strong growth to market, and scale. Therefore, we are in the same line where the full potential of the category today would be around 1% growth in normal conditions. The more we increase the addressable market with these Beyond Beer propositions, there are opportunities for us to further stretch this growth, right? Looking at the short term, I think that we see this Latin America impact on the beer category overall. Latin America is very important for CPGs, but is much more important for the beer category to the range of almost twice the size that it represents for beer versus other CPGs. We saw some pressure across CPGs overall in Latin America, but this is more impactful for beer and even more for us because Latin America is much bigger for us than it is for beer overall and for other CPGs. When you think about price, I think that there are two components on that. One is that beer is an affordable category and affordability is very important for beer. And after 3, 4 years of high cost pressure, high inflation for us and for consumers in general, of course we had to be very disciplined in revenue management and to recover our margins, as you just saw during the webcast, to continue to recover our margins over time because of revenue but also cost discipline. As we look forward, inflation is normalized, coming down, so we would expect less pressure on the prices coming from inflation. I'm of the view that we should be very disciplined as category leaders to continue to build over time the capabilities to move prices with inflation so we can continue to recover our margins, but also have a good category and ability to deliver on the investments and everything that we want to do for the future. And how you do that? You need to balance, as we always do, the affordability with the ability to build brands, because premium brands, they command premium price, use the right revenue management capabilities. A good revenue management strategy needs to deliver at least with inflation. This is in the long run, because in the long run we need to capture the cost increase and the opportunities that we have to premiumize in the market. Nothing changed on our side there. I think that what's going to change is a little bit of the environment because inflation is coming down, therefore less pressure will hit consumers. Operator: Our next questions come from the line of Mitchell Collett with Deutsche Bank. Please proceed with your questions. Mitchell Collett: I've also got two questions, I think one for each of you. The first one is on longer term volume growth. I mean, you cited some of the external factors that have impacted not just this quarter, but overall 2025. How do you think about volume growth longer term for the category, particularly in your footprint? You gave the comment that 2026 offers an incredible opportunity to activate the beer category. Do you think you can get back to volume growth in 2026? My second question, which I think is for Fernando, is can you give us any color at this stage? I know it's early on the potential impact of input costs in 2026. I'm specifically thinking about the impact of FX and the timing of your FX hedges. Michel Doukeris: I think that you're right, like 2025 is being very typical and that is this combination of the pressure that inflation has been built over consumer and the consumer baskets. We see this overall across many markets, reduction on the total basket, while beer and alcohol has been maintaining the share of baskets. It's really about a little bit of pressure on consumption. There is this big one-off of this change in the weather pattern because of the La Niña that is impacting the Americas. Some countries such as Brazil were heavily impacted by that. The fundamentals behind the category growth remain the same. As we said before, a lot of this growth, projected to be over 80%, will come from developing and developed markets. Our footprint is very strong in these regions and I see no reason today why this will change over time. Next year then becomes a very special year. While you know that we don't guide for volume, we see the outlook as a positive one because there is less pressure on consumers coming from lower inflation. As salaries rebuild, purchase power rebuilds, prices tend to normalize. Consumers tend to be in a better position. I'm not making any forecast on the consumer sentiment, neither the purchase power for next year. Consumer sentiment is impacting this year and as everybody else, we hope that things will normalize over time. If this bounces back, it should be a positive as well. Overall for CPGs, it's hard to believe that's going to be worse than what we saw this year. The worst case scenario should be the same, but we think that can be better. Then we have FIFA. FIFA over time is being 0.20 to 0.25 impact on the category in the years that we have the games. The fact that's going to happen in North America is great for the category because it's going to impact the overall Americas, of course, but then has great viewership time across Europe and Africa and of course in Asia. People always adapt. The nightlife is much stronger as a consumer occasion in APAC. I think that's going to be a great year for FIFA. Everybody's very excited. The games will be longer next year because more teams, so more people participating. We can't wait to see the fans across the globe gathering and gathering over a beer to watch for that. We continue to work hard focusing on what we can control. You see that the growth of non-alcohol is a great opportunity for us. Our Beyond Beer portfolio continues to accelerate and we continue to innovate in the balance choices. We are providing more options for consumers in more occasions. We are doing our part and we are looking forward to see how consumers will react next year. Fernando Tennenbaum: Mitch, Fernando here. Your question on COGS. We don't provide any specific guidance on cost of goods sold, but you know our hedging policy always hedge 12 months ahead. If you look at where FX is today and what it was one year ago, you can get a good sense on that. From where the market is, it's kind of more like a normal year. Once again, I think we said normal year in 2025. I think 2026 is more of a normal year. Different dynamics in different markets, I think next year probably given where you see Midwest premium today, probably a little bit more pressure on the U.S., but then again, this is based on current market prices. They can always move around and effects a little bit the other way around as we saw in 2025. In 2025, we saw more pressure in the first half given the currency behavior in 2024 and more pressure in the second half, I'm sorry, and less pressure in the first half. In 2026, given how things are evolving, things continue to be the same way. Likely to be the other way around, but then again, this is basically on current effects. We still have two months to go, but let's keep monitoring that. Operator: Our next questions come from the line of Laurence Whyatt with Barclays. Please proceed with your questions. Laurence Whyatt: A couple from me as well, please. Firstly, you kindly gave some information on the exit rate in Mexico suggesting that was improving throughout the quarter. I was wondering if you had a similar view on what was happening in both Brazil and Colombia just to see if we're getting a similar consumer improvement in other parts of Latin America. Secondly, perhaps Fernando, historically you would say that going below 2x net-to-EBITDA was value destructive for AB InBev, just wondering if you continue to share that view and what steps you could take if that metric were to be getting close to being hit. Michel Doukeris: Yes, we made a comment on the exit rate for Mexico because I think that was very telling the fact that once the price environment normalized a little bit, the weather was slightly better. We could see not only our market share bouncing back, but also volumes improving through August and September. Unfortunately, in Brazil it is a tale of two stories. I think that the industry overall remains very impacted by this very unseasonable weather. At this point, it can really be said that's unseasonable because the winter was cold. Yes, winters can be cold, but you see September is usually much better weather in Brazil, even October, and still cold and wet in a very strange way. Brazil didn't improve a lot for the weather. Of course, we've been adjusting our execution. Relative prices in the market improved after more than a year of prices being very open on the gap, and our share bounced back strongly, which reinforces the strength of our portfolio. The way that our megabrands are growing in Brazil and the share gains on the premium segment that continue to accelerate. When you look at Colombia, Colombia is not getting all this impact. Colombia volumes continue to grow, share of alcohol beverages continue to improve, very strong performance. Consumer confidence is not that high, but not as low. Inflationary pressures in Colombia are more moderate, so consumer is in better shape there than it is in some other parts in Latin America. Of course, this all is bouncing back and now we are looking at the summer so we can see really where the industry is going to land overall and how the weather is going to be. As we said, as we look forward for 2026, some of these one offs can actually be positive as we build back in 2026. Fernando Tennenbaum: And Laurence, it's Fernando here. Your question on leverage. We've been very consistently saying that our optimal capital structure is around 2x. It's also fair to say that most of the benefit of leverage you get once you get to 3x. The long term goal is still 2x, but you have less of an urgency to go there. You can have more flexibility once you're below this level, which we reached at the end of last year. Of course, every year is going to be slightly different. Sometimes you have effects, fluctuations, but the resilience of our business gives us the consistency to be more on the, as I can say, more on the offense now. Bear in mind that the priority #1 is always organic growth. We keep investing, we keep, if you see this quarter, sales and market, we continue to invest there, but definitely way more flexibility and kind of still 2x is the optimal capital structure. Operator: Our next questions come from the line of Rob Ottenstein with Evercore ISI. Please proceed with your questions. Robert Ottenstein: Thank you very much. Two questions from me as well. The first one is I want to focus on the announcement that you've won the Champions League. That came as a bit of a surprise to me. So maybe put that in the context of how you're looking at sports and some of these big assets, how that's evolving. Most importantly, obviously there's a lot of big numbers on this. I don't know if you can talk about the numbers on this, but maybe talk about the ROIC, how you see that being an efficient use of marketing investment, and also a little bit about timing. My understanding is that Heineken still has it for the next couple of years. That's the first question on the Champions League. The second question, arguably in the U.S., perhaps the greatest success this year has been Cutwater. That's a brand that you've had for a number of years and it's just exploded this year. Maybe talk a little bit about the success that Cutwater is having this year, what you think the drivers are for that, whether you think that's sustainable, what you've learned from it, and can you take that model to other countries? Michel Doukeris: So starting with the recent announcement and the role of these events, sports and occasions, I would start by talking about consumers. This is the main reason why we do the investments and why we are lining up into mega platforms. Consumers are behaving different and consumers are as usual evolving. As such, it was very important as we build our strategy and we fine tune our execution to make sure that we are leading and moving fast to where consumers are and will be more and more. That is why when we start leading in terms of execution with this concept of mega platforms and megabrands, integrating our brands with big partner, big partnerships, big events and relevant cultural moments is key for our brands to win in the long term. As I said before, these winning brands that command premium price and premium positioning are very important on our strategy. This works for FIFA, this works for Netflix, this will also work for UEFA, which is an important component as we build this integration with platforms and culturally relevant moments that consumers are looking for, are talking about and are experiencing. It is all about the consumer, how we integrate our brands and these relevant cultural moments and how our brands over execute competitors within the category. That is a great addition. We could not be more excited with the opportunity. As everything moves, 2027 is the right timeline for us to start executing on that. The second part on the U.S. and Cutwater, I think that you have been following. We have been talking about this portion of the consumer and consumption occasions where bitter is not the choice, where more refreshing is not the choice, where people want to indulge a little bit more, where the palate is a little bit more sweet, right, and more mixed. We decided to bet on that back in 2018 with Cutwater. We have been building this brand very patiently, but we have built the brand in a very high quality way. Consistency, right distribution, right price as a premium brand, right investments, right consumer occasions and as the brand improves availability, as consumers get to know the higher quality that we have on this proposition and we position very right for the right occasion, I think that the brand is gaining relevance. What we saw over the summer now is consistent brand building and relevance getting to a tipping point. This brand is now the number one share gainer in spirits, triple digits over the summer, becoming one of the top 10 spirits brands in the U.S. and built from scratch. If one would say what we learned from that is that yes, we can build brands in a very relevant way, yes, we can build this Beyond Beer segment to be what we expect to be for us, so incremental and something that will increase our addressable market. We have been rolling out this notion of the Beyond Beer and how to tap into more occasions across many markets. I gave here during the webcast the example of us rolling out now Flying Fish across many different markets from Africa to Europe to Americas. The early results and indicators are very positive as well. There is more to come and we continue to build Cutwater. We are just at the beginning. I think that the brand, still very small for us, is accelerating and we have a big ambition to drive not only Cutwater but Nutrl and the other propositions that we've been betting on in this Beyond Beer space. Operator: Our next questions come from the line of Andrea Pistacchi with Bank of America. Please proceed with your questions. Andrea Pistacchi: This is the first one. So your volumes have been more challenging this year. But after 9 months, you're still very much on track, in fact, you're at the middle of your 4% to 8% EBITDA guidance range. So I wanted to ask whether you had to make any adaptations to the plans that you would have had at the beginning of the year, maybe more agile revenue management or something more tighter cost control? And again, then you would have had at the beginning of the year. If you could discuss this a touch? And then just on the MAZ, the Middle America Zone, there's a question earlier on Colombia, I just wanted to broaden it slightly. So Middle Americas ex Mexico is very profitable for you. It continues to deliver solid volume growth. So could you just discuss a bit on how the environment is in these markets, why you think it's different from, say, Mexico, Brazil? How confident you are in your ability to continue to deliver volume growth in these high-margin countries in the next 12 months-or-so? Michel Doukeris: I think that in a way they are in the same vicinity right on volume and how performance and our execution is adjusting, adapting on this environment. I think that the environment is one that's very dynamic and we've been seeing this of course over the last few years. Every year there is some extra components. As I said before, to me, the extra component on this dynamic operating environment this year was the unseasonable weather in the Americas, but more pronounced in Latin America. I think that we've been adjusting. We often say here in house that our strategies, just like beer, can be used in many different occasions. We've been adapting the execution. We are very agile in reallocating resources. Our portfolio has breadth that is useful for us in this moment because we have from premium brands to value propositions that they can adapt and be used to accelerate a little bit our execution when it's needed. The discipline in cost management, the discipline in revenue management was very, very important for us. A differentiator, I would say, during this period because despite a very challenging consumer environment, we are able to deliver margin expansion, EBITDA growth, EPS growth. Saw very solid financial results that are a product of our very solid operational capabilities and delivers through the quarter. When you look at mass, it is not only very important for us and very relevant for our performance during the quarter and in the long run, but, of course, this quarter specifically because overweight in the beer category versus other CPGs and overweight for us ABI was a big impact on the volume. It is relevant. We are adapting, brands are performing very well, we continue to invest, we continue to manage the portion of the business that we control. And of course, in the long term we continue to see this as a very relevant growth driver for the industry. We are best positioned to capture this growth over time with the operations, scale, and brands that we have in the region. Thank you for the question. Operator: Our next questions come from the line of Celine Pannuti with JPMorgan. Please proceed with your questions. Celine Pannuti: My first question, could you, coming back maybe on the Cutwater question, but in a broader sense, how big is Beyond Beer now for you in terms of the portfolio? You said it grew, I think, 27%. Where do you see the capabilities outside or the opportunities outside of North America? If you could help us a bit frame the growth journey and as well the profitability of that category both in North America and outside of North America. My second question, I think it was an impressive performance in gross margin despite some of the FX headwinds that you were facing. Could you give us a view on the building block on the gross margin performance in the quarter, please? Michel Doukeris: I think that I'll hit some numbers quickly here to cover the points that you asked about. I think that the last time that we talked about that, I mentioned that Beyond Beer is a great opportunity for us because it cuts across this interaction of the different alcohol beverages and is incremental for us, right, so, 2/3 plus of the volume that we capture in these occasions from these consumers is incremental to our portfolio. I also remember that the last time that we talked about this, this was around 1% of our overall volume. This today for us is around 2%. It is growing 27%. The opportunity here is huge because the addressable market outside of the beer category is very relevant and is bigger than the beer category itself. It is a huge addressable market. Today it is a very small portion of our volumes, but it is growing very fast. It is all about the consumers. There is a group of consumers there that indulge in different occasions with different liquid profiles. We have been learning a lot about that and we have been having some very successful launch and scale up products in this area. Cutwater, Nutrl, Brutal Fruit, Flying Fish, Busch Light Apple, to mention a few of them. On average, they are sold at higher prices than the beer equivalent products that we have. They have profitability per hectoliter per SKU that is higher than the profitability that we have with equivalent beer SKUs. I think that we continue to work hard on that. This is small for us today, 2% of the portfolio, but it is big in our opportunity to grow with more consumers in more occasions and in a very large addressable market of consumer occasions and volume pool. I'll hand over to Fernando to the second question. Fernando Tennenbaum: On the gross margin side, I think the gross margin side one is a function of your health brand portfolio. You see the net revenues per hectoliter. As Michel said, premium brands command premium pricing. You can move with the revenue management agenda. The second component of that is of course the cost of goods sold. In the cost of goods sold, you have one component that is the FX and commodities, which is market price, but you have the other components, which is the efficiencies, the kind of fixed costs. There is always a kind of opportunity for us to keep driving on that. For me, it's a combination of strong portfolio with premium brands and also driving efficiency on the cost of goods sold. If you remember, we talked about it several times that when we look for margins, we still see opportunities for us to improve our operations, to improve our margins and a lot of that would be coming from gross profit. It's just delivering on what we already mentioned several times in the past. Operator: Our next questions come from the line of Simon Hales with Citi. Please proceed with your questions. Simon Hales: My first question, I wonder, Michel, could you talk a little bit more about China? Again, I wonder if you could quantify how big the destock was in Q3 in the context of the little over 11% fall in volumes, and should we expect some further destocking, do you think, in Q4? Is there any reason to believe in overall terms that your Q4 volumes in China will be less bad than they have been in Q3? Perhaps just associated with that, you highlight some new innovations that you've got coming in the market, Magnum and some 1-liter cans, are they in market yet or will they be in market in Q4? That's the first question. The second one, a little bit more briefly, I wonder if you could talk a little bit about the early consumer and retail reaction to the launch of Phorm Energy in the U.S. and maybe highlight what really differentiates that brand from other competitors in the energy space. Michel Doukeris: On China, I think that what we highlighted in prior quarters is a kind of one third of what we see in the volumes is coming from really geographical footprint, channel footprint. One third comes from these adjustments on the inventories. You give me here an opportunity I'll take to talk about this. I think that just so I'm clear about the adjustments on the inventories, of course, when regions start to decline, we need to adjust our inventories with the wholesalers so we can have a healthy operating environment. This is what we are doing this year as channels shift as well. You have a second adjustment that needs to be done so we keep the channels healthy, and once they rebound, we can then grow with the channels without stressing the ecosystem. One third is really the shift that happened between on and off premise, where the off premise started growing faster. The propositions that grew in the off premise are more on the core plus sub premium, and then this caused a share loss for us because we were more on the off premise, and we are of course smaller and less distributed in the off premise. Here is where we are making most of the adjustments. When we look at China, most of this adjustment is being already done. There is still, of course, a little bit to be done as you go through October, November, December, but should not be beyond the fourth quarter. At the same time, because we start expanding distribution off premise, adjusting innovation, adjusting execution. That will be a combination of continuing to right size the inventories, but then having acceleration on our STRs and some of the innovations that we launched and tested. You mentioned BUD Magnum, very successful in India, very successful where we launched it in China. We will start to roll it out now, not only the product itself, but some very interesting new packaging that is making a big strike in China will come to BUD Magnum. We had the new Corona can called drop line can, which is a full lid opening can. That's very interesting. We launched it first in O2O, was a big success, and now we're going to expand distribution on this packaging. We have some new deals coming in Harbin as well, not only the expansion of Zero Sugar, but some new propositions there that will be helpful as we further enhance our route to market in the off-premise. Inventory adjustments, one-third channel shifts, one-third, these both should phase out as we go through quarter 4. And then we have increased availability in the off-premise, increased investments for execution and innovation that will start to kick in in quarter 4 and will be very relevant for us in the next year. Phorm is interesting because in a way we've been participating in the energy drink in the U.S. for over a decade, and we have had some very successful scale up of brands in our network, but we were never majority owners of any of these brands. While we were an important component of the scale up and growth of these brands, we were not the owners. The latest one we divested at the beginning of this year, end of last year, was a good divestment, was a good run of the brand. But now we have a brand that we are majority owners, committed to the long term. Incredible partners that are with us in the journey from our wholesalers to the Phorm partners to the UFC. Not UFC, but Dana White partner with us in building that. Brand launch is being very exciting. The product is great because I think that the most differentiated thing is the fact that we are focused on a very specific consumer cohort, those who do the work and need this energy every day. The product brings this clean energy approach, very balanced elements, and I think that the proposition is a strong one, is getting good traction, and we are just at the beginning. I think that there will be a nice upside coming next year because the launch was this year. Distribution is building, awareness is building, and we have some flavors that we are expanding on the back end of this year and will be fully available next year. The most important thing here is our commitment and investment to the long term, because now we are majority owners of the brand and we have incredible partners that are with us on the journey. Operator: These were the final questions. If your question has not been answered, please feel free to contact the investor relations team. I will now turn the floor back over to Mr. Michel Doukeris for closing remarks. Michel Doukeris: Thank you very much. Thank you, everyone, for joining, for the ongoing partnership and support for our business. I hope that you are all doing well. Remember to drink a beer for Halloween, and we'll talk soon. Thank you. Operator: Thank you. This does conclude today's earnings conference call and webcast. Please disconnect your lines at this time and enjoy the rest of your day.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to today's Omnicell Third Quarter 2025 Financial Results Call. [Operator Instructions] After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Kathleen Nemeth, Senior Vice President, Investor Relations. Kathleen? Kathleen Nemeth: Good morning, and welcome to the Omnicell Third Quarter 2025 Financial Results Conference Call. On the call with me today are Randall Lipps, Omnicell Chairman, President, CEO and Founder; and Baird Radford, Executive Vice President and Chief Financial Officer; as well as Nnamdi Njoku, Executive Vice President and Chief Operating Officer. This call will contain forward-looking statements, including statements related to financial projections or performance and market or company outlook based on current expectations. These forward-looking statements speak only as of today or the date specified on the call. Actual results and other events may differ materially from those contemplated due to numerous factors that involve substantial risks and uncertainties. For more information, please refer to our press release issued today, Omnicell's Annual Report on Form 10-K filed with the SEC on February 27, 2025, and in other more recent reports filed with the SEC. Except as required by law, we do not assume any obligation to update any forward-looking statements. During this call, we will discuss some non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are included in our financial results press releases. Our results were released this morning and our financial results press releases are posted in the Investor Relations section of our website at ir.omnicell.com. With that, I will turn the call over to Randall. Randall? Randall Lipps: Good morning, and welcome to Omnicell's Third Quarter 2025 Earnings Call. We are pleased to report another strong quarter. The total revenues, non-GAAP EBITDA and non-GAAP EPS all exceeding the upper end of our previously issued guidance. We believe this robust performance reflects strength in our core point-of-care business and exceptional execution by the entire Omnicell team. Continued demand for our flagship point-of-care connected devices, including XTExtend, remained strong and drove our robust top line performance during the quarter. We are happy to see strong adoption of innovative solutions across inpatient and outpatient settings with recent wins and major health systems and government health care facilities. We believe that our transformation into an intelligence medication management technology company is progressing well and we are encouraged by early positive customer feedback on our OmniSphere cloud-based platform. Looking ahead, we remain focused on delivering innovative solutions globally that aim to continuously improve the customer experience and advance our customers closer to the industry defined vision of the Autonomous Pharmacy. We believe that our commitment to operational excellence, customer-centric innovation and cybersecurity positions us to drive long-term value for all stakeholders. As we have outlined previously, we expect our future growth to continue to be driven by 3 core pillars: first, expanding our market presence. We're actively working to grow our connected devices footprint across the inpatient and outpatient care environments, including nursing units, operating rooms and a full spectrum of pharmacy settings. We find that recent customer wins and increased platform adoption underscore the strength of our solutions and the trust we're building through service contracts, software subscriptions and cloud-based offerings, which is anticipated to give us greater visibility into our business and deliver long-term value to customers. Lastly, accelerating our technology platform OmniSphere. OmniSphere is our cloud-native platform designed to unify all Omnicell products under a single secure infrastructure. It is purpose built to enable enterprise-wide visibility into medication and supply inventory and simplify access to automation and intelligence tools. As previously announced, OmniSphere achieved HITRUST CSF i1 certification, demonstrating our commitment to cybersecurity and adherence to high industry standards for data protection and medication management. Before we begin reviewing our third quarter 2025 results, I'd like to take a moment to welcome Baird Radford to Omnicell as our new Executive Vice President and Chief Financial Officer. Baird brings more than 30 years of experience in health care and technology finance leadership, and we are thrilled to have him join our executive team. His deep expertise in driving strategic growth and operational excellence will be instrumental as we continue to progress our transformation into an intelligent medication management technology company. We look forward to Baird's leadership as we advance through innovation and executional rigor and seek to further our mission to deliver value to our customers, partners and stockholders. Turning to our third quarter 2025 financial results. Total revenue in the third quarter was $311 million, representing an increase of $28 million or approximately 10% compared to the third quarter of 2024 and an increase of $20 million or approximately 7% compared to the previous quarter. Our third quarter 2025 earnings per share in accordance with GAAP were $0.12 per share compared to $0.19 per share in the third quarter of 2024 and $0.12 per share in the prior quarter. Our third quarter 2025 non-GAAP earnings per share were $0.51 compared with $0.56 per share in the same period last year and $0.45 per share in the prior quarter. Finally, during the third quarter of 2025, we substantially completed the $75 million stock repurchase program, which our Board authorized earlier this year. Despite a complex macroeconomic backdrop, we remain encouraged by the resilience and adaptability we are seeing in the hospital and health system markets. While inflation and regulatory uncertainties continue to influence capital spending decisions, we're seeing a steady and continued focus on strategic investments. Hospitals seem to be prioritizing technologies that deliver strong ROI and operational efficiency, areas where we believe our portfolio is well aligned. On the policy front, although some uncertainties remain around federal funding, we're optimistic about the long-term commitment by hospitals and health systems to medication management infrastructure and innovation. Our technology and services solutions are designed to support hospitals in navigating these dynamics and we're confident in our ability to grow through continued partnerships and value creation despite some of these industry headwinds. As we continue to execute on our strategic transformation, we're seeing strong market validation of our product and services roadmap. Our customers are responding positively to the breadth and depth of our solutions particularly as we expand our reach across the continuum of care. From the successful rollout of our XTExtend offering to the early customer experiences with our cloud-native OmniSphere platform, it's clear that our technology is resonating with health care providers who indicated they are seeking to enhance visibility, cybersecurity, efficiency and patient safety. These innovative solutions are not only driving demand, but also, we believe, reinforcing Omnicell's position as a trusted partner in the journey towards the autonomous pharmacy. This was another strong quarter for our point-of-care solutions, including XT cabinets for nursing care areas, anesthesia workstation for perioperative settings and XTExtend. Leading health care providers across the U.S. and Canada, including the Department of Veterans Affairs are choosing Omnicell solutions to support their medication dispensing needs. One of the largest health systems in the Southern United States, selected Omnicell's points of care solutions, along with our premier inventory optimization service intelligence offering and other central pharmacy solutions. In an effort to increase inventory visibility, improve insights and optimize workflows across their Georgia-based network. Our Specialty Pharmacy Services offering, which is designed to help health systems launch and scale Specialty Pharmacy and 340B programs continues to gain traction in the market. A leading hospital on Oregon's Southern Coast has selected Omnicell to help its efforts to expand access to high-acuity therapies across rural communities, aligning with the system's mission to deliver integrated community-based care. A not-for-profit health system in the Southeast United States is launching its first specialty pharmacy with support from Omnicell. This new program is intended to support multiple hospitals and closely align with the systems cancer center, expanding access to life-sustaining therapies while advancing integrated locally delivered care. As we look ahead, I'm energized by the momentum we're building through our commitment to innovation with hospitals and health systems navigate a dynamic environment, Omnicell remains steadfast in our mission to be their most trusted partner, empowering them to achieve better outcomes, reduce costs and alleviate staff burnout. I am confident that our focus on delivering value through innovation will continue to position us for success and support our customers they shape the future of health care. As a reminder, Omnicell will be attending the 2025 American Society of Hospital Pharmacists, ASHP. Midyear meeting in Las Vegas from December 8 through the 10th, where we are very excited to be sharing some of our new innovations. Now with that, I'd like to turn the call over to Baird. Baird? H. Radford: Thank you, Randall, and good morning, everyone. I'm thrilled to be joining you today for my first earnings call at Omnicell and pleased to report that we exceeded our outlook delivering results above the upper end of our previously provided third quarter 2025 guidance. Before I jump into the financials, I wanted to share a few thoughts and observations for my first couple of months here at Omnicell. First, I have been truly inspired by the passion and dedication shown by our employees to deliver on Omnicell's mission to transform medication management through the delivery of innovative and reliable solutions for our customers. This customer focus positions us well to meet the rising expectations of the health systems we serve. Second, I'm excited about the market opportunity we see ahead of us in our connected device business, the cornerstone of our customer offering and in our digital enablement roadmap, that is focused on pairing our innovative hardware offerings with cutting-edge software solutions and services. Third, I believe our business model provides the opportunity for us to create sustainable top line revenue growth while also prioritizing investments in a manner that expands profitability. Now moving to our third quarter 2025 results. Total revenue was $311 million representing an increase of $28 million or approximately 10% from the third quarter of 2024 and an increase of $20 million or approximately 7% compared to the previous quarter. Third quarter of 2025 product revenue was $177 million, representing an increase of $19 million compared to the third quarter of 2024 and an increase of $14 million over the previous quarter. Service revenue in the third quarter of 2025 was $133 million, which increased $9 million from the third quarter of 2024 and represented an increase of $6 million over the previous quarter. Non-GAAP gross margin for the third quarter of 2025 was 44.2% compared to the third quarter of 2024 of 44.5% and 44.7% in the prior quarter. A full reconciliation of our GAAP to non-GAAP results is included in each of our second quarter 2025 and third quarter 2025 quarterly earnings press releases, which are posted on our Investor Relations website. Our third quarter 2025 earnings per share in accordance with GAAP or $0.12 per share compared to $0.19 per share in the third quarter of 2024 and $0.12 per share in the prior quarter. Our third quarter 2025 non-GAAP earnings per share were $0.51 compared with $0.56 per share in the third quarter of 2024, and $0.45 per share in the prior quarter. Third quarter 2025 non-GAAP EBITDA was $41 million compared with $39 million in the third quarter of 2024, and $38 million in the prior quarter. Our cash and cash equivalents totaled $180 million as of September 30, 2025 compared to $399 million as of June 30, 2025. The decrease reflects the repayment of a principal amount of $175 million of debt that matured in September 2025 and the repurchase of our common stock in the third quarter 2025 of approximately $62 million. The company continues to generate solid free cash flow with third quarter 2025 free cash flow of $14 million compared to third quarter 2024 of [indiscernible] million and $27 million in the prior quarter. In terms of accounts receivable, days sales outstanding for the third quarter of 2025 or 74 days, which compares to 83 days in the third quarter of 2024 and 75 days in the prior quarter. Inventories as of September 30, 2025, were $107 million compared to $95 million at September 30, 2024, and $106 million at June 30, 2025. Now I would like to walk through some of the key business drivers for the third quarter of 2025. Product revenues continue to be strong with third quarter 2025 product revenues of $177 million, up $19 million compared to the third quarter of 2024 and up $14 million compared to the prior quarter. As I mentioned in my initial remarks, connected devices continue to be the cornerstone of our product offering and our strong product revenue performance in the third quarter of 2025 was driven by strength in our point-of-care products including XTExtend. We also continue to see a positive impact from the process improvements we have put in place over the past 2 years. These improvements includes scheduling and customer engagement throughout the sales and implementation process, which contributed to our overperformance in the quarter compared to our previously announced expectations. Non-GAAP EBITDA in the third quarter of 2025 was $41 million, up by $2 million compared to the third quarter of 2024. And up by $3 million compared to the prior quarter. Non-GAAP EPS in the third quarter of 2025 was $0.51, which is down $0.05 compared to the third quarter of 2024, but up $0.06 compared to the prior quarter. If you recall, during our second quarter 2025 earnings call, we noted that we expected to see some headwinds in the third quarter of 2025 from increased tariff expense and non-recurring software upgrade costs in the field that are modestly impacting our non-GAAP EBITDA and non-GAAP earnings per share. During the quarter, we successfully mitigated some of the non-recurring software upgrade costs that we had noted previously by leveraging existing resources and various process efficiencies. Before we move to our guidance, I would like to provide an update on the tariff impact during the third quarter of 2025 and our current thoughts on tariffs for the remainder of 2025. In the third quarter of 2025, tariffs impacted profitability by approximately $6 million net of mitigation efforts. We expect a similar $6 million net profitability impact in the fourth quarter of 2025. For full year 2025, the net tariff impact on profitability is projected to be approximately $15 million after reflecting benefits from our supply chain management and pricing mitigation efforts. The supply chain team's efforts around tariff mitigation strategies have been impressive. They have worked with our contract manufacturers to move the sourcing of subassemblies and components to more favorable geographies while continuing to strengthen our supply chain resilience and maintain high product quality standards for our customers. While these mitigation efforts take time to reflect in the financials, we anticipate these actions will have a beneficial impact throughout 2026. Therefore, at this time, we believe the full impact of tariffs in 2026 will be lower than the $6 million per quarter run rate as we exit 2025. Now turning to guidance. Please note that our fourth quarter and updated full year 2025 guidance is based on our current estimate of the potential impact of tariffs as of today. We recognize that the situation is fluid, and we are continuing to monitor the situation. Although there could be modest cash flow implications to the fourth quarter of 2025, from potential increases in tariff rates. We don't anticipate the potential changes to materially impact fourth quarter profitability. We will reflect potential near-term tariff changes, if any, in our 2026 guidance that we will provide in connection with the fourth quarter 2025 earnings call. For the fourth quarter of 2025, we are providing the following outlook. We expect fourth quarter 2025 total revenues to be between $306 million and $316 million with product revenues anticipated to be within $175 million and $180 million and service revenues expected to be between $131 million and $136 million. As we have shared previously, we expect revenue to be more linear in 2025 as process improvements that we have established last year are currently driving more consistent scheduling and stronger operational execution. We expect fourth quarter 2025 non-GAAP EBITDA to be between $37 million and $43 million, and non-GAAP earnings per share to be between $0.40 per share and $0.50 per share. For full year 2025, we are maintaining our previously issued guidance ranges for product bookings and Annual Recurring Revenue and modestly raising the midpoint of our guidance ranges for total revenues, non-GAAP EBITDA and non-GAAP earnings per share. Consistent with our [indiscernible] and year-end 2025 ARR is expected to be in the range of $610 million to $630 million. For 2025, total revenues, we are raising and narrowing our guidance range. Total revenues for full year 2025 are now expected to be in the range of $1.177 billion to $1.187 billion, as compared to our prior expectation of $1.13 billion to $1.16 billion. Within product revenues, we saw a stronger third quarter of 2025 than previously guided on the strength of scheduling and customer engagement levels, combined with the momentum that we are carrying into the fourth quarter of 2025, product revenues for full year 2025 are now expected to be in the range of $661 million to $666 million compared to our prior expectations of $625 million to $640 million. Within service revenue, we have seen stronger performance within Technical Services revenues. Accordingly, we have increased the midpoint for Technical Services revenue guidance from $248 million to $260 million for full year 2025. However, our SaaS and expert services revenue growth has been slower than expected, particularly within our EnlivenHealth business as that business faces headwinds in the retail pharmacy space. As a result, we have modestly lowered the midpoint for our SaaS and Expert Services revenue guidance for the full year 2025 from $265 million to $259 million. Non-GAAP EBITDA for the full year 2025 is now expected to be in the range of $140 million to $146 million compared to our previous range of $130 million to $145 million. Finally, full year 2025 non-GAAP earnings per share are expected to be in the range of $1.63 to $1.73 versus our prior expectation of $1.40 to $1.65. The increase of our profit metrics at their respective midpoints represent the expected benefit from higher revenue levels, partially offset by investments in customer experience enhancements and innovation. For full year 2025, we are assuming an effective blended tax rate of approximately 18% in our non-GAAP earnings per share guidance. As we wrap up, I would like to extend my deep appreciation to the entire Omnicell team for their warm welcome and also for their incredible efforts in delivering a very strong third quarter of 2025. Their resilience and dedication have laid a solid foundation for continued success throughout 2025 and into the future. We would now like to open the call for questions. Operator? Operator: [Operator Instructions] All right. It looks like our first question today comes from the line of Jessica Tassan with Piper Sandler. Jessica, please go ahead. Jessica Tassan: So I guess the most important one for me is just, Baird, it's awesome to hear you emphasizing the hardware as being kind of central to the Omnicell platform. I'm interested to know, are you guys engaging with start-up companies and doing diligence to figure out how to implement humanoid robots in the pharmacy or how to develop more sophisticated robotics? And if so, does that potentially expand your reach into retail pharmacies or ambulatory settings? Like just how should we be thinking about investments in hardware and specifically in robotics over the next, call it, whether inorganic or organic over the next couple of years? And then I have just one on some 4Q detail. Randall Lipps: Well, yes, absolutely. I mean it's all about AI and robotics. And if you look at Perry Genova, who we just hired as a new technical leader has an extensive robotic background for that reason. So I think that it's key that we use robotics and deploy robotics to capture the information and detailed visibility of where meds are so that we can apply our -- the power of intelligence across those to optimize and deliver outcomes for everyone. So that's absolutely -- and I'm sorry, Jessica. What was the other question? Jessica Tassan: Yes. I guess just one quick follow-up. So is there any thought being given to potentially making a smaller version of the central dispensing robot just so that it's easier for customers to purchase both from like a physical capacity and then also obviously a budget perspective? Randall Lipps: Yes. I think we're looking at a lot of different dynamics there, not only just size, but speed and types of robots. So I would say that there are a lot of different options on that plate that we are deploying as well as just adding robotics to some of our current products that are more manual intensive today. Jessica Tassan: Got it. Last one is just -- I think there's some investor confusion just around OmniSphere. Can you clarify if an ADC does not run on OmniSphere today, what is it running on? And is Omnicell penetrated today across the ADC installed base? Or is it a large incremental revenue opportunity akin to XTExtend. Randall Lipps: Yes. OmniSphere does run on our current products, so you can connect the OmniSphere to our color touch products. But long term, they'll be integrated to another platform, a clean sheet platform. So there's an easy path from OmniSphere to getting all of our products connected onto the platform. Kathleen Nemeth: Yes. I would say, Randy, I would add that OmniSphere is in -- still in limited customer release. There are some customers that are running it. Their current -- most of the current customers are on OmniCenter. And eventually, they'll migrate over to OmniSphere. That's the long-term vision to that part of our innovation roadmap. Randall Lipps: Yes. We have early adopters running on it today, and it's been running for several years actually, we've been working on it, so it's a mature product. Kathleen Nemeth: Thanks, Jess, for all 3 of your questions. Next question, please. Operator: Our next question is -- or I should say, it comes from the line of Matt Hewitt with Craig-Hallum Capital Group. Matthew Hewitt: Congratulations on a strong quarter. Maybe I wanted to touch on the IV opportunity. You called out the Ballad Health or the Ballad Health win. And I'm just curious, as customers are looking to integrate your solutions, are they looking to add the IV at each facility? Or are they looking at more of a hub-and-spoke type model? I'm just trying to gauge how they're seeing this impacting their business and where it can go from there. Randall Lipps: Thank you, Matthew, for that question. Let me maybe provide just a broad perspective about how we're thinking about IV and I'll hit your question directly. So we see a great opportunity in the IV space, what customers just taking control over their IV supply chain and to really unlock that opportunity, we're looking at different ways of doing that, everything from semiautomatic to fully automatic solutions. And we have a number of programs out there right now with our workflow product at analytics. With respect to IV robot that you're asking about, it kind of depends on the size and the footprint of the health system that typically our implementation takes into account just what the goals of that helps us to -- what they want to achieve from a throughput on a volume standpoint, and that dictates how many robot actually go into implementation. So that's typically how we approach that. Operator: And our next question comes from the line of Stan Berenshteyn with Wells Fargo. Stanislav Berenshteyn: First, on bookings guidance, you reiterated your guidance. I'm curious, as we sit here in the fourth quarter, is the composition of the products within your bookings in any way different than what you had anticipated at the start of the year? And can you also comment on whether you've seen any changes in your sales cycle? Randall Lipps: So thanks for the question, Stan. From the bookings perspective, I think it's important to recognize that we exited Q3 with good momentum. Our engagement with our pipeline continues to be strong. And we continue to see them looking primarily at our point-of-care products. And we have not seen a change in the mix within those offerings. Stanislav Berenshteyn: And maybe just one quick one on the compounding robot. I think previously, Randy, you said you're at the tail end of making upgrades here, it's potentially coming out of limited release -- can you give us an update on that? And then what do you anticipate happens once you're out of limited release? Are you changing your go-to-market strategy there? How should we think about that? Randall Lipps: Yes. Well, I think it's -- we're still in limited release, and we don't have any precise date for when we're coming out of that limited release date, we want to get it right. And it's a product that is complex and is FDA regulated, so we have to be very careful how we approach that. On our semi-automated platform, it is doing really well and picking up, and we feel like that continues to answer a lot of the open issues in the market that needs a solution. Operator: And our next question comes from the line of David Larsen with BTIG. David Larsen: Congratulations on the good beat and raise. Randy, can you maybe talk a little bit about the buying environment? We're kind of -- I'm kind of hearing mixed things from different companies that sell into the hospital sector. Some are saying there's the risk of a slowdown with the Big Beautiful Bill Act because of Medicaid and exchange enrollment headwinds that might happen. Others are saying there's not really any drag at all. What are you seeing? And what are your discussions like with your clients? It looks like things are going pretty well. Randall Lipps: Yes. I think things in general have been improving. I think it's really hospital system specific. If you have a lot of government pay or a higher percentage of government pay than the average, you're going to have more headwinds. I think the most interesting thing is that really there's a big refresh cycle that's approaching. And all the hospitals are preparing for this refresh cycle because we see a lot of the old first generation systems or recent generation systems in the marketplace sunsetting that are not our systems, but our competitors so with that refresh cycle comes, people who are aware that they need to prepare for purchasing more tech in the pharmacy space. And with our first wave of refresh cycle coming up. It is an opportunity for us to really approach the marketplace with all of our new innovative platforms particularly around our OmniSphere and intelligence platform where people really want an enterprise solution that's unique. So we're really excited about this changing mindset due to the timing in the market and our ability to have these deeper conversations both with our customers and those who are not our customers. David Larsen: That's great. And then I'm hearing a lot about GLP-1s. Every time I look up, somebody is mentioning it. Can your compounding product help hospital systems create a compounded GLP-1 solution for their patients? Or is that not an area you're sort of in. Randall Lipps: Well, we've looked at that area, and we haven't found the best way to use our technology there to formally create a program or create a program for the hospitals. But we're still looking at it. And I think it's we're wondering if it's going to change with the oral solids coming out and what impact that would have on the IV compounding approach. Operator: All right. Thanks for the question, David. Our next question comes from the line of Bill Sutherland with The Benchmark Company. William Sutherland: Baird, you called out the headwinds that are slowing the Enliven product, any other industry headrooms in particular that you guys are watching most closely as far as could impact as you go into 2026? H. Radford: The short answer is we're not seeing anything at this time. We are definitely focused and staying very close on the point-of-care business to those customer negotiations and monitoring the flow through of backlog as well as negotiations of the pipeline for bookings to come. So those are the places where we stay very focused. But at this point, we're seeing a consistency with the last several quarters. William Sutherland: Okay. And then while I've got you, always curious about capital deployment as you look into this quarter? Randall Lipps: Thanks for the question, Bill. As we highlighted during Q3, we completed the remaining $62 million of our $75 million share repurchase program. This helped us reduce our outstanding share count over the course of that program by 5%. As we look forward, I think it's important to keep a couple of things in mind. I'm working with the team to get up to speed on our potential options and trade-offs as it relates to investing in first organic growth as well as potentially acquisitions and/or share repurchases. Still relatively new to the company in 2 months. So there are no actions currently planned, but I definitely want to reiterate for this group that we are committed to being prudent and disciplined in making these decisions into the future. Operator: And our next question comes from the line of Scott Schoenhaus with KeyBanc Capital Markets. Scott Schoenhaus: Congrats on the strong quarter, and welcome, Baird. So I guess a lot of my questions have been answered. But I guess my question will be on 340B. Randall, your commentary seemed a little bit more positive this quarter versus previous quarters. Anything to draw there, what the customer behavior is changing there? Is it anything to do with the regulatory side from the HIC subsidies? And then how do you adapt your platform or your selling season this year around the regulatory? Is there may be positives that you can sort of adapt your conversations with your clients such as 340B? Randall Lipps: Yes. Well, thanks, Scott. I appreciate the comment and the questions. Yes, I think we've really matured over the last year, particularly this year, we're seeing more crossover sales from our regular sales force with our 340B team acting as a good go-to-market. So we're seeing over half of our new customers and pipeline coming from current Omnicell customers. And this is a really positive indicator. This is where we want to get the synergies. And as we kind of change our go-to-market added in some sales force strength. We're seeing good results from that. And we're picking up the pace there as we sign these new contracts which will eventually come out in increased ARR. We think it's a positive business. We haven't seen anything to really slow it down even though there's a lot of chatter about some of the specialty drugs being -- costs being reduced. There's still enough activity there that it makes it worthwhile for these hospitals to pursue a specialty pharmacy and to operate -- make it easy for them to operate it by using our services. Operator: Scott. And our next question comes from the line of Eugene Mannheimer with Freedom Capital Markets. Eugene Mannheimer: Congrats on the great numbers and welcome Baird. I just really had one. I mean you had a very strong quarter. So you cited strength in your point of care business I'm just wondering like how much of that outperformance was due to net new wins versus expansions within the base versus, say, maybe you're seeing some tail end of the XT upgrade cycle? Just trying to understand some of the dynamics within that. H. Radford: I think we saw relative consistency there. There were wins. There were expansions within existing customers. And can't really pin it on anything specific. It was just really good, solid execution by the team across the offerings. Eugene Mannheimer: Makes sense. Where are we in that XT upgrade? Is it 90% of the way done at this point? Randall Lipps: No, we're -- for the cohort we have, and it's very early on, right? Because just started last April. So... Kathleen Nemeth: No, the full XT, not the Extend. [indiscernible] The full Extend. So -- from a bookings perspective, though, we're well along the completion of the upgrade cycle. Obviously, from a revenue perspective, we've got bookings and backlog, which we expect to continue to ship throughout the next several quarters. From an Extend perspective, as Randy said, we're still fairly early from that perspective. Operator: And our next question comes from the line of Allen Lutz with Bank of America. Allen Lutz: Randy, you mentioned the sunsetting of a competitor system may be presenting a unique opportunity for Omnicell to take some share. Can you talk about how big that opportunity is? Can you talk maybe a little bit about the historical switching rate between you and one of your major competitors? And then as you go to market trying to convince some of those prospects to switch, what is sort of the pitch? And can you talk overall about your expectations as it relates to what, if any of that is embedded in guidance for the rest of the year? Randall Lipps: Yes. Thanks for the question, Allen. Yes, it's a significant size market, right? It's $8 billion to $10 billion market. And the opportunity for us to switch is about moving from sort of a unique product to a platform. And this is the centerpiece of our approach is the enterprise offering that we have with OmniSphere, which really sits the central piece that allows you to connect all of the current technology, all the new technology, all the smaller technology to a central platform to collect the data and integrate into the operation of these very, very large institutions. It really allows you not to have additional servers or the cloud just expands for as you need more space. And so it provides the flexibility that you need to give these institutions as they move more patients to outpatient or change their cadre of hospitals around to different sets as they acquire or get rid of those. It's the flexibility they need to do that. And because they want the outcomes and the outcomes depend on collecting the data and storing it and using it in an intelligent way. And then approaching the autonomous pharmacy, you need to have all the data to do that in order to actually let the system start to make high-level decisions for you. I mean, historically, we've grown this company by taking market share. I think through the pandemic, things were muted and coming out of the pandemic, things were muted because of people didn't want to have the people to do the switching. I think that's now that's changed now. Hospitals are much more stable. Their employee base is stable, and they want to spend strategic capital. So I think we'll get our fair hearing in these accounts and it's a unique opportunity. And we have been leading the innovation. We absolutely believe we have the best product in the marketplace by far. And we're going to get more than our fair share. We have, and we will. Operator: And it looks like there are no further questions at this time. So I will now turn the call back over to Randall for closing comments. Randall? Randall Lipps: Well, I want to thank everybody for joining. It is a unique time in the industry, and we're really excited about it. I hope that some of you will be able to meet us at ASHP and see some of the new innovations we're bringing to the marketplace. It's an exciting time to be in our markets. We've been preparing for these upcoming years, and I think we've done a good job and we'll move forward and get back to some solid growth. Thanks for joining. Cheers. Operator: And again, ladies and gentlemen, that does conclude today's call. You may now disconnect. Have a great day, everyone.
Operator: Hello, and welcome to the Scorpio Tankers Inc. Third Quarter 2025 Conference Call. I would now like to turn the call over to James Doyle, Head of Corporate Development and IR. Please go ahead, sir. James Doyle: Thank you for joining us today. Welcome to the Scorpio Tankers Third Quarter 2025 Earnings Conference Call. On the call with me today are Emanuele Lauro, Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer; Chris Avella, Chief Financial Officer; Lars Dencker Nielsen, Chief Commercial Officer. Earlier today, we issued our third quarter earnings press release, which is available on our website, scorpiotankers.com. The information discussed on this call is based on information as of today, October 30th, 2025, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release, as well as Scorpio Tankers' SEC filings, which are available at scorpiotankers.com and sec.gov. Call participants are advised that the audio of this conference call is being broadcasted live on the Internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days. We will be giving a short presentation today. The presentation is available at scorpiotankers.com on the Investor Relations page under Reports and Presentations. The slides will also be available on the webcast. After the presentation, we will go to Q&A. [Operator Instructions] Now I'd like to introduce our Chief Executive Officer, Emanuele Lauro. Emanuele Lauro: Thank you, James, and good morning, everyone, and thanks for joining us today. We are pleased to report another quarter of strong financial results. In the third quarter, the company generated $87.7 million in adjusted EBITDA and $72.7 million in adjusted net income. The product tanker market continues to benefit from enduring structural trends like strong demand for refined products, evolving trade patterns and long-term shift in global refining that are lengthening voyages and increasing ton miles. Those dynamics have been reflected in freight rates, which have strengthened over the past quarters. The company is financially, operationally and commercially strong. Our focus is clear, building a shipping company that is investable through the cycle. Today, our liquidity stands at approximately $1.4 billion, including cash, undrawn revolving credit and our investment in DHT. Over the past 4 years, we've reduced our daily breakeven from roughly $17,500 per day to $12,500 per day. And with our recent decision to repay amortizing debt, we expect that figure to fall further to around $11,000 per day. Today, we also announced a 5% increase in the quarterly dividend. And going forward, we'll continue to review the dividend at least annually. Our goal, as mentioned, is to make the dividend sustainable, durable and steadily growing over time, rewarding shareholders while building a company that remains investable through the cycle. Shipping will always be volatile, that's its nature. But through our efforts of strengthening the balance sheet, lower our breakeven and increase charter coverage, we've meaningfully reduced that volatility. Looking ahead, we remain optimistic as our outlook for both crude and refined products remains constructive. With a modern fleet, robust liquidity and a conservative balance sheet, Scorpio Tankers is well positioned to navigate uncertainty and continue creating long-term value for shareholders. With that, I'll turn the call to James for a brief presentation. James? James Doyle: Thanks, Emanuele. Slide 7, please. Product tanker rates remain firm and have increased over the last week with MRs earning around $28,000 per day and LR2s about $35,000 per day, levels that continue to generate substantial free cash flow for the company. Refining margins have strengthened, inventories remain low and fourth quarter demand, excluding fuel oil is expected to be nearly 900,000 barrels per day higher than last year. With seasonality turning in our favor, a strong crude market and several near-term catalysts emerging, the backdrop for product tankers looks increasingly constructive as we move through year-end. Slide 8, please. Despite significant refinery maintenance, over 8 million barrels per day offline in September and 10 million in October, seaborne exports have continued to rise. In September, excluding Russian volumes, product exports averaged 20 million barrels per day, approximately 600,000 barrels per day higher than the same month last year. Slide 9, please. A rise in drone attacks on Russian refinery capacity has reduced refined product exports from 1.5 million barrels per day to about 1 million, a decline of 30%. At the same time, OFAC's new sanctions on Rosneft and LUKOIL are expected to further disrupt Russian exports. Even before these measures took effect, Brazil's imports of Russian barrels had fallen sharply from 250,000 barrels per day to just 50,000 with much of the shortfall replaced by U.S. supply, a shift that lifted MR rates across the Atlantic Basin. In addition, importers of Russian products begin seeking alternative sources, product tanker rates could tighten further. Slide 10, please. Increasing sanctions from OFAC, the EU and U.K. have made exports more challenging. The rise in crude on the water has been driven primarily by sanctioned countries, Iran, Venezuela and Russia, which together accounted for roughly 70% of the increase. The number of sanctioned vessels continues to grow, now representing nearly 8% of the MR fleet, 14% of the LR2 fleet and 34% of the Aframax fleet. These vessels are, on average, almost 20 years old and are unlikely to return to non-sanctioned trades. As sanctions expand and enforcement tightens, additional vessels will likely be absorbed into these trades, further limiting available tonnage for legitimate cargoes. In short, the sanctioned fleet is large, old and increasingly isolated, effectively shrinking the number of ships competing in the mainstream market. Slide 11, please. We continue to see closures in global refining capacity. Over the past 5 years, net capacity growth has been only 300,000 barrels per day, driven by additions in the Middle East and offset by closures in Europe and North America. In California alone, 250,000 barrels per day of capacity is scheduled to close this year and in Q2 next year, which could effectively double U.S. West Coast product imports largely coming from Asia. These refinery closures and changes have been a key driver in ton-mile demand growth for product tankers. Slide 12, please. In October, China announced new fees on vessels calling at U.S. ports. As of this morning, it appears that President Trump and Xi have agreed to postpone both the USTR tariffs and the Chinese port fees for up to a year. If these measures were to return, China accounts for only about 3% to 4% of the global seaborne refined product market, and we would not expect any material impact on the overall market. We will continue to monitor the situation closely. Slide 13, please. The product tanker order book currently stands at 18% of the existing fleet, a figure that may appear elevated at first glance, but context matters. Newbuilding activity has slowed considerably. Year-to-date, only 44 product tankers have been ordered. LR2s now make up almost half the current order book. However, 49% of LR2s currently on the water are trading crude oil, a trend we expect to continue. In short, effective fleet growth in clean products looks far more modest than headline numbers suggest. Slide 14, please. As shown in the left-hand chart, a 20-year-old vessel generates 50% fewer ton miles than a modern one, reflecting limitations in trading opportunities, efficiency and regulatory access. The drop-off is even steeper, over 75% if the vessel was not involved in Russian trade. This isn't a short-term story. Between 2003 and 2010, we saw a significant expansion of the product tanker fleet. The result, a large cohort of vessels now approaching or surpassing 20 years of age. The chart on the right makes this clear. Including the order book, 17.8% of the fleet is over 20 years old. By 2028, that figure climbs to 31%. The implications are structural. The fleet is aging, utilization is falling and effective supply is tightening even without a dramatic increase in scrapping. Slide 15, please. Given the age profile of the fleet and the high share of LR2s trading crude, actual fleet growth could be -- could prove lower than headline expectations. Assuming no decline in utilization for vessels older than 20 years and a portion of LR2 newbuilds trading crude, effective fleet growth could average around 3.5% a year. However, adjusting for lower utilization on older ships, effective fleet growth could fall closer to 1% per year. In contrast, ton-mile demand has increased more than 20% since 2019, driven by refinery rationalization, shifting trade routes and ongoing dislocation of global energy flows. We expect ton miles to continue to outpace supply. In both the short and long term, the market fundamentals remain strong, driven by structural shifts in global refining, longer trade routes and an aging fleet. With that, I'd like to turn it over to Chris. Chris Avella: Thank you, James, and good morning or good afternoon, everyone. Slide 17, please. This quarter, we generated $148.1 million in adjusted EBITDA and $72.7 million or $1.49 per diluted share in adjusted net income. Our operating cash flow, excluding changes in working capital was over $135 million this quarter and approximately $375 million on a year-to-date basis. We are pleased to announce both an increase in our quarterly dividend in addition to new agreements with our lenders to prepay the principal amortization on certain of our loans for $154.6 million in aggregate. This prepayment is expected to take place in the fourth quarter of 2025 and represents all of our scheduled loan amortization for 2026 and 2027. The principal and interest savings resulting from this prepayment will further reduce our cash breakeven levels, which include vessel operating cost, cash G&A, interest payments and commitment fees and regularly scheduled loan amortization to approximately $11,000 per day over this period. In addition to this, we continue to be opportunistic with our investment in DHT, having sold 5.3 million shares in September and October at over $12.50 per share. This is an almost 20% return on investment when factoring in dividends received. The chart on the right shows our liquidity profile. As you can see, we have access to over $1.4 billion in liquidity as of today. Our liquidity consists of cash of $627 million, along with $788 million of drawdown availability under 3 revolving credit facilities. Slide 18, please. The chart on the left shows the progression of our net debt since December 31, 2021, which has declined to $2.7 billion to a net debt balance of $255 million. On a pro forma basis, our net debt position is $34 million, which takes into account the expected receipt of the October higher payment from the Scorpio Pools, which are expected within the next 2 weeks and the net proceeds from the sales of 3 vessels, which are expected to close in the fourth quarter. Chart on the right breaks down our outstanding debt by type. Starting at the bottom is our $69 million of legacy lease financing obligations on 3 vessels with Ocean Yield. These leases are the most expensive financing in our debt structure with margins of over 400 basis points. In June and July, we submitted notice to exercise the purchase options on these vessels. Two of the purchases are scheduled for December for $23.4 million each and 1 purchase is scheduled for February for $18.9 million. In the middle is our secured bank debt with a lending group dominated by experienced European shipping lenders whom we have strong relationships with. As I mentioned, we expect to prepay $154.6 million of this debt in the fourth quarter of 2025. As a result of this prepayment, we will have no scheduled principal amortization on our existing debt for all of 2026 and 2027. Further to this, $290 million of our $615 million of secured borrowings is drawn revolving debt, an important tool that we can use if we want to repay the debt yet maintain access to the liquidity in the future. At the top is our $200 million 5-year senior unsecured notes, which were issued in an oversubscribed offering in the Nordic bond market in January of this year at a 7.5% coupon rate. Slide 19, please. By the end of the first quarter of 2026, we expect to make a total of $234 million in unscheduled prepayments on our debt. $14 million of this amount has already been paid in advance of the pending sales of 2 vessels. And as I mentioned, we have committed to repay $65.7 million to exercise the purchase options on 3 lease finance vessels, along with $154.6 million across 4 different credit facilities to cover our scheduled loan amortization for 2026 and 2027. The chart on the right is our dry dock estimates through the end of 2026. Our forward dry dock schedule is light after having undergone the special surveys on over 70% of our fleet in the last 2 years. Slide 20, please. Once we complete our unscheduled debt prepayments, our cash breakeven rates are expected to be at the lowest levels in the company's history. The chart on the left shows that these expected cash breakeven rates are lower than the company's achieved daily TCE rates dating all the way back to 2013, with the closest point being the aftermath of the COVID-19 pandemic when oil consumption was at lows not seen in decades. To illustrate our cash generation potential at these cash breakeven levels, at $20,000 per day, the company can generate up to $315 million in cash flow per year. At $30,000 per day, the company can generate up to $666 million in cash flow per year. And at $40,000 per day, the company can generate up to $1 billion in cash flow per year. This concludes our presentation for today. And now I'd like to turn the call over to Q&A. Operator: [Operator Instructions] First question comes from Omar Nokta with Jefferies. Omar Nokta: Thanks for the update. Obviously, very good detail. And clearly, Scorpio is in a very strong financial position as kind of outlined throughout the call here and with Chris here on the breakeven. And just as we kind of think about Scorpio here, you've been building cash, paying down the debt, breakeven is obviously coming down. You're putting Scorpio in the strongest financial position in its history and preparing for, say, the unknown given the geopolitical environment. Just maybe kind of thinking about the platform and how it is at the moment, do you feel like you're building towards something here, something more significant for this balance sheet to be put to use at some point down the line? Or do you think this is a bit more of a new normal for Scorpio to be in a net cash position long term with an eye on keeping that dividend sustainable throughout the cycles? Robert Bugbee: It's a great question, Omar. So, I think that can answer the last bit first, that's the easy one. We're very convinced that the right thing we should do is to maintain a regular dividend and have a dividend that is clearly sustainable. And so to do that, we [Technical Difficulty] a strong balance sheet, and we have to be able to show like we can do and as Chris has gone through, that we can clearly go through the absolute bottom of the cycle and still maintain that dividend. The second aspect as to whether we are building things for long term, et cetera, et cetera, is the honest answer is that we've been focused on getting the debt down, getting the cash breakeven down, getting our self into the position that we're in right now. Chris is indicating that very soon we'll start to move to net debt negative or building of cash. And that simply by definition, gives you -- why you maintain overall discipline gives you tremendous options. It allows you to go into -- at any different point in the market, it allows you to properly -- if you wanted to renew your fleet, for example, without changing your leverage very much. As Chris was pointing out that even at very low rates, we'd still be generating tremendous cash flow. But -- so I think that's the best way to answer it. Omar Nokta: Clearly, that's helpful. And I guess maybe just a follow-up, and I'll pass it on is a question that's come up in the past. And when does it make sense, do you think, to start buying ships to offset perhaps some of the sales of the older ones? You clearly got critical mass, but are you content to keep kind of scaling back a bit, selling some more of the older ones without replacing? Robert Bugbee: I think we have a different situation right now. We're very soon. We're getting to that primary objective where we get, we're able to create that balance sheet, take the debt right down. And Vick and Chris are showing outlines whereby we can pre-bet principal, et cetera, lowering that cash down. So that part is kind of finished. So now you're really left to mathematics. Mathematics would be -- I'll give you an example is we don't need to renew for renewal sake. There's no point in that. We also have consistently said that we are confident in the product market. Our last call was we are confident that the latter half of the year will be very strong and that the fundamentals are there and that's playing out. And Lars will probably go into later, the market is, as we expected, strengthening and strengthening quite significantly now across the tanker space. So, we have no necessity. So, it's a question of choice. So unless the easiest position one could look at is, let's say, you could get a great -- it's where the curve is, you might be able to get a great price for older vessels in your fleet, for example, and then maybe you get a place in line with somebody, you're not necessarily you ordering yourself, but you may be able to get a prompt new vessel or a delivery or something like that, where mathematically, the curve is such that your newer vessel has far greater value, both in its operational specification and age compared to the older vessel, which older vessels as they start to move towards 15, we haven't got many of those left. But as they do, they start to depreciate like options do much more rapidly. But that's a mathematical example. So, I think now that I don't think you -- but at the same time, we -- if someone offered us a great price for our older vessels, sure, we would sell them because that's the smart thing to do to maintain the optionality. I think the optionality for a company in shipping, anybody, whether it's investors or its companies is the value of that optionality is underrated strategically. Operator: The next question comes from Ken Hoexter with Bank of America. Tim Chang: This is Tim Chang on for Ken Hoexter. Obviously, been a very constructive market for product tankers fundamentally recently with record levels of seaborne exports. How do you see rates progress -- is there a way you see rates progressing higher than levels with little under half of the days booked quarter-to-date? And maybe just a little bit more color on what pushes them there over the next 40 to 60 days. I know you've spoken to the OPEC production cut unwind, increased sanctions, the seasonally stronger period. Maybe some more detail on how importers of Russian product would be seeking alternative products. Robert Bugbee: Lars, do you want to take that? Lars Nielsen: Yes, sure. I mean just take a step back first. Q3 has kind of surprised to the upside. We haven't seen as much of a seasonal summer lull as you normally would do. There were a lot of refineries that were kind of in turnarounds, and we anticipated a drop in rates across the board. We did see that drop in rates, and we're at the tail end of those refinery turnarounds now. And I think we have another 5 million barrels of capacity that's coming on stream in November. That's going to supercharge the clean market. But there's a combination of factors to why I'm quite constructive the product tanker market. First of all, OPEC has played a role in terms of starting to come to market with opening up the taps the whole issue around Russia has become a really important thing as you look at how now the Americans have also come in to sanction the barrels. And those sanctioning barrels have certainly had a market follow-through on the crude markets. If you look at the crude markets first before going to products, the VLCC markets today have ramped up to a very high level, so has the Suezmaxes and the Aframaxes as well. We have also seen a sudden change in interest from LR2 owners to move into Aframaxes count from September, probably around 18 ships have already dirtied up. It wouldn't surprise me that there's going to be another 5 or 10 ships in a short order that's going to start moving into the Atlantic Basin into dirty. This obviously will kind of tighten the product market as well. So you've got more product coming into the market. You've got a tightening of supply. And the market that where the product is coming is primarily the AG and also the U.S. Gulf, where we're going to start seeing a lot of ton mile movements because of the sanctioning of barrels that people are now going to start securing supply from further afield. I mean Brazil is now taking more product out of U.S. Gulf rather than the Russian barrel and so on. It is clear to me that we are just on the cusp of the bottom of that market. The LR2 market has moved up tremendously and will continue to do so. I envisage over the next couple of weeks. The -- and that's both from the Middle East going West, and that's Middle East going East TC1, but it's also certainly the West moving to the East, which has also moved up progressively over the last week. The same thing goes also with a very strong but volatile market in the U.S. Gulf, and we can see underlying strength as the utilization level of the refineries are starting to creep up after their turnarounds in the U.S. Gulf and then underpinned by this longer-haul business. So there is all the ingredients for the market as we move properly into Q4 to see a certain rebound. And it's now firing on all cylinders. It's not only on the crude, which has been the headline over the last 48 hours, but it's certainly -- I can see on the product market as well, we're going to see a strong ramp-up into Q4 proper. At the same time, I would also just add, this is an interesting combination because what we have seen in years gone by as we move into January and February, people talk about cannibalization of newbuilding with virgin tanks from Via Suezmaxes, Aframaxes that are not coated, which I have to be honest, it's very few today because everybody is building Aframaxes with coated tanks due to the price. But those vessels probably with the market trading TD 3 at worldscale 125 will probably think twice to take on a clean cargo at a discount at a lower demurrage rate than trading $140,000, $130,000, $130,000 on pure round voyage. So, I also envisage a lesser degree of cannibalization, which will also underpin a very strong follow-through as we move into Q1. Robert Bugbee: If I could just add to that. So, I think what Lars on behalf of the company is saying, so we now -- he's now moving or we are moving as a group from the last, let's say, public discussion that we were confident that the market would strengthen into the end of the year. Lars is now creating a position where we see that there's a strong chance now of the market being very strong into the first quarter as well and through that first quarter because of the dynamics he's outlaid. Operator: The next question comes from Chris Robertson with Deutsche Bank. Christopher Robertson: I just wanted to turn towards -- you guys mentioned you had extensive number of dry docks completed during 2025. I wanted to touch on that just in terms of asking what types of uplifts and efficiency that you've realized from those dry docks this year? And is that translating into slightly higher rate premiums? Or can you speak to the details around that? Emanuele Lauro: Sure. I'm happy to take that. The dry docks and themselves did not -- did not involve a great deal of CapEx because we already think the designs for our vessels are sufficiently economical, fuel efficient, et cetera. Really, it's much more about general maintenance, the coatings of the vessels, the friction, not only exogenous but endogenous to the hull and getting that back to a place where you're really resetting the vessel back to something similar to what it was 5 years before. The effect and the bottom-line impact is immediate, like I said, because you're basically resetting the ship to a condition it was 5 years before. But until we have line of sight on the return of a host of additional CapEx possibilities and what the returns actually mean, there's a lot of hyperbole smoke and mirrors about uplifts and other efficiency steps one could undertake. But until we really have line of sight and the benefit of more data in that area, we're not going to be spending shareholders' money on those types of gambles. Christopher Robertson: Got it. Interesting. Okay. My next question is just related to Chinese export quotas for next year, if you guys have a view around the increasing amount of refining capacity in China, it doesn't seem to have kept pace with kind of the quotas being kept flattish this year, slightly down. Do you have a view around next year and what they might do? And do you think there's a possibility that we'll see increased quotas from China next year? Robert Bugbee: I'll start and then maybe go ahead, James. James Doyle: Thanks, Lars. Maybe, Lars, you can add. So, we saw the last quota increase in September, which is, as you highlighted, Chris, pretty consistent with what's been announced in the past. I think the interesting part is if you look at -- when you look at the Chinese data, total crude imports and domestic production were around 15.9 million barrels in September and runs were 15.4 million. So, the crude build was only about 400,000 to 500,000 barrels per day. So, to answer your question, I think we would need to see it in the crude volumes first. But a lot of this production and quota system is really determined by the government. And in previous periods where crack spreads 2 years ago were very, very high, they didn't export. So it's a tough one for us to kind of predict. Operator: The next question comes from Liam Burke with B. Riley FBR. Liam Burke: You've been very clear about the benefits of deleveraging and your plans to do so and the reasons why. But where do buybacks come into the capital allocation equation as we move forward here? Robert Bugbee: I don't think we'd ever say when the buybacks come into the equation. We have the ability to act whenever we want to. And we're not going to wave a flag and say, "hey, guys, this is when we're going to buy back. And let me remind you, we're $2 away for that or we're $100 million of cash away from that. That's not material. I think we'll pass on that question, if you don't mind. Liam Burke: Okay. That's fair. And then as we go into the stronger period, sometime we have 30 tankers trading clean. Is that going to be just part of the everyday business? Or do you anticipate strength in the crude market to keep those -- that part of the fleet dirty? Robert Bugbee: Lars? Lars Nielsen: Yes, the short answer to that, Liam, is yes. We anticipate that. It's quite expensive for a VLCC to clean up to trade clean. The last time we saw that was, of course, when the LR2 market suddenly spiked to about $8 million for an AG West run and the VLCC market was languishing at around $20,000 a day, where the spread was so wide that it was beneficial for a VLCC owner to clean up. That margin certainly has flipped. There is no VLCC owner or Aframax owner that's going to go and think about cleaning up at this point in time. It certainly is going to be the other way around. And we will start seeing, as I said earlier, probably a number of more ships going into the dirty market, further restricting supply on LR2s. Operator: The last question comes from [ Jonas Shum ] with Clarkson. Unknown Analyst: So looking at the broader shipping space, there's been quite a bit of deleveraging across most segments, I would say. But you have been really kind of leading the way. You've been cutting net debt from around $3 billion in 2021 to less than $300 million today. And if you include the transactions that are set to close, I guess, this quarter, it looks like you could kind of be in a net cash position already by this year's end. And at the same time, you also have kind of a relatively young fleet compared to the sector average. So my question, as you now reach this kind of very conservative leverage profile with still a young fleet, is there any kind of limit to how low leverage you would like leverage to go? And -- and I guess that is also kind of related to Omar's first question. How should we think about kind of your considerations around fleet renewal versus growth and the shareholder returns? How will you balance this going forward? Robert Bugbee: I think that -- I think, first of all, to sort of echo what I said to -- first, by the way, thank you very much for your credit report. It was -- we thought it was very constructive and very well done. So, I'd like to echo what I said to Omar earlier that or somebody earlier that I think people underestimate the value of optionality and a strong balance sheet, an increasingly strong balance sheet provides great optionality in different circumstances. You can always buy ships. You can always buy stock. But sometimes people very rarely as the public side of the shipping industry had the ability to take opportunities of geopolitical crisis, almost never. And many times, those crisis themselves have resulted in bankruptcy of public shipping companies or severe stress. And right now, we have indicated over and over again that we consider that there is a high degree of geopolitical and economic uncertainty out there. Only yesterday, I mean, the Fed itself in the United States doesn't know whether it's coming or going. It goes from, oh, we're going to have 2 more interest cuts before the end of the first quarter to, well, we have to warn you, we may not even have one in December. And they can't -- they're still trying to balance between inflation and potential recession. And that's not to mention all the other things in the world that are worrying and you've got countries in Europe and a lot of crises. We are extremely confident in the actual product market itself. And we are uncertain in the geopolitical position. So at this particular point, theoretically, there isn't much of a limit at the moment. You could just pile on cash every single day. There's no urgency to buy stock. There's no requirement to as you pointed out to buy other assets. But you have the ability to do both depending on what situations there are and how your whole view looks at the moment. There's no rush. I mean it's not the bad. We've only just achieved this position that's pretty special. So, I don't think there's any -- I don't think I've ever seen a public shipping company that's had too much cash. I really haven't. Unknown Analyst: That's a good point. Yes. And then in terms of -- just more of a housekeeping question, I guess. You have agreed with your banks to prepay $155 million of debt. Is that -- could you kind of break that down in the different facilities? And how much will then be available for free liquidity? Chris Avella: Sure. I'm happy to do that in terms of the facilities. It's -- we have our $94 million credit facility, that's $19 million, our $1 billion credit facility, that's $92 million, our $117 million credit facility, that's $34 million and our $49 million credit facility, that's $9 million. Of that amount, $7 million is going to be revolving. So, it will be paid into part of the revolving facilities. The rest is term debt that we cannot redraw. I hope that answers your question? Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Emanuele Lauro for any closing remarks. Emanuele Lauro: Thank you. I don't have any closing remarks apart from thanking everybody for the time dedicated to us today and look forward to catching up soon. Thanks very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.
Operator: Good afternoon. My name is Diego, and I will be your conference operator today. At this time, I would like to welcome everyone to The Southern Company Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the call over to Greg MacLeod, Director, Investor Relations. Thank you. Please go ahead, sir. Greg MacLeod: Thanks, Diego. Good afternoon, and welcome to The Southern Company's Third quarter 2025 earnings call. Joining me today are Chris Womack, Chairman, President and Chief Executive Officer of Southern Company; and David Poroch, Chief Financial Officer. Let me remind you that we will make forward-looking statements today in addition to providing historical information. Various important factors could cause actual results to differ materially from those indicated in the forward-looking statements, including those discussed in our Form 10-K, Form 10-Qs and subsequent securities filings. In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning as well as the slides for this conference call, which are both available on our Investor Relations website at investor.southerncompany.com. At this time, I'll turn the call over to Chris. Christopher Womack: Thank you, Greg, and good afternoon to everyone, and we thank you for joining us for today's update. Southern Company continues to perform exceptionally well. As you can see from the materials that we released this morning, we reported strong adjusted earnings results for the third quarter, meaningfully above the estimate provided last quarter, and we expect to deliver on our financial objectives for 2025. And I have to say Southern Company has an incredibly bright future ahead. Our state-regulated electric and gas utilities continue to provide long-term value to the more than 9 million customers across the Southeast and beyond with reliable and affordable energy. The vertically integrated markets in which our electric utilities operate continue to provide transparent and orderly processes and have consistently supported our ability to meet the needs of our growing economies and electric demand while providing premier reliability and resilient service day in and day out. We've done all of this while keeping customers' rates more than 10% below the national average. Further, the rate plan extension at Georgia Power, which freezes base rates until at least 2029, excluding the recovery of storm-related costs, is a testament to the benefits of a constructive regulatory framework and our focus on balancing growth and affordability. Customers continue to be at the center of everything we do. Our focus on the customer underpins our disciplined approach to forecasting, pricing, contracting and deploying resources to serve this once-in-a-generation growth opportunity. And we continue to execute on those plans for the benefits of all of our customers. Over the last 2 months, we have 4 contracts with large load customers across Georgia and Alabama, representing over 2 gigawatts of demand. Consistent with our approach across Southern Company, these contracts include pricing and terms that are designed to pay for the incremental cost to serve new customer demand while also benefiting and protecting existing customers, helping to ensure growth does not come at the expense of affordability. I will now turn the call over to David to give an update on our financial performance. David Poroch: Thanks, Chris, and good afternoon, everyone. For the third quarter of 2025, our adjusted EPS was $1.60 per share, $0.10 above our estimate and $0.17 higher than the third quarter of 2024. The primary drivers for our performance for the quarter compared to last year were continued investment in our state-regulated utilities, along with strong customer growth and increased customer usage. These positive drivers were partially offset by milder than normal year-over-year weather, higher depreciation and amortization and higher interest costs. For the 9 months ended September 30, 2025, our adjusted EPS was $3.76 compared to adjusted earnings of $3.56 for the same period in 2024. Year-to-date, revenue grew at our state-regulated electrics, partially influenced by customer growth and higher usage, which has added $0.12 year-over-year. A complete reconciliation of year-over-year earnings is included in the materials we released this morning. Our adjusted EPS estimate for the fourth quarter is $0.54 per share, which, combined with our year-to-date performance, would represent full year adjusted earnings at the top of our 2025 annual guidance range of $4.30 per share. Turning now to retail electricity sales. Year-to-date weather-normal retail electricity sales were 1.8% higher compared to the first 3 quarters of 2024. Year-over-year weather-normal retail electricity sales, which are on pace for the highest annual increase since 2010, excluding the pandemic, demonstrate growth across all 3 customer classes. In the third quarter alone, the commercial sector grew 3.5% on a weather-normal basis compared to the third quarter of 2024. This growth was driven partially by increased sales to existing and new customers -- and new data centers, which were up 17%. Weather-normal residential sales also showed strong growth and were 2.7% higher than in the third quarter of 2024, bolstered by the addition of roughly 12,000 new electric customers in the quarter, substantially higher than historical trends. Electricity sales to individual customers also demonstrated continued strength, growing 1.5% in the quarter compared to the prior year. Year-to-date, all of our largest industrial customer segments are up year-over-year, including primary metals, paper and transportation segments, which were each up 4% or higher through the first 3 quarters. Economic development activity across our electric service territories remains robust with 22 companies making announcements to either establish or expand operations in our service territories during the third quarter, generating nearly 5,000 potential new jobs and representing expected capital investments totaling approximately $2.8 billion. Clearly, between robust customer growth, increasing customer usage in the commercial and industrial segments and the flourishing economic development activity in our service territories, the economy in the Southeast remains strong and extremely well positioned. Transitioning to our financing, I'd like to take an -- I'd like to give an update on our activities for the quarter, including the progress made addressing our future equity needs. In the third quarter, we issued $4 billion of long-term debt across Alabama Power, Georgia Power, Southern Company Gas and Southern Power. The quality and credit strength of our subsidiaries continues to draw a robust investor interest. Strong demand for our subsidiary securities ultimately translates into lower interest costs, which will provide benefits to customers at our regulated subsidiaries over the long term. With these issuances, combined with what we issued in the first half of the year, we have fully satisfied our long-term debt financing needs for 2025 at each of our subsidiaries. On the equity financing front, we continue to be opportunistic in our proactive approach and have made significant progress on our plans to source equity in a disciplined and credit-supportive manner. This approach reflects our steadfast commitment to credit quality, including our strong investment-grade credit ratings across all 3 major rating agencies. We plan to continue utilizing equity or equity equivalents in support of our path towards 17% FFO to debt within our planning horizon. Recall this long-term credit quality objective is intended to provide cushion to the quantitative credit metric targets provided by the rating agencies. As a reminder, on our July earnings call, we highlighted a cumulative equity need of $9 billion through 2029 to fund our $76 billion capital investment plan in a credit supportive manner. Since our last earnings call, we priced an additional $1.8 billion of equity through forward sales agreements under our at-the-market or ATM program. These forward equity contracts contain final settlement dates that extend through mid-2027 with the ability to call sooner if we choose. This progress and flexibility it provides significantly reduces risk in our financing plans. When considering these ATM forward sales, other hybrid security issuances and past and projected issuances under our internal equity plans, we have solidified over $7 billion of our $9 billion equity need through 2029. We are extremely well positioned to address the remaining amounts in a shareholder-friendly manner. Looking ahead and as we continue to take steps to require strong customer protections and credit provisions, our pipeline of large load data centers and manufacturers continues to be robust. Across our electric subsidiaries, the total pipeline remains more than 50 gigawatts of potential incremental load by mid-2030s. Recall that our disciplined approach to forecasting assumes that only a fraction of this load pipeline materializes. As Chris mentioned earlier, in just the last 2 months, we have 4 contracts across Southern Company system that represent over 2 gigawatts of load. As you can see, projects within our pipeline are maturing into executed contracts, which, along with their associated load ramps over the next several years, solidifies a substantial portion of our total forecasted electric sales growth of 8% annually through 2029, including average annual growth at Georgia Power of 12% through the same period. Across Alabama, Georgia and Mississippi, we now have contracts in place with large load customers, representing 7 gigawatts through 2029, which ultimately ramp to 8 gigawatts in the 2030s, and we are in advanced discussions for several more gigawatts of load. I'll now turn the call back over to Chris for further insights into the progress we are making on our plans. Christopher Womack: Thank you, David. As David noted, we have made great progress with signing new large load contracts. Just last month, as a part of Georgia Power's ongoing RFP certification proceedings, Georgia Power filed an update to its load forecast. This update forecast continues to project the capacity need consistent with the 10 gigawatts of capacity resources being requested, which include 5 natural gas combined cycle units and 11 battery energy storage facilities. These proceedings are scheduled to have a final determination by the commission by the end of this year. Separately, Alabama Power, following approvals from the Alabama Public Service Commission and the Federal Energy Regulatory Commission has completed the acquisition of the 900-megawatt Lindsay Hill natural gas generating facility to serve projected long-term capacity needs in the state. In addition, construction continues on approximately 2.5 gigawatts of new generation in both Georgia and Alabama, which includes 3 natural gas combustion turbines and 7 battery storage facilities, all of which are projected to go online over the next 2 years. Further, the South System 4 expansion at Southern Natural Gas within our Southern Company Gas subsidiary continues to move forward and will provide a valuable resource in serving the projected growth in our service territories. It is clear that we continue to make great progress executing on our plan as we deliver exceptional value to customers and investors. Consistent with our past practice and representative of our continued discipline, we expect to provide a complete update to our long-term plan during our fourth quarter 2025 earnings call this coming February. As always, this update will include refreshes to our 5-year capital investment outlook, sales forecast and financing plans as well as our 2026 and long-term EPS guidance. Consistent with our comments throughout 2025, as a part of that communication, we expect to provide additional clarity on our long-term earnings trajectory, which, as we've highlighted before, could translate into increasing the base from where our long-term EPS growth starts, which could be potentially as early as 2027. We have delivered exceptional operational and solid financial results through the first 3 quarters of the year. Just this week, Southern Company was named to Newsweek's World's Most Trustworthy Companies for 2025 list and was the highest ranked energy company in the United States on that list. Recognized companies were identified in an independent survey, and our inclusion at the top of this list is a testament to the hard work and unwavering commitment of our employees to uphold our values and operate each day at the highest standards of integrity, transparency and accountability. We are honored by this recognition, and I am incredibly proud of our team and the execution across all of our businesses. In conclusion, we're extraordinarily well positioned to finish the year strong. We have the team, we have the experience and the scale to capture and execute on the exciting opportunities in front of us. We really have a bright and exciting future ahead. Operator, we're now ready to take questions. Operator: [Operator Instructions] And our first question comes from Steve Fleishman with Wolfe Research. Steven Fleishman: I have no idea how I got on the list for questions because I didn't ask one, but I appreciate that. I didn't have any questions. Operator: And your next question comes from Carly Davenport with Goldman Sachs. Carly Davenport: Maybe to start just on the kind of load growth outlook in Georgia, I guess, as you continue to lock in contracts under the new tariff structure there, can you talk a little bit about the reception from customers to the new structure and also how you approach the minimum bill components and ensure cost recovery from investments to support that load? David Poroch: Yes. Sure. Carly, thanks. Great question. Like we've talked about, we've moved into a mode working underneath the -- at least the Georgia, working underneath the Georgia Public Service Commission, new rules that came into place in the spring. And what we're finding is customers totally get it. They understand that these are long-term commitments that we are making to deploy resources to serve their needs. And I think these rules have really helped bring the more credit quality, more serious counterparties up to the front of the line. And we've just made great strides in structuring these contracts. And with these contracts, the ones that we've signed now, have brought to the table are great protections for customers and our investors. The minimum bills cover all of our costs, whether or not the meter spins. And once they hit their ramps and they start moving up, it's just very beneficial for the company and for our customers. So we're really happy with the education effort that we've been able to accomplish over the past year. And that's kind of the indicator as to why, to some extent, these contracts have taken a minute to get resolved just because we're taking them along the journey of the structure and the need to be able to protect customers going forward through these contracts. Carly Davenport: Great. Really helpful. And then maybe the follow-up, just on the Georgia regulatory environment, just with the upcoming certifications and potential for incremental needs on the generation side for approval. How are you thinking about potential impacts from the PSC election and those processes as you think about the longer-term plan? Christopher Womack: Yes, Carly, let's start with the election question first. Elections in Georgia for the 2 commission seats, they will be held next Tuesday. We've had a couple of weeks of early voting. I mean one of the things we talk a lot about in all of our states is that we have an incredibly long history of working constructively with whomever is in those seats. And the 5 seats that are occupied in Georgia, they've always brought different views and perspectives. And so we expect that will, in fact, be the same. And so we'll work with whomever is there. And as those positions are filled, I mean, they keep the citizens in mind as well as we keep our customers in mind. So we have a lot of alignment there. So we've always constructively worked with whomever has been elected in those seats. Do you want to add further? David Poroch: And Carly, you asked about status and kind of where we are. Recall that in September, Georgia Power filed an updated load forecast and testimony. And that load forecast, using the same methodologies as several months ago, discounting forecasted load and risk adjusting that, supported the need for the whole 10 gigawatts that we're requesting. And that process is ongoing. So we're going to have staff and other interveners file their testimony in the next couple of weeks, I think. And we're scheduled to get a ruling from the commission, I think it's December 19, latter part of December. But all that should be wrapped up, and we'll see the results before year-end. Operator: Your next question comes from Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Chris, can we talk about the rebasing? You use the same language again about as early as '27. And a lot of folks are very curious to understand what the metrics that you're looking at, whether it's operational or regulatory or just frankly, incremental signed data center deals to get you comfortable to make it more of a firmer time line for that rebasing. Any thoughts that you'd observe here on how you're thinking about that time line? Christopher Womack: Julien, I mean, I think we've said. I mean there's not kind of an exact list. I mean there are a lot of things that we're going to look at to make that decision. I mean how is the economy performing, what's happening with interest rates? I mean where are we with large load contracts? I mean just a number of factors, I think, that has to go into that consideration to give us the confidence and certainty to make that kind of decision. And so I mean, as we said before, I mean, clearly, there's a lot more meat on the bone in terms of where we are and how that decision needs to be made. But yes, I mean, that's something we'll work through, and we'll give you more clarity on that in our February call for next year. Julien Dumoulin-Smith: Awesome. Excellent. And a little bit more of a nitpicky question. The $9 billion of equity you guys talked about here a second ago, in theory, if you were to get this incremental $5 billion, how do you think about that being reflected in that $9 billion? David Poroch: The upside that we discussed in the second quarter call, Julien, you mean? Julien Dumoulin-Smith: Yes. That's all in there, right? David Poroch: No. Actually, the upside to the extent that the Georgia Public Service Commission approves all of our request, we had talked about that being about another $4 billion of incremental capital. And that's likely to be financed kind of in that neighborhood of about 40% equity going forward. So once we get clarity on that, we'll be able to execute on that plan. Julien Dumoulin-Smith: And there's a little rounding out there, right, between the $4 billion and the $5 billion with gas, I think it is, if I understand all the number? David Poroch: You're exactly right, Julien. The $4 billion relates specifically to the remainder at request at the Georgia Public Service Commission. And we've talked about opportunities within our FERC-regulated jurisdictions in the gas infrastructure business, and that's about $1 billion. So you're exactly on point. Operator: Your next question comes from Shar Pourreza with Wells Fargo. Shahriar Pourreza: So just real quick on -- let me just shift gears to Southern Power. I mean, obviously, there is a lot of opportunities there, and you've got existing tolling agreements that start to expire. I guess. I guess, is there -- how do we think about just the assets, the value of the assets, the pricing environment? Have conversations started? And are there opportunities to renegotiate these tolls ahead of the expirations, just given the value of the assets? David Poroch: Yes. So like we've talked about, we've got a very large portion of these contracts under long term -- of these assets under long-term contracts, about 95% or so through 2029. And you're absolutely right. There's -- where those opportunities exist, we're -- toward the end of those contracts, we'll start having some conversations to renegotiate those and renew those where appropriate. And we're looking at a couple of live data points, right, in our -- in the RFP that was recently approved in Georgia. Southern Power on a competitive bid basis won 2 PPAs that go into effect in the early 2030s. And those are repriced about 2 -- almost 3x kind of where they sit today. So assuming that, that market holds, we see great opportunity out in the future as those contracts lay off and then we can renegotiate those and recommit those assets in the future. Shahriar Pourreza: Got it. Okay. Perfect. And then just lastly, just obviously, you guys talked about the amount of gas that's needed in the Southeast. Just around the SNG pipeline expansion, any thoughts on timing there? How are the conversations going with the counterparties? David Poroch: The SNG expansion is going well on track. I think we've talked about that being about a $3 billion investment, 100% dollars. We're a 50% owner of that. And so that project is going as scheduled, and we expect great interest in contracting that capacity. That pipe runs kind of, if you will, through our backyard, and we see that pipe being able to just serve our needs as well as a number of other needs through the -- around the adjoining states. So looking forward to getting that project taken care of. Shahriar Pourreza: Okay. Perfect. And then just lastly, if I could just slip one quick one on the equity question. Chris, there's been obviously some pretty healthy transactions that have been done around partial asset sales. Some of your peers have done it. They have been successful. It's been accretive. But just want to get a sense on have you considered sort of other avenues versus these equity or equity-like instruments and even can some parts of Southern Power be opportunities there? We're just focusing on equity and equity-like. Christopher Womack: Shar, we don't comment on kind of speculative transactions or rumors or kind of these broad questions. We're always looking to see who is the best owner of a given asset. And that's something that we'll always look around corners and make those kinds of decisions. And I think it's a little bit premature. But yes, I mean, that's something that we'll always give deep considerations to. We like our cards. We like the portfolio that we have. But I mean, there's some things we'll always take a look at. Operator: Your next question comes from Anthony Crowdell with Mizuho Securities. Anthony Crowdell: Two easy ones, 2 softballs. You talked about on the fourth quarter call, you're going to give us a capital refresh and, I guess, potentially an update on the EPS CAGR. And I think you mentioned, I don't want to put words in your mouth about maybe talking about the base starting in '27. My question is, do we get -- will we also get 2027 guidance on the fourth quarter call? David Poroch: Anthony, we've been talking about this opportunity for a good little while. And as we've seen this kind of momentum around developing these contracts come to fruition, it is pretty unique. And those contracts that we've talked about are kind of coming into play in the latter part of our planning horizon. So we do expect to be able to share some clarity on that. Like Chris talked about, a lot of things are in the mix. And as we move forward in getting these contracts taken care of, we'll be able to share what that clarity looks like in February. Anthony Crowdell: Great. And then just last question. And I apologize I have the timing wrong. I believe from your last call to this call I believe Moody's put the holding company on a negative outlook. Your equity needs had already announced before. Does that negative outlook or maybe change the view of maybe pulling forward or the timing of that remainder $2 billion of equity? David Poroch: Yes. No. We've got what we believe is a really good path to get towards 17% FFO to debt. And let's remember, the fundamental belief at Southern that a premium equity starts with being a high-quality credit. And so it's important that we're going to retain these ratings that we have. And we'd look to be able to build cushion toward that 16% threshold. That's our downgrade threshold. So our path is getting closer to 17%. And we see these qualitative factors and quantitative factors improving. The executing on the equity issuances is really encouraging, bringing these contracts to fruition is encouraging. And we're just going to continue to be proactive and disciplined in this approach. And we're going to continue to share our progress with the rating agencies to make sure that they're aware of where we're getting -- where we're going towards 17% over the planning horizon. Operator: Your next question comes from Jeremy Tonet with JPMorgan. Jeremy Tonet: Just wanted to -- just one quick question here with regards to nuclear. I think Southern has talked in the past the importance of nuclear development for the future of the country. And we've seen support from the federal government start to move things forward in different parts of the country. Just wondering if there's any specific actions out there, support from the federal government or are there entities that would make expanding Vogtle or pursuing SMR more attractive to Southern? Christopher Womack: First of all, let me say I was incredibly excited about the actions that the administration took with Westinghouse and Cameco and Brookfield in terms of that collaboration. I mean, I think all of those things are very important to bring forth new nuclear in this country. And with this incredibly growing demand, I think it's so important that we take the steps necessary to build new units in this country. And so between the action taken announced yesterday, a couple of days ago as well as the President's executive orders on the regulatory side, all those things, I think, are very important and very instrumental in helping support the development of new nuclear in this country because as you look at bringing these new units on, these units could have 60- to 80-year lives. And so that will take us in -- meet the current future demand, but also demand into the next century. So this is incredibly important to recognize the steps in the leadership role that the government must take to address risk and find ways to help mitigate that risk. So I think it's incredibly important and really excited about the steps that are being taken by this administration. Operator: Your next question comes from Andrew Weisel with Scotiabank. Andrew Weisel: Forgive me, I'm not sure if I heard an answer to that last question. Does all of that federal government activity change your appetite? I appreciate the industry commentary, but what about your appetite? Christopher Womack: Not at this time. Andrew Weisel: Okay. But that wasn't my original question. My original question was on Slide 9, I'm interested. So you showed the demand from large load customers for 2029 and then the mid-30s. What strikes me is it's a fairly small change, only 1 incremental gigawatt is contracted and 1 additional gigawatt of committed. How much of that would you say is the same projects ramping up their demand versus an incremental project or projects coming online between those years? And then to what degree would you say the small increase is conservatism or risk adjusting or however you want to call it? It just seems like a fairly small delta relative to the trends and commentary. David Poroch: Yes. No, I get where you're coming from. What we wanted to try to display in this chart, so I appreciate your question, is that the entire 7 gigs on the 2029 column is included in the 2030 column. And so what we're trying to reflect there is ramp-up, timing and our expectations and projections based on the contracts that we have as well as in the committed section, that's reflective of the conversations that we've been having and the modeling that we've been doing through the negotiations. And so those ramp-ups do take a minute and those are projected to kind of be over about a 5-year period. It's a little different from contract to contract because obviously, these are tailor-made contracts, bilateral negotiations, not necessarily at all a unique large load tariff. And so these are tailor-made and reflect our expectations around the ramp-up. Operator: And your next question comes from David Arcaro with Morgan Stanley. David Arcaro: So looking at the 10 gigawatt large load contracted or committed numbers by 2029, I guess, I was just wondering if there's still a further opportunity to add on more gigawatts there to bring on more large load by the 2029 time frame? Or are you seeing system constraints or limits in terms of absorbing additional data centers in the near term? Christopher Womack: I think the ability to bring on more is out there. I mean so the answer to your question is, yes, there's more capacity, more opportunity. And yes, we are in advanced discussions, in advanced considerations with other large load companies in terms of looking at more possibilities. So yes, there are more upside opportunities for the latter part of this decade. David Arcaro: Yes. Okay. Got it. Got it. And then I was just wondering if you could -- could you characterize just maybe the plan for the next set of RFPs? Just looking forward for future generation needs, what years would those be representing in terms of when they come into service? And then when would you be potentially considering bringing forth those RFPs to take in the bids? David Poroch: Sure. So remember, that '25 IRP stipulation allowed for another all-source RFP to begin as early as 2026. And at the moment, we don't really have any size or parameters. We're just working through that and assessing our needs. We need to get through the processes in place at the moment, and then we'll look to the future. And that could be in the early 2030s, maybe 2032-ish, but we'll have to wait and see how that plays out, and we'll have more clarity next year. But we're really encouraged by the conversations that we've been having and the momentum continues to build, not just in Georgia, but around the service territories. Operator: Your next question comes from Angie Storozynski with Seaport. Agnieszka Storozynski: So my first question about contract-based gas fired new build. So in the past, you guys were saying that you're still waiting to see demand or interest in like fully loaded economics for gas-fired new build for Southern Power. And I'm wondering if we've already achieved that point? Or is it still a waiting period? David Poroch: For recontracting at Southern Power? I just want to make sure I understand the question. Agnieszka Storozynski: No, so like building a brand new combined cycles for a hyperscaler or whoever under a long-term contract by Southern Power meeting your return expectations? If you've already seen offers at levels that you would consider interesting? David Poroch: We continue to evaluate. And recall, I think we talked about it probably several times in the past that Southern Power, we run with a pretty high filter. We have high credit quality counterparties, long term in nature, locking up the capacity, no fuel risk. So as we find those opportunities that fit into that box, we'll definitely pursue them. And at the moment, we're just still evaluating. Agnieszka Storozynski: So the answer is no, you haven't seen them or you're still sort of debating if the terms are attractive? David Poroch: Yes, we're evaluating and having some conversations around that. Agnieszka Storozynski: Okay. And then second thing, and I know you have answered this question a couple of times already on this call about the nuclear new build. But it's -- and we keep hearing, especially from Westinghouse, right, that they are seeing interest in nuclear new build from large regulated utility operators in the U.S. And I know that it could be just preliminary discussions, but I mean, the Southeast seems to come up quite a bit. I mean I'm looking at the map. There are a few options here. So I'm just wondering, is it just, as I said, preliminary discussions? Or is it -- you wouldn't be the first one seemingly given what's happening in South Carolina. But how should we brace for any potential announcements from you? Christopher Womack: Yes. I mean I can't speak for others, but I'll speak for Southern Company. We are not there yet to make an announcement about a new nuclear plant. As we said many times in the past, we want to make sure that all risks are mitigated before we make that kind of decision. I'm excited about all the activity that's occurring around the country with considerations about new nuclear. But until we find a way to get all the risks mitigated, I mean, that's not a decision that we're going to make. But we're going to continue to work with the administration, work with other government agencies to talk about the importance and the role that new nuclear can play in meeting this growing demand. But being perfectly clear, no, we're not in a position to make that decision at this point until we find ways to make sure all risks are mitigated. Operator: Your next question comes from Paul Fremont with Ladenburg Thalmann. Paul Fremont: First question is, I just want to understand the difference between contracted and committed. Is that just an ESA versus an LOA? Or what's the distinction there? David Poroch: Sure. So let's maybe start with the contract. I mean that's a signed agreement, hopefully pretty relatively self-explanatory. We've got a commitment to deliver based on the terms and conditions negotiated and parties have signed off and we're moving forward. The RFS, request for service, that's going through the process that we've described in the past, where you kind of start with an entity looking across the states, maybe they've selected Georgia. We start having conversations with them. We start getting through -- they're going to -- within the state of Georgia, as an example, they're going to pick Georgia Power versus other providers. That takes us to a new level of conversation. More collateral is posted. The process gets more involved. Engineering studies are happening. And so the commitment then is as we're negotiating terms and conditions, pricing, ramp-ups and other needs, that's kind of like your last phase before you're getting into actually signing a contract. So committed is very far down the road, and we're working through Ts and Cs, finalizing engineering studies and on the verge of signing contracts. Paul Fremont: Okay. So that's sort of like finalizing agreements. Can you -- would you be able to characterize then how many gigawatts would be in advanced stage negotiations? I think some of your peers provide that third layer of breakout. David Poroch: Yes. So in that bucket, we're probably in the neighborhood 12-ish gigs. I mean it's fairly dynamic and it's across the system. Paul Fremont: Great. And then sort of last question for me. You are targeting or you're guiding to 8% sales growth. What year would you expect to sort of achieve that level of sales growth? David Poroch: That's in the latter part of the horizon. I think we've talked about 2029 is the target for that, and we grow into that over time. Operator: Your next question comes from Travis Miller with Morningstar. Travis Miller: I'm back. So keeping with the large load popular topic here. If I run through those numbers that you broke out in terms of projects and gigawatts, it looks like average projects somewhere less than 0.5 gigawatt, maybe 300 to 500 megawatts. One, I was wondering if that's kind of a fair assessment of what you're seeing out there? And then, two, what is the extra 50 gigawatts or the next stage look like? We've heard some utilities talking about gigawatt projects, tech companies talking about multiple gigawatt projects. So I wonder if you could characterize the current customers and then the next step? David Poroch: Okay. Yes. Thank you. So yes, I wouldn't do just the straight math. I mean these are wide ranging. We've got some on the 100 megawatts of the scale, and then we've got a couple at the north of 1 gigawatt. And so they are really all over the place. And like we've talked about, I mean, each one of these are tailor-made contracts for their own specific needs. So I'd suggest resisting the simple math. Travis Miller: Okay. That's helpful there. And then the 50 gigawatts or the next stage, 40 or so gigawatts incremental, what are you seeing from those coming into the system requesting... David Poroch: Like, like the whole pipeline. As we've talked about, those are in various stages. And as we build our forecast, we pretty heavily discount all of that through the various layers, if you will, of the contracting process. So yes, 50 gigawatts -- north of 50 gigawatts is the universe in which we're evaluating right now. And we have talked about a small portion of that coming to fruition as a contract. Travis Miller: Okay. But still the same kind of range in terms of actual project, 100 megawatts to north of 1 gigawatts? David Poroch: Yes. Yes, exactly. Travis Miller: Okay. And then do these tend to be greenfield or brownfield? Are they expansions, whether it's manufacturing or data center? Are they expansion projects or greenfield projects typically? David Poroch: Both. Yes, it's really all over the place. I mean we've got industrial customers making announcements that they're expanding their capacity here in our service territories. We've got new businesses relocating or starting up. And then the data centers, some are expanding. I think we mentioned, I think, in our prepared comments that the portfolio of data centers that we're serving today have grown at 17% year-over-year in the quarter. So really excited about what we're seeing in both the portfolio that we're serving today and the process of contracting and the diversity that those customers are bringing to the system. Operator: And that will conclude today's question-and-answer session. Sir, are there any closing remarks? Christopher Womack: Again, let me thank everybody for joining us today on our call. And as we said before, we have a bright future, and we're looking forward to what's ahead. So thank you very much, and have a great day. Operator: Thank you, sir. Ladies and gentlemen, this concludes The Southern Company Third Quarter 2025 Earnings Call. You may now disconnect.
Operator: Welcome to the Third Quarter 2025 Earnings Call. My name is Tina, and I will be your conference operator today. [Operator Instructions] As a reminder, the conference is being recorded. I will now turn the call over to Stephanie Rabe. Stephanie, you may begin. Stephanie Rabe: Thank you, and good morning. Welcome to Ameriprise Financial's Third Quarter Earnings Call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer. Following their remarks, we'd be happy to take your questions. Turning to our earnings presentation materials that are available on our website. On Slide 2, you will see a discussion of forward-looking statements. Specifically during the call, you will hear references to various non-GAAP financial measures, which we believe provide insight into the company's operations. Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today's materials and on our website at www.ir.ameriprise.com. Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events and overall operating plans and performance. These forward-looking statements speak only as of today's date and involve a number of risks and uncertainties. A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in our third quarter 2025 earnings release, our 2024 annual report to shareholders and our 2024 10-K report. We make no obligation to publicly update or revise these forward-looking statements. On Slide 3, you see our GAAP financial results at the top of the page for the third quarter. Below that, you'll see our adjusted operating results, followed by operating results excluding unlocking, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. We completed our annual unlocking in the third quarter. Many of the comments that management makes on today's call will focus on adjusted operating results and adjusted operating results excluding unlocking. And with that, I'll turn it over to Jim. Jim Cracchiolo: Good morning, everyone, and thanks for joining our call. I'll begin with my perspective on the business, and Walter will follow with more detail on our third quarter metrics and financials. As you saw in our release, Ameriprise delivered another strong quarter and generated significant value as we built on our performance from the first half of the year. Regarding the operating environment, clearly, it remains fluid. We've continued to see strong bull markets, but investors still have many variables to navigate. Inflation remains elevated. In terms of interest rates, the Fed announced yesterday that they cut rates by another 0.25 point. Meanwhile, there are signs of softening in the labor market along with lingering questions around tariffs and ongoing geopolitical impacts. And our business continues to demonstrate both its relevance and resilience in that regard. In a dynamic landscape, Ameriprise consistently generates strong results driven by a diversified business and disciplined management. And our third quarter financials, excluding unlocking, reflect this momentum. Assets under management, administration and advisement grew to a new high of $1.7 trillion, up 8% year-over-year. We continue to deliver strong earnings and also generated double-digit EPS growth, up 12%. And our firm-wide margin of 27% is exceptionally strong as we continue to invest significantly in the business. I would also highlight that the Ameriprise ROE is best-in-class year after year and one of the highest in financial services at nearly 53%. In fact, Ameriprise is well-positioned even if the environment becomes more challenging. Our complementary mix of revenue streams, effective expense management and strong margins help enable us to sustain strong financial performance. Regarding the overall business, we're driving nice progress across many areas. Our advisers are leveraging our proven advice value proposition and generating high client value satisfaction and practice growth. Overall, we have continued strong AWM client asset growth, up 11%. Wrap assets were also up nicely, up 14% year-over-year. And our adviser count is up and adviser productivity continues to be very strong, increasing another 10%. And we're back to strong recruiting levels, bringing in 90 experienced advisors in the quarter, one of our best. The Ameriprise value proposition as well as the strength and stability of the firm continue to differentiate us in the recruiting space, and our pipeline in the fourth quarter is strong. Across the business, we're leveraging our investments to further elevate our value proposition and drive long-term economic returns. In September, we launched a new advertising that reinforces our premium brand and helps create strong awareness among our target market. And we continue to invest in advanced capabilities that empower our advisers to further engage clients and deepen relationships. Our digital and AI investments are creating strong experiences and streamlining workflows. In fact, we're seeing record digital adoption from our clients and our mobile app satisfaction hit an all-time high in the quarter. And our Advice Insights is a next-generation capability that uses big data and machine learning to create client-centric insights to drive engagement, save time and support business growth. We're also investing to enhance our comprehensive solution suite, both to broaden our offering and position the business for sustainable growth. Over the summer and into the fall, we've been working closely with advisors to integrate new capabilities. As an example, the launch of our Signature Wealth platform is proving to be quite successful. It's early, but it's already helping advisers attract new assets and manage client portfolios more efficiently and it has great potential. At the bank, we recently launched HELOCs and also began a soft launch of our checking accounts with a full rollout planned for later this year. These solutions add to our suite of savings and lending products, including CDs, mortgages, pledged lending, and credit cards. They also help to enhance our client experience and deepen relationships. We're also growing our AFIG business, partnering with banks and credit unions who can benefit from our sophisticated wealth management solutions and advisor support tailored to institutional clients. And we continue to add new financial institutions and have a strong pipeline into the year-end and 2026. At RPS, performance remains strong, driven by demand for annuities and insurance solutions that align with our clients' financial planning goals. We're seeing solid interest in variable universal life, structured annuities and variable annuities without living benefits, highlighting the relevance of our offering in today's market. We're also pursuing growth in our disability insurance business, including streamlining with an approval process for clients applying for life insurance. In addition, we're using data analytics in our digital insurance underwriting, and I'll reinforce that we built one of the most profitable insurance businesses in the industry. In Asset Management, we continue to make good progress as well as enhancements to the business. Our investment performance remains strong over all time periods. Over 65% of our funds outperformed the medium on an asset-weighted basis for 1-year period, more than 70% for the 3- and 5-year periods, and over 80% for the 10-year. And we maintain a good asset base with assets under management administration up to $714 billion. In addition, net outflows improved across the board from last quarter as redemptions slowed in both retail and institutional, and we had an increase in retail gross sales, particularly in North America. As I shared, we're investing and adding to our solutions in high-demand areas where we differentiate our capabilities. We're also using data and analytics to better target and segment advisers, and we're gaining traction with SMAs and models as well as our alt business and active ETFs in the U.S. In addition, we'll soon be launching our active ETF capability in the U.K. and Europe. Regarding institutional, we also had an improvement in flows in the quarter. Looking forward, we'll continue to manage expenses effectively in Asset Management with the ability to generate good margins and profitability. And that applies across Ameriprise as we continue to drive transformation and operational efficiency. What's clear, our disciplined approach delivers results, and that's evident in our strong margins. And our digital transformation is not only enhancing the client advisor experience, it is also reducing costs and positioning us for sustainable growth. We're also enhancing our global operating platform for asset management. A recent example is the announcement of our expanded partnership with State Street, establishing a unified global back office for many Columbia Threadneedle funds. These initiatives further strengthen profitability and our ability to reinvest in innovation and growth. As you know, we manage the business with rigor and consistency. Ameriprise consistently delivers profitable growth, robust free cash flow and a strong return. In fact, the return on capital remains exceptional, supported by healthy dividends and robust share repurchases. That includes a capital return in the quarter that we increased to $842 million. Our financial strength and stability enables us to reinvest strategically and act opportunistically. We believe that what also sets Ameriprise apart are our relationships and consistent recognition we earn for how we operate. Core to our success is how our clients feel. We consistently earn top client satisfaction, continues to be exceptional 4.9 out of 5, and our advisors are also very engaged in being selected for top awards. In fact, we had 20 Ameriprise advisors on the Barron's Top 100 Independent Financial Advisors list for 2025. Also key, our employee engagement consistently best-in-class across industries as confirmed by our latest internal survey results received in the third quarter. And J.D. Power once again recognized Ameriprise with their outstanding customer service certification for our phone support. for the seventh consecutive year for advisers and the second year for clients, which is tremendous. In addition, Forbes named Ameriprise one of America's Best Companies. Newsweek honored us as one of America's most responsible companies. Fortune listed Ameriprise among America's most innovative companies, and I also highlight that Newsweek recently ranked us as one of America's greatest companies. In closing, I feel very good about Ameriprise and the totality of the firm. Earlier this month, we officially marked 20 years of independence and our listing on the New York Stock Exchange. Over the last 2 decades, Ameriprise has built an exceptional track record for achieving high client satisfaction and industry-leading results guided by our proven strategy and management principles, and that includes generating the #1 total shareholder return within the S&P 500 Financials Index since our spin-off in 2005. As I look ahead, Ameriprise is well positioned and represents attractive value at these levels regardless of market momentum. With that, I'll turn it over to Walter for his perspective, and then we'll take your questions. Walter Berman: Thank you, Jim. Ameriprise delivered another quarter of solid performance, underpinned by exceptional balance sheet strength. Our focus on sustainable profitable growth continues to serve us well in delivering consistently strong financial results and client satisfaction, demonstrated by adjusted operating EPS, excluding unlocking, up 12% to $9.92 with a strong margin of 27% across the firm. Adjusted operating net revenues, excluding unlocking, increased 6% to $4.6 billion, driven by asset growth. Expense discipline remains strong from our ongoing firm-wide transformation initiatives. In the quarter, G&A expenses improved 3%. It was another solid quarter driven by the sustained benefit from the leverage within our integrated business model. Our stable 90% free cash flow generation across our segments, combined with the foundation of strong balance sheet and enterprise risk management capabilities enabled us to increase our capital return to 87% of operating earnings in the quarter. We remain committed to returning capital to shareholders at a differentiated pace and are targeting an 85% payout ratio for the fourth quarter based upon our share price and substantial free cash flow. On Slide 6, you'll see EPS growth of 12%, demonstrating the strength and leverage across our businesses. Assets under management, administration and advisement increased 8% to a record high of $1.7 trillion. We delivered strong firm-wide margins from 6% revenue growth while reducing G&A expenses by 3%. On a full year basis, we are targeting a G&A decline of 3%. We continue to generate a best-in-class return on equity of 53%. Let's turn to Slide 7. Underlying performance metrics in Wealth Management remained strong across all measures. Client assets grew nicely to a record $1.1 trillion with $29 billion of flows over the past year. Wrap assets were up 14% to $650 billion with Wrap flows at $30 billion over the past year. In the quarter, client and Wrap flows were impacted by the departure of two large advisor teams. Excluding those departures, client flows were solid at $6.5 billion and Wrap flows were $8 billion when also adjusted for administrative change. The flows from our legacy adviser and client base have been consistent. In addition, transactional activity levels remain strong, near record levels, reflecting the full scope of our planning model. Cash sweep balances were stable at $27.1 billion compared to $27.4 billion in the prior quarter. We are also seeing strong momentum in our experienced advisor recruiting with 90 advisors joining Ameriprise this quarter. Our value proposition is resonating with advisors, and we remain focused on ensuring our transition packages are attractive to experienced advisors that share our values and commitment to the client experience. And more importantly, advisor productivity grew 10% to a new high of $1.1 million. Let's turn to Wealth Management financial results on Slide 8. Adjusted operating net revenues increased 9% to $3 billion. The core business is performing very well. Our fee-based and transactional revenues were quite strong, increasing in the low-teen percentage range, benefiting from higher client assets and activity levels. Our cash revenues, which include net investment income, distribution fees related to off-balance sheet cash and banking and deposit interest expense were impacted by the Fed funds rate reduction over the past year and declined in the mid-single-digit range, as you would expect. Adjusted operating expenses in the quarter increased 10%. In the quarter, distribution expenses increased 11%. I would note that advisor compensation within distribution expenses increased in line with the revenues advisors generate. G&A expenses increased 5% to $439 million in the quarter, primarily driven by volume and growth-related expenses, including investments in Signature Wealth and banking products. Expenses remained well-managed for the full year. We continue to expect low to mid-single-digit growth in G&A. Pretax adjusted operating earnings increased 7% to $881 million. We saw continued strong contributions from both core and cash earnings in the quarter. Our core earnings grew in the high-teen percentage range, benefiting from higher asset levels strong transactional activity and well-controlled G&A. The strong level of core earnings that we generated is unique and demonstrates our focus on profitable growth. Cash earnings had a mid-single-digit percentage decline as expected from rates. Our strategy of leveraging Ameriprise Bank has been important in minimizing the impact from Fed funds effective rate reductions on our AWM business. In fact, net investment income in the bank was flat this quarter. We continue to take actions to build the bank investment portfolio in a way that supports stable earnings contributions going forward. The overall bank portfolio has a yield of 4.6% with a 3.7-year duration. In the quarter, new purchases at the bank were nearly $700 million at a yield of 5.3% with a 4.4-year duration. Last, our margins remain excellent at 29.5%. Turning to Asset Management on Slide 9. Financial results were solid in the quarter. Operating earnings increased 6% to $260 million. The strong quarter reflected equity market appreciation and the positive impact from expense management actions, partially offset by the impact of net outflows. Total assets under management and advisement increased to $714 billion, up both year-over-year and sequentially from higher ending market levels. Net outflows significantly improved on a sequential basis to $3.4 billion, with improvement in both retail and institutional. Retail flows benefited from higher gross sales, which included a nice win in model delivery. Institutional flows benefited primarily from lower redemptions in both the U.S. and EMEA. Revenues increased 3% to $906 million with a stable fee rate at 46 basis points. G&A expenses increased 1%. For the full year, we expect mid-single-digit G&A expense decline, excluding performance fees. Margin reached 42% in the quarter, which is above our target range, driven by favorable markets and continued expense discipline. Let's turn to Slide 10. Retirement & Protection Solutions continued to deliver strong earnings and free cash flow generation, reflecting the higher quality of the businesses that was built over a long period of time. Pretax adjusted operating earnings, excluding unlocking in the quarter were $200 million, in line with our expectations. The strong and consistent performance of the business reflects the benefit from strong interest earnings and higher equity markets. Overall, Retirement and Protection Solutions sales were solid at $1.4 billion with a continued demand for structured variable annuities. These high-quality books of business continue to generate strong free cash flow with excellent risk-adjusted returns and continue to be an important contributor to the diversified business model. The company completed its annual actuarial assumption update in the quarter, which resulted in an unfavorable after-tax impact of $5 million. In Retirement & Protection Solutions, there was a favorable insurance model change, which was partially offset by unfavorable changes to variable annuity surrender and utilization assumptions. In long-term care, there was an immaterial impact from changes to morbidity and mortality assumptions. Overall, LTC policyholder behavior is in line with expectations. Before we move to the balance sheet, I'd like to take a moment to address the Corporate segment. The pretax operating loss, excluding unlocking, was $93 million, which was a significant improvement from a year ago due to lower severance and cloud migration expense as well as favorable share-based compensation expense. Turning to balance sheet on Slide 11. Balance sheet fundamentals and free cash flow generation remains strong. We have an excellent excess capital position of $2.2 billion. We have $2.5 billion of available liquidity, and our investment portfolio is diversified and high quality. We have a diversified source of dividends from all our businesses enabled by strong underlying fundamentals. This supports our ability to consistently return capital to shareholders and invest for future business growth. Ameriprise's consistent capital return strategy is a key element of our ability to consistently generate strong long-term shareholder value. In summary, on Slide 12, Ameriprise delivered solid results in the third quarter, which is a continuation of our long track record navigating various market environments over the longer term. Over the last 12 months, revenues grew 7%, adjusted EPS increased 12%, return on equity grew 210 basis points, and we returned $3.1 billion of capital to shareholders. We had similar growth trends over the past 5 years with 9% compounded annual revenue growth, 18% compounded annual EPS growth, return on equity improving 17 percentage points, and we returned $13 billion of capital to shareholders. These trends are consistent over the long term as well. This differentiated performance across multiple cycles speaks to the complementary nature of our business mix as well as our consistent focus on profitable growth and maintaining our strong values as a company. With that, we'll take your questions. Operator: [Operator Instructions] And our first question comes from the line of Suneet Kamath with Jefferies. Suneet Kamath: First question on AWM. Can you comment on the Comerica relationship given the M&A that we saw recently and maybe remind us of what the assets under management or account values are with respect to that relationship? Jim Cracchiolo: Sure, I can comment on the first part. I'll ask Walter on the asset level. First of all, we have an excellent relationship with Comerica since we have done the arrangement and put them on our platform and capability, working with their advisors and their clients. We have gotten very strong favorable reviews from Comerica themselves, from their executives, from their wealth management group and their advisors. They love the platform, the capabilities, the tools, et cetera. So we feel very good about that relationship. We know an acquisition has occurred. We'll be working with them as they decide how they want to proceed. And we feel very comfortable with the arrangement we had in place with them. and the contract and agreements. So it's more of a stay tuned as I guess they're going through their own decisions on what they need to do or look at. But we have great capability to support them. Walter Berman: Suneet, on the asset side, it's around $15 billion. And like in any contract of this nature, there is protections. Suneet Kamath: Okay. And then in your prepared comments, you called out two practices that have left that were pretty sizable. Can you maybe just unpack what happened there? And is this an indication that the recruiting environment is just getting incrementally more competitive? Jim Cracchiolo: Well, as we had mentioned the previous quarter, you're always going to have some one-offs. Some other firms have similar things over the last few quarters. These two practices went RIA. And listen, there are checks being given out and other things. But overall, it's fine for them. We've recruited very strongly. We have 90 people joining us. Our pipeline is quite good. Our underlying organic business is very solid. Our advisor satisfaction is very strong. But you're always going to have some one-offs, as we mentioned. But we look at the totality of what we're doing and how we're doing it. Environments will change. There's always a price to pay. We feel very good about our position. Operator: Your next question comes from the line of Wilma Burdis with Raymond James. Wilma Jackson Burdis: Given your excellent track record of managing the wealth business, and I know you just touched on this a little bit, but you've seen a little bit lower flow activity this year. Is that an indicator that just maybe the market is a little bit too hot or pricing is a little bit irrational? Maybe just comment a little bit on that. Jim Cracchiolo: I think it's a combination of those things. I would probably say that as we look at the underlying of our client base and activity, it's still quite good. People have done a lot of rebalancing and allocations. Transactions are quite strong. The balances of the book are very good. The clients are highly engaged. But again, the market has gone up pretty substantially. There is money on the sidelines. Our cash balances are very high. So there is a bit of that going on. And then there's a bit of exactly what you said on the environment on recruiting and what's happening in that regard. I think there has to be -- over time, there will be rational. We've always played in more of a balanced equation, which is good for us long term, for our advisors long term, for clients long term, and that's how we approach things. Wilma Jackson Burdis: I guess kind of a follow-up, and you mentioned the high cash balances, but some of these advisor roll-up operations, they seem potentially a little bit overlevered, maybe they're getting a little bit aggressive. Do you see that as something that could present an opportunity in the future? Jim Cracchiolo: The answer to that is absolutely yes. People forget that you go through downturns and changes in the market. I've been in the industry many years, over many decades, many years ago. So I do understand that, and I don't think people do. That's why we have really good sound fundamentals, strong margins. We invest for the long term. Our capabilities are strong. Our client satisfaction is excellent. We have a strong branded premium value proposition in the marketplace. So those are all the things that I think are really important as you go through these events where things always look rosy until they're not. Operator: Our next question comes from the line of Brennan Hawken with Bank of Montreal. David Giunta: David Giunta on behalf of Brennan Hawken. I just wanted to do a quick follow-up on the net new asset side. On top of the two teams that you mentioned were leaving, you also stated that there were some administrative changes. Could you just dive into a little bit of what those are? Also on top of that, the advisor headcount was 10,427 at year-end 2024. Could you just give an update on where that number stands today? Appreciate it. Jim Cracchiolo: Yes. As far as the adjustment, we went through all of our Wrap programs and set up things consistently. Certain clients, we had adjusted out of the various programs. Some of that will come back in and make changes. So we feel very good. It's a onetime sort of an adjustment as we adjusted how we looked at each program and the arrangements we had, and it made sense for both us and the client. In regard to the business overall for Wrap, I think it will be quite strong and et cetera. Also from an adviser count, it is up nicely year-over-year. We stopped giving numbers, so I'm not going to give that, but there was no change in sort of what you were in sort of our normal way of looking at that advisor growth over the years. So it's still consistent with that. David Giunta: Great. And then I just had one quick follow-up. Do you expect the risk from the regional bank M&A to limit deals in the bank channel? Does any of this uncertainty provide maybe an opportunity? Jim Cracchiolo: I think you see some recent mergers in the bank as they feel the regulatory environment has eased a bit. So I think some of that regional activity will continue from our perspective. Yes, that always presents certain adjustments out in the marketplace. We, from our own banking, we look at it as more of growing that as an organic wealth management business that we have to our clients. So we're not looking to get into the banking business in a further light at this point in time. Operator: Our next question comes from the line of Jeffrey Schmitt with William Blair. Jeffrey Schmitt: In Asset Management, could you discuss some of the expense actions you've taken there over the last year or 2? And when do you expect those initiatives to be complete? Jim Cracchiolo: So we did a more comprehensive review of our operating environment globally. We've made a number of adjustments over the last 2 years that streamlined their operations, particularly after our integration of the BMO acquisition 2 years ago. And with that, put them on consistent platforms, systems, technology, trading and also in addition to that, looked at geographically where we're located for certain services we perform so that we got real scale out of that and right demographics that would give us some efficiency and lower price cost. We are completing that transformation with now the back office, as we mentioned, with our arrangement with State Street. So we'll be in a really great position to really operate on a more scaled basis as we move forward. A lot of that change has been already completed. The last one is what we're doing with the back office. And so those savings are being baked in as you see. So the expenses have gone down in the G&A. And we've been investing now in new products and capabilities and AI to support the asset management business. Jeffrey Schmitt: Okay. And is there any guidance you could provide on how to think about crediting rates coming down for both the bank and certificates as the Fed cuts rates? Jim Cracchiolo: Well, of course, those will be adjusted in light of the environment. Same thing with CDs as you're investing at different levels, you would adjust the rates that you provide from a client. Walter, do you have any more? Walter Berman: Obviously, in the service business, which is a spread business, we will manage that as rates come down. And certainly, we're investing at higher levels. And as the rates come down, we'll credit less. So that will be a positive. And as it relates to sweep counts, I think we've adjusted like the industry has. So there's not much room in that. So -- and our core investments are now longer dated as to because of the way we reposition the portfolio will be less impacted by the drop in interest rates. Jim Cracchiolo: And the reason we really developed the bank and part of that is so that we can maintain that spread as interest rates do decline at the same time of giving us -- get a greater engagement with the client for giving them favorable treatment with the banking products that we can offer. So for us, it was -- it's a good capability, but also ensures a bit more of our spread revenue continuing. Operator: Our next question comes from the line of Steven Chubak with Wolfe Research. Steven Chubak: So maybe to start just on the investment philosophy. So looking at the last 2 quarters, despite strong top and bottom line results, helped in large part by good expense discipline, the core brokerage KPIs, including NNA and sweep cash have lagged peers. And I was hoping you could speak to some of the factors that are driving the softer organic growth. But bigger picture, your willingness to lean more heavily into investing to maybe help reaccelerate growth, which admittedly could eat into margins as well. Jim Cracchiolo: Yes. So listen, I can't speak to who you're referencing competitors. I know there's been a lot of roll-ups and acquisitions and paying up to bring advisors in at, what I would say, top dollar. So maybe that's part of their incremental growth that they're doing. We look at it as bringing good people on that have quality books that will generate good value for them and us based on what we can provide to them as well as what we look to have associated with us. From a core perspective, I think we've been very consistent. Our flow rate around the industry. You can't look at just 1 quarter, but over the course of a year, 2 years, 3 years, our flow rate has been very good and consistent out there and very competitive in that regard. From an investment perspective, we're making quite strong investments in our capabilities, in technology, in solution sets. And I would compare us to having one of the best platforms out there and leading in many areas. So I feel very good about that, and those investments will continue. As far as recruiting investments, we've upped our packages a bit in this competitive frame, but still for us, very rational and appropriate for long-term profitability. And we always will look at the environment and make adjustments, but we always look at not just in the short term, but the longer term, and that's where maybe people are getting a bit overlevered. Walter Berman: On the cash, certainly, from our standpoint, it's stable, and we do see it growing in its normal pattern in the fourth quarter. So we feel quite comfortable with that. Steven Chubak: So Walter, maybe unpacking that a little bit further, just given the sweep cash trends in 3Q, you didn't see the uptick that we saw at some of your peers. I was hoping you could speak to what you saw in terms of cash behavior following the September rate cut since that was the month where it appears most of your peers did see an uptick. And just in anticipation of additional cuts, how are you thinking about the pace of sweep cash growth looking ahead to next year? Walter Berman: Well, we saw a pattern when the cuts, it really didn't deviate that much from that standpoint. And -- but with the cuts that we anticipate in this fourth quarter, we will see an increase like we normally will. So we don't really anticipate the cuts will have an impact on the rates -- the volume in sweep. And we certainly -- as we indicated, we've already planned for with lowering the amount of cash exposure we have on the short-term to ensure that we actually have the profitability sustained throughout AWM. So we feel comfortable with the balances and certainly with the positioning of our investments and the duration of it. So not concerned. Operator: Your next question comes from the line of Alex Blostein with Goldman Sachs. Alexander Blostein: Just building on some of the questions around cash revenues really related to the bank. If we look at the bank's average earning assets and really zoning in the securities portfolio, I think the earning yield there is running at around 5%, maybe high 4s. So maybe just kind of help us think about the reinvestment yields you expect on that book as that rolls off over the next couple of quarters, couple of years relative to that installed base of kind of 4.5% to 5% and the implications that will have on the NIM at the bank. Walter Berman: So as we indicated, we anticipate with the roll-offs and certain maturities that we see coming that we'll be reinvesting in the high 4s, low 5s. So we will be able to maintain our net interest income at the bank from that standpoint. And we feel quite comfortable about that as we go for the next -- certainly, I would say, 3 quarters. Beyond that, it becomes a little more difficult depending on where the Fed goes with and where the long-term rates go. But we certainly plan for this, and we feel comfortable with that strategy. Alexander Blostein: Right. Understood. Okay. And then when it comes to the certs business, certificates business, those balances have been coming down now for several quarters, which makes sense, I guess, given how elevated they've been running at. So now we're sitting, I think, at around $9 billion. Just looking back, where do you guys expect these balances to ultimately stabilize? And how would you frame that level? Walter Berman: It will -- I think directionally, it will come down certainly as we manage our spread for that. But it gets to a set level and it won't deviate that much, but it depends on the movement in the rates. But it follows a pattern strictly based on the spread and then the money gets recirculated. So that's -- I wouldn't see a precipitous drop coming off. Alexander Blostein: Yes. I guess like before the dynamic in 2023, the balances used to run at like a $5 billion, $6 billion range. Is that sort of where you expect it to sort of normalize? Walter Berman: I would -- let me just say, I think it's certainly that is a range where it is normal where it gets to when you start managing it, but I don't know if it's going to drop that precipitously at this stage. But certainly, that will be the bottom, in my opinion. Operator: Our next question comes from the line of John Barnidge with Piper Sandler. John Barnidge: Others with asset management businesses in life insurance have gone out and partnered with other asset managers, which is actually rather unique for new product creation of interval or evergreen funds. Is this something under consideration or that needs to happen for Ameriprise? Jim Cracchiolo: There's a number of different arrangements. I mean, not a lot has come to market for some of the stuff that has been out there. So we'll see what actually takes hold. We are looking at various arrangements ourselves. We just -- we launched our own Interval fund that's in the marketplace that we brought out. There's other things that we're working on in the alternative space. Some will be with partners, some will be organic for us. But yes, that will be an opportunity that we're looking at. John Barnidge: My question is about AWM and the competitive environment. There's been a deceleration in inflows since the $11.1 billion high watermark in the fourth quarter. Are you outflowing more from -- on a net basis from teams leaving than you're adding? Or is there a way to dimension how much of that has been an impact to you this year? Jim Cracchiolo: Yes. So what I would say there is in the past, we were more inflow than outflow there. As we said, when you lose a large team or 2, et cetera, in the short term, then your outflow becomes a bit more than your inflow, and that's exactly what has occurred, but now our pipeline is strong, et cetera. As an example, we just brought in someone with $1.7 billion coming in. So that's sort of what is occurring. But overall, we've been in a good state there, but you do have a little bit in a quarter-to-quarter basis that does occur. But our organic under that is what we really rely on and focus on. That's really what we work with our advisors to increase their productivity and what they do. People don't really concentrate in this market environment. They look at the top line and momentum. We look at -- so look at the margins, look at the core business, look at the client satisfaction, look at what you see as a consistent basis over time. People move away a little more from fundamentals, but that's really what's important over the long-term and even the medium and short-term when you -- but people right now are so much focused on some of the near term of what they see in the top. We look at -- we look through that to look at what that provides us longer term and what's good for the client and the advisor. And that's how we invest. Operator: Our next question comes from the line of Tom Gallagher with Evercore ISI. Thomas Gallagher: Just a follow-up on the two large advisor teams that left. Will that have any tail to it? Meaning would you expect continued outflows for the next few quarters related to that? Or would you expect Wrap flows to bounce back closer to $8 billion in 4Q? Walter Berman: Okay. So as it relates to advisor, we'll have some carryover into the fourth quarter. As it relates to what we're seeing on our -- basically our attrition patterns now, no, it's actually stable, and we feel comfortable from that standpoint, as Jim has indicated. Thomas Gallagher: Got you. And then I guess just a follow-up on this more broadly, guys. The -- you think -- and Jim, I think you referenced you're upping some of your packages for new recruits, just that's the reality of the market. What about payouts on existing advisers? Have you kind of reexamined or examined your payout grid? And do you think you need to make any tweaks to payouts on your advisors more broadly in order to make sure that during a more competitive market that your retention holds in? Jim Cracchiolo: Yes. We will look and have always looked at that in a bid on a balanced equation and what we provide the advisors and the support we give in combination with payout and those things that we've invested heavily to help them grow and support them. So it's all in a balanced equation. Thomas Gallagher: Okay. But no broad-based changes or anything like that, that you're considering? Jim Cracchiolo: I'm not at the point to talk about anything like that because we're in a good position right now of how we're thinking, but we always make adjustments periodically, and that's what we'll continue to do. Operator: Our next question comes from the line of Kenneth Lee with RBC. Kenneth Lee: One on asset management. It looks like there's some benefit from operating leverage that you saw in the quarter. Wonder if you could just talk a little bit more about any sorts of variable expenses that could increase as markets or AUM grow over time? And relatedly, any updated margin outlook with that business? Walter Berman: Well, as far as the expenses, you have the normal volume-related variable expenses. And certainly, from that standpoint, we've managed that well. And we feel comfortable with our transformation management of that. So that will still continue. And so on the expense side, it will be strictly volume-driven type of expenses that you would have in a normal course of increasing your activity. Kenneth Lee: Got you. Very helpful there. And just one follow-up, if I may, just piggyback on the previous question there within AWM. Sounds like the distribution expense ratio outlook most likely would remain within that previous range you had articulated, that 66%, 67% range. But just want to make sure that, that's still the case? Walter Berman: That is the case. Operator: Your final question comes from the line of Ryan Krueger with KBW. Ryan Krueger: On the client cash within the wealth management platform that is in non-Ameriprise products, have you started to see any movement there as the Fed is starting to get another cutting cycle? Or has it remained pretty stable so far? Walter Berman: No, the cash has remained stable. That's what I was indicating before. Jim Cracchiolo: Yes. I mean, it was -- you got a quarter cut last time and a quarter cut now. So I don't think there will be a fundamental change from that. Ryan Krueger: Okay. Just to clarify, I wasn't referring to the cash on Ameriprise's... Jim Cracchiolo: No, no, I know you're talking about... Ryan Krueger: The third-party product. Jim Cracchiolo: Yes, the third party and money markets, et cetera. You're still as now probably 3.25 or something -- so it's not a move fundamentally. I think as people start to rethink based on markets and fixed income, et cetera, they'll start making adjustments. But right now, I think it's still been pretty stable that way. Ryan Krueger: Okay. Got it. And then just any update on the Signature Wealth rollout and how that's been going so far? I know it's probably early stages. Jim Cracchiolo: Yes. It's very early, but it's going very well. We're getting the advisor to really look at that platform and understand what they do and take the training for it. And people who have opened accounts really like it and are starting to move. We're getting both new assets as well as conversion of some assets from other of their Wrap programs over it. And so those things, as you roll them out, they're very substantial for them. And -- but I think it will be a great platform. So far, the flows into it is probably one of our best launches. So -- but it's early stages. We think it has a good opportunity. Operator: We have one final question from the line of [indiscernible] with Bank of America. Unknown Analyst: My first one is on the Asset Management business. It was kind of like nice to see the deceleration in growth redemptions on the institutional side year-to-date and like gross sales kind of like have been stable, around like $9 billion to $10 billion. I was wondering if you could kind of like maybe unpack for us, some of the deceleration in the outflows. Is that mostly from Lionstone? And are there any kind of like remaining assets that will be onboarded -- off-boarded, sorry, relating to Lionstone in the fourth quarter? Walter Berman: No. Lionstone is still [indiscernible], but the majority of it has been outflow at this stage is maybe $0.5 billion left. Unknown Analyst: Got it. And then my final question is on the wealth side. So you guys called out that there are some -- I guess, like last quarter, you said some irrational bids out there for advisors. I was wondering if you could maybe -- is it safe to assume that in light of the disruption in M&A consolidation in the environment, that this level will persist over the next, call it, 6 to 12 months? Jim Cracchiolo: Listen, I can't -- I think you'd probably have to speak to others on that. From my perspective, I know people look at the favorable markets and spread revenue right now and the way the equity markets continue to go up. And so maybe they bake that into all their rationalization. But if that changes a bit, I think you'll see a little different environment for that type of arrangement. Operator: We have no further questions at this time. This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Welcome to Timbercreek Financial's Third Quarter Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the meeting over to Blair Tamblyn. Please go ahead. Robert Tamblyn: Thank you, operator. Good afternoon, everyone. Thanks for joining us to discuss the third quarter financial results today. I'm joined as usual by Scott Rowland, CIO, Tracy Johnston, CFO; and Geoff McTait, Head of Canadian Originations and Global Syndications. With respect to portfolio growth, which we've been communicating on regularly, we're up by approximately $50 million year-to-date with an expectation that will increase by year-end. Looking at Q3 specifically, transaction activity, while solid, was mildly behind our expected pace as the residual effects of the macro uncertainty we discussed in recent quarters continues to play out. As Geoff will elaborate on, we are pleased with the pipeline in general, although a few material commitments expected to fund in Q3 did push into Q4. Combined with the large unexpected repayment that's brought the overall portfolio down modestly from Q2. The Q3 spillover volume in conjunction with strong Q4 commitments and additional pipeline volume should still generate the portfolio growth we anticipated for the full year and result in higher revenue. To put a finer point on this, we've had more than $200 million of funded and committed deals so far in Q4. Our overall optimism continues to reflect improved market conditions as recalibrated commercial real estate valuations and a reduced interest rate environment have set the foundation for a new real estate cycle. In short, the conditions are favorable for a period of sustained strong transaction activity. We upsized the credit facility with this outlook in mind. Given these factors, the third quarter financial performance was mixed. Net investment income was steady at $25.4 million. DI was modestly below last quarter at $0.17 per share, partly reflecting the constraints on new investment activity in the quarter, as mentioned. This drove a higher payout ratio in this quarter. As we've said before, the payout ratio will move around during the year and then settle in our targeted range for the full year. We expect to deliver full year results in this range based on a higher activity levels in Q4. Lastly, we continue to demonstrate progress with the remaining stage loans as we return this balance back to historical levels. On the remaining stage loans, the revaluation of 2 investments drove a higher ECL in this quarter, which lowered our reporting earnings in the period. Scott will expand on this in his remarks. In summary, I would reiterate our confidence in the continued ability to deliver stable monthly income through a conservative strategy grounded in income-producing assets. Our core objective is to deliver strong risk-adjusted returns primarily comprised of distributions for our investors, the goal we've consistently met over the long term. One key indicator of this performance is our 10-year IRR, which today stands around 7.8%. This track record reflects our disciplined approach and ability to navigate evolving market dynamics. I will now ask Scott to cover the portfolio review. Scott? Scott Rowland: Thanks, Blair, and good afternoon. I'll quickly cover the portfolio metrics and provide a brief update on key developments with the stage loans, and Geoff will comment on the originations activity and lending environment. Looking at portfolio KPIs. Most were consistent with recent periods and historical performance. At quarter end, 82% of our investments were in cash flowing properties. Multi-residential real estate assets continue to comprise the largest portion of the portfolio at roughly 57%. First mortgages represented 94% of the portfolio. The weighted average LTV for Q3 was 67.9%, which is up a bit from recent quarters. We've previously communicated that we expect LTV to tick higher in 2025 as we lean into the market with reset asset valuations, and we are seeing that. We continue to be very comfortable in this range in this economic environment. The portfolio's weighted average interest rate was 8.3% in Q3 versus 8.6% in Q2 and 9.3% in Q3 last year. The decrease reflects the Bank of Canada's policy rate cuts bringing the WAIR closer to a long-term average of roughly 8%. The rates coming down, we're seeing a corresponding decrease in interest expense on the credit facility, supporting a healthy net interest margin. The portfolio WAIR is also protected by the high percentage of floating rate loans with rate floors above 85% of the portfolio at quarter end. Roughly 93% of the loans with floors are currently at their rate floors. In terms of asset allocation by region, there were no major shifts to highlight with approximately 92% of the capital invested in Ontario, B.C., Quebec and Alberta and focused on urban markets. From an asset management perspective, we resolved close to $19 million in Stage 2 loans since our last earnings call. More recently, we provided an update on the Stephen Avenue Place office asset in Calgary. As we disclosed, we applied for the court appointment of a receiver on behalf of the syndicate of secured creditors. Following the termination of forbearance period with the borrower. This is the next step on the path to realization and to protect the interest of all stakeholders in the property. As a reminder, Timbercreek holds approximately 11% interest in this loan on a pari passu basis with other lenders. Revaluation of this asset was the largest contributor to an ECL increase of $5.9 million in the quarter. The $3 million related to this exposure and $2.1 million related to the Vancouver retail portfolio slated for redevelopment into multifamily. Both revaluations were driven by current market appraisals and reflect the overall challenges in their respective markets. We are actively working towards the resolution and monetization of the outstanding stage loans and continue to advance the remaining files. While a few challenges remain, we expect to see further progress over the coming quarters with the expectation of ultimately returning this portion of the portfolio to historical norms. Ultimately, the redeployment of this capital into more profitable loans will be a significant tailwind for revenue growth. I'll now ask Geoff to comment on the transaction activity in the portfolio. Geoff McTait: Thanks, Scott. As Blair highlighted, new investments in the quarter were solid, although transaction delays pushed some meaningful Q3 committed volume into Q4. During the quarter, we advanced over $131.1 million new net mortgage investments and advances, all targeting low LTV multifamily assets. These were offset by total mortgage portfolio repayments of $191 million, including a large $83 million repayment in September as also outlined in our press release, resulting in a turnover ratio of 18.2% and a portfolio balance a bit over $1.05 billion down $60 million from Q2 levels. The short-term variations aside, we are seeing continued opportunity in the conventional multifamily bridge and construction space, in addition to the multi-tenant industrial lending space. The market also continues to respond well to Timbercreek Capital CMHC approved lender status which is leading to more opportunities with existing clients and interest from new prospects. Looking forward, our Q4 transaction pipeline is strong, including approximately $200 million already funded or committed at this point in the quarter, with continued momentum anticipated through year-end. Our position in the market with strong client relationships continue to support our ability to deploy capital into high-quality loans and return to growth mode. I will now pass the call over to Tracy to review the financial highlights. Tracy? Tracy Johnston: Thanks, Geoff, and good afternoon, everyone. As we look at the main drivers of income, the average portfolio size has grown year-over-year, offset by the WAIR returning to a more typical range following BOC rate cuts. Q3 net investment income on financial assets measured at amortized costs was $25.4 million, consistent with Q2 of this year and Q3 of last year. We reported distributable income of $14.1 million or $0.17 per share versus $15 million and $0.18 per share in Q3 last year. Payout ratio on DI was elevated this quarter as a result of market conditions that have been discussed. We recorded a reserve of $5.9 million this quarter, as Scott highlighted, driven primarily by the revaluation of 2 loans. Net income was $8.5 million this quarter and net income before ECL was $14.3 million, the same level as Q3 2024. Looking at quarterly earnings per share over the past 3 years with and without ECL, you will see it's been quite stable as has DI per share. Over the medium term, the quarterly DI per share has been between $0.17 and $0.21 per share, averaging just over $0.19 over this time period. Looking quickly at the balance sheet. The value of the net mortgage portfolio, excluding syndications, was just over $1.05 billion at the end of the quarter, an increase of about $37 million year-over-year. The balance on the credit facility was $283 million at the end of Q3 down from $345 million at the end of Q2. The credit utilization rate at the end of the quarter was 75%. We expect to utilize the facility more significantly in Q4 given the volume Geoff highlighted. As Blair highlighted with the upsizing of the credit facility and repayments, we have ample capacity to deploy new capital against the pipeline Geoff and team are building. I will now turn the call back to Scott for closing comments. Scott Rowland: Thanks, Tracy. We're encouraged by the overall outlook. Despite some short-term transaction delays given current macro conditions, we believe that the combination of interest rate cuts and strengthening fundamentals will lead to the next upswing in the real estate cycle. This bodes well for future transaction activity at an attractive risk-return basis. Q4 investment activity is expected to be robust, allowing us to grow the portfolio in 2025. We are delivering a stable monthly dividend, currently yielding over 9.5%. And we continue to make progress on resolving the majority of the stage loans, and we look forward to freeing up this capital for new investments. That completes our prepared remarks. With that, we will open the call for questions. Operator: [Operator Instructions] The first question will come from Michael McHugh. Michael, please go ahead. Unknown Analyst: I just want to check that you can hear me first. Just wanted to start on the Calgary and Vancouver properties against which the ECLs were taking. Just wondering about sort of the outlook and exit strategy for the Calgary property? And then maybe just a little bit of color on progress with Vancouver, it looked like that was the first specific update since it was initially placed into Q3. So maybe just update on strategy and potentially a time line for both of those if you have any visibility? Scott Rowland: Yes, that's a good question. So let's start with the Calgary office. That is a specific asset, right? It was a loan that we originated in 2018 actually so it was a pre-Covid loan, which has been part of the challenge. At this point, the lending syndicate, we have decided to sort of take control of the asset, and we are looking to likely test the market for sale. That will take a bit of time. But I would say we will likely be launching a process in early Q1 to test the market. It's not to say we're necessarily going to sell but I think we're at the point we'd like to have that visibility into the market. And as part of that process, we did an updated valuation, which is what drove the ECL. So it is -- look, we look at Calgary office. While there's a couple of green shoots, it remains challenging. And so that revaluation was just reflective of what we think is the current market conditions. When it comes to Vancouver so the second part of your question, we do have -- it's kind of a similar story. If I look at Vancouver and Toronto. Both of those markets on the development basis remains challenged. There is -- it's just part of the supply and demand in those markets right now. And so from time to time, we do continue to do asset valuations and so this basically reflecting an updated view what we think is the current market for those assets. As far as time line goes, these are going through approval processes with the city. We are definitely in the final innings of those. The borrower is in the final innings of getting those approvals. And I would say somewhere between Q4 and Q1, we expect that to be complete. And then going to market, the borrowers like us getting off those loans, like there's obviously a few different ways that can happen. But we sort of expect to sort of see resolution to those sometime in the sort of middle quarters of 2026. That would be my sort of assessment to date. Unknown Analyst: Okay. Great. That's very helpful. And then just as a follow-up, again, relating to both of those loans. Potential for further ECLs in the coming quarters, obviously, depending on these time lines, but just sort of an outlook on the provisioning front for both of those. Scott Rowland: Yes. Look, the view is the current market value of these things. And I would sit there and say for development in these markets are pretty much near the bottom, if you want to look at historical time lines, it's been a pretty aggressive markdown of what you would say sort of land values are in sort of the Vancouver, Toronto markets, and certainly, office values in Calgary. It is fairly low, pretty much of a trough. So I'd say where these valuations are fairly reflective. I can't predict what's going to happen to the market in the future. But certainly, the current outlook of value is nowhere near a high point. Operator: The next call comes from Stephen Boland. Steve, go ahead. Stephen Boland: Maybe a general question. I'm just wondering about -- you talked about growth at the end of the presentation. I'm just -- I'm trying to see if your outlook has changed for 2026 in terms of what you can grow, what rate -- is the balance sheet a little bit constrained at this point? You mentioned your additional debt capacity. How are you navigating that? And is there any -- what can you do here besides -- so if you're getting robust kind of growth and commitments, are you going to have to syndicate more? I'm just trying to get an idea for 2026, what your outlook is? Scott Rowland: Yes. That's a great question. I think I'm going back to -- thinking back to those comments we made on the last call, I'd say it's just very consistent. A key driver for growth for us, right, is capacity. As we mentioned in the MD&A, we're able to upsize our primary credit facility up to $600 million. That produced -- that gives us a fair amount of powder to continue to grow the book. So if we look at Q4 sort of the commitments that we have and with the line where it is, I think it is sort of consistent. I don't know exactly what we said from last quarter. I'm just... Stephen Boland: For 2026, I mean are you comfortable like in terms of -- I know you've got the extension or the increase in the line. I'm just -- do you feel the balance sheet constrained at all, I'm just trying to... Scott Rowland: I think that -- listen, I think that existing capacity gets us to -- I'm sort of looking at Tracy here too, but I think it gets us to sort of the $1.2 billion, $1.3 billion level. We feel very confident we can hit those numbers. And then growth beyond that, right, then we're looking at are you raising equity and debt together to continue to grow. And I think as we resolve the staging loans, the book has that much more flexibility, right, to continue to grow. With interest rate cuts resolving the stage loans, I think that sets the stage or positive action on the stock, which I think then -- obviously, that would allow you to go in and raise equity and then match that with that to continue to grow. So if I look at this in stages, we are where we are today, I think the existing debt capacity gets us to that $1.2 billion, $1.3 billion. And then future growth from that, right, that's an equity matching with, I think, with an improved stock price, right? But that's a story we'll tell through 2026. Robert Tamblyn: Yes, I agree. Steve, it's Blair. The only thing I'd add sort of as a parallel swim lane to growth of the balance sheet is obviously the growth of revenue. So as we've talked about a few times, I mean, as the portfolio turns over and the pace of transaction picks up as -- which is a result of commercial real estate fundamental stabilizing, we'll generate more revenue, right? And that ties in with a loan that's -- you pick Calgary office. I mean, a loan that is in forbearance obviously is generating less interest income than a loan that is freshly originated generating, call it, like roughly on 11. So drive revenue as sort of -- both are important, of course, but we expect revenue to grow as in addition to what you would correlate with the balance sheet, if that makes sense. Stephen Boland: Yes. Okay. That's great. And then second question is the Stage 2 and 3, I believe, increased quarter-over-quarter. I mean should we start -- and you're talking about resolving those loans. Should we start to see that number sequentially come down like quarter after quarter? I know it can be lumpy, but -- is there going to be improvement in those starting even in Q4? Scott Rowland: It's hard to pick the exact quarter, Steve, I'd like to spell it out, but I think we actually had -- we've had ongoing improvement and reductions over time. But yes, it is lumpy. And the loans we've been talked about on this call today is the majority of what's left, dollar wise and so it is unusual and these are in these aren't like popping up new stage 1, stage 2 loans. These are pretty much the ones that have been around for a while that have longer time lines to resolve. But we do plan to get rid of them and sort of go back to historic norms. Robert Tamblyn: Steve, if you think about it going back, there's -- and I don't have the number at hand, but we've worked through quite a few of them. And I think arguably, 1 every quarter. I mean we announced the one that was resolved in this quarter earlier. And so to answer your question directly, like we do expect there to be resolutions in Q4. It's just -- like it's super active, right? As we talked about, like they're negotiated. And to the extent you try to force things it generally reduces the validity or isn't helpful to the outcome. Stephen Boland: Okay. And I'll sneak 1 more in. Just in terms of the credit facility. I know you got the increase of size. Was there any other changes, rate, covenants, anything like that you can mention? Or it's just -- you just got more money. Tracy Johnston: Yes. Well, we got more money, increased 2 new banks into the syndicate, which is great, but more importantly, improved economics. So our spread has come in back to kind of where we were historically, which is great and then no changes on covenants. Stephen Boland: Okay. And can you mention spread? Maybe it's in the disclosure, I apologize if it is? Robert Tamblyn: I don't think it is. It's -- why don't we say that it's come in by 25 basis points. Operator: The next call comes from [ Jaeme ]. Jaeme Gloyn: Curious on the $200 million funded or committed. How does that look from a geographic and asset class perspective? Scott Rowland: Jaeme, I think we missed the first part of your question, but I think you were asking just what is sort of the makeup of the Q4 outlook? Jaeme Gloyn: You got it. Yes. Thank you. Geoff McTait: Yes. I mean I would say -- it's Geoff here. Pretty consistent with the portfolio overall. It's a combination of, I'd say, primarily Ontario and Quebec. And it is -- the vast majority is residential income with the balance being industrial. Jaeme Gloyn: And would these be some like new customer borrowers or existing former clients, just a little bit more -- just curious on how that portfolio is shaping up for Q4 and then... Geoff McTait: Yes. So listen, I mean I think there's some very strong repeat business within that new volume in addition to some new prospects, but it's predominantly repeat business with existing clients that we've seen good churn with, right? So we're focused on and managing total exposure with individual groups, but are seeing good churn. They're executing on their plan, they're refinancing our existing exposures and then taking on new opportunities. And that existing relationship is enabling us to facilitate execution on good time lines and win good deals even with some incremental spread. Jaeme Gloyn: Yes. Understood. Just in terms of the yield, new loans came in at, I believe, 7.3% weighted average interest rate, loans going out the door was 8.3% that was much lower than I think it was in the mid-9s in Q2 going out the door. I'm just curious, I guess, like where -- what is the range of rates right now in the portfolio? Are there still loans that are well above 9% that are still there that are expected to roll off at some point, too? I'm just trying to really kind of understand I guess, the stability of the weighted average interest rate and yields in general here over the next several quarters? Scott Rowland: Yes. I mean it's always a bit of a mix, right? So we do have some of those loans that exist to have some pretty high floors that over time, to your point, will roll off. Generally speaking, like I think of new originations, if I look at it over prime, this is maybe a helpful context like a credit spread over prime. We typically are in that kind of 2.75% to 3.25% range. And then what happens with credit spreads, right? It's an interesting thing. As interest rates go up, credit spreads compress so there's only sort of so much whole loan coupon that necessarily a book can absorb, like a borrower can absorb. So when we saw like rates go high, it is good for income, but your credit spread is compressing. As rates come down, though, sort of the inverse is true. So as if time was to continue to fall, we start to be able to expand credit spreads. And the credit spread is ultimately what we are interested in because our cost of funds is also floating so as long as you maintain the sort of that difference that allows us to achieve the equity yield we're looking to achieve. So it's kind of a -- it's an interesting model. So as rates go down, our credit spread expands, you also tend to get more velocity of churn in the book, which generates more fees. So the headline WAIR may fall, but more fees to more velocity and higher credit spreads through expansion in a lower rate environment. We've seen this happen through -- we now operate through a few interest rate cycles, and it seems to be a consistent case. So in a higher interest rate environment, you have less velocity, less fees, the higher WAIR and in a lower interest rate environment, you have more fees and reduced WAIR. What helps us right now in the sort of short to medium term is the floors to your point, like that does provide some positive impact into the book. And as those roll off, it's true, but then we continue to grow the book in that lower rate environment where you're getting more fees, and we have a bigger book, right? So it is sort of an ever-changing model that we do manage quite closely, ensuring that we sort of end up in that kind of mid-90s payout ratio that we're targeting. Robert Tamblyn: The only thing to add there, perhaps and we all hear a lot about the cost of debt generally. And generally speaking, when we're reading that in the media, it's by and large, you're talking about term debt, right? So 5- and 10-year money, which can get super cheap. But as you, of course, know, like our business is to provide flexible sort of debt with features that are valuable. So that kind of is another way of explaining what Scott was saying, like a borrower is willing to -- there's sort of a floor that is willing to be paid to be able to be flexible and creative as they go and execute on their value-add opportunities where they're generating equity returns that are obviously well in excess of what they're paying us if that's helpful. Jaeme Gloyn: Yes. Yes. And the follow-up on that is like obviously, we're going into an environment where you should see expanding profitability given the interest rates set up. But still in the near term, those higher floor loans rolling off will have a bit of a negative impact. And so I guess I'm just trying to like if you had any visibility on potentially when that inflection point happens. Is it still several quarters away? Or is it something that's much more visible as those higher rate floor loans are no longer in the portfolio. Scott Rowland: No, listen, it is -- we can't predict necessarily when those loans will roll off. They could roll off at different times, right? We have a fairly consistent rollover of the portfolio, right? Somewhere in that 40%, 50% per year. And it tends to be pretty evenly distributed through the book. It could be some higher-yielding loans, there could be some lower yield. Again, to Blair's point before the shorter-term bridge loans are not necessarily driven by just the high rate. It's more around the strategy of the asset. So if the borrower is looking to reposition itself, regardless of their underlying rates, they probably stay until they've executed their plan. And so that does change the impact of when loans will roll off. But when we look at the book again as it rolls off, we're originating at a yield based for the current market environment and the current interest rate to make sure that we're in a decent position. Robert Tamblyn: You don't underestimate that fee income, right? Like it's meaningful when the portfolio is turning over regularly. Jaeme Gloyn: Yes. No, understood. Operator: Our next call comes from Zach. Zachary Weisbrod: Good afternoon. Can you guys hear me? Yes, yes. It appears you guys have high confidence that the payout ratio will stabilize in the mid-90s. What are some of the factors driving that? Scott Rowland: Just overall, like if I look at like year-to-date, that's where we're at. Again, Q3 was a little high, given, again, as Geoff was describing just the timing of some transactions. But it's just really managing the pipeline and where we're seeing investment activity is when you just running through the yield map, it's sort of generates the sort of mid-90s type math. Just running the business normally, Zach. Robert Tamblyn: If the pipeline was not where it is, we wouldn't have the confidence that we do. I think it really comes down I guess at the end of the day. Geoff McTait: Yes. I mean the pipeline, just further Blair's point, I mean we look at the pipeline, it obviously was looked at in stages, right? So there's early stage deal identified, we're working through it. We don't really have a good view as to do we want to bid, where it's going to land? Are we going to win it. And then obviously, as you go down the path given that we've been working through deals we've issued term sheets, deals, we just have commitment letters, acquisitions with firm time lines, any combination of these things is that sort of increased probability of execution within that pipeline view aligned with the time line that, in our view, again, goes back into our forecast and expectations along with year-to-date gets us to a point where we're comfortable in that range. Zachary Weisbrod: Okay. Understood. Appreciate that. And with softer fundamentals for most property types right now, we're seeing higher vacancy, lower rental rates. Are you seeing that translate into slower origination activity at all? I know that you mentioned in your prepared remarks that there were some transaction delays. Geoff McTait: Yes. So I mean the transaction delays we're talking about, like these are sort of more normal course. Like there's a real deal, there's a signed up and it's targeted to fund on a certain date. And as they're going through their due diligence process and/or negotiating final conditions to waive maybe an extra week, maybe an extra couple of weeks, any combination of things that -- this is more specific to real transactions than necessarily an indication of the broader environment, right? I think to your point, certainly, the fundamentals have softened across and again varies dependent on asset class. Again, for us, in general, we are still seeing strong fundamentals underlying the multifamily business and the industrial business, which has been the core of what we're doing, and we are still seeing transaction activity continue. Again, we benefit from refinancing opportunities as well as mortgages continue to mature and needs to be refinanced even if there is no actual trade occurring, as you get into other asset classes, again, office is one that's been really inactive for the last number of years given the unknowns in that space. We're starting to see tenancy demand increase. You're starting to see the fundamentals underlying that reality improve. Again, that's something that we're not looking at a ton of. We've seen opportunities. We haven't found a ton that are overly compelling. And at the same time, the fundamentals in that space, which has been very uncertain for a period are starting to increase or improve, and that should drive increased activity. Scott Rowland: Look, and I'll just add to that is I think it is true, though, right? Like I think we said the softening fundamentals if I go back to -- you go back to '23 as you got sort of heavily into that rate uptick cycle like we started in 2022. For sure, those weakening fundamentals and the higher cost of debt that cause price mismatches in the market, right, between buyer and seller. And so that is -- this is what's really been driving sort of this more challenging transaction activity, right, because the sellers are trying to hang on and they were trying to believe their 2021 pricing, right? Their 2021 valuations. As vendors, sellers get more realistic in their price targets, what happens is all of a sudden, okay, so prices come down a bit and then you have that market transaction can occur, right? The buyer and seller have a median divide and the transaction occurs. So that's what we're talking about. When we talk about like on the face of this weakens or fundamentals that you mentioned, now you put in the rate cut environment and you have a little more realistic view from the sellers, that's what drives those transaction activities. And then for us, on the lending side, what we like about it is you have a little bit more realistic view of value, values are kind of lower than we would have been lending into 2020, 2021. If you look at today's environment, you feel pretty good that this is a reset value. More transactions are happening, and we feel pretty good at where we're lending and where our advance rates are. Operator: There are no other calls at this time. So I'll turn the meeting back to Blair for closing remarks. Robert Tamblyn: Thanks. Thanks, everyone, for your time. Obviously, if you have any further questions, feel free to reach out, we're happy to chat. Have a good afternoon.
Operator: Hello, everybody, and welcome to the Myers 2025 Third Quarter Results. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions] I would now like to hand over to Meghan Beringer, please go ahead. Meghan Beringer: Thank you. Good morning, everyone, and welcome to Myers Third Quarter 2025 Earnings Review. Joining me today are Aaron Schapper, President and Chief Executive Officer; Sam Rutty, Executive Vice President and Chief Financial Officer; and Dan Hoehn, Vice President and Corporate Controller. After the prepared remarks, we will host a question-and-answer session. Earlier this morning, we issued a press release outlining our third quarter financial results. In addition, a presentation to accompany today's prepared remarks has been posted. Both documents are available on the Investor Relations section of our website at myersindustries.com. This call is being webcast live on our website and will be archived along with the transcript of the call shortly after this event. Please turn to Slide 3 of the presentation for our safe harbor disclosures. I would like to remind you that we may make some forward-looking statements during this call. These comments are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and involve risks, uncertainties and other factors, which may cause results to differ materially from those expressed or implied in these statements. Further information concerning these risks, uncertainties and other factors are set forth in the company's periodic SEC filings. Also, please be advised that certain non-GAAP financial measures such as adjusted gross profit, adjusted operating income, adjusted EBITDA and adjusted earnings per share may be discussed on this call. Now please turn to Slide 4 of our presentation as I turn the call over to Aaron. Aaron Schapper: Thank you, Meghan. Good morning, everyone, and thank you for joining us. I will begin today's call with a review of our third quarter, then I will provide an update on our focused transformation program. Following my comments, Sam will provide a detailed review of the third quarter financials and our outlook for the year. Turning to Slide 5. Third quarter net sales were $205.4 million, slightly higher year-over-year as infrastructure and industrial growth was offset by continued soft demand in Automotive Aftermarket and vehicle end-markets. In addition, consumer sales, specifically fuel containers, were lower with the absence of weather-driven events. Within infrastructure, we continue to see strong demand as customers switch from wood to composite matting products used in construction, utility and other infrastructure projects. Industrial growth was driven by ongoing demand for military products. With the exception of consumer sales, our end market outlook is relatively unchanged as demand and backlog across our larger infrastructure and industrial end-markets remain steady. For the quarter, we earned $0.19 per share. Adjusted EPS was $0.26, up year-over-year. Cash flow improved significantly with free cash flow doubling compared with last year. We continue to make steady progress against our objectives, and I remain confident in our ability to improve performance. Turning to Slide 6. I would like to provide an update on our focused transformation program. We made meaningful progress during the quarter as we focus on tasks that have the biggest impact. Chief among the milestones we achieved this quarter was the completion of our MTS strategic review and the conclusion that the right decision is for us to sell this business. We have formally launched this process, partnering with KeyBanc to execute the transaction. Once complete, this divestiture will be a large step towards optimizing our portfolio with the remaining businesses better aligned with our mission of protecting assets from the ground up, enhancing our ability to apply our competitive advantages for high-return applications. We have made progress on each of our 4 objectives. Some of these changes are already visible across our organization. For example, we have made tremendous progress this year establishing a culture of execution and accountability by implementing KPIs to measure the progress and success of our business and aligning incentive plans with long-term targets and objectives to ensure that we are creating long-term value for our shareholders. We continue to build on this with continuous improvement mindset to drive performance now and into the future. We are creating clear strategies to improve performance on our entire portfolio to ensure we are achieving optimal profitability. The decision to sell MTS is a step in the right direction as it will have a notable impact towards improving our margins. We're also doing a better job of sharing best practices across the organization. For example, through a collaboration with Buckhorn, Signature has improved their structural foam mold change process, which has reduced downtime and improved throughput. As we develop this operational excellence discipline, we will become more aware of opportunities to drive best practices across the portfolio. We are on track to deliver $20 million in annualized cost savings, primarily SG&A by the end of 2025, having already identified $19 million. We consolidated production in idled 2 of our 9 rotational molding facilities to improve utilization and reduce cost. We are continuing to be diligent about costs and investigate areas where we can be more efficient as an organization while maintaining customer services that distinguish Myers in our markets. I am encouraged by the progress. We have updated our approach to developing and implementing our long-term strategy as a part of our focused transformation. This is a new framework for Myers and one that I've seen to drive proven measurable results through a disciplined approach. It begins with a strategic planning session. For this, we gathered broad key leadership, representing a cross-functional group from across our businesses for a disciplined and more collaborative process. We discussed where each of our businesses will play to win, their unique differentiators and our growth potential. This was a tremendously valuable exercise and led to great insights that will inform our strategic direction. With the strategic plan established, we are prepared to implement a strategic deployment tool, which will support disciplined planning and breakthrough objectives. We started by rolling the tool out to senior leaders who will cascade it down throughout their organizations. The tool helps businesses break down long-term goals into an annual objective, identify key improvement initiatives and metrics and assign ownership for each action. With the implementation, we will shift towards a culture of delivering results where progress is visible, measured and shared across teams. This progress on our focused transformation objectives positioned us well for the next leg of our journey. As we continue to strengthen the foundations of our business and build platforms for growth, we are creating operational rigor and instilling a mindset of continuous improvement. These will serve us well and enable us to become a highly successful company that I am confident we can become. At this time, it is my pleasure to formally welcome our new CFO, Sam Rutty, to the call. She joined us a little over 5 weeks ago. Sam Rutty made a positive impression across the organization with her energy and vision. I'm excited to have her join our executive leadership team and look forward to working with her as we launch our new long-term strategy. Her arrival will accelerate the transformation of both the business and our culture. Sam brings incredible knowledge, turnaround success and more than 2 decades of financial leadership experience across global services and manufacturing companies. She was the CFO of Brink's North America and spent 20 years with Eaton Corporation in a series of senior financial roles. She's consistently taken on big challenges and has helped her team succeed, and I know she will do the same here. Before I turn the call over to Sam, I want to thank Dan Hoehn for stepping into the interim CFO role these last 6 months. Dan is a steady hand, clear thinker and understands the business and the numbers intimately. I'm personally grateful for the partnership during the time that Dan served in this role, and I look forward to continuing to work with him as he resumes his role as our Corporate Controller. With that, I will now turn the call over to Sam. Samantha Rutty: Thank you for that introduction, Aaron, and good morning, everyone. I'm excited about this opportunity to join Myers, a manufacturing company with a clear vision and customer value proposition. I spent the early part of my career in manufacturing, an area where my true passion lies, and I'm eager to work with Aaron and the team to drive operational excellence across the organization and support the achievement of our long-term strategic objectives. I also want to thank Dan and the team for sharing your knowledge and bringing me quickly up to speed. Let me start by reviewing our third quarter results, and then I will wrap up with the outlook by end market for the remainder of the year. Please turn to Slide 8. Third quarter net sales were $205.4 million, slightly higher than last year. Material handling growth was offset by lingering distribution softness. Adjusted gross margin increased 150 basis points to 33.9% due to higher volume, favorable mix and cost productivity as well as lower material costs. Adjusted operating margin improved 20 basis points to 10.2% as higher SG&A offset some of our gross margin benefits. Overall, we reduced inefficient spend as the culture of the company shifts to a continuous improvement mindset. We are performing better this year and therefore, maintain our accruals for performance-based incentive compensation compared to this period last year when we reversed those accruals. We are pleased to be able to reward the hard work of our team as they drive improved performance. The quarter reflected strong execution despite a few unusual SG&A expenses from legal fees and medical claims. Our employees are proactively finding ways to reduce recurring inefficient costs while continuing to support our growth initiatives. I'm excited about the opportunity before us to drive continuous improvement and look forward to partnering with our business leaders to support their progress. Turning to Slide 9. Material Handling net sales were up 1.9% as strong sales of military products and composite matting were partially offset by lingering vehicle softness and lower storm-driven demand for fuel containers. Adjusted EBITDA margin was 24%, expanding 180 basis points with the benefit of higher volumes and favorable material costs. Distribution net sales decreased 4.4% on lower volumes. Adjusted EBITDA margin fell 260 basis points as the impact of lower volume was partially offset by lower SG&A. Turning to Slide 10. Operating cash flow was $25.8 million and CapEx was $4.2 million, resulting in free cash flow of $21.5 million. By managing our working capital effectively and maintaining disciplined capital spending, we doubled free cash flow year-over-year. As we evaluate our portfolio to focus on core products and addressable markets for growth, we will align our capital strategy accordingly and continue to target capital expenditures near 3% of sales. We ended Q3 with a cash balance of $48 million and total liquidity of $292.7 million, providing us with ample flexibility to support our capital allocation priorities. Please turn to Slide 11. We reduced debt by $10 million, bringing total debt to $369 million. Net debt per the credit agreement was $339 million, bringing our net leverage ratio down to 2.6x. We remain committed to achieving our target ratio of 1.5 to 2.5. We repurchased $500,000 in shares during the quarter, bringing total year-to-date repurchases of $2 million. The share repurchase program was an additive measure to complement our ongoing dividend as part of our capital allocation strategy to return cash to shareholders. Turning to Slide 12. We are updating our market outlook for 2025 that was provided during our second quarter earnings call. We still see both risks and opportunities for our end-markets, and we'll continue to monitor conditions for impacts from tariffs or other factors that may influence demand trends. Let me review our expectations by market. Industrial should continue with moderate growth, driven by demand for military products as militaries around the world replenish their inventories as evidenced by a strong backlog. We still expect sales of our military products to exceed the $40 million target for the year 2025. Year-to-date, military sales are up 119%. We expect this sales growth to be partially offset by lower sales of other industrial products as manufacturing operations slow their buying cadence in response to softer general industrial trends. In infrastructure, strong ongoing spending for large construction and utilities projects supported by conversion from wood to composite matting should continue to drive strong growth. This is reinforced by our strong backlog for these infrastructure products, most of which should be converted in the fourth quarter. We expect the vehicle end market to be down as a result of economic uncertainty. This end market includes RV, marine, heavy truck, and automotive manufacturing customers. In Consumer, we now anticipate sales to be down due to less than typical storm-related activity in 2025. On average, there are 3 landed storms in the Continental U.S. per year. This year, there have been none. Our food and beverage end market, which includes agriculture, is projected to be stable for the full year. While there were headwinds earlier in the year, we achieved 8% growth year-over-year in Q3 and are expecting further improvement in Q4 with our agricultural customers, led by a strong backlog in seed boxes. Automotive Aftermarket distribution is expected to be down. We continue to manage the business closely as we navigate a challenging end market and proceed through the process to identify potential buyers. In closing, I would like to simply state again how excited I am to be part of the Myers team. I look forward to meeting many of you in the coming weeks. I would now like to turn the call back to Aaron for some closing comments before we take your questions. Aaron? Aaron Schapper: Thank you, Sam. As I look back on the progress we've made throughout 2025, I believe more than ever in our focused transformation plan. I know our journey of continuous improvement will take time. Myers has a portfolio of well-regarded brands and products designed to protect. We are working with urgency to rightsize the organization, drive accountability and deploy capital to support growth in these brands. I'm confident that we are transforming into a focused company with a high-performance culture that drives growth with consistent, reliable results that create value for shareholders. With that, I'd like to turn the call over to the operator for questions. Operator? Operator: [Operator Instructions] First question comes from Christian Zyla with KeyCorp. Christian Zyla: Sam, welcome officially. My first question, it looks like Material Handling organic growth flipped positive for the first time in like 11 quarters. I guess the primary driver of that growth is Signature. Can you just talk about how you see that business progressing since you've acquired it? And what are some additional growth opportunities that you're targeting in Signature and maybe in your defense business? Aaron Schapper: Yes. We're happy with the growth trajectory of Signature. I mean there's a lot of tailwinds on the infrastructure construction market that continues to push that. And then just from the current product that they offer. And also, we are excited to line up new offerings in that market, too. So we'll have some new offerings coming out in the next -- well, about 2 quarters that we think can help strengthen our business on the stadium side. And we have some good pipeline -- innovation pipeline. I think, Christian, we spent some time over the summer getting the team together and really talk about our strategic plan and then very specifically make sure that we are continuously -- continuing to develop and innovate new products, and Signature was a major part of that. They have a lot to offer the market, and we have a good pipeline of new products that not only help in the construction spaces, but will also help in other areas so we can continue to have that growth. So we're excited where we are with Signature. We believe the growth will continue to be strong. And we've got a great operational team behind that growth to make sure that we continue to get good margins. Christian Zyla: And sorry, just in defense, any further growth opportunities? Is that just contract running really well? Are there more opportunities for additional customers or additional... Aaron Schapper: Yes, sorry, specific to the Scepter side, absolutely. As kind of our militaries, both in NATO and the U.S. militaries look at a future kind of near-peer kind of competition. When you look at near-peer competition, one of the things that has been concerning for that -- for the defense industry was just making sure that the consumption of ammunition matches something that's closer to a near-peer conflict. As a result, what you get is a lot of people looking at the consumables of warfare. And so those consumables are ammunition. A lot of that ammunition needs to be packaged. And that's where Scepter not only plays a role in today, but will play a continuing growing role in the future. So for us, it's making sure that we take care of our customer, whether it be the U.S. military or our NATO allies and positioning our manufacturing to take advantage of that growth in the coming years. Christian Zyla: Great. And then my next question, Sam, maybe this one is for you. Gross margin held in really well, but SG&A still seems to be high. I guess with the cost down restructuring that you guys have done, do you expect to see a decrease in SG&A dollars in 4Q? Or is that more of a 2026 and beyond event? Samantha Rutty: I mean we are expecting our SG&A costs to start to come down. We had some unusual items in Q3 that impacted us, medical and some legal costs. A couple of those items, I would say, can sometimes be a little bit difficult to predict exactly, but we are confident that our transformation savings are going to start to deliver reductions in SG&A. And the onetime or larger impact in Q3 from the compensation incentives last year being zeroed out and was a material impact. And had we not had that, we would have seen a bigger decline in SG&A. And yes, we are confident that we'll start to see those savings impact SG&A on the top. Christian Zyla: Got it. Last one for me, and I'll turn it over. Really nice free cash flow quarter with about $22 million. What drove that? And then is that increase in part of the changes you've been making? Or is there something else that we should be thinking about? And then do you expect 4Q to be another solid quarter for free cash flow like you guess at the time? Samantha Rutty: Yes, I think a lot of focus on working capital across the organization, which will continue. It's something I plan to continue to put a lot of focus on. Capital spend is a little bit lighter, some timing going on there. So maybe a little bit higher in Q4 from a CapEx perspective. But generally, we are confident around our efforts around working capital, particularly inventory, we're trying to really focus on reductions and are anticipating a fairly good month quarter in Q4 as well. Operator: [Operator Instructions] We now turn to William Dezellem with Tieton Capital Management. William Dezellem: Relative to Scepter, would you please walk through the additional opportunities you see with military beyond the current application? Aaron Schapper: Yes. So Bill, we haven't specifically to put numbers or guidance out for what we see on the military side. We put the numbers out for what we're going to hit this year in military. We've already well exceeded that number. So we're very confident in the growth numbers on that side. However, so the military projects are all programmatic in nature. So the way that we look at the business is we make sure that we have -- as the program kind of runs through whether we're going to get to stack the next program and the next program behind that. So right now, we haven't broken out publicly what each of those programs are or the size of it. But I will tell you that we expect to -- continue to expect strong growth from that side, and we also are going to be putting CapEx plans and have CapEx plans around those growth opportunities. So you'll continue to see strong growth on the Scepter military business. We're very happy with the way that's progressing. And we're very happy with the team. The team is very -- is aggressively pursuing those goals. And I think our customers are realizing the value of making the material switches over to a lot of the plastic products that we offer as a superior product to what they're using in both steel and wood. So we feel good about where we are in that, and we keep continuing to add programs and new products to help grow that business. Operator: We have no further questions. I'll now hand back to Meghan Beringer for any final remarks. Meghan Beringer: Thank you for joining us today. If you would like to continue the conversation, my contact information can be found on the final slide of this presentation. We look forward to staying in touch. With that, we'll conclude the call. Have a great day. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Imerys 2025 First 9 Months and Third Quarter Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today, Alessandro Dazza, Chief Executive Officer; and Sebastien Rouge, Chief Financial Officer. Please go ahead. Alessandro Dazza: Thank you. Good afternoon or good evening to all of you, and thank you for joining us today to review Imerys first 9 months and Q3 2025 results. Next to me this evening, as usual, Sebastien Rouge, our CFO. And as usual, please let me start by giving you some highlights for the 9 months we just closed. Imerys' performance for the 9 months is the result of a positive start to the year and a softer second part. Q3 reflected an honestly unexpected slowdown in the U.S. economy as a result of uncertainty caused by the U.S. tariff policy. Europe, even if overall activity remains low, seems to be turning the corner positively. Revenue for the first 9 months was EUR 2.583 billion, slightly down 0.7% like-for-like versus last year. Even in this context, which remains challenging, Imerys posted an EBITDA of EUR 421 million, in line with last year like-for-like and excluding the contribution of joint ventures. This demonstrates the resilience of our company also in difficult times. The adjusted EBITDA for the third quarter '25 was $140 million, representing a 17% margin and again, reflecting disciplined pricing policy, ongoing continuous cost management and positive business dynamic in the polymer and additive businesses. For the full year 2025, the group confirms its adjusted EBITDA target in the range of EUR 540 million to EUR 580 million. Last important as we do not see a significant market recovery or at least is being delayed on top of the ongoing actions on costs, and I will come back to this, the group is launching a comprehensive cost reduction and performance improvement program aimed at simplifying its organization and adjusting its industrial footprint to restore profitability. Finally, some key updates of the quarter. First on EMILI. Imerys has received an indication of interest from a potential investor to acquire a minority stake in the EMILI Lithium Project. Classic, subject to customary due diligence and approvals, this investment should be formalized by the end of January '26 and would allow the completion of the definitive feasibility study of the commercial plant sometimes around the end of next year. Consequently, any decision concerning future phases such as the construction of the industrial pilot plant are on hold and will be made in due course based on market conditions and capital allocation considerations. Second, important good news, Imerys signed today an agreement to purchase SB Mineração in Brazil. SB Mineração is a Brazilian company specialized in the production of ground calcium carbonate or GCC, based in Cachoeiro in the state of Espírito Santo. The company is a leading producer of GCC for various applications, in particular, polymers, thermosets, paints and coatings. In '24, the business generated approximately USD 30 million in revenue with a solid profitability. With this acquisition, Imerys would strengthen its footprint in Brazil, where it is already one of the main producers of carbonates. The completion of the transaction is subject to customary closing conditions, including regulatory approvals. A word on our decarbonization road map. We signed an important partnership in October with LNG to supply green energy to approximately 25% of our European operations via a 10-year corporate purchase agreement for the annual generation of 200 gigawatt hour of renewable electricity in Spain. This agreement will enable the reduction of 70,000 tons of CO2 equivalent per year or 14% of our Scope 2 emissions, so a significant step. Finally, our Imerys Graphite & Carbon business signed 2 strategic partnerships aiming at enlarging its innovative product portfolio for batteries. One is with Cnano, the global leader in carbon nanotubes, the second one with Shanghai ShanShan, who is the global leader in synthetic graphite for lithium-ion batteries. I will not enter the details and more details are available on our website on the 2 specific projects. What is important, both partnerships directly address Europe's crucial need for a regional, resilient and competitive battery supply chain based on state-of-the-art technologies. If we move on now to the next slide. Here, you see Imerys sales performance by geography for the first 9 months, which gives a good picture of the a bit contrasted economic activity by area. Europe represents about 50% of our sales or slightly less, enjoyed finally a light recovery in Q3, thanks to improving construction and industrial activity. And you see this if you compare to what we published in July with the Q2 results. Nevertheless, on a full year basis, year-to-date, business is still lagging behind last year, and we know due to soft activity in industrial sector and a poor construction market until recently. North America, the big surprise of the quarter really subdued in Q3, confirming a trend that we have seen at the end of Q2, mostly affected by tariffs, a weak industrial or weak, sorry, residential markets and a bad quarter in filtration, partly, frankly, relating to our own production issues relating to CapEx and some industrial topics. For the 9 months, sales are basically flat compared to last year or in line with previous year. We should not forget the significant impact of the devaluation of the U.S. dollar, negatively impacting sales at the level of 4% compared to last year, so becoming significant. In Asia, sales are growing nicely, not only in India, but also in China, which remains quite dynamic, especially around new technologies, electric vehicles and strong exports in general. South America, very strong first half, a bit weaker Q3, but I remain confident it will be a good year in South America. On the next slide, as usual, a deep dive on what really shows the robustness of Imerys' business model. On the left side, you can see the evolution of our adjusted EBITDA year-on-year. We do have a significant impact of perimeter, as we saw before, coming from the divestiture of the assets serving the paper market last year in July and of joint ventures, as we have been discussing since the beginning of this year. FX playing a role, as I mentioned before, but fundamentally, the core of Imerys' activity remains solid and adjusted EBITDA was resilient, almost flat compared to last year. On the right side, the balance price costs, which highlights the good continuous work done on cost reductions, first of all, but also on Imerys' agility to react to market changes in terms of pricing when needed. We know this balance remains a key factor for future success. Let's now look at our main underlying markets and their trends, and I'll be quick as we have partly already addressed the main trajectories and trends by geography. So overall, I would say what we saw in Q2 was confirmed in Q3 with overall markets, say, below expectation, especially construction and automotive, while growth in electric vehicles continues strongly, and while tariffs have a limited direct impact on Imerys, the uncertainty created by these tariffs is impacting more in general business activity and unfortunately, specifically some of our customers. To rapidly conclude on this side, construction finally, and potentially restarting in Europe, remains below expectation in the U.S. Consumer goods, resilient, certainly in the U.S., maybe slowing a bit in America for the reasons we have mentioned. Automotive, continued low production levels in Europe and in North America. China, good, benefiting from strong exports, but also these internal stimulus packages or policies launched by the government and of course, very strong EV growth in the area. General industrial activity, soft in Q2 in Western economies, strong or solid in China. so far for market trends. Sebastien, I hand over to you for more details on our accounts. Sébastien Rouge: Thank you, Alessandro. Good evening, everyone. Let me recap some of the key aspects of our financial performance, and we'll start with revenue. The group reports sales at EUR 2.6 billion for the first 9 months of 2025. It represents 0.7% decrease at constant exchange rate and perimeter as compared to last year, with volumes slightly down and prices holding well. You keep in mind the large perimeter effect, EUR 126 million, mainly due to the disposal of the assets serving paper in July '24. We have now an FX impact of minus EUR 47 million coming from a drop mostly of the USD versus euro from Q2 onwards. You can see in the chart, Imerys performance for the third quarter alone, quite similar trend for sales volume and prices and also a high FX impact. Perimeter effect is now positive, thanks to the good performance of Chemviron, the business acquired at the end of last year. If we look now into more details at our 3 business segments, beginning with Performance Minerals, the business generated EUR 1.547 billion since the beginning of '25, representing 60% of Imerys Group. Overall, the business shows a slightly negative organic growth as compared to last year due to a weak Q3, notably in America. Revenue in Q3 for Americas was down 5.7% at constant scope and exchange rate, reaching EUR 199 million. Sales were impacted by a weak residential market in the U.S. suffering from high interest rates, unsold housing inventory and also a soft filtration market. The prices held well. Revenue in Q3 for EMEA and APAC decreased by 3% like-for-like in the third quarter of '25 as compared to last year. Weak volumes, minus 4.1% were driven by low demand across main markets, where our sales to paints and automotive polymer slightly improved. I already mentioned the good performance of Chemviron's diatomite and perlite businesses integrated since January '25. Here as well, price grew in line with H1. Now looking at our solutions for Refractory, Abrasives and Construction business. We note a relative improvement of the business in Q3, posting organic growth in the quarter after a difficult H1. Business revenue reached EUR 278 million in Q3, an increase of 1.9% as compared to last year at constant scope and exchange rate. The recovery is primarily driven by stronger refractory activity, benefiting from positive momentum in the U.S. and China and some volume gains in Europe. In contrast, the construction business experienced a more mixed performance, impacted by soft end markets. In this business, prices as well held well. Now let's complete the segment review with the solutions for energy transition. Q3 revenues for graphite and carbon amounted to EUR 59 million, a 3.6% increase compared to last year at constant scope and exchange rate. Sales growth is still driven by robust end markets, primarily electric vehicles. The business also benefited from successful new product launches, in particular in polymer applications. A small note on the Quartz Corporation, our high-purity Quartz JV, 50% owned by Imerys and not consolidated, as you remember. The activity is showing some signs of normalization. However, these have yet to be confirmed as the solar value chain remains affected by persistent high inventories and the lack of significant reduction in production capacity. Now let's look at the group profitability. For the first 9 months, adjusted EBITDA reached EUR 421 million. It decreased by 21% as compared to last year, reflecting the impact of lower contribution of JVs, perimeter impact and an unfavorable exchange rate effect of minus EUR 11 million. Imerys achieved an adjusted EBITDA margin of 16.3% at the end of Q3 '25. This was supported by improved performance in graphite and carbon, resilient activity in Performance Minerals and a continuous cost management approach. Adjusted EBITDA Q3 '25 decreased by 6%, impacted by volume decrease and a EUR 10 million FX impact, which were partly offset by a positive price cost balance in this quarter again. Ongoing cost-saving initiatives allowed the group to keep fixed cost and overhead slightly lower than last year in absolute value, fully offsetting inflation. If we look now at the other elements of our income statement for the first 9 months of this year. Driven by the decrease of EBITDA in absolute value, current operating income reached EUR 216 million. With slightly higher interest expenses and lower income tax, current net income from continuing operation ended up at EUR 126 million at the end of September. You remember that last year, the group booked EUR 326 million in noncash expenses, mostly originating from the translation reserves associated with the assets serving the paper market that we divested in July '24. This year, in the first 9 months of '25, other operating expenses were limited to EUR 16 million. Year-to-date, net profit is, therefore, positive, reaching EUR 110 million at the end of September. I now hand over back to Alessandro for the outlook. Alessandro Dazza: Thank you, Sebastien. So let me conclude with some good news. First, we remain confident of achieving our guidance, which is not a given under current market circumstances. Second, I'd like to inform you that the date has been set by the relevant court to resume the confirmation hearing on our Chapter 11 case in the U.S. This is now planned to start on February 2 next year. Yes, we all wish it could be earlier, but this was the first available date provided by the court. What is important is having a date for this crucial hearing is a very important step towards the end of this process. Third, as you have seen at the beginning, we have signed, not done yet, but we have signed a new acquisition. It's a classic bolt-on. And as you can see with the recent one, Chemviron, it can be integrated rapidly, well, profitably with a lot of synergies. As you can see when you look specifically at Q3 performance, where the perimeter effect becomes only this acquisition. Then next, we indicated in the past that we were looking for a partner for the EMILI project. Well, I believe we are close to have found the first one. This will secure the financing of the next steps, giving precedence in our plans to the completion of the engineering studies for the DFS. Consequently, we will pause the investments in an industrial pilot plant and review this decision in due time and based on market conditions and capital allocation consideration. Last, you know that we relentlessly work on costs through careful management through our operational excellence program called I-Cube that you heard before. And I believe the EBITDA bridge Sebastien just showed you a few minutes ago confirms the good work done on costs. Nevertheless, we have to acknowledge that today, we do not see a significant rebound in or a market recovery in the nearby future. Therefore, we have to make a step up and the group is launching a comprehensive cost reduction and performance improvement program, aiming at achieving significant cost reduction via leaner, simplified organization and an adjusted industrial footprint with a clear target to improve profitability from 2026 onwards. More details on the program will be available at a later stage for obvious reasons. Thank you. And now I hand over to you for the Q&A session. Operator: [Operator Instructions] We will take our first question and the first question comes from the line of Ebrahim Homani from CIC. Ebrahim Homani: I have 3, if I may. The first one is about the Europe. You said that it is going better and better. Are the volumes already positive in the region? If not, do you expect that the volume will be positive in Q4? My second question is about your EMILI. Could you give us more flavor on the investor interest? Is it an industrial from the automotive industry and maybe more information on the term of this partnership? And my last question is on graphite and carbon. How do you explain the slowdown of the growth? I noticed that it is not a comparison basis effect as in Q3 2024, the branch was already declining. So the low growth, what's the explanation behind this lower growth compared to the H1? Alessandro Dazza: Thank you, Ebrahim. Well, volume in Europe, I remain prudent because we shall be prudent when I look at communications on Q3 coming in the market. I confirm that we believe the worst is behind. Construction in some areas is picking up. And I believe automotive will continue to decline in Q4, but most forecasts believe, again, that the bottom is reached and we should see a positive return of activity or at least a stabilization. Is it Q4? Is it the beginning of next year? We will see. What will definitely have a positive impact on our business in Europe in Q4 is, if you remember, there is an antidumping imposed temporarily, but valid on certain Chinese imports of minerals. And this will trigger a volume increase in Q4 for some businesses. If you look specifically at the RAC business, it was the -- except for graphite and carbon, the one posting organic growth because finally, volumes are starting to return with some gain of shares in Europe. So all in all, I am rather positive on Q4 volume development certainly into next year. On EMILI, as you can imagine, we are in the middle of discussions, by definition, confidential. So we'll be back to you when we can. And I believe it will be relatively short as we indicated in our press release and in our presentation. But bear with me at the moment, everything is covered by confidentiality. Graphite & Carbon, whilst the summer period is always a bit to be taken -- you have a small month normally in August. So you might see less deviation. Market remains solid. Growth remains solid. We have had some -- we have had 2 issues that have a little impact. For sure, we installed SAP in the two operations. And as always, there is some learning of the new system that you have to pay when you do these changes. By the way, we did the same in the U.S. this year. So for sure, this is causing a bit of disruptions. And secondly, when you ramp up at that speed, you need to run your plants. I cannot say flat out because we have capacity to follow growth for the next 3 years, but you don't turn the machine on and it goes along. We are recruiting people. We need to train the people, and frankly, we do have a bit of backlog of orders that we could not supply because we were not able to get all the material out of the door. So for me, is maybe the increase is less than Q2, but there is no negative news from the market that does not confirm the direction. Then of course, the more we grow, the more -- the higher the comparison basis will be coming from the past, but really no bad news in any form Ebrahim on G&C. Operator: Your next question comes from the line of Auguste Deryckx from KEC. Auguste Deryckx Lienart: My questions are on the Quartz JV. Given the weakness of the sector, do you see customers turning to a lower quality product, so a product with a lower purity? So in other words, are you losing market share? And the second question still on Quartz is still given the situation, do you think that you will be able to receive a dividend from the JV? And if so, what can be the level? And if not, how do you plan to crystallize the value of your stake in this JV? Alessandro Dazza: Thank you, Auguste, for the question. Specifically, listen, when you have free capacity in your operations, like it is the case in the value chain of especially solar in China today, of course, you try to save money and you try everything you can. Do we believe that we are or we will lose significant market shares in high purity? No. My view is no. At the moment, I think our customers have been trying to replace this product because of its high price and dependency really on two suppliers for many, many years, is nothing new. So I believe when the market will need to run production at strong level, a normal level to follow market growth. So once inventories are depleted, and last time we said it might be around mid next year, I think it will become again unavoidable to have the best quality because you will have the best productivity. So I remain of the opinion market share in normal conditions will remain for a high-purity top product. And on the same topic, clearly, the year is not as good as last year. Therefore, we have been more careful with the distribution of dividends. We will decide with our partners if and when is the right time. The company is making profit, good profits. You see only half of the net income in our numbers. But if you look really at what is the full potential of this business at EBITDA level, which you see in June and you will see in December, you see that it remains an incredible high-performing profitable business. And therefore, we will discuss openly with our partners what is the best for the business and for its shareholders. And based on that, we'll take the decision, which is not taken as of today, but it is part of the discussion we have as shareholders regularly. Operator: Your next question comes from the line of Sebastian Bray from Berenberg. Sebastian Bray: Can I start with one on the financing costs of the group, please. What is the underlying run rate that is a reasonable assumption for '26? And by when does the company expect to have refinancing in place for the bond that comes due roughly EUR 600 million? Is it towards the end of the year? Or would it expect to have something in the middle? Can I also ask about the review that the group is doing of its cost structure. The -- is this extending to a portfolio review as well? And are there any further assets that the group feels it could potentially divest as part of these considerations? Alessandro Dazza: I'll let Sebastien answer your -- first, Sebastian, welcome to this call. I think it's your first time. I'll let Sebastien answer on the financing side. Sébastien Rouge: Yes. I will probably not answer extremely precisely. This being said, I think you are -- you're asking the good question. We have a next big repayment very early in '27. So we pursue a very careful approach. So we will probably refinance that either late this year or in the first half of 2026 so that we are away from any timing risk, and we will not preannounce that, but I think we'll follow your advice, which is not to do that at the last minute, knowing that on top of that, bond markets are pretty good for corporates these days. Also, I think I think our careful approach on lithium is actually a good sign that will facilitate refinancing. As far as run rate is concerned, I would say it's a little bit mechanical. We have a very detailed of our financing in our annual report, obviously, and unfortunately, when we replace a new -- an old bond by a new bond, there is a little bit of extra interest rate, mechanical, but that, I would say, is true for us like the rest of the market. Alessandro Dazza: Thank you, Sebastien. And coming to your second question, Sebastien. At the moment, there is no plan to significantly review our portfolio. We have done it in the year '23 and '24. Yes, we might sell opportunistically one or the other site, especially if nonperforming or not up to our standards, but it will be very punctual and not really a big topic. On the contrary, as you have seen, we believe we are rather on the acquisition mode, bolt-on, easy, synergetic, profitable if opportunities arise. So cost is really an organizational matter. It's a matter of lean organization, simplification. We will review, as I said, our industrial footprint if it still fits the new markets. These tariffs are causing shifts in ore production with countries that are favored by more positive depositories, other that are paying a higher bill. So within our customer base, and that's what I referred to when I said limited direct impact for Imerys, but for our customer, yes. So there might be movements in where we supply our customers that could trigger, as you say, maybe a closure of a site or a divestiture of a site in a country maybe that has been penalized by lower activity. But we really want to work on costs. We are going to use AI to simplify our administrative processes, lean organization and probably give up some nice to haves that are not affordable when you have challenging market conditions. But the portfolio is a good one. And even the more -- let's say, the business is under more pressure like some businesses in Europe, especially after the energy crisis, if these antidumping measures will be confirmed, I do believe there will be market share gains and a return to a very reasonable profitability as expected. Operator: Your next question comes from the line of Sven Edelfelt from ODDO BHF. Sven Edelfelt: I would have two follow-up questions. Alessandro, you mentioned a first investor with regards to lithium. Does this suggest the participation will be limited to a 10-ish percentage point participation? And therefore, you expect maybe some other investor or maybe I misunderstood. And the second question, on the restructuring cost that you're announcing I don't understand why you are announcing a potential restructuring cost without giving us any number. On the second question related to this one is, does that mean that given what you have from your team on the ground, you don't expect a recovery before 2027 or 2028. What's the sense of doing it right now? That's my question. Alessandro Dazza: Thank you, Sven, for your questions. The first one is, again, I cannot enter more details as we are in the middle of the discussions. But I can definitely say that your interpretation is not the right one. A partner is a partner and every partner is important, and we expect the partner to play a significant role. What I'm saying is that if you look potentially to the end of this project is a very large project one day, if we go to the end. And typically, in mining -- large mining projects, you might have several players joining forces to sustain the CapEx to bring know-how and to develop jointly. So it's nothing to be interpreted other than this, partner important, every partner important. And going forward, we will consider interested party in this project if they bring value any time. On your second one, again, don't interpret that we do not expect any rebound. I expect a rebound in Europe next year. The magnitude to be seen. And when I say high is because all the studies -- economic studies we buy by big experts do foresee a recovery in Europe. They're a bit less optimistic on the recovery in the U.S. They believe the first months of next year, the U.S. might be under pressure because of all the turmoil, inflation uncertainty and uncertainty is the right word and then a recovery in the second half of next year. What I believe is that a significant strong rebound is not for the next 2, 3 quarters. Therefore, better be ready with a stronger company, leaner, more efficient. And when volumes come, that's with a 53%, 54%, 55% contribution margin, when volume comes, then we really see a significant improvement in profitability. So we are just doing an extra mile to be stronger, to be more efficient, to be leaner, waiting for a slow or a rapid recovery in the future. So not pushing back anywhere. I do believe '26 or at least forecast say '26 should be good again, but it's not there and waiting is not an option. We did not communicate more figures Sven because there are legal processes and constraints that are being discussed and no decision is taken. There are consultations ongoing, preparation. But latest by the next communication, we will give for sure all the details in due time when everything has been set, discussed, reviewed, negotiated, approved. So it give us the time just to be there. Operator: There are no further questions. I would like to hand back for closing remarks. Alessandro Dazza: Thank you very much, and thank you for all participants to listening to this evening's press release and presentation on Imerys. Thank you very much. Good evening. Sébastien Rouge: Good evening. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, welcome to Clariant's Third Quarter, 9 Months Figures 2025 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Andreas Schwarzwaelder, Head of Investor Relations. Please go ahead, sir. Andreas Schwarzwaelder: Thank you, Sandra. Ladies and gentlemen, good afternoon. It's my pleasure to welcome you to this call. Joining me today are Conrad Keijzer, Clariant's CEO; and Oliver Rittgen, who joined Clariant as Clariant's CFO on August 1 and participating in his first results call today. Welcome, Oliver. Oliver Rittgen: Thank you. Andreas Schwarzwaelder: Conrad will start today's call by providing a summary of the third quarter developments, followed by Oliver, who will guide us through the business unit results and savings program. Conrad will then conclude with the outlook for the full year 2025. There will be a Q&A session following our presentation. [Operator Instructions] I would like to remind all participants that the presentation includes forward-looking statements, which are subject to risks and uncertainties. Listeners and readers are therefore encouraged to refer to the disclaimer on Slide 2 of today's presentation. As a reminder, the conference call is being recorded. A replay and transcript of this call will be available on the Investor Relations section of the Clariant website. Let me now hand over to Conrad to begin the presentation. Conrad Keijzer: Thank you, Andreas. I'm pleased to report that Clariant achieved significant growth in EBITDA before exceptional items in the third quarter of 2025 showcasing the success of our performance improvement programs and effective price and cost management in a continued challenging market environment for our sector. We delivered sales of CHF 906 million. This represents a 3% decrease in local currencies and a 9% decrease in Swiss francs. Our EBITDA before exceptional items increased by 5% in absolute terms to CHF 162 million. We delivered a significant margin improvement of 230 basis points to 17.9%, driven by our performance improvement programs as well as price and cost management across all of our business units. Our savings program continued to support our performance in Q3. We achieved savings of CHF 19 million and booked CHF 3 million of restructuring charges in the quarter, taking our total savings to CHF 31 million in the first 9 months of 2025. As a reminder, this program is set to deliver CHF 80 million by 2027 with a significant contribution expected this year. We expect to book the total CHF 75 million of restructuring charges related to this program in 2025. Now turning to our 2025 guidance. We anticipate local currency sales growth at the lower end of our guided 1% to 3% range due to weaker industrial production and weaker consumer sentiment. We also confirm our 2025 profitability guidance of 17% to 18% EBITDA margin before exceptional items, underscoring our confidence in sustaining our improved levels of profitability. Last Friday, Clariant's Board of Directors decided to reduce its size from 11 to 8 members. This will be reflected in the nominations for the upcoming AGM 2026 on April 1 next year. Supporting these changes, 5 current directors will not stand for reelection and 2 new independent members will be nominated as appropriate ahead of the 2026 AGM. With this proposal, the Board aligns with Clariant's rightsized organizational setup, and it optimizes independence, tenure and gender diversity. The management team thanks the departing directors for their trustful collaboration over many years. Now moving on to more details relating to our financial performance in the third quarter of 2025. We delivered sales of CHF 906 million. In local currency, this represents a 3% decrease with the reported figure impacted by a 6% negative currency translation effect. We maintained pricing discipline across our portfolio with a year-on-year increase in Adsorbents and Additives and flat pricing in Care Chemicals and Catalysts. Volumes decreased at a low single-digit percentage rate in Care Chemicals and Absorbents and Additives, while Catalysts volumes decreased by 8% as the weak economic environment and utilization rates continue to trade below long-term averages, impacting refill timing. Turning to profitability. As I already noted, we had a strong overall performance with a 230 basis point improvement in EBITDA margins before exceptional items versus the third quarter of 2024. In total, the business units drove a 130 basis point improvement mainly from our performance improvement programs, price and cost management. The remaining 100 basis points was in corporate, with the majority related to phasing of provisions. In Care Chemicals, lower volumes were more than offset by a positive mix effect and contribution from Lucas Meyer Cosmetics. In Catalysts, lower volumes were partly compensated by price and cost management. In Adsorbents and Additives, profitability was positively impacted by pricing and mix effect despite slightly lower volumes. Reported EBITDA increased by 14% to CHF 159 million, representing a reported margin of 17.5%, including CHF 3 million restructuring charges booked in the quarter. With that, I now hand over to Oliver for further details on our business performance in the third quarter. Oliver Rittgen: Thank you, Conrad, and good afternoon, everyone. It's great to join the call today and present the first set of quarterly results as the CFO of Clariant. I look forward to fruitful discussions with our investors and the analyst community going forward. Let us now dive into the third quarter development by business unit, starting with Care Chemicals, where we recorded a strong margin uplift despite a weak industrial market environment. Sales declined by 3% in local currency, entirely due to lower volumes. We recorded high single-digit organic growth in Mining Solutions as we were able to cater for increased demand and compare against prior year, which was impacted by destocking. Sales in Oil Services increased at a mid-single-digit percentage rate, recovering from shut-ins in the first half of this year. As mentioned, the weak industrial market environment also impacted our industrial applications and base chemicals businesses, both recording a high single-digit decline suffering from tariff uncertainties. Finally, Personal and Home Care and Crop Solutions both declined at a low single-digit percentage rate. Regionally, sales in EMEA as well as the Americas decreased by a mid-single-digit percentage rate as destocking led to lower order volumes. Sales in Asia Pacific increased at a low single-digit percentage rate as the capacity expansion in Daya Bay, China drove local volume growth. We recorded an EBITDA before exceptional items of CHF 92 million, representing a stable performance compared to the prior year. This translated into a margin of 18.9%, representing 150 basis points improvement. Profitability was positively impacted by the strong operational performance of Lucas Meyer Cosmetic as well as positive mix effect and contribution from the performance improvement programs. In Catalysts, we were able to drive a margin improvement in a weak demand environment. Sales decreased by 8% in local currency, entirely as a result of lower volumes versus the prior year period. Low double-digit sales growth in Specialties did not offset declines in the other segments. The weak environment and utilization rates continuing to trade below long-term averages, impacting refill timings for Propylene and Catalysts in China in particular, leading to a high double-digit percentage rate decline. Sales in Syngas & Fuels as well as Ethylene were down by a mid-single-digit percentage rate versus a strong comparable in the case of Syngas & Fuels. Regional dynamics were driven by the refill delivery schedules of the business with sales in the Americas increasing at a high double-digit percentage rate, driven by deliveries in Propylene and Ethylene catalysts. In both EMEA and Asia Pacific, sales decreased at a high single-digit percentage rate, driven by lower sales in Ethylene catalysts in EMEA and lower Propylene catalysts in China. In the third quarter, EBITDA before exceptional items decreased by 13% to CHF 33 million, representing a margin of 19.3% versus 18.7% in the prior year. This was driven by gross margin improvement and contributions from performance improvement programs, which more than offset the impact of lower volumes. Moving to Absorbents and Additives, where we also drove a margin improvement of 130 basis points versus prior year, supported by our continued additives growth. Sales increased by 1% in local currency with pricing up 3%, while volumes decreased by 2%. By segment, Adsorbents sales decreased by a mid-single-digit percentage rate, while Additives increased by a high single-digit percentage rate. Regionally, we recorded sales growth in EMEA at a low single-digit percentage rate, driven by pricing. In the Americas, sales decreased at a high single-digit percentage rate as growth in Additives did not fully offset the decline in Adsorbents. Sales increased at a low double-digit percentage rate in Asia Pacific, driven by volume growth in both Adsorbents and Additives. EBITDA before exceptional items increased by 5% to CHF 42 million, with a margin of 17.2% versus 15.9% in the prior year. Profitability was driven by growth and mix effects in Additives as well as benefits from the performance improvement programs. Cost efficiencies and raw materials of 5% also contributed positively. Now turning to our Investor Day savings program. As a reminder, we expect full run rate savings of CHF 80 million from business unit and corporate actions to be delivered by end of 2027 for the savings program that we announced in November of last year. As Conrad mentioned earlier, savings achieved in the first 9 months totaled CHF 31 million with CHF 19 million delivered in the third quarter. Key measures aimed at helping us to deliver these savings are being implemented. These include headcount reduction of approximately 340 full-time equivalents as of 30th of September 2025 across the businesses and corporate functions. The closure of 2 production lines and 2 sites globally as part of our footprint optimization and procurement savings of CHF 15 million related to structural changes in qualifying alternative suppliers and best practice contract management. In the first 9 months of 2025, we booked CHF 63 million of the expected CHF 75 million in restructuring. And with this, I close my remarks and hand back to you, Conrad. Conrad Keijzer: Thank you, Oliver. Let me conclude with our outlook for 2025. There remains an increased level of risk and uncertainty due to tariffs and trade tensions, which has a negative impact on global industrial growth expectations and consumer sentiment. According to the latest assessment of Oxford Economics, the global GDP is mainly driven by AI investments and services, while industrial production is still lagging. In addition, the uncertainty created by tariffs and trade tensions is impacting consumer demand for durable and semi-durable goods. Oxford Economics global GDP growth projection for 2025 has slightly increased from 2.5% after H1 to 2.8% in October, driven by the AI boom in the U.S. On the other hand, the chemicals industry forecast further declined to 2.1% growth from 2.2% growth after the first half year in 2025 and from 2.9% at the beginning of this year. This weakened market environment assumption in the U.S. and Europe, in particular, aligns with our own experience, and we, therefore, expect local currency sales growth to be at the lower end of the 1% to 3% range for 2025. We expect slight local currency growth in Care Chemicals and in Adsorbents and Additives, with sales in Catalysts expected to be slightly below those of 2024. We continue to expect to deliver an EBITDA margin before exceptional items of between 17% and 18%. The continued profitability improvement in prior years and in the first 9 months of this year shows the effectiveness of the structural changes we implemented under our performance improvement programs. We also aim to further improve cash conversion towards our 40% target. Despite these current impacts, we remain committed to delivering our medium-term targets, supported by the continued execution of our targeted initiatives. With that, I turn the call back over to you, Andreas. Andreas Schwarzwaelder: Thank you, Conrad and Oliver. Ladies and gentlemen, we are now opening the floor for questions. [Operator Instructions]. Sandra, please go ahead. Operator: [Operator Instructions] Our first question comes from Thea Badaro from BNP Exane. Thea Badaro: Two questions from me, please. I'll start with the obvious one. You've clearly booked lower exceptionals in the quarter than most people expected. Are you still anticipating the full CHE 75 million to be booked this year? Or do you maybe expect some of it to be pushed into next year? And then my second one is on CapEx. I've noticed that you're now guiding to CHE 180 million versus 10% higher Q2 and 20% higher at the beginning of the year. Where is most of the cost coming from? And how should we think about it through to 2027? Conrad Keijzer: Yes. So I'll let Oliver comment on the one-offs, and I'm sure he also has some comments to be made on CapEx. But basically, if you look high level at CapEx, we're actually very pleased with, I think, a structurally lower level of CapEx when you look at Clariant compared to historic levels. The key reason is that after the opening, in fact, the opening next week of our new Care Chemicals plant, which was an CHE 80 million investment in China. And after the opening of the second line of the Additives line in China, which was a CHE 40 million investment, most of the CapEx, the gross CapEx is actually behind us. So you see now a switch towards more maintenance-oriented CapEx. And that is actually structural because if you look at capacities, we're actually quite happy now with the global footprint, and we don't target any sort of new greenfield plants in the foreseeable future. Maybe Oliver can comment on one-offs in the quarter and moving forward as well as maybe some more detailed comments if you have them on CapEx. Oliver Rittgen: Sure. Yes, I mean, you're right. We booked so far like CHE 63 million of one-offs year-to-date. Q3 was a bit of a smaller one with the CHE 3 million. But we still foresee, as we communicated before, that we're going to hit the CHE 75 million for the full year. And with that, obviously, delivering on the CHE 80 million savings that we envisioned. As we said, CHE 31 million of that we have seen in the first 9 months, and we still have the confidence that more than half of that will be delivered by the end of the year. Maybe one additional comment on CapEx. Yes, indeed, the guidance that we have given with the CHE 180 million is now lower than what we have seen in previous years and also beginning of the year. And additionally, to Conrad's comments, of course, that is also a function of the business dynamics that we're seeing right now and our commitment to deliver on our cash flow commitments that we have given with managing towards the 40% cash conversion that we have been communicating before. Operator: The next question comes from Katie Richards from Barclays. Katie Richards: I've got one on Care Chemicals, please, and then one on Adsorbents and Additives, if I may. So on Care Chemicals, could you just talk us through the margin bridge, please? If I take the 1% raw materials decline and higher energy costs, this looks to have been a slight tailwind for the quarter, maybe about CHE 1 million. And obviously, we have CHE 5 million add back, I think, from the inventory revaluation of Lucas Meyer not occurring this quarter. And then taking into account the volume headwind, it looks like the positive mix effect or the cost savings coming through must have been pretty significant this quarter. So just any color on the bridge here and how significant the positive mix effect would have been outside of Lucas Meyer and then on Adsorbents and Additives, I was quite intrigued by your comments that the Americas decreased high single-digit percentage rates driven by Adsorbents with volumes impacted by the U.S. renewable fuels regulation. I was under the understanding that the EPA was increased in the blending mandate and this would be a benefit for Clariant. So can you explain what's going on here? Is it just full utilization or regulatory uncertainty? Conrad Keijzer: Okay, Katie. Yes, thank you for those questions. I'll make some high-level comments on margins on Care Chemicals, but let Oliver also provide here some additional details, and I also will comment on the Adsorbents, slow demand right now in the U.S. So first of all, on Care Chemicals, we were extremely pleased actually with the step-up in EBITDA margin from basically before exceptional items from 17.4% last year to 18.9%. That is a combination of high level of pricing where actually we've been able to hold prices in an environment where raw materials were actually down by 1%. That is very consistent with our strategy. We are seeing some competitors sort of going out for volume, but we are actually able to hold prices in an environment where there's weak demand. And I think that's a testimony to the strength of our products, but also, I think, a big complement to our frontline sales leaders. Positive effect from pricing on margins, positive effect from mix where you see weakness in the sort of lower-margin segments like industrial applications and base chemicals. And finally, performance improvement programs that are contributing here. Adsorbents, the weakness in renewables in the U.S., yes, there is clearly a weakness right now. If you look at basically biodiesel where we do the purification with our Adsorbents, but also SAF where we do the purification. There were incentive packages that temporarily were taken away by the new Trump administrations. But under the new big and beautiful tax bill, there is actually incentives. There are incentives again. The challenge here is that these still need to be approved by Congress and the current shutdown of the government hasn't helped here. So it is not a structurally lower growth market, but there is a temporary weakness in markets for biodiesel and SAF, but we expect this to pick up actually early next year, yes. Katie Richards: And just one follow-up because you mentioned people going for volume. Some of your competitors have commented on increased agent competition, particularly in surfactants. Do you think you are making volume concessions to protect margins there? Conrad Keijzer: We're not making any concessions. We just are basically holding price. There's no need for us to lower the price on products that are differentiated enough that they add a lot of value to our customers. That's one effect. I think the other effect is the continued repositioning towards more premium, more specialty, more consumer-facing segments in Care Chemicals. Operator: The next question comes from Christian Faitz from Kepler Cheuvreux. Christian Faitz: Two questions, please, from my side. In your Catalysts business, is there any visibility into 2026, i.e., customers flagging, for example, that mothballed plants might be back and might need a Catalysts refill? And then the second question is actually on Lucas Meyer. I mean, well noted that this business continues to contribute nicely to the profit development of your Care Chemicals business. Can you please elucidate a bit if the business kept its high operating margins when it entered Clariant, I believe it was in the 40 -- actually in the higher 40% EBITDA? Or is consumer hesitancy also impacting the Lucas Meyer business a bit? Conrad Keijzer: Yes. Thank you very much, Christian, for these 2 questions. Well, first of all, yes, we're not giving an outlook yet for next year 2026 nor for Catalysts, but maybe I can maybe reference some of the industry data where basically, if you look at chemical production volumes this year, we're heading for, let's say, 2%, 2.5% growth overall globally in chemical production. That is actually a mix between flat growth in Europe, slightly up in the U.S. and, let's say, around a 5% growth in China. If you look, however, for next year, there is an anticipation of further slowing down in chemical production growth. So if you look at next year, the industry outlooks are more like a 1.5% growth for chemical production globally, which basically is an outlook that's based on, again, flat production volumes in Europe. Volumes turning slightly negative actually in the U.S. next year as a result of tariffs and people expect a further slowdown in China from currently, let's say, 5% growth to very low single-digit growth. So in terms of bottoming out, we're certainly not bottoming out this year for our Catalysts business, as you've seen in our numbers. We think though that next year with these outlooks, that is actually a bottom. And on a positive note, in '27, you should see a recovery actually, and that is for all of our businesses, a positive. At some point in time, consumers will start to buy durable and semi-durable goods again, people will start to buy new furniture, new electronics products, et cetera. And that means a recovery will come in chemicals, but it's delayed. Finally, on Lucas Meyer, yes, we're very pleased with the performance inside Clariant, and I can confirm that margins still are, let's say, mid- to high 40s in terms of EBITDA. Operator: The next question comes from Christian Bell from UBS. Christian Bell: Well done on the result. I just have 2 questions. My first question relates to your guidance, which I think I'll ask in 2 parts, if I can. So part of that, to meet your sales guidance, you'll need about 5% organic growth in Q4 to offset foreign exchange of about negative 5%, and that's coming off organic growth of negative 3% in the quarter just been. So just curious, where is that strength coming from by segment? It looks like you'll need a big fourth quarter for both Care and Catalysts. So is that market driven, keeping in mind, you've already indicated that, it doesn't seem likely. So -- or is it sort of specific projects? And then part B to that question is, after narrowing your sales guidance, you've left Q4 EBITDA margin range quite wide by my estimate sort of 14% to 18%. So what's behind that variability? And then I'll wait to ask my second question. Conrad Keijzer: Yes, Christian, the sound was not so great. Could you repeat high level the question in very crisp language because we couldn't hear it very well. Christian Bell: Okay. Yes. So it's about your guidance, what it implies for the fourth quarter, what you need to do to reach your guidance. On sales, it implies that you need to do about 5% organic growth. And I'm wondering where that strength is coming from. It looks like you need to do -- it looks like you need to have big quarters from Care and Catalysts, which seems difficult in the current environment. Conrad Keijzer: Yes. No, clear. Now let me comment on revenue, and I'll let Oliver comment on the profitability on the EBITDA guidance. If you look at revenue guidance for us to land at the low end of the 1% to 3% local currency growth, what we're guiding for. Indeed, you're correct, we need a pickup in the final quarter, not only sequentially, but also relative to prior year. Where we see mainly that happening is in Care Chemicals, where we actually had last year an unusual weak season for de-icing that was entirely weather related. This year, based on a normalized sort of pattern in terms of the weather, we should see a big pickup in Care Chemicals relative to prior year and also sequentially. On top of that, we actually see a strong pipeline in mining. You see that in our numbers, our Q3 numbers as well as in oil services. And both of these increases in Q3 were market share related, which should continue as a positive momentum in the fourth quarter. And finally, the Lucas Meyer business continues to do well, both in terms of revenue and margins. Catalysts is against a very strong Q4 last year. But based on the order book, we expect a solid quarter in Catalysts, both for PDH, propane to propylene orders in the book from China again as well as for ethylene. And finally, Adsorbents and Additives is slowing, as mentioned, but we expect there -- the pattern to continue consistent with prior quarters. But all in all, we do indeed expect a pickup from prior year, which should land us somewhere close to the bottom end of this guidance range. Maybe Oliver, some comments on EBITDA margins. Oliver Rittgen: Yes. Christian, maybe one addition to the top line, which also explains a little bit the bottom line performance. I mean you have seen the Catalysts volume decline of 8% in Q3. There was indeed a bit of a move from some of the orders from Q3 into Q4. This is why you see a softer Q3 in Catalysts. And then obviously, that will be part of that driver for the Q4 performance that we are expecting. And with that, based on the top line picture that Conrad was painting here, the growth in Catalysts, the growth in Care is going to drive margins in the fourth quarter. And then we have 2 counter effects. One is that we slowed down on production in Additives and Adsorbents as a measure also of optimizing our net working capital and staying committed on the cash flow performance. And the second one is the corporate cost phasing that we were mentioning in Q3, which is a different phasing of incentive provisions this year versus previous year. And you see that one coming back -- those costs coming back in Q4 then. And that's going to drive the margin performance and we expect, obviously, to land the margin in the guidance range that we have provided. Christian Bell: I think my question was slightly more simple in a way in that how come you've narrowed your sales guidance, but you haven't sort of narrowed your margin guidance for the fourth quarter. Why is the sort of margin guidance so wide in the fourth quarter alone? Oliver Rittgen: I mean we haven't really adjusted our guidance overall, as you know. I mean, the sales guidance is since second quarter, the 1% to 3% and the margin guidance is also still 17% to 18%. We didn't adjust any of the guidance ranges. So there's no particular reason behind that. Christian Bell: Okay. Cool. And sorry, if I could just squeeze in my second question. I think that sort of follows on from one of the previous ones, some of the commentary around -- from your peers in Care Chemicals segment. Just curious, is there sort of increased competition from Chinese players, a more recent development? Like -- and how do you sort of see that dynamic evolving in the near to medium term? Conrad Keijzer: Yes, increasing competition from Chinese players. We are actually seeing little of that in our segments. So Catalysts is a true specialty business, which requires a lot of IP and technology. We see very limited competition there from Chinese players. In Care Chemicals, certainly in the segments where we are playing, we also see very limited competition. Where we are seeing actually quite some activity is in the Additives area. And that is actually for local players, for example, for UV stabilizers, but even some local players for flame retardants. Now some of these are, frankly, the so-called copycats that are infringing our IP, and we're going obviously against that. But we are well positioned with local manufacturing for flame retardants there. But one of the things that we did see was for the UV stabilizers that we were no longer competitive with the plant out of Muttenz in Switzerland. And this is actually part of the recent restructuring line that we will actually transfer that production from Switzerland to India to become more competitive for these UV stabilizers. But in all of these segments, we have differentiated technology, but local manufacturing in China has become really a prerequisite to be competitive. Operator: The next question comes from James Hooper from Bernstein. James Hooper: The first one is around the Board changes. Can you give us a little bit more background on why you wanted to cut the numbers on the Board? And then also a little bit more on what you're looking for from the new Board members and what you're expecting the Board to do? And then the second one is a little bit about capital allocation. I think it was referenced earlier in the CapEx question that you've been taking CapEx down a little bit in order to protect cash flows. And given the low growth environment we find ourselves in and protected 2026, not a high year of chemical production, is there an extent that you need to trade off your kind of 2027 medium-term targets? You're making great progress on the margins, but are you going to have to choose a little bit between making growth investments in this macro environment or protecting cash flows? Conrad Keijzer: Yes. Thank you very much, James. I'll take the first question on the Board changes, and then Oliver will make some comments on capital allocation and CapEx specifically. Yes, if you look at the Board changes, what we have done recently over the years in the company is actually to right-size the company in terms of -- yes, delayering, in terms of taking out duplication in management. We used to have the decision-making metrics with functional directors, country directors, BU directors. We basically implement full P&Ls and 3 business units. But the Board basically in size has not adjusted. And the consistent feedback from proxy advisers recently has been that they perceive the Board of Clariant -- they perceived the Board of Clariant, I should say, as too large. The feedback from proxy advisers also has been that on gender diversity, we are currently not meeting the 30% target for a minimum representation of females on the Board. And finally, in terms of independent Board members, some of our Board members had a tenure above 12 years, and then they are no longer seen as independent. So it is these 3 elements that consistently have been brought up by the proxy advisers, the size of the Board, the diversity of the Board, the independence of the Board that actually are now being addressed with the reduction of the Board to 8 and by bringing in 2 new independent -- outside Board members. So it's not that we're lacking or we're lacking certain expertise to your question, it's really very much building on the feedback by proxy advisers. Oliver Rittgen: Okay. James, on your capital allocation question and without maybe hitting too much on the '27 because as we said before, we're not looking at specific numbers now for '27, but maybe more in general, how we will look at capital allocation. How we approach it is very much from focusing on a triangle of growth, margin and cash. And the decisions around capital allocation is pretty much balancing this off across the portfolio and the segments that we are having. And capital allocation, of course, is the strategy that we're having here is to fund innovation to drive the growth for the future. And with that also driving that, obviously, the cash generation of the company. In terms of capacity availability for a potential growth, then growth pickup in '27, this is what the industry indicates at the moment. There's capacity available for us. So therefore, we are also well prepared for a potential pickup in that time window. Operator: The next question comes from Tristan Lamotte from Deutsche Bank. Tristan Lamotte: A couple, which are kind of linked and high level. In Chemicals, I was wondering, is your view that something has changed structurally in Europe in H2 '25? Or is this kind of a global and cyclical weakness? I'm just trying to figure out if this weak Q3 level is kind of the new run rate or if there's something kind of exceptional in the H2 that will revert? And then the second part to that question is, I'm just wondering what your current views are on the levels of support that chemicals is getting in Europe and whether this needs to increase and what practically could be done in that regard? It seems there's been a lot of discussion on what needs to happen, but the follow-through to this state has been quite limited. Conrad Keijzer: Thank you, Tristan. Yes. So as far as your question, what has changed, if anything, structurally in H2? Well, I think we need to take a look a little bit back further. So what structurally changed for Europe is actually 2022, and we have no longer access to cheap gas from Russia. That is actually the reason that European production levels in chemicals in Europe are still about 20% below the last year before corona, whereas it has recovered basically in the U.S. and Asia is well ahead of pre-corona levels. So this is the structural change. It is affecting primarily the chemical industry that is high energy intense, which we're clearly not. And it is also affecting parts of the chemical industry that use gas as a footprint, as a feedstock, which we're also not. So, for us, we have a global footprint. We have 65% of our revenue outside Europe. And what we see is a shift of some production and consumption away from Europe, but we pick that then up elsewhere. So, for us, this as being truly specialty is all manageable, but it's fair to say that a good part of the industry is affected by this. To your change, what's Europe doing, I think there are some positive signs. So we had, first of all, the green deal, which was primarily a package of legislation and commitments to carbon neutrality in 2050. What you now see is the new European Commission has this clean industrial deal which is much more focused on the competitiveness of the industry. So Europe needs obviously a competitive industry to deliver the green deal. And I think there are some positive signs here. But in all fairness, there's still some ways to go. And the carbon taxation is obviously something that at the time that this came up was absolutely seen as the right instrument. There was, however, the assumption that other regions in the world will follow. That's one thing. And at the time, the industry was making money. I think 2 things have changed. The other regions have not followed with carbon taxation and the industry right now is struggling to a large extent and can then itself much more difficult it is then to fund this energy transition. So this is -- I think this is on the radar for the European Commission, but still some more work needs to be done here, I think. Operator: The last question is from Walter Bamert from Zürcher Kantonalbank. Walter Bamert: The first question is regarding the Board changes. And there it is mentioned that the 2 new Board members will be independent. Does this apply that these are not from SABIC, so the SABIC members will be reduced from 4 to 2. Conrad Keijzer: Yes, that's correct, Walter. The SABIC representatives have been reduced from 4 to 2. And I will also say that the German shareholders have representation of 2 Board members that also has been reduced from 2 to 1. And indeed, the 2 new Board members coming in from the outside will be independent Board members. Walter Bamert: Okay. And then can you please help me with the headquarter cost, which was very low in the third quarter. Should that be for the full second half be at the level of the previous year, so a reversal? Or should it -- is it rather that the fourth quarter only is at previous year level? Oliver Rittgen: Yes, Walter, indeed, this is a phasing between the 2 quarters, Q3 and Q4. So that cost will come back in Q4. We have a bit of a different phasing of incentives provision from previous year to this year. Walter Bamert: Okay. But I hope for you that the incentives will be at the same level as previous year. [Audio Gap] Operator: Ms. Glazova, your line is open. Angelina Glazova: I think I just have one left at this stage. Could you comment in a bit more detail of what developments you are seeing in the Crop Solutions end market? You have mentioned somewhat softer performance in Q3, but in part due to stronger comparable. How do you see that developing maybe into next year? Because again, some of your peers mentioned somewhat slowing momentum in the end market. Conrad Keijzer: Yes. In terms of Crop, Angelina, we basically compare against a much weaker prior year where there was still destocking. So for the full year, we still see high single-digit growth in Crop Protection. We indeed had -- in the third quarter, we basically had sort of low single-digit negative in Crop Solutions, but that was against actually a strong sort of restocking quarter last year. So underlying, we see good demand. There's nothing here to worry. We actually think for the year, we will end up high single digits. So yes, we -- it's actually a strong segment for us. Operator: We have a question from Ranulf Orr from Citi. Ranulf Orr: I'm just wondering about how you view Clariant's portfolio overall as a kind of combination of fairly discrete businesses. And in the context of a weak -- another weak year in 2026 and frankly, who knows for 2027, I mean, is now maybe the time to start thinking about whether there's value to be had in breaking Clariant up or doing asset swaps to improve your scale in some of the businesses and make the individual units more competitive on a global scale. Conrad Keijzer: Yes. Thank you, Ranulf. So if you look at the portfolio, high level, where we came from was a hybrid between, on the one hand, commodity chemicals and on the other hand, specialty chemicals. Over the years, we have successfully repositioned the business towards purely specialty chemicals. As you are aware, we divested our Masterbatch business. We divested more recently the Pigment business, even more recently, the North America Oil Land business. And what we have now is really a portfolio that really is truly specialty in nature, and we're actually very pleased with the businesses there. To your point, limited growth in '26, limited growth this year. There may, at some point, be a certain level of industry consolidation. That is certainly what most people are predicting. We obviously want to play an active role in that, but you've also seen that we've been very disciplined with the acquisitions that we've made in recent years. All of these have actually strengthened our core businesses and we have no intent to bring in businesses that sort of do not bring true synergy to the existing portfolio. Operator: We have now a question from Chris Counihan from Jefferies. Chris Counihan: I just wanted to come back to the Board changes and the reduction because I'm just sort of thinking back to a few years ago and the accounting investigation that happened, I think, in 2022. And as part of the investigations, you talked about more controls, financial controls over financial reporting, procedures, a lot in the finance side, but I also remember you at that stage talking about more active Board control and involvement in terms of controls at Clariant. So I'm just trying to marry the statements from a few years ago versus now the way forward of reducing the Board size because it almost feels to me like the Board's role in such controls is maybe reducing as well. Conrad Keijzer: Yes. No, Chris, this is totally unrelated. So we basically are in 2025 now. We had the accounting challenge that was actually very early on in my assignment. That was about the 2021 numbers and even 2020 numbers. Then indeed, you're right, Chris, and we discussed it at the time. We identified a number of serious gaps. We brought in a new CFO. We really strengthened our checks and balances and controls, including more appropriate involvement by including our Board members at the time. But no, this is in place now -- solidly in place for a number of years, and these recent announced Board changes are unrelated to that. Andreas Schwarzwaelder: So ladies and gentlemen, before we close today's call, we would like to ask for your feedback by scanning the QR code on the presentation or using the link, www.clariant.com investor/feedback, you will be guided to our feedback tool operated by Quantifier. We appreciate your views and your assessment and sincerely thank you for your support. So this concludes then our today's conference call. As I said, the transcript of the call will be available on the Clariant website in due course. The Investor Relations team is available for any further questions you might have. Once again, thank you for joining the call today, and good afternoon. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning, ladies and gentlemen. I would now like to turn the meeting over to Scott Parsons, Alamos' Senior Vice President of Corporate Development and Investor Relations. Please go ahead, sir. Scott R. Parsons: Thank you, operator, and thanks to everybody for attending Alamos' Third Quarter 2025 Conference Call. In addition to myself, we have on the line today John McCluskey, President and Chief Executive Officer; Greg Fisher, Chief Financial Officer; and Luc Guimond, Chief Operating Officer. We will be referring to a presentation during the conference call that is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release and MD&A as well as the risk factors set out in our annual information form. Technical information in this presentation has been reviewed and approved by Chris Bostwick, our Senior VP, Technical Services and a qualified person. Also please bear in mind that all of the dollar amounts mentioned in this conference call are in U.S. dollars unless otherwise noted. Now I'll turn it over to John to provide you with an overview. John McCluskey: Thank Scott. Starting with Slide 3. Before we go into the report for the quarter, I want to acknowledge this has been far from a typical production year for Alamos. We experienced production downtime and lower production in the first half of the year, which we are on pace to make up in the second half. Unfortunately, in recent weeks, downtime at the Magino mill and the seismic event at Island Gold will not give us the time to do so. As a result of these recent events, we've taken the prudent course and lowered guidance for the year by 6% from the midpoint of our original guidance. We have a reputation for taking a conservative approach to guiding the market, and we pride ourselves on providing consistently accurate guidance. Suffice to say, we will continue to make operational improvements to raise the accuracy of our forecasting, recognizing that occasionally, mining can be unpredictable. There remains to be said that while these recent events have a short-term impact, they in no way take away from the quality of our mines and what is without question, 1 of the strongest outlooks in the gold sector. We are already seeing significant improvements this month with better grades at Young-Davidson and throughput from the mines. This will ultimately support lower costs than an 18% production increase, leading to record production in the fourth quarter. Production in the third quarter totaled 141,700 ounces, a 3% increase from the second quarter, driven by stronger performances from Mulatos and Island Gold District. This was slightly below the low end of quarterly guidance, reflecting 1 week of an unplanned downtime within the Magino mill during the last week of September. Reflecting lower costs from the Mulatos district, total cash costs decreased 9% from the second quarter, and all-in sustaining costs decreased 7%, both consistent with guidance. With higher production, a record gold price and lower costs, we delivered record revenue, cash flow from operations and record free cash flow of $130 million in the quarter. We expect a significant improvement in both our fourth quarter production and costs to drive new financial records at critical prices. Turning to Slide 4. Through the majority of the third quarter, we were on track to achieve our full year production guidance. Given the unplanned downtime of the Magino mill in the last week of September and the seismic event at our Island Gold operation in October, we're decreasing our 2025 production guidance to between 560,000 and 580,000 ounces. This represents a 6% decrease from our original guidance released in January. Late in September, a capacitor failure within the Magino mill impacted the electrical drive for the SAG and ball mills. This led to 1 week of downtime and lower third quarter production than originally expected. The mill was restarted by the end of September and continues to demonstrate improvement in October. Due to the unplanned downtime, Island Gold's mill was restarted in late September to focus on processing higher grade underground ore. Given the record gold price environment, we will continue running both mills through the remainder of the year with the increased combined milling capacity supporting additional gold production, higher cash flow and increased profitability. In mid-October, the Island Gold mine experienced a seismic event, which is a normal part of operating an underground mine, no personnel or equipment were impacted and mining rates are expected to continue within budgeted levels. However, it does delayed access to higher grades within one of our mining fronts. As a result, mine grades are expected to be lower than budgeted for the fourth quarter. Even with the lower-than-planned underground grades in fourth quarter, we expect a substantial increase in production from Island Gold District driven by higher combined milling rates. We expect similar increases at Young-Davidson driven by higher mining rates and grades and at Mulatos with the recovery of higher grade ore stacked over the previous 2 quarters. All 3 operations are expected to contribute to an 18% increase in the fourth quarter production at lower cost, driving a further increase in free cash flow at current gold prices. Turning to Slide 5. Short-term challenges we experienced this year have no impact on our strong long-term outlook, which remains firmly intact. The Phase 3+ expansion at Island Gold will be a key driver of our growing production and declining costs over the next several years. The expansion is progressing well and with expected completion in the second half of 2026. The Lynn Lake project is another important part of our organic growth. Forest fires in Northern Manitoba limited our progress on this project this year, but we expect to ramp construction entities in the spring of next year, and initial production is now expected in 2029. This puts us on track to reach 900,000 ounces of lower-cost annual production by the end of this decade. The Island Gold District expansion study currently underway is expected to outline further upside with the potential to increase consolidated production to 1 million ounces per year within a similar time frame. We generated year-to-date free cash flow of nearly $200 million in 2025 and expect to generate growing free cash flow as we execute on this growth. Following the start-up of Lynn Lake, we expect to generate more than $1 billion of free cash flow annually at current gold prices. Now looking at Slide 6. In addition to delivering on our organic growth plans, we continue to surface value from our portfolio of assets. This included announcing the sale of our Turkish development project for a total cash consideration of $470 million. The transaction closed earlier this week and marks a positive outcome, realizing significant value for assets we had written off in 2021. We received $160 million on closing and the remainder, $310 million will be received over the next 2 years. With our strong free cash flow during the third quarter and initial proceeds from the sale of our Turkish assets, our current cash balance has increased to over $600 million. We'll be using the proceeds from the transaction and growing cash position reduced our small debt position, and we expect to be active on our share buyback. We were also recognized for the second consecutive year as a TSX30 winner by the Toronto Stock Exchange for our strong share price performance of 310% over the trailing 3 years. The award is a testament to our long-term track record of outperformance, something we expect to continue to build upon as we deliver on our upcoming catalysts and organic growth times. I'll now turn the call over to our CFO, Greg Fisher, to review our financial performance. Greg Fisher: Thank you, John. On to Slide 7, we sold approximately 136,500 ounces of gold in the third quarter at an average realized price of $3,359 per ounce for record revenues of $462 million. The average realized price was below the London PM Fix for the quarter, primarily due to the delivery of over 12,300 ounces into the gold prepaid facility at a fixed price of $2,524 per ounce. We will deliver the same number of ounces in the fourth quarter, after which the prepay obligation will be completed. As a reminder, the prepaid facility was executed in July 2024 with the proceeds utilized to retire 180,000 ounces of forward sale contracts inherited from Argonaut Gold across 2024 and 2025 with an average price of $1,840 per ounce. Based on an average gold price of almost $3,000 per ounce since July 2024, the company increased cash flow by approximately $40 million over that period. given the decision to buy out the 180,000 ounces of hedges 15 months ago through the execution of that prepaid facility. Quarter-over-quarter, total cash costs and all-in sustaining costs decreased 9% and 7%, respectively, and both were in line with quarterly guidance. We expect total cash costs and all-in sustaining costs to decrease a further 5% in the fourth quarter, driven by higher production across all operations. We remain on track to achieve full year cost guidance, which was revised earlier in the year. We are now reporting total cash costs and all-in sustaining costs, excluding the impact of mark-to-market adjustments for the revaluation of previously issued share-based instruments. This methodology provides a better representation of our total costs associated with producing an ounce of gold and eliminates volatility associated with mark-to-market adjustments. These mark-to-market adjustments to long-term instruments impact both total cash costs and all-in sustaining costs, given the company allocates these costs to mining and processing costs and share-based compensation expense on the income statement. Our reported net earnings were $276 million in the third quarter or $0.66 per share. This included $193 million reversal of a previously recognized impairment related to the Turkish projects as well as unrealized losses on hedge derivatives, foreign exchange impacts and other adjustments totaling $72 million. Excluding these items, adjusted net earnings were $156 million or $0.37 per share. Operating cash flow before changes in noncash working capital was a record $275 million in the third quarter or $0.65 per share. Capital spending totaled $135 million and included $35 million of sustaining capital, $83 million of growth capital and $17 million of capitalized exploration. Our consolidated 2025 capital guidance has been updated to between $539 million and $599 million, a 10% decrease from previous guidance, primarily reflecting lower spending at Lynn Lake with the ramp of construction activities shifting to 2026. Free cash flow for the quarter totaled a record $130 million, a 54% increase from the second quarter, driven by record contributions from all 3 operations. This includes $73 million from the Mulatos District, $72 million from the Island Gold District and $62 million from Young-Davidson. Our cash balance grew 34% from the end of the second quarter to $463 million. Subsequent to quarter end, we received initial cash payments totaling $163 million from the sale of both our noncore Turkish development projects and the Quartz Mountain project, bringing our total cash position to over $600 million currently. Combined with the undrawn balance on the credit facility, our total liquidity is over $1.1 billion. We expect growing production and declining costs to drive increasing free cash flow over the next several years while continuing to fund our organic growth plans. With a growing cash position, we expect to reduce our $250 million of debt currently outstanding while also evaluating opportunities to buy back shares and eliminate a portion of the remaining legacy Argonaut hedges. I will now turn the call over to our COO, Luc Guimond, to provide an overview of our operations. Luc? Luc Guimond: Thank you, Greg. Over to Slide 8. Third quarter production from the Island Gold District totaled 66,800 ounces, a 4% increase from the previous quarter. A more substantial increase is expected in the fourth quarter, driven by an increase in combined milling rates from the Island Gold and Magino mills. Magino's milling rates continued to increase through the third quarter until the last week of September, when a capacitor failure within the electrical house impacted the electrical drive for the SAG and ball mills. This resulted in 1 week of unplanned downtime. The capacitor and electrical drive module were replaced by the end of the quarter, following which milling rates have increased to average a new high in October. Quarter-over-quarter, underground mining rate increased 7% to 1,325 tonnes per day. Open pit mining rates increased 4% to 59,000 tonnes per day, including a 28% increase in ore mined to 17,600 tonnes per day. Grades mined from underground and the open pit were consistent with annual guidance. In mid-October, a seismic event occurred within the underground operation of Island Gold that has delayed access to higher-grade stopes to fill within 1 mining front. Seismic events are not uncommon for underground operations and mining rates are expected to remain within guided levels. However, rates mined in the fourth quarter are now expected to be lower than previously planned. We continue to expect a significant increase in production and decrease in costs in the fourth quarter. However, given the lower expected underground grades and unplanned downtime at the end of the third quarter, production guidance for the full year has been revised lower to between 260,000 from 270,000 ounces. Moving to Slide 9. A number of optimization initiatives have been implemented within the Magino mill over the past year that continue to drive improvements quarter-over-quarter. This included the installation of a redesigned liner and bolt configuration within the SAG mill in July, such that following a liner change and excluding the 1 week of unplanned downtime at the end of September, milling rates increased nearly 10%. With the mill up and running by the end of the third quarter, milling rates have continued to improve in October, approaching 10,000 tonnes per day, a new monthly high for the operation. To minimize potential unplanned downtime in the future and ensure increasing consistency of the operation further review of electrical components was completed to ensure all critical spares have been identified and are on site. Moving to Slide 10. Given the unplanned downtime at the Magino mill, the decision was made to restart the Island Gold mill in the last week of September to focus on processing higher-grade underground ore. Operating the 2 mills will provide additional operational flexibility with increased milling capacity and allow us to capitalize on the higher gold price environment with stronger gold production. The restart of the Island mill provides an additional 1,200 tonnes per day of milling capacity. This is expected to support approximately 3,000 ounces of additional gold production on a quarterly basis, driving increased cash flow and profitability. At current gold prices, this represents nearly $50 million of additional annualized revenue with significantly higher gold prices, more than offsetting the higher processing costs associated with operating the Island Gold mill. We will operate the 2 mills through the end of this year, and we'll evaluate its ongoing operation into 2026 as part of the expansion study. Over to Slide 11. The Phase 3+ expansion continues to progress with the shaft sink now at the 1,350-meter level, 98% of the ultimate depth of 1,379 meters. Work also commenced on the 1,350 level shaft station. The Magino mill expansion to 12,400 tonnes per day is progressing well and is on track for completion in the second half of 2026. Base plant construction is advancing and expected to be completed in the first quarter of 2026. Mechanical and electrical outfitting for the water handling facility and shaft in-house is ongoing and concrete foundation work for the new administrative complex is underway. Over to Slide 12. As of quarter end, we have spent and committed 84% of the total Phase 3+ capital of $835 million. The photos on the right highlight the progress on the shaft sink and 1,350 level shaft station. We expect to be skipping ore from this station in the latter part of next year with the expansion on track for completion in the second half of 2026. Over to Slide 13. We continue to advance the expansion study for the Island Gold District, which includes the evaluation of a larger mill expansion of up to 20,000 tonnes per day. The study is expected to include a larger mineral reserve through ongoing mineral resource conversion with encouraging results from our delineation drilling program supporting a strong rate of conversion and reserve growth. Work currently underway as part of the Phase 3+ expansion to 12,400 tonnes per day is being completed with a larger expansion in mind. This includes sizing the footprint of the new mill building to accommodate additional equipment for a further expansion of up to 20,000 tonnes per day. To ensure all the assays from the recently completed delineation drilling program are incorporated into the expansion study, we have shifted the completion of the expansion study from late this year to the first quarter of 2026. With the larger mineral reserve and higher combined mining and milling rates, we expect the expansion study will demonstrate significant upside to the base case plan released earlier this year. Over to Slide 14. Young-Davidson produced 37,900 ounces in the quarter, similar to the second quarter, reflecting the planned shutdown of the Northgate shaft in the first week of July to change the head ropes. Reflecting the downtime, mining rates averaged 7,300 tonnes per day in the quarter. Given the lower mining rates earlier in the quarter, excess mill capacity and higher grade prices -- sorry, higher gold prices, the low-grade stockpile ore was processed. Mill throughput rates averaged 7,800 tonnes per day in the quarter, a 12% increase over the previous quarter, reflecting the contribution of lower-grade stockpile ore, process grades of 1.79 grams per tonne was 7% lower than mine grades. Reflecting lower mining and milling rates for the first 9 months of the year, production guidance has been revised lower to between 160,000 and 165,000 ounces. Mining rates have returned to targeted levels, averaging 8,000 tonnes per day in September and October and are expected to remain at similar levels for the remainder of the year. Grades mined also increased towards the upper end of guidance in October at 2.25 gram per tonne and are expected to remain at similar levels for the rest of the quarter. Higher mining rates and grades, Young-Davidson is expected to have a much stronger fourth quarter with higher production and lower costs. Mine site all-in sustaining costs decreased in the third quarter, with a further decrease expected in the fourth quarter, the operation remains on track to achieve the full year cost guidance that was revised earlier in the year. Young-Davidson continues delivering strong mine site free cash flow with $62 million generated in the quarter and $160 million in the first 9 months of the year, already surpassing the previous year record of $141 million in 2024. With strong ongoing free cash flow, the operation is on track to deliver well over $200 million for the full year at current gold prices. Over to Slide 15. I Production from the Mulatos District totaled 37,000 ounces in the third quarter, a 9% increase quarter-over-quarter with the operation benefiting from strong ongoing stacking rates and grades and the recovery of previously stacked ounces. This trend is expected to continue with a further increase in production in the fourth quarter as the operation benefits from the recovery of higher grade ore stock in the previous 2 quarters. With higher production expected in the fourth quarter, we are increasing full year product guidance to between 140,000 and 145,000 ounces. Reflecting the stronger production, cost declined in the third quarter and with a further decrease expected in the fourth quarter, the operation is well positioned to meet its full year guidance. The PDA project continued advancing during the quarter. the focus on procurement of long lead items and detailed engineering. Expenditures are expected to increase in the fourth quarter and more significantly into 2026 with the ramp-up of construction activities. Project remains on budget and on track to achieve initial production mid-2027. The Mulatos District generated mine site free cash flow of $73 million in the quarter and $129 million in the first 9 months of the year. It remains well positioned to continue generating strong free cash flow while fully funding construction of PDA. With that, I will turn the call to John. John McCluskey: Thank you, Luc. I want to reiterate that this has not been a typical year for Alamos and not reflective of our long-term record of meeting or exceeding expectations. Our near-term and long-term outlook remains bright, and with one of the strongest growth [indiscernible] in the sector, we remain confident in our ability to deliver on our guidance. We expect to demonstrate this strong outlook, starting with significant increase in production and decrease in costs in the fourth quarter. I'll now turn the call back to the operator who will open up for your questions. Scott R. Parsons: We'd like to open up the call for Q&A now, please. Operator: [Operator Instructions] Our first question is from Cosmos Chiu from CIBC. Cosmos Chiu: Great. Thanks, John and team. Maybe my first question is on Q4. John, as you mentioned, we're expecting increases to production in Q4. You've given us a range, 157,000 to 177,000 ounces, fairly sizable range, especially for quarterly production. Could you maybe just touch on some of the factors that could lead you to the higher end of that guidance versus, say, the lower end? Luc Guimond: Cosmos, it's Luc here. I mean just across the operations, as we've touched on, I mean, we're consistently delivering on the higher mining rates with Young-Davidson at 8,000 tonnes per day. The big driver really for the higher gold production also coming out of Young-Davidson in the fourth quarter is related to grade. Based on the mine plan that we have put forward for the fourth quarter, we're expecting to be at the high end of our guided grades of 205,000 to 225,000. So we're at the higher end of that 225,000 area. With regards to Mulatos, it's really a function of -- we've stacked a lot of gold in the first couple of quarters, Q1, Q2 and certainly Q3, and we'll start to see more of that gold production coming off the leach pad in the fourth quarter, which will drive higher production for Mulatos. Island Gold, we continue with similar guided levels of mining rates and certainly, great performance as well through the fourth quarter as expected from Island. So when you combine those 3 catalysts from those operations, that's what's really driving the higher gold production in the fourth quarter. Cosmos Chiu: Okay. And Luc, since I have you here, maybe -- could you maybe elaborate a little bit on that seismic activity that happened at Island Gold in mid-October. It sounds like it's not a permanent issue. it doesn't seem like it has longer-term impacts but But could you give us a bit more granularity in terms of sort of what happened? Was it in a higher risk area? Luc Guimond: Yes. I can touch on that a bit. So let me just to emphasize, seismicity is just -- is a natural aspect of occurrence that occurs with underground mining operations. As we extract the ore body through development and production blasting, we're changing the stress regime within the mining environment. In this case, the 1 mining front that was affected with this seismic event, really, the reason that we've been -- that we've had to stop production from that 1 area is due to the fact that from a legislative perspective, we need to have 2 means of egress of the Mine, one being the ramp system and in Island's case, the second 1 is an escapeway between the levels. And with this seismic event that happened within this 1 area, the escape was compromised, meaning it needed some rehabilitation in order to bring it back online. So we're just in the process of doing that. It's not a long-term delay. We would expect to be back in that mining front area early December to continue production in there. So it's not a long-term residual effect as a result of the seismicity. But it is normal course of business. We always have seismic events. Some can be lower levels and some can be higher levels. In this case, it just resulted in some damage to the escapeway, which we're addressing. Cosmos Chiu: And Luc, these escapeways, more permanent infrastructures. I would have thought that they are built to a standard that can certainly withstand some of these stress regimes. But again, there's other factors as well. I guess my question is, was that unexpected? Has this happened before? And what do you now have in place in terms of -- again, I understand that these seismic activity happens, but what do you have in place now to hopefully mitigate the risk on a go-forward basis? Luc Guimond: Yes. Look, I mean, I kind of referenced with regards to our ground control management plan and our seismic management plan that we have in place for all of our underground operations. In this case, the ground support continues to develop and change as we get into different mining areas and maybe different elevations of stress that are being seen within the mining operations. So we adjust accordingly with that. We do have a lot of dynamics support in place to mitigate these sort of environments that happen when we do have an elevated stress environment. And in this case, for the most part, I'd say the ground support actually worked as per expected. But just keep in mind, rehabilitation is just kind of also a natural function of an underground operation residually, the scaling activities that occur and some additional ground support requirements as a result of some of these openings being open for a longer term. And in this case, the escapeway being one of those. So it's not uncommon to actually have to go back in and do some rehabilitation. In this case, again, because of the fact that the escapeway has been compromised, we just had to go in and repair that escapeway to be able to resume mining activities within that mining front. Cosmos Chiu: Great. Maybe 1 last question. As you mentioned, the expansion study for Island Gold is now expected in Q1 2026 versus Q4 2025, in part to incorporate potentially including the Island Gold mill in terms of running it into 2026. But I guess, in the maybe bigger picture. Gold prices are certainly much higher now compared to when you put out the Island Gold, the first phase case study. Is there a bit of a shift in terms of thinking here, in terms of lower grade material can actually now be profitable. So maybe running Island Gold for longer, could increase the overall throughput. And in the end, some of that lower grade ore could still generate cash and overall cash flow is higher. Is there that kind of thinking going on right now, John, in terms of how you're looking at the Island Gold and maybe even broader picture as well as the other operations? And then how would that be incorporated into the year-end sort of reserve resource statement that's coming out? Like what kind of gold price would you look at? John McCluskey: That's got to go down as one of the longest questions in history, Cosmos. Look, just looking at Island Gold. We envisioned at the time we acquired Argonaut with the idea of integrating both mines, we envision that, that would ultimately evolve into something like a 20,000 tonne per day operation. And we're doing the work right now in order to bring that in front of the market, probably January, early February of next year. That's the time we're aiming for. That's just the optimal rate that mine ought to run at. It means -- it gets to part of your question. For example, right now, we're milling about 1 gram material coming out of the open pit, and we're stockpiling lower-grade material. It's an absolute fact that with the lower cost and the higher throughput rate, I'm not putting anything into stockpile, just putting it all through the mill, that's a much more profitable way to go about it. We'll be able to demonstrate that with the numbers that we'll provide early next year. But the -- you're not double handling or on a combined grade. In other words, mixing in that lower grade material, it's basically running around 0.5 gram, mixing that in with the 1 gram material. We're still running a pretty decent head grade. But you're just doing it all at a greater scale, you're benefiting from the economies of scale and absolutely doing it at a lower cost because there's no double handling anymore. So from the point of view of this bigger mine that we envision at Island Gold, it also envisions roughly 3,000 tons of underground throughput from the Island mine itself. That takes production up over 0.5 million ounces a year, brings costs down closer to that $1,100, $1,200 ASICs, somewhere in that range. The study will define it more precisely. But you can see that -- we're sitting on roughly somewhere between 11 million and 12 million ounces of reserves and resources. That's a really sensible approach to take for development of that mine. We can get there with relatively as I put it, bite-size capital cost. It's not a real stretch for us to get it there. And it's sort of the next step in our evolution at that project site. We're not thinking about that at either Young-Davidson or Mulatos. Young-Davidson, it's not really that sensitive to the gold price, to be honest. It's just the way that ore body is. We're mining it in a very profitable way. Obviously, we're generating phenomenal cash flows. And now we've got that mill running very, very well, consistently hitting 8,000 tonnes a day. You're going to see Young-Davidson have a great year next year. Long term at Mulatos, the game changer is going to be going underground and mining a high-grade underground sulfide material and processing it through the mill that we're going to build. That really is the future for Mulatos. I mean it's not like we've run out of targets for finding additional oxide material. It's a big district, and we're still poking around doing greenfields exploration in various areas and actually getting some interesting results. But the main thrust of what we're doing at Mulatos is to transition from heap leach -- low-grade heap leach production to higher grade underground production. So that would -- in the grand scheme of things, that's where we're going. It's not like we're taking this 1 concept driven by a higher gold price and trying to apply it across every operation. Luc Guimond: The only other thing I'd add there, Cosmos, is just with regards to the 20,000 tonne per day planned for the Island Gold District, but that hasn't unchanged. I mean we're still looking to put that obviously out. We've changed the guidance on that to put it out early in Q1. But it will outline a plan of running the about 17,000 tonnes per day coming from open pit operations, 3,000 tonnes per day coming from underground operations. So that still is the plan. As far as the Island mill, that we're still continuing to run at this point, which we started in September. We'll evaluate that as part of our business plans for 2026. But given this high gold price environment, giving us more gold production, certainly and more cash flow, it may make sense to continue to run that in 2026, but we're still evaluating that. Cosmos Chiu: Great. Sorry for my extra long question. I just haven't thank Scott Parsons were putting out earnings during Game 5 of the World Series. It certainly has not impacted my performance. John McCluskey: Sure. Operator: A following question is from Ovais Habib from Scotiabank. Ovais Habib: John and Alamos team, a couple of questions from me as well. Cosmos did ask a couple of questions that I had. But just a follow-up to Cosmos' question on the seismic activity at Island Gold. Again, really glad to hear no personnel or equipment were impacted by this event. So that was really good to hear. But in terms of -- and maybe this question is for Luc, in terms of active mining fronts. How many active mining fronts do you have access to at Island Gold as well as how does this impact mine sequencing going into 2026? Luc Guimond: I mean we typically carry about 3 to 4 mining fronts with the mining rates that we're currently running at right now, Ovais. But I mean, obviously, with the ramp-up as we continue to head towards 2,400 tonnes a day through the course of next year, we will be -- our development will put us into a place where we'll be developing more mining fronts. As I mentioned in this case, we've just basically shifted our focus from this 1 mining front that's been put on hold until we get that escapeway in place and look to generate production from some of the other areas of the mine in the interim. But as I mentioned, it's a short-term issue with regards to the seismic event that happened there, and we're looking to resume the mining in that specific mining front early in December. Ovais Habib: And just also in terms of when you do get access to additional money fronts, I mean in terms of -- isn't that a mitigating factor on itself going into 2026 then? Luc Guimond: Sorry, can you repeat that question, Ovais, I didn't quite get it. Ovais Habib: I'm basically trying to figure out is when you do start increasing the number of mining fronts as we go into 2026 and into the expansion, Isn't that a mitigating factor on itself? Luc Guimond: With regards to the production profile, it certainly gives us more flexibility. I think is what you're getting at. Yes, it will give us more flexibility as far as maintaining the mining, the rates that we're looking at. But Again, in this case, we haven't changed our guided levels for Q4 for mining rates. It's just that we've had to refocus some of the activity as far as our production for the fourth quarter because of the fact that we've got about a 6-week interruption from this 1 mining front until we get the escapeway we reestablished. Ovais Habib: Perfect. And just moving on to Magino. With the unplanned downtime at Magino mill, that was, I believe, late September. Were you also able to take advantage of this downtime to do any sort of additional maintenance on the mill as well? Luc Guimond: We did. But through the quarter, I think we spoke about this with the last quarter release that there was a liner bolt configuration redesign that we actioned in the quarter. So we did that in July. We also had some scheduled maintenance in August for the ball mill. But certainly, with that week interruption with regards to the capacitor failing, which led to the drive module also failing that we had to get replaced. We did take the opportunity to do some other plant maintenance within the Magino mill facility as well. Ovais Habib: Okay. And just then moving towards exploration. I don't know if the other Scott is online. So can you give us a brief kind of overview of where you are currently focused on the exploration side and especially if you continue to have success on Island Gold West as well as in close proximity to the Magino? Greg Fisher: Yes, I can provide an overview year-to-date. If you look at Island Gold, I mean, we really did shift our strategy from the start of the year from exploration into delineation and that delineation program now has been completed successfully in the third quarter, both in Magino and in Island Gold, and that really was focusing on converting that inferred mineral base that remains our June update for the expansion study, converting that into reserves. So that process now of the reserve calculation underway with the delineation results coming in or have been received. At Island as well, I mean we'll continue now shifting in the fourth quarter to exploration. So we're drilling Island down plunge. We're drilling the upper portions of Island to the West between Island and Magino. I would say that main Island Gold structure. So that's ongoing. We've also started a Phase 2 drill program at Cline and Edwards, which is building off the success of the first part of the year. That's the [indiscernible] producing mines that are 7 kilometers from the Magino mill. And we're excited about the results that we put out in the first half of the year, and that exploration is ongoing. At Young-Davidson, the hanging wall exploration drift at 9620 has been developed, and we're drilling from that now, and that's focused on defining that high-grade zone in the conglomerate. So we drilled 15 holes there. Our assays are just starting to come in. Drilling is ongoing, and we'll continue stepping out from the zone that we've defined looking to expand on that mineralization. And we're also starting a regional program in the fourth quarter at Young-Davidson focused on our Otisse target, which is only 3 kilometers from the Young-Davidson mill, and we see that as a potential for future open pit ore that could come into the mill at some point in the future. At Mulatos, as John touched on, really focused this year on sulfide exploration across the district and having success in several targets. Building on from the first half of the year, drilling a PDA, continue to expand mineralization at Cerro Pelon, testing a number of other Sulfide targets in that district that the team has worked up, and we're excited by some of the results that we're seeing at Mulatos. And I think that really points to the transition, as John said, from shifting from looking for oxide, which we're still doing, it's still target but really focusing in on building out the sulfide inventory, the high-grade underground components of what could be the future of that district. I guess the last point I'll shift to is Qiqavik, which was the greenfield project in Nunavik in Northern Quebec that we acquired with Orford Mining. That exploration on Qiqavik was executed in the third quarter. We planned on doing 7,000 meters. We did 9,000 meters and really, the objective there was trying to find the source of these high-grade boulders that have been defined across that belt. So we drilled in 5 target areas. Assays are just coming in. But certainly happy that we got -- we accomplished more drilling than we anticipated based on the execution of the program and what we're seeing in some of that core. Operator: Our following question is from Fahad Tariq from Jefferies. Fahad Tariq: Just on the Magino mill, can you maybe provide some more color on how you're thinking about the targeted throughput maybe by the end of this year. I believe it was previously 11,200 tonnes per day and then 12,400 tonnes per day next year. How should we be thinking about that given some of the ramp-up issues so far? Luc Guimond: Yes. It's Luc here. So similar line of sight. As I mentioned through the third quarter there, certainly, we had some changes to make to the SAG mill with regards to the liner bolt configuration, which we did. Scheduled ball mill liner change and then with obviously the failure with the capacitor in September that put us back a bit. But really starting in mid-July up until that capacitor issue that we had at the end of September, the mill was on a path, that was consistently delivering above 10,000 tonnes per day to that period. And since we've prepared the capacitor figure that we had at the end of September and resume milling activities through the month of October. We've been consistently averaging just above 10,000 tonnes per day as well. So our goal hitting that 11,200 by the end of the year still is intact. Just some more fine-tuning that we need to do between now and the end of the quarter to be able to consistently deliver on that. On the 12,400 scenario longer term, we're obviously working on some of that expansion already. We need more additional equipment at the back end of the mill with regards to the CIP, the leach circuit. The refinery in elution in order to be able to handle the higher gold content coming into the plant. So we're working through that. The other aspect of it is also upfront. The crushing capacity is there, and it's just -- we're still evaluating on the grinding capacity requires potentially a third, third grinding circuit in that circuit to be able to support the [indiscernible]. But we're still evaluating that as part of the overall mill expansion, to be honest with you, and that's part of what will come out early in the new year. Fahad Tariq: Okay. That's helpful. And then maybe just as a follow-up. So if the Magino mill is able to get to [ 11,200 ] tonnes per day by the end of this year, things are improving. Would that be reason enough not to keep running the island Gold mill? Scott R. Parsons: I think at these gold prices, Fahad, it's -- I mean, we're evaluating this. But I would think we want as much throughput as we can through and running those 2 mills at these gold prices probably makes sense. Operator: A following question is from Sathish Kasinathan from Bank of America. Sathish Kasinathan: Most of my questions have been asked and answered. So maybe a question for Greg. So with over $600 million in cash balance, you indicated that you will be more active in buybacks. How should we think about the cadence of buybacks on a quarterly or an annual basis? Do you have a target run rate in mind? And also, given your growth projects, how should we think about like a minimum cash balance? Greg Fisher: Yes. Thank you. I mean from a share buyback perspective, we've never put targets in place. I mean, what we always want to do is be opportunistic with respect to that. And we also look at our other needs of capital, whether it's growing the business, whether it's paying down debt. So we're looking at all of those. So I don't want to point to a specific target in terms of the buybacks. But based on the pullback in the share price -- in the gold price that we've seen over the last week to 2 weeks plus the reaction today, we expect to be active on the share buyback. And then in terms of a minimum cash balance. Again, we have lots of liquidity. We have $1.1 billion of liquidity currently. In terms of the current cash balance of $600 million, we want to be active on the share buyback. We want to pay down some debt. We want to evaluate whether we're going to buy back some of the legacy Argonaut hedges. All of those will be sources of capital. But we are ultimately growing the business from 600,000 ounces to upwards of 1 million ounces by the end of the year. So we do need to make sure that we have sufficient capital. But we do have free cash flow as we speak right now. So from a minimum cash balance, I'd say, we probably want to always have at least $300 million -- $250 million to $300 million on the balance sheet. Sathish Kasinathan: Okay. Maybe a question on Young-Davidson. So it seems the mill has been operating at 8,000 tonnes per day for a couple of months now. Do you think the mill's performance has reached a level that it can continue to consistently operate at this level? And given the current gold prices, is there potential for maybe push -- pushing the mill to a higher run rate? Luc Guimond: The mill has been performing quite well at Young-Davidson. I mean, obviously, our -- the overall ore production that's come out through Q3 and some of the previous quarters has been more related to giving all of the [ fee ] that we can from the mining operations. And certainly, in Q3, it was related to the [indiscernible] change that we had to make with regards to the head ropes. But the mill has been performing quite well. It's no issues there. On the aspect of actually looking to see if it can do more, that's something that we've been looking at and seeing with other opportunities to be able to increase the overall throughput through that mill complex. It would not necessarily come from more underground ore. The mine is designed and the infrastructure is designed to support 8,000 tonnes per day. But there's other opportunities with some of the smaller satellite open pit deposits within the region of Young-Davidson that we could look to bring into a mine plan and provide additional mill feed to the YD mill complex with some minor capital requirements to be able to do that. The potential would be to probably get it up to probably 9,000 tonnes per day consistently. Operator: [Operator Instructions] The following question is from Don DeMarco from National Bank. Don DeMarco: John and team. Maybe just a quick question on the capacitor incident. What were the root cause of that? And is there a risk of a repeat? Luc Guimond: The capacitor failure, we're still actually having that analyzed. So I don't have a firm answer on that, but it's not something that you would typically see, to be honest with you. So there could have been a defect within that part itself. I mean we've been running our Island Gold mill complex and our Young-Davidson mill complex for years and have never experienced that sort of failure with a capacitor, but it wasn't just a capacitor. The capacitor failing was part of it, but that led to us some residual damage within the drive unit of the power modules that operates the SAG mill and the ball mill. So we had some other component failure there like resistors and a bus bar and some other electrical components that resulted in some additional Repairs. But this is not a normal course of business. We've never seen this with any of our other operations. So I'd say at this point, it's a one-off, but we still need to do further diagnosis to understand exactly what happened with that capacitor. Don DeMarco: Okay. look forward to that. And it sounds like the timing of mining... Luc Guimond: Just the other thing I would add to that is that from a inventory aspects and just making sure that we have all of the parts. We have done another through -- further thorough review of our electrical components for running that plant to sure that we have all of the critical spares that we need just to prevent any sort of significant downtime moving forward. Don DeMarco: Okay. Then just to my next question, with regard to the Magino mill and combining the 2 ore streams back into that mill, it sounds like it's potentially 2026, maybe later. Seems like there's good reason at this gold price to keep the 1,200 tonne per day Island mill running. But since you've done it before, you've done it once already in July, would the second time round be somewhat routine just with a quicker ramp up? Luc Guimond: Yes, it's pretty seamless, to be honest with you, to put the both ore streams into the one plant. I think I'd mentioned before, we did a couple of batch tests just to confirm the metallurgy back in Q2, Q3, and that all was validated. And frankly, running that combined ore stream into the Magino mill from really mid-July until we did have that capacitor failure at the end of September. Metallurgically cleared everything was performing quite well, both from a gravity recovery point of view as well as overall recovery. The expectations were as per what we were expecting as far as what we modeled to what we were seeing in the plant. So it's a pretty easy simple transition to just provide that ore feed back into the stream and combine the the 2 streams into 1 feeding into the 1 mill complex. Don DeMarco: Okay. And then just as a final question. Turning to Lynn Lake development. We see that the time line has been impacted by the wildfires. How about CapEx? Can you give any more granularity on the implications to the CapEx estimates to develop that project? Luc Guimond: Well, yes, I mean, CapEx-wise, I guess you'll have the inflation component there over the next -- because of the fact that it's been delayed a bit. I think what we've -- we basically lost all of the construction season this summer which is the most productive period that you can have certainly in Northern Manitoba or Northern Ontario, depending on where we're building these operations. So as a result of that, our original time line was mid-2028 now we're moving that out to early 2029. So you're going to have a bit of an inflation factor that gets factored into that. Greg Fisher: Yes. I mean, just adding to that. We put a study a couple of years ago. So you have 3 years of inflation since we put out that study with this additional year that Luc just commented on moving it out to 2029. And inflation on capital projects is run around 5% to 6%. So we can expect a 15% increase in our capital that we put out in the feasibility study for Lynn Lake. Operator: There are no further questions registered at this time. This concludes this morning's call. If you have any other questions that have not been answered, please feel free to contact Mr. Scott Parsons at 416-368-9932, extension 5439.
Operator: Good morning. Thank you for attending today's KBR's Third Quarter 2025 Earnings Conference Call. My name is Megan, and I'll be your moderator today [Operator Instructions] I would now like to pass the conference over to Jamie DuBray, VP of Investor Relations. Please go ahead. Jamie DuBray: Thank you. Good morning, and welcome to KBR's Third Quarter Fiscal 2025 Earnings Call. Joining me are Stuart Bradie, President and Chief Executive Officer; and Mark Sopp, Executive Vice President and Chief Financial Officer. Stuart and Mark will provide highlights from the quarter and then open the call for your questions. Today's earnings presentation is available on the Investors section of our website at kbr.com. This discussion includes forward-looking statements reflecting KBR's views about future events and their potential impact on performance as outlined on Slide 2. These matters involve risks and uncertainties that could cause actual results to differ significantly from these forward-looking statements as discussed in our most recent Form 10-K available on our website. This discussion also includes non-GAAP financial measures that the company believes to be useful metrics for investors. A reconciliation of these non-GAAP measures to the nearest GAAP measure is included at the end of our earnings presentation. I will now turn the call over to Stuart. Stuart Bradie: Thanks, Jamie, and good morning, everyone. I will pick up on Slide 4. As with all meetings at KBR, we begin today with a brief Zero Harm moment. Last week, we published our 2024 sustainability report, and I would like to highlight several key achievements from this most recent publication. We are pleased to report an industry-leading health, safety security incident rate and over 93% zero harm days. Additionally, 38% of KBR's fiscal 2024 revenue equivalent to $2.9 billion was allocated towards sustainability initiatives, marking an increase from the $2.5 billion in the previous year. Furthermore, KBR has established and approved science-based near-term targets that align with our net zero objectives. These accomplishments distinguish KBR within our industry. For the third consecutive year, we have been awarded MSCI's top AAA rating, and we recently received a B- rating from ISS, ESG Corporate. This is a recognized prime rating and at the top of our peer group. These highlights represent only a portion of our progress, and I encourage you to review the full sustainability report, which is available on our website via the QR code. Now on to Slide 5. Let me start today with revenue. Revenue was flat in the quarter year-on-year and up 5% year-to-date from the prior year. While we are really encouraged by a strong book-to-bill of 1.4x for the quarter, this was back-end weighted with little conversion to revenue in Q3. In MTS, as you know, we have significant contracts awarded to us, which are still under protest and conversion remains uncertain with the government shutdown environment. In STS, we faced several headwinds in the first half of the year. LNG project development was delayed by prior administration decisions, oversupply in petrochemicals led to multiple project cancellations and delays. Middle East unrest caused temporary pauses and new tariffs delayed investment. Additionally, a market shift towards energy affordability resulted in most of our green technology prospects being postponed or canceled. With that in mind, however, the STS business has proven remarkably resilient. We have replaced the revenue reductions caused by the above headwinds with geographical expansion. We talked about the Middle East and countries like Iraq last quarter, and we've really doubled down in the better markets like LNG, ammonia for fertilizer, energy affordability and circularity. STS book-to-bill in Q3 was pleasing. But as I said a moment ago, this was back-end weighted, and Mark will discuss the short-term impact of this in a moment. The recent bookings, we think, show a shift in momentum, which we expect to continue in Q4, setting us up nicely heading into 2026. Importantly, we focused on what we can control. We delivered excellent bottom line performance in Q3 across all metrics. Adjusted EBITDA margins were up more than 100 basis points year-on-year at 12.4%, delivering an adjusted EBITDA of $240 million, up 10%. This was from a combination of delivery excellence, strong commercial management and prudent cost control. This translated into an adjusted EPS of $1.02, an increase of 21% year-over-year. Now cash, really important. Cash was the standout in the quarter with conversion over 130% year-to-date, generating operating cash of $198 million in the quarter and $506 million year-to-date. And this takes us into a guided range for the full year, a terrific performance. Thirdly, our book-to-bill in the quarter in both segments was solid, and we continue to be well positioned in key markets with a robust pipeline of opportunities awaiting award. In addition, we have several new wins in areas of strategic importance, more on this in a moment. In such volatile times, the quality of the work under contract and the pipeline are clear indicators of future earnings potential and thus worth more detail. Fourth, we'll remind you that circa 40% of KBR's group revenue and over 60%, 6-0 percent of adjusted EBITDA has 0 exposure to the U.S. government spending budgets and of course, risk related to the shutdown. Within MTS U.S., the majority of our portfolio, as we've discussed many times, is comprised of mission essential operational work, many of which are well-funded multiyear programs. This provides short-term resilience to the government shutdown, and Mark will provide additional details in the outlook. Fifth, we returned more than $120 million in capital to shareholders this quarter while managing leverage responsibly. Finally, work to progress the spin-off is on track, which I'll discuss in more detail later. On to Slide 6 and some new contract wins. We were pleased to announce a number of new contract wins during the third quarter, a few of which I will highlight. Let me start with MTS. We were awarded a $2.5 billion ceiling value base period contract, plus another $1 billion in option value to support astronaut health and human performance during space missions. This achievement represents our largest recompete this year. Human performance and space remains a key strategic area for NASA over the medium term as demonstrated by the significantly higher ceiling value awarded to us. Our booking value for this contract, to be clear, was below $1 billion, which is more consistent with the current run rate. MTS also secured several strategic contracts with the Air Force Research Laboratory, utilizing our expertise in cybersecurity, trusted microelectronics, electronic warfare, digital forensics and sensing. These technological solutions are used to enhance situational awareness and therefore, strengthen decision-making for our military customers, really important stuff. MTS was also recently awarded a contract for the U.S. Space Force to deploy our groundbreaking collaborative digital engineering ecosystem called Integration Accelerator to enhance Space Force decision-making and accelerate capability deployment. The design implementation for collaborative environment or DICE, together with Integration Accelerator will focus on establishing a state-of-the-art testing and training environment for the U.S. Space Force at its national headquarters. Moving to STS. We continue to be a strategic partner for Basra Oil Company and have extended our current contract 2 more years to continue to perform engineering, procurement and construction management services for the Majnoon oil field in Iraq, and that's one of the country's most strategic assets. STS was also awarded a contract by the Abu Dhabi Transmission Company called TAQA for program management consultancy services to manage the overall execution of the power and water transmission networks across multiple locations in the UAE to enable data center expansion. STS was also awarded a front-end engineering design contract for Kuwait Oil Company. That's for their heavy oil program, another strategic energy security project for the nation. Last but not least, STS was awarded the FEED contract for the Abadi onshore LNG project in Indonesia. This is a complex project, which has critical significance to national energy security and demonstrates KBR's long-standing track record in excellence in LNG. The book-to-bill for the group in the quarter was 1.4x with a trailing 12 months of 1.0x. Backlog and options now stand at more than $23 billion, and this value represents a 13, 1-3% increase since prior year-end and is the highest backlog and option value in KBR's recent history. And I think this clearly provides for the growth capacity contemplated in our long-term view. On to Slide 7. Next, I'll update you on our pipeline and award trends in both segments. Currently, MTS has $18 billion in bids pending award with over 75% representing new business opportunities. Some contracts such as HHPC have recently been awarded, while new proposals have also been submitted and are awaiting decisions. Although the government contract environment did show some signs of improvement in Q3, the shutdown has brought decisions to a halt, so more delays should be expected. In addition to the $18 billion, there are now $3 billion in contracts awarded to KBR as the winning bidder that remain under protest, and that's an increase of 50%, 5-0% from the previous quarter. The major addition was a classified program in INDOPACOM, which is now included in this category. Overall, this year, both the amount bid and the amount won have increased compared to the previous year's levels at this time. While short-term conversion has been a challenge, matters under our control to grow backlog, options and pipeline have progressed well, and we remain confident in our strategic positioning moving forward. MTS itself delivered a 1.4x book-to-bill in the quarter and ended with $19.7 billion in backlog and options, and that's an increase of almost $2 billion versus the prior quarter. STS delivered a 1.2x book-to-bill, excluding LNG in the quarter and ended with $3.7 billion in backlog. We currently have over $5 billion in our near-term bid pipeline, and that excludes major LNG. This is up from the second quarter when we reported $4.5 billion. This is a 20% increase for our base business. You will also recall last quarter, we saw an anticipated circa $1.5 billion in awards expected to be approved during the second half of the year. In this quarter, we secured over $800 million in bookings, which I believe demonstrate the value of the STS global business model, our deep customer relationships and our laser focus on delivering value-add solutions to solve our customers' challenges. With that, I'll pass it over to Mark. Mark? Mark Sopp: Thank you, Stuart, and good morning, everyone. I'll pick up on Slide 9 and our Q3 performance highlights. Revenues in the quarter, as you heard from Stuart, were $1.9 billion, flat versus the prior year and up 5% on a year-to-date basis for the reasons Stuart covered earlier. Adjusted EBITDA was quite healthy at $240 million, up 10%, with margins at 12.4%, an increase of over 100 basis points versus the prior year. This contribution came from both segments with STS particularly strong. Adjusted EPS was $1.02 in the quarter, up 21%, driven by the growth in adjusted EBITDA performance as well as the benefits from buybacks we've made over the last year. Year-to-date, operating cash flow was $506 million, an increase of 24% from the prior year and a conversion rate of more than 130% against net income. This bumped up quite a bit in Q3. As Stuart mentioned earlier, strong cash performance was attributable to successful DSO reduction measures in both segments. I'll also add, we received about $80 million in investing cash flows from the turnover of private equity partners in our Brown & Root Industrial Services joint venture. While it's certainly good to add this to our treasury at this time, we do expect to fund new investments in this space with our new partner in the relatively short term. This will further expand our reach into the OpEx side of the STS business, which is perfectly aligned with our strategy of increasing exposure to recurring revenue streams in that area. Now I'll move on to Slide 10 and our segment performance. Starting with MTS, revenues of $1.4 billion were flat versus the prior year. Breaking that down by business unit, Defense and Intelligence generated growth of 14% with contribution from the international side and also LinQuest. That business, LinQuest, as you'll recall, has added increased volume in military space and digital modernization with quite of that work being in the classified category. Readiness and sustainment was down 22%, primarily due to Department of War strategic shifts, including customer reductions in the OPTEMPO in the European Command Theater and prepositioned stock programs. We discussed both of those developments last quarter. After this quarter end, the APS-2 preposition program has come out of protest and in our favor, but the notice to proceed is hung up due to the shutdown. This will represent a future booking once that condition reverses. Importantly, revenue for RNS was flat sequentially. So other than any shutdown effects, we think we have cycled out of the areas that the Department of War is deemphasizing and have meaningful growth opportunities in protest and in the pipeline. Science & Space was down 5%, while we did have the HHPC recompete win, which was terrific, there's really been a lack of new award activity outside of that and there's been overall funding and decision delays in NASA overall in recent months. It's been a tough year at the agency, but we're certainly hopeful of more visibility and stability in the coming months as they navigate through the '26 budget process in Congress and once the shutdown lifts. Adjusted EBITDA for MTS was $143 million, commensurate with the revenue level with margins at a little over 10%. Now I'll move on to STS. Revenues of $525 million in Q3 were down about 1% due to back-end weighted awards in the quarter. Positively, though, adjusted EBITDA came in at $123 million, up 13%. Adjusted EBITDA margins were 23.5% roughly, reflecting continued strong contribution from the Plaquemines LNG project coming through in equity and earnings, offset by heavier proprietary equipment mix, which adds to the installed base, but also has lower than normative margins. We advanced more milestones on the Plaquemines project than originally planned in Q3, and that bumped up our profit recognition this quarter, but we do expect Q4 to look more normative as the rate we had in the first half of this year. On to Slide 11 for the balance sheet and capital matters. We had really good outcomes in the quarter. Stuart covered those earlier, highlighted by the strong cash flow. We continue to delever now down to a net leverage ratio of 2.2x. While doing that, we have deployed over $300 million for buybacks so far this year, and that certainly was continued in Q3. This amounts to 4.5% of outstanding shares removed over the course of this year. Dividends add another $60 million in capital returned to shareholders as well on a year-to-date basis. And you'll also note that we have returned to normalized CapEx below 0.5% of revenue. So with that, let me shift to our outlook for the balance of the year on to Slide 12. First, let me start by addressing our near-term outlook in light of the government shutdown. As Stuart mentioned earlier, our diversified international portfolio reduces concentration risk relative to the U.S. government. For our U.S. government contracting business, as Stuart said earlier, most of our work is deemed essential. And furthermore, we have good stability in our funded backlog. Specifically, U.S. funded backlog was $2 billion at the end of Q3, which is over 5 months of our current revenue run rate. This is slightly up from Q2. With these factors, we have seen no material impacts from the shutdown in October and are confident we can navigate through November with minimal impact to revenue. The main areas impacted by the shutdown to KBR are the further slowdown of new awards as well as the resolution of protests outstanding. As earlier stated, we now have $3 billion in awards, which we have won but cannot book or start until the protest clears. The shutdown does mean the conversion of these awards to revenue will be even further delayed, which modestly lowers our outlook for MTS in the fourth quarter. Now moving on to STS. As Stuart mentioned earlier, STS experienced a number of headwinds so far in 2025. These delays have caused conversion challenges, which impacted our revenue growth outlook for the year. With some awards coming in late Q3, we have good visibility to modestly improved revenues in Q3 to Q4, but still short of what we had planned for the year. So with all of that, we are updating our revenue guidance today for 2025 to a range of $7.75 billion to $7.85 billion for the year with an updated midpoint of $7.8 billion flat. We are reaffirming profit metrics due to the strong year-to-date performance. Adjusted EBITDA remains within the range of $960 million to $980 million. We're also reconfirming the corresponding adjusted EPS guidance of $3.78 to $3.88. We're also keeping operating cash flow in the same $500 million to $550 million range. Given our year-to-date cash flow was $506 million, we have effectively delivered 96% of the guide at midpoint already. With STS, the international government cash streams have been unchanged and some payments are still being made actually on the U.S. government side. So we're confident we can manage working capital effectively to achieve operating cash flow neutrality through year-end with our underlying assumptions. Speaking of that, our guidance is based on the assumption that the government shutdown is resolved in November. Other key assumptions in our guidance are unchanged, including tax, CapEx and interest expense. With that, I'll turn it back to Stuart to wrap it up. Stuart Bradie: Thank you very much, Mark. Before the key takeaways, I will give you an update on the spin-off, which was previously announced on September 24. We are spinning off our Mission Technologies segment, which I will refer to as SpinCo for now until a new name is announced later. New KBR will comprise the Sustainable Technology Solutions business. Our intent is to pursue this as a tax-free spin and upon completion of which KBR and its shareholders will benefit from ownership in 2 pure-play public companies with enhanced strategic focus, operational independence and financial flexibility. Of course, the transaction will be subject to final approval by KBR's Board of Directors and other customary conditions. The expected benefits of the spin-off include enhanced strategic and management focus, organizational agility and streamlined decision-making, increased end market focus, prioritized commercial resources and sharpened go-to-market approach, greater capital allocation flexibility to support strategic imperatives, including potential future M&A transactions directed at each separate business. And there will be distinct and compelling investment profiles for each. Now on to Slide 14 and a status update. The spin-off will take place in 3 phases. Number one, advanced preparation; number two, public filing and execution; and number three, post distribution. KBR is targeting completion of the spin-off by mid- to late 2026. And in order to meet this date, we are broadly aiming for the time line shown. Of course, schedules are subject to change, and we'll be communicating with our investment community along the way as things progress. Today, spin-off preparations are advancing according to plan. Presently, we are conducting audits of historical carved-out financial statements and preparation of the pro forma financials, while also laying the groundwork for the Form 10. Additionally, recruitment processes for the CEO and CFO positions for SpinCo are progressing alongside preliminary work on naming and branding strategies. We have been very deliberate to set up a separate project team in order to minimize disruption to our operations and allow our teams to focus on their core business. Now on to Slide 15 and some key takeaways from today. First, revenue was flat year-on-year, but in line with expectations given the slower award environment and the step down in MTS EUCOM work communicated earlier. Second, we delivered strong bottom line performance with adjusted EBITDA of $240 million, and that's up 10%. And we also generated an adjusted EBITDA margin of 12.4%, up more than 100 basis points year-over-year, really, really pleasing. Adjusted EPS was up 21% and the standout for the quarter being operating and free cash flow. Third, book-to-bill in the quarter in both segments was strong, aggregating to 1.4x. And we continue to be well positioned in key markets and have a robust pipeline of opportunities awaiting award. Work under contract or backlog increased, which together with the pipeline are strong indicators of future growth and earnings potential. Next, we are highlighting our resilience and operational focus due to the fact that over 60% of adjusted EBITDA has 0 exposure to the U.S. government spending budgets, and we have seen no material impacts from the shutdown through today. We continued with our disciplined capital allocation, returning over $360 million to shareholders year-to-date. And finally, our spin-off is progressing nicely. With that, I'll pass it back to the operator, who will open the call for Q&A. Thank you. Operator: [Operator Instructions] Our first question will go to the line of Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Stuart or Mark, can you give more color into how you're thinking initially about STS going into '26? I know you mentioned you have to kind of replace these energy transition type projects and you're doing that. And obviously, you have continued good EBITDA performance. I think you said, Stuart, that you think STS should remain in your growth algorithm. But do you have visibility to still grow that business in that sort of 11% to 15% range in '26? And where does that come from at this point? Stuart Bradie: Thanks, Andy. Good question and not unexpected given the revenue performance during the course of the year for the matters we discussed in the prepared remarks. The book-to-bill in Q3 and the expected book-to-bill in Q4 with, as Mark said, the modest revenue pickup between Q3 and Q4 gives us pretty good insight, and I think good momentum heading into 2026. We are going through our budget cycle right now. In fact, as we head towards the end of the year, and we've got good line of sight for continued momentum in that business aligned with our stated 2027 CAGRs, which if you work that backwards from '23 to '27, we need double-digit growth in STS, and we're still committing and aligned with that target. Andrew Kaplowitz: Got it. And then maybe just a similar question in the outlook for MTS. Obviously, you mentioned Defense & Intel up 14%, which is offsetting some of the other pieces of the business. As I think about sort of going into '26, can you keep up that kind of strength in that business along with international and it helps offset if readiness and sustainment, for instance, or NASA is still weaker? How do you think about the interplay of the different pieces of the business, Stuart? Stuart Bradie: Yes. Again, very good question. And as you rightly state, it is an interplay. There's pressure on the science and space budgets because of what's happening around NASA. But of course, there's increased spending, and we've covered off how we sit on programs like Golden Dome, just where we think increased spending in Space Force and sort of the connected battlefield and what we're doing sort of being able to enhance command and control decisions with our software development sort of technology, et cetera. So very well placed in the Defense & Intel part of the portfolio. And I would say that R&S with a number of things that we have secured that are under protest is well positioned coming off a reasonably low base with the reduction in the EUCOM work this year is well positioned to grow into next year. And when you combine that with what's happening in international in the U.K., they've come through the Defense review and they're going through the process in November, maybe into early December on what you would call appropriations, but just how they're going to spend their money, and we've done the analysis of where we think those priority spends are and our capability set in Frazer-Nash and our Defense business in the U.K. is very well positioned to really sort of react to that. And as we've said many times, our Australia business continues to outperform, growing double digits. So when you lay that all out and you put the puts and takes and you think about delays with this continued environment for protests that delay awards and things like that, we're pretty confident that we can actually achieve the sort of growth that we stated in the ranges that we've put out for that business in the past. And it may well be -- we probably at the lower end of that as we go into next year, but those decisions have not been made yet. But certainly, we are progressing towards that sort of outcome, and we're confident we can continue to grow the business coming out of the shutdown. Operator: Our next question will go to the line of Augie Smith with D.A. Davidson. Augie Smith: This is Augie Smith on for Brent Thielman. So just first, you guys touched on it briefly, but could you provide a little bit more in-depth on your thoughts in regards to NASA exposure and proposed budget cuts, specifically in consideration of the impact for MTS the rest of this year and then potentially into 2026. Stuart Bradie: For the rest of this year, it was very little impact, particularly under the shutdown environment where things just continue as is. We do have one particular contract that's deemed nonessential, but it's not material to our numbers. So I'm not expecting too much change for the rest of this year. As we head into next year, we've got an unclear picture, I would say, Mark, as we've got the presidential push for a reduction in the science area. We've got congressional budgets holding at the current level and where that all sit and shakes out is difficult to assess. I would say that in the NASA environment, it's the lower margin piece of our work. So from the bottom line perspective, it's probably less material. In terms of looking forward, we've got about less than 25% of our portfolio, maybe even less exposed to the science area. And I think there's going to be increased investment in the human space performance piece of that as we look at Artemis 3 going back to the moon and Artemis 4, whether that's across what we're doing in human health performance or what we're doing in the broader Johnson and the Space program, et cetera. So there'll be some puts and takes. And I guess, more color, we'll be able to describe more color on that in year-end earnings. But certainly through the course of this year, I don't expect too much disruption. And certainly, I stick by my comments I made in my earlier remarks about the overall portfolio and the puts and takes allowing us to grow overall in line with our stated targets. Augie Smith: Okay. And then if I could just squeeze one more in. Within STS, could you guys touch on how active you guys see opportunities in LNG, if you have any advanced discussions there or just what you're seeing with potential other LNG terminal projects moving forward? Stuart Bradie: Yes. I'll touch on a few there. I mean LNG is a really sort of topic at the moment, as you can expect. I'll start with Plaquemines. I mean, our work continues to progress well. As we stated before, we see equity and earnings running all the way through at the sort of current levels through '26 and into early '27. In fact, VG themselves have announced that they've got approval to bring in gas to the second block. So Phase 2, if you like, of Plaquemines. But that's not the -- really it's not a hard stop for us because we've got a lot of completions and commissioning and work to do through the course of this year and early into '27. So that's aligned with our previous statements. On Lake Charles, I'll take you back to the -- there's been some press statements about certainly the delay in FID decisions into Q1 next year. But some press had said that was related to increased cost. That is not correct. They had said very clearly in the Q2 call, and I can confirm that the EPC pricing and overall cost, including the impact of tariffs is bang on expectation, and that has not changed. So in terms of ET, and I think you should really listen into their call, which I believe is next week, November 5, and they will give you an update of their thinking and the current progress on the project. So -- that's where that sits. We announced that we had been awarded the front-end design for Abadi, which is a very, very large project in Indonesia, and that work has kicked off. And we continue to do work supporting Oman LNG. We're doing the PMC work in Ruwais LNG in Abu Dhabi. And we've got a number of opportunities that we're looking at in the U.S. in addition to Lake Charles and Plaquemines. So it's a very active global market for KBR and one we're bullish on. Operator: Our next question will go to the line of Michael Dudas with Vertical Research Partners. Michael Dudas: First, maybe following on the STS business, maybe, Stuart, away from LNG, when you talk about that $5 billion in pipeline that's visible and some really strong activity maybe for the end of this year into next. What are some of the other areas that are bringing a focus given some of the dynamics and shifts in what client desires are because of green and affordability and how that can play into visibility, maybe especially in some of your key ammonia and also maybe even an update on the Mura opportunities and ramp-ups. Stuart Bradie: Yes, quite right. Michael, we were quite specific to exclude LNG from that just because of the scale, just to show you the progress we're making outside of LNG in the business. So I picked up on. Increasing that sort of backlog by the opportunity set by 20%, I think, is indicative as was the book-to-bill in the quarter. And we expect that book-to-bill and that to progress similarly in Q4. So what are we seeing? We're seeing increased activity, as we said, across the Middle East, and we had a number of wins I touched on, whether it be in Kuwait or Iraq. And we see those national agendas being pushed hard, and we're very well placed to take advantage of those. And I expect more announcements in those arenas to come forward over the course of the next couple of quarters. So I think international expansion and following the money around national agendas is key, and we'll continue to do that. And that's more about energy security as a thematic. When I look across -- we talked a little bit about LNG, of course, which is very positive. Ammonia continues to be a very active market for us, and we've got a number of sort of near and medium-term pursuits, and we expect that to continue. And as you rightly state, that's more around traditional ammonia as it pertains to fertilizers rather than hydrogen. I think that's also been pushed to the right a bit as the affordability and economics have come into play. But that continues to be a very attractive market for us. And on Mura, the current situation is we continue to progress similar to next quarter, replacing particularly valves that ultimately have sort of eroded, if you like, under the high-pressure, high-temperature environment but with certain feedstocks that have made the progress in commissioning a bit slower than we had hoped for. I do not expect those plants to be up and running until Q1 at the moment, certainly the one in Wilton. But outside of that, there's nothing sinister or any sort of big red flags. I think it's first-of-a-kind technology start-up issues. And these are not unexpected. We did hope for a Q4 startup, but if it slips to Q1, so be it. I mean these are long-term plays for us. And if that picks up, then terrific going into next year. And it should present us a super opportunity once the facilities are up and running. There's not a month that goes by without potential investors in plants across the world coming to visit the site. And they're just waiting to make sure that we've got an operating manual we can hand over that with a set of equipment specs that actually avoids a typical lease commissioning challenges for the next plant. So as you would expect. So it's quite an active portfolio. Team is working hard. I think the resilience in the business has been demonstrated by the way that we've managed to pivot to the well-funded pieces of work in the industry and in the markets geographically across the world. So hats off to the team. But yes, quite excited about the future. Michael Dudas: Excellent. And maybe just a quick follow-up. When you cite the protest levels, again, I know difficult to predict, but going into like when do you get the sense of the cadence? Is there certain projects further along or have to get started and how that could break to maybe get that conversion to show up in '26 or in a better level? Stuart Bradie: Yes. I think we certainly -- I think we're all aware that the government shutdown precludes those protests being resolved and the award being worked. Even the protest that has been resolved, we can't get them to give us a start work order because there's -- we're not able to do that under this environment. So there will be pickups, the PPS2, prepositioned stock in Europe that has come out of protest in our favor will add about $160 million or so to backlog, and we'll book that once we get the work order and as we look forward, the confidential or classified opportunity into PACOM, we expect if the government does come out of shutdown to that to be awarded before or the protest to be resolved before the end of the year. It's likely that the big piece of work in Iraq will be resolved in Q1. So if that does happen, and there's a question mark over that just on timing and how quickly it gets to the top of the priority list to resolve these matters, it will have a significant upside into next year. But if it delays, obviously, the longer it delays, the less of the impact. But we should be able to give you a very much clearer picture at year-end. But it's a good fact pattern. It's $3 billion under protest that we've won and resolution of that would certainly give strong momentum in the STS segment going into '26 and into '27 for that matter. Operator: Our next question will go to the line of Tobey Sommer with Truist. Tobey Sommer: Could you tell us if you've -- since announcing the spin, received any interest from outside parties in acquiring either of the businesses? Stuart Bradie: Tobey, you know I can't answer that question. I'm sorry. I cannot answer that question. The thing that we have announced is going well in terms of under Mark's tutelage is progressing as expected and on track. It is typical, I would say, that once you announce such things that you do get inbounds, but we are not at liberty to discuss them in any way, shape or form, I'm sorry. Tobey Sommer: Okay. Have you given any more thought to the appropriate comparables for valuation purposes versus the stand-alone businesses in terms of existing public companies that trade at multiples that you think are matched more businesses? Stuart Bradie: Yes. So when I look at MTS, I think the market, we've got -- well, let me put it this way. We have an amazing opportunity to rebrand that business, shake off perceptions of the past. There's still -- when I talk to people even in Wall Street that perhaps don't know us so well, they still think of, I guess, [ Red ] KBR back in history and don't understand the transformative journey we've been on to position the company in the areas of D&I and science and space and internationally as well as sort of digitalize our platform around readiness and sustainment. So I think there's an amazing opportunity to relaunch the image of the company and tell the story as it is today, not what it was yesterday. So we're quite excited about that. I mean the margin of the business, I mean, it's progressively grown over time, and we expect that to continue as part of the investment thesis as we go forward. And so I mean, you know the typical peers in the government services realm. I don't have to go over those. But we're certainly a more quality business than people are probably appreciating today. So there's an amazing opportunity, and we're very excited about that opportunity to sort of reinvigorate the market around what will be a new brand and a compelling story of an investment thesis that sits around it. And we're working hard on the strategy to support that for Investor Day right now. And we just had a session on it this week, in fact, and it was -- yes, you could tell the room was very upbeat. So that was good. On the sustainable tech side, it's a very similar story. And we've talked about this last time around. There are no real comps that do what we do that are publicly traded. Loomis is rumored to be coming to market via an IPO, but I'm not privy to the timing of that or whether now is a good time or not to do that. So that would be a really good comp if that did happen before we expand MTS. But as Mark went through last time, as we looked at companies that were -- had energy enablers that had exposure to professional services, the way that we do or technologies the way we do with the same sort of growth and margin profiles as we are projecting to companies like Air Liquide and Linde and AECOM and Jacobs to some extent, et cetera. So we talked that through, I think, last quarter. Happy to sit down with you in a separate session and talk through that logic. We've obviously got anchors, Goldman, who are supporting us on this transaction who laid out those comps and the trading expectations that are surround those. So that's where we are in that journey. And I think to admire the business for its metrics because there is no direct peer unless Loomis really goes to market before we do, we get there. Mark Sopp: I'll just add, Tobey, since the doors open a little bit here, Stuart mentioned the branding opportunity and the perception change is possible through this transaction. We view that as applying to both STS and MTS, but also, that's more than that, a lot has changed in the world this year, and we're using this opportunity to make both of our businesses better in the months ahead, leading up to what will be 2 Investor Days, hopefully in the spring. We're talking about on the MTS side, in particular, we've got rich history in Houston. We'll keep quite a bit of operations there. We serve Johnson there that kind of started all the way back when, but we're going to really increase our Washington presence and our intended impact relative to our customers there. That's a mixture of the Pentagon, of course, and the executive branch. And so we're really going to increase our resourcing there and our focus, not only in branding, but really articulating the story of how we can help customers be more successful in the changing environment that they're facing. And so a lot of investment is going to go into our impact for business development from an engagement with customer perspective. And so we're building that into the plan. And there are similar improvements that are going to be built into the STS story as well. So we're excited to not only rebrand, if you will, but to tell a different story when it's our time to do so out there in a few months. Operator: Our next question will go to the line of Mariana Perez Mora with Bank of America. Mariana Perez Mora: So first, I'd like to dig a little bit deeper on STS. And I was surprised about the margins when you exclude the contribution from the unconsolidated equity in earnings. It was low double digits versus mid-teens range that you usually have. Like how should we think about those margins going forward? Stuart Bradie: I think it's -- Mariana, good question. It's timing. Mark did talk in his prepared remarks that in this particular quarter, we saw a lot of proprietary equipment come through the revenue line. And as we've discussed previously, the way we sell technology is we sell the license fee, the basic engineering and then the proprietary equipment and the combined overall margins are in line with our typical expectations, but the lower margin piece of that is the proprietary equipment, and there was more that came through in the quarter. And we've seen that in the past. We've talked about that to the market in previous quarters where we've seen margins double up or double down as a consequence. So some quarters, we get very high margins as a consequence of having more of the licensing. But so it's a blended margin over time. So again, nothing sinister there. That is just the timing, but the strength of the portfolio overall delivered, I guess, very attractive margins overall for STS, and we talked about the contribution from Plaquemines, but the contribution from Brown & Root was up markedly as well, and that comes through the equity and lines, which is a sustaining piece of our portfolio. So I think it's -- yes, that's the answer. Mariana Perez Mora: So it's still the mid-teens is sustainable near term or like midterm target? Stuart Bradie: That [indiscernible] it's just timing... Mariana Perez Mora: And then you mentioned that you expected Plaquemines to continue to contribute until like getting into '27. Is this new $70 million a quarter run rate, the new normal? Or it's more like average year-to-date? Mark Sopp: Yes, I also addressed that in my remarks. So we did have a spike in Q3 due to milestone progression, which we're quite proud of and pleased and the customer happy on that front. But if you go back to the first half of this year and you take an average of those 2 quarters, that is the quarterly pace that we expect by and large in 2026 with some spillover into '27. We'll probably have some volatility with that as milestones as they time as often does in this type of business. But for the year, take that pace as a run rate as a good proxy for now. Mariana Perez Mora: Right. How should we think about those onetimes or achieving those milestones and recognizing them in the P&L versus the cash flow impact? Stuart Bradie: They're very well connected to cash. This is -- and we will not extract cash out of the joint venture ahead. And so I think as we realize the profit, we will extract the cash and the customer is paying as well in that regard. So cash conversion should be similar for next year, if that's the question. Mariana Perez Mora: Great. And then on STS backlog, you guys have been executing on the backlog, and it has come down from like the $4 billion to $5 billion range to like now like in the, I don't know, high 3s. How should we think about the timing on the $5 billion that you mentioned in the prepared remarks that you have in the bid pipeline and how that should impact backlog? Stuart Bradie: Yes. Near term is over the next 6 to 8 months. It's not like the government procurement pipeline, you can see for quite a ways off, and you can see it coming down the funnel. Obviously, STS is a very different market. And so that's why we talk about near-term backlog. If we looked at long-term backlog, the number would be so big that you wouldn't believe it and rightfully so because some of these projects go away or whatever. So it's far better that we concentrate on what's real. And what's real for us is that sort of $5 billion or so in near-term backlog, which is 6 to 8 months. And as I said before, that excludes things like Lake Charles and those sort of big one-timers that would obviously distort the picture. Mariana Perez Mora: Great. And last one, switching gears a little bit to Mission Technologies and national security. Could you give us -- would you mind giving us some color on how are things going in Australia and the U.K. as you -- because you mentioned like international strength, how is the pipeline of opportunities there? And if they are like moving in line with the speed -- expected speed? Stuart Bradie: Yes. Very good question. I don't think we spent enough time talking about our international portfolio. It continues to perform in the aggregate in the mid-teens in terms of margin. So it's very attractive. Talk about Australia first, they came through the defense review probably 18 months ago. They are growing nicely. I think we talked last quarter about them going up double digits. Their pipeline remains really strong. They're very well positioned. They're very well thought of as well. Our brand recognition there is really, really good. We're very much part of the fabric of the Australian defense market and the Australian infrastructure and STS market for that matter. So we continue to see good potential upside in the Australian market, and that's pretty clear, and we've been very consistent on that Mark. Any more on Australia? Mark Sopp: That's the fastest-growing part of the business. It's a little more than 10% sequentially. And -- well, year-over-year, actually, now they see that and sequentially for that matter. So Nick and the team are doing a fabulous job there with the military customer. You asked about the U.K. We talked about changes in government, changes in policy, a little bit slower in that market. Team is doing the best they can with the opportunities they have. And so they're trying to up the bids and -- they have similar sort of conversion issues that we've had in the States, but we're certainly optimistic for the longer term on that being a strong contributor at better margins than the U.S. for sure. So it's a very important market for us to continue to do well. And I think there's -- as Europe continues or starts to spend more discretionary in the defense sector, we'll start to really think about other opportunities in that broader market beyond U.K. as very carefully and selectively, but certainly, that's the right area for spend for the next several years. And so we have a developing strategy to tap that as best we can. Stuart Bradie: Yes. And we've got -- just to give you some sort of near-term benchmarks again sequentially, that's up double digits. The U.K., Europe piece is doing extremely well sequentially now that the dust has settled in the way the U.K. defense has come through. So very optimistic about the increasing demand for our services in that environment. Operator: Our last question goes to the line of Sangita Jain with KeyBanc Capital Markets. With no response, I will close the line. We have no further questions, apologies. Go ahead, Stuart, with your closing remarks. Stuart Bradie: Yes. Thanks, Megan. So in closing, very excited about the future. We talked quite -- we're quite animated about the excitement around the strategic thesis for both businesses and the opportunity it presents. I think the book-to-bill that we've posted this quarter and the bottom line metrics underpin where our focus is, and that's certainly coming through in the results. Cash being a standout, which is very timely as we discussed. And we do remain very excited about the path for both companies, both New KBR and SpinCo, and we're confident in our ability to continue creating value for our shareholders as we progress towards executing the spin. So thank you very much for your time today, and I look forward to talking to you one-on-one or whatever after the call. Thank you. Operator: Thank you. That concludes today's earnings conference call. Thank you for your participation, and enjoy the rest of your day.
Operator: Good day, and thank you for standing by. Welcome to the Prosegur Cash Q3 2025 Results Presentation. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Javier Hergueta, CFO. Please go ahead. Miguel Ángel Bandrés Gutiérrez: Good morning to everyone, and thank you for joining us today. I'd like to welcome you all to our 2025 Q3 results presentation, led by our CFO, Javier Hergueta, and myself. The presentation should take around 30 minutes, during which we will review key developments affecting our business and its performance. We'll after move on to review our key financials, followed by an update on our transformation strategy, as well as main developments by region. We'll then end up with conclusions before opening a Q&A session. Should we not get to respond to everything today, we'll get back on any open topics on an individual basis. I want to again thank you all for attending, and remind you that this presentation has been prerecorded, and is available via webcast on our corporate web page at www.prosegurcash.com. Before handing over to Javier, as we always do, I would like to share some interesting cash news in different geographies. They range from the use of cash in Latin America, the need for improving cash servicing in the U.K., a major disruption on multiple digital payment systems or the sustained demand for banknotes during major crisis. These aspects covered by the mentioned article show many of the unique attributes of cash that are not replicable and only stress its vibrancy and relevance. First, we can read from electronic payments company, Mastercard. The cash is the most widely used payment method in Latin America, being used by over 60% of respondents. And being some reasons for such a high adoption rate, it's unique convenience and the security it provides to the end user. I would like to highlight from this article 3 elements of relevance to us. First, it underlines unique characteristics cash has as a payment mean, such as its convenience and its security. Second, that it refers to Latin America, our most relevant geography, and where cash has a particularly strong role to play. And third, that it comes from Mastercard, whose business interest is contrary to the use of cash. The second piece of news, we can read from The Guardian in the U.K. referring to some latest surveys that indicate that over 70% of people in the United Kingdom support the use of cash. It underlines that the recent growth it's experiencing is leading to some businesses not having sufficient capacity to serve their end customers' cash requirements. It's particularly important to note 2 aspects. One, new to this presentation, the continuous growth in cash usage in the mature U.K. market; and second, that cash needs a certain minimum infrastructure to be run in an effective manner. To this end, we must remind the developed economies as the U.K. are commencing to actively protect and promote it. In the third piece of news, we can read from CNN about the critical outage at Amazon Web Services that took place early last week. Because of it, for several hours, thousands of services were down, and millions of users were affected across the globe from the U.S. to Spain. Many of the services disrupted, ranged from online banking, electronic payments, shopping or the travel industry. It reminds us of how fragile the internet's backbone critical for multiple digital payment transactions is. It as well sets a clear message on -- to why a solid cash-based infrastructure is fundamental to assure the correct functioning for our economies. Lastly, we can read from the European Central Bank on some important lessons on the unique role that physical notes play across crises. It emphasizes the demand for banknotes has been amplified by sharp increases in public demand during major crises, highlighting the unique role and attributes of physical cash. Again, it's a Central Bank that handles the unique features cash brings to the system when it comes to assuring its reliability and its trustworthiness. These crises have occurred often in the past and seem to become only greater relevance and increased frequency as we advance towards an ever more uncertain future. All of the above news just underline that cash is strong and will become stronger in different regions of the world for its unreplaceable characteristics. After this brief news update, I'll share today's agenda. Firstly, Javier will review the periods highlights, then he will share with us the key financials for the quarter, followed by an update on our transformation initiatives. Then I'll share key developments by region. And finally, Javier will conclude with main takeaways before opening the Q&A session. Please, Javier? Javier Hergueta Vázquez: Thank you, Miguel. Good morning to everyone, and thank you for joining our Q3 review. I want to highlight the key events that have taken place in the period, characterized by despite a strong currency impact a solid underlying performance that continues to allow us to keep deleveraging. Sales in euro terms reflect a 2.3% reduction when compared with the same period a year ago. This is despite the fact that organic growth has been sustained at almost 7% in the period, but such growth has been offset by an over 10% negative currency impact. This impact has been especially negative in LatAm and Asia Pacific, connected to the evolution of the U.S. dollar versus the euro. By regions, it is particularly outstanding to see the growth of our Asia Pacific countries by well over 20%. If we turn to profitability margins, we can observe that EBITDA stands at 11% of sales. It's important to indicate that the efficiency program we announced 3 months ago continues to take place. If we are to isolate these and show up our pro forma profitability, EBITDA margin stands at 11.8%, in line with the one experienced 1 year ago. As we travel down to P&L, we reached a net income of EUR 67 million that implies an improvement of 1.6% versus 2024. This signals that despite the efficiency program I just mentioned, and the effect of currencies in the top part of our P&L, the lower part is able to more than recover both aspects, showing the resilience of our performance. Turning to transformation, it now reaches 35.1% of total sales, this implies a growth in euro terms of 6.8%, at the same time as they accelerate their penetration over total sales by over 300 basis points. This certifies the very positive progression of our innovation strategy in order to have the most solid company into the future, and most importantly, how welcomed it is by our customers. Fourthly, free cash flow for the period totals EUR 76 million, which allows for a total net debt reduction of over EUR 60 million on a last 12 months' basis and enables us to maintain a stable leverage of 2.3x total net debt-to-EBITDA ratio. These figures clearly show the resilience of our business model, our ability to generate cash, and our strong financial discipline. Lastly, I'd like to underline that we have recently issued a EUR 300 million bond maturing in 2030 that contributes to an even more solid and diversified funding capacity into the future. Our offering has been well received by the market, confirming the trust bondholders place on our business model. In this line, and thanks to our prudent and disciplined approach, we can reassure well in advance the availability of financial sources to undertake the repayment of our existing EUR 600 million bond in February 2026. As well in terms of innovation, I'd like to share the launch of Prosegur Digital Gold last month. This is a very innovative solution that allows end customers to invest in tokenized gold with Prosegur assuring every single step of the process and that allows end customers to benefit from a 25% more efficient price than investing in physical gold. I will now turn to our key financials. First, I will review our profit and loss account. Revenue in this first 9 months of the year total EUR 1,488 million, a 2.3% reduction over the one achieved in 2024. As earlier shared, if we look at the top right-hand side of the page, we can see this decrease is driven by a negative foreign exchange impact of 10.5%, whilst organic growth has been positive of 6.9%, showing the health of the underlying business and inorganic growth contributes an additional 1.3% impact. EBITDA for the period reached EUR 251 million or 16.9% of sales, which is an 8.6% reduction over the one experienced 1 year ago, while EBITDA reaches EUR 164 million, 11% of sales or an 8.5% decrease over the one observed a year ago. Looking at the bottom right-hand side of the page, we can see that this profitability is impacted by EUR 12 million derived from the extraordinary efficiency program, which started in the second quarter of the year. Factoring this effect, the pro forma 9-month figure would reach EUR 176 million, which in relative terms represents 11.8% of sales, in line with 1 year ago. Financial results accounts for EUR 28 million, a substantial EUR 15 million reduction over the amount experienced 1 year ago, this reduction being a constant throughout the year. With this, we reached an earning before taxes of EUR 120 million being 8.1% of sales or 40 basis points better than the one achieved 1 year ago. This all, despite the already mentioned negative currency impact at operating level as well as absorbing the extraordinary efficiency program in place. Taxes totaled EUR 53 million, implying a 44.5% tax rate, which we aim to lower versus last year in the next quarter. With this, net profit reaches EUR 67 million, that is 4.5% of total sales, and a 1.6% improvement over the same period a year ago. I will review our cash flow as well as our debt. Starting from our EUR 251 million EBITDA affected by the already mentioned foreign exchange impact as well as the extraordinary efficiency program, provisions and other items deduct EUR 20 million, which is a EUR 5 million increase from the same period 1 year ago. Income tax outflow accounts for EUR 67 million, EUR 20 million over the first 9 months of 2024, which was particularly low. Investment in CapEx, in the first 9 months of the year totals EUR 51 million, which is a substantial EUR 16 million decrease versus 2024. This has been possible, thanks to lower openings in the ForEx business, as well as an active management of customer CapEx inventory. Investment in working capital to finance the close to 7% organic growth totals EUR 37 million. With this, we reached a free cash flow of EUR 76 million, which implies an improved conversion rate over EBITDA of 80%. Interest payments totaled EUR 18 million and M&A payments accounted for EUR 8 million in the period, a EUR 24 million reduction versus the previous year. Dividends and treasury stock reached EUR 8 million, EUR 22 million less than a year ago. Let me remind the dividend payment in 2025 will take place in the fourth quarter. The others line totals EUR 24 million, which is a EUR 5 million improvement over a year ago. With all these, total net cash flow is positive EUR 18 million, reflecting our strong CapEx discipline and our effective working capital control. When we add our free cash flow to the net financial position at the beginning of the period of EUR 643 million and deduct the negative impact of foreign exchange of EUR 9 million, it results in an end-of-period net financial position of EUR 634 million. Now looking at the top right-hand side of the page to the above net financial position, we have to add EUR 106 million of IFRS 16 related debt, EUR 14 million less than 1 year ago and EUR 113 million deferred payments, EUR 16 million less than in 2024. Taking into account, the treasury stock of EUR 16 million, EUR 10 million more than in the first 9 months of 2024, total net debt reaches EUR 836 million. This implies a very relevant total net debt reduction of EUR 62 million year-on-year. If we look at the leverage ratio, it is 2.3x over EBITDA, in line with the one we saw in Q2 2025, and continuing a very substantial improvement of 0.6x versus the one we had at the close of the third quarter in 2024. Our Transformation Products continue to grow in relevance and reached over 35% of sales at the end of the third quarter. Total sales derived from these products amount to EUR 522 million, a 6.8% increase over last year or EUR 33 million more if we talk in absolute euro terms. Penetration over total sales, as mentioned reached 35.1%, which is a 300 basis points improvement over only 1 year ago. And Cash Today and ForEx continue to be the key levers in our transformation growth. The fact that these products continue to grow only confirms how well they are received by our customers, how strongly they support them, and how relevant they are not only today, but especially to best position us into the future. With this, I would like to hand over to Miguel, so he can share our evolution from a geographical standpoint. Miguel Ángel Bandrés Gutiérrez: Thank you, Javier. I'll now move on to reviewing the key highlights of our performance by region. Turning to Page 7, Latin America accounts now for 58% of total group sales. Sales in the region reached to EUR 855 million, an 8.2% decrease over the same period a year ago. It's important to note 2 very different effects that take place over sales here. On one side, we can see a very positive contribution of organic growth of plus 8%. This despite the evolution of the Argentinian economy that has been impacted in order to control hyperinflationary trends. As well the results of last week's -- weekend's midterm elections backed the macro initiatives of the governing President as we continue the above-mentioned measures to keep stabilizing the country. On the other side, this is more than offset by a negative impact of foreign exchange of over 16%, reflecting the evolution of currencies in the region linked to U.S. dollar, particularly effect has the Argentinian peso as well as and its effect on hyperinflationary accounting. The above-mentioned reforms should reflect in a more stable behavior of the Argentinian currency into the future. Despite the foreign exchange effect, it's noteworthy to underline the healthy growth of Transformation Products by EUR 12 million in the period or 3.8%, reaching EUR 323 million. The penetration of our total sales is of 37.7%, a very substantial 440 basis points improvement over the one observed only 1 year ago. As we already mentioned, it's important to remind that we've continued with our efficiency programs in the region throughout this third quarter. Turning on to Europe, which accounts for 1/3 of total group sales. Revenue in the period reached EUR 497 million, which is almost a 1% improvement over the one experienced in 2024. All of this growth in organic shows a slight acceleration of activity in Q3, which we estimate will continue into the fourth quarter. The evolutions of the business in the region has performed in line with the macroenvironment. As well, we must signal the Transformation Products continue to show a very strong delivery, achieving sales of EUR 165 million in the period, that is a 3.5% increase over the one reached a year ago, and with the penetration of our total sales reaching 33.1%, an 80 basis point improvement over 2024. And now turning on to Page 9, we can observe the behavior of our Asia Pacific operation, which accounts for 9% of group sales. The countries in the region continue to provide strong growth. Sales have totaled EUR 136 million in this first 9 months of the year, a 37.3% improvement over only 1 year ago. We should highlight that inorganic accounts for 19.4%. Foreign exchange has a negative impact of 6.2%. And most importantly, organic growth continues to be very strong in this case, 24.1% over the one experienced in 2024. As well, the performance in the region of Transformation Products has been very good, totaling EUR 35 million in the period, which is an 82.2% growth over 2024. The growth of Transformation Products has been fundamentally backed by a very good performance of both Cash Today solutions and the ForEx business. The region is quickly converging towards the group's average and now Transformation Products, despite the strong growth of the core underlying business, accounts for 25.5% of total sales, that is an improvement of 630 basis points. Thank you very much for your attention, and now I hand over for Javier to conclude. Javier Hergueta Vázquez: Thank you, Miguel. As said, I would like to recap the key points to underline in these first 9 months of the year. First, I must flag that our results continue to be affected by the evolution of currencies, particularly the Argentinian peso, as we noted earlier, despite which we continue to deliver on our deleveraging strategy, showing the resilience of our business model. Overall sales have declined by 2.3%, noting a negative currency impact of 10.5%, which more than offsets a positive organic contribution to growth of 6.9%, showing the strong support our customers have for our solutions. In terms of margins, EBITA stands at 11% of total sales. Here, we must remind that we continue with efficiency programs that we started in Q2 to which we have added an additional EUR 7 million in Q3. If we look at margins on a pro forma basis, we can see that they stand at 11.8%, the same level at which we were 1 year ago despite the above mentioned negative foreign exchange impact. Relevantly, we can see that our net income totals EUR 67 million, 1.6% better than 2024 and showing how resilient the bottom part of our P&L is. Transformation, as we have seen, continues to be very strong, showing customers adopting our innovative solutions in a growing manner. Having grown by 6.8% in the period, they now account for 35.1% of total sales, which means a 300 basis points increase in penetration over 1 year ago. In terms of free cash flow, we reached EUR 76 million in the first 9 months of the year, which enables us to reduce our total net debt by EUR 62 million on a last 12-month basis. This cash generation as well enables us to maintain a stable leverage at 2.3x total net debt-to-EBITDA ratio, which is well within our comfort range. The resilience of our business model as well as our commitment to financial discipline, have enabled us to successfully issue a EUR 300 million bond recently, allowing us to finance at a very competitive rate, and giving us ample flexibility towards our future in a very comfortable manner. Lastly, as I said earlier, I wanted to share the launch of Prosegur Digital Gold, a very innovative solution that is a clear example of the many growth venues we have into the future. Thank you very much for your attention. And now I would like to open the floor to any questions you might have. Operator: [Operator Instructions] The first question comes from the line of Enrique Yaguez from Bestinver Securities. Enrique Yáguez Avilés: Most of my questions will be focused on the organic growth deceleration suffered this quarter. First of all, I would like to potentially confirm that the significant deceleration in LatAm is mostly related with Argentina. And if so, I don't know if you could provide how was Argentina performing organically in the third quarter? And also if you could provide feedback about October [ figure ] for this country and for the area? And also I'd like to know if there are any other countries potentially suffering such a strong deceleration in organic growth in LatAm? And finally, I know that Asia Pacific is performing quite strong organically, but we also see some deceleration. Any comments on this regard? And finally, about the restructuring plan in LatAm, just to confirm that it's mostly over? Javier Hergueta Vázquez: We'll take the questions one by one. So in terms of the organic growth in the LatAm region, I mean the figures that you're seeing in the quarter reflect a deceleration in the core figures. But I think that as you pointed out, there are 2 realities here. So we have Argentina, on a special situation, and then the rest of the countries. In that line, if you exclude Argentina out of the picture, the organic growth in the region in Q3 keeps at solid mid-single-digit levels and accelerating in the quarter itself. So we are experiencing a pretty good performance quite across the board in all the regions, in all countries. And in Argentina, we have some special circumstances, as you are may be aware already, the inflation in the country has lower significantly. And on top of that, I mean, to make that happen through severe adjustments by the programs implemented by the government, consumption is also quite low. So putting those 2 together, the activity level is now lower. On top of that, and for some transitory period, there has been a very cautious approach in the behavior of the people pre-elections. So they are pretty much -- or they have been pretty much in a wait-and-see mood. So that has kept the economy quite stopped for a while. And on top of all that, there has been a strong FX devaluation, so much higher than inflation. So in euro terms, it looks even weaker. So that's the kind of situation that we have been seeing in Argentina throughout the quarter. October, I mean it's not very different from that, because the elections just took place last week. So most of the month was on that wait-and-see mood. What we would expect going forward is that, on the one hand, the results of the election will be backing Milei's programs and his views and the reforms to be undertaken. So that should be helping them accelerate the implementation of the reforms. And then you have the U.S. support on the other hand, which should also help from an FX perspective. So we will be expecting a strong rebound in the Argentinian macro for 2026. I mean, partially, we could start seeing part of that in Q4 this year, but mainly in 2026. So that should help improve the performance of our Argentinian business going forward. That's what we will be expecting ahead of us in the near future. With regards to AOA, well, I mean, the region keeps performing very solidly at double-digit growth rates despite the comparison base. If you recall at the earlier part of the year, we mentioned that there were very abnormally high organic growth, because of some of the new airports openings taking place in the second half of 2024. So now the comparison base reflects a more realistic performance, which is still at a strong mid-teens. So, we will expect to see that trend going forward. And then with regards to the restructuring program, it's mostly done already. We are now executing a smaller tail of it. So that will be marginal to what you have seen in the figures that we've posted today. So that will be maybe a couple of million more or so, but marginally lower compared to what we've seen. And as we said last time, so this is a project that will generate paybacks in the next 18 months or 18 months from the date of execution. So we should start seeing gradually the effects of that throughout the coming quarters itself. Operator: [Operator Instructions] The next question comes from the line of Alvaro Bernal from Alantra. Alvaro Bernal: I just have one, since the majority have already been answered already. Regarding the free cash flow, you have posted a year-to-date quite contention regarding CapEx and working capital. I just wanted to know your views for the future in this particular metrics. So CapEx, will we see cuts going into 2026? Or will we go back to the previous ranges we saw in 2024? And the same with working capital? Javier Hergueta Vázquez: In relation to the free cash flow figures that we've seen and more precisely on the CapEx and working capital figures. First, taking the CapEx, I think this 2025, there are 2 things that are explaining the variation in the figures versus historical figures. One is that we have less openings in the ForEx business than what we had last year. So that is one of the 2 levers. And the other one is that we have undertaken a significant efficiency program in the inventory of our current CapEx related assets. So those 2 will not be the rule going forward. So we will expect to have some openings in the ForEx business, maybe not as much as we had in 2024, but there will be some openings in 2026. And this inventory rationalization that we were mentioning will be just something that has taken place this year, but it's not to be extrapolated going forward. So for 2026, we could expect CapEx figures to be more in line with what we've seen in previous years. With regards to working capital, I mean, when you look at the figures that we are posting, you have to take into consideration. First, there's lower organic growth in the period, as we mentioned, especially because of the Argentinian situation with lower inflation quite across the board. And on top of that, we have very strong focus on the DSO management itself. I would say that going forward, I mean, if the FX tends to normalize more, we could see similar mid-single digit growth in euro terms, but with lower working capital consumption, because that is created in local currency terms. So if we have lower inflation across the board, that will typically generate lower consumption in terms of working capital in local currency terms in -- locally in the countries themselves. So I would say that the most realistic view would be some lower working capital consumption in 2026 and going forward, compared to what we've seen in the past, especially from this normalized inflation scenario that we have foreseen. Operator: [Operator Instructions] There seems to be no further questions. I would like to hand back for closing remarks. Miguel Ángel Bandrés Gutiérrez: Well, thank you. Thank you all for taking the time and joining today's conference call. Anyhow, as usual, should there be any further queries you know that our Investor Relations team remains available for you. And otherwise, let's speak again in our full year results presentation in February. So have a nice day all of you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Ronald Kohler: Welcome to the Covestro earnings call on the third quarter results. The company is represented by Christian Baier, our CFO. [Operator Instructions] You will find the quarterly statement and earnings call presentation on our IR website. I assume you have read the safe harbor statement. With that, I would now like to turn the conference over to Christian. Christian Baier: Thank you, Ronald, and good afternoon, everybody. I would like to start my presentation with some insights into a recent acquisition. Following the successful completion of the purchase of Pontacol in Q3 2025, Covestro has signed another value-accretive transaction, which is expected to close in Q1 2026, depending on regulatory approvals. This deal will also benefit our Solutions & Specialties segment with the acquisition of 2 HDI derivative production facilities from Vencorex in Rayong, Thailand and Freeport in the U.S. This strategic move enhances Covestro's global aliphatics production footprint in attractive growth regions, particularly the U.S. and Asia Pacific. Aliphatics isocyanates are essential raw materials for light stable coatings, paints and adhesives, primarily used in the mobility sector, but also in construction and furniture applications. The acquisition strengthens Covestro's position in the coatings and adhesives market, expanding its capacity to meet customer demand across key regions. The acquisition delivers financial value through a low double-digit million euro EBITDA addition and synergies of up to high double-digit euro million amounts within the next 5 years. These synergies stem from substantial utilization rate improvements across our asset base, combined with the implementation of Covestro's advanced aliphatics technology platform. This deal demonstrates our disciplined capital allocation approach, targeting high-return opportunities that enhance our specialty chemicals portfolio and drive sustainable value creation. Let us now turn to the key financials of the last quarter, which are clearly impacted by the Dormagen fire incident and the ongoing challenging business environment. On the sales volume side, we declined by 1.5%, also leading to lower sales of EUR 3.2 billion that are also due to negative pricing and FX effects. We achieved an EBITDA of EUR 242 million, which is towards the upper end of our guidance range and mainly due to successfully delivering on cost ambitions. The free operating cash flow came in at a positive EUR 111 million. As usual, and with just 2 months to go, we are narrowing our FY guidance. On Page #4, we are looking at the business and the volume development in the third quarter of 2025. Year-over-year, global sales volumes slightly declined, primarily driven by the external fire incident in Dormagen and partly continued macroeconomic headwinds. Volume growth in APAC and North America provided for a partial offset, but could not fully compensate for the European decline. Without the Dormagen incident, the European sales volume decline would be limited to minus 2% and global sales volume would have turned positive. Looking across the different industries, only auto showed a low single-digit increase, mainly due to the year-over-year low baseline after a strong decline in Q3 2024. Construction, electro and furniture wood all showed a low single-digit to low teens percent negative development, reflecting persistent economic weakness across key markets. Regional dynamics varied significantly. In EMLA, the performance remained challenging with automotive volumes flat and significant decline in electro, construction and furniture wood. This reflects both the operational impact from the Dormagen incident and broader regional economic softness. In North America, we have achieved slight volume growth, supported by strong furniture wood demand. Electronics and automotive remained flat, while construction declined significantly due to elevated interest rates and inflationary pressures and also trade policy uncertainty. In APAC, we have delivered slight volume increases driven by robust construction and automotive demand. However, export-oriented electronics and future -- and furniture wood segments contracted significantly, reflecting the impact of U.S. tariff measures on trade flows. We are now on Page 5 of the presentation and are coming to the year-over-year sales bridge. Sales for Q3 2025 declined by 12% to EUR 3.2 billion. While all contributing factors were negative, the decrease was mainly caused by negative pricing and adverse FX impacts. Pricing pressure contributed 7 percentage points to the sales decline, reflecting continued market softness and competitive dynamics across our portfolio. Foreign exchange headwinds accounted for 3.5 percentage points of the decline, predominantly due to weakness in the U.S. dollar, Chinese renminbi and Indian rupee against the euro. As mentioned earlier, lower volumes contributed minus 1.5% to the sales decline. With that, let's turn to the next page, where we are showing the Q3 2025 EBITDA bridge. Year-over-year, EBITDA decreased by 15.7% to EUR 242 million. The performance towards the upper end of our guidance range of EUR 150 million to EUR 250 million was driven by delivering on our self-help measures in the form of short-term contingency savings as well as long-term structural savings. The persistent unfavorable industry supply-demand balance continued to pressure margins with selling prices declining more rapidly than raw material costs. This negative pricing delta impacted EBITDA by EUR 102 million. In addition, lower volumes and adverse foreign exchange rates added to the headwinds. Other items provided for a significant positive contribution, primarily due to the mentioned cost savings. Restructuring costs related to strong burdened EBITDA with EUR 26 million in Q3 2025 and EUR 170 million during the first 9 months of 2025. On Slide 7, we break down the details for the different segments, starting with Solutions & Specialties. In S&S, the combination of the year-over-year price decline and negative FX effects led to a sales decline of 7.7%. Volumes remained flat. Quarter-over-quarter, sales declined globally and volume growth was only recorded in APAC, while EMLA and North America declined. Prices were stable in North America and APAC, while a decline was observed in EMLA. The EBITDA in Q3 2025 declined slightly year-over-year as the negative pricing delta and FX effects could not be fully offset by positive volume development and others. The quarter-over-quarter EBITDA increase was caused by positive pricing delta and cost savings, while volumes and FX diluted the increase. The EBITDA margin increased to 12%. After Solutions & Specialties, we now turn to the Performance Materials segment. Sales declined 16.2% year-over-year, driven by negative contributions of 9.8% from pricing, 3.3% from FX and 3.1% from volumes. The volume reduction was primarily attributable to production disruptions in TDI and basic chemicals stemming from the Dormagen incident. Quarter-over-quarter, sales declined in EMLA and North America, while APAC was flat. The Q3 '25 EBITDA of EUR 174 million is higher year-over-year, mainly due to an increase and -- mainly due to an insurance reimbursement and cost savings, while pricing delta, volume and FX all contributed negatively. Please note that the segment Performance Materials benefited from a EUR 75 million payment from the Covestro International Re, a licensed reinsurance company, to self-insure property damage and business interruption risks. Therefore, there is an equal negative amount booked in the other reconciliation segment. In Q3, we assume that Covestro had a mid-double-digit euro million negative operational impact from the incident. We do not expect another insurance booking in Q4. Therefore, we assume that the operational loss of another mid-double-digit euro million amount will burden the EBITDA in the last quarter. The next topic is the free operating cash flow development. As you can see from the graph, the free operating cash flow in 9M 2025 improved to minus EUR 370 million, with Q3 free operating cash flow contributing positive EUR 111 million. The free operating cash flow declined after 9 months year-on-year, driven by lower EBITDA and higher CapEx. The usual buildup of working capital during the year was less pronounced compared to last year due to reduced inventories. CapEx after 9M of EUR 556 million was higher year-on-year due to higher expenditures in our Performance Materials segment. We maintain our full year CapEx guidance of EUR 700 million to EUR 800 million for 2025. Income tax payments of EUR 145 million remained consistent with the previous year. The minus EUR 152 million in other effects mainly comprises the bonus payout in Q2. Let's now look at our balance sheet on Page 10. Our total net debt increased by EUR 292 million compared to the end of 2024. The increase was caused by a negative free operating cash flow of minus EUR 370 million. The decrease in the net pension liability of EUR 240 million was driven by an increase in pension discount rates, mainly in Germany. This comprises pension provisions of EUR 285 million and a net defined benefit asset of EUR 70 million. Summarizing our net debt situation, the total net debt-to-EBITDA ratio is at 3.8x based on our 4-quarter rolling EBITDA of EUR 0.8 billion. Covestro remains committed to a solid investment-grade rating, which was confirmed in April by Moody's, including a stable outlook. That concludes the overview of the Q3 financials, and we are now moving to the forward-looking part. We are continuing with the outlook for Covestro's core industries on Page 11 of the presentation. The global GDP forecast has decreased to 2.5% from February's 2.8% outlook. This reduced global outlook also affects most of Covestro's key industries. Growth projections for the automotive industry have been reduced to 1.9% from 2.7%, primarily driven by U.S. tariff policy impacts and weakening demand in Europe and North America. However, the electric vehicle segment continues to demonstrate a robust momentum with 25.7% growth expectations. The growth forecast of the construction industry increased to 0.6%, partly due to stabilization in the Chinese housing market, though ongoing conflicts and macroeconomic uncertainty limit further growth. Residential construction is seeing a further decline to minus 1.8%. The growth forecast for the furniture industry decreased to 0.2%, which is more than 1 percentage point below earlier expectations. Primarily, this is due to weakened production activity in the APAC and EMLA regions. The growth forecast for the electronics industry is now at 2.9%, down from 5.2% with persistent uncertainty regarding U.S. trade policy and potential tariffs affecting investments. Household appliances show an improved growth expectation at 3.1%. In line with our usual practice, we are now narrowing our guidance corridor for our KPIs in Q4. We narrowed the EBITDA guidance to now in between EUR 700 million and EUR 800 million, and I will explain on the next page the relevant drivers for that. The free operating cash flow guidance has been adjusted in line with EBITDA and is now expected in between minus EUR 400 million and minus EUR 200 million. Accordingly, ROCE above WACC is now projected at minus 9 to minus 8 percentage points. The greenhouse gas emissions forecast was also narrowed mainly due to lower volumes after the Dormagen incident and are now expected between 4.2 million to 4.4 million tonnes. Beyond that, most other financial expectations remain unchanged, only Covestro sales are now estimated to come out at around EUR 13.0 billion. As referenced in our Q2 reporting, this waterfall chart illustrates the sequential factors driving our EBITDA guidance revision from the initial February outlook. Our February guidance established a midpoint of EUR 1.3 billion. Market headwinds of about EUR 700 million, countered by EUR 300 million in proactive short-term cost contingencies to mitigate these pressures resulted in our July guidance midpoint of EUR 900 million. Global market conditions remained challenging throughout Q3 and are expected to persist in Q4, characterized by sustained margin pressure and significant oversupply across our core product portfolio. While our transformation program is strong and short-term cost contingencies provide partial mitigation, we are accelerating both initiatives to capture earlier benefits. This may require pulling forward restructuring costs of low to mid-double-digit millions from 2026 into 2025. The effect of the Dormagen incident, which has occurred 1 day after our revised FY '25 outlook has been part of our Q3 guidance, but had not been incorporated in our FY '25 outlook. We are today in a much better position to evaluate the full impact of the outage for FY 2025 and estimate a burden of up to EUR 150 million. Meanwhile, we resumed partial production of TDI and expect to continue running at a low operational load. During 2026, production will be gradually increased to full capacity depending on improving chlorine availability. The lacking TDI and basic chemical volumes in combination with the ongoing challenging economic situation leads to the new EBITDA guidance midpoint of EUR 750 million. Before summarizing Q3, I would like to give you an update on the XRG transaction. We have successfully completed all pre-closing merger control approvals following Vietnam's recent authorization, and Indonesia will be addressed post closing in accordance with local regulatory requirements. Two key approvals remain outstanding, the German foreign direct investment FDI clearance and the European foreign subsidies regulation FSR approval. Regarding the European FSR, we entered Phase 2 proceedings in late July and have since maintained constructive dialogue with the EU Commission. We achieved a significant milestone by submitting commitments, which have also undergone market testing, a standard procedural step in the FSR process. For German FDI approval, we are in final stages of the clearance process. Both regulatory authorities are fully aware of our December 2 long stop date and remain confident to achieve the closing of the transaction before this deadline. So let me quickly summarize the highlights and the key points for Q3 2025. We have seen a negative volume development as we were burdened by the Dormagen incident and ongoing challenging economic conditions. We have also seen sales lower at EUR 3.2 billion, mainly caused by lower prices and unfavorable FX. An EBITDA of EUR 242 million ended up towards the upper end of our guidance range, helped by delivering on our cost savings ambitions. And we have narrowed our FY 2025 guidance with an expected EBITDA of EUR 0.7 billion to EUR 0.8 billion. On the XRG transaction, we are on track for closing before December 2, which is the long stop date. And now Ronald and myself are happy to answer any questions that remained open. And with that, I hand it over to Carsten, who will guide us through the Q&A session. Carsten Intveen: Thank you, Christian. [Operator Instructions] And the first question comes from Christian Faitz from Kepler Cheuvreux. Christian Faitz: Hope you can hear me. Yes, 2 questions, please. First of all, thanks for the helpful comments on Dormagen and the ramp into 2026. Can you talk or elucidate a bit how much of that EUR 150 million impact you talked about is actually covered by insurance payments, for example, or will be covered eventually? And then also a second question, your presentation suggests that electric vehicle growth continues to have solid momentum, even more so in '25 than in 2024. Can you remind us how much Covestro product in terms of value is in an average car with a combustion engine versus a battery electric vehicle? Christian Baier: Yes. Thank you, Christian, for your questions. Very happy to comment on both. With respect to Dormagen and the insurance perspective, we are, on the one hand, very early in that process, really focusing heavily on restoring operations where we are very confident to be able to ramp that up significantly over time. The insurance perspective that you have seen, first of all, we have that internal insurance of EUR 75 million, and we have basically deductibles of EUR 25 million. So we are very strongly expecting that the coverage is there above EUR 100 million effect that would be happening at that point of time. With respect to the EV view, we certainly have a very high ratio of products within the EVs, especially when we talk the high-end luxury EVs, we are talking about a very significant number, which is about 2 to up to 5x higher than in a normal combustion engine car. So EVs definitely is an important market for us, and it continues to be. Still, we see, obviously, in different regions, various strength and also weaknesses overall. But given that we are very much penetrated also with a well-performing Chinese players, we see also a good perspective down the road in that market, while auto at the moment certainly is somewhat challenging. Carsten Intveen: And the next question comes from Sebastian Bray from Berenberg. Sebastian Bray: I have 2, please. The first to come back on Dormagen. Is this done in January of '26, the plant is fixed and everything goes back online? Or is it not quite that simple? And my second question was on the comments around September mark-to-market pricing for key products implying about EUR 750 million of EBITDA for the year FY '25. And I'm looking at MDI, a little bit of polycarbonate and some other commodity prices, and these all appear to have deteriorated significantly in excess of raw material prices through October. If you were to perform the same analysis again with mark-to-market October prices, is EUR 700 million a more reasonable figure? Or does it not differ very much? Christian Baier: Yes. Thank you, Sebastian, for your questions. Happy to address those. I think with respect to Dormagen, it is basically a multifold analysis that is being done. We already have ramped up parts of the various production entities. I think the key one was to restore relevant parts of the power supply in order to also ramp up trains on various of the subproducts. But just answering specifically your question, no early in January '26, this is not all going to be fixed at that point of time, but we will be ramping up throughout that year on the key products in order to then basically come back to full TDI availability at that point of time, but we're very confident together with the external partners that are important here also on that external fire incident to ramp up reasonably quickly at that point of time. With respect to the September mark-to-market, yes, certainly, there is always some fluctuations between the various months, but we very much remain confident with the guidance range that we have narrowed today of this also being the relevant one to look at for the full year outlook also on the back of current trends that we see in the last couple of weeks. Sebastian Bray: Could I just follow up on this? So we're comparing Q4 versus Q3, I appreciate there are various bits and pieces of noise around semiconductor supply to automotive in Europe and so on. But it is notable how much some of these prices have declined, let's say, October versus year average -- versus quarter average for quarter 3. Is this because one who are ramping up further MDI supply? Is it entirely demand led? What is your own view on why prices are seemingly weak in October? Christian Baier: Yes. Well, as we are not commenting then on competition, but what we basically see is some headwinds certainly on the products that you quoted. It's in the end a combination of various factors that we see there. There certainly is demand development that also from a seasonal perspective is ramping in, providing some pressure. And given that we have seen some additional volumes in this year, hitting that demand situation, supply-demand certainly is something to be improving over time. But at the moment, that's the balance that we see. And still, it's consistent with our expectations for the full year. Sebastian Bray: And if the deal closes, all the best for life on the Adnoc. Carsten Intveen: So unless no additional question still occurs, there are no further questions. We have an additional -- yes, there are no further questions at this time. One occurred by [ Tiffany Zfati ]. Tiffany, up to you. Tiffany, can you hear us? Tiffany, we can't hear you yet. Now, we can hear you. Unknown Analyst: Okay. Perfect. Sorry. So you said [ 4 ] weeks ago at a conference that you had an agreement with the German government on the FDA approval. So my question is, what are they waiting for? Christian Baier: Well, I think we basically are making good progress on the FDI side. We have never said we have an agreement on the FDI or the approval in Germany, but we continue to be very constructively in conversations there and are very confident to, by the long stop date, have clearance not only on FDI in Germany, but also on FSR in Europe. Carsten Intveen: So with that, there are no further questions. With that, handing back to Ronald. Ronald Kohler: Thank you all for listening in. I know it's a busy day today with a lot of other companies reporting. So thanks for your questions. And if you have any follow-up questions, don't hesitate to call the IR team. Thanks, and goodbye.
Operator: Good day, and welcome to the Franklin BSP Realty Trust 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 Lindsay Crabbe, Director of Investor Relations. Please go ahead. Lindsey Crabbe: Good morning, and welcome to FBRT's third quarter earnings call. Thank you, Cindy, for hosting our call today. As the operator mentioned, I'm Lindsey Crabbe, with me on the call today are Richard Byrne, Chairman and CEO of FBRT; Jerry Baglien, Chief Financial Officer and Chief Operating Officer of FBRT; and Michael Comparato, President of FBRT. Before we begin, I want to mention that some of today's comments are forward-looking statements and are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainties as described in our most recently filed SEC periodic reports and actual future results may differ materially. The information conveyed on this call is current only as of the date of this call, October 30, 2025. The company assumes no obligation to update any statements made during this call, including any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, we will refer to certain non-GAAP financial measures, which are reconciled to GAAP figures in our earnings release and supplementary slide deck, each of which are available on our website at www.fbrtreit.com. We will refer to the supplementary slide deck on today's call. With that, I will turn the call over to Rich Byrne. Richard Byrne: Great. Thanks, Lindsay, and good morning, everyone. I'm going to start on Slide 4 by reviewing our third quarter results. And then as always, we will open the call up for everyone's questions. I'll begin with key developments from the third quarter. Jerry is going to walk through our financial results, including NewPoint's strong contribution to its first full quarter with us at FBRT. And Mike is going to provide updates on several more topics, including market conditions, our watch list and our REO activity. But to start, as we previously said, the third quarter was a transitional period for FBRT. It was highlighted by the successful closing, as I said, of our acquisition of NewPoint, which occurred on the first day of the quarter, July 1. The NewPoint integration so far is going exceptionally well. NewPoint had a record volume quarter. It was actually the highest in its history with $2.2 billion of originations. This resulted in $1.8 billion increase in the agency servicing portfolio. In total, NewPoint contributed $9.3 million to distributable earnings in its first full quarter as part of our company. Overall, our distributable earnings were $0.22 per fully converted share. Jerry is going to provide additional details on distributable earnings as well as NewPoint. As expected, maintaining liquidity for the acquisition limited our new loan originations early in the quarter. As such, our core portfolio size declined slightly. We originated approximately $304 million in new loan commitments in the quarter and funded $196 million of those, primarily in multifamily with the bulk of our origination activity occurring mid-quarter or later. And we received $275 million in loan repayments. We expect our core portfolio to return to its target size of at least $5 billion over the next few quarters. At quarter end, we had $522 million of available liquidity. But following quarter end, we closed our 12th CRE CLO, which refinanced several older CLOs past their reinvestment periods. While these CLO calls will result in some noncash extinguishment debt charges in the fourth quarter, the transaction lowers our interest expense and adds approximately $1 billion of origination capacity to our total loan portfolio. Our average risk rating held steady at 2.3. We continue to make progress on the legacy portfolio and actively manage our watch list and REO assets. Three new loans were added to the watch list this quarter, while one was removed following full repayment. We expect to remove several watch list loans in Q4 via loan modifications or asset sales. On the REO front, we sold 2 properties this quarter and have a few more slated to close in Q4. You'll hear a lot more about that momentarily. As these legacy issues are resolved, additional capital will be available for us to deploy into our core portfolio. Post interest rate hike originations now represent approximately 60% of our book. Importantly, we have resumed share repurchases in Q4. We view our stock as significantly discounted and believe it's an important activity supported at these levels. Through October 24, we have repurchased 540,000 shares for approximately $6 million and have $25.6 million remaining on our buyback allocation. Our Board of Directors expanded our buyback authorization through December of next year. While this was a transitional quarter, we view it as one that sets the stage for stronger results ahead. We're focused on integrating NewPoint, redeploying liquidity and leveraging our expanded capabilities to grow earnings and book value as we move through the remainder of this year and well beyond. With that, I'll pass things over to Jerry. Jerome Baglien: Great. Thanks, Rich. I appreciate everyone being on the call today. I'll continue to walk through the third quarter financial results, and I'm going to start on Slide 6. FBRT reported GAAP net income of $17.6 million or $0.13 per fully converted common share. Distributable earnings for the quarter were $26.7 million or $0.22 per fully converted share. Distributable earnings for this quarter include $1.7 million of realized losses related to a REO sale. Excluding this realized loss, distributable earnings were $0.23 per fully converted share. Book value at quarter end was $14.29 per fully converted share, and the decrease in book value per share was caused by under coverage of the dividend and by the NewPoint acquisition. In regards to the dividend under coverage, the key drivers we outlined last quarter to move toward coverage remain intact, and I'll highlight some of the progress we've made on those fronts. At the end of the third quarter, we issued an approximately $1.1 billion CRE CLO, which settled on October 15. The transaction carries an initial advance rate of 88% and a weighted average interest cost of SOFR plus 1.61%, before accounting for discount and transaction costs. The CLO has a 30-month reinvestment period, meaning it should be an accretive liability for us for 3 to 5 years. In conjunction with the new CLO, we also financed approximately $500 million of assets with the money center bank. Together, these financings allowed us to call several older CLOs, generating roughly $250 million of cash and reduce our financing cost by about 65 basis points. Combined, these transactions are expected to add an incremental $0.05 to $0.07 per share of quarterly earnings once this cash is deployed into new assets. We expect to begin realizing this benefit in early 2026. Mike will provide more details on our REO portfolio, but we did reduce our REO balance this quarter through an additional asset sale. We continue to sell REO and redeploy that capital into new originations. We estimate this activity can contribute approximately $0.08 to $0.12 per share per quarter to distributable earnings over time. We also saw a strong contribution from NewPoint in its first full quarter as part of FBRT, generating $9.3 million of distributable earnings or $0.09 per fully converted share. Beyond the immediate earnings contribution, NewPoint is already driving meaningful intangible benefits, including increased deal flow for balance sheet lending, stronger customer relationships, additional CMBS opportunities and access to a much larger real estate platform we can leverage both operationally and strategically across our business. Moving to Slide 8. Our average cost of debt on our core portfolio was SOFR plus 2.31%. As I mentioned, FL12 closed shortly after quarter end on October 15. We've been a consistent leader and repeat issuer in the CRE CLO market, and this transaction was met with very strong investor demand. With the addition of FL12, approximately 75% of our core book is now financed through nonrecourse non-mark-to-market structures, and we have reinvestment capacity available on 2 of our CLOs. Our net leverage position ended the quarter at 2.55x with our recourse leverage standing at 0.84x. Turning to Slide 11 for updates on NewPoint. With the acquisition closing on July 1, we now have a full quarter of results to share, along with progress on our integration efforts. Agency volume came in at the high end of our range at $2.2 billion of new loan origination in the quarter. You can see the breakdown of those volumes by agency on the slide. We now expect full year originations to come in toward the upper end of our initial guidance. We recorded $19.7 million of MSR income in the third quarter, representing an average MSR rate of approximately 91 basis points. At September 30, our MSR portfolio was valued at approximately $221 million with an implied life of 6.6 years. The change in value of the MSR portfolio provided a $0.04 increase to book value this quarter. NewPoint managed a servicing portfolio that was $47.3 billion at quarter end. Integration work is well underway across our business. The migration of BSP loan servicing began during the third quarter with full completion expected by the first quarter of 2026. Once complete, the full migration of FBRT's loan servicing book is expected to generate $0.04 to $0.06 per fully converted share annually to earnings. We expect NewPoint's earning contribution to FBRT to grow meaningful over time as income is directly linked to cumulative agency and FHA origination volume and the expansion of the servicing portfolio. We continue to expect NewPoint to be accretive to GAAP earnings and book value per share in the first half of 2026 and accretive to distributable earnings in the second half of 2026. With that, I'll turn it over to Mike to give you an update on our portfolio. Michael Comparato: Thanks, Jerry, and good morning, everybody. I'm going to start on Slide 13. Our core portfolio ended the quarter at $4.4 billion across 147 loans with multifamily assets making up 75% of the portfolio. More broadly across the CRE market, we are seeing a continuation of the trend we noted last quarter. After years of pause, borrowers and lenders are finally resetting, marking assets somewhat realistically with the exception of office and moving capital again. It's a necessary step towards a healthier market. Spreads on whole loan origination have tightened to levels that are less than compelling at the moment. Leverage returns are still in an acceptable range, but they are no longer the euphoric levels we enjoyed in 2023 and 2024. While we have capital to deploy, we are being thoughtful as to pacing given the spread environment. We're confident in our ability to continue to underwrite attractive and differentiated deal flow. In addition, we are also considering additional investment opportunities outside of the whole loan space, ranging from CMBSB pieces, horizontal risk retention investments as well as SASB and CRE CLO bond investments. As always, we are trying to find the best risk-adjusted returns for our capital. Multifamily fundamentals continue to improve. New supply is slowing, concessions are generally burning off and rent growth is reappearing in some markets. Quality assets are leasing well. Differentiation is back and higher quality assets in stronger markets are outperforming as they should. Even with the increased competition and tighter spread environment, we continue to find attractive opportunities for FBRT. During the quarter, we originated 11 loans at a weighted average spread of 447 basis points and mezzanine loan at a spread just over 1,300 basis points, resulting in a combined weighted average spread of 511 basis points on all loans originated in this quarter. These spreads were achieved due to a focus on construction financing given the tightening of spreads in the traditional bridge loan market. We're encouraged by the strength of our fourth quarter pipeline, and we've already closed approximately $120 million of new loan commitments through today's call. Our conduit business had a very strong quarter, reflecting improved CMBS market liquidity and healthy investor demand. If market conditions hold, our CMBS performance in the fourth quarter could be one of the strongest quarters in the history of the company. Loans originated prior to the interest rate hikes now represent approximately 40% of our total loan commitments. The majority of this collateral is multifamily totaling $1.6 billion or approximately 80%, followed by hospitality at $178 million or approximately 10%. At quarter end, 82% of these legacy loans were risk rated at 2 to 3, largely consistent with last quarter. The overall composition and performance of this group remains stable, and we continue to make progress addressing these positions requiring additional attention, which are reflected on our watch list. Notably, post quarter end, our net lease headquarter office asset paid off in full. The remaining office loan exposure is now only $70 million across 4 loans with an average loan size of $17.6 million. Office loan exposure is now only 1.6% of our entire portfolio, and we expect this figure to shrink again in the fourth quarter. Slide 17 summarizes our watch list. We had 10 positions on our watch list at the end of the quarter, and we continue to actively manage each, and borrower engagement remains high. One multifamily loan originated in July 2021 paid off in full this quarter. Within the remaining positions, one is a Georgia office building that was extended in January and has remained current on all payments. The 307-unit student housing property in Norfolk, Virginia has now been stabilized at approximately 92% occupancy and the sponsor is looking to liquidate the asset in the coming quarters. The Phoenix office building is under contract with a meaningful nonrefundable deposit, and we expect to be repaid in full in early November. The remaining watchlist loans are multifamily assets originated in 2021 and 2022, and we remain in active dialogue with the borrowers. We expect 2 assets to be sold in Q4. Unfortunately, one appears it will be a short sale, and we have accordingly marked down the position by $2.3 million this quarter. Reiterating last quarter's call, while the watch list count ticked up slightly, request for modifications continues to slow, which is another sign that FBRT is in the later innings of this cycle. While we are not completely out of the woods, we get closer to the edge of the woods with every passing quarter. Slide 18 covers our foreclosure REO portfolio, which has 9 foreclosure REO positions at quarter end compared to 10 last quarter. We sold 1 multifamily asset during the quarter at our debt basis and have 4 additional assets under PSA. Two PSAs are nonrefundable, and we are expecting closing in the next 2 weeks. Our team continues to work diligently to enhance value and optimize execution before bringing properties to market. Our largest REO asset in Raleigh, North Carolina is now operating at 91% occupancy. We will be exploring options for this asset in Q1 next year. This could be an outright sale, but we will also explore joint venture opportunities as we think this is a very unique asset. Finally, I'll spend a minute on NewPoint. The acquisition of NewPoint has made us one of, if not the largest middle market lenders in the country with over 300 employees. We are extremely encouraged by the origination activity we saw in the third quarter. We are already seeing meaningful cross-selling and collaboration between the platforms and my confidence and conviction in the acquisition continues to grow. As we have spent more time with the company, it is clear that we have some of the most talented people in the industry, including, but not limited to, Jerry Borger, our President of Agency Lending; Rob Rozak, the President of Affordable; and Eric Lindauer, our Head of Healthcare and FHA Lending. These leaders are bringing new products to our platform and give us yet another offering to our clients from what we've already believed to be a market-leading product offering. This is truly just the beginning of what NewPoint can bring to FBRT. As Rich mentioned, the third quarter was very much a construction zone for FBRT. We are now highly focused on playing offense. Our integration plan with NewPoint is on track, and we firmly believe FBRT has more tailwinds than headwinds. We are excited to continue the path to dividend coverage. And with that, I'd like to turn the call back to the operator to begin the Q&A session. Operator: [Operator Instructions] First question comes from Matthew Erdner of JonesTrading. Matthew Erdner: I appreciate the comments as always. I'd like to kind of touch on the origination volumes and what led to the higher end of your range? And then also what's going to lead to the higher end of the range in 4Q? Is it just a matter of you guys kind of winning the deals and being more competitive there? Or is the market really starting to open up? Michael Comparato: Yes, I think we've just been able to cultivate the balance sheet. We've been able to convert a handful of loans from a floating rate basis into our CMBS product. And that usually has incrementally less competition than a widely marketed deal. So I think, again, subject to market conditions holding, if we can execute where we stand today we're close, Q4 will be a monster quarter for us in the CMBS group. Matthew Erdner: Got it. That's good color there. And then I'm guessing that kind of plays into what you were saying about alternative investments and kind of, I guess, not necessarily going away from the core portfolio, but while spreads are tight, explore those other options. Michael Comparato: Yes. I don't want to mislead. We are actively, actively originating in our core business, which is originating whole loans for the balance sheet. I think we're seeing some opportunities in markets where things haven't tightened as much as they have on the traditional bridge lending side of things. So if we can find better returns with the same or better overall credit and liquidity profile, we're going to explore those things. And I think, again, that's always been kind of the pitch of what differentiates BSP. We're not a one-hit wonder. We literally can do anything and everything within the capital stack and along the life cycle of an asset. So we're just waking up every day, looking to find what we think are the best risk-adjusted returns and focusing our efforts in those areas. Matthew Erdner: Great. That's helpful. And then, Jerry, I have one quick one for you, and then I'll step out. As it relates to the comp and benefits expense line item, what should we expect there kind of going forward? And how should we think about that overall? Jerome Baglien: It's going to be variable for one. So think of it trending with volume, right? A lot of our volume drives the comp since it's directly tied to profit share on what we're originating. So you can, to some extent, flex off what you're seeing. I will say that it will be a little bit trickier than that because you'll kind of scale throughout the year in terms of people hitting hurdles and stuff like that in terms of volume targets and things like that. So you might scale into a greater share in the second half of the year than the first half. So it won't be easy to extrapolate just off what you see in Q3. I think you're going to need to see a few quarters to kind of get the normal range. But you can kind of back in this quarter to see the general share on that in terms of how it's going to weigh. Operator: The next question comes from Timothy D'Agostino of B. Riley Securities. Timothy D'Agostino: The first one, just on repayments, $275 million in the quarter. I was wondering if in the fourth quarter, you are still seeing elevated repayments as of October end. Michael Comparato: Jerry, do we have a quarter-to-date repayment summary? I feel like we've not have... Jerome Baglien: We do. I would expect repayments are relatively in line with what we've seen throughout the year. In terms of kind of pace, I don't think we've been markedly off what we've seen throughout the earlier portion of the year. I would say fourth quarter is also one of the tougher ones to predict because you get more variability in people trying to close things out before the end of the year. So it could certainly change because we still have 2 full months left. But I would say if you're run rating, it wouldn't be too far off. Timothy D'Agostino: Okay. Great. And then just a quick follow-up. On the core portfolio, is there like a target size that you are aiming for? I think right now, the portfolio is about $4.4 billion. I was wondering if throughout '26 or later on, if there's a level you would like to reach. Michael Comparato: Yes. I think overall, we're targeting a stabilized portfolio side on a whole loan basis of between $5 billion and $5.5 billion. Operator: The next question comes from Chris Muller of Citizens Capital Markets. Christopher Muller: Congrats on a nice quarter here. So great to hear the record quarter for NewPoint. And I guess even though it was a record quarter for them, do you guys view this as a good run rate going forward? Or could there be some further upside to volumes with the NewPoint acquisition? Michael Comparato: Chris, thanks for the question. Look, we had a very large transaction that closed in Q3. We're always out whale hunting for large transactions when we can find them. I don't think it's repeatable every single quarter. So I think I wouldn't -- as Jerry just said, I wouldn't use 1 quarter to extrapolate forward. We do not have any expectation that NewPoint is going to put up $8 billion of origination in 2026. So it was a great quarter. Again, we're very excited about the cross-selling that's going on. They're originating bridge loans for our balance sheet. We're originating agency loans for their agency execution. In early days, it really could not be going better than how it's gone. But no, this is probably a bit of an outlier, and I would look to the kind of the overall total annual guidance that Jerry shared historically. Christopher Muller: Got it. And given the large transaction that was in there, those usually have lower margins with them. Was that the case here, so we could see some margin improvement going forward? Michael Comparato: Yes. There is slight margin tightening on that individual transaction. Christopher Muller: Got it. And then I guess just the other one I have here is more of a broader question. With all the talk of the GSEs coming out of conservatorship, can you guys share your thoughts on that? And if it does happen, what type of impact to the market would you expect? Michael Comparato: Yes. I mean we've been getting that question for a while. I think it's obviously difficult to answer overall. So this is completely just personal speculation. Several administrations have talked about doing this. It is untangling a very complicated web. Where I do feel very confident is that this administration is not going to do something that is going to disrupt the mortgage market and mess with people's homes and that's with the market overall. My guess would be if this is figured out that the solution there could be an explicit guarantee rather than the implicit guarantee. I think that's the easiest way to solve any sort of volatility or concern. But again, I'm still sceptical that this happens or happens quickly because I do think it's a very, very complicated web to untangle. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Lindsey Crabbe for any closing remarks. Lindsey Crabbe: We appreciate you joining our call today. Please reach out if you have any further questions. Thank you and have a great day.
Operator: Good morning, ladies and gentlemen, and welcome to the Alnylam Pharmaceuticals 3Q 2025 Earnings Conference Call. [Operator Instructions] Also note that this call is being recorded on Thursday, October 30, 2025. And I would like to turn the conference over to management. Please go ahead. Christine Lindenboom: Good morning. I'm Christine Akinc, Chief Corporate Communications Officer at Alnylam. With me today are Yvonne Greenstreet, Chief Executive Officer; Tolga Tanguler, Chief Commercial Officer; Pushkal Garg, Chief Research and Development Officer; and Jeff Poulton, Chief Financial Officer. For those of you participating via conference call, the accompanying slides can be accessed by going to the Events section of the Investors page of our website, investors.alnylam.com/events. During today's call, as outlined in Slide 2, Yvonne will offer some introductory remarks and provide general context, Tolga will provide an update on our global commercial progress, Pushkal will review pipeline updates and clinical progress, and Jeff will review our financials and guidance, followed by a summary of upcoming milestones before we open the call to your questions. I would like to remind you that this call will contain remarks concerning Alnylam's future expectations, plans and prospects, which constitute forward-looking statements for the purpose of the safe harbor provision under the Private Securities Ligation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our most recent periodic report on file with the SEC. In addition, any forward-looking statements represent our views only as of the date of this recording and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligation to update such statements. With that, I'll turn the call over to Yvonne. Yvonne? Yvonne Greenstreet: Thanks, Christine, and thank you, everyone, for joining the call today. Alnylam's Q3 results announced this morning demonstrate the exceptional progress we are making across all aspects of the business. As we continue to evolve into a top-tier biotech company, our focus remains on these 3 core pillars that we believe will drive sustainable growth and value creation for years to come. The first is TTR leadership. The AMVUTTRA cardiomyopathy launch delivered another strong quarter. It's still early, but we're very encouraged by the progress and dedicated to establishing long-term leadership in TTR. Next is growth through innovation, focused on the potential multibillion-dollar opportunities within our pipeline and an R&D engine positioned to deliver sustainable innovation and value creation for many years to come. The third element is strong financial performance, with robust top line growth and disciplined capital allocation, providing us with the opportunity to sustain profitability going forward. And of course, all of this is underpinned by a best-in-class team and our award-winning culture. The quarterly results announced this morning represent strong execution on each of these fronts. Our commercial performance was driven by TTR franchise revenues of $724 million or 135% year-over-year growth, with growth largely attributable to the AMVUTTRA CM launch in the U.S., where we achieved total TTR revenues of $543 million, representing 194% year-over-year growth. As Tolga will describe, the broader balance uptake in the second full quarter of launch drove an approximate doubling of TTR cardiomyopathy revenue compared to the prior quarter. In addition to these commercial results, we continue to advance our leading pipeline of RNAi therapeutics. Two new Phase III trials are getting underway. The ZENITH Phase III cardiovascular outcomes trial of zilebesiran in hypertension has initiated and the TRITON-PN study of nucresiran in hATTR-PN will be initiating shortly to complement the TRITON-CM study that was initiated last quarter. We're also excited by earlier-stage pipeline advancements in bleeding and neurologic disorders. And with regard to financial performance, our third quarter results show continued growth with $851 million in total net product revenues, up 103% year-over-year. As a result, we've again increased our total net product revenue guidance for 2025 from the range of $2.65 billion to $2.8 billion, to a revised range of $2.95 billion to $3.05 billion representing an increase of $275 million or 10% at the midpoint, underscoring our confidence in the AMVUTTRA ATTR-CM launch and our other commercial products for the remainder of the year. Now with our Alnylam P 5x25 era concluding soon, we're thrilled by this incredible execution over the past 5 years, reflecting tremendous progress on these ambitious goals. This is indeed a strong foundation on which to build our next phase of significant growth. And we look forward to harnessing this momentum. With that, let me now turn the call over to Tolga for review of our commercial performance. Tolga? Tolga Tanguler: Thanks, Yvonne, and good morning, everyone. It is a pleasure to show how we're continuing to bring Alnylam's transformative therapies to patients around the world. Following an exceptional Q2, Q3 continued Alnylam's strong trajectory of growth and execution. We delivered $851 million in combined net product revenues representing 103% growth year-over-year and 27% growth versus the prior quarter. Our TTR franchise remains the primary growth engine. And we're also seeing continued momentum in our rare disease business. Let me start there. More than 5 years after launch, our rare disease portfolio continues to deliver meaningful impact for patients and steady performance for our business. In Q3, the rare portfolio achieved $127 million in sales, up 14% versus Q3 2024, driven largely by ongoing patient demand. While the timing of orders in our partner markets created some short-term shifts, the overall trajectory remains strong. I'm proud of the focus and dedication of our rare disease and partner teams who continue to reach patients with these 2 transformative medicines globally, even as much of the organization focuses on the TTR growth opportunity. With that, let's review the TTR highlights. Q3 was another exceptional quarter for our TTR franchise, continuing the strong launch trajectory we saw in Q2. Global TTR net revenues reached $724 million, up 33% versus the prior quarter and representing 135% growth year-over-year. This performance was primarily driven by an increase in U.S. patient demand with an increase in U.S. channel inventory more than offset by an increase in U.S. gross-to-net deductions. It is worth noting that the increase in gross-to-net deductions primarily impacted ONPATTRO, reducing U.S. reported Q-over-Q growth in our hATTR-PN business relative to our recent quarterly run rate. In the U.S., net sales for our TTR franchise grew 42% quarter-over-quarter and 194% versus Q3 2024, reflecting continued robust adoption following the AMVUTTRA ATTR-CM label expansion. Before we provide further color on the U.S. launch, let me quickly share the ex U.S. dynamics. Outside the U.S., revenues grew 13% versus the prior quarter and 46% year-over-year, underscoring continued global momentum. Further, international AMVUTTRA ATTR-CM launches are anticipated across 2026, following the completion of local pricing and reimbursement reviews. Having said that, we're particularly pleased with the early progress in Japan where the CM launch is advancing well and tracking in line with leading launch analogs, a strong validation of AMVUTTRA's profile and first-line potential. In Germany, launch activities remain in the early stages as final reimbursement decisions continue, and we're encouraged by how the product differentiated profile is resonating at key treatment centers. More broadly, our international performance reflects the continued strength of our hATTR polyneuropathy legacy business, which remains robust despite new competition. Broader engagement in the category is expanding awareness and diagnosis, ultimately, benefiting patients and reinforcing Alnylam's leadership role in shaping the field. Building on our global presence, we're positioned to extend our momentum as AMVUTTRA ATTR-CM launches expand worldwide. Now let's turn to the U.S. AMVUTTRA ATTR-CM launch which recently completed its second full quarter and continues to build momentum. In Q3, our U.S. TTR franchise across both PN and CM indications delivered $543 million in net product revenues representing an increase of approximately $160 million versus the prior quarter. If we assume steady and consistent growth of $50 million quarter-over-quarter in the polyneuropathy base business, then we estimate the CM indication represents approximately $300 million of net product revenues this quarter or doubled from Q2. This reflects sustained launch momentum in AMVUTTRA ATTR-CM with patient demand roughly doubling compared to Q2 as awareness and physician adoption continue to grow. Our strength is built on 3 key pillars as part of our launch strategy. First, health system setup. It is now complete. Nearly all of our 170 priority health systems are now using AMVUTTRA, driving broad utilization, combined with our extensive treatment site network, roughly 90% of the U.S. patients can receive their AMVUTTRA treatment within 10 miles of home anywhere in the U.S., a meaningful milestone and accessibility. So again, the health system setup is effectively complete. As such, we plan to no longer report on this launch enabler on future calls. Second, access remains strong. Payer coverage is broad and nearly all patients have access to AMVUTTRA as a first-line treatment option, meaning these patients have no step edits. Of similar importance, most patients pay 0 out of pocket. Finally, with health system setup and access and affordability in place, we are focused on treatment choice and the profile of AMVUTTRA continues to resonate. We're seeing broad and balanced adoption across new diagnosed patients and those progressing on stabilizers in both academic and community settings. Prescriber growth also remains robust. Having reviewed the 3 strategic pillars, we're executing and delivering on them. Patient demand roughly doubled quarter-over-quarter, reflecting strong, sustained momentum for the AMVUTTRA ATTR-CM in U.S. launch. In summary, it is still early in the journey, but the results to date highlight the substantial long-term opportunity ahead and underscore our strong positioning for leadership in this expanding underserved TTR category. Looking ahead, the majority of ex U.S. launches are expected to begin in 2016 as pricing and reimbursement processes wrap up, extending our global reach and providing a measured contribution to launch momentum. We continue to invest in the TTR category, advancing science, enhancing patient experience and building a durable foundation. Pushkal and the R&D organization are leading that chapter. With that, I'll hand it over to you. Pushkal? Pushkal Garg: Thank you, Tolga, and good morning, everyone. In support of AMVUTTRA's strong launch in ATTR-CM, we continue to share new data from the HELIOS-B study that further underscore the unique and compelling profile of this medicine with the aim of cementing AMVUTTRA as the treatment of choice for patients with ATTR cardiomyopathy. To that end, as shown on the left, at ESC, we presented new data from HELIOS-B that demonstrates the sustained benefits of vutrisiran through up to 48 months, which includes 12 months from the open-label extension. Specifically, as compared to placebo, vutrisiran substantially reduced the risk of the composite of all-cause mortality or first cardiovascular event by 37% in the overall population and 42% in the monotherapy group. More recently, at HFSA, as shown on the right, we shared important new data from the double-blind period demonstrating that vutrisiran treatment was associated with a lower rate of gastrointestinal adverse events versus placebo across the overall vutrisiran monotherapy and baseline tafamidis treatment groups with reductions of 37% to 49%. This observation is quite important because it suggests vutrisiran may reduce GI symptoms, which as you can see from the placebo data were seen in approximately 40% of patients. These symptoms arise from the multisystemic nature of ATTR cardiomyopathy and are a major source of concern for patients with this disease. With these continued insights from HELIOS-B, we're excited about the prospects for RNAi therapeutics to become the standard of care in TTR amyloidosis. Nucresiran, our next-generation silencer, may offer even greater TTR knockdown with subcutaneous biannual dosing is now being evaluated in the TRITON Phase III program. We announced last quarter the initiation of the TRITON-CM trial in cardiomyopathy patients. Today, I'm happy to share additional details about the TRITON-PN trial in hereditary TTR polyneuropathy patients, which we'll be initiating shortly. This will be an open-label trial of nucresiran in approximately 125 patients with hATTR-PN. Patients will be randomized 4:1 to receive either nucresiran dosed every 6 months or to a reference arm of vutrisiran dosed every 3 months. The primary endpoint is the change from baseline in the modified Neuropathy Impairment Score or mNIS+7 at month 9 in the nucresiran arm as compared to the placebo arm from the APOLLO Phase III trial of patisiran. You might recall that this is essentially the same study design we utilized in our HELIOS-A pivotal study of vutrisiran in hATTR-PN, which led to its initial approval in that disease setting. We expect top line results from TRITON-PN in 2028 and look forward to sharing additional details as the trial gets underway. Now moving on to another exciting program. We made great progress this quarter with our zilebesiran program in hypertension. This program represents an amazing opportunity to address some of the major shortcomings of existing antihypertensive therapies. By targeting angiotensinogen upstream of the RAS cascade we believe we can help more patients get to goal, not only in terms of the quantity of blood pressure lowering but also the quality of blood pressure control, reducing blood pressure variability, improving adherence and restoring nocturnal dipping. Ultimately, we believe continuous control of blood pressure will drive long-term improvements in cardiovascular outcomes. At ESC in August and shown on the right, we shared results from the KARDIA-3 Phase II study. As you can see, treatment with zilebesiran resulted in clinically meaningful reductions in office systolic blood pressure in patients with uncontrolled hypertension and high cardiovascular risk at the month 3 primary endpoint with continuous control sustained through month 6. Moreover, the treatment effect was further enhanced in a biologically based enriched subgroup of patients. With these results, KARDIA-3 met the objective of informing the design, patient population and dose for the global Phase III cardiovascular outcomes trial ZENITH. ZENITH is a cardiovascular outcomes trial that will enroll approximately 11,000 patients to evaluate zilebesiran at a dose of 300 milligrams given every 6 months compared to placebo in patients with uncontrolled hypertension with either established or at high risk for cardiovascular disease on 2 or more antihypertensives. The endpoint is event driven with a minimum follow-up of 2 years, and we expect to launch, assuming a successful study and regulatory approval around 2030. I'm also excited to share an update today on our ALN-6400 development program. ALN-6400 targets plasminogen, and we believe it has the potential to be a universal hemostatic agent that can address significant unmet needs across a range of bleeding disorders effectively becoming a pipeline in a product. Plasminogen is a genetically validated target. High circulating levels are associated with increased bleeding. And conversely, individuals with loss of function variants have reduced rates of bleeding. Importantly, loss of function is not associated with the increased risk of thrombosis. As we believe that by lowering plasminogen with ALN-6400, we potentially can slow down the process of fibrinolysis thereby stabilizing clots and preventing bleeding without increasing the risk of thrombosis. Today, we're announcing the first indication we'll focus on with ALN-6400, hereditary hemorrhagic telangiectasia, HHT. HHT is the second most common inherited bleeding disorder, affecting individuals of all ages. 90% of HHT patients live with recurrent nose bleeds which can be severe and life-threatening and many experience gastrointestinal and heavy menstrual bleeding as well. And importantly, more than half of patients face iron deficiency anemia. So this is a burdensome condition and from -- one for which there are very limited treatment options. Importantly, we've already demonstrated initial proof of mechanism for this program in healthy volunteers in Phase I. On the right are the results from an ex vivo assay of fibrinolysis from our Phase I study and shows in the top panel without ALN-6400 clot formation represented by the dark blue area quickly dissipates. Whereas with ALN-6400, there is an antifibrinolytic effect as represented by the dark blue area, which extends for a much longer time, and this effect is maintained after 43 days. We've now moved ALN-6400 into a Phase II trial in HHT patients and look forward to providing updates as this program progresses. We also continue to advance new programs into clinical development building a pipeline that has the potential to drive sustainable growth and long-term value creation. Today, for example, we announced the initiation of a Phase I trial of ALN-5288, which targets MAPT or tau for Alzheimer's disease and potentially other rare tauopathies. The trial will evaluate the drug safety, tolerability, pharmacokinetics and pharmacodynamics in adult patients with Alzheimer's disease. With that, let me now turn it over to Jeff to review our financial results and upcoming milestones. Jeff? Jeffrey Poulton: Thanks, Pushkal, and good morning, everyone. I'm pleased to be presenting a summary of Alnylam's Q3 2025 financial results and discussing our full year upgraded guidance. Let's begin with a summary of our P&L results for Q3 2025 compared with the same period in 2024. Total product revenues for the quarter were $851 million or 103% growth versus 2024, driven by 135% growth in our TTR franchise, primarily from the continued strong performance of the U.S. launch of AMVUTTRA and ATTR cardiomyopathy. Collaboration revenue for the quarter was $352 million, representing a $294 million increase when compared with last year. The increase was primarily due to revenue recognized under our collaboration and license agreement with Roche, including $300 million of milestone revenue associated with the dosing of the first patient in our ZENITH Phase III cardiovascular outcomes trial with zilebesiran. Royalty revenue for the quarter was $46 million representing a doubling compared with last year, driven by higher LEQVIO sales as Novartis continues to successfully grow the product globally. Gross margin on product sales was 77% for the quarter, compared with 80% in the third quarter of 2024. The decrease in margin was primarily driven by increased royalties on AMVUTTRA as higher revenues in 2025 resulted in an increase in the royalty rate compared with last year. For the fourth quarter, our gross margin on product sales is expected to decrease as the applicable AMVUTTRA royalty rates increase further, driven by higher expected sales of AMVUTTRA. Our non-GAAP R&D expenses of $310 million increased 23% compared to last year, primarily driven by costs associated with the initiation of multiple Phase III clinical studies including the ZENITH Phase III cardiovascular outcomes trial for zilebesiran and the TRITON-CM Phase III study for nucresiran. Our non-GAAP SG&A expenses of $263 million increased 35% compared to last year, primarily driven by increased headcount and other investments in support of the AMVUTTRA ATTR cardiomyopathy launch in the U.S. Our non-GAAP operating income for the quarter was $476 million, representing a $507 million increase compared with last year, driven primarily by strong top line results both in product sales as well as revenue from collaborations as previously highlighted. We continue to be pleased with the progress we are making towards achieving our non-GAAP operating profitability guidance in 2025. We ended the quarter with cash, cash equivalents and marketable securities of $2.7 billion compared with a similar amount at the end of 2024. Cash for the quarter was impacted by our refinancing in September. We raised more than $600 million via the issuance of new convertible notes, which was more than offset by the use of $1.1 billion of cash to repurchase a large portion of our convertible senior notes due in 2027. Additionally, we also entered into a $500 million revolving credit facility, providing a new source of flexible liquidity if necessary. Now I'd like to turn to our financial guidance for 2025 and where we are increasing our net product revenue guidance driven by the strong U.S. launch performance of AMVUTTRA and ATTR cardiomyopathy with specific details as follows: we are increasing our net product revenue guidance from a range of $2.65 billion to $2.8 billion to a revised range of $2.95 billion to $3.05 billion representing a $275 million or 10% increase from the midpoint of the prior guidance to the midpoint of the updated guidance. The combined full year growth compared to 2024 is an 82% increase at the midpoint of the guidance range. On a franchise level, the guidance is broken down as follows: we are increasing our total TTR guidance range from $2.175 billion to $2.275 billion to a revised range of $2.475 billion to $2.525 billion, representing a 12% increase at the midpoint. We are reiterating our guidance range for our total rare franchise of $475 million to $525 million. We are also narrowing the range of our non-GAAP operating expense guidance to $2.15 billion to $2.2 billion as we expect to end the year at the upper end of our original 2025 operating expense guidance. The remainder of our financial guidance, including collaboration and royalty revenue and non-GAAP operating income remains unchanged. Turning now from financials to our key remaining goals for 2025. As Pushkal mentioned earlier, the TRITON-PN trial of nucresiran and hATTR-PN will initiate shortly. We also expect to initiate a Phase II trial of mivelsiran in Alzheimer's disease. Let me now turn it back to Christine to coordinate our Q&A session. Christine? Christine Lindenboom: Thank you, Jeff. Operator, we will now open the call for questions. To those dialed in, we would like to ask you to limit yourself to one question each and then get back in the queue if you have additional questions. Operator: [Operator Instructions] First, we will hear from Salveen Richter at Goldman Sachs. Salveen Richter: Could you just speak with regard to AMVUTTRA, how the momentum is going in the first-line versus switchers population and maybe talk about any combo use? And any clarity here on ex U.S. pricing would be helpful as well. Yvonne Greenstreet: Yes. This is a great question. We're obviously really pleased with the continued momentum that we're seeing with respect to growth in our TTR business, particularly having doubled the patient demand volume for AMVUTTRA in cardiomyopathy in the U.S. But Tolga, why don't you kind of take the question around. Tolga Tanguler: Absolutely. Look, we're really pleased with another strong quarter. As we indicated, demand doubled in cardiomyopathy and utilization remains very broad and balanced. So let me double-click on that. What we're really seeing is an adoption across both academic and community settings and also from a wide range of prescribers and patient types. And essentially, that really demonstrates a very healthy uptick. Within that, what we also like to see is -- what we're seeing is we're getting in a place of very competitive setting in terms of first-line. And our first-line share continues to grow quarter-over-quarter. And we're obviously maintaining a clear leadership in second-line among those patients that are progressing or not responding to a stabilizer. So that breadth and balance gives us real confidence in the durability of AMVUTTRA's momentum. And in terms of our ex U.S. pricing, we're still continuing to engage with a broad range of countries in terms of pricing and reimbursement. What we've so far seen is a really compelling pricing profile in Japan. We're also launched in Germany, but we're actually in the early stages of pricing and reimbursement negotiations. And obviously, what we're really trying to make sure is the right value for our innovation is being recognized in Europe as well as we have in the U.S. And that remains to be seen throughout '26. Yvonne Greenstreet: Yes. And there's a question on combination use. And I think, look, we're seeing some use in combination. But overall, the majority of the use is as a monotherapy. And as we've always said, as tafamidis goes generic, we anticipate that we'll see increasing combination use. Thanks for your question. Next question. Operator: It will be from Paul Matteis at Stifel. Julian Pino: This is Julian on for Paul. Just a quick question again on AMVUTTRA. I guess like what gives you confidence that you're going to continue to see an acceleration in patient adds next year and going into the end of this year? And also, it seems like there was somewhat of a contribution from switches from ONPATTRO in the U.S. this quarter versus last quarter. Again, any color on patient switches from stabilizers would really be helpful. And then just really quick on MAPT, can you just talk about what led to the decision to pursue that program and your confidence in the target? Does this say anything about your ALN-APP program in Alzheimer's as well? Yvonne Greenstreet: Okay. So a couple of questions here, and we'll try and kind of unpack them. Look, I think what Tolga shared in the prepared remarks [ were really one of ] the features of a very strong launch, which obviously we're delighted by. And we do see kind of a lot more potential ahead of us. Tolga, do you want to... Tolga Tanguler: Yes. Maybe I can take that ONPATTRO contribution question right off the bat. Look, I think actually, you're probably misinterpreting that ONPATTRO declined from the prior quarter, and that really was driven by the ONPATTRO's favorability from last quarter's onetime Medicaid adjustment, which didn't repeat. So that really is the dynamic. We're actually seeing a pretty steady quarter-over-quarter maintenance of our ONPATTRO business, albeit very minimal. And also, our PN business remains very, very stable. So in terms of our ability to actually continue to robustly continue this momentum, look, we're only 2 quarters into this launch. And we've already raised guidance twice. I think that really speaks volume about the depth and the durability and our confidence in how we see these categories continue to grow. And as I mentioned, I think we do have a very balanced and broad uptick. And we certainly look forward to increasing our presence in first-line, which is highly competitive as it is and maintain our leadership in those patients that are progressing on a stabilizer. Yvonne Greenstreet: Thanks, Tolga. And I think the question with respect to MAPT and implications for APP. Pushkal, would you take that one? Pushkal Garg: Yes, absolutely. Yes, look, we're very excited about bringing MAPT into the clinic. I think as a starting point, this just highlights what we think is the potential of RNA interference therapeutics to have really substantial effect in neurodegenerative diseases. So along with APP, we have Huntington's program, MAPT, our colleagues at Regeneron are advancing SOD1. We've just been very excited about the -- our delivery -- our ability to deliver safely and with infrequent dosing. Tau is a genetically validated target both in Alzheimer's disease and primary tauopathies, which are all neurodegenerative diseases where we get these neurofibrillary tangles that cause neurodegeneration and cognitive decline in patients. So very excited. We're building really a portfolio of therapeutics that we think hopefully can address some of the most intractable diseases in mankind. And I think this just speaks to the strength of the platform and hopefully being able to deliver a second and additional pillars in 2030 and beyond. Yvonne Greenstreet: I think that's great, Pushkal. Thank you for asking a pipeline question. We really do believe that not only have we got a very well developing revenue trajectory with respect to our TTR franchise, but we really do have a clinical pipeline that has a number of multibillion opportunities that we're prosecuting in Pushkal's organization as expeditious as we can. Clearly, being able to help patients with severe neurodegenerative diseases would be an incredible achievement. So thank you, Pushkal. Next question. Operator: Next is Tazeen Ahmad at Bank of America. Tazeen Ahmad: I wanted to get some color on payer dynamics as you get into the launch now more like your third or fourth quarter in almost. How are you getting feedback from payers? Our survey work seems to indicate that we're not seeing any pushback yet even as the drug gets adopted to formulary. But as you're thinking about or currently negotiating 2026 status, can you share with us some of the feedback that you're getting from payers? Is there going to be any risk of payers preferring a stabilizer to a silencer or at least ordering which of the products that are currently available, they might prefer? Yvonne Greenstreet: Yes. No, that's a great question. I mean, look, we're delighted that we really had no payer headwinds. And perhaps, Tolga, you want to kind of speak to the outlook as we see it as we go into 2026? Tolga Tanguler: Tazeen, I think it's really good to hear that you guys feel like it's already been a year almost. It's actually only 2 quarters that we've had the launch. And as Yvonne indicated, that I -- what we're seeing is really no headwinds in terms of every actually payer piece, whether it's fee-for-service, Medicare Advantage or even in the commercial setting. I know there has been a lot of debate around whether we would be step edited or whether the burden on the patients in terms of co-pay would be high. And what we're really pleased to see, as anticipated based on our experience in the PN, payers actually understand and they appreciate the value that this product brings. Clearly highly differentiated in a disease that's actually fatal and highly progressing. And both payers and physicians really appreciate that this disease needs to be treated early and effectively. And what we're seeing is not only within actually '26 but -- sorry but -- '25 but also '26. Policies are being negotiated, and it's -- they're almost final. And we're seeing a very similar dynamic that we had anticipated early in the launch. Yvonne Greenstreet: Thanks, Tolga. That's great. Next question. Operator: Next is Maury Raycroft at Jefferies. Maurice Raycroft: Congrats on a great quarter. Wondering if you can comment more on just the inventory demand number for third quarter and how to think about that for fourth quarter, along with gross to net? And can you walk us through your expectations for fourth quarter revenues in the EU and how to think about the ramp up there? Yvonne Greenstreet: Jeff, I think that's one for you. Jeffrey Poulton: Yes. I'll take the question on inventory and gross to net in the third quarter. Very similar dynamics to what we saw in the second quarter. From an inventory standpoint, days on hand stayed pretty constant for the quarter, but there was growth in inventory in the channel, and that's because of the way that the day on -- of inventory is calculated. It's based on demand. And given the ramping demand, that's what created additional inventory going into the channel for the quarter. That was more than offset in the quarter by an increase in gross to net. Tolga mentioned ONPATTRO. That was the biggest driver of the increase in gross to net between Q2 and Q3. Where we see gross to net for the TTR franchise for the year continues to be mid-single-digit price decline on a net price basis on a year-over-year basis. I think -- Maury, maybe if you could repeat the other question about Europe and maybe Tolga may want to take that one. In terms of expectations for Q4, I think he was asking about. Is that right, Maury? Maurice Raycroft: Yes, that's right. And just how to think about the ramp up in Europe as well. Tolga Tanguler: Right. So I think the -- if I were to think in a greater scheme of things, the contribution of ex U.S. market is going to remain relatively modest, especially for fourth quarter, given that we only have really 2 markets that's going to be -- that's right now available, Germany and Japan. And in Germany, we're continuing to actually have final pricing discussions. So that's obviously going to be rather limited. In Japan, we're very pleased with the momentum that we built. But again, in the greater scheme of things, the contribution is going to be very modest. So ex U.S. market is going to be mainly 2026, mid- to late '26 story. What I really like seeing is how we're actually maintaining our PN business. If you look at year-over-year, the growth now is 46% in ex U.S. and TTR markets. That suggests that -- and this is actually in the presence of a new competitor now. So look, I mean, I think just like what we've done in the U.S., in the PN market, we are competing very effectively capturing majority of the first-line patients. And we've actually established a great ecosystem, and these key centers of excellence in Europe really recognize the value of our treatment and the product profile. So I would expect more to come on that in '26. Yvonne Greenstreet: That's great, Tolga. Look, I mean, I think as a company, we've built a really phenomenal R&D engine. And I think now [ we've built and ] established a very robust commercial engine. So thanks to Tolga and his team with their achievements over the last quarter. Next question. Operator: Next, we will hear from Jessica Fye at JPMorgan Chase. Jessica Fye: Congrats on the quarter. I was curious if you could just elaborate on the approach you took to updating the TTR franchise guidance this time around in light of the fact that, as you said, we're still just 2 quarters into the cardiomyopathy launch. Jeffrey Poulton: Yes. I'm happy to take that, Jess. We updated the guidance. So obviously, what we're really doing here is predicting what we're going to see in the fourth quarter because that's the only time point we've got left in the year relative to the guidance that we've just issued. And if you look at the guidance, it's roughly estimating total TTR global revenue of $850 million to $900 million in the fourth quarter, which would reflect $125 million to $175 million of quarter-on-quarter growth on that range. The upper end of that range is very close to what we've delivered in both Q2 and Q3. And so I would say that's really how we've developed the guidance. We're continuing to learn. As Tolga said, we're 2 quarters in. I think our understanding of the business and the ability to forecast it is improving as we get more data points. But we're comfortable with the range, and I would think about the midpoint is the most likely outcome for Q4. Yvonne Greenstreet: Good. Next question. Operator: Will be from Luca Issi at RBC. Luca Issi: Great. Congrats on another fantastic quarter. Maybe Tolga, CMS is obviously proposing to cut reimbursement for PYP scintigraphy, I think, by 57% from $1,300 all the way down to $500. I guess what was your reaction to that news? And then maybe related, do you think that such efforts from CMS will remain insulated to just the diagnostic side of the equation? Or you think that CMS will ultimately look also on the therapeutic side of the equation, given obviously the cost of therapeutics are much higher than the diagnostics side? And then maybe super quickly, can you just maybe talk about subpoena from the U.S. Attorney General that you quoted in the press release? Yvonne Greenstreet: Well, look, why don't I take the subpoena question really quickly. And look, clearly, we intend to work with the U.S. Attorney's office to produce the documents that have been requested by the subpoena and to understand and address any potential concerns with respect to government price reporting. And of course, as you know, we don't generally comment on legal matters, but thank you for the question. And I'll hand it over to Tolga to take the remainder of your questions. Tolga Tanguler: Yes. So we've PYP scans and how they are being currently reimbursed is -- obviously has been an important driver for the growth of this category. We actually anticipate more diagnosis and more scanning. We need to really fully understand how that reimbursement is actually going to play out. We haven't really seen any anxiety or concerns in the health systems that we're engaging with. So we're obviously, again, staying in tune, and I'm sure we'll be able to manage that as the policy becomes more clear. Yvonne Greenstreet: Great. Good answer. Thank you. Next question. Operator: From Gena Wang at Barclays. Huidong Wang: Also congrats on the great quarter. So maybe just want to confirm I heard it correct that the price for AMVUTTRA will be declined at the mid-single digit year-over-year in the U.S.? And a related question is that once you launch ATTR cardiomyopathy in Europe, how should we think about price change in Europe? Should we expect a huge dip or largely aligned with the U.S.? And then second question is regarding the AMVUTTRA in ATTR cardiomyopathy in the U.S. Just wondering if you can share a little bit more color regarding the ratio between the first-line versus second-line. Are we talking about roughly 50-50 or second-line is slightly higher? Yvonne Greenstreet: So we got kind of a number of questions here about kind of price year-on-year in the U.S., price in the EU and color on the first-line, second-line split. I think all of those are for you Tolga. Why don't you go ahead? Tolga Tanguler: I mean, look, Gena, as we had highlighted before, we would actually anticipate our net price to be gradually going down over time. And what you're seeing is perhaps some of those impacts. And we'll continue to provide, obviously, what gross to net actually margins will look like over time. But I wouldn't expect a serious or significant shift in that. Now when it comes to Europe, obviously, those negotiations are continuing. And what we're making sure is that we are taking into account MFN and a number of other dynamics. And we'll obviously be able to provide a much more broader outlook in terms of how the volume and price is going to play out in the outer years. As I said before, this is really going to be a mid- to late '26 story. And your other question is around -- remind me again, is ratio of first-line and second-line. Yvonne Greenstreet: With some color on that. Tolga Tanguler: Yes. I mean, look, I think what we really like to see, so far, what we've been seeing is, we are increasingly getting more competitive in first-line. Second line in terms of stabilizer, that obviously is an existing patient pool that has actually started very early in the launch, but what we like seeing is after first month into the launch, we start seeing a much more balanced and broad uptake between first- and second-line. And we certainly expect that to continue as we actually increase our first-line presence in the outer quarters. Yvonne Greenstreet: Yes. And I'd just like to add how well the data from HELIOS-B are actually resonating with physicians. I mean, being -- AMVUTTRA being the first silencer for TTR with rapid knockdown of TTR resource. I think that's having an impact. I think the data that we continue to generate is important. I mean, Pushkal touched on this in terms of 37% relative risk reduction in all-cause mortality and first CV events. I think Pushkal also touched on the multisystem nature of the disease with a reduction in GI events. That really is, I think, a compelling additional data point for physicians. And of course, the quarterly regimen, I think, also resonates well where physicians can be sure that patients are actually going to receive their drug given the quarterly subcutaneous administration. So all in all, I think we feel really well positioned in this market, both for a growing position in first-line, as Tolga said, we're highly competitive here. And obviously, the leading choice for patients who continue to progress on stabilizers. So we feel we've built some really good foundations here. Thank you for the question. So I think we're on to our -- just 2 more questions. So Ritu, apparently, you are up next. Operator: Please go ahead, Ritu Baral at TD Cowen. Ritu Baral: Just back to Europe, Tolga. Can you talk about what degree of commercial investment is needed in Europe to expand beyond the PN indication. We're trying to figure out how to balance that against any potential lower cost. And then just a very quick follow-up. As we think about that first-line dynamics, how much does center type impact first-line use, basically, if they're in commercial hospital systems versus patient characteristics? Tolga Tanguler: No, that's helpful. Thank you, Ritu. So here are a few points around how you should be thinking about Europe. So we actually have quite an effective team that has been able to establish a market leadership versus tafamidis in the polyneuropathy organization. And the main reason why that organization is so effective is because this is a category, particularly in Europe, is really managed by centers of excellence, perhaps maybe with the exception of Germany. In most other centers, this is -- in countries, this is really managed by centers, albeit Italy or France and some other major other European countries. We know in the U.K., for instance, there is one single center, National Amyloidosis Centre, that manages that. So it does require intense collaboration and obviously, a scientific engagement. But in terms of the field activity, that's rather limited. And cardiomyopathy patients are actually mostly treated in these centers as well. So we wouldn't expect a significant expansion of our European businesses. Now when it comes to Japan, that market is a little more fragmented, so we do actually invest. We certainly play to win in that category, and we will obviously continue to invest what's necessary to make sure that the product's profile is well understood and appreciated. Yvonne Greenstreet: Thanks, Tolga. So one more question, with our last question coming up. Operator: Last question is from Cory Kasimov at Evercore. Adithya Jayaraman: This is Adi on for Cory. The tafamidis trends show a clear NRx jump from fourth quarter to first quarter in both 2024 and 2025. Should we model a similar jump up for AMVUTTRA, thinking that is it because of IRA Part D modifications in the past year or normal seasonality? Tolga Tanguler: Yes. So maybe I'll take your question more from a perspective of category growth and what you should be expecting. Look, first and foremost, it's obviously still early days. And only one company has reported so far in terms of their quarter-over-quarter dynamic. But -- and we still like to see how Pfizer is going to report before we drove some firm conclusions about how that dynamic is working. But that said, everything that we're seeing, the category growth in ATTR-CM is accelerating. And it's no surprise because we all know that this is an underdiagnosed and undertreated category, and there are a lot of patients are still waiting. And we've also seen this very much on polyneuropathy. With just one product coming in on top of us, we've seen the category growing, accelerating a lot faster. And the good news on polyneuropathy, we still remain actually the first-line market share leader. And within the expected category growth, I would say we are exceptionally well positioned. As Yvonne and Pushkal mentioned, we are well differentiated in terms of our mechanism. We obviously have the robust outcomes supplied by HELIOS-B, and importantly, we are continuing to invest in the category, especially on real-world evidence and data generation across both clinical and real-world setting. So our evidence base is strengthening, that really positions us to become a market leader in this growing category. Yvonne Greenstreet: Great. Well, I think that brings our call to a close. And I'd just like to thank everybody who's joined us today. Look, our execution this quarter commercially and with respect to our pipeline, I think, really demonstrates the unique trajectory we have at Alnylam to become a top-tier biotech company, and we look forward to sharing with you additional updates as we embark on realizing this vision. So thank you, everybody, and have a great day. Operator: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
Operator: Hello, everyone, and welcome to the ICE Third Quarter 2025 Earnings Conference Call and Webcast. My name is Lydia, and I will be your operator today. [Operator Instructions] I'll now hand you over to Katia Gonzalez, Manager of Investor Relations, to begin. Please go ahead. Katia Gonzalez: Good morning. ICE's third quarter 2025 earnings release and presentation can be found in the Investors section of ice.com. These items will be archived, and our call will be available for replay. Today's call may contain forward-looking statements. These statements, which we undertake no obligation to update, represent our current judgment, and are subject to risks, assumptions and uncertainties. For a description of the risks that could cause our results to differ materially from those described in forward-looking statements, please refer to our 2024 Form 10-K, 2025 third quarter Form 10-Q and other filings with the SEC. In our earnings supplement, we refer to certain non-GAAP measures. We believe our non-GAAP measures are more reflective of our cash operations and core business performance. You'll find a reconciliation to the equivalent GAAP terms in the earnings materials. When used on this call, net revenue refers to revenue net of transaction-based expenses and adjusted earnings refers to adjusted diluted earnings per share. Throughout this presentation, unless otherwise indicated, references to revenue growth are on a constant currency basis. Please see the explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain items. With us on the call today are Jeff Sprecher, Chair and CEO; Warren Gardiner, Chief Financial Officer; Ben Jackson, President; Lynn Martin, President of the NYSE; and Chris Edmonds, President of Fixed Income and Data Services. I'll now turn the call over to Warren. Warren Gardiner: Thanks, Katia. Good morning, everyone, and thank you for joining us today. I'll begin on Slide 4 with some of the key highlights from our record third quarter results. Third quarter adjusted earnings per share were $1.71, up 10% year-over-year and the best third quarter in our company's history. Net revenues totaled $2.4 billion and were underpinned by a 5% increase in recurring revenue. This recurring revenue growth was fueled by a 9% rise in exchange data and a 7% uplift in fixed income and data services, both reflecting sustained demand for our high-value proprietary data offerings. Third quarter adjusted operating expenses totaled $981 million. Our disciplined cost management was further supported by approximately $15 million in onetime benefits, about evenly distributed across compensation expense and depreciation and amortization. After adjusting for these benefits, we would have been towards the low end of our guidance range. I also want to provide some color on our third quarter adjusted tax rate of 21%, which benefited from recent prior year tax audit settlements. Excluding this benefit, the adjusted tax rate would have been within the prior 24% to 26% guidance range. And as a result, we expect the fourth quarter tax rate will normalize to between 24% and 26%. Moving to capital allocation. We returned $674 million to our shareholders during the quarter, including approximately $400 million of share repurchases. In addition, we reduced debt outstanding by roughly $175 million, reducing gross leverage to just over 2.9x EBITDA. Next, I will touch on a few fourth quarter guidance items. We expect fourth quarter adjusted operating expenses to be in the range of $1.005 billion to $1.015 billion. Sequential increase is largely driven by the aforementioned onetime expense items not repeating in the fourth quarter. Fourth quarter adjusted nonoperating expense is expected to be between $180 million and $185 million, driven by a sequential uptick in interest expense related to our October investment in Polymarket. As a note, we funded $1 billion of that investment with CP issuance in early October and expect to fund up to an additional $1 billion in the future, also utilizing existing capacity on our commercial paper program. Now let's move to Slide 5, where I'll provide an overview of the performance of our Exchange segment. Third quarter net revenues totaled $1.3 billion, building on strong double-digit growth in the prior 2 years. Transaction revenues sold $876 million. Importantly, towards the end of October, open interest across our futures and options complex surged 16% year-over-year, with energy futures up 14% and interest rate futures climbing 37%, underscoring the growing demand for our risk management tools amid shifting macroeconomic conditions. Shifting to recurring revenues, which include our exchange data services and our NYSE listings business, revenues totaled a record $389 million, up 7% year-over-year. Underpinning growth in our record recurring revenues with 9% growth in our broader exchange data and connectivity services, which is once again led by our futures data, while also benefiting from approximately $6 million of auto-related revenue that we don't anticipate will repeat in the fourth quarter. In our listings business, the NYSE helped to raise a market-leading $20 billion in new IPO proceeds through the first 3 quarters of 2025. It is worth noting that only roughly half of new IPOs have met the NYSE's listing standards, and these high standards remain a critical component of our 99% retention rate. As a result of this strong performance within our exchange data business, we now expect full year growth to be towards the high end of our 4% to 5% guidance range. Turning now to Slide 6. I'll discuss our Fixed Income and Data Services segment. Third quarter revenues totaled a record $618 million, including transaction revenues of $123 million. On a year-over-year basis, ICE Bonds revenues increased 15%, driven by 41% growth in our muni business, which was in part driven by growing institutional adoption. Within our CDS business, results were largely driven by lower member interest, a direct result of the lower Fed funds rate when compared to the year ago period. Recurring revenue totaled a record $495 million and grew by 7% year-over-year. In our fixed income data and analytics business, record third quarter revenues of $311 million increased 5% year-over-year, driven by growth in pricing and reference data in our index business, which reached a record $754 billion in ETF AUM at the end of the third quarter. Data network technology revenues were a record increased -- and increased by 10% in the quarter, an acceleration from 7% growth in the first half and 5% growth in 2024, driven by heightened demand for our ICE Global Network. Our strategic investments in data center infrastructure are paying off, driven by increasing demand for data and increased capacity as well as clients preparing to integrate AI into trading workflows. We also continue to drive high single-digit growth across our consolidated feeds business and our desktop solutions as we continue to realize the benefits of investments to enhance our platform. Worth noting that the third quarter included a few million dollars of onetime revenue that we don't expect will repeat. That said, we still anticipate fourth quarter revenue growth in data and network technology to be in the high single-digit range, and for total segment recurring revenue to be between 5% and 6%, both the fourth quarter and the full year. Please flip to Slide 7, where I'll discuss our Mortgage Technology results. Third quarter revenues totaled $528 million, up 4% year-over-year. Recurring revenues totaled $391 million and increased on a year-over-year basis. The year-over-year improvement was largely driven by our data and analytics business and MSP within our servicing business. Shifting to the fourth quarter, we expect revenues to remain at these levels, primarily driven by Mr. Cooper's acquisition of Flagstar, and customers resetting their minimums on Encompass, which I'll note is paired with the benefit of higher transaction fees. We expect these items to largely be offset by revenue from new customers coming online. Transaction revenues totaled $137 million, up 12% year-over-year, driven by double-digit revenue growth related to Encompass closed loans and high single-digit growth from MERS registrations. As you look to the fourth quarter, it's important to remember typical seasonal impact on purchase volumes, which tend to be lighter in the fourth quarter relative to the second and third quarters. In summary, the third quarter was -- once again grew revenues, adjusted operating income and adjusted earnings per share, building upon our record first half results and representing the best year-to-date performance in our company's history. And as we continue to strategically invest in our future, we have also returned over $1.7 billion to shareholders year-to-date. As we look to the end of the year and into 2026, we remain focused on extending our track record of growth and on creating value for our shareholders. I'll be happy to take your questions during Q&A. But for now, I'll hand it over to Ben. Benjamin Jackson: Thank you, Warren, and thank you all for joining us this morning. Please turn to Slide 8. Technology and innovation have been foundational to ICE since our inception. Our approach to AI is a natural extension of that legacy. We are using it to accelerate our existing 25-year automation journey by building and implementing tools to drive efficiency and deliver enhanced analytical insights for ICE and our customers. We are now taking the next step by combining our pursuit of workflow automation across our business processes with the solutions we provide to our clients through generative and agentic AI under the name of ICE Aurora. As we continue to expand our AI capabilities, we're leveraging 3 core strengths: deep operational and complex workflow expertise; highly differentiated proprietary data, which we believe will only grow in value; and the powerful network effects of our platform. We started with a deep understanding of our data, workflows, task and document management as well as the rules and compliance frameworks of our businesses. We then conducted a risk assessment of how much automation can be applied to executing these workflows based on the impact, technical maturity, accuracy and model explainability in the AI tools available balanced against the risks of automation. Similar to benchmarks used across industries to measure the scale of automation, we rank our automation within processes on a scale of 0 to 5. At 0, the process is entirely manual. At 5, the process is fully automated, including exception handling without requiring human input. We are applying this model to every workflow across ICE, bottom up, measuring exactly where we are today in terms of the maturity of AI models automating workflows with or without human intervention, and where we can get to based on the current state of the technology. Currently, most generative or agentic AI models at their core are best at pattern recognition, and this recognition continues to evolve. This means there is a stochastic and probabilistic accuracy to them, measuring the reliability and predictability of the outcomes AI models produce. For the highly regulated businesses that we and our customers operate, there has to be an acknowledgment of how much accuracy a probabilistic outcome must have in order to be considered acceptable for full automation versus when some level of human interaction remains necessary, especially in exception handling. Today, we have clear visibility of where we can go and are executing on this in many areas, balanced by the risk I just outlined. That is our strategy and what our ICE Aurora platform is all about, and we're already seeing results across ICE. AI is streamlining and automating workflows across systems, accelerating product development and dramatically accelerating the speed with which we can deliver the modernization of multiple tech stacks within ICE. Importantly, we aim to do this without compromising our adherence to information security, data management and privacy. In our energy markets, the macro-AI and data center expansion trend is expected to drive significant energy demand over the next decade. We believe our trading and clearing platform, which offers deep liquidity and price transparency across the full energy spectrum, is uniquely positioned to support customers. Despite lower overall market volatility, the third quarter of this year was the second strongest third quarter in our history, following the record quarter of a year ago, led by continued strength in our global gas and power markets, with third quarter volumes up 8% and 18% year-over-year, respectively. As we've consistently said, open interest is a leading indicator of future growth, and we're pleased to see it continue trending higher with record futures Energy OI in October up 14% year-over-year, including 25% and 30% growth in our Brent and TTF benchmarks, respectively. This reflects the value of our diversified energy platform, the depth of our liquidity and the confidence customers place in our benchmarks, which serve as global price reference points across thousands of related contracts providing trusted price transparency across geographies. Across our global gas portfolio, which spans North America, Europe and Asia, volumes have increased 20% year-to-date. Importantly, this strong year-to-date performance has been underpinned by broad-based strength, including a 16% increase in our North American complex, a 26% increase in our European portfolio and a 27% increase in our Asian JKM market. In parallel, our power markets have seen continued growth, with volumes up 21% year-to-date and 18% in the quarter. This reinforces the synergy between our gas and power markets and the need for comprehensive risk management tools that offer transparency, flexibility and choice. In Fixed Income and Data Services, driven by multiyear investments, our comprehensive platform delivered another quarter of record revenues, which grew 5% year-over-year, including 7% growth in recurring revenue and 10% growth in our data and network technology business. Our proprietary data is the cornerstone of our business and a key differentiator in the evolving AI landscape. With over 50 years of experience, our high-quality pricing and reference data serves as the foundation for what is today, one of the largest providers of fixed income indices globally. From benchmark indices and analytics to custom solutions, we support the full ETF ecosystem. As AI becomes embedded in trading strategies across all areas of investing, we expect our proprietary data to grow in strategic importance, with our data sets providing a competitive edge to users of AI models that depend on precision, depth and large quantities of historical data. Our data is securely managed within ICE's infrastructure, protected by firewalls and entitlements. Our commercial agreements tightly control access and only permits specific use cases through authorized delivery channels. This approach helps ensure our data remains exclusive and strategically deployed, especially as models increasingly rely on high-quality inputs to drive performance. In our reference data business, we're leveraging AI to process and validate documents from hundreds of sources, using AI models that we thoroughly test for fit-for-purpose and high probabilistic outcomes from Google, Meta, Amazon and several other AI models, achieving over 95% accuracy in extracting reference data from fixed income prospectus. This capability is a critical part of the collection process, improving both efficiency and speed of delivery, enabling us to do more with the same resources. Today, within our reference data business alone, we are processing roughly 40,000 documents on average per month using AI. Documents assessed by AI that meet predefined confidence thresholds go straight into our database for clients to consume, while those falling below the threshold are flagged for manual review and intervention. This capability is a critical part of the collection process, improving both efficiency and speed of delivery, enabling us to do more with the same resources. We're also leveraging machine learning to power key components of our evaluated pricing. Our continuous evaluated pricing blends trade and quote data to predict bond pricing, complementing our deep market expertise and data quality workflows. Additional models use historical data to determine bid-ask spreads across the bond universe, with machine learning capabilities significantly improving evaluation quality when measured against actual trades in the market. Meanwhile, our ICE Global Network continues to set the standard for resiliency, latency and security, connecting participants to over 750 data sources and more than 150 trading venues, including ICE and the NYSE. The ICE Cloud comprises state-of-the-art data centers owned and operated by ICE and facilitate seamless integration with key third-party cloud providers, all under ICE's cybersecurity and operational resilience framework. This provides our clients flexibility to access AI workloads where it makes the most sense without compromising cyber and operational controls. We continue to invest in our data centers to support business growth needs and to meet growing customer demand, including to support increased adoption of AI strategies. This is to ensure we are accessing the most cost-effective, secure and reliable infrastructure for ICE's needs and our customers' needs, both now and in the future. Across product development, AI is automating data analysis, pattern recognition and repetitive processes using tools such as GitHub Copilot, freeing product managers to focus on validation and enhancement. This has already accelerated speed to market for certain products. For example, we've reduced the time to convert code for index qualification, calculation and reporting by roughly 60%. Demonstrating the new innovation underway across ICE, we're utilizing AI with our new sentiment indicator data sets including Reddit, Dow Jones and [indiscernible] Polymarket, with Google and Meta AI models helping to process these data sets and identify patterns. While still in the development phase, these data sets are particularly attractive to market participants seeking an edge through differentiated data inputs. This illustrates how our proprietary data set is set to become increasingly vital to a trading community reliant on models to support trading decisions. In our mortgage business, the use of AI is helping our efforts to streamline the homeownership experience, enhancing productivity of lending and servicing operations, improving the borrower experience with self-service workflows, reducing risk via automated compliance and quality checks across the mortgage life cycle, all while improving recapture rates for our customers. All of this contributes to lowering the cost to originate and service the loan for our customers, a foundational part of our mortgage strategy. For example, customers using our industry standard loan servicing system, MSP, saved roughly 20% to 30% on the cost to service a loan based on a recently conducted customer study, and we expect this number will increase with new innovations that we have come to market or are coming to market, such as our enhanced customer service, loan boarding, ICE Business Intelligence for servicing and our loss mitigation suite. This execution reinforces our clients' trust in us to enhance and streamline their business workflows through our workflow automation capabilities. In the third quarter, despite a tough macro backdrop, revenues increased 4% year-over-year, while transaction revenue grew 12%. We also continued to win new clients, signing on 2 new clients to MSP, both already on Encompass, and building on the 2 we signed in the second quarter, including UWM. We also signed 16 new Encompass clients, 5 of them already on MSP or an MSP subservicer. We've also made significant progress in re-platforming MSP from the mainframe to ICE's modern tech stack to give us increased agility, cost efficiency and scale. Here, tools such as GitHub Copilot have helped us achieve a significant improvement in productivity, helping us rewrite the entire user interface by the end of this year and migrate 30 million lines of code, with roughly 1/3 complete, and the remaining targeted to complete within 2 years. The original estimate to complete this project was baseline to take up to 7 years, similar to the move off the mainframe following our acquisition of Interactive Data Corporation. With the assistance of GitHub Copilot and other AI-based code conversion tools, we have reduced the projected window to around half the time originally anticipated, a significant improvement to the speed with which we can now convert old technology processes to ICE's modern tech stack. Another interesting area where we're applying our AI adoption model is in customer service. Here, we have evolved our capabilities to a level of conditional automation, one where there is significant automation but still requires human intervention for exception handling. We are using generative AI to provide predictions for a customer service representative on call intent and then call summarization. We are next applying agentic AI to automate department handoff for issue handling. Then we plan to take this to the next level by adding a chatbot designed to go beyond search capabilities, one that also executes real action, such as payment scheduling for borrower self-service within our ICE mortgage technology servicing digital application. And we will work to expand even further with an intelligent virtual agent for certain issue resolution where the maturity of the solutions and the quality of the probabilistic outcome is balanced against risk. In summary, as ICE continues to enhance our leading technology, we do so with both the client and end consumer in mind as well as always considering what will make us more operationally efficient and deliver solutions that help automate workflows. With that, I'll hand it over to Jeff. Jeffrey Sprecher: Thank you, Ben. Please turn to Slide 9. Given ICE's recently announced investment and business relationship with Polymarket, I thought it might be helpful to explain our thinking on the evolution of markets. ICE was an early investor in the crypto space, having been an early-stage funder of Bakkt and Coinbase. We made these investments in order to stay close to the evolution of the market's use of blockchain. In the case of Bakkt, we thought that there could be an acceptance of a system of tokens that adhered to a high level of then existing securities and commodities regulation. We found; however, the traditional regulated financial firms were slow or unwilling to adopt tokens during a period of regulatory uncertainty, particularly where events of default would move unwanted tokens onto a financial guarantor's balance sheet. Current U.S. administration and Congress have been attempting to address these uncertainties, which has caused ICE to more actively lean into the knowledge that we've accumulated over the past decade. One of the significant macro trends of the past decade of blockchain investment is a rewiring of the rails of the banking system. ICE, for example, operates 6 clearing houses around the world, all of which are highly regulated, and which are required to operate within the limitations of local banking hours, customs and preferences. On-chain banking now operates globally with 24/7 availability, allowing for instantaneous margin calls and trade liquidations. This facilitates increasing margining and lending against assets, which some cohorts of asset holders are clearly taking advantage of with increased risk management tolerances, and which places excess trade financing collateral into an omnibus stablecoin collateral pool. This excess collateral pool is funded by traders via the forfeiture of earnings on their collateral. Features that were previously unavailable to regulated clearing houses. ICE decided to invest in Polymarket as we're impressed with the design of its underlying architecture of smart contracts that take advantage of this new banking infrastructure. Alongside our investment, we've also announced a strategic data agreement under which ICE will become a global distributor of Polymarket's highly differentiated event-driven data. As the leader in non-sports prediction markets, Polymarket provides real-time probabilities on events like elections, economic indicators and cultural trends, offering a powerful new layer of insight, supporting more informed decision-making. We believe that we can accelerate Polymarket's acceptance into the traditional financial system by virtue of our distribution, understanding and long-time customer relationships. And we believe Polymarket's engineering team can help ICE's engineers better understand our own adoption of evolving banking technology, a relationship that is already paying dividends to both of us. ICE is in the process of rolling out an advanced clearing model for our global clearing houses, one that we've very elegantly named ICE Risk Model 2. Our new clearing system was built on the existing local banking and regulatory infrastructure for funds movement and collateral management. However, the current regulatory environment is being confronted by collateral management using tokens, which I believe will help evolve regulatory oversight to take advantage of 24/7 capital movement. And ICE intends to be at the forefront of driving this evolution, given our own use case of operating 6 global clearing houses with differing collateral and regulatory environments. Such an evolution can make global clearing and trade settlement more efficient. And we've seen that the efficient use of collateral typically results in increased trading volumes and transaction revenues. One does not have to look too far to see that trading volumes in the U.S. equities markets have dramatically increased since the industry freed-up collateral by moving from T-plus-2-day to T-plus-1-day settlement times. Beyond the rewiring of funds movement, Polymarket has pioneered the rapid listing of new markets, driven by real-time consumer demand. Traditional exchanges have been subject to government approvals of our new product launches, which, at best, take 30 days. And in many countries, substantially longer. Polymarket is forcing a dialogue in the U.S. on how to minimize government regulatory burdens, so as to not impede innovators. We think this dialogue will ultimately benefit new product innovation for all markets, and certainly for ICE. Now augmenting on Ben's comments on the adoption of artificial intelligence. We see the jagged intelligence phenomenon at play for both our own AI adoption and for that of our customers. Internally at ICE, we have our engineers using copilots to help them write code more effectively, particularly where the projects involve modernizing our legacy code. However, to fully deploy production code at scale and at the latency precision which ICE operates, we still require unique skill sets that are not now available in AI. So our current experience is that AI has become a good assistant for our teams, but not a replacement. Ben also highlighted our use of AI in improving our customer service. Artificial intelligence has made our help desk more efficient at diagnosing real-time issues as well as cataloging and summarizing customer inputs to create more efficient feedback loops. The third area where we deployed AI is in our data gathering and data organization, such as cataloging bond and equity prospectuses, cleansing our data sets and organizing unstructured data for our vast financial data offerings. And lastly, much of the regulation that ICE is required to oversee is surveillance in the form of pattern recognition. Here, again, AI tools are making our colleagues more efficient at our oversight. So in summary, our internal use cases for AI have made our colleagues better at what they do. In terms of our customer adoption of AI, we see that same jag in intelligence, where AI is very helpful in some areas, yet unreliable in others. Where our customers interface with ICE products for pattern recognition or language organization, we're seeing positive uptake. For example, we've seen healthy uptake of our structured and unstructured financial data offerings. Similarly, the AI tools that we've built into our mortgage network, such as our data and document automation and our customer engagement suite have strong interest, with customers adopting these tools to more efficiently target new business and minimize the cost of mortgage onboarding, but not to replace underwriting decisions that are subject to regulatory oversight or to replicate the vast ICE mortgage network that links the industry together, including the U.S. federal housing regulators supervisory efforts in validating GSE and Federal Home Loan Bank mortgage holdings and providing it with monthly mortgage service information. Finally, a number of people have speculated to me that the overall volumes of trading must have increased due to AI adoption. While that's possible, I believe that a significantly larger volume impact has come from capital being freed up when moving equity settlement times 1-day forward and with the expansion of retail trading leverage that's inherent in popular 1-day options. So all in all, we think the current state of AI is helping to control costs and control new hiring in -- and is for us at the margin driving sales and transaction growth. Our record third quarter results on top of our extraordinary third quarter results of last year are another example of strong execution across our all-weather platform. We very intentionally positioned the company to provide customer solutions in numerous geographies and economic conditions to facilitate these all-weather results. I'd like to end our prepared remarks by thanking our customers for their continued business and thank you for your trust. And I'd also like to thank my colleagues at ICE for their contribution to the very best third quarter in our company's history, following on our unsurpassed first half results, and yielding the best year-to-date performance in the company's history. I'll now turn the call back to our moderator, Lydia, and we'll conduct a question-and-answer session until 9:30 Eastern Time. Operator: [Operator Instructions] Our first question today comes from Ken Worthington with JPMorgan. Kenneth Worthington: Believe it or not, my question is on the impact of AI in the mortgage origination and servicing business, then really following up in your prepared remarks. So maybe first, how easy is it to incorporate the benefits of AI in MSP and Encompass given what their tech stacks look like today? You gave some examples, but can you get AI into all the areas you need to maximize your competitiveness? And then maybe secondly, do you think AI can make it easier for perspective, ICE Mortgage Technology clients to pursue efficiency on their own? And does the hope of new technology extend the time it's taking for ICE to sign up new Encompass and MSP customers, particularly when thinking about large customers. Benjamin Jackson: Thanks, Ken. It's Ben. I'll take this. I think the -- in my mind, the best way to summarize the impact of AI on our mortgage origination and servicing platforms is that it's enabled us to transition these platforms from what have historically been seen as systems of record to a system of intelligence. And what do I mean? So when you think about these core platforms, we are orchestrating incredibly complex and highly regulated business processes and workflows. We alluded to it in the comments multiple times, both Jeff and I did, that we also have an incredible network attached to us, thousands of customers, hundreds of network service providers, 35,000 settlement agents, tens of thousands of notaries as an example. And we're orchestrating communication not only of those clients connecting to us, but as important, if not more important, connectivity between our clients. And we have the proprietary information on how to orchestrate that workflow and how to make it more robust. We also own and maintain the most robust compliance and underwriting guideline databases in the industry, and that's the reference data that's required to really automate underwriting workflows, which we're doing through our DDA platform. We also own and maintain the most comprehensive set of closing guidelines and rules for every county in the country, which enables our electronic closing and the e-reporting of loan transactions in the business that we acquired with Simplifile. We've also have significant proprietary data, derived data off our platforms that help to inform our business intelligence models and enable our clients to find more operational efficiencies and business efficiencies that our clients can benefit from. So you take all of this together and how we're applying AI throughout each business process from a bottom-up perspective using that Aurora process that I had mentioned, going through business process by business process, understanding what the probabilistic accuracy of a pattern recognition model that AI is providing and what's the business tolerance around the regulatory rules, the compliance associated to how much automation can be applied versus when human intervention needs to take place. So we're extraordinarily well positioned to take advantage of this. And it shows up in our results. We had our highest quarter of the year in terms of sales in the third quarter. Across our ICE Mortgage Technology segment, we had 2 MSP clients, both of which are already on Encompass signed in the last quarter, and that's on top of the 2 that we had last quarter, including one of the largest lenders in the U.S. with United Wholesale Mortgage. And then we had 16 Encompass wins, 5 of which are on MSP or MSP subservicers that are really buying into our vision of the benefits of a front-to-back workflow. So we feel very well positioned, and we're looking at the funnel behind that, we feel like we're in a very strong position. Operator: Our next question comes from Dan Fannon with Jefferies. Daniel Fannon: Another question here on Mortgage. Warren, you gave some near-term comments around the fourth quarter given Flagstar, but could you elaborate a bit more on the shorter-term dynamics and also PennyMac, which announced in the quarter that they would also be leaving your platform over time, what that contribution is today? Warren Gardiner: Sure. Thanks for the question, Dan. So in terms of the third quarter, which I think is what you're referring to, yes, we were a little bit lower by a few million dollars. There were 3 real reasons for that. So first, -- and we mentioned this a little bit last quarter, was there was the roll off of -- the typical roll-off of inactive loans on MSP. That came in a little bit higher than we anticipated. But that said, active loans on MSP ticked higher for the first time in a few quarters, too. So there was a positive there on that front. And the second component of that too is, and you heard us talk a little bit this last couple of quarters, we did have some customers renew at slightly lower minimums than we had expected. But overall, we do continue to see the discount to prior minimums narrowing versus last year, and the percent of loans above the minimums are improving, which is helping our transaction fees. And then third, we did have some implementations in the fourth and the first quarter of next year, just really all based on customer needs. But as Ben noted, we just noted we had the best quarter of the year for sales across the platform. Not all of those, of course, hit in the current quarter and the fourth quarter, but certainly a good forward-looking indicator for the business as you think about next year. So all that together is nothing terribly significant on a stand-alone basis but did out to a couple of revenues coming a bit lighter. And that sort of impacts the fourth quarter from a run rate standpoint and also some of the implementations, too, that I noted have an impact on the fourth quarter as well. And then, of course, as you mentioned, Flagstar, that will roll off in the fourth quarter, which has an impact, but we had mentioned that before. In terms of PennyMac, I think the way to think about that is it's probably about 0.5 point of growth, but that won't be an impact for us until 2028. And to be clear, it's a 0.5 point on recurring revenue that, that would have an impact on. But -- and again, not until 2028, would we expect to see that. Operator: Our next question comes from Ben Budish with Barclays. Benjamin Budish: Maybe following up on Jeff's commentary on Polymarket. I was wondering, maybe first, if you could give us any more details about the data licensing or redistribution arrangements? What sort of P&L impact might that look like? And then maybe you bought -- you took a big stake in the company. Can you talk a bit about your longer-term plans? Do you have any plans to list event contracts? We've heard your competitor talking about that quite a bit. Or is this more about the partnership? And maybe -- sorry to squeeze another one in there, but to what degree is the blockchain technology itself part of the appeal rather than sort of a means to an end to access this type of trading type of new market data points? Christopher Edmonds: This is Chris Edmonds. I'll take the first part of that and let Jeff pick up on some of the other parts of your questions. But on the sentiment analysis itself of the data, it's become an interesting feedback loop for our clients. We've seen a tremendous demand from our clients based on our experience with the Reddit data, the Dow Jones data that Ben referenced in his prepared comments. So now the ability to take those signals and actually create a market around that and then get the feedback loop from that activity that's happening on Polymarket really gives us an opportunity for a complete ecosystem around that, and that's driving the customer interest in that. And really what led us to the idea that we wanted to be a distributor of that data to make sure we had in our ecosystems for our clients to use. Jeffrey Sprecher: Yes. And I think -- as I tried to -- this is Jeff. I think what I mentioned -- tried to convey in my prepared remarks was that we really believe Polymarket has done something particularly innovative and special in the way they have historically settled their contracts. And it's through blockchain, non-intermediated settlement between 2 parties sending tokens on a second layer that they've been adopting that gives them some performance capabilities. And we wanted to learn more about that, get our engineers more involved in it because you can see the trends in traditional finance are that there are going to be more assets that are tokenized, potentially, bank deposits, and we [ won't ] think that, that will ultimately make its way into the clearing infrastructure and allow us to better run 24/7. The thing for us is, as I mentioned a couple of times in my prepared remarks, the fact that we have 6 clearing houses means that clients tend to keep excess collateral at all 6 because of the banking hours that are required to move capital around when those particular clearing houses are open. And we think, by having 24/7 collateral management, we'll be able to minimize overall collateral requirements for our customers. And that will feed its way into higher trading volumes, which is we have seen that correlation. And so it's in our interest to help make our customers trading more efficient. I would just say separately, we built ICE over 20 years by really leaning into commercial users and the workflows that they have and the supply chains that exist around the globe and helping to manage risk of commercials. We've never been particularly potent in the retail space or even the high-frequency space. Others have focused on that, and we've been very, very commercial. So it's good to have a relationship with Polymarket because they're really educating us about how they have gone to market with retail customers, how they did essentially tremendous ground game marketing with -- without money assets at their disposal and really created a brand and brand awareness with a small balance sheet. And so again, we admire what they've done. We're trying to educate them on traditional finance while they educate us on consumer finance. And hopefully, that will pay dividends for both of us down the road, but it just made sense that the teams work together to really educate one another, and the hope that [ 1 and 1 ] makes 3. Operator: Our next question comes from Patrick Moley with Piper Sandler. Patrick Moley: Yes. Maybe just double-clicking on Ben's question on Polymarket and just at kind of the contract level, in prediction markets, a lot of the volumes we've seen so far has been in sports contracts. There's been a lot of lawsuits and questions about whether regulators are going to allow that to proliferate, but it seems like in the next few years, if they do allow it to continue, you could see a lot of sports book volumes move on Exchange. So just wondering if you -- what you think -- how you see that playing out and what opportunity could present for Polymarket and ICE. And maybe just if you can talk about how you see sports contracts versus non-sports contracts and their applicability at the commercial level progressing from here? Jeffrey Sprecher: Sure. This is Jeff again. Well, I reached out the Shayne, the founder of Polymarket early in the summer after it became clear that the Trump administration and the U.S. Congress was going to validate much of what was being done with stablecoins and ultimately on the blockchain. And it was in that environment that we began conversation, and that was before the NFL football season. And we were attracted by their non-sports activities where they really are a global leader. And we really think that data and information, supply chain data, acts of God, weather, corporate actions, we think that kind of information is going to be very, very interesting to the traditional finance. In fact, we know it is. Anecdotally, Shayne and I are very well aware of many institutional investors that are already scraping data or finding data and making its way into -- informally into their traditional decision-making. And so sports was not something that really got our interest. I think it's great for Polymarket. If they can make a business around that and make earnings around that and certainly longer term for our equity stake in the business, that would be great. But we're not a venture firm. We don't -- you guys won't really reward us if we make a lot of money on that investment. Honestly, I think we'll be rewarded if we can bring the underlying technologies into our workflow and increase our sales revenue and manage our costs. And so long-winded way of saying good for Polymarket, if they can navigate the sports complex, kind of not high on our list in terms of what we're going to contribute to them and what they'll contribute to us. Operator: Next question comes from Brian Bedell with Deutsche Bank. Brian Bedell: Great. Maybe just back to mortgage. I just wanted to clarify, Warren, on the 4Q outlook, that the guide of, I think, flat revenue, 3Q to 4Q, was that the whole segment? Or was that just for recurring? I know you did mention the seasonality in transaction fees. So if you could just clarify that. And then just longer term, outlook on that build of the revenue synergy, what's been actioned so far? And are you sticking to the same time line on the integration? And then maybe just longer term, just comments around competition in the mortgage space from the blockchain and from blockchain providers. I know that's more futuristic, but just your thoughts on that. Warren Gardiner: All right, Brian, I'll try to hit the first 2 there and then hand it over to Ben. So yes, thank you for clarifying. So the comments in the script were referring to recurring revenue being around the same level as the third quarter. I did mention that, of course, there is a typical seasonal impact from just lower purchase volume that happens in sort of the winter months. You see that in the fourth and the first quarter of each year. So I don't -- I'm not trying to give a specific guidance on that. I just think because we don't know where volumes are ultimately going to be in a particular period. So that's more just of a -- just a helpful guide for you guys to just sort of think through that as you update your models. I think your second question, if I remember, was around just maybe longer-term guidance. I think we'll give guidance on the fourth quarter call, of course, but the MBA is forecasting loan growth kind of in the high single-digit range right now. Industry originations will be slightly below the $6 million next year based on what they're seeing today. And I'm not confirming you're denying that, but that's kind of the information that's out there. So based on that, I would just point you back to the scenarios that we provided in the past where when we closed the Black Knight transaction that we would probably be more in the lower mid-single digit range in that kind of an environment. But that obviously can change as interest rates move as -- mortgage rates move, that can obviously change pretty quickly. So we'll have to see as we get closer to guidance next year in terms of what we provide there. Benjamin Jackson: Brian, I'll hit the competitive landscape question that you had towards the end. We -- customers, and I've said this in prior calls, customers continue to focus on having an independent, well-capitalized neutral technology provider to help develop and enhance this critical market infrastructure for them. And in particular, one that doesn't compete with them. And that's why we continue to have the sales success that we highlighted. Obviously, we've said it in this call, that we had the highest quarter in sales in the third quarter than we've had all year. So we're continuing to have a lot of success in there. On the landscape itself, there was a question about PennyMac earlier. The reality is with PennyMac, just a little bit of history on that, that there was a long-standing dispute between PennyMac and Black Knight. An arbiter found that PennyMac used our confidential information to build a servicing system. So it wasn't a surprise to us, to be honest with you, after buying Black Knight, that they took an ownership stake in a platform, and they are trying to build a loan origination system to potentially move to over time. So it's not a surprise. But again, there's -- in our mind, it's not a neutral independent platform. And then you have the Rocket conversation that we have, our understanding is that Rocket's moving their loans to their -- to a legacy Cooper platform mainframe system called LSAMS. It's not going to Sagent. And they've decided that they want to have their own proprietary custom system that is mainframe-based to go to. And then you look at platforms like we have with MERS, where MERS is a comprehensive platform, handles first and second loans. It's got legal standing within the mortgage processes. It's got proven expertise in the bankruptcy foreclosure space. It's an incredible business that's run with an independent Board and Board members that are part of the industry, and it's a great business for us. So you take all of that and then our positioning of where we're, again, an independent, well-capitalized, proven technology provider for many, many different industries and that we're neutral and don't compete with our customers, we think we're very well positioned. Operator: Our next question comes from Alex Blostein with Goldman Sachs. Alexander Blostein: I was hoping to go back to one of the earlier points you made in prepared remarks around AI initiatives when it comes to the workflow automation, and you spent quite a bit of time talking through various processes. When you zoom out, I guess, what's the goal here? What in terms of actual savings you guys think this can produce for the firm? What's the time frame on that? And how are you thinking about either reinvesting some of these savings or letting them sort of drop down to the bottom line? And maybe sort of help us frame what that means for the firm's sort of profitability over time? Benjamin Jackson: Alex, it's Ben. So we went through, and I alluded to in my prepared remarks that we have a strategy and a process that we're applying across ICE, that ICE Aurora platform. And for us, it's really about literally breaking down business process by business process internally that we have within ICE as well as the solutions that we're providing to customers. And figuring out on our automation scale, how much automation can be applied, where and when human intervention should be applied along that because we and our customers operate extraordinarily highly compliant regulated businesses in all of the areas where we operate. And at the end of the day, these AI models, their pattern recognition software that have various levels of probabilistic outcomes and some are really -- some processes are really good and apt to be to move towards almost full automation, and there's others where you've got to have human intervention, especially in the exception handling process because in some areas like compliance checks, for example, in mortgage, it's going to be a very low level of tolerance accepted. So what we're seeing through this is, are we seeing efficiency gains? Absolutely, we're seeing efficiency gains. Where right now, our best guess from the way we've been applying is, it is that we're going to be able to do more with the same, more with the same number of people. We're going to be able to speed to market as the types of offerings that we want to provide, the types of solutions that we want to provide to our customers. There's more and more demand for us to do more, and we think we'll be able to do that with the same head count that we've had historically. Operator: Our next question comes from Ashish Sabadra with RBC Capital Markets. William Qi: This is Bill Qi on for Ashish Sabadra. Just with the continued strength we've seen on your data services and solutions businesses across ICE, could you maybe give a little bit of a commentary on the drivers there? Where maybe the appetite is coming from a customer perspective, either kind of quantity of data consumed versus pricing? And also with the developments of the new kind of high-value data sets like the sentiment indicators, is that kind of another leg up, you'd say, kind of for driving growth in those segments? Christopher Edmonds: It's Chris. I appreciate the question. I would suggest to you that it's more comprehensive than that. It's a complete playbook that you're getting to take advantage of on the client side, and that is what is resonating that. Certainly, the high-value assets that you made reference to are one. But if you look at the mission-critical data that we have across all of our Exchange space, going there, that's a foundation that people come to know and trust, our ability to deliver that into their systems, given the delivery channel that they deem most appropriate at a given time. And the ability to add additional content, whether it's the new pieces we talked about or where they can get additional pieces of data from other sources. As we said in the prepared remarks, we have 750 different data sources that can come across those different delivery mechanisms. We made investments, as Warren and Ben both said in the prepared remarks, in these capabilities. Those investments are paying off, and you're seeing the clients' ability to make those changes and incorporate these opportunities into their operational workflows. Operator: We have no further questions. So I'd like to turn the call back over to Jeff Sprecher, Chair and CEO, for any closing comments. Jeffrey Sprecher: Well, thank you, Lydia. I appreciate the way you managed the call today and thank you all for joining us this morning. I'd like to again thank all of my colleagues for delivering the best third quarter in our company's history and again, thank our customers for their continued business and for the trust they have in the way we manage our business. We'll be back soon to continue to update you. But meanwhile, we're going to be working to innovate for our customers and continue to build our all-weather business model. Thanks, and have a great day. Operator: Thank you. This now concludes our call. Thank you very much for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Lilly Q3 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Mike Czapar, Senior Vice President of Investor Relations. Please go ahead. Mike Czapar: Good morning. Thank you for joining us for Eli Lilly Company's Q3 2025 Earnings Call. I'm Mike Czapar, Senior Vice President of Investor Relations. Joining me on today's call are Dave Ricks, Lilly's Chair and CEO; Lucas Montarce, Chief Financial Officer; Dr. Dan Skovronsky, Chief Scientific Officer and President of Lilly Immunology; Anne White, President of Lilly Neuroscience; Ilya Yuffa, President of Lilly USA and Global Customer Capabilities; Jake Van Naarden, President of Lilly Oncology; Patrik Jonsson, President of Lilly International; and Ken Custer, President of Lilly Cardiometabolic Health. We're also joined by Marc Kemen, Susan Hedglin and Wes Taul, of the Investor Relations team. During this call, we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to several factors, including those listed on Slide 4. Additional information concerning factors that could cause actual results to differ materially is contained in our latest Form 10-K and subsequent filings with the SEC. The information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, please note that our commentary will focus on non-GAAP financial measures. Now I'll turn the call over to Dave. Dave, we'll turn the call over to you. David Ricks: Sorry. Thanks, Mike. Appreciate it. Q3 was another strong quarter for Lilly. We made progress across all our strategic deliverables. We delivered compelling financial results, advanced our pipeline and achieved key milestones to expand our manufacturing footprint. This is all shown on Slide 6. In Q3, revenue grew 54% compared to the same period last year. Revenue from key products more than doubled as our medicines continued to increase their global impact. In the U.S., Lilly gained market share in the incretin analogs market for the fifth consecutive quarter. Lilly medicines account for nearly 6 out of 10 prescriptions within this large and growing class. Outside the U.S. Mounjaro performance accelerated, driven by robust uptake around the world. As a result of our strong financial performance, we raised our revenue and earnings per share guidance. Lucas will cover this in more detail later in the call. Since our last earnings call, we achieved several key milestones, including U.S. FDA approval for imlunestrant under the brand name Inluriyo for ER+, HER2-, ESR1-mutated advanced or metastatic breast cancer. The EU approved Kisunla for early symptomatic Alzheimer's disease. Positive results from Phase III trial of Jaypirca in treatment of naive CLL. Positive overall survival data for Verzenio in high-risk early breast cancer. Positive results from the second Phase III trial of orforglipron in obesity, enabling now global submissions to begin later this year. Positive results from 3 additional Phase III trials of orforglipron in type 2 diabetes, including 1 trial that demonstrated head-to-head superiority versus oral semaglutide. We also made good progress executing our manufacturing expansion agenda. We announced plans to build 2 new U.S. facilities that will make active pharmaceutical ingredients and the expansion of an existing facility in Puerto Rico. The new facility in Virginia will support our bioconjugate and monoclonal antibody portfolio. And the new facility in Texas and the expansion in Puerto Rico will support our small molecule portfolio, including orforglipron. We plan to announce updates on our 2 remaining new U.S. manufacturing facilities in the coming months. During the quarter, we distributed $1.3 billion in dividends and executed approximately $700 million in share repurchases. Now I'll turn the call over to Lucas to review the Q3 results. Lucas Montarce: Thanks, Dave. As shown on Slide 7, Q3 was another strong quarter of financial performance. Revenue grew 54% compared to Q3 2024, driven by our key products. Gross margin as a percentage of revenue was 83.6% in Q3, an increase of 1.4 percentage points versus the same quarter last year. This improvement was driven by favorable product mix, partially offset by lower realized prices. Research and development expenses increased 27% driven by continued investments in our portfolio. We have initiated 16 new Phase III programs since the start of 2024 and continue to advance our pipeline. Marketing, selling and administrative expenses increased 31% as we continue to increase investment to support ongoing and future launches across therapeutic areas and geographies. Our non-GAAP performance margin, which we define as gross margin less R&D, marketing, selling and administrative expenses as a percentage of revenue was 48.3%. Performance margin increased by more than 8 percentage points from Q3 2024, driven by revenue growth. At the bottom line, earnings per share increased to $7.02 inclusive of $0.71 of acquired IPR&D charges. This compares to $1.18 in Q3 2024, which included $3.08 of acquired IPR&D charges. On Slide 8, we quantify the effect of price, rate and volume on revenue growth. U.S. revenue increased 45% in Q3, driven by strong volume growth of Zepbound and Mounjaro partially offset by a 15% decline in price. Price was negatively impacted by a favorable one-time adjustment to estimates for rebates and discounts in Q3 2024. Excluding this base period effect, U.S. price declined by high single digits. In Europe, revenue increased by over 100% in constant currency, reflecting the strong uptake of Mounjaro. Revenue was positively impacted by $380 million onetime benefit related to a milestone payment and business development. Excluding this impact, revenue grew 81% in constant currency. Japan, China and Rest of the World delivered constant currency revenue growth of 24%, 22% and 51%, respectively, driven by Mounjaro volume growth. On Slide 9, we provide an update on the performance of our key products, which accounted for $12 billion of revenue within the quarter. Beginning with immunology, EBGLYSS delivered strong performance in atopic dermatitis as U.S. total prescriptions increased by 41% compared to Q2 2025. We saw increased use in the first-line setting, which now accounts for more than 50% of new EBGLYSS patients. Omvoh continued a steady uptake and the newly published 4-year data in ulcerative colitis show long-term safety and efficacy benefits. Within oncology, Jaypirca continued to build momentum both in the marketplace and with new data from Phase III trials. Dan will talk more about this later during the R&D update. Verzenio remains the market leader in the U.S. for the node-positive, high risk early breast cancer population, reflective of its position as standard of care in this setting. In the U.S., prescription grew by 3% compared to Q3 2024 and international volume grew by 14%. In neuroscience, Kisunla total prescription grew by 50% compared to Q2 2025 and continue to increase share of market versus the competition. We also recently received marketing authorization by the European Commission, and we are in active reimbursement discussion across Europe and expect launches beginning this quarter and throughout 2026. Finally, moving to cardiometabolic health, Zepbound and Mounjaro both posted a strong global performance. Beginning outside the U.S. Mounjaro performance was robust. We have now launched in 55 countries and all major markets. We have seen a strong reception globally and have gained significant share in most major markets as a result. While obesity reimbursement remains limited internationally, we are encouraged by the strong uptake. Approximately 75% of Mounjaro revenue outside the U.S. is coming from people with obesity, paying out of pocket, demonstrating a high level of clinical need and high willingness to pay. Moving to the U.S., Zepbound prescription tripled in Q3 2025 compared to the same period last year. While the impact of the CVS template formulary change was disruptive to patients and physicians, the impact on Zepbound performance was modest. Share of total U.S. prescription in the branded anti-obesity market declined by approximately 2 percentage points compared to Q2 2025. However, performance is back to Q2 levels and Zepbound exited Q3 with 71% share of new prescriptions. We saw strong uptake of Zepbound in vials, which comprise approximately 30% of total U.S. Zepbound prescriptions and over 45% of new prescriptions in Q3. Mounjaro posted robust Q3 in the U.S. as total prescriptions grew by over 60%. Mounjaro also gained share of market in the type 2 diabetes incretin analog market, increasing by 4 percentage points compared to Q2 2025. Mounjaro is the most widely prescribed incretin for people with type 2 diabetes in the U.S. As shown on Slide 10, the combined U.S. incretin analog market growth was strong, increasing by 36% in Q3 compared to the same period in 2024. Lilly incretin gained share of market compared to Q2 2025 and approximately 2 out of every 3 new prescriptions in the incretin analog market is a Lilly medicine. On Slide 11, we provide an update on capital allocation. Moving to Slide 12. We share our updated expectations for Lilly's 2025 financial results. Based on the strong underlying performance and the favorable impact of foreign exchange rates, we are increasing the midpoint of our revenue range by over $2 billion and now anticipate our full year revenue will be between $63 billion and $63.5 billion. Given our updated expectations for revenue growth and performance margin over the first 9 months of the year, we now expect non-GAAP performance margin to be between 45% and 46% of revenue. At the bottom line, we have increased our outlook for non-GAAP earnings per share and expect EPS of $23 to $23.70. Now I will turn the call over to Dan to highlight our progress on R&D. Daniel Skovronsky: Thanks, Lucas. Lilly R&D had another productive quarter. I'll summarize progress by therapeutic area, beginning with cardiometabolic health. Since our last call, we announced results from 4 additional positive Phase III trials for orforglipron. Of note, one of those trials was attained too, in people with both obesity and type 2 diabetes. As a reminder, patients with obesity and type 2 diabetes are less responsive to weight loss on GLP-1 monotherapy than those without type 2 diabetes. For example, in the STEP-2 clinical trial of people with obesity and type 2 diabetes, semaglutide at 2.4 milligrams and 1 milligram resulted in 10.6% weight loss and 7.6% weight loss, respectively. As shown on Slide 13, ATTAIN-2 demonstrated 10.5% weight loss and 7.8% weight loss at the 36-milligram and 24-milligram doses of orforglipron, respectively, aligned with our goal to deliver efficacy similar to injectable GLP-1 monotherapy in an easy-to-use daily pill. This trial completed the clinical package required to initiate global regulatory submissions for the treatment of obesity. These submissions are beginning imminently, and we anticipate launching orforglipron in the U.S. for treatment of obesity next year. We also made great progress on orforglipron for type 2 diabetes since the last call, with positive results from ACHIEVE-2 and ACHIEVE-3. Orforglipron demonstrated superior glycemic control and weight loss compared to dapagliflozin and ACHIEVE-2 and compared to oral semaglutide and ACHIEVE-3. As shown on Slide 14, in ACHIEVE-3, both the 12-milligram and 36-milligram doses of orforglipron were superior to the highest available dose of oral semaglutide on both A1c reduction and on weight loss. People taking orforglipron saw an average A1c reduction of 2.2% from baseline and lost nearly 20 pounds on the highest dose of orforglipron. We also announced results from ACHIEVE-5 which demonstrate that orforglipron has the potential to provide benefit as an add-on therapy to titrated insulin glargine. With 4 positive Phase III diabetes trials now completed, we believe orforglipron has the potential to be a foundational treatment for type 2 diabetes. We now await results from ACHIEVE-4, which will trigger submission of orforglipron for treatment of type 2 diabetes anticipated in the first half of 2026. With data from over 8,000 participants across 6 completed Phase III orforglipron trials, we've observed benefits across multiple cardiometabolic health measures as well as consistent safety and tolerability. Overall, orforglipron has delivered a profile consistent with our goal of developing an oral and scalable small molecule GLP-1 with efficacy, safety and tolerability comparable to injectable monotherapy GLP-1s for treatment of obesity and type 2 diabetes. Outside of the core registrational programs for these 2 important indications, we have several additional ongoing Phase III orforglipron trials shown on Slides 15 and 16, including new Phase III starts for treatment of osteoarthritis pain and for treatment of stress urinary incontinence, a new indication that we think could benefit from weight loss seen with orforglipron. The next study to read out will be ATTAIN-MAINTAIN, a Phase III study of weight loss maintenance. This study is the first of its kind. It's designed to measure the impact of switching from injectable semaglutide or injectable tirzepatide to oral orforglipron. Our goal in this novel trial is to measure what level of weight loss patients can maintain after switching from an injectable incretin to orforglipron. Since the patients in this trial were previously escalated to a maximal tolerated dose of semaglutide or tirzepatide and treated for 72 weeks, this is a very ambitious trial. For those people switching from tirzepatide, maintaining weight loss after switching to orforglipron is a high bar given the strong efficacy of tirzepatide as a dual incretin agonist. As this trial includes moving patients off of an active therapy onto a placebo maintenance arm ATTAIN-MAINTAIN allows patients who are randomized to placebo to switch to orforglipron as a rescue therapy if weight regain exceeds a specified threshold. This will be a rich data package, and we look forward to seeing the results in the coming months, either late this year or early next year. Moving to retatrutide, our GIP GLP-1 glucagon triple agonist. We expect results from up to 6 Phase III studies by the end of 2026 to support the obesity and related complications program called TRIUMPH and the type 2 diabetes program called TRANSCEND. With its first-of-a-kind triple acting mechanism, we expect retatrutide can deliver deeper and more rapid weight loss than existing obesity medicines even more than tirzepatide. Of course, not all patients may need this potentially very high level of efficacy. And we believe retatrutide will likely be best suited for patients with a very high BMI or with obesity-related complications that require a high degree of weight loss. While the global development program for retatrutide includes people with a broad range of BMIs, spanning across overweight and obesity, we anticipate we'll be focused on the clinical profile of this medicine in patients where the clinical needs are at the highest. The first trial to readout TRIUMPH-4 compares retatrutide to placebo in patients with obesity and knee osteoarthritis pain. This 68-week study is designed primarily as a pain relief study to support an indication for treatment of knee osteoarthritis pain in combination with other trials in the TRIUMPH program. We look forward to sharing top line results from TRIUMPH-4 later this year. Given this is the first Phase III trial for retatrutide, we'll be cautious not to over extrapolate from these results. We have 7 more Phase III trials reading out in 2026 and 2027 and we'll likely need to see data from at least a few of these before we more fully understand the profile of this medicine across a wide range of patients. For the obesity indication specifically, we look forward to results from 3 additional Phase III studies in the second half of 2026. Moving now to muvalaplin, which is our once-daily oral small molecule inhibitor of lipoprotein(a) or Lp(a). Lp(a) is a biomarker associated with increased cardiovascular risk. In Phase II, muvalaplin demonstrated over 85% reduction of this biomarker at the highest dose compared to placebo. Based on these data, we've now initiated a Phase III study in people with elevated Lp(a) levels and atherosclerotic cardiovascular disease, known as the MOVE-Lp(a) trial. Muvalaplin is the first small molecule approach to Lp(a) and our second program in Phase III development against this important target. In other updates from cardiometabolic health, we submitted our once-weekly insulin called insulin efsitora alfa in the U.S. for treatment of type 2 diabetes and we announced plans to initiate 2 Phase III trials with baricitinib in type 1 diabetes. From the early phase portfolio, we look forward to presenting Phase II data from our selective amylin agonist eloralintide at Obesity Week in November. Moving to oncology. We're very pleased to have received U.S. FDA approval of imlunestrant under the brand name Inluriyo as a monotherapy for ER-positive, HER2-negative, ESR1 mutated metastatic breast cancer. Imlunestrant is also being studied in an ongoing Phase III trial called EMBER-4, which compares imlunestrant to the standard of care endocrine therapy in high-risk early breast cancer. This 8,000-patient trial is the largest oncology trial we've ever conducted, and it is on track to be fully enrolled by early 2026. The positive results in the metastatic setting provided an important signal that imlunestrant could have a role in early breast cancer, where we believe an oral SERD could have the largest patient impact. Also in oncology, we top lined the study readout from the third positive Phase III trial of pirtobrutinib in the BRUIN CLL development program. In BRUIN CLL-313, a trial of pirtobrutinib compared to chemoimmunotherapy in treatment naive CLL/SLL, pirtobrutinib demonstrated a highly statistically significant and clinically meaningful improvement in progression-free survival. Pirtobrutinib demonstrated the most compelling effect size ever observed for a single BTK inhibitor in a treatment-naive CLL study compared to this comparator. We look forward to sharing these data at an upcoming medical meeting. As we continue to build evidence supporting the potential role for pirtobrutinib in treatment-naive CLL, we expect these data in combination with BRUIN CLL-314 to form the basis of regulatory submissions globally. We also presented updates from our early-stage oncology portfolio at the recent European Society for Medical Oncology meeting, including data on our mutant-selective PI3-kinase alpha inhibitor for people with advanced breast cancer and PI3 kinase alpha mutations, our folate-receptor alpha antibody drug conjugate for treatment of ovarian cancer vepugratinib, our FGFR3 selective inhibitor for FGFR3 altered metastatic bladder cancer. We continue to be encouraged by the emerging clinical profiles we've observed across each of these 3 programs. And we plan to initiate Phase III trials for these medicines in 2026, if not sooner. In Neuroscience, we received the EU marketing authorization for Kisunla. Importantly, this approval came with the modified titration dosing in the label, which is also approved in the U.S. and now approved in Japan. The modified dosing schedule is thus approved in most major geographies and we're pleased that it's being used to further lower the risk of ARIA. Our Phase III trial with remternetug is also progressing well, and we've now completed enrollment in TRAILRUNNER-ALZ 3 which is evaluating subcutaneous remternetug in treatment of preclinical Alzheimer's disease with a similar time-to-event design as we are pursuing with the ongoing TRAILRUNNER 3 ALZ trial for donanemab. Separately, we're pleased to announce that we've initiated our Phase III program in alcohol use disorder with brenipatide, the GIP/GLP-1 dual agonist that we believe could have the optimal properties for neuroscience indications. Growing evidence from real-world clinical studies suggest that incretin therapies may reduce cravings, an observation that is supported by nonclinical studies that show decreased dopamine release in reward pathways after treatment with incretin therapy. Given the data we've observed thus far with brenipatide, we believe it has the potential to treat a range of diseases. We expect to initiate several additional Phase II and Phase III trials in the coming months, including testing this medicine in important but extremely challenging unmet medical needs, such as opioid use disorder. In addition to neuroscience applications, we will test brenipatide in immunologic disease including a Phase II trial in asthma, which has recently begun enrolling patients. Also in immunology, new data were presented for lebrikizumab at the 2025 Fall Clinical Dermatology Conference. Lebrikizumab delivered durable disease control in people with moderate to severe atopic dermatitis, when dosing was reduced from once every 4 weeks to once every 8 weeks, reducing the number of maintenance doses to as few as 6 doses per year could provide flexibility and reduce the treatment burden on patients. We've now submitted these data to the FDA for a potential label update and continue to explore opportunities for even less frequent dosing of this medicine for people with atopic dermatitis. While we continue to pursue innovative modalities across several immunological disorders, we're also developing combination therapies with the potential to deliver differentiated efficacy. We recently began 2 new studies combining mirikizumab with tirzepatide in people with ulcerative colitis and people with Crohn's disease. These 2 new studies complement the previously initiated TOGETHER studies of ixekizumab plus tirzepatide in people with psoriasis and psoriatic arthritis. We expect the first data from the TOGETHER trials to read out in the next 6 months. Slide 16 shows additional milestones and updates to our clinical portfolio. It has been a very productive period since our last earnings call, and we still have an ambitious R&D agenda for the last 2 months of 2025. Slide 17 shows the remaining list of potential key events expected yet this year. I'll now turn the call back to Dave for some closing remarks. David Ricks: Thanks a lot, Dan. A lot to talk about there in the pipeline. We're pleased with all the progress in 2025, and we've had another quarter of really strong execution both in driving the business results and making investments that will help us discover and develop new Lilly medicines to help more people around the world. Now I'll turn the call over to Mike, who will moderate our Q&A session. Mike? Mike Czapar: Yes. Thanks, Dave. We'd like to take questions from as many callers as possible. So consistent with prior quarters, we will respond to 1 question per caller and end the call probably by 11. If you have more than 1 question, you can enter the queue, and we will get to you as time allows. Paul, please provide instructions for the Q&A and then we're ready for the first caller. Operator: [Operator Instructions] And the first question today is coming from Terence Flynn from Morgan Stanley. Terence Flynn: Congrats on the quarter. A lot of focus obviously on orforglipron and path to market. I was surprised that it wasn't on the first list of the Commissioner's National Priority Review Voucher program. And so maybe you could just comment on kind of if you guys are seeking that voucher? And then if not, why not? And then how to think about time lines for launch and some of the puts and takes as we think about maybe consensus expectations for 2026. Mike Czapar: All right. Great. Thanks for the question, Terence. We'll go to Dave to talk a bit about orforglipron. David Ricks: Thanks, Terence, for the call. I think as we've said before, we're interested in getting orforglipron to as many patients around the world as fast as we can, including those in the U.S. So without commenting on specific vehicles, I think investors can expect us to be pursuing in all of the above strategy to get the medicine out more quickly. Also, I'd point out that if you look at this new voucher program, I think orforglipron checks, at least 3 or 4 of the boxes laid out. So yes, we'll see. It's obviously government decision about which pathway they choose and the review time itself. But we're focused on speed here and we're ready to launch. So the package will go in, in the quarter, and we hope to get approval as soon as we can after that. Operator: The next question is coming from Chris Schott from JPMorgan. Christopher Schott: I just wanted to touch base a bit more on the Mounjaro international ramp. It's obviously had a pretty impressive step up in sales these past 2 quarters. Can you just elaborate a little bit more on how some of these new country launches are trending relative to your expectations? How to think about growth off of this new higher base? And is just there any meaningful stocking as we appreciate kind of look at these numbers? Just a little bit more color on what's been driving this big step-up. Mike Czapar: Thanks, Chris. Thanks for the question. On Lilly International, we'll go to Patrik for that to talk a bit about Mounjaro uptake, new country launches, growth. Patrik Jonsson: Thank you very much, Chris. I think we are very encouraged by what we're seeing outside of the U.S. And the business, as we shared earlier, is 75% out-of-pocket and 25% type 2 diabetes. What we have seen is, of course, an initial stocking in those markets where we launched, and we refer to the big ones being in Q2 being China, Brazil, Mexico and India. Since then, we have seen a lift in the performance also in those markets in Q3 and a continued very strong performance globally. Looking forward, I think the major opportunity is, number one, in type 2. We have reimbursement currently in 8 markets, and we'll continue those efforts across all of the U.S. markets, but that's going to take some time. Secondly, the big opportunity when it comes to obesity is really about patient activation, and we will lean in on all of those efforts also in 2026. When you look at international, it's important to -- while it's one line in the income statement, we are referring to more than 55 countries and there are different market dynamics, different buying patterns. So as we have seen over the last several quarters, it's not going to be a straight line, but there are significant opportunities outside of the U.S. also moving forward across type 2 and chronic weight management. Operator: The next question will be from Seamus Fernandez from Guggenheim. Seamus Fernandez: So mine is actually on some of the behaviors that we're seeing in the market around M&A and how the competitors' dynamics are playing out and how you, Dave and Dan see the market evolving from here. You've commented on retatrutide, perhaps segmenting the heavier patient population with greater comorbidities. You have orforglipron potentially targeting a maintenance and lower end portion of the market that's massively scalable and you also have tirzepatide kind of blowing the numbers out and potentially cornering the competitor to some degree in other markets. Just wanted to get a sense of if that behavior would be concerning to you, if you don't really spend much time thinking about it because you're so focused on your own business or if there are other considerations as you work to further segment the market and take a deeper leadership position? Mike Czapar: Thanks for the very long and involved question there Seamus. I think we'll go to Dan actually to talk about that. Daniel Skovronsky: Yes, sure. Thanks, Seamus for a good question. Of course, Lilly has been focused on the obesity opportunity for quite some time. We have a very strong R&D engine behind it. I think when you look at where the science leads us and sort of every kind of reasonable or logical target to pursue, we have robust programs against those targets. And in nearly every case, I think we have either a best molecule or first molecule or both, actually. So I like our portfolio. Clearly, the late-stage clinical molecules that the Street is paying attention to, we like where they are. But behind it, I can assure you there's a robust pipeline that we like. No surprise then that every -- probably just about every other company in this industry looks at that and wants to improve their own position. So that doesn't surprise us. We watch that and of course pay attention but we haven't seen anything that changes our view about the competitiveness of our portfolio or the lead that we have in this space, which we intend to maintain through robust investments, not just in research and development, but as you've seen today, in multiple Phase III trials and new indications. David Ricks: Maybe just to add just I think that -- sorry, Mike, maybe just to add, I think that's a great answer. I think for a long time, we've all been saying we're focused on every logical target and pursuing the full extent of what these medicines can do for various conditions. I mean today's call highlights that with some of the new studies Dan highlighted. But it's also important to note, in addition to innovation, you need to execute. This is a highly scaled business and reaching potentially tens or even hundreds of millions of people. And here also, I think Lilly has really done well. It's a combination of those 2 things that, I think, built the lead we have. And we are very focused on both of them, both innovation Dan talked about, but also executing with manufacturing build-out, in market performance, new ways to reach consumers. Of course, everybody would like to be in our position, but we're focused on defending it and mostly just executing the play we have. So it's a good question. We'll probably see more dynamics and noise from other pharmaceutical manufacturers, that's normal. What we need to do is run the strategy out that we've outlined. Thanks for the question. Operator: The next question will be from James Shin from Deutsche Bank. James Shin: I got one for David. David, you previously mentioned narrowing the gap between list and net pricing. Cigna recently announced drug rebates would be replaced with GPO fees. And it sounds like it's going to lead to greater discounts as well as more employer opt-ins. So does that suggest greater GTM pressure than what you would normally have with rebates? Does this make clinical profiles more relevant to form like positioning or access? Like what kind of changes should we expect? Mike Czapar: Great. Thanks, James. We'll go to Dave to talk about some of the recent announcements from PBMs on business model. David Ricks: Yes. I think you're talking about the Cigna move, and there's also -- I'd also point out, increasing share in large employer market from kind of nontraditional PBMs, I guess we call them -- I applaud this. I think it's a good move for innovators. It's a good move for patients. It's a good move for payers, for the commercial payers and probably smart of Cigna to make this first move to recoup market share or gain market share. I think that everyone wants more transparency and lower out-of-pocket for patients. And this kind of model will produce both of those. And what we want is to make the basis of competition, one of clinical differentiation that doctors and patients both appreciate in a way, the nontransparent rebates and other behind the scenes activities that determine which medicine a patient gets is not in our interest. So as an innovator, probably the leading spender on innovation in the sector coming up, we're for this. I think David and his team at Cigna did a good thing here. And we hope others follow and the market in the U.S. can rapidly transition to such a system. I don't think that per se that reads through to some pricing effect. What I hope is that more valuable medicines will have that value recognized in pricing and less valuable medicines will have a harder time competing now because you can't just rebate away some number and find formulary position ahead of a better medicine. So we're for this. And again, it's a good move. Hats off to David Cordani and the team. And hopefully, others rapidly follow. Operator: The next question will be from Geoff Meacham from Citi. Geoffrey Meacham: Just had another one on orforglipron. When you guys think about commercial strategy, would you characterize it as more consumer-centric through LillyDirect? Or should we think about it as a more typical pharma launch with PBM and payer negotiations being really critical on day 1. And I guess the puts and takes of both of those. Mike Czapar: Okay. Great. Thanks for the question, Geoff. Orforglipron kind of a U.S. bench. So we'll go to Ilya to talk about some of the orfor launch thinking. Ilya Yuffa: Sure, Geoff. Thanks for the question. Obviously, we're excited about the profile of Orforglipron and how to commercialize it in the U.S. and outside the U.S. as well. Obviously, we think about this similarly to how we've viewed Zepbound, where we need to drive great commercial and overall access for patients for accessibility, but we also recognize that there is significant demand in the consumer segment related to finding ways to get outside some of the frictions in the health care system. And so we see both looking at broad coverage as well as looking at expanding how we do our direct-to-consumer platform and ensuring that every patient has the ability to access medicines across the portfolio. Operator: The next question will be from Steve Scala from TD Cowen. Steve Scala: I know it's Lilly's policy not to comment on interims, but it's also a bit unusual for Lilly to speak about them in some detail. And Lilly has spoken in some detail about the TRAILBLAZER-ALZ 3 interim on both the Q1 '25 and Q4 '24 calls in likely other forms as well. So with that said, has the TRAILBLAZER-ALZ 3 interim already been taken? The initiation of remternetug in the same setting would not seem the best sign for donanemab in Alzheimer's prevention. Mike Czapar: Well, thanks, Steve, and thanks for the question on Alzheimer's. We'll go to Anne to talk about some of our clinical trials in early Alzheimer's. Anne White: Great. Well, thanks for the question. Yes, I think we're all looking forward to these results. As you know, we tend not to comment on interims. As we've shared previously, we have completed enrollment in TRAILBLAZER-3. So now it just continues to be a matter of reaching the sufficient number of events, and this is an event-based trial. In clinicaltrials.gov, we listed date of 2027, though it could be earlier than that. We are pleased, though, and this is what I think we commented on to see momentum and awareness in the space. I think that was really evidenced by the enthusiastic enrollment in our remternetug preclinical study as well. And as Dan mentioned, what we have the opportunity there is to innovate with a subcu dosing formulation as well as a monthly dosing in a -- and again, in a fixed duration dosing paradigm. So we continue to innovate in the Alzheimer's space, and you'll see us continue to commit to that even as we build on the foundation of a very strong Kisunla performance. There's a couple of things that we're doing right now to make sure that we're ready for this readout, I will mention in preclinical because it does require a few fundamental shifts. It requires awareness and education on the importance of treating in that earlier stage of disease and the need to be proactive really around brain health. And very importantly, it requires a simple and accessible blood test to make the diagnosis in the preclinical space, which is also referred to as Stage 1 and 2. So there's quite a bit to do. So you'll hear us continue to talk about the readiness work that we need to do to get ready for this readout, but more to come in the future. Operator: Next question will be from Mohit Bansal from Wells Fargo. Mohit Bansal: Congrats on all the progress. I would love to understand or think through your thoughts around evoke trial and GLP, GIPs in general for Alzheimer's disease. How do you think about this space evolving? And could brenipatide the new GLP/GIP be a drug for Alzheimer's given that this has neuro properties? Mike Czapar: Great. Thanks, Mohit, for the question about evoke as well as just brenipatide. So we'll go to Dan to take both of those. Daniel Skovronsky: Yes. Thanks, Mohit. Obviously, we follow this space closely. I think we are leaders in Alzheimer's disease and also leaders in incretin therapy. You correctly point out that brenipatide has got some of the attributes that make us excited about it for use for CNS indications that could be inclusive of Alzheimer's disease, although we haven't laid out any plans there yet. We're sort of on the verge of seeing, I believe, evoke data. That will be very informative. I think given our strength in our portfolio, almost regardless of that outcome, we have opportunities to build there and create something that could potentially be more meaningful for patients. So we'll wait, we'll see that, and then you can expect us to talk in more detail about our next steps. Operator: The next question will be from Courtney Breen from AllianceBernstein. Courtney Breen: I wanted to loop back to orforglipron, which I know has lots of focus on. You seem to be preparing for a very large-scale launch. And by our calculations on the basis of some of the comments you've made, you could have enough doses to support at least 5 million patients for a full year based on the inventory already built. And I think, Dave, you've mentioned kind of this could be the GLP-1 for all. Can you help us understand kind of the potential for expansion to the market with orfo? And should we expect to see a slowdown in getting new starts during the initial period of that orfo launch. Mike Czapar: Yes. Courtney, it was a little hard to hear, but I think some of the questions was thinking about how to expand the market for orfo in different indications, different opportunities. So we'll go to Ken to talk a bit about some of our ambitions for orforglipron. Kenneth Custer: Sure, Courtney. Thanks for the question. Now with 6 Phase III studies in hand, I think we really understand the profile of this emerging medicine. It continues to recapitulate the efficacy and safety of injectable GLP-1s. In fact, Dan recapped some of that during the early part of the call, recapping the ATTAIN-2 data, which seemed very consistent with STEP-2 as well as the ACHIEVE-3 data showing superiority versus oral semaglutide. So we think this is a great profile. You're getting glucose benefits, weight benefits, improvements in blood pressure, lipids, inflammatory markers, all that in a simple once-daily pill with no restrictions on food and water and of course, which we can manufacture and distribute at scale. So we tend to think at a different magnitude about the opportunity here than historically what we've done with incretins. In the United States, there's probably 8 million or 8.5 million people on incretins out of maybe 170 million who might benefit. And globally, that's a much bigger number, probably measured in the high hundreds of millions or even billions. So this is now, I think, the generational opportunity to figure out how to get an incretin to a much larger group of people. We can do that to the simplicity of the profile, which is also easier to manufacture and distribute. So really, our plan will be about accomplishing that at an international level, getting it out there as quickly as possible. Of course, we're also developing orforglipron in a lot of other settings beyond obesity and diabetes. Dan recapped some of those new NILEX that we've announced. And of course, just to recap as well, we see an opportunity not just as a starter incretin here with orforglipron, but also something that could potentially be used for patients to continue the success they've had with a drug like Wegovy or Zepbound. We're assessing that now in the ATTAIN-MAINTAIN study and look forward to sharing those data later this year. Operator: The next question will be from Asad Haider from Goldman Sachs. Asad Haider: Congrats on all the ongoing progress. Just sticking with orforglipron, maybe given it's importance, just a high-level question on pricing and volume dynamics ahead of the launch. So the cash pay channel is where you're continuing to see the most rapid growth in the obesity market. Zepbound vials are now almost 40% of new scripts. And related on ex U.S. price elasticity, you saw a shift in volumes in the U.K. when Mounjaro prices increase. So I guess what are the learnings from this for the orforglipron ramp next year as it relates to the elasticity of demand across different price points? And I guess my question is specifically related to how you're thinking about U.S. versus OUS volume unlocks for orforglipron as launches -- as it launches in a world of potential MFN equilibrium prices? Mike Czapar: Okay. Thanks, Asad. I think we'll -- maybe we'll start with Ilya to discuss some of the U.S. dynamics? And then maybe, Patrik, if you want to make a couple of brief comments about some of the OUS learnings from the U.K. as well. Ilya Yuffa: Yes. Thank you for that question. Obviously, we have experienced significant growth overall in the total market. So we've seen sequential growth in the covered. Overall the sequential growth is 15%. But we're seeing significant more volume go through a direct-to-consumer platform with LillyDirect, which says a lot about, one, what consumers and patients as well as providers see as the benefit of Zepbound in particular and also the ability to remove some of the friction and the ability to have accessibility to medicine. And so we see this channel as a significant channel now and into the future. And then as part of that, obviously having more offerings, whether you include being able to pick up your Zepbound vial at a local Walmart, which we announced yesterday or expanding the offering on having another treatment like orforglipron. That's an important element for us to expand the ability for patients to get treated. That is the main goal that we have is to improve overall health outcomes, and we have multiple medicines and different platforms to achieve that. Mike Czapar: Patrik? Patrik Jonsson: Maybe just a few additions from an OUS perspective. I think, first and foremost, in the U.K. with a raise in price that was effective September 1, I think we learned pretty much what we expected to learn. What we did was just to take the U.K. price at the level of -- raise it to the level of a European price. And even if there were regulations in the U.K., we actually saw export of medicines out of U.K. to other markets. So that has probably stopped with intervention we did put in place. Secondly, we're also learning something about consumer pricing elasticity. So that exists. But most importantly, I think orforglipron will meet a slightly different need of the marketplace. We know that obesity is a heterogeneous disease. And for people with a BMI below 35 and that might not need a weight loss drug like tirzepatide, we believe there is a significant opportunity in OUS. And also driven by the other features that Ken referred to earlier, the opportunity to scale here and to reach other patient populations and with no need of refrigeration, et cetera. So we see those as being very complementary in the OUS business setting as well. Operator: Next question will be from Tim Anderson from Bank of America. Timothy Anderson: I have a question on GLP-1 pricing. So with Novo's sema, we get an IRA negotiated price within the next month. My sense from talking to some industry folks is that, that negotiated price may be more favorable than the investment community is expecting, meaning less degradation to the current net price. And that, of course, would be good for everyone in the space. What is Lilly picking up on this? And whatever that level of discount ends up being, would you agree that it quite likely has a direct impact on pricing of Lilly's own products in 2027? Or do you think sema's negotiated price just won't translate across? Mike Czapar: Okay. Thanks for the question, Tim. We'll go to Ilya talk a bit about just some of the broad thinking about sema IRA negotiations acknowledging we're not part of the discussion. Ilya Yuffa: Sure. Thanks, Tim, for the question. Obviously, we're -- we don't know the price is being negotiated at the same time. There are several things that are important to note. One, that it only applies to sema in Part D beginning in 2027. Overall, if you take a look at our volumes, Medicare Part D is a small proportion of our overall volume. Obviously, predominantly in type 2 diabetes since there's lack of coverage in obesity. Probably the most important element to include here is that tirzepatide has demonstrated superior efficacy versus sema in head-to-head trials, which is a strong foundation for any value-based discussions that we have with payers, not only in our data, but you see that as well in provider preference as well as patient preference that you see in the market. Mike Czapar: Great. And then Dave, do you want to add a couple of comments? David Ricks: I think he covered it well. Maybe just one thing because we've been talking about orforglipron and its upcoming launch. We think about single-acting GLP-1s as one category and double and triple acting as others. And probably both weight loss and clinical value will be quite different between these medicines. And of course, we're paying close attention to the sema price. But as Ilya said, it's a Part D-only channel. So let's let it all play out. I think we're in a good position because we have so many options. Operator: The next question will be from Alex Hammond from Wolfe Research. Alexandria Hammond: Can you walk us through the importance of the upcoming ATTAIN-MAINTAIN trial to orforglipron's commercial opportunity? And is there an outcome that might meaningfully change your view on how quickly orforglipron's launch may scale. Mike Czapar: Great. Thanks, Alex, for the question on ATTAIN-MAINTAIN, we'll go to Ken. Kenneth Custer: Sure. Thanks for the question, Alex. on ATTAIN-MAINTAIN. This is a really first of its kind study, and we're looking forward to these data later this year. We took advantage of the opportunity to rerandomize patients for the SURMOUNT-5 study who were maximally tolerated on either semaglutide or tirzepatide and randomized them to orforglipron or placebo, and we're going to measure the percentage of the weight that they lost over the course of 72 weeks that they keep off while taking orforglipron. Of course, this is a first of its kind study. We don't know exactly what the results will be, but we're hopeful that orforglipron will provide a simple once-daily oral option that lets patients keep the majority of their weight off. And so we think this is really an opportunity to expand the market even further for orforglipron. Of course, we have very bullish expectations for it as a first-line starter incretin, but also this is an opportunity to continue to grow that. I don't think -- as we think about orforglipron, we don't think about sort of cannibalization in that way. This is an opportunity to grow the market at a very different rate, and we think the data from ATTAIN-MAINTAIN could be really just an exciting boost and allow us to have some medical information to disseminate to physicians about how they can help patients switch from drugs like Wegovy and Zepbound. But of course, we also know that all weight management drugs are, of course, indicated for maintenance. So these are just data to help HCPs and patients guide between these medicines. Operator: The next question will be from Umer Raffat from Evercore. Umer Raffat: I just wanted to touch up on GLP pricing. And on the one hand, there's a lot of commentary on some of the expectations you've laid out on orforglipron pricing framework. If you could expand on that. But then also, on the other hand, there's a lot of actions and changes at your main competitor over the last few months. And I almost wonder, do you think they will stay a mature player from a pricing front? Or will that no longer be a base case for us? Mike Czapar: Great. Thanks, Umer, for the question on GLP-1 pricing. Maybe we'll hear from Lucas to weigh in on those dynamics. Lucas Montarce: Yes. Thank you for the question, Umer. Maybe just thinking about the pricing dynamics when you actually unpack our Q3 performance, you see that actually, our pricing continued to perform as what we expected, right? So I think it's a good data going after the CVS move that we didn't see again, a significant price erosion, but actually was very much in line to what we said early in the year for the full year as well. So maybe just had a good data point that you can take from that perspective. And thinking more broadly about the competition in the marketplace, again, we always pay close attention on the competition in the marketplace, but also how we differentiate both commercially, but also on the level of the product. And Ilya, Dan, Ken mentioning about the differentiation. And you see that in the marketplace. So if you take, for example, a good proxy that for me is LillyDirect we have been priced over the last maybe 6 months already at that starting point at $349 going to $499 and maintain that price and you see the penetration and the competition is placed at the same level as well. So we don't see materially changing the dynamics that we see from that perspective and as we continue to penetrate the market and mobilize patients to seek more treatment. Operator: Next question will be from Akash Tewari from Jefferies. Akash Tewari: So at the All-In Summit, Dave, you noted if orfo was priced at $100 a month, there'd be no incentive for new medicines in that category to kind of create the next big thing. A few weeks later in Chicago, you mentioned how Lilly has already made billions of doses for orfo and it could have an impact on human health at a global level. Can Lilly achieve both goals of kind of preserving continuous innovation in obesity and having orfo be a drug for hundreds of millions of patients with the parity pricing model between the U.S. and rest of world? Mike Czapar: Thanks, Akash. We'll go to Dave to address those 2 comments. David Ricks: Yes. Thanks, and thanks for tuning into all my podcasts and public event. So I mean, yes, our strategy is to bridge both. We think, as you're pointing out, that flatter pricing between U.S. and other developed countries is important. But there's like 3 ways that this works. And I think one important thing here that just to point out on all these pricing questions that is different in this GLP-1 category is the consumer self-pay channel. We haven't really seen that at scale in other categories. And it certainly is a channel here, partly because of under insurance, but partly because the benefits of these medicines manifest so consistently. There really aren't that many nonresponders at all and produce a very desirable short-term effect in addition to enhancing long-term health benefits. It really is a unique situation. So we have seen price elasticity, as was mentioned, and that it's, on the one hand, in our interest to offer consumers a compelling price where they can afford to self-pay. It's also in our interest to continue to build out indications for chronic disease, as Ken and Dan were outlining earlier. And we are committed to doing both, having a strong consumer offering, but also proving the health benefit. And that should not compete for consumer dollars, but for health care dollars, either government or from private payers. So it's a both end, and I do think these can bridge because we have so much evidence coming of long-term benefit, we should compete with other classes of medicines in chronic diseases or even create whole new classes. And at the same time, we'll probably continue to see consumer self-pay demand, whether it be for prevention or there are other needs. So I think it's entirely possible to do both. And I think Ken mentioned earlier some of the numbers that we are literally just scratching the surface of global treatment here. And there really is a tremendous opportunity to reach tens or even hundreds of millions of more people in the coming years, and that's our goal. Operator: The next question is coming from Evan Seigerman from BMO Capital Markets. Evan Seigerman: Dan, you recently commented that you were super excited about your presymptomatic Alzheimer's program. I appreciate that you don't want to comment on an interim look, but could you expand on what drives this view and how it has changed since the initiation of the program? Mike Czapar: Okay. Great. I double back on the presymptomatic Alzheimer. So we'll go Anne to talk a bit about that. Daniel Skovronsky: Okay. Thanks, Evan. I apologize, I didn't say super excited on this call. I'm still super excited about the Alzheimer's opportunity here to treat in the preclinical space. The reasons for my excitement go back to the data that we saw actually in TRAILBLAZER-1 and TRAILBLAZER-2. In both of those trials where we're treating symptomatic patients, we saw the largest treatment effect on patients who were the earliest in their disease course, whether you measure early disease course by symptoms or pathology, et cetera, that's where the drug had the biggest effect. And in fact, we looked at prevention of progression as an outcome in that trial in those patients, we have really profound results. I actually expect the same in TRAILBLAZER-3 as well as TRAILRUNNER-3, which is the trial with remternetug. So I remain extremely excited. No change here at all to my level of enthusiasm or confidence and success. Mike Czapar: Great. Thanks. With that, we'll close the Q&A. And Dan -- I go to Dave for you for a couple of closing remarks. David Ricks: Thanks, Mike, and thanks to everyone who called in today and for the excellent questions from the sell-side community. We appreciate everyone's participation here. And as always, follow up with our excellent IR team if you have questions that didn't get answered today. And have a great rest of your day. Take care. Operator: Thank you. And ladies and gentlemen, this does conclude our conference for today. This conference will be made available for replay beginning at 1:00 p.m. today running through December 4 at midnight. You may access the replay system at any time by dialing (800) 332-6854 and entering the access code 797327. International dialers can call (973) 528-0005. Again, those numbers are (800) 332-6854 and (973) 528-0005 with the access code 797327. Thank you for your participation. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden reports third quarter 2025 results call. Just a reminder, this call is being recorded. [Operator Instructions] I would now like to turn the call over to Aaron Reddington, Vice President of Investor Relations. Please go ahead, sir. Aaron Reddington: Good morning, everyone, and thank you for joining us for Belden's third quarter 2025 earnings conference call. With me today are Belden's President and CEO, Ashish Chand; and Senior Vice President and CFO, Jeremy Parks. Ashish will provide a strategic overview of our business, and then Jeremy will provide a detailed review of our financial and operating results followed by Q&A. We issued our earnings release earlier this morning and have prepared a slide presentation that we will reference on this call. The press release, presentation and transcript of these prepared remarks are currently available online at investor.belden.com. Turning to Slide 2. I'd like to remind everyone that today's call will include forward-looking statements, which are subject to risks and uncertainties as detailed in our press release and most recent Form 10-K. We will also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in the appendix to our presentation and on our website. I will now turn the call over to our President and CEO, Ashish Chand. Ashish Chand: Thank you, Aaron, and good morning, everyone. We appreciate you joining us. Let's begin with Slide 4, which highlights our key accomplishments and messages for the third quarter. My comments today will reference adjusted results. First, I want to recognize the dedicated efforts of our team. Their focus enabled us to deliver another solid quarter, building on our steady momentum. We executed well, delivering record results that surpassed our expectations. For the third quarter, both revenue and earnings per share came in above the high end of our guidance, reaching new quarterly records for Belden. This achievement underscores the ongoing progress of our solutions transformation, which continues to expand across the organization. Revenue reached $698 million, up 7% year-over-year, and adjusted earnings per share grew to $1.97. We delivered continued organic growth with overall organic revenue up 4% for the quarter. Positive contributions came from key markets, including Germany and China, confirming the favorable turn we experienced earlier this year in these major automation markets. This trend was further validated in our Automation Solutions segment, which demonstrated particular strength, achieving 10% organic revenue growth driven by broad momentum, including double-digit gains in discrete manufacturing. Order activity remained healthy for the quarter with orders up 7% year-over-year. We ended the quarter with a book-to-bill ratio of 1.0 compared to 0.99 in the prior year period, positioning us well as we look ahead. Despite headwinds from tariff and copper pass-throughs, our margins for the period performed well. We achieved healthy adjusted gross margins of 38.2%, up 40 basis points year-over-year, reflecting continued strength in our solutions offering even with the impact of these pass-throughs. Our business continues to generate healthy cash flow with trailing 12-month free cash flow at $214 million. We maintained our disciplined capital deployment, repurchasing approximately 400,000 shares in the third quarter for $50 million, bringing our year-to-date total to 1.4 million shares for $150 million. Overall, this was a quarter of solid execution, and I'm pleased with our record performance. The progress we are making with our solutions transformation is clear in our results, and we are well positioned to build on this momentum going forward. Now please turn to Slide 5. I'd like to highlight another key win this quarter that demonstrates the power of our solution strategy and our ability to drive digital transformation in critical infrastructure. We recently secured a $14 million multiyear solutions award with a leading utility provider to modernize their communications infrastructure, a key element of their operational technology platform. This project involves replacing aging legacy systems with a future-ready network to support mission-critical applications. The challenge for this utility was to transition from outdated systems to a modern packet-based network that could meet stringent demands for reliability, security and low latency, essential for grid resiliency and efficiency. Leveraging a deep vertical market knowledge and solutions approach, our team collaborated with the customer, culminating in a successful on-site Proof of Concept. This POC effectively showcased Belden's advanced technologies and service capabilities, validating our proposed solution. Our XTran platform was selected as the core of this modernization effort. Purpose-built for utility networks, XTran delivers connectivity to large complex networks that include new and legacy systems and protocols. This hybrid capability is crucial for easing migration and future-proofing critical network infrastructure. This win underscores Belden's deep expertise in utility networks and our proven capability to deliver secure, resilient OD communication systems. Our end-to-end delivery model, including products, services and support ensures seamless implementation and solution delivery. This project is a clear testament to how our solutions-driven approach combined with our specialized portfolio and deep market understanding allows us to capture opportunities in vital sectors. We are establishing a repeatable model for similar large-scale modernization projects within the utility market, further solidifying our position as a trusted partner in critical infrastructure. We are confident in the momentum this creates and the long-term value we provide for our customers. Now please turn to Slide 6. I'd like to shift our focus to an area where Belden is making strategic advancements, positioning us well for the next wave of industrial innovation, Physical AI. Earlier this week, we announced a collaboration with Accenture and NVIDIA. This partnership combines our industrial networking expertise with their advanced AI capabilities to deliver integrated Physical AI solutions. We've already secured commercial traction with an initial pilot program and are scheduled for commercial deployment later this year. This pilot, a virtual safety fence solution designed to improve worker safety in manufacturing environments was successfully tested and is now being commercially deployed at a major U.S. manufacturer. This test and commercial deployment demonstrate the real-world impact and market readiness of our Physical AI solutions as modern manufacturing increasingly integrates autonomous systems alongside human operators. Let's take a moment and consider the broader opportunity in this emerging space. First, Physical AI represents an evolution in automation where AI directly interacts with the physical world. It enables intelligent automation and real-time decision-making, offering massive opportunities to improve safety, efficiency and further digitize industrial environments. Belden is uniquely positioned to play a foundational role in the emerging world of Physical AI. Advanced applications demand an industrial-grade network capable of real-time synchronized precision. Our time-sensitive networking capabilities are crucial enabling microsecond precision for data streams essential in environments where safety and quality are critical. This strategic push underscores Belden's successful evolution into a solutions company within the industrial market. It serves as clear proof that we are moving beyond simply providing connectivity products to enabling advanced solutions that drive significant value for our customers. Given our strengths in intelligent edge deployment in converging IT/OT environments, we believe that Belden is well positioned to be a key enabler of Physical AI in manufacturing and material handling, driving safer, smarter and more productive environments globally. Physical AI represents an emerging growth opportunity for our business as we continue to advance ideas and technologies. I will now request Jeremy to provide additional insight into our third quarter financial performance. Jeremy Parks: Thank you, Ashish. My comments today will cover our third quarter results, a review of our segments, the balance sheet and cash flow and finally, our outlook. As a reminder, I will be referencing adjusted results today. Now please turn to Slide 7. As Ashish noted, our solid execution this quarter drove consistent top line growth, which translated directly to margin expansion and improved profitability. Revenue for the quarter was $698 million, up 7% year-over-year and ahead of expectations set forth in prior guidance. Revenue was up 4% organically on a year-over-year basis. Our Automation Solutions segment saw organic revenue growth of 10%, while Smart Infrastructure Solutions organic revenue was down 1%. Orders for the quarter were up 7% year-over-year. As a result, gross profit margins were 38.2%, increasing 40 basis points compared to the prior year. EBITDA was $118 million with EBITDA margins at 17%, down 20 basis points year-over-year. We successfully maintained our overall profitability for the quarter through proactive management of tariff and copper price changes, leveraging strategic sourcing and effective pricing actions. Our margin percentages for the period reflect the necessary pass-through of these costs. Going forward, you can expect us to deliver incremental margins in line with our long-term targets. Net income was $79 million, up from $71 million in the prior year quarter, and EPS was $1.97, up 16% and ahead of expectations set forth in prior guidance. Now please turn to Slide 8 for a review of our business segment results for the quarter. Our Automation Solutions segment delivered another solid quarter, demonstrating continued recovery and steady execution. Revenue grew 14% year-over-year with EBITDA up 10%. Margins remained healthy at 20.8%, impacted by the pass-through of tariffs and copper. Order trends also remained robust with orders up 14% year-over-year. This strong order activity drove the segment's 10% organic growth with positive contributions across all regions. As Ashish highlighted, we saw continued strength in Germany and China with ample year-over-year growth, albeit from a lower base. This broad-based momentum extended into our core verticals, which saw double-digit expansion in discrete manufacturing and mass transit. Revenue in Smart Infrastructure Solutions was down 1% year-over-year with margins for the segment steady at 12.6%. Within our markets, smart buildings was up 3% year-over-year, driven by strength in our key growth verticals as we continue to advance our solutions offerings. Broadband Solutions was down 4% year-over-year, but up 7% sequentially. While technology upgrades in the broadband space have seen some temporary moderation in the back half of 2025, we are encouraged by the adoption of new fiber products and also to see the early BEAD awards as many of the top recipients are major customers for Belden. Next, please turn to Slide 9 for our balance sheet and cash flow highlights. Our balance sheet remains a source of significant strength and flexibility, enabling our disciplined capital allocation strategy. Our cash and cash equivalents balance at the end of the third quarter was $314 million compared to $370 million in the fourth quarter of 2024. Our cash position reflects typical seasonality and the deployment of $150 million towards share repurchases so far this year. Our financial leverage was a reasonable 2.1x net debt to EBITDA, consistent with our expectations. We intend to maintain net leverage of approximately 1.5x over the long term. However, this may fluctuate as we pursue strategic opportunities consistent with our capital allocation priorities. For the trailing 12 months, our free cash flow was $214 million. Year-to-date, we repurchased 1.4 million shares, further reducing our share count, which is now more than 12% lower than it was at the end of 2021. We currently have $190 million remaining on our repurchase authorization. Our capital allocation priorities remain unchanged, investing internally in opportunities to advance organic growth, pursuing disciplined M&A and returning capital to shareholders through buybacks. While the current financial market environment is dynamic, we continue to evaluate M&A opportunities with rigor and remain committed to deploying capital in ways that create long-term value. As a reminder, our next debt maturity is not until 2027, and all of our debt is fixed with rates averaging 3.5%. Please turn to Slide 10 for our fourth quarter outlook. Our team has executed well in the current environment, as shown in our record third quarter results. We are encouraged by the strong and consistent trends in our Automation Solutions segment, which provides a solid foundation for our outlook. In the fourth quarter, we anticipate that sequential growth from Automation Solutions will be mostly offset by a more muted quarter in Smart Infrastructure Solutions, resulting in overall performance that is roughly flat sequentially. Assuming the continuation of current market conditions, revenues for the fourth quarter are expected to be between $690 million and $700 million, representing a 4% to 5% increase over the prior year quarter. Adjusted EPS is expected to be between $1.90 and $2, representing a 1% decrease to 4% increase over the prior year quarter. For the fourth quarter, we are projecting a tax rate of 14% as we continue to execute our planning strategies. That concludes my prepared remarks. I would now like to turn the call back to Ashish. Ashish Chand: Thank you, Jeremy. Now please turn to Slide 11. To summarize, our third quarter performance reflects the strength and resilience of our business and the continued progress of our solutions transformation. We delivered solid results in a dynamic environment with consistent order activity, record earnings and healthy cash generation. It is important to reflect on the journey that has brought us to this point. Over the past few years, our industry has faced significant headwinds, including periods of destocking, ongoing tariff challenges and a muted manufacturing environment. Despite these external pressures, our team's dedication and strategic focus have allowed Belden to not only navigate these periods, but to emerge stronger. This resiliency is clearly demonstrated in our current performance. Not only did we achieve record quarterly revenue and EPS, but our trailing 12-month performance also reached new highs. We are proud to report trailing 12-month revenue reaching nearly $2.7 billion and record trailing 12-month adjusted EPS of $7.38. This exceptional performance, especially in a year that presented its share of challenges, truly underscores our team's focused execution and the inherent resilience of our business model. Looking at our long-term trajectory, these results are no accident. From 2019 through the trailing 12 months ending in the third quarter, we delivered a revenue CAGR of 5% and an adjusted EPS CAGR of 12%. This powerful and consistent value creation over multiple years clearly demonstrates the impact of our strategic initiatives and how our solutions transformation has repositioned Belden in the minds of our customers. Further, our transformation is validated in the marketplace as evidenced by the multiyear utility modernization project we discussed earlier, where we are replacing aging infrastructure with a future-ready network. It's also clearly evident in our strategic advancements in Physical AI, where we are enabling safer, smarter factories and other work environments with real-time precision. These are tangible examples of us moving beyond just products to enabling advanced solutions that drive significant value for customers. We remain mindful of the ongoing operating environment. However, the fundamental trends driving our business, reindustrialization, automation, digitization and the convergence of IT and OT are intact and building momentum. We believe Belden is well positioned to benefit as these secular trends play out. Our solutions transformation is delivering tangible results, expanding our addressable market and positioning us for consistent growth and margin expansion. We remain committed to disciplined execution and thoughtful capital allocation, ensuring we create lasting value for our shareholders. That concludes our prepared remarks. Operator, please open the call for questions. Operator: [Operator Instructions] We'll move to our first question from Steven Fox with Fox Advisors. Steven Fox: I guess for my first question, obviously, the utility market is a massive opportunity in general. And so, I'm wondering how we think about how you attack it? Like what's the go-to-market strategy? And then how quickly you can sort of penetrate different parts of it? And then I had a follow-up. Ashish Chand: Sure, Steve. So, across the market in power transmission and distribution because that's the specific area that we want to focus on within the broader utility market. We have a fairly mixed landscape. So, we have networks that are still using SONET SDH systems for their telecoms. And as a result, they can only transmit a certain kind of data, which is very limited. They can't -- for example, the networks don't lend themselves to smart grid type bidirectional transmission. So the first fundamental opportunity really is to upgrade all of these to a packet-based what we call MPLS-TP, packet-based IP-based network. That is where the core XTran offering that we have, which is engineered over many decades in Belgium. This is an acquisition we made about 5 years ago. But the way we differentiate ourselves in that market, apart from just offering that core MPLS-TP switching portfolio is really through the whole services and support process, right? So the win we talked about today really hinged on us being able to go in with our consultants at the outset and do a very deep study across their network, come up with very tangible savings for them or productivity opportunities for them in terms of things that would impact their P&L. For example, reducing the time it takes to find a fault, which therefore reduces any SLA-based fines they have to pay or it could be simply making the equipment procurement process more efficient through more predictability. So, there are multiple use cases. But basically, with that approach, we were able to give them not just the packet switching backbone, but a fully integrated design. And we -- these professional services include by the way, multiyear software training and management. They include helping them with future expansion as their networks grow. So that's how we are attacking that market. And in terms of scale, Steve, I think at this point, especially if I focus on the U.S. and Western Europe, where there is a huge demand, especially given the surge in data centers. I think we are currently penetrating maybe 7% to 10% of the market. So, the scale opportunity is pretty big. And I think that's reflected in our growth rates in PT&D, which have tended to be double digit. Steven Fox: Great. That's helpful. And I'm pretty sure from looking at your picture on Slide 5, the New Jersey grid doesn't look like that, but that's my problem. Anyway, the second question, Jeremy, I was just curious, there's a lot of puts and takes in terms of like outside forces on the margins and then the mix. Can you just be a little more specific thinking about year-over-year and quarter-over-quarter, how much -- I just want to make sure I understand the pass-through impact on margins versus the more solutions? And then any other things we should be thinking about relative to like copper and sourcing and things like that? Jeremy Parks: Yes. Sure, Steve. So, if you look at gross margins on a year-over-year basis, the change in copper prices impacted margins by about 50 basis points, and it's literally just the pass-through of higher copper. So maintaining EPS and EBITDA covering that fully, but a little bit of margin degradation. So that's 50 basis points year-over-year. There is an impact from tariffs. It would be maybe slightly less than the copper impact. And then maybe a little bit of mix on a year-over-year basis, but nothing substantial. If you bridge sequentially from Q2 to Q3, the copper impact is not as extensive. I would say probably the pass-through impact from both copper and tariffs together are maybe 30 or 40 basis points. And then there's also a little bit of unfavorable mix sequentially, just driven by strength in our industrial construction cable that seems to be coming back, partially because of some of these energy applications. Operator: We'll move to our next question from William Stein with Truist Securities. William Stein: Ashish, you talked about Physical AI today. That was pretty exciting for us. I'm hoping if you can extend that conversation to what was posted by, I think, one of your customers or perhaps customers, customers, NVIDIA posted something about your involvement in a gray space application and data center. So I'm hoping you can update on us -- update on that topic, maybe combined with the Physical AI to sort of size your position in those opportunities today and maybe give us a view as to what we should expect in the future? Ashish Chand: Yes. Well, I think this is a very exciting topic. So I'm going to start -- bear with me, I'm going to start with a little bit of basic information and then build it up. So, as we think about AI for the last 3 to 4 years, the first 2/3 of that journey has been more around Chatbots really. And then over the last, let's say, 1 year or so, we are now seeing the whole phenomenon around agents. But a lot of those agents still exist in the digital world, right, inside a data center. Now those agents are emerging into the physical world, and they need a fair amount of orchestration. And those agents could take the form of robots, humanoids, different kinds of equipment, AGVs, et cetera, et cetera. So really, the idea that in workplaces, whether they are manufacturing workplaces or other workplaces, you might have employees that are human and employees that are actually agents working together. You might even have agents and agents working together, right? So that's the kind of future workplace scenario. So, the announcement we -- you, I think, are referring to was actually made as a combination of NVIDIA, Accenture and Belden. And there was a different announcement, I think, about the gray space, which is also relevant, but let me focus on the first one. So, we announced the successful completion of a pilot and we are on the cusp of commercializing this with a very large automotive customer in the U.S., but this was essentially a virtual safety fence application. And it leveraged a few things from each of us. So from Belden at the core, it was the time-sensitive networking portfolio. And I just want to differentiate time-sensitive networking, which is very prevalent in the high-end mission-critical spaces like industrial manufacturing or process is different to the conventional best effort networking, which is more relevant in enterprise spaces, right? So, we used our time-sensitive networks. We use Belden Horizon as the orchestration platform. Accenture built an application on top of Horizon that took that data into the NVIDIA Omniverse and used their libraries to build this entire autonomous system for virtual safety. And I think there were some interesting highlights. So first of all, we did not have any data going to the cloud for safety. Everything was on the site on the edge so that it was very low latency. Now the data stream itself was raw video from a camera versus thousands of sensors on the floor, right? So, it was a camera feed. In fact, it was 3 cameras. So, there was kind of triangulation and spatial depth created in that process. And just from the feed of 3 cameras, this autonomous system was able to analyze and review that data and really as a human being, act as a traffic cop for safety. And I think the third thing this did was it basically removed any ambiguity that network is actually the fourth critical technology to make this digital transformation successful. The other 3 being AI, data engineering and cloud. And although in this case, we didn't send any data to the cloud, obviously, over time, models have to be trained on the cloud. And so data will go to the cloud, but it will be selective data. Now in terms of scaling, there are different studies available. There's one that says -- that's pretty prominent that says that in about -- by 2030, so let's say, in 5 years, the number of physical devices that need network connections will reach close to 1 trillion IoT connections. So 4 to 5x of what we have today. And all of these will need some kind of edge compute capability because all the data will not go to the cloud. And I can easily see another aspect here that, that data will be multimodal. It will be vision, sound, vibration, temperature, pressure, et cetera. Remember, now we have agents in the physical world who are dealing with these kinds of data streams, right, different kind of variety and volume of data versus simple digital data in the data center. And the applications that we are currently exploring or actually piloting include quality inspection, passenger safety, asset location and these go across a few different vertical markets. So sorry, we'll give you a long-ish answer because I want to start with the fundamentals, but the core finding for us here is that without time-sensitive networking and without an orchestration platform like Belden Horizon, it is very difficult to make that edge and IT/OT convergence convert into Physical AI. And I think that's what we've successfully proven here. We are being obviously modest in terms of where all this can go, but really, there is no limit. William Stein: And anything on the white space project that was also highlighted that was one that's more, I think, not necessarily cloud, but certainly data center related. Ashish Chand: Yes. So, we have been building out a data center practice that combines the technologies from both what you think of as previously industrial or automation portfolio and the smart infrastructure portfolio. And we've been fairly successful. I think we spoke about this on our last call, we had a large win with an AI hyperscaler in the cooling space. And then since then, we've had more success deploying these converged IT/OT solutions into a combination of white space and gray space. And our data center growth this quarter is up double digits because of that initiative. Again, our focus, frankly, is less on building the data center capacity itself, but it's more on the long-term sustainable use of applications that come out of the data center. But obviously, right now, there is a big phenomenon around building capacity. And I think there's a big concern around the heating electrification aspects, which allow us to step in with these technologies will that we previously used on the automation and industrial side. So that's the win we -- one of our customers highlighted. And again, we appreciate working with Accenture and their customers because we are finding a lot of convergence here given their -- so the commonality of our installed base and their customer base is turning out to be very scalable for us. Operator: We'll take our next question from Mark Delaney with Goldman Sachs. Mark Delaney: First on broadband, I was hoping you could share more with respect to your outlook over the near and medium term for the broadband segment and how helpful the BEAD awards that the company cited in its prepared remarks may be for growth? Ashish Chand: So I'll make a couple -- thanks, Mark. I'll make a couple of comments and then maybe Jeremy can add to that. So, in general, if you think about the upgrades that the MSOs have been working on for the last few years, different customers have different technology stacks that they use to deliver those DOCSIS upgrades to consumers. And based on those different technology stacks and there's different electronic components, interoperability, et cetera, we sometimes see a little more -- there are some ups and downs in that process. And we've seen a little bit of that moderation in the back half of '25. I think it's basically timing. But on the other hand, there's a lot more clarity in the market since the BEAD announcements came. In fact, our accounts -- the accounts we serve in the MSO market are big beneficiaries of BEAD. We've also seen a lot more adoption of new fiber technology from Belden across these accounts. So on a net basis, I think the -- we are very positive about that space other than some technical interoperability based slowdown that we have seen in the short term. Jeremy Parks: Yes. Just in terms of the Q4 guide, Mark, broadband, you should expect broadband to be down year-over-year in the fourth quarter, roughly the same as what we did in the third quarter, so maybe down 1% or 2% sequentially, down roughly 4% on a year-over-year basis. Looking forward into 2026, we're not guiding at this point. So we'll probably have more of a perspective for you in 90 days. But I think at this point in time, we're optimistic, like Ashish said, about growth in 2026. Some of these upgrades still need to happen. MSOs still need to spend some money, I think, on their networks, and it feels like we're getting a little bit of certainty over the BEAD funding, which should be a helper. So, I think we're optimistic going into 2026. We just have to work through the fourth quarter here. Mark Delaney: Very helpful. And kind of dovetails my other question was just some early thoughts on 2026, just qualitatively, and Jeremy, you just spoke a bit on broadband. But as you think about the business more generally, you spoke about bookings and orders being up 7%. And just based on some of the conversations you're having with customers, some of the drivers like what you just spoke about tied to automating factories and supporting some of the data center build-out. I mean, qualitatively, do you think that revenue next year has the potential to grow? Jeremy Parks: Yes, absolutely. I think if you look at the automation business, the industrial markets, they continue to get a little bit better every quarter. PMIs are close to 50, almost everywhere, even Germany, which I think is positive. So for sure, we bottomed out in a lot of places, and we're seeing more and more strength on the industrial side of the business. And Ashish talked in great detail about some of the opportunities with respect to technology and Physical AI and some of those aspects. So I think we feel very positive about the automation business and industrial markets. With respect to Smart Buildings, we've got opportunities in data center, both in the white space and the gray space, and we're doing more and more with respect to these converged solutions that bring to bear both smart buildings and automation solutions products. And so, I think we feel pretty good about those markets as well. So, like I said, we'll have more to say in 90 days about our outlook for 2026 or at least first quarter 2026. But as we sit here today, I think we're optimistic. Operator: [Operator Instructions] We'll take our next question from David Williams with Benchmark. David Williams: Congratulations on the really solid quarter here. I guess maybe my first question, just want to talk a little bit about the reshoring trends that we've talked about in the past. And this quarter, it feels a lot different than we've had in the past in terms of just your cautious tone and maybe even your discussions around hesitancy of some of the customers. But just kind of curious if you could maybe share what you're seeing on the reshoring side and if your thoughts are still maybe the same as they've been in the past in terms of maybe we'll see some of that going into next year. Jeremy Parks: Yes, Dave. I think one of the reasons we feel good about the automation business, we've talked about that multiple times on this call is that phenomenon of reshoring. So, we are having conversations right now with multiple customers who are looking to bring manufacturing back into the U.S. This includes pharmaceutical customers, consumer packaged goods, logistics, automotive process, semi. I mean, the list is fairly long. Without taking names, I can just tell you that this is pretty much a list of the top players in the industry. And we have seen already results from that in Q3. That's, I think, part of the reason why automotive has grown in 10% this quarter. Part of it is really the U.S. reshoring trend. Now what we do see here is that it's not necessarily a hasty build. People are planning very carefully a 3-to 5-year journey as they think about their facilities. And therefore, they're also asking us to plan with them on a 3-to 5-year basis, the whole network and data infrastructure, which I think plays well to Belden's strengths because it's not really driven by price, but it's driven more by total cost of ownership. So yes, very bullish on the reshoring trend, and we are seeing tangible results and numbers as we speak. David Williams: Great. And then just maybe from the smart infrastructure side, as you kind of look out and see everything that's developed there, and you've been making some investments for some time. Just kind of think about how should we think 2026 should trend on the smart infrastructure side? And is there anything, I guess, that is more positive, more negative as you kind of enter the fourth quarter here? Jeremy Parks: Yes. So first of all, we've seen within the buildings portion of that business, which we now -- as you know, Dave, we combine that go-to-market with our automation business, and we are going with this IT/OT converged offering. So we've seen -- we saw strength there, especially in our growth verticals, which were almost at 10%, right, which is kind of high for that business. And we see a lot of activity in -- obviously, in health care and data centers, we've talked about that. But we also see growth in areas like stadiums and hospitality and other such more KPI-focused networks versus the old plain vanilla commercial real estate. So our dependence on that portion has gone down and our focus on these other markets is really paying off right now. So I think as I look forward, obviously, we're not guiding '26 right now, but similar to what we said on the broadband space, we are optimistic about those verticals. We feel we have a differentiated offering because we are able to solve an integrated problem. So typically, when we go in for example, to a stadium, we talk about the whole thing, including the HVAC control, the packet substation, the network, the audio/video aspect, safety, drones, et cetera. So that really differentiates us from our competitors. So yes, I would kind of classify that as similar to automation in those markets, the same kind of positive feeling. Operator: We'll move to our next question from Chris Dankert with Loop Capital Markets. Christopher Dankert: I guess I've noticed the R&D investment has stepped up a bit. I assume is that to support this kind of edge compute and time-sensitive feedback network opportunity that's out there? Should we expect that R&D to kind of continue being up at an accelerated pace? Does it moderate into '23? Just any color you can provide around that investment? Ashish Chand: Absolutely. So indeed, Chris, we've obviously been upgrading some of these critical elements of our portfolio, right, the time-sensitive networks. There's been work done on the XTran side with MPLS-TP. There are more edge devices being released. But a big part of the R&D investment has really been on the development of the Belden Horizon orchestration platform. So, the one thing that we were missing, if you go back 4 to 5 years, we had all these devices that were operating as kind of stand-alone islands of excellence, but we were not orchestrating the data for our customers in one place. And the effort required to build that orchestration platform, which is called Belden Horizon and to keep upgrading it, especially now as we build applications on it that can take raw data and analyze it without going to the cloud, that's required a fair amount of investment. Now I do expect, based on where we have reached, I do expect that rate of investment to slow down because I think we've reached some kind of a critical point here now in terms of capability. But I would think of the bulk of the increase in 2025 in R&D more around that software capability and of course, a little bit around the upgrade of hardware. Christopher Dankert: Got it. That's really great color. And then you just touched a moment ago on the adjusted go-to-market. I guess any additional color you can give us there in terms of have you changed the sales structure to support that adjusted go-to-market? Are you thinking about kind of products versus solutions as almost 2 separate approaches to sales at this point? Maybe just any kind of color you can give us on how you're thinking about that changing paradigm. Ashish Chand: Yes. I think there are 3 fundamental things here, Chris. The first is we've built a fairly comprehensive consulting organization, right? So if you go back again, 3, 4 years, we didn't have consultants working with customers directly. They were more internal consultants. But now we have, first of all, digital automation consultants who go in and talk about the entire workflow that the customer has and design a data flow to support that workflow that helps the customer get to their KPIs. And this is a good -- the example we shared today is a good illustration of that. Then we have in step 2 solutions consultants who go in and then help the customer create a solution to support that data flow that they've approved. After which we really have commercial sales get in and do the more conventional selling, negotiating, et cetera. And during this process, often, we have people asking for validation in our CIC, right? So, we can prove that data flow will get them to the KPIs they need. In some cases, it's savings. In some cases, it's more capacity, more productivity, more safety, whatever that P&L item is. So first of all, that sales process is far more expanded with this consulting front end. We didn't have that previously. Second, we are going to market now for solutions with a whole ITOT converged approach, and we are saying you have multiple use cases and applications that can exist on the same backbone -- so why don't we design a comprehensive backbone that is future-proof and allows you to keep adding more use cases as you go. And by the way, some of those use cases will at some point become autonomous use cases. Not everybody is ready for that yet, but I think they all want to be -- they want to see that come up in the future. And then, yes, the third thing is we do have a solutions-oriented sales organization, which is where most of our investments are going in, but we are still maintaining -- we have a healthy aftermarket and product revenue also. So we are still maintaining a product-oriented sales team. Now these teams report into the same senior management, so they are well orchestrated. But yes, so there are these 3 changes, the more consulting-driven front end, the converged IT/OD or industrial plus enterprise approach and yes, a specialist solutions sales force. And it's worked out pretty well for us, and it's differentiated us dramatically in the market. Operator: There are no further questions at this time. I'd like to turn the conference back over to Aaron for closing remarks. Aaron Reddington: Thank you, Operator, and thank you, everyone, for joining today's call. If you have any questions, please contact the IR team here at Belden. Our e-mail address is investor.relations@belden.com. Operator: Thank you, ladies and gentlemen. This concludes our call for today. You may now disconnect from the call and thank you for participating.