加载中...
共找到 39,056 条相关资讯
Operator: Good morning. My name is Carrie, and I will be your conference operator today. Welcome to the New Gold Third Quarter 2025 Earnings Call and Webcast. [Operator Instructions] Please be advised that today's conference call and webcast is being recorded. [Operator Instructions] I would now like to hand the conference over to Ankit Shah, Executive Vice President and Chief Strategy Officer. Please go ahead. Ankit Shah: Thank you, operator, and good morning, everyone. We appreciate you joining us today for New Gold's Third Quarter 2025 Earnings Conference Call and Webcast. On the line today, we have Patrick Godin, President and CEO; Keith Murphy, CFO; Travis Murphy, Vice President, Operations; and Jean-Francois Ravenelle, Vice President, Geology. In addition, we have Luke Buchanan, Vice President, Technical Services, available to assist during the Q&A portion of the call. Should you wish to follow along with the webcast, please sign in from our homepage at newgold.com. Before we begin the presentation, I'd like to direct your attention to our cautionary language related to forward-looking statements found on Slide 2 of the presentation. Today's commentary includes forward-looking statements relating to New Gold. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation. You are cautioned that actual results and future events could differ materially from those expressed or implied in forward-looking statements. Slide 2 provides additional information and should be reviewed. We also refer you to the section entitled Risk Factors in New Gold's latest AIF, MD&A and other filings available on SEDAR+, which set out certain material factors that could cause actual results to differ. In addition, at the conclusion of the presentation, there are a number of end notes that provide important information and should be reviewed in conjunction with the material presented. The third quarter was an impressive one for New Gold, and Slide 4 highlights some of the key quarterly accomplishments. We had an excellent quarter operationally with both production and costs making big improvements compared to the second quarter. This was highlighted by Rainy River's record quarterly production of over 100,000 ounces of gold, a 63% increase over the second quarter. At New Afton, B3 continued to overperform during the third quarter, while C-Zone remains on track to ramp up to full production in 2026. We remain well positioned to deliver on our 2025 guidance objectives we outlined at the start of the year. Importantly, these impressive quarterly results were achieved while maintaining focus on safe production with a low total recordable injury frequency rate of 0.61, down from 0.82 in the second quarter and continuing the downward trend over the last 3 years. During the quarter, New Afton surpassed 1 million hours and Rainy River surpassed 1.5 million hours worked without a lost time injury, marking a significant safety milestone at both sites. On a consolidated basis, the company produced approximately 115,200 ounces of gold and 12 million pounds of copper in the quarter. All-in sustaining costs reduced from the second quarter by $425 an ounce to $966 per ounce. With an average realized gold price of $3,458 per ounce, this represents an impressive all-in sustaining cost margin of $2,492 per ounce. We expect all-in sustaining costs to reduce further through the fourth quarter. The company generated more than $300 million in cash flow from operations and achieved a record quarterly free cash flow of $205 million, highlighted by Rainy River's quarterly record of $183 million in free cash flow. The balance sheet was further strengthened in the quarter as we repaid a total of $260 million in debt, including the $150 million drawn on the credit facility earlier this year as part of the New Afton buyback, and this was repaid 1 quarter ahead of plan. The company continued to advance initiatives aligned with our 3-year production growth and accomplished several key milestones during the quarter. At New Afton, C-Zone cave construction is approximately 79% complete, supporting the progressive increase in processing rates towards the target of 16,000 tonnes per day by early 2026. At Rainy River, the focus remained on increasing underground development and production rates, which Travis will speak to shortly. Lastly, our exploration initiatives made significant progress as outlined in our September news release, highlighted by the significant growth in New Afton's K-Zone and the ongoing exploration activities at Rainy River to offset mining depletion. In summary, we had a strong quarter, and we built on the results from the first half of the year, all on maintaining focus on generating meaningful value for our shareholders. With that, I will now turn the call over to Travis. Travis Murphy: Thank you, Ankit. I'm on Slide 6, which has our operating highlights. As Ankit noted, Q3 delivered strong production and costs. Production totaled approximately 115,200 gold ounces and 12 million pounds of copper. This increase in gold production compared to Q3 2024 was driven by planned higher feed grade at Rainy River, partially offset by lower planned feed grade at New Afton. Consolidated all-in sustaining costs for the quarter were $966 per gold ounce on a byproduct basis, 19% lower than Q3 2024 and a substantial improvement over the first 2 quarters of 2025. Costs are expected to continue to trend down in the fourth quarter. At New Afton, the B3 cave continued to overdeliver compared to the plan set out at the beginning of the year. As a result, New Afton achieved an all-in sustaining cost of negative $595 per ounce after considering copper credits. Rainy River delivered a strong quarter, a record quarter as the mill processed higher-grade open pit ore. All-in sustaining costs were $143 per ounce in the quarter, a substantial 39% improvement compared to the second quarter. Costs should continue to trend lower in the fourth quarter with lower sustaining capital. Our total capital expenditures for the quarter were approximately $76 million with $19 million spent on sustaining capital and $56 million on growth capital. At New Afton, sustaining capital is primarily related to mobile equipment, while growth capital is primarily related to construction and growth mine development, tailings and machinery and equipment. At Rainy River, sustaining capital is primarily related to open pit stripping and the tailings dam raise, while growth capital is related to underground development and machinery and equipment. Turning to the assets, starting with New Afton on Slide 7. New Afton delivered another quarter on plan. B3 contributed approximately 4,300 tonnes per day during the quarter. The additional tonnage from B3 above and beyond the previously planned April exhaustion continues to provide excellent shareholder value as it comes with no additional capital. We expect the B3 cave will now exhaust in the middle of the fourth quarter as the current contribution has reduced down to around 1,500 tonnes per day. Annual copper and gold production is expected to be in line with the guidance profile previously provided. During the third quarter, New Afton generated over $30 million in free cash flow while continuing to complete the construction of the C-Zone block cave. Through the first 9 months of 2025, New Afton has generated $115 million in free cash flow. In terms of development, C-Zone cave construction continues to advance on schedule with cave construction progress at 79% complete as of the end of September. C-Zone remains on track to ramp up to full processing capacity of approximately 16,000 tonnes per day beginning in 2026. Now turning to Rainy River on Slide 8. Gold production in the third quarter was 100,300 ounces of gold at an all-in sustaining cost of $1,043 per gold ounce sold, an increase -- a 63% increase in gold production and a 39% decrease in AISC compared to the second quarter. This excellent performance was driven by processing higher grade open pit material in addition to processing and pouring the 5,900 ounces of gold in circuit as discussed at the end of the second quarter. The mill continued to perform well with quarterly throughput averaging over 25,100 tonnes per day. Following the impressive third quarter results, Rainy River gold production is now expected to be above the midpoint of guidance of 265,000 to 295,000 ounces of gold. As a result of the strong Q3 results, Rainy River generated a quarterly record $183 million in free cash flow. As Ankit mentioned, progress was made during the quarter in advancing underground operations with a focus on increasing underground development and production rates. We undertook a number of key initiatives during the quarter, specifically designed to improve recruitment and retention of our people and contractors. These include camp facility upgrades and travel improvements. They also included contract modifications to incentivize and reward optimized development rates. While this has led to an increase in cash costs and certain growth capital items related to the underground, it is a significant step forward in securing the production growth expected in the coming years. We are seeing improvements in the continued ramp-up in daily underground development rates, which we expect to build on through the fourth quarter. To sum up, we made excellent progress in the third quarter and remain on track to deliver our 2025 production and cost goals as well as longer-term objectives. And with that, I'll turn it over to Keith. Keith? Keith Murphy: Thanks, Travis. The financial results can be found on Slide 10. Third quarter revenue was $463 million, higher than the prior year quarter due to higher gold and copper prices and sales volumes. Cash generated from operations before working capital adjustments was $296 million or $0.37 per share for the quarter, higher than the prior year period, primarily due to higher revenues. New Gold generated record quarterly free cash flow of $205 million as higher revenue was only partially offset by higher capital expenditures as key growth projects were advanced. The company recorded net earnings of approximately $142 million or $0.18 per share during the third quarter. The increase in earnings for the quarter and year-to-date is primarily due to increase in revenues, partially offset by higher share-based payments due to the increase in the company's share price. Year-to-date, this has also impacted our consolidated all-in sustaining costs by approximately $75 per gold ounce. After adjusting for certain other charges, net earnings was $199 million or $0.25 per share in Q3. Our Q3 adjusted earnings include adjustments related to other gains and losses and nonrecurring items. Turning to our balance sheet on Slide 11. At the end of Q3, we had cash on hand of $123 million and a liquidity position of $500 million. In July, we redeemed the remaining $111 million of the 2027 senior notes paid for with cash on hand. During the quarter, we also repaid the full $150 million, which was drawn on the credit facility to fund the New Afton buyback transaction announced back in April. This was 1 quarter ahead of plan. To sum up, we remain in a very healthy financial position with a significant free cash flow profile ahead of us. With that, I'll turn the call to Jean-Francois to discuss exploration. Jean-Francois Ravenelle: Thanks, Keith. I'd like to touch on our exploration successes that were released during the quarter. Exploration at New Afton continues to be at an all-time high. We currently have 9 drills turning at K-Zone as we work to define and grow the deposit. We recently increased our exploration budget by $5 million, as previously announced, bringing us to a full year budget of $22 million for approximately 63,000 meters of drilling. We also reported 2 significant exploration highlights at New Afton. First, in addition to confirming the width and the continuity of previously reported mineralization at K-Zone, we have discovered additional mineralization in the footwall of the zone, which has more than doubled the known extent of the system. The system now reaches an impressive 600 meters in strike length and 900 meters in vertical extent with the horizontal thickness locally reaching up to 180 meters. Secondly, exploration drilling conducted from surface intersected C-Zone grade copper gold mineralization located 550 meters to the east of the current K-Zone footprint. As shown on Slide 13, Borehole 596E intersected 1.1% copper equivalent over 55 meters of core length, demonstrating the high potential for further growth in the eastern sector of the mine. We are continuing to work towards the maiden resource at K-Zone for end of year. Following that, we will work towards completing a feasibility study for the first half of 2027. Moving on to Rainy River on Slide 14. The exploration strategy at Rainy River remains focused on sustaining the recent success in mineral reserve replacement. At the Northwest Trend open pit zone, which is located immediately west of the Phase 5 pushback, our drilling programs are expected to grow and upgrade the existing pit-constrained resource to the indicated category. Engineering studies are currently underway to evaluate potential mineral reserves. At Underground Main, exploration drilling focused on converting inferred resources to indicated resources while growing the existing ore zones down plunge and along strike, targeting the highest grade ore zones that can provide additional mining flexibility and further improve the production profile. Concurrently, engineering studies are advancing to support conversion of underground resources to mineral reserves. Looking forward, the next phases of drilling to be conducted in 2026 and 2027 will benefit from future underground platforms, which are expected to accelerate resource and reserve development over that period and beyond. In addition to growing the surface and underground footprints, we own a significant land package that has remained largely underexplored. This year, we plan to invest approximately $2 million to initiate the identification of additional exploration opportunities over our 31,000 hectare land package. With that, I'll turn the call to Pat for closing remarks. Patrick Godin: Thank you, Jean-Francois. As I have said previously, we expect continued and significant growth in gold and copper production over the next 2 years. Third quarter performance was an excellent indication of our potential production and free cash flow generation in the years ahead. As production volume increase, the unit cost per ounces of gold is projected to decrease subsequently. As a result, we continue to expect to generate significant free cash flow over the next 2 years. We have left the pricing for this figure unchanged since the start of the year. It shows that we generate approximately $1.8 billion of free cash flow over that period. For 2025, we expect to beat the high end of this projection and with rising production and current spot price, the 2026 and 2027 free cash flow generation substantially above those outlined in this figure. In closing, the third quarter was really positive for New Gold as we continue to deliver on our stated strategic goals. We will continue to build on these goals from here. This includes delivering on 2025 production and cost guidance with the same attention to health and safety. Our continuous improvement with our total reportable incident frequency rate performance is a direct indicator of the support from all my teammates from the courage -- for the courage to care culture. At New Afton, we will ramp up C-Zone and continue our aggressive exploration program at K-Zone with the goal of releasing a maiden resources in early '26. At Rainy River, we will continue to ramp up the underground mine and advance Phase 5 open pit development, and we will continue our exploration efforts targeting offsetting mining depletion. New Gold offers a compelling investment opportunity with increasing production and significant free cash flow generation combined with our safe, well-established mining jurisdiction, increasingly compelling exploration upside and exposure to what we view our preferred metal in gold and copper. We are confident in our ability to deliver additional upside from here. We'll continue to build from here, both operationally as well as with project and exploration catalysts, which are expected to create meaningful value for our shareholders and provide increased financial flexibility and optionality for New Gold moving forward. This completes our presentation. I will now turn it back to the operator for the Q&A portion of the call. Operator: [Operator Instructions] Your first question will come from Anita Soni with CIBC. Anita Soni: A couple of questions. So firstly, on the New Afton C-Zone and B-Zone. Can you give us a breakout of how much came from the C and the B in terms of tonnes? Patrick Godin: From tonnage, the B-Zone contributed 4,300 tonnes per day over the quarter and C-Zone contributed the remainder of the tonnage there, Anita. Anita Soni: Okay. All right. And would it be possible to also find out what the grades were for those? Patrick Godin: What are the grade for each... Travis Murphy: Yes. The grade for each... Patrick Godin: So can we get back to you on this? What we have is the combined rate. Anita Soni: Yes. Okay. I would appreciate a call back on that one. And then just secondly, I wanted to say, so that's an impressive free cash flow generation this quarter. And I think on Slide 16, you have $2.2 billion for 2025 to 2027 and using a conservative gold price at $3,250 considering we're somewhat over that at spot. I think the question would be beyond paying down debt, what are your plans from a capital allocation standpoint with that free cash flow? Ankit Shah: Anita, it's Ankit. I think we've previously said we take a very disciplined approach on capital allocation. You're right, we generated good free cash flow this quarter and paid down debt. We also increased our exploration budget on the strong results on the back end of our September release. I think we -- from a capital allocation perspective, we have a pretty clear methodology. We want to maintain a strong balance sheet. Beyond that, we want to invest in exploration and also on organic opportunities because we see that adds the most value. And then after that, we'll evaluate capital return to shareholders, all while balancing our evaluation on inorganic opportunities. Anita Soni: And then... Ankit Shah: Right now, we're -- sorry, continue. I can say on the capital return front, we're currently evaluating options with our Board right now. We want to ensure we maintain financial flexibility and capitalize on the right opportunity as they come up. And from an M&A perspective, I think we've shown a very prudent and disciplined approach. We think we've done -- we did our best deal of the year so far with consolidating New Afton. But we'll continue to take a measured approach on M&A with the goal of increasing value on a per share basis. Anita Soni: Okay. So yes, so my follow-up was going to be on would a special dividend, share buyback or a more structured dividend be the preferred route, and it sounds like it's something that's more flexible, so probably one of the former 2 options. Ankit Shah: Yes. So we're actually -- as I just said, we're reviewing options with our Board right now as we go through our budget process this quarter, and we'll be able to provide a better update as we roll out our plans for 2026. Anita Soni: Okay. And then finally, just on exploration. So on the K-Zone, could you just -- so this extension looks pretty good. Could you just sort of remind me like what that would translate to once diluted like on -- I know you're going to be putting out a resource update early in the new year, but I just wanted to try to get an idea in context of what C-Zone grades. Are you seeing them going to end up being similar or end up being higher than the current C-Zone grades that you have? Jeff LaMarsh: Anita, Jeff here. So yes. So on the K-Zone, it still have a lot of drilling to do this year, about 10,000 to 15,000 meters. And like you say, we still have to do our work, update our models to really know the total size and grade of that will be and placement of concerning shapes as well. So it's still early to say. Anita Soni: Okay. Congratulations on a solid quarter all around from exploration to paying down debt and to delivering on the ops. Operator: Your next question will come from Jeremy Hoy with Canaccord Genuity. Jeremy Hoy: I need to address the first one on capital allocation. So maybe I'll focus a little bit more on some of the upside opportunities in existing operations. K-Zone, I think, pretty excited about what we could see there. Good to hear we've got a study coming early 2027. Rainy River definitely looks like we're going to see more gold there. But just wondering the tailings management was a key part of potentially extending mine life there rather than just displacing the stockpiles in the production plan. Can you give us an update on how you're thinking about that and what the likely solutions to tailings management are there? Patrick Godin: So thank you, Jeremy. First, you're clearly -- by your question, you explained why we are prudent in terms of returning capital to shareholders. It's our intent to return capital to shareholders. The question is not if we're going to do, the question is what we're going to return. And for that, we need to assess exactly first, what is going to be our long-term plan. So we are drilling. So we invest drastically in exploration during the last 2 years. We -- it's our intent to continue to invest because we create a lot of value for shareholders, and we believe in our 2 assets, and we see a potential in our 2 assets. So -- and for that, I think we need to assess the full potential of K-Zone. We're not there. So it's a nice problem. So we did not fix the boundaries of K-Zone no matter if we drill a significant amount of meters this year. And it's -- and also, we have Northwest trend -- and we're looking to the possibilities. We have to do a pushback. It's going to be another pit extension or a pit satellite. So -- and we want to size our investment before to determine what we're going to return. So that's the first approach. In terms of the tailings storage facility, again, if we have a satellite pit like Northwest trend, it's becoming not only a source of ore, but it's an opportunity to store tailings storage. So it's in our game plan here, we try as much as we can to stay away because the TMA actually, we still have room to play in this, but we are close to the full capacity in the current design that we have. And with Northwest trend, I think for now, we're not seeing a need to have further significant investment in the TMA. So it's improving the return of the mining of the satellite pit. So -- so for now, we're not seeing additional investment in the TMA with the plan that was presented to you and to the shareholders in February last year. And with the addition of Northwest trend, we're not seeing additional investment in the TMA too. Jeremy Hoy: That's really helpful. Also on Rainy River, you mentioned some of the things you've done to, I guess, probably improve retention rates, the flights camp, incentivization, et cetera. Can you give us an idea of what turnover is now and what you're targeting with these improvements? Patrick Godin: Yes. Maybe I can help Travis on this. In Ontario, actually, we have a shortfall of miners. So as you know, mainly of [ red sees, ] trade person, so mechanics or quality miners. And so we have more people who are getting retired and people who are joining our industry. So we want to make sure to be attractive to support our development. So for that, we have -- we plan to attract more local people. We're not in a region where we are -- it's not a mining camp Rainy River. So we maximize as much as we can in the hiring of local people because it's where we're creating value for the local communities. But we have a certain limit. And so we had to increase our -- increase and improve our capacity and the quality of the infrastructure. So we did that. It represents -- it's a pro because it's helping us to be -- to attract. Also, we have to improve our facility at site to retain people. And also, we work really hard with the contractor to provide an attractive incentives to retain high-quality performer to achieve the plan that we want to do. So it's mainly what we did. So we capitalize in infrastructures. We improved the quality of our infrastructures. And also we implement incentives in the contract to retain quality miners. Jeremy Hoy: Really nice to see the free cash flow thesis playing out. Operator: Your next question will come from Eric Winmill with Scotiabank. Eric Winmill: Nice to see the free cash flow in the Q3. I think some of my questions have already been answered, but maybe just one here on Rainy River. You're into the higher grade now. I'm just wondering what we should expect for the balance of this year. And based on the photos, it looks like that secondary open pit egress has been completed. So yes, just wondering any guidance for the -- for Q4 would be helpful. Travis Murphy: Sure. It's Travis here. Thanks, Eric. Yes, generally, we're seeing a continued trend in Rainy River open pit Phase 4 from what Q3 is, and it's going to continue on into Q4. So we're not seeing any real changes in our trajectory there. Phase 4 is working out very well for us. Eric Winmill: Okay. Great. Appreciate it. And then just on New Afton here in terms of K-Zone. So you're drilling, I think you said about 66,000 meters this year. Wondering if all that will make its way into the resource for next year. And I know still early days, but any thoughts in terms of development here? Are you thinking about this as more of a traditional underground as opposed to a block cave or sublevel cave? Any detail would be appreciated. Patrick Godin: I think here is it's preliminary. So first, we'll -- the problem that we have with K-Zone is to determine the size of the animal, if I can say that because we're still open and we still have drilling to do. And so for sure, what we like is we can when Luke needs with Jean-Francois to complete the feasibility study with the team, we have multiple factors that will determine if it's a cave shape or not. And also, we have to deal with how deep is the ore body, too. So I can say to you that it's premature at this stage to confirm that it's going to be a cave or a more selective mining method. But we are -- for that, we need to size it. And I can say to you, Eric, that next year, we'll need to continue to drill to determine what we have on hand because the limits are not -- and we have 2 objectives. It's always the 2 objectives that Jean-Francois is having, is to advance the resource to produce reserves and also to look what's next. We at New Gold, we were not necessarily good to develop this arrow of projects to get to reserves because we were limited in our capacity to invest in exploration. Now that we are and we demonstrate to shareholders that we're creating value with this, we want to be one step forward in advance. So we -- our objective and our dream was as a team to bring New Afton beyond 2040. I think it was trending well, but we need -- we have work to do to confirm the feasibility of that. But we are already thinking beyond 2040, can we push that to 2050. And it's what we're looking now. But it's premature for now to say what mining method we're going to have here. Eric Winmill: Okay. Great. I really appreciate that. And obviously, the second part, you do expect all of the drilling for this year will make its way into the resource? Or are you seeing a lot of backlogs on the labs and getting the assays back? Jean-Francois Ravenelle: Yes, that's right. We will drill all the way to the holidays basically in December. And we will include all of the drilling and the assays that we can in January when we update our models and define the resource. Operator: [Operator Instructions] Your next question will come from [ Mohammed Sasaidi ] with National Bank Capital Markets. Unknown Analyst: Congrats on a great quarter and the free cash flow -- positive free cash flow in the quarter. So most of my questions have been answered, but just maybe on New Afton, given the good performance from the B3 cave as it exhausted, how should we think about the grades coming into 2026? Could we see maybe a little bit lower grade on the tech report there? Or could you help me maybe provide some color on that one? Jean-Francois Ravenelle: Yes. I think in 2026, as we add that great performance from B3 throughout the year. We are now focusing on transitioning across to continuing that ramp-up of C-Zone. As we have previously disclosed, the grades at the start of the cave will be a little bit lower as you continue to advance that healthy cave growth. So we should see that transitioning up in line with our plan. Unknown Analyst: Right. And then still, you asked with the positive progress at K-Zone and the additional exploration efforts that will continue to do in 2026, how should we think about the CapEx there versus the tech report? Patrick Godin: I think we're done on the CapEx for the tech report. We'll get back -- we can get back to you on this. But actually, we're not -- we're seeing not some extras. I think we're trending in the same. Operator: And there are no further questions at this time. I'll turn the call back over to Ankit for any closing remarks. Ankit Shah: Great. Thank you very much, and thank you to everybody who joined today. As always, should you have any additional questions, please do not hesitate to reach out to us by phone or e-mail. Have a great day. Operator: Thank you for your participation. This does conclude today's conference. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 OGE Energy Corp. Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jason Bailey. Please go ahead. Jason Bailey: Thank you, Kevin, and good morning, everyone, and welcome to our call. With me today, I have Sean Trauschke, our Chairman, President and CEO; and Chuck Walworth, our CFO. In terms of the call today, we will first hear from Sean, followed by an explanation from Chuck of financial results. And finally, as always, we will answer your questions. I'd like to remind you that this call -- this conference is being webcast, and you may follow along at oge.com. In addition, the conference call and accompanying slides will be archived following the call on that same website. Before we begin the presentation, I'd like to direct your attention to the safe harbor statement regarding forward-looking statements. This is an SEC requirement for financial statements and simply states that we cannot guarantee forward-looking financial results, but this is our best estimate to date. I will now turn the call over to Sean for his opening remarks. Sean? R. Trauschke: Thank you, Jason. Good morning, everyone, and thank you for joining us today. It's certainly great to be with you. We again delivered strong results in the third quarter, and we remain on track to deliver on our commitments. This morning, we reported consolidated earnings of $1.14 per share, including electric company earnings of $1.20 per share and a loss at the holding company of $0.06. Our solid performance is driven by continued operational excellence, laser-like focus on the customer and constructive regulatory outcomes. As we head into the remaining 2 months of 2025, we remain confident in our plans to deliver in the top half of our earnings guidance range. As you know, on the regulatory front, we have a preapproval request in Oklahoma and expect an order in a few weeks. This will allow us to move forward with building 450 megawatts of natural gas generation, which should be operational by 2029. As a reminder, we have approximately 550 megawatts of combustion turbines under construction now, which will be operational next year on time and on budget. When Horseshoe Lake Units 13 and 14 come into service in 2029, we will have added approximately 2,000 megawatts over an 11-year period, and we anticipate more to come. When filing the preapproval case, we indicated that this was the first step of many. In the filing, we updated our integrated resource plan, which showed we are still solving for our customers' future generation needs. We are now negotiating with existing bidders from the remaining from the last RFP, and we anticipate issuing more RFPs in future filings to address our customers' needs. We notified Oklahoma customers this week that they will see a decrease in their monthly bill with a reduction in the fuel cost adjustment beginning November 1. The average residential customer bill will be approximately $6.75 lower per month. Our customers benefit from OG&E having some of the lowest rates in the nation. We understand the competitive advantage our low rates offer, and it's one reason our demand has grown so consistently year-over-year. We do everything we can to ensure our rates remain low in the future so that we can sustain the growth of the company and the communities we serve. While the electric power industry is entering an exciting new era, OG&E is uniquely positioned at the forefront. We've been experiencing load growth that far surpasses national trends and data center load will certainly be incremental to our already strong load growth. At the heart of that growth for OG&E is affordability. It's not a new concept to us. It's key to our community success and central to our planning as we move ahead. Over the past decade, we've delivered a 6% EPS CAGR, which is great news for our investors. Equally important for our customers, it's worth highlighting that our nonfuel rates have increased at less than half the rate of inflation during this time. In a period when the cost of living continues to rise, we focused on what we can control, helping our customers and communities manage costs while supporting growth and reliability. As we build on our strong growth and performance, we experienced growing interest in our service area from data centers. Negotiations and conversations are progressing, and we hope to have something to share in the near future. Turning to economic development. We continue to see diversified business growth, including commercial and industrial. And just a couple of weeks ago, we celebrated the grand opening of a major expansion project for plastics manufacturer, which added 4.5 megawatts of load and created hundreds of jobs in Shawnee, Oklahoma. Our economies remain strong with unemployment in Oklahoma and Arkansas continuing to outpace the national average. For the 48th straight month, Oklahoma City unemployment rate is below 4% and Oklahoma's overall job growth is driven by gains in education, health care and construction. The Council for Community and Economic Research ranked Oklahoma City as the most affordable among large cities in the U.S., a competitive advantage for continued growth. And our rates are a factor in keeping Oklahoma and Arkansas consistently ranked high for affordability. As I close, I want to emphasize that the business is doing very well. We've just completed another strong quarter, and I'm excited about the future. We remain confident in our ability to deliver on our commitments while continuing to grow the business. And as I mentioned, we have many positive updates to share in the quarters ahead. Thank you. I'll now turn the call over to Chuck. Chuck? Charles Walworth: Thank you, Sean, and thank you, Jason, and good morning, everyone. We're 3 quarters through the year, and our steady execution positions us to deliver results in the top half of our 2025 earnings guidance range. It's our execution that will lead us to continued long-term success. I'm excited to review our financial performance with you today. Starting on Slide 5. For the third quarter, consolidated net income was $231 million or $1.14 per diluted share compared to $219 million or $1.09 per share last year. In our core business, the electric company achieved net income of $243 million or $1.20 per diluted share compared to $225 million or $1.20 per share last year. The main driver of the year-over-year increase in net income was increased recovery of capital investments. Milder weather this summer compared to last year and higher O&M and income taxes partially offset the increase. The holding company reported a loss of $12 million or $0.06 per diluted share compared to a loss of $6 million or $0.03 per share last year. The change was primarily attributed to higher income -- interest expense, partially offset by an income tax benefit. Let's turn our attention to our 2025 financial plan update on Slide 6. Year-over-year customer growth continued its healthy multiyear pace and was just under 1% in the third quarter. Our weather-normalized load growth was historically strong once again at 6.5% through the third quarter compared to the same period last year. We expect total retail normalized load growth of approximately 7.5% in 2025. Our execution keeps us firmly on plan to deliver on our consolidated earnings commitment. We continue to expect to be in the top half of 2025's earnings guidance range. Sean discussed how our local economies and communities are strong and our intentional efforts around economic and business development provide important support for growth. In each quarterly update, we highlight how our sustainable business model works by attracting new customers to our service area with low rates and reliable electric service, helping our communities to grow and prosper. We've updated our capital plan to include the Fort Smith to Muskogee transmission line, which will address reliability and capacity issues in the Fort Smith, Arkansas area. This $250 million project is planned to go into service in 3 phases in 2027, '28 and '29. This higher voltage line will be primarily recovered through our FERC formula rate, and we have received approval to utilize CWIP recovery during construction of the project. The updated capital plan is included in the appendix. Our financial position remains strong. Our balance sheet is one of the strongest in the industry and is an important competitive advantage, one we are committed to maintaining. We have requested CWIP recovery on Horseshoe Lake Units 13 and 14. The use of CWIP has important dual customer benefits; first, by reducing the long-term cost to customers; and second, by supporting the balance sheet during the construction phase of projects. As I close, let's review our guiding financial objectives. As we grow the company, we will maintain our competitive low rate advantage by focusing on our cost structure, minimize the time between investments and the return and recovery and grow the company by maintaining a highly credible total return proposition for our shareholders. We've made great progress so far this year. Our steady execution keeps us on track to deliver in the top half of this year's guidance range. Our load growth remains historically strong. We've reached a settlement with a number of parties in the Oklahoma preapproval request. If approved, we will move our planned Oklahoma rate review from the end of this year to the second half of next year, and we will continue to assess the timing of the next rate review in Arkansas. We've updated our capital plan for the Fort Smith to Muskogee transmission line. Additional updates to our capital and financing plans will follow a determination in the preapproval case. And finally, our results keep us as confident as ever in our ability to achieve a consolidated earnings growth rate of 5% to 7% based on the midpoint of our 2025 guidance. The strength of the current year's plan allows us to focus on the future, address our customers' expectations of a safe and reliable system and to deliver power at some of the lowest rates in the nation. As always, the foundation of our success is grounded on the dedication of our employees and their ability to get the job done. That concludes our prepared remarks, and we'll now open the line for your questions. Operator: [Operator Instructions] Our first question comes from Shahriar Pourreza with Wells Fargo. Constantine Lednev: It's actually Constantine here for Shar. That's great to be back. Maybe starting off on the CapEx needs. We have the $250 million update today. And as we're building to the fourth quarter update, kind of with the pre-approval settlement out there and another 800 megawatts in the IRP, how quickly do you think those elements start rolling into plan? And is there kind of any acceleration in the RFP process that you're seeing kind of to address some of those needs? R. Trauschke: Yes. Thanks, Constantine. This is Sean. I like that characterization there of rolling. I think that's how we're thinking about it. We're anticipating this approval for -- under the preapproval in a couple of weeks here, and then we're going to layer that in there. And then we're probably going to make some additional filings, as I mentioned in my remarks, with -- coming out of the last RFP. We'll make that filing. When we get approval for that, we'll layer that in there. We'll probably commence a new RFP to kind of continue down that road. And so I think your characterization of rolling, I think you should just consider it a continuous flow of updates. Constantine Lednev: Okay. So versus kind of the fourth quarter that we've typically seen, we should expect more periodic updates, right? R. Trauschke: Yes. You'll see -- I mean, you'll see the normal update in the fourth quarter that should improve the approval of the last filing and it include the customary updates we always do. And then in addition to that, these generation adds, we'll add those as we receive approval. Constantine Lednev: Okay. Perfect. And in terms of the new regulatory constructs kind of that are in place now, how significant is the impact on that ROE lag, if you can quantify it at all? And do you anticipate including some of these benefits in '26 planning assumptions? Charles Walworth: Yes. Constantine, it's -- I think we've always had a really good track record on minimizing lag on earned ROE. So this is obviously just accretive to that. You can see some of those impacts as disclosed in our 10-Q today in terms of some of those benefits, and we'll definitely lay that out whenever we come up with guidance for next year. Constantine Lednev: And just the last one related to kind of that '26 update, kind of given the ramp schedules for that C&I load, do you see the '26 load growth being higher than your planning assumptions as you roll into that year? Charles Walworth: We'll bring you a full update in February. But clearly, we don't see any changes in the fundamentals that are driving the results that we see in our service area. But we'll address that fully in our February call. Constantine Lednev: Right, okay. And year-to-date has been healthy, so... Operator: Next question comes from Julien Dumoulin-Smith with Jefferies. Brian Russo: It's Brian Russo, on for Julien. Just it's nice to see you add the SPP project to the CapEx. Could you maybe talk about the upcoming 2025 SPP ITP plan? I think there are expectations that it could be nearly double the 2024 plan. And I was just curious, it seems as if Oklahoma is one of the faster-growing states in SPP. So I'm just wondering what your competitive position is there to pursue more projects like the one you just added to CapEx. Charles Walworth: Yes. Brian, this is Chuck. It's obviously something that we're very closely involved with our team at the SVP in that process. Yes, you're right. I think that they're looking at a pretty robust plan, but there's still a couple of milestones, a couple of SPP Board meetings that, that's got to go through before we really have something that we can give you a firm idea as to what the opportunity set really looks like. So it's an exciting area, I think, but more to come. Brian Russo: Okay. Great. And then I think as part of the pre-approval settlement filing, you plan to file a large load tariff with your next rate case. I was just curious, I assume that the contract negotiations are still going on with the Google Stillwater project. R. Trauschke: Yes. I think that was the requirement in the settlement to file that large load tariff. But to the extent that we've finalized an agreement before then, we'll file it then. Brian Russo: Okay. Great. And then lastly, is the new load growth outlook of 7.5% for 2025, is that now at the low end of your prior range? Just wondering what's driving that. Charles Walworth: Yes. So you're right. But as we've said kind of all along, some of these loads that we have are a little chunky and the timing can kind of -- it's really hard to nail it down, whether it's the start of this quarter, the beginning of next quarter. And so we've got a little bit of timing going on there. We have one customer in particular that's coming in about a quarter later than anticipated. So just really mainly a timing issue. Operator: Our next question comes from Stephen D’Ambrisi with RBC Capital Markets. My apologies -- I apologize. Stephen D’Ambrisi: That's all good. That's all good. R. Trauschke: We're going to enjoy that one for a while. Stephen D’Ambrisi: I know you will, Sean. I know -- it couldn't happen on a better call. I'm not going to lie... Charles Walworth: Welcome back. Good to hear from you. Stephen D’Ambrisi: Good to hear from you too. Appreciate you guys let me on. Yes. So just quickly, a follow-up on how you guys are going to meet the 850-megawatt shortfall or capacity need that you have by 2030. Just when I'm thinking about where -- I think you have some of the RFP results still outstanding, but they feel like they might be a little stale now at this point. And I know you're ongoing -- you have discussions ongoing. But do you think it's likely that you can get material capacity out of the prior RFPs? Or do we have to run new RFPs to really make up most of that capacity deficit? And then just like how long does that take to run a new RFP? Like what's the timing around announcements there? R. Trauschke: Yes. So great question. And so the answer to your first question, yes, we do believe we have some capacity opportunities in the current RFP. And yes, we will file a new RFP to kind of meet this need. And this -- that 800 megawatts you referenced there, that largely depends on the ramp rate of "this customer X" that we disclosed in the IRP. And so that's kind of a give or take number 2 in terms of how quickly or how slowly, you get to that number in 2030. But nevertheless, I think it's an answer of yes to both those questions. Yes, we're going to get some out of that last RFP. And yes, we're going to file a new RFP. And I would expect that the second RFP to move along at a quicker pace. We've kind of got it nailed down now, and I think everybody understands the rules. Stephen D’Ambrisi: Okay. That makes a lot of sense to me. And then just on the -- you covered the sales growth well. I kind of figured that it was timing. But just like -- just looking at where you're at year-to-date, I think sales growth is 6.5% year-to-date and you're still guiding to 7.5%. So I mean that implies a significant acceleration right into the fourth quarter. And then just, I guess, how does that set us up for sales growth into 2026, right? Because effectively, you're delaying customer. So all things equal, it should drive higher sales growth year-over-year into the back -- into next year? Charles Walworth: Yes, Steve, I think your points are right. I mean we've seen this chunky growth before and how that can impact any particular quarter on an outsized manner. And obviously, you can kind of do your own math as to how that plays in the future years. But again, we'll be prepared to thoroughly discuss that with you at the next call. Stephen D’Ambrisi: Okay. That's all I had. I hope you guys get a kick out of that. I'm glad that it's going to be kept forever on the Internet. So love that... Operator: [Operator Instructions] Our next question comes from Chris Hark with Mizuho. Chris Hark: I just had a question regarding the dividend growth rate. Should we be expecting that to be in line with the EPS CAGR? Charles Walworth: Yes, Chris. So we've been very intentional about the dividend growth rate really in relation to the opportunity set that we've had for investments. So the past several years, we have kind of bifurcated the rates of those 2 with the dividend growing a little lower, and we're basically targeting growing into a 65% to 70% payout ratio. And so we're well on our way to getting to that target. And once we get to that target, we'll kind of reassess where we are versus, again, the opportunities that we have out there and make that capital allocation decision at that time. Chris Hark: Okay. Awesome. And then next question I had was really just around the cadence of rate filings. So if you push that back to second half of '26, should we be expecting that kind of similar time of year for the next 2 years through the 2-year period off the forecast period? Charles Walworth: Yes. I guess I would say that really nothing has changed. Our philosophy maintains to be the same as it was. But clearly, this was part of the give and take of the negotiations for settlement agreement. So yes, we -- if approved, we would shift that forward per the terms of the settlement agreement. But I think going forward from that, we would still be operating under the same philosophy that we have been. Operator: Our next question comes from Aditya Gandhi with Wolfe Research. Aditya Gandhi: Can You hear me? Just maybe starting with the CapEx increase to your plan, the $250 million. Chuck, you've been clear that any capital increases will have an equity component to it and recognize that you'll sort of communicate your financing plans with the Q4 update. But are you willing to share sort of a rough rule of thumb for this $250 million? Should we assume it's 50-50, lesser than that? Just any color there? Charles Walworth: Yes. Aditya, I think the plan remains the same. We thought it was only right to go ahead and roll this project in now since it's signed up. But with the -- really the biggest of the increase still pending out there, we're going to hold and get approval on that, and then we'll give you that clarity that we've been describing all along. Aditya Gandhi: Got it. And then maybe just one on the data center front. Sean, you mentioned in your prepared remarks that you sort of hope to share updates soon or sort of in the coming quarters. Can you maybe give us more color on sort of what stage of discussions you're in? Is it reasonable to say that the discussions are at advanced stages now? And then can you just remind us how any potential announcement you make on the data center front would interplay with a special contract or data center tariff filing at the commission? And then how you sort of serve the capacity needs associated with any potential data center customer? R. Trauschke: Yes. There's a lot in there. I think it's fair to characterize that we are in very serious negotiations. And I think my prepared remarks were optimistic that we would be in a position to announce something soon. In terms of the filing, yes, there would be some sort of announcement, and we would certainly follow that up with some sort of filing with the commission for approval of all that. So I think that's normal and customary. In terms of your question about the capacity, how we'll fill that need. In our last IRP, we did provision for that and been thinking about that. Again, a lot of that goes back to kind of how the counterparty contemplates a ramp rate and what they're thinking in terms of that, in terms of meeting that capacity obligation, but I feel confident we're going to be able to meet that. Operator: [Operator Instructions] Our next question comes from Nicholas Campanella with Barclays. Nicholas Campanella: I just have one question. If you roll in the pre-approval generation and data center and the possible data center deal, how would that really increase your long-term EPS CAGR? Or are you just more confident in the 5% to 7% range? Charles Walworth: Yes, I think all along, we've been looking at our 5% to 7% is in solid shape regardless of this deal or any other deal. And our philosophy really is that we take a good look at where we are every year before we put guidance out. And kind of like this year, we might choose to alter the trend line from the previous year, so to speak, and address it in that manner. So I think that's really more indicative of the philosophy that we have and the way that we've treated it in the past. So hopefully, that gives you a little color as to how we're thinking about it. Operator: And I'm not showing any further questions at this time. I'd like to turn the call back over to Sean for any further remarks. R. Trauschke: Okay. Thank you, Kevin. Well, thank you all for joining us today. I hope everyone has a great day and look forward to seeing everyone soon. Jason Bailey: Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect and have a wonderful day.
Operator: Thank you for standing by. Welcome to Flex's Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I'll now turn the call over to Ms. Michelle Simmons. You may begin. Michelle Simmons: Thank you, Kevin. Good morning, and thank you for joining us today for Flex's Second Quarter Fiscal 2026 Earnings Conference Call. With me today is our Chief Executive Officer, Revathi Advaithi; and Chief Financial Officer, Kevin Krumm. We'll give brief remarks followed by Q&A. Slides for today's call as well as a copy of the earnings press release are available on the Investor Relations section at flex.com. This call is being recorded and will be available for replay on our corporate website. Today's call contains forward-looking statements, which are based on our current expectations and assumptions. These statements involve risks and uncertainties that could cause actual results to differ materially. For a full discussion of these risks and uncertainties, please see the cautionary statements in our presentation, press release or in the Risk Factors section of our most recent filings with the SEC. Note, this information is subject to change, and we undertake no obligation to update these forward-looking statements. Please note, all growth metrics will be on a year-over-year basis unless stated otherwise. Additionally, all results will be on a non-GAAP basis, unless we specifically state it's a GAAP result. The full non-GAAP to GAAP reconciliations can be found in the appendix slides of today's presentation as well as in the summary financials posted on the Investor Relations website. Now I'd like to turn the call over to our CEO. Revathi? Revathi Advaithi: Thanks, Michelle. Good morning, and thank you for joining us today. Before we get into the results, I want to start by thanking our Flex team around the world for their disciplined execution and commitment to delivering for our customers. In particular, I want to acknowledge our colleagues in Ukraine. As we shared in August, our Mukachevo facility was damaged during a missile strike. But thanks to our emergency protocols, all team members were safely evacuated. Their strength and resilience in the face of unthinkable circumstances reflect the best of our team in Ukraine and our company as a whole. We remain committed to our colleagues in Ukraine as we focus on rebuilding our operations. Starting on Slide 4. We had an exceptional quarter, delivering great results on all metrics. Revenue came in at $6.8 billion, growing 4% over last year. Operating margin was an impressive 6%, the fourth quarter in a row that we remained at or above this level, and we delivered adjusted EPS of $0.79, up 23% over last year, another record for Flex. This performance reflects the strength of our model, anchored in disciplined execution and a continued shift towards higher-value technology-driven businesses. Now turning to Slide 5. Our data center business continues to deliver outstanding results across both cloud and power. With proprietary products, deep systems expertise and global manufacturing scale, we provide fully integrated power and IT solutions that help hyperscale colocation and silicon customers deploy faster, operate more efficiently while strengthening our margin profile. We remain bullish in our outlook and continue to expect our data center revenue to grow at least 35% this year. Sustaining this level of growth at our scale validates the value we are delivering to the world's leading technology companies and the strength of our execution in a dynamic market. We are outperforming industry growth rates and continuing to strategically shift our portfolio towards higher-margin critical technology-driven businesses, shaping today's market evolution. As we all know, AI is driving one of the largest infrastructure build-outs in modern history, and Flex is at the forefront of this transformation. We are partnering directly with the world's leading technology companies to design, build and deliver the power, cooling and systems infrastructure that enables faster, more reliable data center deployments at scale. Our data center offerings span from the grid to chip, combining our product portfolio with advanced manufacturing capabilities and global scale to meet unprecedented demand for performance and efficiency. Some of this activity is already reflected in our current results, while other programs will ramp over the coming quarters and years. The broader trend is clear. AI is shaping industries for the long term, and Flex is positioned to be a driving force in its continuing infrastructure build-out. A couple of weeks ago at the OCP Global Summit, we unveiled Flex's new AI infrastructure platform, a unified approach that brings together power, cooling and compute in pre-engineered scalable designs. The platform helps data center operators deploy up to 30% faster, reduce execution risk and scale reliably to meet the pace of AI demand. We partnered with NVIDIA as part of their ecosystem on next-gen 800-volt DC AI factories. These systems improve energy efficiency, lower cooling costs and eliminate points of failure as data centers grow in size and complexity. Looking ahead, I could not be more excited. The data center opportunity continues to expand, and we are executing remarkably well as we support our customers through this next wave of growth. Beyond our strength in cloud and power, the rest of our diversified portfolio is performing well. In Health Solutions, we see steady medical device demand and anticipate improvement in medical equipment later this year. In communications and enterprise, we see strength in optical switches and SATCOM devices supporting next-generation connectivity requirements. And in automotive, we see the market stabilizing compared to prior quarters. In the first half of FY '26, we added compute deals with new logos, validating our continued investment and focus on software-defined vehicles. As we look back over the first half, we are proud of our teams for their execution and persistence. We started the year with volatility from tariffs and the uncertainty that continues to this day. Despite this backdrop, we've been able to exceed our expectations and raise our guidance. Our customers depend on us for our scale, our technical depth and our global footprint. That foundation positions us to keep delivering for our customers in any market environment. Now I'll turn the call over to Kevin to walk through the details of our financials. Kevin? Kevin Krumm: Thank you, Revathi, and good morning, everyone. I'll start with our key financials on Slide 8. Second quarter revenue came in at $6.8 billion, up 4%, driven by strong data center growth across both Power and cloud. Gross profit totaled $632 million and gross margin improved to 9.3%, up 80 basis points. Operating profit was $409 million, with operating margins at 6%, up 55 basis points. Finally, earnings per share for the quarter increased 23% to $0.79 per share. Turning to our quarterly segment results on the next slide. In Reliability, revenue was $3 billion, up 3% year-over-year as strong growth in Power and moderate growth in Health Solutions and Core Industrial was slightly offset by continued pressure in auto. Operating income improved to $197 million and segment margin expanded by 105 basis points to 6.5%, driven by favorable mix impacts from Power and strong execution and cost management across the entire segment. Agility revenue totaled $3.8 billion, an increase of 4% year-over-year, driven by robust cloud demand that more than offset softness in communications and consumer end markets. Operating income was $227 million, with operating margin down 5 basis points to 6%. This is comparing against a very strong quarter last year. Moving to cash flow on Slide 10. Free cash flow in the quarter increased to $305 million despite sequential investments in CapEx to support organic growth. Net inventory was up 1% sequentially and down 4% year-over-year. Inventory, net of working capital advances was 55 days, a reduction of 3 days versus the prior year. Net CapEx totaled $148 million or approximately 2% of revenue, and we repurchased $297 million of stock, which was approximately 5.6 million shares. Our capital allocation priorities remain unchanged. We're committed to maintaining our investment-grade balance sheet, funding strategic investments to support organic growth and pursuing accretive M&A opportunities while returning capital to shareholders through opportunistic share repurchases. Looking at full year guidance on Slide 11. As our customers navigate a dynamic tariff landscape, our teams are partnering closely with them to deliver resilient forward-looking solutions. Our global scale and capacity enables their regionalization strategies, bringing manufacturing closer to end markets to improve agility, reduce risk and meet the evolving trade requirements. As of last quarter, we incorporated the direct impact of tariffs into our revenue guidance and are doing the same this quarter. The situation remains fluid, but as a reminder, tariffs are largely a pass-through for us. We will continue to monitor and adjust as needed. As we conclude our first half of the year with 4% revenue growth, we are confident in our ability to continue our strong top line momentum in the second half of FY '26 with an acceleration in Q4 driven by demand in Power and cloud. This confidence in revenue, coupled with our favorable mix and disciplined cost execution, has allowed us to improve our full year expectations across all key metrics while overcoming headwinds in Lifestyle due to our facility shutdown in Ukraine and unfavorable FX impacts across the business versus our Q1 guide. Despite these challenges, we are raising our FY '26 expectations to the following: revenue between $26.7 billion and $27.3 billion, a $500 million improvement from the midpoint of our prior guide. Adjusted operating margin between 6.2% and 6.3%, demonstrating consistency above 6%; adjusted EPS between $3.09 and $3.17 per share, increasing our midpoint by $0.17 per share, and we continue to expect strong cash generation and maintain our 80% plus free cash flow conversion target for FY '26. Moving on to our segment outlook for the year. For Reliability Solutions, we expect revenue to be up low to mid-single digits, driven by strong demand in data center power and medical devices, offset by a soft but stabilizing environment in renewables and auto. For Agility Solutions, we expect revenue to be up mid- to high single digits, driven by continued strength in cloud, offset by a weakening trend in consumer devices and lifestyle and a temporary loss of operations at our Mukachevo facility in Ukraine. Finishing off with our guidance for the third quarter. We expect Reliability Solutions revenue to be up mid- to high single digits, driven by continued robust power demand and increased growth in Medical Devices. We expect Agility Solutions revenue to be down to up low single digits as cloud growth is offset by weakening trends in consumer devices and reduced expectations in Lifestyle for the reasons previously mentioned. For Total Flex, we expect revenue in the range of $6.65 billion to $6.95 billion, with adjusted operating income between $405 million and $435 million. We expect an adjusted tax rate of $0.21 or 21%. And lastly, we anticipate adjusted EPS to be between $0.74 and $0.80 per share based on approximately 377 million weighted average shares outstanding. As Revathi mentioned, we remain a partner of choice for our customers as they navigate a rapidly evolving business environment shaped by AI acceleration and dynamic supply chains. We're constantly exploring new ways to collaborate with our partners to meet their evolving needs and see strong opportunities to support their growth as we exit FY '26 and move towards FY 2027. With that, I'll now turn the call back over to the operator to begin Q&A. Operator: [Operator Instructions] Our first question today is coming from Ruplu Bhattacharya from Bank of America. Ruplu Bhattacharya: Revathi, you took up revenues for the full year by $500 million at the midpoint. You beat 2Q by $150 million. So there is about $350 million upside in the second half. But interestingly, you didn't raise the guide for data center revenues, although the commentary seemed like there's still a lot of strength in cloud and power. So just curious why there was no upside to that part of the business? And I have a follow-up. Revathi Advaithi: Yes, Ruplu, I'll start by saying that we said that we are going to do our -- give a full year guide for data centers. We said that at the beginning of the year and not update that through the quarter. I'll just remind you, data center is not a reporting segment for us. We've given you extra information at the beginning of the year, considering that it's meaningful growth for us. And so we're just not updating the quarterly guidance, but it is obvious that it's at least 35%. I will remind you that 35% is a very strong number compared to the industry and the end market itself. So we feel very good about that. So your math is directionally correct. So there's at least 35%. Obviously, we'll be better than that, and we'll update that in our full year guide when we do it at the end of the year. Kevin, anything to add? Kevin Krumm: No, nothing to add on that. Revathi Advaithi: Okay. Ruplu Bhattacharya: Okay. That makes sense. Revathi, can I also ask you for the cloud business. Can you comment on the mix as it relates to custom silicon versus merchant silicon? I'm curious because AMD is going to launch a whole set of new GPUs, GPU racks next year, would that be a business that Flex would bid for? And how do you see this mix of custom versus merchant silicon evolving as things like OpenAI Broadcom, OpenAI AMD, OpenAI NVIDIA, all of these big projects are coming up. So how do you see your data center business benefiting from these large projects? Revathi Advaithi: Yes. So Ruplu, I'll start by saying you, obviously, considering the fact that we're growing at least 35% year-over-year, we are benefiting pretty significantly from not only hyperscale growth, but from kind of the new cloud players, as you have talked about, that is adding to our overall growth rate. I would say that as we update our forward-looking guidance for cloud that we will do in May during our Investor Day, that should reflect all these new projects that are getting announced that will be built out over the next kind of 2, 3, 5 years. So you should wait for our updated guide. In terms of custom versus merchant silicon, I would say that anywhere there is -- in custom silicon where there is more specialization involved, typically, Flex tends to do really, really well because it requires customization for the requested hyperscaler we're working with and drives more complex products, and we tend to do really better in that in general. But in terms of custom versus merchant, we obviously participate in both. And I would say that we lean one way more than the other, but we are prevalent in the market in both the spaces. I think the real benefit at the end of the day is if you look at all the announcements that are coming in, if you look at our forward-looking pipeline for cloud, we feel very strongly and very good about kind of participation in this space at the growth rates we're delivering this year, and we're really looking forward to give you guys updated guidance in May that we will see you, and we feel like you'll see very strong growth rate -- continue to see very strong growth rate in our cloud business, driven by all the investments you're hearing from. Operator: Next question today is coming from Tim Long from Barclays. Timothy Long: Appreciate the questions here. Two for me as well. First one, maybe on the op margin front. It looks like some good increases coming in the second half. Maybe if you could just talk at a high level at what's driving some of the second half over first half op margin improvements? And then second, back to the cloud data center piece. If you could -- understanding the 35% number, just curious if you can talk a little bit about kind of how you see the economics of that business evolving for you? Are you seeing opportunities, as you mentioned, some more specialization? Are you seeing that business evolve to where it could be newer programs with -- that are a little bit more margin accretive. So anything on kind of how you view that -- your play in that ecosystem changing from a value standpoint? Kevin Krumm: Tim, this is Kevin. I'll take the first question on margins in the back half of the year. As we said, Q2 was another quarter at or above 6%. So 4 quarters there at or above 6%. We feel good about that. As we move from Q2 to Q3 and Q4 in the back half of the year, we do expect continued margin improvement. And you see that when you look at the midpoint of our guide for Q3 and obviously, sort of do your own math to get to where we think Q4 is going to be to get to our full year guide. The primary drivers there are going to be mix. We have 2 businesses that continue to grow and grow well as we move through the year, and that's our products and services business. We're expecting both those businesses to perform well from a top line standpoint. And we've talked in the past about the margin performance of those businesses, both those businesses perform above the Flex average. So really, it's just the continued growth in those businesses, Q2 to Q3, Q4 becoming a bigger piece of revenue and pulling margins up with them as we move forward here. Revathi Advaithi: Yes. I'll say, Tim, on the second part of your question on the economics of the cloud and Power business for us, as you can see from the second half guide on margins, and generally, it's a very accretive business to us. How I see the economics evolve is super positive for us, and that's based on a couple of things. Just a quick reminder, we're one of the few players who actually integrate compute, power and cooling in this space. And our compute business, which not only does contract manufacturing and assembling of compute products, also does vertical integration in terms of manufacturing racks and all the metal enclosures that goes in terms of compute products. So very positive in terms of margins for us. In the cooling and in the power play, we have our own products. So we have our own IP and design. And obviously, those are also margin positive for us because it runs more like an OEM play overall. So I see in terms of evolving as you see the mix shift for us between -- in the cloud power -- in the cloud and data center space between compute and power and power continues to grow, I see that the margin progression for that business being fairly significant. And we expect that to work and behave like a products business overall, the whole space. So I'll step back and say, feel very good about kind of the 35% growth rate we have talked about, which we said is at least that much for the year. But I feel even strongly about the updated forward-looking guide, we'll come back and give you in May in terms of growth rate of that business and then the margin improvement of that business driven by the mix of compute and power and cooling within that space. So feel really good about the economics of the business and how it's evolving. Operator: Next question is coming from Samik Chatterjee from JPMorgan. Samik Chatterjee: Maybe for the first one, if I can sort of go back to the question on guidance and just tackle it more on the end market front. You're raising your guidance for the full year by about $500 million or so. I mean, it seems like from an end market perspective, data center is doing better, but also maybe medical is a bit better. Can you just parse out if most of the increase in the guide is because of the data center market? Or are there other end markets that are tracking better than you expected at this time? And how much of a headwind is the Ukraine facility shutdown to the sort of raise in the guide that you're issuing today? And I have a follow-up. Revathi Advaithi: Yes. I would say, Samik, is that, obviously, you guys have done the math. You can tell, right? Full year, we have raised the guide by $500 million. We've beat 2Q. And so you can see that second half is going to be strong the way we have raised our guide. It will come from the spaces you have talked about, which is data center and health solutions. And we have been very clear about both of those spaces being directionally good for us. We also have said that there is stabilizing trends in areas like automotive, which also is a good thing for us. So if you look at the forward-looking guide, while we're not updating our data center growth rates, it's obvious that it's going to be better in the second half, and you will see that reflected in our full year number. Kevin Krumm: Yes. Samik, I'll just add on your question on the Ukraine. When we had the issue in August, we issued a release that identified the business being approximately 1% of Flex revenue. And I think that's how you should think about the impact of that in the back half of the year. So going from basically where it was to 0%. You can -- it's slightly north of $100 million impact to us from a revenue headwind standpoint in the back half of the year. Revathi Advaithi: Yes. So overall, raising our guide with the impact of that, I think we think is very strong results. Samik Chatterjee: And for my follow-up, I wanted to see if you can give us some sense of what to expect from the Amazon partnership that you have now to the extent that you can talk about and you're sort of sounding positive about what you will announce in terms of the cloud data center business. But is that -- is the Amazon partnership part of that optimism that you have as you think about what you would sort of talk about in the May Investor Day as well? Revathi Advaithi: Yes. Samik, I will just step back and say that I feel very bullish about kind of where things are in the data center cloud space for us. Combination of the partnership that we announced with Amazon, but continued growth in other hyperscalers and colo businesses and Neo clouds that we mentioned earlier in the call. So I think it's important to reflect on the fact that a lot of these announcements and CapEx announcements that you're seeing from our customers are all going to play out in the next 1, 2, 3, 5-year cycle. So I think that's really important to reflect on that, that these are all kind of long-term plays, whether it's our partnership with Amazon or the growth rate that we're seeing with all our other customers. You'll see that reflected as we move forward in our CapEx numbers and the investments we continue to make in this space. So as you wait for our updated guide coming out in May and you see our long-term growth rates, you would see the bullishness reflected in that coming from the growth rate in this space. So I view this as a long-term play, feel very good about kind of what we're delivering this year and the investments we are making for forward-looking growth, and we'll give you an updated kind of long-term guide when we see you in May, and that will reflect these partnerships and other investments we are making. Operator: [Operator Instructions] Our next question is coming from Steven Fox with Fox Advisors. Steven Fox: I had a couple of questions as well. First off, looking at the guidance, it's like some people have mentioned, it seems to imply some accelerating growth into the fourth quarter of the fiscal year. Is that something -- without getting into numbers for next year, is that something that we can think about sort of continuing and use that as a base for some new and different growth for the next fiscal year? And if so, what would you sort of say is driving it? And then I had a follow-up. Kevin Krumm: Thanks, Steven, this is Kevin. I'll take the first part of the question. So you are right. As you look at our guide for the full year, we gave you Q3, you can start to back into an accelerating Q4 or Q3 to Q4 environment and expectation from us. The drivers of that are going to be some of the things we've talked about already on the call. Obviously, data center underlying, we've talked about our power business this year with data center being made up of cloud and power. Our power business, especially in the back half of the year, we expect that to grow above the data center average. So that's driving some of the margin performance we talked about, but also our overall top line expectations. Also seeing good growth in the back half of the year as we exit the year in medical device and some other areas like capital equipment. So yes, that growth rate in the back half of the year that we're exiting with, we feel good about it, and we expect that momentum to continue into the first half of FY 2027. Steven Fox: Great. That's super helpful. And then Revathi, it wasn't that long ago where the auto markets were a pretty attractive growth market for you guys. You mentioned some new compute wins and the business and, I guess, production kind of stabilizing. So do you see a path now for like that segment returning to growth? And if there's any color you can provide on the new compute wins, that would be helpful, too. Revathi Advaithi: Yes. I would say, Steve, is that we're being very thoughtful in terms of giving the right projections for our automotive business. We feel good about kind of stabilizing what we're hearing from our customers on which platforms they're going to grow with. I have mentioned this before that we're being platform agnostic is helpful for us because even as you shift powertrains within automotive and there's a shift from EV to ICE vehicles, it still helps us because even in ICE vehicles, we are seeing continued investment in terms of power electronics. So being agnostic to the platform is really important to us. So as I look moving forward, compute wins happen in ICE, hybrid and EV in all platforms. So that is the good part about it is that we continue to win agnostic to the platform, and that is helpful in terms of how we think about growth rates. All that being said, I would say is that our view on kind of continuing to grow in the automotive space is that it has to show the returns that we expect. And if it shows the returns we expect, then we will continue to invest and grow in that business. As you can tell, we have enough growth coming from other vectors, and it's a balance in terms of the decision we make. So we look for good growth, healthy growth, long-term commitments. And if that works for us, we'll take that business and grow with it. Operator: Next question is coming from Steve Barger from KeyBanc Capital Markets. Jacob Moore: This is Jacob Moore on for Steve Barger. First, I just wanted to ask about the value add from engineering and services in terms of penetration and margin impact. I think you've emphasized those as margin levers outside of data center and power. Could you share the revenue size of those programs? And what do you see the broader opportunity size to be? And then maybe could you frame up the margin they contribute compared to the overall portfolio and if there are any barriers to further penetration? Revathi Advaithi: Yes. I'll say, Jacob, is that in the past, we have kind of shared a number that's in the range of kind of $1 billion for this space. We haven't updated that in a while. So my overall take will be that value-added services, which includes kind of vertical integration and all the end markets we play in, is important to us because that does drive margin improvement for us overall. So it is a very important focus for us and our teams across the businesses. It's even more important in the data center space because we do have products we deploy. And so that is really important. So because you have to be able to service those products. I would say, overall, we are happy with the growth rates, but I don't have specifics I can give you, Jacob, because those are not numbers that we give out. So -- but we like what we do in value-added services, super important to us, both in data center and outside of data centers, and we feel good about kind of how it's growing and the margin it's providing. Jacob Moore: Understood. That's helpful. And then second one for me is on op margin, but maybe a little more specifically on the fiscal fourth quarter. The math suggested a pretty decent sized step-up from Q3 to Q4. Could you just walk us through the puts and takes assumed in that sequential step-up? And then similar to the question on the growth acceleration in the back half, is the sort of mid- to high 6% margin level sustainable moving forward from 4Q? Kevin Krumm: Jacob, this is Kevin. I'll take that question. So first, we talked about the growth rate in 4Q and our expectation there and what was driving it. And in that, we talked about our products business and our services businesses growing in the back half and accelerating into Q4. That acceleration of those businesses and as we've talked about, they're higher-margin businesses for us, both accrue to the P&L at margins north of the Flex average are what's driving our expectation for margins. It sounds like your math is directionally correct there. And so as we move into next year, as we said, we expect that growth momentum in those businesses to carry forward into early FY '27 and our margin expectation would be similar. Revathi Advaithi: And then I'd say that I think that it was only a year ago where you guys were pressing me on a 6% sustainable. And when are you going to update that guide because we're a year ahead of the long-term guide we gave you. So I can see you're already taking it north of that, Jacob. And as long as we continue to change our mix, which we're doing and continuing to have growth rates in the right end markets where we have products and services and margin-accretive business, we feel good about continued growth rates and margin performance of what you'll see moving forward. Operator: Our final question today is coming from Mark Delaney from Goldman Sachs. Mark Delaney: I was hoping to better understand where Flex stands with its capacity and ability to support the data center opportunity and if there are any supply constraints that you're starting to encounter in that business given the growth you're seeing? And as you think about that business over the longer term, do you envision needing to make meaningful increases in your CapEx levels in order to support the growth? Revathi Advaithi: Yes. I would say, Mark, first is I'll parse this out by region, right? I feel very good about our capacity and capability in the EMEA region. We announced a new asset acquisition in Poland, and we feel really strongly about kind of overall capability on compute power and cooling in EMEA. In North America, which is where you're seeing the largest amount of growth being deployed and CapEx being deployed by our customers, we have incrementally invested pretty significantly in our compute operations in Guadalajara and in U.S. We have continued to invest pretty significantly in cooling and ramping up that manufacturing capability as we got through the acquisition of JetCool. And then we announced new facilities in Dallas, and we continue to expand our facilities in Fontana, in Colombia in those regions to add to kind of power capability in the U.S. All that being said, I would say that we have a lot more investment to do because you are seeing those big announcements coming from our customers, and you see a meaningful shift within Flex in terms of how we're deploying our CapEx towards those end markets. So as I look towards the next kind of cycle, 2, 3, 5 years, I would say, yes, you will see meaningful deployment in terms of CapEx and growth and investments required and OpEx, both R&D and support required for those businesses that will shift towards those businesses. I think what's important is that despite all those moves we're making, you're seeing kind of overall cash flow improving and you're seeing our overall operating margin improving. So obviously, we're making the right choices as we deploy this, Mark. Mark Delaney: Very helpful context. My other question was around Flex's own operations. You've spoken in the past about utilizing AI and automation to be efficient. Yesterday, you had some news around a pilot with NVIDIA to maybe even try and get better there. And of course, there's a lot of innovation happening with AI and robotics. So as you think about some of the things you're working on to tie to those areas, including with what you announced yesterday, anything meaningful you could point to and what we could expect for where Flex may take its own operating and logistics in the future? Revathi Advaithi: Yes. Mark, I'll step back and say that the announcement we had with NVIDIA yesterday is a really exciting announcement. It is more around deploying ready-to-use modular infrastructure for data centers, which is inclusive of compute power and cooling like we showed in the OCP. So if you're ramping up a data center and you need a modular, scalable architecture and solution, then that's the partnership that we showed with NVIDIA yesterday, and we showed in OCP that we'd be deploying in large scale as you see these data center investments come out. So that is more around data center infrastructure investment from our customers. So super exciting, right? So if you want to take out -- if you want to reduce lead time to deploy these infrastructure, you'll be able to do that with this partnership we've announced. So that's one thing. I'd say the second internally to our own factories, I'd say there's a significant amount of work to be done within our own factories in terms of deploying AI and robotics. You have seen that in the past, we have really delivered a lot of productivity within our factories. That being said, I'm super excited about kind of what the future holds because obviously, there's a lot to be done, not just in terms of hardware robotics, but in terms of software capabilities using AI that will really drive productivities in our factory and drive efficiency in everything from our back office to how we operate. So whether it's projects that are in processes and functions or whether it's projects that is how we do planning or scheduling or any part of that in our factories, AI is going to really accelerate kind of the productivity we deploy and the efficiency we deploy in how we work with our customers. So a lot to do there, Mark, but really exciting times, I would say, for the manufacturing space and how we use these tools and capabilities. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over to our CEO for the closing remarks. Revathi Advaithi: Thank you. So we look forward to speaking to you again next quarter. On behalf of the entire leadership team, I want to sincerely thank our customers for their trust, our shareholders for your continued support and the Flex team around the world for your dedication and your contributions. Thank you, everyone. Operator: Thank you. This now concludes today's conference call. Thank you for joining. You may now disconnect.
Mar Martinez: Hello. Good morning to all the people connected. Welcome to the 9 months 2025 results presentation, which will be hosted by Endesa's CEO, Jose Bogas; and the CFO, Marco Palermo. Before we start, let me remind you that after the presentation, we will have the usual Q&A session. Thank you. And now let me hand over to our CEO, Jose Bogas. José Gálvez: Okay. Thank you, Mar, and welcome to everybody. Let me open this presentation by highlighting the strong economic and financial performance of the period, which, as we will see, hopefully, resulted in a remarkable cash generation. This clearly proves the resilience of our business model, which enable us to meet our commitments, maintaining predictable results and consistently creating value despite a complex and uncertain market context. Regarding shareholder remuneration policies, we are making a steady progress in the implementation of our share buyback program, as we will detail later on. And finally, when it comes to the distribution remuneration framework, the current proposal clearly does not provide adequate support and incentives for the investment effort required by the National Energy Plan. Let's now have a look at the key financial and operational highlights of the period. On Slide #4, we can see the solid financial results achieved in this 9 months of 2025. EBITDA reached EUR 4.2 billion, marking a 9% increase year-on-year, while net income came in at EUR 1.7 billion, up by a sound 22% versus last year. Cash generation remains strong with an FFO rising to EUR 3.4 billion, a 29% increase year-on-year. These results allow us to confirm that we are well on track to reach the upper range of our forecast, both in terms of EBITDA and net income. We continue to progress on our capital allocation strategy, as you can see on Slide #5. We acquired the remaining 62.5% stake in Cetasa, enabling full consolidation of this wind asset portfolio. In September, we entered into a strategic agreement with MasOrange to provide combined energy and telecom offers. As part of the deal, which will be completed in the coming months, we will acquire Energía Colectiva, bringing over 350,000 energy customers to our portfolio and gaining access to more than 1 million potential clients. This will reinforce our commercial strategy and opens new opportunities to foster customer loyalty through an integrated service offering. Furthermore, the strategic partnership with Masdar, which we announced last March was successfully concluded in early October. And lastly, as already commented on, we are progressing on the implementation of our share buyback program. After completing the second tranche, we launched a third one with a target of up to EUR 500 million to be executed no later than February 28th next year. Slide #6 provides a brief overview of the progress achieved on the capital allocation strategy and the execution of main industrial KPIs. We invested around EUR 1.4 billion during the period with nearly half allocated to networks. As shown in the slide, industrial KPIs confirm our progress starting with grid, our efforts are reflected in the improvement of the interruption time index, while total losses remained stable at around 10%, still significantly impacted by nonmanageable losses due to localized fraud. In renewables, the consolidation of new renewable capacity allowed us to achieve a 79% emission-free output. And lastly, in the customer segment, it is important to keep in mind that we are pursuing a strategy focused on higher-value customer, reshaping our customer mix profile with a focus on long-term loyalty. From a market perspective, on Slide #7, commodity prices shown signs of normalization throughout the period, gradually stabilizing after the volatility seen in the early 2025. In the Spanish electricity market, final prices were mostly affected by the post-blackout measures to prevent future incident and the resulting notable rise in ancillary services costs, while daily electricity price averaged EUR 63 per megawatt hour, that is a 21% increase year-on-year. It remains unclear how long the system operator will maintain its special anti-blackout measures, which poses a significant cost to the system. Besides, we must consider the lesson learned from the incident. Our electrical system is secure, but we must update the system operation that has undergone structural changes now dominated by renewable technologies. In this scenario, we believe it is critical to reconsider the nuclear phaseout schedule, starting with Almaraz. This facility has become key, as its location helps to strengthen the grid security in an area with vast renewable generation. In addition to rolling out all the measures to boost electrification, there are other steps we must take to ensure system security of supply such as implementation -- implementing a flexible control model. Slide #8. shows how Mainland demand continues to consolidate sustained growth, recording a 2.4% year-on-year increase that is 1.8% adjusted. When it comes to Endesa's area, demand rose by 4.2% and 2.5%, respectively. Deep diving into the analysis by segment, residential consumption expanded significantly, largely influenced by the rise in temperatures. The rebound of industrial and services demand is part of a broader sector-wide increase in energy usage. This clearly aligns with the market rise in connection requests seen in recent years, which are now starting to materialize into actual consumptions. In this regard, it is worth highlighting the growth of the service sector demand, particularly in the Aragon area, which has seen a 9% year-on-year demand increase, mainly associated with the incorporation of data center activity. The strong performance achieved since last year is a clear sign of turning point of trend, not only in terms of the consolidation of the recovery in demand, but more importantly, in the materialization of a new industrial demand. On the next slide, we review -- that is Slide #9, we review the more significant highlight of the distribution regulatory framework. Although the new remuneration proposal introduced certain improvement, it still falls significantly short on meeting the ambitious and urgent require to achieve Spanish decarbonization and electrification goals. In subcontract, the contact evolves in a different direction and reflects very different dynamic and challenges. Grid connection requests continue to steadily rise and some demand growth scenarios such as one of those considered in the 2025 to 2030 transmission network development proposal even exceeds 2030 PNIEC assumption. Grid availability was only 17% at the beginning of September, being virtually 0 in Endesa's area as of today. Due to this capacity constraints, we have been forced to reject most of the new demand connection requests for 2025. It is crystal clear that investment in distribution network must be accelerated to meet electrification goals. The ministry's proposal being a step forward in raising the strategic investment limit by 62% for the 2026 to 2030 period. However, a fair and forward-looking regulatory framework that incentivize investment is essential. Moreover, the pending rate of return update must urgently resolve asymmetric with other European countries as well as addressing inconsistences with other regulated sectors. In conclusion, we urge the CMC to recognize this reality and to respond accordingly by approving a remuneration framework that rises to the challenge. And let me now hand over to Marco for the financial results. Marco Palermo: Thank you, Pepe, and good morning, everybody. Let's start with the analysis of the financial results. I'm now on Slide 11. As we have just mentioned, EBITDA rose to around EUR 4.2 billion, up 9% from the previous year. This solid performance was driven by several key factors. First, the removal of the 1.2% extraordinary levy, which negatively impacted last year's results by around EUR 200 million. And second, the 8% increase in generation and supply EBITDA more than offsets the lower contribution from distribution affected by one-off capital gains that we booked in 2024. Moving to Slide 12 for a closer look at Generation and Supply segment. EBITDA expansion was primarily driven by the 8% gross margin increase, while fixed costs rose slightly impacted by negative one-offs in the O&M. The moving parts of the margin evolution were as follows: Conventional Generation delivered a 16% increase, driven by strong results in gas management, supported by positive prior hedging position, more than offsetting the lower results from short position management with less opportunities in the current price context and a nuclear margin decline, mainly explained by higher variable cost due to taxes, basically the full Enresa tax and the 7% tax on generation. Supply business also contributed positively, mostly due to stronger gas retail margin, while the power supply was stable year-on-year. Finally, the renewable business remained flat overall. Higher hydro volumes were offset by lower wind and solar output and lower capture price. Moving to Slide 13 now. The free power margin evolution reflects all these dynamics normalizing compared to the record high attained last year. The integrated unitary margin stood at EUR 53 megawatt hour with a power supply margin of EUR 18 megawatt hour. This supply margin remained nearly flat, underscoring the effectiveness of our strategy focused on customer value over volume and mostly offsetting the impact of rising ancillary services and peak costs. For the full year, we expect the integrated unitary margin to remain at the current level of around EUR 53 megawatt hour. On Slide 14 now, we analyze the gas business from an integrated perspective. The gas margin showed a strong improvement supported by favorable previous hedging positions and resilient pricing in the B2C segment. The unitary margin reached EUR 10 megawatt hour with expectation of ending the year at around EUR 9 megawatt hour. Moving now to Slide 15 in the below EBITDA. D&A slightly increased compared to the previous year, mainly due to higher amortization from investment in distribution and increased depreciation in renewables, which included the consolidation of the hydro asset incorporated since February. Financial results showed a notable improvement driven by a reduction in average gross debt and lower cost of debt. Finally, the effective tax rate stood at approximately 24.5%, no longer impacted by the nondeductibility of the 1.2% temporary levy that penalized last year's results. Net income rose by a solid 22% with net ordinary income to EBITDA conversion ratio reaching 41% in the period. Turning to the next slide, Page 16. Cash generation continued to be strong with an FFO standing at EUR 3.4 billion, improving on the previous year's levels, mainly due to the robust EBITDA growth and the positive working capital evolution versus previous year, which was impacted. You probably remember by the EUR 530 million Qatar arbitration payment. On the other hand, the higher corporate income tax payment made in this third quarter reflects the exceptional results achieved in 2024 compared to 2023. On Slide 17 now, net financial debt came in at around EUR 10 billion, with cash generated in the period more than covering the deployment of CapEx, including EUR 1 billion of inorganic CapEx. In addition, the change in net debt reflects dividend payments totaling EUR 1.5 billion and the completion of the second tranche of the share buyback program, which resulted in a cash outflow of approximately EUR 450 million. Gross financial debt remained unchanged with the average cost declining to 3.3%. And now I hand over to Pepe for the closing remarks. José Gálvez: Thank you, Marco. As we mentioned throughout the presentation, the solid delivery across all business areas reaffirm our confidence in achieving the top end of the full year guidance. This confirms the successful execution of our strategy and the resilience of our integrated business model. The soundness of our results is reflected in our commitment to shareholders with a solid dividend policy further supported by the share buyback program that will drive sound and long-term returns to our investors. Lastly, we firmly believe that capital allocation must rely on fair and forward-looking regulation, a stable regulatory framework that incentivize necessary investment is essential to unlock the full potential of our capacity to accelerate the energy transition. Thank you for your attention, and let's now move to the Q&A session. Operator: [Operator Instructions]. Mar Martinez: Okay. We start now with a round of different questions. And the first one comes from Peter Bisztyga from Bank of America. Peter Bisztyga: So 3, if I may. First one, just on numbers. Just looking at your strong 9-month performance, it looks like you need only EUR 300 million of net income to hit your full year guidance at the top end of the range. That would be down quite a lot versus the sort of EUR 600 million that you did in Q4 last year. So I was wondering if you could just explain what the year-on-year negative moving parts are going to be in the fourth quarter. Then next question is on ancillary services. I was just wondering what was the positive impact of higher ancillary services charges on your generation business in the 9 months? And despite your flat retail margin, do you think that you can pass on those higher ancillary services costs to your customers in 2026? So should we expect your supply margin to actually increase above 18% next year on that basis? And then finally, you lost another 130,000 regulated customers in Q3. I know you've said that you focus on high-value customers. But just wondering what proportion of your remaining 6.3 million liberalized customers you see as low value and are willing to lose? So at which point do you sort of have to start focusing on customer numbers rather than margins again? José Gálvez: Okay. Thank you, Peter. I will try just to give some color to the first question and the last one, and then Marco will add whatever. With regard to the guidance, well, as we have said, we can confirm that we expect to reach the top end of the Capital Market Day guidance for the full year 2025. That is clear, and we feel very, very, very comfortable. But we don't use to change our guidance, but believe us, we feel very, very comfortable. Regarding the customer that we have lost in the last quarter, how much customer we are thinking that could be in a vulnerable, let's say, that position. Well, it is clear for us that the competitiveness in the Spanish sector is a good thing, and it's improving the way in which we offer and supply services to our customers. But it is clear also that just because of the more than 25% churn rate that we have at the level of the system and also at the level of Endesa, there are many switchers that it's very difficult just to obtain any profitability from this. As you could see, we have reduced our customers and -- but our margins in supply even with the increase in the ancillary costs continue -- being the same at the last year, more or less. So that means that these customers that we have lost are not a value customers. So as we have said, we are trying to put first the value over the number of customers that we have. On the other hand, I would like just to add that this movement that we have done with MasOrange is trying just to really change a little bit our offer to our customer, trying to offer bundled services of telecoms and energy and given a better service just to increase the fidelity of this customer. So well, we will continue on that, and we will see if this strategy really reduced the losses and even more increase the customer in our customer base. And now Marco will add to whatever and talk about the ancillary services. Marco Palermo: Okay. Peter, thank you for your questions. Again, let me add something also on question number one. Yes, guys, I mean, it's like there is no secret here. It's EUR 0.3 billion as a net income for fourth quarter. Generally, the fourth quarter is a strong quarter. So I mean, that's why we are saying that we are very, very comfortably in the higher part of the range. Regarding question number 2, ancillary services. So there were 2 questions, I guess, there. But basically, first one, just to give you a few numbers, in order to have an idea on quarters for us, the penalization of the increase of ancillary services this year weighs approximately as a gross penalization, EUR 75 million per quarter, okay? So basically, 9 months is approximately EUR 200 million. On the other side, this is the gross penalization because you have some recovered this on the generation side. So around EUR 25 million per quarter. So if you sum up, it's like basically the impact -- the negative impact in 9 months should be approximately EUR 120 million, something like that. So that's why we say that we believe that for year-end, we will probably be around EUR 150 million net negative impact from ancillary services on our accounts. That, of course, if you see it, gross is a higher number. And in terms of supply margin, I mean, the supply margin stays where it stays because we have done -- we have managed our portfolio, but all those -- I would say that all those management was we were thinking to do that. So -- I mean, it's now what we have to do is working on absorbing somehow this higher cost on ancillaries. So that's why we have to continue to work this year, but also next year on recovering these costs. And on the loss of customers, I guess that the job that we're basically doing there, I would say, is almost done. And part of this is probably also related to the fact that on one side, we've been losing those clients that made no sense in terms of acquisition from the push channels. On the other side, I mean, we're -- somehow we decided just to go through with the acquisition of the clients our clients from MasOrange that somehow showed a different trend in terms of churn and so on that I guess is mostly related to the fact that they have a bundle -- they buy bundled products and probably in these offers, it's easier to see the value that you give to the customer. Thank you, Peter. Mar Martinez: Thank you, Peter. And now we have Alberto Gandolfi from Goldman Sachs. Alberto Gandolfi: Also 3 questions. I want to bypass a bit questions on regulation. I'm sure you get some more later. But can I ask you, if you were to receive a decent outcome, it's quite binary here, right? Either returns are good or they are just not quite good. So if you have a decent outcome, how much RAB growth do you think Endesa can deliver over the coming 5 years? The second question is, can you place a share buyback somewhere in your capital allocation priorities? Do you think this is going to be an ongoing -- not just a tool, but an ongoing feature, meaning like a base case until December '27? And could we see this continuing to '28? I'm thinking in case returns, for instance, are not particularly good in distribution. So should we look at your share buyback almost as a safety net -- as a silver lining here on capital allocation? Or is it more central? And the last question, you have been -- I think we need to give you credit. You've been the first company to talk about an inflection in power demand. You've been the first company to talk about particularly for Iberia, for Spain. Can I ask you -- it seems to me there's like 35 gigawatt of connection request to the grid when it comes to data centers in Spain. Obviously, we cannot imagine that 35 gigawatts will come online because it's the entire demand of Spain. But can I ask you 2 points on this 35 gigawatts. How much is from hyperscalers, therefore third-party data center specialized companies vis-a-vis entrepreneurs that are trying to make money out of this early-stage development? And secondly, how much of the 35 gigawatts do you think it's realistic to assume will become operational by 2030 or '35 in Spain? Is it 5%, 10%, 20%? Just trying to gauge here what we should expect for this very important driver. José Gálvez: Okay. Thank you, Alberto. Let me say you something in relation with the 2 first questions. Well, we are an under-leveraged company. That means that -- and we have strong potential just to invest or just to -- in general, just to give value to our shareholders. If we could give this value through investment in the system, we will do it. If we are not able yet because of the regulation or yes, because anything, we will look for ways just to return this value to our shareholders, as we have done with the share buyback that we have launched. So it is very clear for us that we want to give value to our shareholders. If it is possible just to do it through investment in the system, we will do it through the investment in the system. If not, we will do things like the shareholder buyback that we have done or similar thing. So that is clear, absolutely for us. With regard to the decent outcome in the distribution regulation, well, what I could tell you is that our last plan that is the plan from the year 2025 to the year '27, we invest around EUR 4 billion in gross investment in distribution. And we increased something around EUR 0.7 billion, EUR 0.8 billion in the RAB in the year 2027. What we said in that context is that we have further firepower, let's say, that has to invest even more. But if -- so if we obtain a decent remuneration, we will try to increase this investment in the future. With regard to the power demand, you're right, the 35 gigawatt of data center. Well, we will see how many will be materialized up to the year 2030 because, well, it would depend in many things. Let me say to you something. The government of Spain has increased the cap, the limit from the 100 to the 162, that will give us an increase that don't reach the one previously forecasted in the PNIEC. So we are short on that. So in that way, what I think is that we will be able just to reach the increase in demand that it was forecasted in the PNIEC and even perhaps a little bit more. And I'm talking around 3% each year up to the year 2030. But all these demand increase will be beyond the year 2030. We will have a huge increase in this year up to the year 2030, as I have said. But unfortunately, the investment that we are going to do like the Spanish sector in the distribution and transmission networks is not going to be the total amount forecasted in the PNIEC. Marco? Marco Palermo: So thank you, Alberto. And sorry if I go long on the question. I don't know why I feel that I would like to talk today. So on question number one, on the RAB increase, in the last plan that we presented -- I mean, I remember that we had approximately EUR 3 billion of net CapEx along the plan and that we were giving us an increase in RAB that was lower than EUR 1 billion. But was a previous -- the current plan, it's not the new one, and it was based on other kind of assumption. Now we have to see what is the regulation that comes out finally also in terms of level of investment and what are the kind of investments that are allowed, but it looks like this figure can somehow improve. Second question, share buyback. Is it a priority? Well, of course -- I mean, I guess that the answer is basically in the number. If you look at our net debt, and our gross debt now, I mean, despite the fact that we've been, of course, doing CapEx, we have been doing M&A. And despite the fact that we have been completing the first tranche of the share buyback, so EUR 450 million, we are still at 1.8x net debt to EBITDA. So I mean, whatever we do, we are still there. So that's why we decided just to launch -- to stop with the previous tranche and launch a new one because we do see that there is space here for a lot. Just to give you some numbers, I always said that probably this company should run at a net debt to EBITDA that is between 2.5x and 3x. So if you take the numbers of today, the EUR 5.6 billion EBITDA, I mean, you multiply there is space at least for another EUR 5 billion. And of course, as you can see, probably, you can understand that despite whatever we can assume on distribution, there is still ample margin for share buyback, and that's why we launched the third tranche. And on the third question on the power demand, we are -- it's in the make, Alberto. The answer to this question is in the make. In the sense that, that's exactly what we are discussing right now for the new business plan. And what we can say is that in this request for data centers, in terms of numbers, of course, there are many little entrepreneurs. But those little entrepreneurs, generally speaking, that they ask for small quantities of capacity. While the big guys, the one with the brand on top of the hat they go for the big numbers. So I mean, their presence is relevant when it comes to the proportion of big guys somehow requesting capacity for their data centers. Mar Martinez: Okay. We move now to Manuel Palomo from Exane BNP. Manuel Palomo: I will ask just a couple. And sorry to insist on the buyback and on the regulation. But I was wondering whether -- well, continuing with the buyback at the current share price levels, which with the stock yielding below 5% makes still a lot of sense or whether it would make much more sense to invest as much as possible in electricity distribution business, even if the 6.46% return is not changed. So it's not improved that we expect it will be. So my question is whether you will do as much as you can even if the regulation does not improve? And my second question is on the margins. I'd like you to please help me to understand what will happen with the margins for the next year because we've got one very positive driver, which is hopefully the pass-through of the ancillary services to final clients. But on the other side, I guess that we are all expecting some normalization in the hydro results. So my question is whether you could help us to understand where you expect the integrated margin for electricity to land in 2026? José Gálvez: Okay. Thank you, Manuel. Let me try to say something about the first question. You are right that, let me say, perhaps the Spanish regulation with regard to the distribution remuneration is one of the more complex of Europe and could be all over the world. What I really think is that we need certainty. And what we are obtaining is uncertainty just because of this very, very complex regulation that really you need to -- or we need to understand when we have -- when we will have the final and full picture of this, then we will take our decision about this. But let me say that it is a little bit confused. I would prefer more clear, transparent, direct regulation. And if you allow me, I would tell you something about Paracelsus. Paracelsus was 16th century alchemist that said that the difference between medicine and poison was the dose. This sets of regulation can become poison for the network. So I ask the regulator just to simplify and just to give more clear regulation. Having said that, we need to have the full picture, and we will evaluate what to do. Marco Palermo: Okay. So given that also Pepe is very inspired today, I will try to make answer short because otherwise, it would take too long here. So yes, CapEx is a priority. Let's see the final results, and then we will check. Regulation. On regulation -- sorry, on margins, what we do expect for 2026 integrated margin in line with this year. You were saying correctly, maybe the hydro next year will not be exactly the one that we have this year, not very sure about it. But if that is the case, I hope that also solar and wind will not be next year, the one that has been this year because actually, there was not so much sanction and even less wind until now in the year 2025. And I would say that's it. So basically, integrated margin 2026, in line with the margin of 2025. Thank you, Manuel -- sorry, here, they are saying buyback and versus CapEx. So CapEx, of course, again, we will do -- we want to grow. So if there are a condition, we will grow. Of course, they should be profitable -- this should be a profitable growth. And in terms of buyback, I guess that there is -- as I said, there is space in the debt, basically, frankly, for both. Then I mean, buyback, it's a way of giving back to our shareholders. That could be also a dividend policy. But all this stuff will be somehow managed and addressed in our Capital Market Day end of February next year because they are all in the make. Thank you. Mar Martinez: The next question comes from Pedro Alves from CaixaBank. Pedro Alves: Just one question, please, on -- just to understand how you frame your thoughts in terms of capital allocation besides the potential investments in distribution networks. So basically on potential M&A opportunities because given your balance sheet flexibility and the fact that valuations for renewables pipeline in Spain have sort of come down over the past year. Do you see this perhaps as the moment to buy, for instance, a renewable developer being, for instance, a smart hedge given the uncertain state of nuclear in Spain. I mean if nuclear does close, you reduce your share position in inframarginal generation and benefit from higher power prices without nuclear. And well, if it's extended, you obviously still capture the upside from your nuclear fleet. Just to understand if you can really hit the pedal now on M&A. Marco Palermo: Thank you, Pedro. So on your question, do we have space for M&A in our balance sheet? Yes. And that's exactly what we have been doing with the acquisition of the assets of Acciona, with the majority of the wind assets in Acciona, with the acquisition of clients from MasOrange. So I mean, that's -- if we see an opportunity, of course, we do it. Now does this brings us to buy renewable developers? I don't think so because, I mean, we have plenty of projects in wind, in solar, in BESS, I mean, plenty of that. What we will love eventually is something that is up and running. So if there are things there that are up and running -- but again, probably not on solar but on the other technologies. And those kind of things are not easy to find or not cheap to buy. Mar Martinez: We have now Javier Garrido from JPMorgan. Javier Garrido: I think most of them have been addressed, to be honest. So I will focus on 2 on results. Firstly, on your financial costs. Do you think that the Q3 numbers give a good outlook for the steady rate of financial costs going forward, given that your gross debt has now stabilized? And regardless of what decisions you make then on extra shareholder remuneration, you plan to keep a similar structure of financing in terms of the balance between fixed and variable costs and short and long-term debt profile? And then the second question is on the regulation and Fred. So if I understand correctly, your priority when you think about the potential improvements that might come in the final determinations of the regulator would be to get more visibility and predictability about the inclusion of assets into the RAB and lose the risk of having stranded assets. Is that correct? Or is there any other top priority in your mind about what should improve in the regulation for you to be more aggressive in your distribution CapEx profile? José Gálvez: Let me try to answer the last one in terms of the regulation. And well, it is a whole all the remuneration of the distribution. As I have said, it is complex -- very complex. We need just to understand clear. But the most important thing for me is to have the guarantee that all the investment that we are going just to go ahead with will be remunerated. That is something that in the last drop, and we are waiting for the next drop really create some kind of uncertainties. And there are many levers just to improve the remuneration in this regulation that we should understand clearly just to take the decision, but we prefer just to go ahead with investment in the system, in the network and to give the enough profitability just to give value to our shareholders. That is what we want. That is why we are working now. If we don't have the opportunity, we will look for another ways just to give value to our shareholders. Marco Palermo: Thank you, Javier. So let me answer the questions on the financial structure and financial costs. So can we assume that the financial costs that you're seeing right now are the stable financing costs? I would say, yes, in terms of price, so in terms of rate, even though I still expect that maybe we can do slightly better than that. And in terms of quantity, I mean, let's hope that we will have the opportunity to increase our debt. So I mean on the proportion fixed versus variable, we are now approximately 60% fixed and 40% variable. And I guess that probably this is close to what we want to have vis-a-vis the future in terms of structure. Thank you. Mar Martinez: The next analyst is Javier Suarez from Mediobanca. Javier Suarez Hernandez: Three questions from me as well. The first one is on the electricity demand dynamics in Slide #8. You have mentioned that there is a sharp increase on electricity demand. There has been a mention of some impact on new data centers in the area of Aragon. So could you be a little bit -- give us more granularity on the underlying dynamics for electricity demand increase affecting the industry services and residential activities. That would be very helpful. Then on the regulation, again, back to the need for a different proposal. Can you help us to understand which could be, in your view, the implication on some optimal regulatory outcome? And if you see the necessity for the government to intervene maybe calling a committee of collaboration between the sector, the regulator and them as well? And then the third comment is on the supply activity and the decrease on number of clients by minus 6% year-to-date. So can you help us to understand why do you see that the client base is going to remain sticky in an environment that you have defined of a significantly higher competition? José Gálvez: Okay. Thank you, Javier. Trying to be short in the answer, I will pass the question to -- just not to repeat. Marco? Marco Palermo: I mean, here things becoming hot, the climate here. So I mean, on question number one, regarding electricity demand, I mean, here, probably the nice -- the only comment that I would add, if you go back to Page #6, I guess it was, sorry -- yes, when we had the split of the -- only to comment that data centers are in the service cluster. So on industry, you start to see a recovery of industry, and that's what was easy to see for us because we were seeing our clients somehow switching from gas to power. So I mean, we were seeing this somehow or asking for more capacity. So we were seeing this starting to happen. On services is where you find the chapter of data centers that I mean, here, it looks like if you look at our area, strong increase. I mean, we believe that still much has to be seen here. And on residential, I mean, it's what has always been somehow sustaining the consumption for the time being, and it's even more related then to weather and these kind of things. On question #2, on regulation and what could be the effect of a suboptimal regulation, well, I mean, on one side, if maintained, I mean, if there is really a decision on that, of course, it means much longer time for developing the network that the country needs to have and the country deserves. So basically, it's somehow unfortunately losing an opportunity. Then does this mean that in the process things can change? I mean, I don't know. I mean, for the time being, I still want to hope that, I mean, the fundamentals will somehow will somehow be there because it's too of a good opportunity for the country. On question number three, regarding the supply decrease. I mean, frankly, the churn level that we are seeing right now, we don't think it's a sustainable level for any market, for any country. I mean -- it's over 25%, I mean, in that range. I mean we believe that it's because of many things. There are a lot of components there. I'm not so sure that all the clients are so happy just to switch so much in some cases. I can tell you that it's a level of fraud that is terrific. So we think that sooner or later, this will be somehow -- this will decrease. And in a way of somehow -- I mean, of course, fighting the fraud and so on, and it's not only in our hands. But for what we can do, of course, it's in our hands just to give a compelling proposal to clients. So that's why we decided just to acquire the clients coming from MasOrange that somehow they come with the bundled proposal. And on the other side, also try to have an agreement with them in order to offer also to the other clients of our base, other services and other offers that they can find somehow attractive. All of this in order to decrease the churn level that, as I said, is not sustainable. Mar Martinez: Okay. The next question comes from Fernando Lafuente from Alantra. Fernando Lafuente: Hopefully, the last one on regulation, just about the timing in which you expect the new drafts or new steps from the CNMC, both on the model and on the WACC. And also on networks, in this case, I would like to have your view on what would be a recurrent EBITDA for this year? And under the current circumstances, how do you see that EBITDA evolving ahead of 2026? And lastly, on the capital allocation, it's very good to hear you being more active on capital allocation and especially this message regarding shareholders' returns. My question is on the dividend policy, Marco. You basically commented that a little bit, and I know you said the Capital Markets Day. But my question is basically if under this strategy of increased value for shareholders, you could consider a new dividend policy with, let's say, more visibility or less volatility than what we've seen in the past and obviously, without wanting to give you a specific answer on what's going to be the new policy. But what are your views on that side? José Gálvez: Fernando, talking about the timing in the regulation and the CMC, who knows? But let me say, having said who knows, it's going to be before the year-end. The real thing is that we are waiting in the next days just to have another draft, that hopefully will take into account at least some of our comments on this regulation. And we hopefully think that it will improve the picture that we have today. It could be enough just to take a decision or not, I don't know. But we will see in a short period of time, the first results and movement. But the last draft or the last or the final picture could be before the end of the year. Marco Palermo: Fernando, thanks for the questions. Number two, on network. I guess that the recurrent EBITDA, the one that we were seeing for this 2025 is approximately EUR 2 billion. In 2026, we were seeing this going up in the previous plan, EUR 100 million in 2026. So then, I mean, let's see what happens, what is the final regulation and what are the decisions that we take on CapEx. And on number three, dividend policy, I mean, that's another thing that is in the make. We are having this kind of discussion right now. And yes, I guess that there are 2 parts here. On one side, CFO claiming for having somehow some flexibility in order then to fix the dividend. And on the other side, somehow giving confidence to our investors about the profile for the future. So I mean, those 2 things, I guess, that not necessarily are not compatible. That's the way we are starting to work. Having said that, your answer -- your question was very elegant. I don't know if my answer was at your level. Sorry for that. Mar Martinez: Next question comes from Rob Pulleyn from Morgan Stanley. Robert Pulleyn: The first one, if I can just revisit something from earlier. Could you confirm for the network CapEx, what is the upside to your current guidance, given the investment caps increased and appreciating it's contingent on the regulatory package. I believe that the 3-year guidance you've given to '27 is that the regulatory CapEx on networks would be EUR 1.2 billion. It'd be interesting to hear what upside potential there could be for that if the stars aligned and the regulator gives you what you ask for. And secondly, apologies if this has been answered, but I hadn't heard it. Could you give us a steer as to how the repricing of your supply contracts is going to pass on this ancillary service costs you spoke to earlier and how that will look for '26 and '27 in terms of passing that through to your retail base? Marco Palermo: Thanks, Rob. So on network CapEx level, again, it's difficult to say without having the details, and it's difficult to say because we are in the makeup of the new business plan. What I can tell you is that if the outcome is positive, we believe that the previous -- the current business plan that actually was envisaging approximately EUR 3 billion of net CapEx along the 3 years could be substantially increased. I don't want to give numbers on that. Regarding question number two on the supply, I mean, as I said, the supply margin you have seen, it's basically constant, is EUR 18, and it's because of the management of the portfolio that we did along the year. And that was what we thought doing before the increase of ancillary services came into the play. Now in order to somehow digest this increase in ancillary services, that I was estimating, is approximately something in the region of EUR 150 million, could be a bit more probably at the year-end 2025, we need time. And part of it has been done because there are contracts that somehow foresee that, but part of it cannot be done immediately. So it will -- something that will take us busy along 2026 and maybe a bit longer than that. Mar Martinez: We move now to Fernando Garcia from RBC. Fernando Garcia: I have just 2 left. So coming back to the data center topic, are you having any conversations to do PPAs with data centers? And second question, for the EUR 5 billion potential leverage optionality that you commented before, specifically related to share buyback, is there any financial limitation to do that, like, for example, EPS accretion? Marco Palermo: So on data centers, are we having a conversation on PPAs? Yes, of course, and it's mostly related with the big guys, I would say. Question number two, that is on the leverage optionality. I guess that there -- I mean, frankly, the only thing we are checking and seeing in the share buyback use is not reducing the -- structurally the liquidity of our shares, okay? That is the only real limitation and the only thing that we are carefully look for the use of the share buyback mechanism for the time being. Mar Martinez: Okay. This was the last question from the conference call. And now I will read just one pending question that comes from Philippe Ourpatian from ODDO. And the question is regarding the Portuguese statement from the rate of return and if this could be a good proxy for Spain. He mentioned the increase of 170 basis points in the write-off return. Please, Pepe. José Gálvez: Thank you. Let me say that increase of 170 basis points will give us something around 7.1%, 7.2%. Well, it is better than the one that we have today. I think it would have more sense. Also, if we take into account what the CMC are doing with other regulated sector in Spain, that will give us something around 7.2% that is very closer to the one in Portugal. Well, the other thing is that the financial remuneration rate all over Europe is something between 7% to 8%, let's say that. So well, it would be in the lower range that we see in other countries but -- well, I think it would be better than the one that we have today, of course. Mar Martinez: Okay. Now yes, this was the very last question of the conference call. Thank you for your participation. And as always, IR team will be available in case you need any further questions. Thank you very much.
Mar Martinez: Hello. Good morning to all the people connected. Welcome to the 9 months 2025 results presentation, which will be hosted by Endesa's CEO, Jose Bogas; and the CFO, Marco Palermo. Before we start, let me remind you that after the presentation, we will have the usual Q&A session. Thank you. And now let me hand over to our CEO, Jose Bogas. José Gálvez: Okay. Thank you, Mar, and welcome to everybody. Let me open this presentation by highlighting the strong economic and financial performance of the period, which, as we will see, hopefully, resulted in a remarkable cash generation. This clearly proves the resilience of our business model, which enable us to meet our commitments, maintaining predictable results and consistently creating value despite a complex and uncertain market context. Regarding shareholder remuneration policies, we are making a steady progress in the implementation of our share buyback program, as we will detail later on. And finally, when it comes to the distribution remuneration framework, the current proposal clearly does not provide adequate support and incentives for the investment effort required by the National Energy Plan. Let's now have a look at the key financial and operational highlights of the period. On Slide #4, we can see the solid financial results achieved in this 9 months of 2025. EBITDA reached EUR 4.2 billion, marking a 9% increase year-on-year, while net income came in at EUR 1.7 billion, up by a sound 22% versus last year. Cash generation remains strong with an FFO rising to EUR 3.4 billion, a 29% increase year-on-year. These results allow us to confirm that we are well on track to reach the upper range of our forecast, both in terms of EBITDA and net income. We continue to progress on our capital allocation strategy, as you can see on Slide #5. We acquired the remaining 62.5% stake in Cetasa, enabling full consolidation of this wind asset portfolio. In September, we entered into a strategic agreement with MasOrange to provide combined energy and telecom offers. As part of the deal, which will be completed in the coming months, we will acquire Energía Colectiva, bringing over 350,000 energy customers to our portfolio and gaining access to more than 1 million potential clients. This will reinforce our commercial strategy and opens new opportunities to foster customer loyalty through an integrated service offering. Furthermore, the strategic partnership with Masdar, which we announced last March was successfully concluded in early October. And lastly, as already commented on, we are progressing on the implementation of our share buyback program. After completing the second tranche, we launched a third one with a target of up to EUR 500 million to be executed no later than February 28th next year. Slide #6 provides a brief overview of the progress achieved on the capital allocation strategy and the execution of main industrial KPIs. We invested around EUR 1.4 billion during the period with nearly half allocated to networks. As shown in the slide, industrial KPIs confirm our progress starting with grid, our efforts are reflected in the improvement of the interruption time index, while total losses remained stable at around 10%, still significantly impacted by nonmanageable losses due to localized fraud. In renewables, the consolidation of new renewable capacity allowed us to achieve a 79% emission-free output. And lastly, in the customer segment, it is important to keep in mind that we are pursuing a strategy focused on higher-value customer, reshaping our customer mix profile with a focus on long-term loyalty. From a market perspective, on Slide #7, commodity prices shown signs of normalization throughout the period, gradually stabilizing after the volatility seen in the early 2025. In the Spanish electricity market, final prices were mostly affected by the post-blackout measures to prevent future incident and the resulting notable rise in ancillary services costs, while daily electricity price averaged EUR 63 per megawatt hour, that is a 21% increase year-on-year. It remains unclear how long the system operator will maintain its special anti-blackout measures, which poses a significant cost to the system. Besides, we must consider the lesson learned from the incident. Our electrical system is secure, but we must update the system operation that has undergone structural changes now dominated by renewable technologies. In this scenario, we believe it is critical to reconsider the nuclear phaseout schedule, starting with Almaraz. This facility has become key, as its location helps to strengthen the grid security in an area with vast renewable generation. In addition to rolling out all the measures to boost electrification, there are other steps we must take to ensure system security of supply such as implementation -- implementing a flexible control model. Slide #8. shows how Mainland demand continues to consolidate sustained growth, recording a 2.4% year-on-year increase that is 1.8% adjusted. When it comes to Endesa's area, demand rose by 4.2% and 2.5%, respectively. Deep diving into the analysis by segment, residential consumption expanded significantly, largely influenced by the rise in temperatures. The rebound of industrial and services demand is part of a broader sector-wide increase in energy usage. This clearly aligns with the market rise in connection requests seen in recent years, which are now starting to materialize into actual consumptions. In this regard, it is worth highlighting the growth of the service sector demand, particularly in the Aragon area, which has seen a 9% year-on-year demand increase, mainly associated with the incorporation of data center activity. The strong performance achieved since last year is a clear sign of turning point of trend, not only in terms of the consolidation of the recovery in demand, but more importantly, in the materialization of a new industrial demand. On the next slide, we review -- that is Slide #9, we review the more significant highlight of the distribution regulatory framework. Although the new remuneration proposal introduced certain improvement, it still falls significantly short on meeting the ambitious and urgent require to achieve Spanish decarbonization and electrification goals. In subcontract, the contact evolves in a different direction and reflects very different dynamic and challenges. Grid connection requests continue to steadily rise and some demand growth scenarios such as one of those considered in the 2025 to 2030 transmission network development proposal even exceeds 2030 PNIEC assumption. Grid availability was only 17% at the beginning of September, being virtually 0 in Endesa's area as of today. Due to this capacity constraints, we have been forced to reject most of the new demand connection requests for 2025. It is crystal clear that investment in distribution network must be accelerated to meet electrification goals. The ministry's proposal being a step forward in raising the strategic investment limit by 62% for the 2026 to 2030 period. However, a fair and forward-looking regulatory framework that incentivize investment is essential. Moreover, the pending rate of return update must urgently resolve asymmetric with other European countries as well as addressing inconsistences with other regulated sectors. In conclusion, we urge the CMC to recognize this reality and to respond accordingly by approving a remuneration framework that rises to the challenge. And let me now hand over to Marco for the financial results. Marco Palermo: Thank you, Pepe, and good morning, everybody. Let's start with the analysis of the financial results. I'm now on Slide 11. As we have just mentioned, EBITDA rose to around EUR 4.2 billion, up 9% from the previous year. This solid performance was driven by several key factors. First, the removal of the 1.2% extraordinary levy, which negatively impacted last year's results by around EUR 200 million. And second, the 8% increase in generation and supply EBITDA more than offsets the lower contribution from distribution affected by one-off capital gains that we booked in 2024. Moving to Slide 12 for a closer look at Generation and Supply segment. EBITDA expansion was primarily driven by the 8% gross margin increase, while fixed costs rose slightly impacted by negative one-offs in the O&M. The moving parts of the margin evolution were as follows: Conventional Generation delivered a 16% increase, driven by strong results in gas management, supported by positive prior hedging position, more than offsetting the lower results from short position management with less opportunities in the current price context and a nuclear margin decline, mainly explained by higher variable cost due to taxes, basically the full Enresa tax and the 7% tax on generation. Supply business also contributed positively, mostly due to stronger gas retail margin, while the power supply was stable year-on-year. Finally, the renewable business remained flat overall. Higher hydro volumes were offset by lower wind and solar output and lower capture price. Moving to Slide 13 now. The free power margin evolution reflects all these dynamics normalizing compared to the record high attained last year. The integrated unitary margin stood at EUR 53 megawatt hour with a power supply margin of EUR 18 megawatt hour. This supply margin remained nearly flat, underscoring the effectiveness of our strategy focused on customer value over volume and mostly offsetting the impact of rising ancillary services and peak costs. For the full year, we expect the integrated unitary margin to remain at the current level of around EUR 53 megawatt hour. On Slide 14 now, we analyze the gas business from an integrated perspective. The gas margin showed a strong improvement supported by favorable previous hedging positions and resilient pricing in the B2C segment. The unitary margin reached EUR 10 megawatt hour with expectation of ending the year at around EUR 9 megawatt hour. Moving now to Slide 15 in the below EBITDA. D&A slightly increased compared to the previous year, mainly due to higher amortization from investment in distribution and increased depreciation in renewables, which included the consolidation of the hydro asset incorporated since February. Financial results showed a notable improvement driven by a reduction in average gross debt and lower cost of debt. Finally, the effective tax rate stood at approximately 24.5%, no longer impacted by the nondeductibility of the 1.2% temporary levy that penalized last year's results. Net income rose by a solid 22% with net ordinary income to EBITDA conversion ratio reaching 41% in the period. Turning to the next slide, Page 16. Cash generation continued to be strong with an FFO standing at EUR 3.4 billion, improving on the previous year's levels, mainly due to the robust EBITDA growth and the positive working capital evolution versus previous year, which was impacted. You probably remember by the EUR 530 million Qatar arbitration payment. On the other hand, the higher corporate income tax payment made in this third quarter reflects the exceptional results achieved in 2024 compared to 2023. On Slide 17 now, net financial debt came in at around EUR 10 billion, with cash generated in the period more than covering the deployment of CapEx, including EUR 1 billion of inorganic CapEx. In addition, the change in net debt reflects dividend payments totaling EUR 1.5 billion and the completion of the second tranche of the share buyback program, which resulted in a cash outflow of approximately EUR 450 million. Gross financial debt remained unchanged with the average cost declining to 3.3%. And now I hand over to Pepe for the closing remarks. José Gálvez: Thank you, Marco. As we mentioned throughout the presentation, the solid delivery across all business areas reaffirm our confidence in achieving the top end of the full year guidance. This confirms the successful execution of our strategy and the resilience of our integrated business model. The soundness of our results is reflected in our commitment to shareholders with a solid dividend policy further supported by the share buyback program that will drive sound and long-term returns to our investors. Lastly, we firmly believe that capital allocation must rely on fair and forward-looking regulation, a stable regulatory framework that incentivize necessary investment is essential to unlock the full potential of our capacity to accelerate the energy transition. Thank you for your attention, and let's now move to the Q&A session. Operator: [Operator Instructions]. Mar Martinez: Okay. We start now with a round of different questions. And the first one comes from Peter Bisztyga from Bank of America. Peter Bisztyga: So 3, if I may. First one, just on numbers. Just looking at your strong 9-month performance, it looks like you need only EUR 300 million of net income to hit your full year guidance at the top end of the range. That would be down quite a lot versus the sort of EUR 600 million that you did in Q4 last year. So I was wondering if you could just explain what the year-on-year negative moving parts are going to be in the fourth quarter. Then next question is on ancillary services. I was just wondering what was the positive impact of higher ancillary services charges on your generation business in the 9 months? And despite your flat retail margin, do you think that you can pass on those higher ancillary services costs to your customers in 2026? So should we expect your supply margin to actually increase above 18% next year on that basis? And then finally, you lost another 130,000 regulated customers in Q3. I know you've said that you focus on high-value customers. But just wondering what proportion of your remaining 6.3 million liberalized customers you see as low value and are willing to lose? So at which point do you sort of have to start focusing on customer numbers rather than margins again? José Gálvez: Okay. Thank you, Peter. I will try just to give some color to the first question and the last one, and then Marco will add whatever. With regard to the guidance, well, as we have said, we can confirm that we expect to reach the top end of the Capital Market Day guidance for the full year 2025. That is clear, and we feel very, very, very comfortable. But we don't use to change our guidance, but believe us, we feel very, very comfortable. Regarding the customer that we have lost in the last quarter, how much customer we are thinking that could be in a vulnerable, let's say, that position. Well, it is clear for us that the competitiveness in the Spanish sector is a good thing, and it's improving the way in which we offer and supply services to our customers. But it is clear also that just because of the more than 25% churn rate that we have at the level of the system and also at the level of Endesa, there are many switchers that it's very difficult just to obtain any profitability from this. As you could see, we have reduced our customers and -- but our margins in supply even with the increase in the ancillary costs continue -- being the same at the last year, more or less. So that means that these customers that we have lost are not a value customers. So as we have said, we are trying to put first the value over the number of customers that we have. On the other hand, I would like just to add that this movement that we have done with MasOrange is trying just to really change a little bit our offer to our customer, trying to offer bundled services of telecoms and energy and given a better service just to increase the fidelity of this customer. So well, we will continue on that, and we will see if this strategy really reduced the losses and even more increase the customer in our customer base. And now Marco will add to whatever and talk about the ancillary services. Marco Palermo: Okay. Peter, thank you for your questions. Again, let me add something also on question number one. Yes, guys, I mean, it's like there is no secret here. It's EUR 0.3 billion as a net income for fourth quarter. Generally, the fourth quarter is a strong quarter. So I mean, that's why we are saying that we are very, very comfortably in the higher part of the range. Regarding question number 2, ancillary services. So there were 2 questions, I guess, there. But basically, first one, just to give you a few numbers, in order to have an idea on quarters for us, the penalization of the increase of ancillary services this year weighs approximately as a gross penalization, EUR 75 million per quarter, okay? So basically, 9 months is approximately EUR 200 million. On the other side, this is the gross penalization because you have some recovered this on the generation side. So around EUR 25 million per quarter. So if you sum up, it's like basically the impact -- the negative impact in 9 months should be approximately EUR 120 million, something like that. So that's why we say that we believe that for year-end, we will probably be around EUR 150 million net negative impact from ancillary services on our accounts. That, of course, if you see it, gross is a higher number. And in terms of supply margin, I mean, the supply margin stays where it stays because we have done -- we have managed our portfolio, but all those -- I would say that all those management was we were thinking to do that. So -- I mean, it's now what we have to do is working on absorbing somehow this higher cost on ancillaries. So that's why we have to continue to work this year, but also next year on recovering these costs. And on the loss of customers, I guess that the job that we're basically doing there, I would say, is almost done. And part of this is probably also related to the fact that on one side, we've been losing those clients that made no sense in terms of acquisition from the push channels. On the other side, I mean, we're -- somehow we decided just to go through with the acquisition of the clients our clients from MasOrange that somehow showed a different trend in terms of churn and so on that I guess is mostly related to the fact that they have a bundle -- they buy bundled products and probably in these offers, it's easier to see the value that you give to the customer. Thank you, Peter. Mar Martinez: Thank you, Peter. And now we have Alberto Gandolfi from Goldman Sachs. Alberto Gandolfi: Also 3 questions. I want to bypass a bit questions on regulation. I'm sure you get some more later. But can I ask you, if you were to receive a decent outcome, it's quite binary here, right? Either returns are good or they are just not quite good. So if you have a decent outcome, how much RAB growth do you think Endesa can deliver over the coming 5 years? The second question is, can you place a share buyback somewhere in your capital allocation priorities? Do you think this is going to be an ongoing -- not just a tool, but an ongoing feature, meaning like a base case until December '27? And could we see this continuing to '28? I'm thinking in case returns, for instance, are not particularly good in distribution. So should we look at your share buyback almost as a safety net -- as a silver lining here on capital allocation? Or is it more central? And the last question, you have been -- I think we need to give you credit. You've been the first company to talk about an inflection in power demand. You've been the first company to talk about particularly for Iberia, for Spain. Can I ask you -- it seems to me there's like 35 gigawatt of connection request to the grid when it comes to data centers in Spain. Obviously, we cannot imagine that 35 gigawatts will come online because it's the entire demand of Spain. But can I ask you 2 points on this 35 gigawatts. How much is from hyperscalers, therefore third-party data center specialized companies vis-a-vis entrepreneurs that are trying to make money out of this early-stage development? And secondly, how much of the 35 gigawatts do you think it's realistic to assume will become operational by 2030 or '35 in Spain? Is it 5%, 10%, 20%? Just trying to gauge here what we should expect for this very important driver. José Gálvez: Okay. Thank you, Alberto. Let me say you something in relation with the 2 first questions. Well, we are an under-leveraged company. That means that -- and we have strong potential just to invest or just to -- in general, just to give value to our shareholders. If we could give this value through investment in the system, we will do it. If we are not able yet because of the regulation or yes, because anything, we will look for ways just to return this value to our shareholders, as we have done with the share buyback that we have launched. So it is very clear for us that we want to give value to our shareholders. If it is possible just to do it through investment in the system, we will do it through the investment in the system. If not, we will do things like the shareholder buyback that we have done or similar thing. So that is clear, absolutely for us. With regard to the decent outcome in the distribution regulation, well, what I could tell you is that our last plan that is the plan from the year 2025 to the year '27, we invest around EUR 4 billion in gross investment in distribution. And we increased something around EUR 0.7 billion, EUR 0.8 billion in the RAB in the year 2027. What we said in that context is that we have further firepower, let's say, that has to invest even more. But if -- so if we obtain a decent remuneration, we will try to increase this investment in the future. With regard to the power demand, you're right, the 35 gigawatt of data center. Well, we will see how many will be materialized up to the year 2030 because, well, it would depend in many things. Let me say to you something. The government of Spain has increased the cap, the limit from the 100 to the 162, that will give us an increase that don't reach the one previously forecasted in the PNIEC. So we are short on that. So in that way, what I think is that we will be able just to reach the increase in demand that it was forecasted in the PNIEC and even perhaps a little bit more. And I'm talking around 3% each year up to the year 2030. But all these demand increase will be beyond the year 2030. We will have a huge increase in this year up to the year 2030, as I have said. But unfortunately, the investment that we are going to do like the Spanish sector in the distribution and transmission networks is not going to be the total amount forecasted in the PNIEC. Marco? Marco Palermo: So thank you, Alberto. And sorry if I go long on the question. I don't know why I feel that I would like to talk today. So on question number one, on the RAB increase, in the last plan that we presented -- I mean, I remember that we had approximately EUR 3 billion of net CapEx along the plan and that we were giving us an increase in RAB that was lower than EUR 1 billion. But was a previous -- the current plan, it's not the new one, and it was based on other kind of assumption. Now we have to see what is the regulation that comes out finally also in terms of level of investment and what are the kind of investments that are allowed, but it looks like this figure can somehow improve. Second question, share buyback. Is it a priority? Well, of course -- I mean, I guess that the answer is basically in the number. If you look at our net debt, and our gross debt now, I mean, despite the fact that we've been, of course, doing CapEx, we have been doing M&A. And despite the fact that we have been completing the first tranche of the share buyback, so EUR 450 million, we are still at 1.8x net debt to EBITDA. So I mean, whatever we do, we are still there. So that's why we decided just to launch -- to stop with the previous tranche and launch a new one because we do see that there is space here for a lot. Just to give you some numbers, I always said that probably this company should run at a net debt to EBITDA that is between 2.5x and 3x. So if you take the numbers of today, the EUR 5.6 billion EBITDA, I mean, you multiply there is space at least for another EUR 5 billion. And of course, as you can see, probably, you can understand that despite whatever we can assume on distribution, there is still ample margin for share buyback, and that's why we launched the third tranche. And on the third question on the power demand, we are -- it's in the make, Alberto. The answer to this question is in the make. In the sense that, that's exactly what we are discussing right now for the new business plan. And what we can say is that in this request for data centers, in terms of numbers, of course, there are many little entrepreneurs. But those little entrepreneurs, generally speaking, that they ask for small quantities of capacity. While the big guys, the one with the brand on top of the hat they go for the big numbers. So I mean, their presence is relevant when it comes to the proportion of big guys somehow requesting capacity for their data centers. Mar Martinez: Okay. We move now to Manuel Palomo from Exane BNP. Manuel Palomo: I will ask just a couple. And sorry to insist on the buyback and on the regulation. But I was wondering whether -- well, continuing with the buyback at the current share price levels, which with the stock yielding below 5% makes still a lot of sense or whether it would make much more sense to invest as much as possible in electricity distribution business, even if the 6.46% return is not changed. So it's not improved that we expect it will be. So my question is whether you will do as much as you can even if the regulation does not improve? And my second question is on the margins. I'd like you to please help me to understand what will happen with the margins for the next year because we've got one very positive driver, which is hopefully the pass-through of the ancillary services to final clients. But on the other side, I guess that we are all expecting some normalization in the hydro results. So my question is whether you could help us to understand where you expect the integrated margin for electricity to land in 2026? José Gálvez: Okay. Thank you, Manuel. Let me try to say something about the first question. You are right that, let me say, perhaps the Spanish regulation with regard to the distribution remuneration is one of the more complex of Europe and could be all over the world. What I really think is that we need certainty. And what we are obtaining is uncertainty just because of this very, very complex regulation that really you need to -- or we need to understand when we have -- when we will have the final and full picture of this, then we will take our decision about this. But let me say that it is a little bit confused. I would prefer more clear, transparent, direct regulation. And if you allow me, I would tell you something about Paracelsus. Paracelsus was 16th century alchemist that said that the difference between medicine and poison was the dose. This sets of regulation can become poison for the network. So I ask the regulator just to simplify and just to give more clear regulation. Having said that, we need to have the full picture, and we will evaluate what to do. Marco Palermo: Okay. So given that also Pepe is very inspired today, I will try to make answer short because otherwise, it would take too long here. So yes, CapEx is a priority. Let's see the final results, and then we will check. Regulation. On regulation -- sorry, on margins, what we do expect for 2026 integrated margin in line with this year. You were saying correctly, maybe the hydro next year will not be exactly the one that we have this year, not very sure about it. But if that is the case, I hope that also solar and wind will not be next year, the one that has been this year because actually, there was not so much sanction and even less wind until now in the year 2025. And I would say that's it. So basically, integrated margin 2026, in line with the margin of 2025. Thank you, Manuel -- sorry, here, they are saying buyback and versus CapEx. So CapEx, of course, again, we will do -- we want to grow. So if there are a condition, we will grow. Of course, they should be profitable -- this should be a profitable growth. And in terms of buyback, I guess that there is -- as I said, there is space in the debt, basically, frankly, for both. Then I mean, buyback, it's a way of giving back to our shareholders. That could be also a dividend policy. But all this stuff will be somehow managed and addressed in our Capital Market Day end of February next year because they are all in the make. Thank you. Mar Martinez: The next question comes from Pedro Alves from CaixaBank. Pedro Alves: Just one question, please, on -- just to understand how you frame your thoughts in terms of capital allocation besides the potential investments in distribution networks. So basically on potential M&A opportunities because given your balance sheet flexibility and the fact that valuations for renewables pipeline in Spain have sort of come down over the past year. Do you see this perhaps as the moment to buy, for instance, a renewable developer being, for instance, a smart hedge given the uncertain state of nuclear in Spain. I mean if nuclear does close, you reduce your share position in inframarginal generation and benefit from higher power prices without nuclear. And well, if it's extended, you obviously still capture the upside from your nuclear fleet. Just to understand if you can really hit the pedal now on M&A. Marco Palermo: Thank you, Pedro. So on your question, do we have space for M&A in our balance sheet? Yes. And that's exactly what we have been doing with the acquisition of the assets of Acciona, with the majority of the wind assets in Acciona, with the acquisition of clients from MasOrange. So I mean, that's -- if we see an opportunity, of course, we do it. Now does this brings us to buy renewable developers? I don't think so because, I mean, we have plenty of projects in wind, in solar, in BESS, I mean, plenty of that. What we will love eventually is something that is up and running. So if there are things there that are up and running -- but again, probably not on solar but on the other technologies. And those kind of things are not easy to find or not cheap to buy. Mar Martinez: We have now Javier Garrido from JPMorgan. Javier Garrido: I think most of them have been addressed, to be honest. So I will focus on 2 on results. Firstly, on your financial costs. Do you think that the Q3 numbers give a good outlook for the steady rate of financial costs going forward, given that your gross debt has now stabilized? And regardless of what decisions you make then on extra shareholder remuneration, you plan to keep a similar structure of financing in terms of the balance between fixed and variable costs and short and long-term debt profile? And then the second question is on the regulation and Fred. So if I understand correctly, your priority when you think about the potential improvements that might come in the final determinations of the regulator would be to get more visibility and predictability about the inclusion of assets into the RAB and lose the risk of having stranded assets. Is that correct? Or is there any other top priority in your mind about what should improve in the regulation for you to be more aggressive in your distribution CapEx profile? José Gálvez: Let me try to answer the last one in terms of the regulation. And well, it is a whole all the remuneration of the distribution. As I have said, it is complex -- very complex. We need just to understand clear. But the most important thing for me is to have the guarantee that all the investment that we are going just to go ahead with will be remunerated. That is something that in the last drop, and we are waiting for the next drop really create some kind of uncertainties. And there are many levers just to improve the remuneration in this regulation that we should understand clearly just to take the decision, but we prefer just to go ahead with investment in the system, in the network and to give the enough profitability just to give value to our shareholders. That is what we want. That is why we are working now. If we don't have the opportunity, we will look for another ways just to give value to our shareholders. Marco Palermo: Thank you, Javier. So let me answer the questions on the financial structure and financial costs. So can we assume that the financial costs that you're seeing right now are the stable financing costs? I would say, yes, in terms of price, so in terms of rate, even though I still expect that maybe we can do slightly better than that. And in terms of quantity, I mean, let's hope that we will have the opportunity to increase our debt. So I mean on the proportion fixed versus variable, we are now approximately 60% fixed and 40% variable. And I guess that probably this is close to what we want to have vis-a-vis the future in terms of structure. Thank you. Mar Martinez: The next analyst is Javier Suarez from Mediobanca. Javier Suarez Hernandez: Three questions from me as well. The first one is on the electricity demand dynamics in Slide #8. You have mentioned that there is a sharp increase on electricity demand. There has been a mention of some impact on new data centers in the area of Aragon. So could you be a little bit -- give us more granularity on the underlying dynamics for electricity demand increase affecting the industry services and residential activities. That would be very helpful. Then on the regulation, again, back to the need for a different proposal. Can you help us to understand which could be, in your view, the implication on some optimal regulatory outcome? And if you see the necessity for the government to intervene maybe calling a committee of collaboration between the sector, the regulator and them as well? And then the third comment is on the supply activity and the decrease on number of clients by minus 6% year-to-date. So can you help us to understand why do you see that the client base is going to remain sticky in an environment that you have defined of a significantly higher competition? José Gálvez: Okay. Thank you, Javier. Trying to be short in the answer, I will pass the question to -- just not to repeat. Marco? Marco Palermo: I mean, here things becoming hot, the climate here. So I mean, on question number one, regarding electricity demand, I mean, here, probably the nice -- the only comment that I would add, if you go back to Page #6, I guess it was, sorry -- yes, when we had the split of the -- only to comment that data centers are in the service cluster. So on industry, you start to see a recovery of industry, and that's what was easy to see for us because we were seeing our clients somehow switching from gas to power. So I mean, we were seeing this somehow or asking for more capacity. So we were seeing this starting to happen. On services is where you find the chapter of data centers that I mean, here, it looks like if you look at our area, strong increase. I mean, we believe that still much has to be seen here. And on residential, I mean, it's what has always been somehow sustaining the consumption for the time being, and it's even more related then to weather and these kind of things. On question #2, on regulation and what could be the effect of a suboptimal regulation, well, I mean, on one side, if maintained, I mean, if there is really a decision on that, of course, it means much longer time for developing the network that the country needs to have and the country deserves. So basically, it's somehow unfortunately losing an opportunity. Then does this mean that in the process things can change? I mean, I don't know. I mean, for the time being, I still want to hope that, I mean, the fundamentals will somehow will somehow be there because it's too of a good opportunity for the country. On question number three, regarding the supply decrease. I mean, frankly, the churn level that we are seeing right now, we don't think it's a sustainable level for any market, for any country. I mean -- it's over 25%, I mean, in that range. I mean we believe that it's because of many things. There are a lot of components there. I'm not so sure that all the clients are so happy just to switch so much in some cases. I can tell you that it's a level of fraud that is terrific. So we think that sooner or later, this will be somehow -- this will decrease. And in a way of somehow -- I mean, of course, fighting the fraud and so on, and it's not only in our hands. But for what we can do, of course, it's in our hands just to give a compelling proposal to clients. So that's why we decided just to acquire the clients coming from MasOrange that somehow they come with the bundled proposal. And on the other side, also try to have an agreement with them in order to offer also to the other clients of our base, other services and other offers that they can find somehow attractive. All of this in order to decrease the churn level that, as I said, is not sustainable. Mar Martinez: Okay. The next question comes from Fernando Lafuente from Alantra. Fernando Lafuente: Hopefully, the last one on regulation, just about the timing in which you expect the new drafts or new steps from the CNMC, both on the model and on the WACC. And also on networks, in this case, I would like to have your view on what would be a recurrent EBITDA for this year? And under the current circumstances, how do you see that EBITDA evolving ahead of 2026? And lastly, on the capital allocation, it's very good to hear you being more active on capital allocation and especially this message regarding shareholders' returns. My question is on the dividend policy, Marco. You basically commented that a little bit, and I know you said the Capital Markets Day. But my question is basically if under this strategy of increased value for shareholders, you could consider a new dividend policy with, let's say, more visibility or less volatility than what we've seen in the past and obviously, without wanting to give you a specific answer on what's going to be the new policy. But what are your views on that side? José Gálvez: Fernando, talking about the timing in the regulation and the CMC, who knows? But let me say, having said who knows, it's going to be before the year-end. The real thing is that we are waiting in the next days just to have another draft, that hopefully will take into account at least some of our comments on this regulation. And we hopefully think that it will improve the picture that we have today. It could be enough just to take a decision or not, I don't know. But we will see in a short period of time, the first results and movement. But the last draft or the last or the final picture could be before the end of the year. Marco Palermo: Fernando, thanks for the questions. Number two, on network. I guess that the recurrent EBITDA, the one that we were seeing for this 2025 is approximately EUR 2 billion. In 2026, we were seeing this going up in the previous plan, EUR 100 million in 2026. So then, I mean, let's see what happens, what is the final regulation and what are the decisions that we take on CapEx. And on number three, dividend policy, I mean, that's another thing that is in the make. We are having this kind of discussion right now. And yes, I guess that there are 2 parts here. On one side, CFO claiming for having somehow some flexibility in order then to fix the dividend. And on the other side, somehow giving confidence to our investors about the profile for the future. So I mean, those 2 things, I guess, that not necessarily are not compatible. That's the way we are starting to work. Having said that, your answer -- your question was very elegant. I don't know if my answer was at your level. Sorry for that. Mar Martinez: Next question comes from Rob Pulleyn from Morgan Stanley. Robert Pulleyn: The first one, if I can just revisit something from earlier. Could you confirm for the network CapEx, what is the upside to your current guidance, given the investment caps increased and appreciating it's contingent on the regulatory package. I believe that the 3-year guidance you've given to '27 is that the regulatory CapEx on networks would be EUR 1.2 billion. It'd be interesting to hear what upside potential there could be for that if the stars aligned and the regulator gives you what you ask for. And secondly, apologies if this has been answered, but I hadn't heard it. Could you give us a steer as to how the repricing of your supply contracts is going to pass on this ancillary service costs you spoke to earlier and how that will look for '26 and '27 in terms of passing that through to your retail base? Marco Palermo: Thanks, Rob. So on network CapEx level, again, it's difficult to say without having the details, and it's difficult to say because we are in the makeup of the new business plan. What I can tell you is that if the outcome is positive, we believe that the previous -- the current business plan that actually was envisaging approximately EUR 3 billion of net CapEx along the 3 years could be substantially increased. I don't want to give numbers on that. Regarding question number two on the supply, I mean, as I said, the supply margin you have seen, it's basically constant, is EUR 18, and it's because of the management of the portfolio that we did along the year. And that was what we thought doing before the increase of ancillary services came into the play. Now in order to somehow digest this increase in ancillary services, that I was estimating, is approximately something in the region of EUR 150 million, could be a bit more probably at the year-end 2025, we need time. And part of it has been done because there are contracts that somehow foresee that, but part of it cannot be done immediately. So it will -- something that will take us busy along 2026 and maybe a bit longer than that. Mar Martinez: We move now to Fernando Garcia from RBC. Fernando Garcia: I have just 2 left. So coming back to the data center topic, are you having any conversations to do PPAs with data centers? And second question, for the EUR 5 billion potential leverage optionality that you commented before, specifically related to share buyback, is there any financial limitation to do that, like, for example, EPS accretion? Marco Palermo: So on data centers, are we having a conversation on PPAs? Yes, of course, and it's mostly related with the big guys, I would say. Question number two, that is on the leverage optionality. I guess that there -- I mean, frankly, the only thing we are checking and seeing in the share buyback use is not reducing the -- structurally the liquidity of our shares, okay? That is the only real limitation and the only thing that we are carefully look for the use of the share buyback mechanism for the time being. Mar Martinez: Okay. This was the last question from the conference call. And now I will read just one pending question that comes from Philippe Ourpatian from ODDO. And the question is regarding the Portuguese statement from the rate of return and if this could be a good proxy for Spain. He mentioned the increase of 170 basis points in the write-off return. Please, Pepe. José Gálvez: Thank you. Let me say that increase of 170 basis points will give us something around 7.1%, 7.2%. Well, it is better than the one that we have today. I think it would have more sense. Also, if we take into account what the CMC are doing with other regulated sector in Spain, that will give us something around 7.2% that is very closer to the one in Portugal. Well, the other thing is that the financial remuneration rate all over Europe is something between 7% to 8%, let's say that. So well, it would be in the lower range that we see in other countries but -- well, I think it would be better than the one that we have today, of course. Mar Martinez: Okay. Now yes, this was the very last question of the conference call. Thank you for your participation. And as always, IR team will be available in case you need any further questions. Thank you very much.
Operator: Good morning, and welcome to the Evercore Third Quarter 2025 Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Evercore management and the question-and-answer session. [Operator Instructions] I will now turn the call over to Katy Haber, Head of Investor Relations at Evercore. Please go ahead. Katy Haber: Thank you, operator. Good morning, and thank you for joining us today for Evercore's Third Quarter 2025 Financial Results Conference Call. I'm Katy Haber, Evercore's Head of Investor Relations. Joining me on the call today is John Weinberg, our Chairman and CEO; and Tim LaLonde, our CFO. After our prepared remarks, we'll open up the call for questions. Earlier today, we issued a press release announcing Evercore's third quarter 2025 financial results. Our discussion of our results today is complementary to the press release, which is available at our website at evercore.com. This conference call is being webcast live in the For Investors section of our website, and an archive of it will be available for 30 days beginning approximately 1 hour after the conclusion of this call. During the course of this conference call, we may make a number of forward-looking statements. Any forward-looking statements that we make are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to, those discussed in Evercore's filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. I want to remind you that the company assumes no duty to update any forward-looking statements. In our presentation today, unless otherwise indicated, we will be discussing adjusted financial measures, which are non-GAAP measures that we believe are meaningful when evaluating the company's performance. For detailed disclosures on these measures and the GAAP reconciliations, you should refer to the financial data contained within our press release, which is posted on our website. We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we have noted previously, our results for any particular quarter are influenced by the timing of transaction closing. I will now turn the call over to John. John Weinberg: Thank you, Katy. Evercore delivered record third quarter results following a record first half with momentum across all business areas. We generated over $1 billion in adjusted net revenues, up 42% year-over-year, marking our best third quarter ever and the second best quarter in our history, behind the fourth quarter of 2021. Our quarterly and year-to-date results reflect the strength of our diversified revenue streams, the impact of our Senior Managing Director hiring and promotions over the past several years and the benefit of a steadily improving market environment. We remain committed to delivering for our clients and shareholders by executing our long-term strategy, which includes focusing on areas of sector and geographic white space broadening our client coverage and expanding and deepening our product capabilities. We are working at closing out 2025 on a strong note and positioning ourselves for a successful 2026. Throughout the third quarter and in October, market conditions and investment banking activity have continued to strengthen, supporting a more conducive environment to deal making. Announced M&A activity has advanced at a healthy pace, led by larger strategic transactions, while capital markets activity has accelerated. Transactions that were impacted by market volatility earlier this year are now returning to the market. In line with the momentum that we've experienced over the last several months, our backlog continued to increase in the quarter and client activity across the firm remains robust. We expect these trends to carry through year-end and into 2026. It's worth noting that in many years, we've experienced significant positive seasonality in our business in the fourth quarter. This seasonality is likely to be less pronounced this year versus prior years given the strength of our year-to-date results, the timing of some transactions closings that may have been impacted by the market volatility earlier in the year and a possible timing impact from the government shutdown, which we are continuing to monitor closely. That said, we expect continued strengthening in the market and our business. Overall, we continue to believe we are in the early stages of an investment banking recovery driven by a combination of cyclical and structural factors. Global announced M&A as a percentage of global market cap remains well below historical averages and pent-up demand from both corporates and sponsors, together with broader secular shifts such as accelerating impact of AI and other long-term trends is driving new opportunities across sectors. Turning to talent. We continue to make strong progress on our recruiting efforts. We successfully closed the Robey Warshaw transaction on October 1, which has been an important addition to our build-out in Europe and significantly enhances our ability to serve clients across the regions and around the world. Along with the 5 new investment banking SMDs from Robey Warshaw, 4 additional SMDs have committed to join our global investment banking practice. 2 in the U.S. with 1 focused on financial sponsors and the other on health care and 2 in Europe with 1 covering financial sponsors and another advising Nordic clients. So far, 2025 has been our strongest recruiting year-to-date. With our most recent joiners and commits, we now have 168 investment banking SMDs, up nearly 50% from the year-end 2021, positioning us well as the market strengthens. We continue to see a healthy pipeline of external candidates and attracting and developing exceptional talent remains core to our strategy and future success. Now let me turn to the businesses. We experienced broad-based strength across our diversified platform, both sequentially and year-over-year. In the third quarter and over the last 12 months, approximately 45% and 50% of total revenues, respectively, were from non-M&A sources. Our U.S. M&A advisory practice continued to gain momentum across sectors, including tech, infrastructure and health care. Financial sponsor activity is steadily picking up, and we expect this positive trend to continue into next year. Evercore is well positioned to benefit as we have meaningfully built out our sponsor coverage effort in recent years. Our European Advisory business delivered its best quarter on record with strong performance across sectors, products and geographies. We are very pleased with our progress across the region and are seeing high-quality engagements with both corporates and sponsors. We expect this to continue as we welcome the Robey Warshaw team and expand our presence in Europe. As of the end of the quarter, we advised on 4 of the 11 largest global M&A transactions. We've continued to experience strong activity in October, including advising Carlyle on a EUR 7.7 billion acquisition of BASF coatings and Huntington Bancshares on its acquisition of Cadence Bank for $7.4 billion, representing our second transaction advising Huntington this year. Next, our strategic defense and Shareholder Advisory group remains busy as the number of activist campaigns in the U.S. is at record levels. The Liability Management and Restructuring business continued to see robust activity in the quarter, generally tracking in line with trends experienced earlier this year. We are seeing an increase in larger traditional restructuring assignments and our backlog in this area remains strong as highly levered companies face ongoing challenges. Our private capital markets and debt advisory team continues to be active as the credit markets remain open and transaction activity picks up. Consistent with the strength we saw in the first 2 quarters of the year, our Private Capital Advisory business delivered a record third quarter, driven in large part by GP-led continuation fund transactions. In fact, through the first 9 months of 2025, PCA revenues have already exceeded full year 2024, which was our best year on record. We continue to see strong momentum in all areas of the business, including GP-led continuation funds, LP secondaries and securitization. Similarly, our Private Funds Group generated a record third quarter, while the overall fundraising market remains challenging, our team continues to be active, operating at a very high level. Equity Capital Markets saw a resurgence in activity in the third quarter, particularly with IPOs supported by lower levels of market volatility. Our underwriting business remained active throughout the quarter as we continue to focus on our sector and product diversification efforts. We saw particular strength in tech and industrials with Evercore serving as an active book runner on Karman's $1 billion follow-on offering. We also experienced a significant increase in convertible issuance, an area where we have been investing and expanding our capabilities. Our equities business, Evercore ISI has achieved the #1 ranking in Extel's All-American Research survey for the fourth straight year. Additionally, the business had its best quarter since the fourth quarter of 2016 reflecting healthy levels of volatility and broad-based activity across products and services. Strong client engagement, combined with a constructive market backdrop and healthy client performance all contributed to the quarter's results. Lastly, Wealth Management achieved record quarter-end AUM of approximately $15.4 billion driven by both market appreciation and strong new net client inflows. Before I turn it over to Tim, I'd like to make a final comment. The strength of our third quarter and year-to-date results reflects the power of our diversified platform, the continued execution of our strategy and our commitment to our clients. As we look ahead, we are confident in our ability to continue delivering value for our clients, shareholders and people. With that, let me turn it over to Tim. Timothy LaLonde: Thank you, John. Evercore's third quarter results reflect an environment which has continued to strengthen across all our businesses. For the third quarter of 2025, net revenues, operating income and EPS on a GAAP basis were $1 billion, $216 million and $3.41 per share, respectively. My comments from here will focus on non-GAAP metrics, which we believe are useful when evaluating our results. Our standard GAAP reporting and reconciliation of GAAP to adjusted results can be found in our press release, which is on our website. Our third quarter adjusted net revenues of $1 billion increased 42% versus the third quarter of 2024. Third quarter adjusted operating income of $228 million increased 69% versus the third quarter of 2024. Adjusted earnings per share of $3.48 increased 71% versus the third quarter of last year. Our adjusted operating margin was 21.8%, up from 18.2% in the prior year period, an improvement of nearly 360 basis points. Turning to the businesses. Third quarter adjusted advisory fees of $884 million increased 49% year-over-year, which is a record for the third quarter and reflects continued market share gains. While we recently have experienced a strong uptick in activity and expect that momentum to continue in the fourth quarter, the seasonality we typically see in our fourth quarter advisory revenues is likely to be less pronounced this year versus prior years. This reflects the record results we've achieved year-to-date as well as the impact of the market volatility in March and April, which may have influenced the timing of certain transactions and related revenues and possible timing impacts from the government shutdown. Our third quarter underwriting revenues were $44 million, down 1% from a year ago, but up 36% sequentially. Commissions and related revenue of $63 million in the quarter increased 15% year-over-year and was a record third quarter and the highest quarter in nearly a decade. The strength in the quarter was primarily related to higher revenues from trading commissions on stronger trading volumes as well as higher subscription fees and good activity in convertibles and derivative products. Third quarter adjusted asset management and administration fees of $24 million rose 10% year-over-year, driven by market appreciation and net inflows. Third quarter adjusted other revenue net was approximately $33 million, which compares to $26 million a year ago. Nearly 2/3 of the gain is related to interest income in the quarter with most of the balance of other revenue related to gains in our DCCP hedge portfolio, which is correlated to the performance of the broader equity market. Turning to expenses. The adjusted compensation ratio for the third quarter is 65%, down nearly 100 basis points from the prior year period and down 40 basis points from last quarter. Our compensation ratio for the quarter reflects the continued steady improvement we have seen in the investment banking environment and in our revenues. We remain committed to investing in our business and executing on our strategic growth plan as reflected in the record SMD recruiting we've achieved so far this year. As we have mentioned on past calls, we are balancing our investments in growth. We're striving to make further improvement in our compensation ratio over time. And based on our current visibility, we expect our full year ratio to be generally in line with current levels. Adjusted noncompensation expenses in the quarter were $139 million, which is 13.2% of net revenue. This is an improvement of 260 basis points from a year ago and nearly 270 basis points compared to last quarter. The adjusted noncomp expenses of $139 million is up 18% from the third quarter a year ago. As a reminder, the noncomp expense line consists of a mix of fixed and variable expenses. So some of the related line items are going to increase as client activity increases and some of those are client billable expenses and are recouped over time. An example of this would be travel and related expenses, which increased due to higher levels of client travel as well as spend for conferences and client events. Other noncomp expenses increased as we build our business and execution capacity like occupancy and equipment expenses which reflected the acquisition of additional floors in our New York locations and new leases in Dubai, Paris and London. Some of our noncomp expenses occur as we are investing in what we hope will provide improved efficiencies or competitive advantage in the near to medium term, such as increased technology spend which includes investment in the development and implementation of newer technologies as well as spend on licensing and consulting fees. Accordingly, we would expect our non-comp expenses for the full year to be up year-over-year on a percentage basis, generally consistent with what you have seen for the first 9 months. As I've mentioned in the past, we continue to maintain a disciplined focus on our noncomp expenses while investing in areas that are necessary to support our growth. Our adjusted tax rate for the quarter was 28.7% down modestly from the third quarter of last year. Turning to our balance sheet. As of September 30, our cash and investment securities totaled over $2.4 billion. In the third quarter, we repurchased approximately 170,000 shares at an average price of $326.62 and our share repurchase activity continued into the early part of the fourth quarter. Through the end of the third quarter, we have returned approximately $624 million of capital to shareholders through the repurchase of shares at an average purchase price of $264.72 and the payment of dividends. We have more than fully offset the dilution associated with RSU grants from our 2024 bonus cycle. And additionally, we have repurchased a number of shares that exceeds those issued for the initial payment related to the Robey Warshaw transaction. Our second quarter adjusted diluted share count was 44.6 billion shares. As we have mentioned previously, our shares outstanding are impacted by the changes in our share price due to the accounting for unvested RSUs as our average share price increased 42% in the third quarter. We continue to maintain a strong cash position and take into consideration our regulatory requirements, the current economic and business environment, cash needs for the implementation of our strategic initiatives, including hiring plans and preserving a solid financial footing. While various geopolitical and macroeconomic uncertainties remain present, we enter the fourth quarter, optimistic about the environment and are encouraged by the momentum we are experiencing across the firm. We believe we are well positioned and are confident in our ability to deliver strong results. With that, we will now open the line for questions. Operator: [Operator Instructions] Our first question will come from Devin Ryan with Citizens Bank. Devin Ryan: Congrats on the strong quarter. I wanted to just ask a question about the current environment and kind of the trajectory, obviously, really good trends in the quarter and you talked about kind of some larger strategic transactions leading the recovery, but now sponsors are steadily picking up. So can you maybe just explain kind of what you're seeing in terms of the breadth of activity, how that's evolved over the last few months and just expectations here as we exit the year relative to maybe where we were in the earlier where it seems like you guys maybe disproportionately benefited but now things are broadening out and that's helping you as well. So love to get some color there. John Weinberg: Sure. Thanks, Devin. We are seeing a continued strengthening in the market generally. And we're seeing it really across the board, really almost every sector that we cover seems to have real activity. The larger deals started earlier, we're seeing midsized deals really build. And frankly, across the board in terms of the industry sectors, large and small deals are being considered. The engagement level with Boards and management teams is very high. Our backlogs right now are as high as they've ever been. And clearly, as you look at the measurements, the CEO confidence index is building and quite high. And on sponsors, we're in many conversations more than we've been in a long time. And we are actually in many bake-offs also. The bake-off levels has really picked up. So generally, it's quite complete and quite thorough in terms of the activity level. And we see this continuing to build through the end of the year, and we also have -- we anticipate that this will continue to build into 2026. Operator: Our next question will come from Brendan O'Brien with Wolfe Research. Brendan O'Brien: So I just want to ask on comp leverage and the top line results have been very impressive year-to-date. However, despite the strong revenue growth, you've only been able to lower the comp ratio by about 70 bps, implying an incremental comp margin of about 63% versus historically in the low 50s. I understand that you've been leaning into recruiting quite a lot this year and have had a lot of success adding talent to the platform. But I just want to get a sense as to how you're thinking about the incremental comp margins in the coming years and whether you expect to see any improvements from the current levels if the pace of hiring slows relative to this year's record level? Timothy LaLonde: Yes. Brendan, thanks for the question. As you pointed out, we have made comp leverage. I was just trying to make that clear first point. 2 years ago, our comp ratio was 67.6% so we're down 260 basis points from 2 years ago. Last year, our comp ratio was 66% in the relevant quarter. And so we're down 100 basis points from that. That's in the context of having added 18 partners and 1 senior adviser, which is our biggest partner hiring year ever. And so what we're trying to focus on here is not micromanaging or suboptimizing the comp ratio, but optimizing the overall value creation and strength of our platform and our ability to serve our clients and create value for the shareholders in the medium and long term. And so honestly, I actually feel pretty good about where we landed relative to adding 18 partners and 1 senior adviser this year. Now having said that, that doesn't mean that we're not still striving to make improvement. And as I mentioned, we've made 260 basis points in the last 2 years, 100 so far quarter versus quarter last year. And I think I mentioned in our comments, we would expect to end this year somewhat similar to where we were this quarter. Now in order to accomplish that because we're down 40 basis points from last quarter and down 70 basis points from the first quarter mathematically that would require us to be a little bit lower in the fourth quarter than we are this quarter in order to accomplish that. And then as we look at long term, we're striving to make additional progress, although we don't want to do it at the expense of building long-term profitability and value. Operator: Our next question will come from Brennan Hawken with BMO Capital Markets. Brennan Hawken: I'd love to drill into those comments, Tim, because I hear you that you're adding -- I hear you that the level of competition for talent is intense. And you've made reference to the fact that it falls about recruiting and retention given the caliber of bankers that you have. So it's clearly the environment is challenging. I doubt that's going to change. I mean, you guys have spoken regardless of 4Q and timing and all that other ones. The environment is getting better, and it seems like the bulge brackets are punching back in a really sort of strong way. So that doesn't seem like it's going to fade. But do we need to give up the ghost on the low 60s right? Because you did 40% revenue year-over-year comp leverage 100 bps. Yes, it's improved from the really bad levels of 2023. But like in order for us to be thinking about -- the really investments you're talking about it is like where are we going to get to in 2027. And most of that underwrites low 60s comp ratios. Given what you noted, is that realistic? Or do we need to re-underwrite things in a more meaningful way? Timothy LaLonde: Thanks, Brennan, for your question. Look, it's -- the way to think about this is there will not be a quick return to those kinds of levels, okay? Not a quick return. What we've talked about is making gradual progress over time. And I'd reiterate that the comp ratio you saw it's down 260 basis points. We've talked about in my last response that we think the fourth quarter will be better on a comp ratio perspective than the third quarter because mathematically, that's what's required to get us to this type of level for the full year. And so that's the first point. Second point would be we're focused on max, first and foremost, serving our clients and providing excellent services to them. But with respect to the shareholders, we're focused on creating value. In the medium and longer term one of the ways we do that is increasing our earnings per share and our cash flow per share over time. And if 1 models it out, what you'd see is that there's this trade-off between investment and growth. And that the way to create the most value is to grow and then to improve or provide some improved margins as we progress. That's what we're focused on. And so the short answer to your question is there's certainly is not a quick return. What I talked about in the past is each year trying to make progress. And when we can make additional progress then I would invite you to raise that question again, and we'll see what the art of the possible is at that point. But not -- it's not a quick return to those levels. Operator: Our next question will come from James Yaro with Goldman Sachs. James Yaro: John, you touched on this a bit, but perhaps could you expand a little bit on the impact of the government shutdown on your business in terms of time line and whether any of the effects will be permanent? And then could you differentiate between the impacts on the equity capital markets and M&A. John Weinberg: Sure. Thanks, James. We think that we don't really know exactly what the impact of the government shutdown is going to be clearly. If it gets settled in the near term, we think it will be just a temporary blip, and we will move forward with dispatch on all the things that are coming in and being looked at. If it goes a lot longer, you could see it having some impact. Although I think our view is with the things that we're working on that may be slowed down, we don't think any of them right now are going to be sidelined. We just think that they're kind of moving slowly and that none of them are being pulled apart. So our view is that the government slowdown is going to become more of an impact if it goes longer, but we don't think it's a permanent impact. And we think that there would be a rapid recovery as soon as things start to open up again. In terms of ECM and M&A, both of those are moving forward slowly. I think that the staffing levels, the SEC, the FCC at the Justice Department clearly are going to slow things down on some of these deals. ECM has a workaround that can be done but we do think it will be slowed. And on the M&A side, with respect to Justice, it's going to go slower there, too. So I think, generally, I think my comments are consistent that it just depends, and it depends how long this goes. We don't anticipate that this is going to have a meaningful impact as we finish out this year. So we think it's going to -- it will resolve itself. And we think that when it does resolve itself, we think that the deals that are being contemplated will be rapidly brought to the market. Operator: Our next question comes from Ryan Kenny with Morgan Stanley. Ryan Kenny: I have another government-related question, which is on regulatory environment. Can you update us on what you're seeing there, especially on time to close deals? And are you seeing an improved environment across the board? Or are there some industries where scrutiny is higher. John Weinberg: What we're seeing is that the way the government is looking at this is consistent. And obviously, people have said that Big Tech has been focused on by government, we're seeing that the deals that we're working on seem to be moving through the system quite well. We think that the regulatory environment, many people expect, and I think we would expect that there continues to be a loosening of the regulatory overlay. But that's going to be somewhat specific in terms of how that's addressed. In general, we think that it's a more benign environment, and we think that the art of the possible is quite broad right now. And so we'll -- I think we will see as things go. And as these different deals that are being contemplated are brought but we feel quite optimistic. Operator: Our next question will come from Nathan Stein with Deutsche Bank. Nathan Stein: I wanted to ask about potential impacts related to some unexpected losses at, let's say, traditional banks and private funds in recent weeks, call it, tricolor first brands, et cetera. I guess just combined with the government shutdown, you started -- you sounded like that was more transitional, but are these headlines making clients in general, more hesitant to transact? John Weinberg: I think that people are looking at these losses right now, and I think there's a broad narrative that these losses are fairly isolated. In our experience, and we've really -- we've talked to a lot of our bankers, and I certainly have been in some boardrooms since these situations. I think people are looking at this as being something that is a possibility but it's not broadly impacting the market. And people aren't thinking that this is going to shut down the credit markets or it's going to limit the credit markets. I think people think that this is just something that happens in all markets, there are always going to be some trips, but this is not a system-wide issue. And for the most part, I think people are forging ahead. Operator: [Operator Instructions] And our next question will come from Alex Bond with KBW. Alexander Bond: Wondering if you could just share your outlook for DCM business more broadly here for the fourth quarter. The IPO market is obviously still heating up, but you mentioned some of the impact or I guess, the still unknown impact of the government shutdown here. So yes, maybe if you could just share how you're thinking about how your pipeline is shaping up for the back end of the year here. John Weinberg: We are seeing a strengthening pipeline. We are seeing that there are significant deals kind of lining up in the market. And we are quite optimistic that these deals will see their way through. As we've said, there will -- if the government stays shut, there will be some slowdown there. In many cases, there is a workaround that can be done but this will slow down. Having said that, the backlog is building, and there is quite a broad optimism that these will get done. In addition, I think there's a growing appetite of investors that they really like the IPO market right now with respect to what it offers in terms of investment opportunities. And so I think we think that it's -- we have this cloud of the slowdown of the government shutdown, but we think that this will lift and that the market will go well. And in fact -- and we do have really quite a strong backlog that it has built. Operator: Our next question will come from Jim Mitchell with Seaport Global Securities. James Mitchell: Maybe you could talk a little bit about Europe. You had a record year and a record quarter in the third quarter. Obviously, that doesn't include Robey Warshaw yet. So can you, I guess, number one, give us a lay of the land of Europe and the environment? And secondly, even after Robey Warshaw, how much white space in terms of investment do you see? John Weinberg: Thanks, Jim. We've been really focused on Europe. And we have built out Europe significantly. As you know, a couple of years ago, we brought in a Spanish team, and we built that. We have really built out our France team. More recently, we've brought in Scandinavia, and we also have an Italy team. And so we've really, really tried to address the market. And then, obviously, there's Robey Warshaw, who have not -- we closed that deal the beginning of October. And it's just now kind of getting really geared in. We're feeling very optimistic about Europe. In terms of the activity level, they did have a record quarter. It was broadly across sectors. We're seeing a growing strength. I think in some ways, adding the throw weight of all of these different professionals who we think are really outstanding is really helping our momentum generally around Europe and not just in the U.K. but through the continent, and we see this continuing. In terms of white space, there's a tremendous amount of white space. As we fill out countries, there's just many, many companies, which we've never covered before that we're now able to cover and cover quite well. We obviously aren't going to be the biggest but we think that the quality of the people that we've hired, we're going to be able to really serve some very, very strong companies that we've really never had relationships before with and that will really continue to build the momentum. So I think that in terms of -- as we think of our growth worldwide, we really do anticipate that Europe is going to be quite a constructive part of really what we're able to offer in terms of growth for shareholders. Operator: Our next question will come from Brennan Hawken with BMO Capital Markets. Brennan Hawken: You guys have spoken to the non-M&A piece reaching half on a TTM basis, which is great and very encouraging to see. As M&A turns back on, where would you expect that share of non-M&A revenue to drift to? Is it reasonable to think it will go from like half to about 40%? Or are you more thinking maybe it's more like 1/3. What's the right way to think about that? John Weinberg: Well, it's really hard to say. I mean, as you know, that if you look at our full year year-to-date, non-M&A was 50% as we've gotten into the third quarter and M&As continued to pick up, it's now -- it was at 45% for the quarter. As M&A continues to strengthen that, will go down some, although I would say that our non-M&A businesses are firing on all cylinders. If you look at our PCA business, which is the secondaries business and continuation vehicles or you look at the PFG business, which is our fundraising business or you look at the restructuring business, all of those businesses are running full out. And each of them is looking at record quarters and doing very well. And so I think that the M&A business is a powerful part of our overall offering to clients, and it probably will overpower some of the other places as it gets stronger and stronger. But having said that, I think we've got a formidable diverse set of businesses that are going to continue to be quite influential in terms of the percentage of our M&A and non-M&A offerings. And so I think that you will see M&A start as it really picks up. And if it gets really, really strong, it will continue. You've asked is it going to be 40% or 30%, Hard to know but I don't see it getting a lot below 40%. But no, we'll just have to see. And a lot of it has to do with does M&A really pick up. We are so well conditioned and ready for the continuing growth and strength of M&A, we may have seen a lot of activity coming through there. Operator: There are no further questions in the queue at this time. So I would like to conclude today's Evercore Third Quarter 2025 Earnings Conference Call. You may now disconnect.
Massimo Reynaudo: Hello, everyone. Welcome to UPM Quarter 3 2025 Results Webcast. I'm Massimo Reynaudo. I'm the CEO of UPM. And here with me today is Tapio Korpeinen, the CFO. The third quarter brought some temporary clarity to the terms of the international trade, but significant uncertainty remained, and the consumer demand stayed subdued. Our businesses in Advanced Materials and in the Decarbonization Solutions segment improved their third quarter performance compared to the previous year. On the other hand, the Renewable Fibres, and Communication Paper businesses were impacted by the unusual volatility in their operating environment. In quarter 3, comparable EBIT was EUR 153 million, up 21% compared to the previous quarter, but down 47% compared to the last year's corresponding period. The EBIT margin was 6.7%. During the quarter, we continued to take decisive actions to further strengthen our competitiveness. Our focus has been and is on improving performance, cash flow generation and the strength of our balance sheet. I will come back and tell you more about these actions during the presentation. But first, let's look at the macroeconomic environment we operated in quarter 3. And let's look at Renewable Fibres to start with. As you may remember, the pulp market prices decreased during the peak of the trade uncertainty in quarter 2 and starting from China. In quarter 3, pulp sales prices remained low, impacting our quarter 3 earnings. As a positive sign though, during the quarter, the pulp demand normalized in China and hardwood pulp prices increased somewhat from the bottom. In Finland, wood costs reached their highest level in quarter 3 when then wood market prices started eventually to show the first signs of decline. Communication Paper markets remained weak in Europe and in North America. The demand in Europe in quarter 3 was 7% lower compared to 1 year before. In the U.S., the new import tariff levels were finally set during the quarter, bringing some clarity and allowing the customers to properly plan their needs again and for us, restoring the possibility to properly plan and optimize production and shipments. Having said that, the general uncertainty continued to weigh on the business sentiment and ultimately, on the level of the demand. Turning the page. In the advanced materials segment, the demand of labeling materials remained relatively resilient. In the adhesive materials, specifically, the demand was seasonally low, lower than quarter 2. But when we look at the full year base, the market continued to grow, even though some signs of a slowdown were visible in the U.S. The demand for plywood was stable, and I will tell you some more about this business shortly. In Decarbonization Solutions, the market situation in general improved. When it comes to the energy business, in fact, the electricity consumption in Finland continued to be robust, and the electricity prices increased from the comparison quarters. In the same way, the prices of renewable fuels continue to recover, supported also by an improving demand. At this point, I will hand it over to Tapio for some more analysis on our results. Tapio Korpeinen: Thank you, Massimo. So let's start here with our results by the business area. Fibres and Communication Papers were the business areas that reported a lower EBIT compared to last year, whereas Adhesive Materials, Specialty Papers, Plywood, Energy and Biofuels, all improved their EBIT year-on-year. First, on Fibres. As Massimo said, pulp prices were very low in the third quarter, decreasing 11% sequentially from the second quarter or 23% from last year's third quarter. Price development resulted in a significantly lower EBIT than last year, and slightly lower EBIT compared to the second quarter. At the cycle low prices, Fibres South, the competitive pulp platform of ours in Uruguay, reported an EBIT of EUR 80 million, which is equal to an EBIT margin of 22%. Fibres North, that is the pulp and timber operations in Finland, reported an EBIT loss of EUR 37 million in the third quarter, during which the Kaukas pulp mill was down for maintenance and for extended production curtailment and the impact of this was approximately EUR 30 million on the quarter. This means that at cycle low pulp prices and peak level of wood costs, UPM Fibres North was slightly negative in EBIT and positive in EBITDA, excluding the Kaukas shutdown. Communication Papers deliveries were stable from the second quarter, but 13% lower than last year in the third quarter. The average paper price in euros decreased by 1% compared to the second quarter and 6% year-on-year. Fixed costs decreased in Communication Papers. EBIT decreased from last year, but improved slightly from the second quarter sequentially. Adhesive Materials and Specialty Papers achieved increased deliveries and lower costs compared to last year. Both increased their EBIT year-on-year and showed resilient performance from the previous quarter. Plywood reported solid results with normal production now and increased deliveries. Energy had a good quarter, benefiting from increased electricity market prices and from successful production optimization in the volatile electricity market. Our average sales price for electricity increased 17% from last year or 12% from the second quarter. And on this page, then you see our EBIT development by earnings driver. And as you can see here, the main headwind in the third quarter were the sales prices. On the left-hand side, lower sales prices impacted the third quarter results by about EUR 190 million compared with last year. Sales prices decreased most notably in Fibres and Communication Papers. Lower variable costs had a significantly smaller positive impact. Changes in delivery volumes were neutral on group level, while deliveries increased for Pulp, Adhesive Materials, Specialty Papers, Plywood and Biofuels, there was a decrease in deliveries in Communication Papers. Fixed costs increased mainly due to the maintenance shutdown at the Kaukas mill. On the right-hand side, sales prices had a negative impact also compared with the second quarter, mainly due to the low pulp prices. Variable costs decreased for most categories compared to the second quarter, but wood costs still increased, however, following the earlier wood market price development with the usual lag. Fixed costs decreased from the second quarter due to lower maintenance activity and also due to seasonal factors. Then our operating cash flow was EUR 218 million in the third quarter, and our net debt decreased by EUR 92 million from the second quarter and was EUR 3.218 billion in total at the end of the quarter. Net debt-to-EBITDA ratio was 2.36x. While we see our financial standing as solid, this is somewhat above our policy limit of 2x net debt to EBITDA. And therefore, obviously, we aim to bring the net debt-to-EBITDA back to below 2x level in a timely manner. Massimo will shortly discuss the various actions we are taking to improve our profitability. In addition, we are pursuing working capital release and improving our cash conversion, working capital efficiencies to support our cash flow. Our outlook is unchanged from the previous quarter. We expect our second half 2025 comparable EBIT to land in the range of EUR 425 million to EUR 650 million. Our fourth quarter performance is supported by the timing of the annual Energy refunds. In Communication Papers, the amount of refunds is likely to be similar or slightly smaller than last year. It is also likely that there would be a forest fair value increase in the fourth quarter, which could be of a similar magnitude or smaller than what we had last year. Fibres performance in the short term continues to be impacted by pulp prices. In the fourth quarter, we have actually already completed in the month of October, the planned maintenance shutdown at our Fray Bentos mill in Uruguay, which will have an impact on the quarter result of similar magnitude or scale as was the case in Kaukas, about EUR 30 million. In Advanced Materials businesses and Energy, we expect resilient performance to continue. And now I'll hand back over to Massimo for some comments on our actions and direction from here. Massimo Reynaudo: Good. Thank you, Tapio. Well, we continue to take decisive actions to improve our competitiveness and performance, as I said earlier. Most of our businesses have a significant organic growth potential that can be captured with targeted limited and CapEx-efficient investments. That's what we will be looking into. But finally, or in parallel, we continue to develop a portfolio of world-class businesses. Let me illustrate now the most characterizing initiatives we are implementing segment by segment, and let's start with Communication Paper. In this business, efficient capacity utilization is critical. And in a weaker market, we plan to close down paper production at the Kaukas mill in Finland and at the Ettringen mill in Germany by the end of the year. Together, these two closures will reduce our paper capacity by 570,000 tonnes or 13% of our current capacity. This initiative will lead to a combined reduction in annual fixed cost of EUR 70 million. With these measures, we will maintain our competitiveness and the future performance. In October, we also sold the earlier closed down Plattling paper mill site in Germany, and this will contribute to Communication Paper cash flow in quarter 4. Let's move to UPM Fibres now. Tapio has anticipated it, but given the significance of the UPM Fibres business and the distinct characteristic of the business in Finland and in Uruguay, we have decided to provide some additional transparency here. So we introduce today the notion of Fibres South to refer to our Fibres platform in South America, and Fibres North, to refer to the Fibres platform in the Nordics. As a first step, today, we indicated the EBIT level for the two parts. Next, we will start providing additional financial information for the two parts on a regular basis starting in quarter 1 next year. But meanwhile, when it comes to Fibres South, 2025 is the first full year of production at nominal capacity for the Paso de los Toros pulp mill, and also the first full year of operating at full capacity for the supporting logistics network. The pulp prices are very low, as Tapio mentioned earlier. But despite that, Fibres South reported an EBIT of EUR 80 million during the quarter and a margin of 22%, which is indicative of the competitiveness of this platform despite the weak market conditions. For years on, improvements will continue. By 2027, the expanded plantation areas we have in Uruguay will increasingly reach harvesting maturity, enabling us to optimize the wood sourcing and the inbound logistics. Further, self-sufficiency will increase, and inbound transportation distance will decrease, therefore, reducing cost. To give it a scale, in the beginning of this year, 2025, we envisioned a cost reduction of some $25 to $30 per tonne compared to 2024 in Uruguay. We are well on track to achieve this this year. But we believe that, thanks to this further and ongoing optimization, we will be able to provide roughly a similar improvement by 2027, of course, all the rest remaining equal. Besides that, we will continue to pursue growth in a CapEx-efficient way through further debottlenecking. When it comes to the other platform and in Finland, Fibres North was in a slightly negative EBIT territory in quarter 3, excluding the Kaukas shutdown. Wood costs reached their highest level in the summer before starting to decrease. Pulpwood market prices on average decreased some 5% in quarter 3 compared to quarter 2. In this situation, we took measures to adjust the Finnish pulp operations to the market situation. We took 2 months of downtime at the Kaukas mill during quarter 3. And we will take 2 weeks of downtime at the Pietarsaari mill in quarter 4. These measures will allow us to optimize our wood sourcing and avoid the most expensive wood. The benefits of these actions will be fully visible in the P&L when the purchased wood volumes will be consumed, which means during quarter 4 or the early part of next year. Another significant action we implemented in this space is the long-term strategic partnership we agreed with Versowood, and that we've announced in September. Versowood is the largest private producer and processor of sawn timber in Finland. The deal is beneficial for both parties. For us, it will strengthen the supply of pulpwood and chips, and improve the cost efficiency of our wood sourcing. Moving to another segment. In Advanced Materials, as we have characterized it before, our performance has been resilient. During 2025, Adhesive Materials has reduced fixed cost and streamlined its product portfolio significantly. Earlier, we announced the closure of the Kaltenkirchen factory in Germany and the relocation of the production to lower-cost locations. In quarter 3, we announced plans to discontinue the production in Nancy, in France, in order to increase further production efficiencies and competitiveness. At the same time, and in line with the strategy communicated earlier on, we -- the business continues to seek focused growth in higher margin and higher growth areas. In this direction, go the investments announced in the U.S., in Malaysia and in Vietnam. In parallel, the business continues to build its positions on the graphic space following the recent acquisitions. When it comes to Specialty Papers, there two efficiency measures have been implemented, aimed to reducing costs in China, and protecting the competitiveness in that area. From a commercial standpoint, the business continued to develop solutions being paper-based and alternative to plastics for the growing segment of flexible packaging end users. And in Plywood, we initiated a strategic review to assess options for maximizing the long-term potential of the business. The review includes a range of alternative outcomes -- possible outcomes, including potential separation from UPM through a divestment, a partial demerger or an initial public offering. The aim is to determine the best path forward for the business and for the value creation for UPM shareholders. But let me spend a couple of minutes to tell you a bit more about this business. First of all, Plywood is a very good business. It has a strong market position in the mid- to high-end market segments where it operates in Europe. And in the liquid natural gas segment, it holds a market-leading position globally. The business success is built on a number of specific strengths: A competitive premium offering generated through or from 4 spruce mills and 3 birch mills, the top-tier quality of the products manufactured there; a strong and reliable customer base; a strong brand, WISA, extensively recognized in the industry; and unmatched service capabilities, thanks to 6 warehouse hubs and some more. Thanks to that, the Plywood business has successfully provided good profitability and cash flow in all the different economic cycles of the past. On the other hand -- and despite all of this and despite the fact the UPM Plywood business is the scale of a midsized company in Finland, it is the smallest of the UPM businesses. And as such, it competes for focus and resources with much larger businesses. For these reasons, we want to assess whether on a different setup, acting on a stand-alone base or being part of another entity, will enable even better results. Therefore, this is the rationale for the strategic review, and this review is expected to be conducted or concluded by the end of 2026. Finally, we come to the Decarbonization Solutions. And here, we have unique solutions, all offering our customers ways to decarbonize their businesses. In Energy, we have 12 terawatt hours of CO2-free electricity, which make us the second biggest producer in Finland, consisting of reliable baseload of nuclear power and flexible supply of hydropower. This mix allow us to maximize the value on a highly volatile weather-dependent electricity market. On the other dimension of growth there, we have the capability to supply CO2-free electricity to a market where the demand is growing due to the electrification of the industrial production, heating moving away from biomass use and numerous data center-related projects and road transportation. In Biofuels, our short-term focus has been on improving performance and getting it back to profit after a challenging 2024. Here, we have made good progresses this year. In terms of growth, we are planning CapEx-efficient debottlenecking at the Lappeenranta refinery. Simultaneously, we are proceeding with the qualification of process -- sorry, with the qualification of sustainable aviation fuels. Last but not least, the start-up of our groundbreaking biochemical refinery in Leuna, in Germany, is proceeding. It's -- in the first of its three core processes, we have successfully achieved stability after having started production during the summer, and the production levels are now on an industrial scale. The sale of the first commercial products, which are industrial sugars and lignin-based products are expected to start during quarter 4, followed by glycol sales in the first half of 2026. In line with earlier indications, full production and positive EBIT is expected during 2027. So -- and to sum up, the market environment during the third quarter has proved to be challenging. But in this environment, our differentiated business portfolio has ensured resilient performance. Our Advanced Materials and Decarbonization Solutions improved their performance compared to 1 year before. Fibres and Communication Papers were impacted by the unusual volatility in their business environment. Most of the businesses have a growth profile and significant growth potential that can be captured with targeted investment and limited extra CapEx needs. This includes but does not limit to the entry in the new promising biochemicals business. So while we work to capture this potential, we continue to work on actions to improve profitability, cash flow and the strength of our balance sheet. This ends the prepared part of the presentation, and we are ready for your questions. Operator: [Operator Instructions] The next question comes from Ioannis Masvoulas from Morgan Stanley. Ioannis Masvoulas: Two questions from my side. The first on UPM Fibres. You talked about the Nordic mills being EBIT negative in the quarter, even if we adjust for the Kaukas maintenance. Given this weak profitability and market backdrop, would you consider more drastic measures that could perhaps include permanent curtailments? Or are you looking to wait for a recovery in the cycle especially now that pulpwood costs have started to come down? And then the second question related to the above. Can you give us an indication on the tailwind you expect from the lower pulpwood prices in Q4 this year and Q1 next year? And if you can also remind us on earnings sensitivities around wood price changes, that would be much appreciated. Massimo Reynaudo: Okay. Well, I'll pick the first part of your question, Ioannis, and leave the other part to Tapio. But let's say, as it was commented during the earlier part of this call, we had a negative EBIT in the quarter 3 in Finland. But there are a few elements to be considered there or three main elements. One is the impact of the maintenance shut, and then the additional shut we had on top of that. The other element is that wood prices were at their peak, and pulp prices were very low. Time will tell if it's a bottom, but they were surely very low. So there was a very specific coincidence of elements, all impacting the profitability. As we have commented a number of occasions before, our Finnish operations have always been profit positive so far. And well, time will tell in the future, but we run very efficient assets. And the actions we have taken during the quarter, namely prolonging the stop of the -- in Kaukas to, let's say, avoid to buy more expensive wood, but also to improve wood availability into the next quarter, is definitely going to be benefiting the performance going forward. The same way the agreement reached with Versowood will aim to improve on another of the critical elements about wood in Finland, which is availability. So as part of the deal, we will be providing Versowood logs and sawing capacity that is what they are interested to. We're going to be receiving more pulpwood and chips, which is what we are in demand of. So on the base of this, we are working to maintain and improve the profitability of the current platform. And the current platform has always been delivering, let's say, performance across the cycle. So on such base, any stop or discontinuation of capacity will just have a negative impact on results. So that's why that's the plan we have been working upon. Of course, then in the future -- situation will depend by the circumstances in the future, but we are working hard on the circumstances we control through what I said. Tapio Korpeinen: Maybe if I'll comment on your sort of second question. So as Massimo already pointed out, we saw pulpwood prices peaking during the summer and notable drop in the market price taking place. Having said that, it's good to note that there is a certain sort of seasonality in the sort of market prices typically for wood in Finland. So it's perhaps early to directly sort of extrapolate too much from this sort of shorter-term movement here. But then again, I would say that against the backdrop of what is happening in the Nordic markets in general, it is perhaps an indication in a sense that we have seen the kind of a peak in the trend, so to speak. There is a lag given the sort of cycle in our sourcing of wood -- the mix of wood, including pulpwood that we need for our operations in Finland. So therefore, would not expect any material impact yet of these kinds of movements in the fourth quarter, nor really yet in the first quarter of any big way yet. Typically, there is about 6 months' time period before the sort of market price changes start to materialize in the cost of wood consumed in the pulp mills in a bigger way. Ioannis Masvoulas: That's very clear. And sorry, just to follow up, anything you could provide on sensitivities for EBIT or EBITDA on, let's say, 10% change in wood prices? Tapio Korpeinen: That sensitivity, we don't have. Operator: The next question comes from Lewis Merrick from BNP Paribas. Lewis Merrick: With the Leuna project concluding, do you expect CapEx to be lower in 2026? And can you give a rough indication of what you expect at this stage? I've just got one more follow-up. Massimo Reynaudo: Yes, definitely, CapEx will be lower in 2026, maybe in 2027 as well. We have commented also in the past that after a big investment cycle, now it is the time to focus on extracting the value from these investments, whether it is Paso de los Toros or Leuna. So at this point in time, we do not have any other significant project that will require CapEx on a large scale for the next couple of years. Then when it comes to the CapEx needs for next year, we have not defined them yet. But just to give you a broad indication, our, let's say, maintenance CapEx level in normal condition is in the EUR 250 million per annum level. And then you can put a few tens of millions for potentially, let's say, efficiency improvement, margin enhancement initiatives on top of that. That would be broadly speaking, the scale going forward. But for more accurate indications, you need to wait, the beginning of next year. Lewis Merrick: No, that's crystal clear. And just on bridging items into Q4 to sort of reach or surpass your H2 guidance. You mentioned the forestry rebounds similar to prior. Can you just put some numbers to that? And then similarly on the Energy refunds and any other sort of moving parts from Q3 into Q4? Tapio Korpeinen: Well, if I take that, so as mentioned, basically, this forest value change for assets here in Finland, primarily then last year, we had a bit more than EUR 100 million. And as I said, we obviously then we'll see the exact figure as we sort of run the numbers during the remaining months of the year, remaining quarter. But anyway, at the scale or below what we had last year would be likely outcome from that. And well, Energy refunds, again, a bit similar, let's say, comparison there that we have had this Energy refunds in the fourth quarter of the Communication Papers as we did last year as well and this year, likely to land slightly below of the level of last year. Lewis Merrick: And just any other items to call out? Tapio Korpeinen: Nothing else other than I pointed out that we have the maintenance shutdown that was planned and actually has been completed as planned in our Fray Bentos mill in Uruguay, and that was done in the month of October now. Operator: The next question comes from Linus Larsson from SEB. Linus Larsson: Maybe a follow-up on the previous question on the Q4. Q3 bridge on Fibres specifically, what's the aggregate impact of maintenance and market-related downtime in the fourth compared to the third quarter? Is that pretty much the same? Is it easing? Or is it worsening in your opinion? Tapio Korpeinen: Well, as I said, similar in a sense that the Fray Bentos shutdown is about, let's say, same scale, EUR 30 million as what we had from the Kaukas shutdown in the third quarter. Linus Larsson: Sure. But if you add to that, the market-related downtime at Kaukas and [ Bentos ], respectively, is it pretty much the same, Q4 as in Q3 altogether? Tapio Korpeinen: Nothing to add. Linus Larsson: Okay. And then moving on to Biofuels. I didn't see you disclosing the split of other operations. Maybe you did, and I missed it. But could you maybe help us pinpointing Biofuels EBIT in the third quarter? And maybe if you have any guidance on the fourth quarter as to where Biofuels may end up? Tapio Korpeinen: Well, let's say, what we did point out when commenting on the second quarter result was that we had a breakeven result. As far as Biofuels is concerned during the quarter, from our own kind of actions from the cost and efficiency volumes side and, let's say, modest support from the market, and we continued at the same level of profitability now in the third quarter, breakeven. And let's say, again, working on our own efficiencies and, let's say, as you perhaps have seen market prices recovering in the biofuels market and, let's say, short-term sort of market situation tightening. So we would expect some support from there. Obviously, then not happy at that level as such. So look to improve further into next year. And again, one factor that will impact demand, especially for the kind of advanced biofuels that we are producing is the country-level implementation of the RED III directive. Linus Larsson: Excellent. That's very helpful. And then maybe one final question, and we touched upon it already in the call. But when it comes to Fibres operations in Finland, you made a loss of EUR 37 million. To what extent did you have support, help included in that negative EUR 37 million from positive revaluations? Tapio Korpeinen: There are no revaluations in the Fibres North because as perhaps you remember, the Finnish forests are included in our other segment in terms of our reporting segments. Operator: The next question comes from Robin Santavirta from DNB Carnegie. Robin Santavirta: Two a bit more technical questions from me. First of all, in terms of the revaluation of the Finnish forest assets, which you booked in the other operations, it looks like they will be quite sizable again this year. I guess the gross impact will be more than EUR 150 million on an annual basis in 2025. And I understand there's three components here: there's interest rates, there's net growth and then the price of wood raw material. And the key point now probably is the higher wood raw material prices that is supporting materially the adjusted EBIT and the forest revaluation '25 as it did in '24. And going into '26, a bit color would be appreciated to understand how you look at the forest revaluation of the Finnish because now we have the pricing coming down quite clearly. So could the -- should we expect the revaluation gain to be much smaller? A bit smaller? Same level? Any color on that would be appreciated. Tapio Korpeinen: Yes. Well, of course, let's say, time will tell. And of course, also you have to kind of remember in a sense that on one hand, the result and the value of our forest has been supported by the price increase here in Finland. But obviously, it has been a headwind for our pulp mills and sawmills here in Finland. Now if that kind of tide turns, it will work the other way around. So perhaps then the result, obviously, because everything is done in a market price basis for the forest operation, then will be impacted if market price is lower for wood, but then it's for the benefit of the sawmills and the pulp mills here in Finland. So obviously, that's how it works in our business model. On the price impact, of course, again, it is correct to consider in a sense what is happening in the wood market in the short term when setting the price expectations in the valuation model. But then, of course, what we have in there, to begin with, is a sort of management view on kind of the longer-term trend since we are running the valuation model for multiple decades here. So in that sense, there is a kind of level change as such, but the assumption in terms of what is the direction of sort of wood price in our model then otherwise, is kind of assessed separately, meaning that if wood price goes up, it doesn't mean that we assume that it goes up from here to eternity and vice versa. So there will be some change, obviously, then if this trend sort of starts to go to the other direction, but perhaps not as dramatic as one might think. Then as you said, the sort of other factors, the growth in the forest vis-a-vis harvest levels, interest rates will sort of play a role as well and early to sort of anticipate anything there. Robin Santavirta: Yes, the reason -- I obviously understand that what you lose there on price of wood, you gain in the industrial operations that I appreciate. It's just that it's quite sizable, more than EUR 150 million positive. And then if it would only be, say, EUR 50 million positive or EUR 25 million positive in 2026, it's a quite big delta. So -- but perhaps we get a bit more color as well when you guide then for next year. And the other question I have is related to Leuna. And again, a technical question. So I'm just -- I keep pushing on the depreciation estimate because it's still EUR 1 billion investment, so quite sizable depreciation. I can only see in the other segments, low depreciations, even lower than last year. So is this something that we should expect now as of Q4? Or is it as of next year? And any color on the size of those? Tapio Korpeinen: Well, basically, when we start -- I mean, whether it's this plant or pulp or otherwise, when we have finished an investment project, we start commissioning and eventually, when we start to have deliveries to customers, then the depreciation starts. So not meaningful this year yet, but we will then start in the beginning of next year when -- now the customer deliveries are starting to take place. Robin Santavirta: Tapio, can I just try? Is it EUR 40 million a year or something in lines of that -- the line depreciation? Tapio Korpeinen: In that scale, yes. Operator: The next question comes from Andreas Castanos Möller from Berenberg. Andreas Möller: My first question is on the strategic partnership with Versowood. It sounds very promising because you're putting together the largest pulpwood consumer with one of the largest solo consumers. So financially, what do you expect to get in terms of synergies? What do you think is a reasonable assumption here? And then also operationally, can you help me visualize how and why the synergies are generated? Massimo Reynaudo: Well, I risk here to repeat myself a little bit. But when it comes to the financials, we don't disclose them. But when it comes to how the benefits will materialize, is in this exchange of things which, one is in excess, and the other is in need of. It's what I was saying before, thanks to this deal, which, by the way, is subject to merger control authorities and still needs approval just to line things properly down. But should that happen, we will be having access to more wood chips and pulpwood. And to remember the importance of that, we have quoted it a number of times, the situation in Finland to be made challenging for pulp making. Because of wood prices, but also prices don't solve the problem of insufficient wood available. So through this deal, we will have more access to something which is key and critical for our operations. So that is the value that comes from this deal. Yes. So beyond the numbers, I don't know if I have answered your question. Andreas Möller: It is helpful. Can I ask a couple of more clarifications, please? Did you say that the time for the end of the review -- strategic review for plywood was '26, end of '26. Did I get that right? And also... Massimo Reynaudo: Yes. Andreas Möller: Okay, clear. And then the other one is for Leuna, right? You mentioned industrial sugars. And I was wondering if industrial sugars is a product that you would aim to sell in the future? Or this is something that you're just selling temporarily as you are not finalized the whole process to generate [ alcohols ]? Massimo Reynaudo: Yes. It's a very good question, and it's a very good observation as well. This is most of an intermediate product that we are getting, which has some market value. But the full value capture, imagine in the business case, will come when the plant will be in full operation, and these intermediate products will be turned into [ Finnish ] products being either functional fillers or glycols or products in this family. So there is some value in this, but the full value capture -- and we'll start to capture it, to be clear, by the end of this year, but the full value capture will start with the plant in full operation. Operator: The next question comes from Cole Hathorn from Jefferies. Cole Hathorn: I'd just like to start with Communication Paper and Specialty Paper. I'd just like to understand the key deltas into 2026. If you were to talk about what could be the positives into 2026, could you talk me through the moving parts of how you see it? If I think about Communication Papers, it's the EUR 70 million fixed cost savings from capacity closures. In Specialty Paper, I'm just wondering how you see that market considering Asia fine paper is quite challenging. And the release liner and labels businesses, there seems to be some smaller players out there are challenging. So I'm just wondering what are the moving parts into 2026 that you see? Massimo Reynaudo: Okay. Well, let me try to answer the question, but let me separate it in two because the two businesses are pretty different profiles. So if we start with Communication Paper first. Well, one element is represented by the market. And we don't know what will be the level of the market demand next year. Nobody knows it. But in this market demand has declined for the last 20 years. So we can expect the decline continuing next year. That, as a negative, if you want. At the same time, the market this year or in the first part of this year has been heavily disrupted by the uncertainty that came as a consequence of the trade war. Let's not forget, there's been significant uncertainty, for example, in the U.S. around whether there were tariffs, who was hit by the tariffs, the amount of the tariffs, when they would apply and so on. That has made extremely difficult for the players there to proper plan ahead and that had impact across the entire value chain. And last but not least, again, in quarter 2, the demand of certain type of grades in the U.S. dropped down significantly during the period of the strongest sanctions between U.S. and China because imports from China were basically stopped and catalogs were not printed and so on and so forth. So what I'm just trying to say is that if we want to compare 2026 to 2025, which I believe is what you are kind of trying to get some color about, it's probably fair to assume a demand decline, but it's also probably fair to assume, at least if things stay as they are right now, some stabilization of the flow of the products, which will allow the industry to operate in a better way because operational efficiency here is important. This is about talking about the market. When we talk about ourselves, yes, you pointed it up. The actions we are taking and reducing capacity significantly, 13% of our capacity will deliver direct fixed cost, saving improvement, but also indirect benefit from improved operating rate. So -- so yes, those are some elements to consider for Com Paper. When it comes to Specialty Paper, yes, the situation in China is -- I wouldn't know how to characterize it, but surely, the demand for those products not being as strong leads to some pressure. As for how this will play into next year, it is way too soon to try to extrapolate. A lot will depend by the downstream of businesses and ultimately, how consumer demand will evolve. It has been pretty muted during quarter 3, as we have indicated. But let's see and maybe let's also see in quarter 4, which is typically a seasonality quarter for that business that will give us a better sense and feel about the trend we will enter into next year with. Cole Hathorn: And then just on the Specialty, kind of the release liners and the label side, there have been some smaller players that have been under pressure. I'm just wondering how your business is positioned into 2026 as a larger producer. Massimo Reynaudo: Well, I think I commented on the fact of the muted demand during quarter 3, and that clearly create a pressure, then the rest depends on your competitiveness. We run large assets, well maintained. And I would say that also through the results that you can see, we have been performing pretty well in a challenging market. So then 2026, we will see later on. But in the current situation, I think we are holding up pretty well with the pressure. Cole Hathorn: And then just one final clarification. You mentioned some reduction in the Uruguay platform on the cost as you continue to ramp up the efficiencies. I think you gave a number. I just misheard that earlier. I wonder if you could just repeat that. Massimo Reynaudo: Sure, sure. I'll give you the precise number, but basically, the scale I gave for the savings is still to be captured. Let's say, directionally in the next couple of years, is probably USD 25 million to USD 30 million -- sorry, sorry, USD 25 to USD 30 per tonne. Okay. USD 25 to USD 30 per tonne, which is the same scale of the savings we are capturing this year, 2025 versus 2024. Operator: The next question comes from Joni Sandvall from Nordea. Joni Sandvall: A couple of quick questions. Tapio, you mentioned the working capital release, or you are aiming to release working capital. So what should we expect in Q4? And does Leuna ramp-up has any impact here? Tapio Korpeinen: Well, yes, of course, the ramp-up of new production does have some impact or has had some impact, I would say, already during the year as we have been preparing. But still, let's say, typically, we do release cash from working capital at the end of the year. Don't have a number to give guidance on that, but I would expect that we will see that this year kind of seasonally as well. And on top of that, we are obviously looking to improve our efficiencies otherwise. Joni Sandvall: Okay. And second question relates to Biofuels. It has been some while when you put the SAF application in. So can you give any update on that when you are expecting to receive the approval for the SAF? Massimo Reynaudo: Well, actually, it's a long process, and it's not under our control. That is what makes difficult to make a prediction about that. But we filed it last year. So let's see what happens next year. I wouldn't go any further than that because of what I said, it's outside our control. Joni Sandvall: Okay. Okay. But your product has been tested, so any early indications of those? Massimo Reynaudo: Absolutely, absolutely. It has been tested, has been even utilized in a pilot case, not blended, but pure. So we have all the confidence that the product will go through the process. But then there are a number of, I don't know what to call them, administrative steps that need to go through before that the process is concluded. But we -- you can imagine this is a priority for us. This will open up beside the biofuel or fuel for ground transportation will open up the sustainable aviation market, which is not only getting bigger in the future, but will give further opportunity to diversify and maximize profitability. So it's surely something which we treat with the highest priority. Okay. Very good. We have also used the time planned for this call. So I take the opportunity again to thank everybody for your participation and in the case for your questions. And see you sometime during the next quarterly call, if not before. Cheers, have a nice day.
Operator: Good morning, ladies and gentlemen, and welcome to the Advantage Energy Limited Q3 2025 Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, October 29, 2025. I would now like to turn the conference over to Brian Bagnell, Vice President. Please go ahead. Brian Bagnell: Thank you, Joanna, and welcome, everybody, to our conference call to discuss Advantage's third quarter 2025 results. Before we get started, I'd like to refer you to our advisories on forward-looking statements that are contained in the news release as well as advisories contained in Advantage's MD&A and annual information form, both of which are available on SEDAR and on our website. I'm here with Mike Belenkie, President and CEO; and Craig Blackwood, our CFO; as well as other members of our executive team. We'll start by speaking to some of our financial and operational results. Once Mike has finished speaking, we'll pass it back to the operator for questions. And as usual, we'd like to ask that if you have any detailed modeling questions that you follow up with us individually after the call, and finally, I'll note that we have posted an updated corporate presentation on our website. So with that, I'll turn it over to Mike Belenkie. Mike, please go ahead. Michael Belenkie: Thank you, Brian. And thanks, everyone, for joining us this morning. For Canadian gas producers, the third quarter was clouded by the lowest AECO prices in modern history. However, there were many silver lines for Advantage. We delivered steady results that demonstrated the resilience of our business and our ability to create shareholder value through all phases of the commodity cycle. The average AECO price for the quarter was only $0.60 per GJ, which includes a September average of just $0.24 per GJ with about 1 week of negative prices. Under -- even under these extreme conditions, we generated adjusted funds flow of $72 million or $0.43 per share, fully funding our $72 million capital spending program and keeping our debt level neutral. This is a solid demonstration of our ability to fund an annual capital program of about $300 million in any -- in virtually any price environment. Revenue for the quarter was dominated by liquid sales, which composed 17% of our BOEs, but accounted for 64% of our revenue. The Charlie Lake contributed approximately 40% of our total revenue and 31% of our total operating income on its own. Gas revenues for the quarter were 16% higher than the same quarter last year, despite much lower Canadian gas prices, thanks to a larger contribution from downstream market diversification profits, and our risk management program delivered $34 million in realized hedging gains in the third quarter. Production in the third quarter averaged 71,482 BOEs per day, down 4% year-over-year, and 8% versus the prior quarter. This was driven entirely by price-driven curtailments and maintenance. We curtailed an average of 60 million a day of dry natural gas in the quarter, and at times in September, this was over 300 million cubic feet per day that was shut in, while AECO prices were negative. We've been asked, why Advantage is one of the very few companies in the basin that actively curtailed production during periods of exceptionally weak prices, and we do this for multiple reasons. We refused to waste our precious resource by selling it for no value or worse, paying marketers to take it away. During the third quarter, we mitigated over $5 million of depletion expense, which is another way to say that we avoided wasting $5 million of capital investment. Since our strategy is centered on maximizing AFF per share or cash flow per share, we won't sacrifice cash flow to defend headline production growth numbers, that is simply put, if it isn't profitable to sell it, we shut it in. To manage our physical downstream delivery commitments, which we do have several of, we were able to improve our cash flow by $2 million this quarter by shutting off our own gas and purchasing in a way, third-party gas at negative prices and immediately reselling those volumes in the downstream markets for a tiny profit. Again, that is to say, while we preserved our own resource, somebody else paid us to take away their resource and flow it to downstream markets using our pipeline capacity. We also don't believe that having our volumes financially hedged as a justification for producing uneconomic physical volumes. They are separate and discrete revenue streams. Hedging and marketing gains, broadly speaking, are generated by financial agreements that don't require you to produce the gas. Our shut-in decisions are made based on operating income at the gas -- at the plant gate and everything downstream of that is accounted over separately. So to summarize, our curtailments in Q3 maximized adjusted funds flow, preserved our resource base, reduced our capital depletion and expected capital spending, all while allowing us to fully capture our hedging profits. Now with that behind us, and with AECO prices starting to recover as of earlier this month, production curtailments have ended, and corporate production has been restored to full capacity, positioning Advantage for a strong finish to the year. We expect fourth quarter production to average between 79,000 and 83,000 BOEs per day, resulting in a full year 2025 production of 78,100 to 79,100 BOEs per day. The new well results that we mentioned in the press release yesterday will certainly help our -- keep our production levels high, and it's worth unpacking that a little. Typically, we would not announce well results with less than an IP30, but at Glacier, the shorter well tests to reliably translate into longer-term production expectations, especially given our extensive experience and knowledge of the Montney in the area. In this case, the results of our newest pad in the Northwest corner of Glacier are truly exceptional. The first well produced at 32 million a day of gas over the last 7 days prior to print, and is tracking towards a full 30-day IP just under 30 million a day, although it hasn't had enough time to actually realize that. This is roughly 3x the productivity of the closest offset wells, only 1 kilometer away to the north. In fact, we believe this well to have the highest initial productivity of any well ever drilled in the Alberta, Montney. The second well on the pad produced at a restricted rate of 20 million cubic feet per day of raw gas over the last 7 days -- over the last -- same last 7 days, restricted as a result of the higher rates from the first well, which is already filling a gathering system. The third well on the pad, which targeted the Upper Montney has not been brought on production yet for the same reason, but its cleanup rates looked comparable. This is an outstanding result from our multidisciplinary technical team and a testament to their relentless drive for improvement. Looking ahead into the winter, we see natural gas fundamentals at a positive inflection point, with oversupply conditions easing as we move into winter and as LNG Canada is starting to export meaningful volumes. As gas prices recover, debt repayment -- our debt repayment is expected to accelerate in the coming months. We are -- so we are, therefore, keeping our debt target at $450 million, but introducing a range of plus or minus $50 million, which increases our flexibility around the timing of aggressive share buybacks as we enter 2026. As in the past, when our balance sheet is where we want it, we put everything we have into the buybacks. Our strategy remains focused on maximizing cash flow per share while maintaining balance sheet strength. Thanks to our highly efficient capital program and low-cost structure, Advantage is able to deliver shareholder returns in 2 ways, disciplined production growth and free cash flow generation. Over the next 2 years, production growth is expected to average about 9% per year. And at strip pricing, free cash flow yield is expected to average 10% per year for a total annual return tracking 19%. This outlook is difficult to match. So with that, I'd like to thank our employees for another great quarter with a lot of nimble reactions and high-quality outcomes. And I'd also like to thank our Board and shareholders for their support, and I'll pass it back to Brian for questions. Brian Bagnell: Thanks, Mike. I'll pass it back to Joanna for any questions on the phone line first. Operator: [Operator Instructions] And the first question on the phone comes from Amir Arif at ATB. Laique Ahmad Amir Arif: Just a couple of quick questions. First, on those new wells that you brought on, those are terrific rates on those 3-mile wells. Just -- I know it's early days, but just curious how you think this can improve the corporate capital efficiency for your drilling in Glacier and whether you plan to introduce more 3-mile laterals as you develop the Glacier, just given your land block in the area can allow for longer laterals? Michael Belenkie: Yes. I mean, obviously, good news story. These are not unusually designed wells for us. These are well executed, great rock and really capitalized on all the team's technical advancements over the years with a few new ones. So really, what does that mean? Well, it probably means if we drill in this area, and certainly we have other areas that we expect to have similar outcomes, that means we drill fewer wells and therefore, less capital. Now I think broadly speaking, our Glacier program is typically somewhere around a dozen wells per year, and those wells tend to cost, I'm going to say, $7 million to $9 million dependently. This probably allows us to reduce the number of wells per year, which means maybe you save a few wells per year, but the program is already so efficient that's not going to be a massive swing in total capital per year, just a nice little -- induces our ability to save a little extra cash and put more work on debt repayment and buybacks. So modest impact, but positive for sure. Laique Ahmad Amir Arif: That's helpful. But could you quantify it in terms of capital efficiency on a 3-miler versus your typical 2-milers? Michael Belenkie: So if I understand your question correctly, you're looking to understand how much more productivity per $1 million spent. And I think we're probably looking at a sort of a 15% increase in cost for the well versus the shorter well. And the productivity probably goes up by more like 25% to 30%. So you can see these are nice little juicers, but this is what we're talking about here is only a few million dollars of extra spending for a sizable increase. So it's all small adds to our program, small increases in efficiency, which -- and not in isolation either, just that in this case here, everything came together for the outlier result. The program itself won't change materially. I just get a little bit stronger. Laique Ahmad Amir Arif: Okay. No, I appreciate that color. And then the second question is just more on your net debt target range. As you pay down debt faster, if cash prices are strong, it sounds like you might be willing to start a structured buyback program sooner at the $500 million level versus $450 million. Just curious what would change that to the lower end of the range in terms of waiting for debt to get to $400 million instead of the $500 million? Michael Belenkie: You bet. So the way that we try to explain this is, the last thing we want to do is only be buying shares back at the top of the market and not be buying shares back at the bottom of the market. This is, of course, a volatile business. $100 million of elasticity in the system allows us to buy countercyclically. And, of course, if we're solving for Max cash flow per share, well at times where our share price is lowest gives us the best return. So what we're looking to do is forecast whether we buy earlier, like sooner or later, at lower or higher prices, and with our outlook currently based on AECO, which is in a strong contango environment, our cash flow is expected to rise quickly through the coming year or so. If you use that model, it says you probably want to get back to work earlier. Well, having more elasticity on the top end of the debt range as we delever allows us to get back to work more aggressively earlier, okay? So hopefully, that's enough. We won't tell people exactly when we're going to buy because that would, of course, not be very good trading strategy, but think of it as a useful guidance. Operator: [Operator Instructions] Next question comes from Luke Davis at Raymond James. Luke Davis: Just wanted to get some background on how you're thinking about shareholder returns and specifically buybacks in the context of sort of your looser debt policy? Michael Belenkie: Sure. So shareholder returns, of course, I did sort of refer to that in my -- in one of the last comments, which is we see shareholder returns in 2 ways, production growth and free cash flow. Now the use of that free cash flow is always up for debate, and everyone has a different perspective on the best use of free cash flow. For us, there's -- you have to start from all options, which are debt repayment, share buybacks, and dividends. Now dividends, of course, in our case, with high cost of equity and us being a growth company, dividends are the least efficient way for us to redeploy that free cash. We have stated that we want to get to the range of $400 million, $500 million on debt, and that's a priority. So there's almost a mathematical order of priorities, which is delever, and then once you get to a spot where you have material amounts of free cash to redeploy, there's a question. Do you spend that on drilling a well? Do you delever further? Or do you buy back shares? And every penny or every tranche of share buybacks is subject to that same test. And what we're looking to do is solve for Max cash flow per share in that as a quotient, and that can change over time. So we won't be too specific, but hopefully that helps you with the framework. Operator: No further questions on the phone. I will turn the call back over to Brian Bagnell. Brian Bagnell: Okay. Thank you, everybody, for joining our call, and I look forward to catching up with you individually. That concludes the call today. Michael Belenkie: Thanks, everybody. Operator: Ladies and gentlemen, that concludes today's conference call. We thank you for participating, and we ask that you please disconnect your lines.
Unknown Executive: [Audio Gap] 9 months of 2025, client deposits totaled PLN 221 billion, and client funds including investment funds reached PLN 249 billion. The gross loan portfolio stood at PLN 165 billion and total assets amounted to PLN 317 billion. On Slide 8, we are presenting core financial results. Like I said, net profit PLN 4,892 million. Net interest income, PLN 9,549 million. Net fee and commission, PLN 2.2 billion, up 5%. Total income, PLN 12 billion, up 6% year-on-year. For Q3 alone, it was nearly PLN 4 billion. Our capital position remains solid. Return on equity, 21.6%, excellent liquidity, LCR of over 203%. On Slide 10 and 12, we'll present the new features we've introduced to our offering. Just yesterday, we became one of the first to offer the Samsung Pay digital wallet. We are continuously committed to providing a wide range of payment solutions, and we remain a leader in the area with 1.3 million active cards in digital wallets. So very impressive. Same applies to the number of transactions. For SMEs, we've enabled multicurrency support on business cards. We've also introduced improvements to the Smart Loan process. Let's move on to Slide 13. Business data for first quarter. In retail banking, 4.8 million personal accounts we maintain at the moment, that's up 2% year-on-year. In quarter 3 alone, we opened 113,000 accounts. In cash loans, we issued PLN 9.3 billion in cash loans. In Q3 alone, this amounted to PLN 3.3 billion, 9% more year-on-year. And this marks a record-breaking quarter for cash loans, which we're very pleased about. For mortgages, this has been the best period for 5 quarters. In Q3, sales was PLN 3.1 billion. So similarly to previous quarters, most bulk of sales was based on fixed interest rate and the share of those loans in the total PLN portfolio is 48.6%. In the SME segment, over the first 9 months of the year, we issued PLN 3.9 billion in loans with PLN 1.3 billion in Q3 alone. We're advancing digital processes and the volume of SME loans issued entirely online has increased to leading continuously good results, PLN 3.5 billion, a 17% increase year-on-year. In Q3, this amounted to PLN 1.2 billion. Our e-loan, ePozyczka product is selling increasingly well, and it is now available to start-ups, too. In Business and Corporate banking, loan volumes increased by 8% year-on-year, FX income by 11%. Client activity in remote channels is growing, digital plus mobile customers. Now Corporate and Investment banking, revenues from capital markets rose by 56% treasury transactions up 15% year-on-year. Now moving on. Slide 15, the activity I mentioned previously. This, of course, is driving the size of our balance sheet. As of the end of September, the gross loan book was PLN 165 billion. On Slide 25 in the appendix, we show the sustained strong level of new loan sales across segments. As you can see, we see significant growth. And again, we're very pleased about, especially in corporate banking, 8% year-on-year and quarter-to-quarter, up 2%. Slide 16, client funds, PLN 249.5 billion. Deposits, PLN 221 billion, slight decline in deposits from individual clients, but term deposits, on the other hand, an increase in balance. The drop in current accounts was triggered by the drop in savings accounts. Corporate deposits at 2% increase, term deposits up nearly 8%. Deposits from the public sector increased by as much as 5% this quarter, and term deposits and current account balance also increased. Investment funds reached 23% increase year-on-year and 8% quarter-on-quarter. Now profit and loss account. Net interest income and NIM, that's Slide 17. The net interest income was PLN 9.5 billion, which is 5% better year-on-year. In quarter 3 alone, the growth was by 0.5%. Year-on-year, interest income increased by 6%, while -- and let me highlight that net interest income in quarter 3 is the highest this year and it's nearly as high as the record high quarter in 2024. And that's despite the interest rate cuts. Our NIM was 4.88% on continued operations. So the decline was really marginal. And let me highlight that was despite the interest rate cut. Slide 18, that's net fees and commissions. On a year-to-date basis, they total PLN 2.2 billion, which is 5% up on the last year. In quarter 3 alone, net fees and commissions was 3% higher than a year ago. We saw really nice growth in asset management fees by 18%, insurance fees, FX fees and brokerage fees. Quarter-on-quarter, FX fees increased, insurance fees increased and the asset management fees. Just like in previous quarter, let me highlight that this is the follow-up on this bigger number of transactions done by our clients. We have not changed our prices at all. Slide 19 outlines income. Total income, PLN 12 billion, as I've already said, growing by 6% year-on-year. Let me highlight that in the first 3 quarters, the gains on financial operations were much better than a year ago. In quarter 2, let me remind you, thanks to conducive market landscape, we earned outstanding results under the trading and valuation. Of course, this was driven primarily by FX transactions and trading. In quarter 3, the gains and losses on financial operations position actually normalized. Slide 20, very important for us, operating costs. After 3 quarters, this is PLN 3.6 billion, growing by 8% year-on-year. As you might remember from previous presentations, this is driven by higher contribution to the banking guarantee fund. Excluding regulatory costs, total costs increased 5% compared to the previous year, of course, driven by inflation, pay increases and cost of services. Compared to the previous quarter, the cost in total increased by 2%. Administrative costs without the regulatory costs grew by 4% year-on-year, but compared to the previous quarter, they declined by 7%. Staff costs, they increased by 5% year-on-year and 7% compared to the previous quarter. But this is clearly impacted by accruals for performance-driven bonuses and the focus we have for our performance this year. So the pace of growth in cost year-on-year for 3 quarters remained low at 3%. So as you can see, the pace of growth in cost is close to the growth in inflation, and we keep it under strict control. Loan loss provisions, the net balance for -- of the loan loss provisions for expected credit losses was PLN 439.5 million, much lower than the last year, but this was driven, first of all, the high comparative base. Last year, you might remember, we expanded the criteria for classifying exposures to Stage 2 and the impact of that was PLN 125 million. But the other reason for that is the sound and stable quality of our loan book. The cost of credit risk, 33 basis points, is one of the lowest historical results in the bank. Other key risk indicators like the share of NPLs at 4% remain at a good level. We also can see the stable levels of past due payments and new entries to the NPL. In quarter 3, we did not record any one-off major events. And as you can see on the next slide, we sold nonperforming debt worth nearly PLN 400 million, while the gain on that was PLN 98 million. Slide 22, banking tax and regulatory costs. As I said, in quarter 3, the regulatory and tax levies totaled as much as PLN 730 million. After 3 quarters, our PBT was PLN 6.4 billion, while the tax and regulatory levies totaled PLN 2.5 billion. Summing up our performance after 3 quarters at Slide 23. You can see here all the key lines and figures. I will not repeat it. Let me just highlight the effective tax rate. In nominal terms, the corporate income tax is 19%. But we have many lines in our P&L without the tax shield. So the effective tax rate is now 23.2%. So summing up, I'm happy with business performance. We can see the -- how active our clients are. Sometimes, you can see even record high sales volumes. We have really good quality of our portfolio. We have a high number of transactions and the growing number of transactions made by our clients, mobile transactions in digital channels. So all of that bodes well. We are really looking forward here to the results of rankings by Newsweek and Forbes to be announced today. So we are always curious how we benchmark against other business. And Agnieszka, over to you to the questions-and-answers portion. Unknown Executive: We've got the questions ready. Thanks, Agnieszka. I tried to group the questions. So let's start from the question. It refers to the Polish government recently proposing changes to the bank's corporate income tax. What is your current estimated impact from these changes on the bottom line? What do you think about it? Do you have any strategies you could implement to alleviate this impact? Unknown Executive: Well, let me take this question. In reference to what I have already said, banks are the biggest CIT payers. Every [indiscernible] PLN is paid by banks. Last year, out of 10 top payers, the 10 top payers included 6 banks, and the top 3 payers are banks only, including ourselves. So in my opinion, banks significantly contribute to the state budget. It's slightly surprising to us to make this sector the only one to contribute more, the sector that is contributing most really. So there are many opinions about it, some lawyers say there is a significant constitutional concern. The additional CIT rate should not solely rely on one sector. We contribute to the defense and military expenses. Maybe we'll have a separate conference about it, but also other social initiatives, education. We pay our taxes in Poland. We don't do any optimization abroad, we pay taxes here. So it should be stressed out that we share our profit with the state and with the Polish investors, including the pension fund. Let me remind you that over 23% of bank shares are held by [ office ], that's over 40 million future retirees. And if you look at the stock data, that means return on assets or yield. The banking sector is not the most profitable. The Association of Polish Bank did a research on that. There are 12 more profitable industry compared to the banking sector. We are -- our sector ranks only 13th in terms of profitability. And yet, we already paid the highest taxes in the country. So something very important that the nominal tax rate versus the effective tax rate, there is a difference. We pay more in terms of the effective rate. The nominal rate is 19%. So that would be an increase of 60% [ EBITDA, ] what impact this would have on our P&L. That's the comment I have when it comes to CIT. Unknown Executive: Okay. We have a few questions regarding net interest income and the volumes. What is your current outlook on -- into 2025 and 2026? What is the sensitivity to rate cuts? Unknown Executive: So we assume, it will go down to 4% beginning of 2026. So there will be 2 cuts of 25 basis points. We don't quote cuts in November, but if it's cuts then, of course, well, we forecast it will go to 4% in total, the market prices it in deeper -- but we assume 2 cuts in total sensitivity, no major changes. I said the same thing last quarter. Without SCB [ 257 ] sensitivity, if we have a cut of 100 basis points in the 12-month horizon. We presented on Slide 20. You can look at our NII, rates went down 100 percentage points, and our income is higher. So the bigger size of balance sheet neutralizes those effects. And we are nearing the easing -- the end of the easing cycle. What else? Expectations with regards to the growth in loans. We are optimistic. And so our CEO said, we are growing retail mortgages. We expect the trend to continue also in the business segment. And growing the business segment was 9%. So we think that in 2026, we will see growth in investments and the growth in loans to businesses will be solid. Unknown Executive: And there's also question in English, when do we expect big cuts for loan volumes? Unknown Executive: Well, we started the pickup in 2024. So we are not complaining about the lack of growth. In quarter 3, we can see the effect. But this is a one-off seasonal development. Sometimes, we have things coming into the portfolio and getting out especially in CIB. But for CIB, all other segments show solid growth. That's about -- referring to this section of questions. In referring to costs, there are 2 questions. A general one and a detailed one. Wojciech, the outlook for the growth in cost in 2026. Wojciech Skalski: Just to remind you, and by way of a disclaimer, our bank does not publish official forecast. We can just treat it as some guidance. And as we follow the strict cost discipline, and nothing changes here. We know how to keep it in place. When it comes to our fixed cost overhead, we can say that if we take a look at the inflation outlook for the next year, that will be the indicator of the growth, the band of changes, but we shouldn't forget that there will be costs related to the change of the owner, but we are not ready yet to give any result figures. But I think that our next meeting, we will be able to tell you more. But that will be a separate category of cost for us because there will be nonrecurring. Looking at the detailed questions, let's read it out. What part of cost represented the cost of IT employees. But that depends how you define it, IT people. I try to take a look at that, and people who deal with technology in the common understanding, who works in the unit called the digital transformation division. But there are also people supporting operations in the bank, and we wouldn't treat that as IT. That's roughly 15% of our staff costs. But at the same time, we should remember about 2 things. People with IT skills work not only in this division, but also in others. So we are not capturing that so that we could give you a detailed analysis. But the other thing is also that the bank supported itself when we need short-term or especially support by contractors, IT specialists. When spending on this type of technological solution is that the total development is capitalized and then it's amortized totally, so its impact on cost -- so of those costs are quite wide ranging. But roughly, we can say, 15%. These are the people who work in the IT division. Unknown Executive: Thank you, Wojciech. And the section about foreign currency mortgages. But we can actually boil down the answer to answering future risks and the expectations of provisions. Now once again, we have Michal Gajewski. Michal Gajewski: Let me answer that. First of all, we believe that our provisions are adequate. The coverage ratio is 154% on average. We are reviewing parameters in our models, and we will have such a review in quarter 4. All the time, we keep supporting the settlement program. At the end of September, we signed more than 11,000 settlements because we think that this solution is the best for clients and for us as a bank. And that will be my comment to it. Unknown Executive: A couple of credit risk. What do you think will be the normalized cost? Unknown Executive: I don't know what you mean in terms of normalized, in what horizon. But we can -- but to give you some guidance for the future, we do not expect major changes here, either in the profile of cost of risk, and that's been mentioned in the presentation. And in the months to come, it should stabilize. You might remember that in our strategy, we had KPIs and the cost of credit risk across the cycle was from 70 to 90 bps, and that was given for consolidated data with SCB. And on Slide 24, as I said last quarter, the difference was in the order of 10, 15 bps. So you should really adjust that bank by this. But at the moment, we are at this point of the cycle with such macro outlook now and for the next year that we cannot see any dangerous signals. So when it comes to credit risk, we are optimistic and we expect stabilization. Unknown Executive: There are a few detailed questions about deposits, hedges and NII. Let me start with a few questions referring to a decline in current deposits, that 4% in retail. What is the reason, the outflow? Is there any impact on that triggered by the owners change? But when it comes to the decline in current deposits, our CEO mentioned that, and it is stated directly in the presentation and in our report. And you have the figures there, current deposits in Poland include savings account and the decline in current deposits in quarter 3 was driven by the decline in balances and savings accounts because in quarter 2, we have special offers. When it comes to the current account just for daily banking, we can see positive transfer. So this was a one-off driven by savings accounts. And the explanation of that is on the presentation and the report. Corporate deposits, they increase. And there is a question about it, while interest expense declined at the same time on those deposit, how does it happen? The deposits are growing because the good relationships we have with our clients, and the interest expense declines because our -- because interest rates are cut because the beta, that is the percentage to -- but the extent of percentage share, we reflect the interest rate cut. So we reflect this interest rate cut in repricing our term deposits. So that's several percent, so that's beta. And that is the reason for the decline in our interest expense on deposits. And moving on to the next question about strategy. We will continue the strategy for term deposits, where for current deposits including savings accounts, we assume they will be growing. So our deposit strategy remains unchanged. So just one more detailed question about hedges. Is there anything exceptional happening in quarter 3? Not really. And I think, maybe as I do not understand the question. So if you have any doubts, please contact Agnieszka to discuss, and we will get that clarified. But our strategy assumes that at this point, some hedging positions for swapping the floating to fixed rates, and we are renewing them and rolling at lower rates. But otherwise, our strategy remains unchanged. And each quarter, the share of fixed rate loans and total loans keeps growing, which is the effect on the one hand of our hedging strategy, and on the other hand, this is the follow-up of the percentage of loans represented by fixed rate loans in the total sales. So we haven't changed our approach. More questions. I think we've got 3 left. Will there be a wider marketing campaign in the fourth quarter to support the loan volumes? No, the volumes are going up. They're beating the market. So I don't think we need any action to boost production. All right. Now legal risks linked to unauthorized transactions. There is a similar question whether the bank will take action to verify whether the potential change in terms of the CIT rate is not in breach of the constitution. Well, here, we're talking to the Association of Polish Banks about it. That's the forum where we discuss it. No decisions have been taken yet in that respect. Unauthorized transaction, maybe let's take that separately. We're not -- we don't have provisions in the third quarter for lawsuit, potential lawsuit in that respect. Nothing like this happened. We don't have any development in that respect to change our perspective regarding the legal risk versus the previous quarter. That's the end of this question. Lower credit fees, what was it driven by? The line includes the brokerage costs. We have a higher retail lending book, and it stimulated also the -- our network of brokers. And those costs, of course, encumber that line in our financials, hence, generating the drop. Any other questions, Agnieszka? Agnieszka Dowzycka: No, we've exhausted the list. Unknown Executive: If you have any questions after this call, of course, we'll be happy to take them. Send them to my office. Thank you very much. Goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Pekka Rouhiainen: Good morning, everyone, and welcome to Valmet's third quarter result webcast. My name is Pekka Rouhiainen. I'm Vice President of Investor Relations. And with me today are President and CEO, Thomas Hinnerskov; and CFO, Katri Hokkanen. Thank you for taking the time to join us today. We will walk you through Valmet's third quarter. We will highlight our improving performance, key order wins and how we are navigating a market that continues to present both challenges and opportunities. Agenda is straightforward and the usual. So first, Thomas will present the Q3 highlights and discuss our strategy execution, and then Katri will go through the financials, and Thomas then conclude with the guidance and market outlook. And after the presentations, we'll open the lines for your questions, and there's also the possibility to post the questions through the digital platform. So thank you again for joining us and your interest in Valmet. But with that, Thomas, the floor is yours. Thomas Hinnerskov: Thank you very much, Pekka. And also a warm welcome and good morning from my side. Before we start, I do want to highlight that we've updated the interim report and this presentation to reflect our 2-segment structure in the new strategy, but also even more so making it more investor-friendly and easier to read. So, I hope you appreciate that and actually have noticed the change from last time. Let's start with the key highlights for Valmet's third quarter, a period that truly demanded our best as the market was challenging in some of our key areas. It's important to be clear while the process performance continued to benefit from a favorable market, Biomaterials faced real headwinds, and that's why I'm pleased with the achievements in this quarter overall. This quarter was defined by improving performance and some landmark wins achieved in a very challenging market. Next, I'll walk you through 7 highlights that together paint the picture of how Valmet is not just navigating, but actually leading in this environment. First, our Process Performance segment continued its strong growth track, delivering 11% organic growth in orders received. This is a clear signal of market trust and our team's ability to execute. The market environment was sort of a tale of 2 realities: continued good demand in Process Performance, but weaker conditions in Biomaterial. Our diversified portfolio helped us balance these forces. Despite the headwinds, we increased orders organically by 7%, reaching EUR 1.1 billion. That's a solid achievement in today's environment. A real milestone was the win of a record large tissue order from the U.S. that sets sort of a new benchmark for Valmet and it opens up for robust lifecycle opportunities going forward. Financially, we delivered our best third quarter ever comparable EBITDA of EUR 159 million and margin of 12.3%, slightly higher than last year and one step closer towards our 2030 financial target of delivering 15% comparable EBITDA margin. We've also started executing our Lead the Way strategy. And already we're seeing concrete benefits, especially through the savings from our renewed operating model coming through also here in Q3. Finally, our guidance for 2025 remains unchanged, both in terms of net sales and comparable EBITDA, are expected to stay on last year's level. That stability is a sign of solid execution and the strength of our lifecycle approach. With those highlights in mind, let's look at how our strategy is coming to life. When we launched our Lead the Way strategy in June, we set out more than just to change our operating model. It's a route to overall higher performance, more integrated customer service and increased shareholder returns. Since then, we've put the new operating model and reporting structure in place. Our teams are now aligning around lifecycle, value creation and supply chain excellence. Lead the Way isn't just a slogan. It's showing up in how we work together, how we serve our customers and how we deliver better results. Already, we're seeing concrete benefits. We are targeting, as you know, EUR 80 million in annual savings from the operating model renewal. And in Q3 alone, we realized EUR 15 million of those. We expect the full run rate from early 2026. However, it is good to note that partly we will reinvest some of that savings into growth and to capture future growth. Also we are strengthening our leadership team, especially in tissue business, where Jon joined us in August, and we made other key hires to support our execution. What's most encouraging is the feedback, however, from our customers. They're responding positively to our lifecycle approach and our regenerative purpose. It's clear that our strategy supports long-term value creation and performance. So, the Lead the Way strategy isn't just underway. It's already making a difference. We are building momentum and we are committed to delivering on our promise. And as we move forward with our new strategy, it's encouraging to see that our core strength and ongoing execution are already delivering results. While the full impact of our new strategy will unfold over time, the momentum we are seeing in orders received this quarter shows that Valmet is well positioned to capture opportunities in both favorable but also in challenging markets. In Q3, our orders received increased organically by 7%. This was the fourth consecutive quarter of organic growth. This achievement is a reflection of our team's ability to win business and deliver value even when the market conditions vary across segments. Process Performance continued its strong growth with 11% organic growth in orders received. At the same time, Biomaterial was faced with softer market condition. Our record-breaking tissue order from the U.S., however, demonstrates our capability to secure major wins in this segment. These results support a strong order backlog, provide a solid foundation as we move into the final quarter of the year and look ahead into 2026. Let's bring these numbers to life with a concrete example of how our solutions are making an impact in the market. Today, I want to show our automation platform wins outside of the pulp and paper space, which many people associate us with. We've been selected to automate a hydrogen fuel cell facility in Naepo in South Korea. The point here really is the versatility of the Valmet platform, solving problems in surprising areas even such as clean energy and fuel cells. Every new automation site expands our installed base and our opportunity for delivering this lifecycle software and services over time, delivering recurring revenue opportunities for us as Valmet. It is repeat business with Lotte Engineering & Construction, and it does introduce us to Naepo Green Energy alongside their existing LNG plant in South Korea. To sum up, this is a small win today, but a strong proof that Valmet automation platform is relevant far beyond pulp and paper. Let's now zoom in on the Process Performance segment, where our momentum has been especially strong. In Q3, Process Performance delivered another standout performance, building on the momentum we've seen throughout the year. Orders received increased to EUR 345 million with organic growth of 11%. That's, again, the fourth consecutive quarter of double-digit growth, driven by strong performance in a robust market. These figures do suggest that our market share has grown through acquisition, but definitely also organically. Net sales also grew organically, reaching EUR 361 million, but that's truly remarkable is actually our profitability. Comparable EBITDA climbed to EUR 79 million and the margin hit a record high at 21.9%. This does reflect our disciplined commercial execution, the benefit of our operating model renewal, but also improved performance in API, the acquisition or the business we acquired last year, as you will remember. With this level of performance, Process Performance is setting sort of the pace for Valmet overall. This quarter, we secured the largest tissue order in Valmet's history, a true milestone for our biomaterial business. This landmark U.S. orders expands our North American installed base, strengthening our leadership in the ultra-premium tissue segment and deepens our long-standing partnership with Sofidel. Financially, it's a record high order included in our Q3 results. Revenue will be recognized over the period of 2026 to 2028 with additional long-term growth expected from lifecycle services after the start-up. The project covers the tissue line, automation, flow control, digital solution, delivering efficiency and reliability for our customer. I would say wins like this set the stage for future growth and innovation in this segment. Moving on to the broader performance of Biomaterials segment beyond the landmark win we just discussed. This quarter, the segment operated in a notably softer market. The environment for larger projects has been subdued for some time. What's new is that the service market slowed down compared to Q1 and Q2 when our service orders grew at double-digit rates organically. Importantly, we saw the first sign of the softening already back in Q2 and communicated it also clearly at our previous webcast. We noted a more cautious environment emerging with customer activity expected to decrease throughout the year. In Q3, service orders were essentially flat 1% plus. We saw a slowdown in especially consumables and performance parts. Net sales remained at last year's level, but margin pressure was evident. Our comparable EBITA margin declined to 9.5% despite the cost benefit coming in from our operating model renewal. The margin was lower across the product portfolio, I would say. This does highlight the need for even tighter cost control. We're addressing this head-on through our new global supply unit, which is a key part of a broader strategy to strengthen cost competitiveness in the segment. This covers the operational and market development for our segment this quarter. To give you a bit more deeper look into the financial development, I'll now hand over to Katri, our CFO. The floor is yours. Katri Hokkanen: Thank you, Thomas. I will now take you through Valmet's financial development for the third quarter. I will cover profitability, cash flow, balance sheet and other key financials in my presentation. And as always, my aim is to provide a clear and transparent view of our financial position, and the drivers that are there behind our performance. Let's start with an overview of our net sales and comparable EBITA for the third quarter. Net sales for Q3 remained stable at EUR 1.3 billion. And organically, net sales were 2% higher than in Q3 last year, and this was due to currency headwinds of roughly EUR 31 million as euro strengthened against the U.S. dollar and other key currencies. Comparable EBITA reached EUR 159 million with a margin of 12.3%, as said, a record high for the third quarter. This increase was driven by a very strong performance in Process Performance Solutions and approximately EUR 15 million in cost savings from our operating model renewal. Our last 12 months comparable EBITA margin remained at 11.7%. Sequentially, it's flat, but still at record level. And actually these results show that we have ability to deliver a consistent financial performance even as market conditions fluctuate. Having covered our net sales and profitability, let's now look at our order backlog and what it means for Valmet's outlook. At the end of the third quarter, our backlog stood at EUR 4.5 billion, which is EUR 74 million higher than what we had at the end of 2024. And this solid backlog, together with healthy book-to-bill ratio this year, creates a good foundation as we move into the final quarter of this year and also to 2026. And based on our current delivery schedules, we expect that roughly EUR 3.6 billion of the backlog will be recognized as net sales in the fourth quarter as well as in 2026. And this provides us with good visibility and also supports our confidence in delivering it in line with our full year guidance. Next, I'll walk you through our cash flow and working capital development for the quarter. Cash flow from operating activities amounted to EUR 94 million in Q3 and EUR 569 million over the last 12 months. And our comparable cash conversion ratio was 92% for the last 12 months, and this is right in line with Valmet's long-term historical average. Strong cash conversion demonstrates the strength of our business model and also our ability to turn profits into cash even as market conditions fluctuate. Net working capital amounted to minus EUR 76 million or minus 1% of last 12 months' orders. Sequentially, from Q2 to Q3, we tied up EUR 63 million more working capital, but this was mainly due to timing effects, which reflect normal variation between the quarters. But to put this into perspective, if we compare with Q3 last year, we have actually released roughly EUR 100 million in net working capital. And this improvement comes from reductions in our inventories and also in our contract assets, which is a good achievement in the current environment. And if we zoom out even further at its lowest level about 5 years ago, our net working capital was EUR 0.5 billion lower than what it is today. However, it's very important to understand the underlying dynamics. So this shift reflects the growth of our Process Performance Solutions and Biomaterials Services business, which typically require more net working capital than CapEx-driven project business. As these segments have grown, while then the Biomaterial project business has been in a low cycle, our working capital profile has also evolved accordingly. And as always, payment schedule in our long-duration projects have a significant impact on net working capital development. Then year-to-date CapEx was EUR 81 million. This is representing 2.2% of net sales and it's also in line with our long-term average. I have to say that efficient cash generation, disciplined capital allocation remain our key priorities. It's supporting by both operational flexibility and also our long-term growth ambitions. Next, I will walk you through our balance sheet development and gearing. At the end of Q3, our net debt stood at EUR 945 million, and we reduced our gearing to 38%. This is a clear improvement from the previous quarter and well within our target of under 50% gearing. Our net debt-to-EBITDA ratio also improved now at 1.5. And the net average interest rate on our total debt remained stable at 3.6%. And net financial expenses fell to EUR 13 million in third quarter, and this is down from the EUR 17 million we had a year ago. And this improvement is driven by both a lower average interest rate and also a reduction of our total debt. For a context, a year ago, our average interest rate was 4.4%. It's also worth noting that the second dividend installment, EUR 0.67 per share totaling EUR 123 million, was paid in early October and it's not yet reflected in these figures. Our liquidity remains robust with a cash and cash equivalent of EUR 479 million at quarter end. So in summary, balance sheet is strong. Our gearing is comfortably below our target and our liquidity gives us the flexibility to invest in growth, support our long-term strategy even in a challenging market environment. Moving on to capital efficiency and EPS. Our comparable ROCE for the last 12 months was 13.1%. This is a solid level, but I want to be transparent. So our financial target is to reach 20% comparable ROCE by 2030 and we still have some way to go. The decrease in ROCE in recent years is mainly due to the acquisitions we have made. So these have increased our capital base and it takes time for the full earnings impact to come through. We are confident that these investments will support stronger returns over time and we have a clear plan how to get there. Then our last 12 months adjusted earnings per share was EUR 1.77, down 8% from full year 2024. And it's important to clarify that this is adjusted EPS, which excludes the acquisition-related adjustments, but includes items affecting comparability. It's sometimes assumed that these items affecting comparability are excluded from adjusted EPS, but in our reporting they are included. Even though our comparable EBITA is EUR 6 million higher year-to-date than last year, the decrease in adjusted EPS was mainly related to restructuring expenses from our operating model renewal. And these are, of course, one-off costs that support our long-term competitiveness. So we are taking the right steps to ensure stronger returns and sustainable value for our shareholders. Moving on to key figures to conclude my presentation. Most of these figures have already been presented today, but I'd like to highlight a few important topics. First, almost all key indicators have developed favorably in the third quarter. And this is a clear sign that our performance was strong even in a challenging market environment. Year-to-date net sales down 3%. This is still in line with our guidance of flat net sales for the year, so we remain on track. Items affecting comparability were minus EUR 10 million, and these are mainly related to a settlement agreement in the Biomaterial Solutions and Services segment following a delivery made 2 years ago. And the delivery required corrective actions led to a commercial dispute, which has now been resolved. And while unfortunate, incidents like this are rare but they do sometimes happen in the project business. Lastly, the effective tax rate was roughly 3 percent points lower in the third quarter and 4 percentage points lower year-to-date. While this change is rather large, it's important to note that the tax rate always reflects the geographical mix of our business. And last year, the tax rate was higher than typical. This year, it's lower. So going forward, we continue to expect a tax rate of roughly 25%. That concludes my review of the key financials. Thomas, over to you to go through guidance and our view of market outlook. Thomas Hinnerskov: Thank you very much, Katri. Let's look at the guidance and the short-term market outlook. Our 2025 guidance remains unchanged. We expect both net sales and comparable EBITDA to remain on previous year's level. This outlook is supported by our healthy backlog, our cost savings and that we are realizing from our renewed operating model. Looking ahead, our short-term market condition remains mixed. We continue to see a favorable environment in Process Performance, even though the dynamic tariff situation and the overall economic outlook does create uncertainty. The Biomaterials market overall remains challenging. The Biomaterials services markets softened clearly in Q3, and there is a risk of further softening there. One specific area of concern is consumables and performance parts, where orders have been trending down since Q1. This part of business reflects a more day-to-day customer activity and likely mirrors our customers' reduced production rates and to some extent, lower financial results. On a positive note, the tissue market stands out. We won a landmark order from the U.S. in Q3 and the pipeline looks healthy also going forward. The pipeline in our other capex-driven businesses is relatively stable. There are some mega projects in the pipeline, but as always, the timing is difficult to predict. We do remain open to work with our customers if some of these large projects move on to decision phase in 2026. For Q3, it's important to remember -- or Q4, it's important to remember that the comparison period includes in Q4 2024, a mega pulp mill order from Arauco, impacting the comparison figures, clearly also in the Process Performance and the Biomaterial Services. Despite the market challenge, I'm confident that our simplified operating model and focused strategy or strategic position as well will enable us to navigate near-term volatility, creating at the same time long-term value for both our customers and our shareholders. With that, I'll hand over to Pekka for instructions for the Q&A. Thank you, Pekka. Pekka Rouhiainen: Thank you, Thomas and Katri, for the presentations. And we'll start from the digital platform here before opening the phone lines. So please remember that you have the chance to post the questions also through this platform. But there are a couple of questions here. First of all, strong margins in Process Performance during Q3. So are there some one-off items or something like that explaining the good result? Thomas Hinnerskov: Yes, great results in Process Performance in Q3 in terms of margin. Overall, I would say they did -- the margin was supported by the savings in the operating model. They were also ahead of the curve commercially on some of the costs that are coming in. So that will impact them later on in Q4, but we're happy to take that extra result in Q3. On top of that, I would also mention that we did acquire API last year, and that performance has really come up and also showing really good results. We are very happy with that acquisition. Pekka Rouhiainen: Good. Thank you, Thomas. And then another one here regarding the savings, so EUR 15 million saved in Q3 from the operating model related things, I guess. And how much are the savings that you're expecting going to Q4 and 2026? Thomas Hinnerskov: We expect roughly the same level of savings into Q4. No, it's not going to change much. I think maybe just important to note going into '26, we will -- and that's also what we communicated at the Capital Market Day back in June 5 when we launched the strategy. Part of this operating model is also to free up resources so we can invest part of that back into future growth and therefore, actually getting into a better trajectory in '26. Pekka Rouhiainen: Good. Thank you, Thomas. That's it for the platform right now. So now operator, handing over to you. Operator: [Operator Instructions] The next question comes from Panu Laitinmaki from Danske Bank. Panu Laitinmaki: I would have a few. Firstly, starting on services and the outlook that you now gave. Could you kind of talk a bit more like where is this coming from, the weakness in services? And what is the magnitude of the kind of potential further weakening if you had orders declining 2% in Q3? Is this like 5% plus decline going forward or any indications of this one? And maybe on services, if the spare parts and consumables are down, is this the highest margin part of services that is declining currently? Thomas Hinnerskov: Yes. Good question. If we look at the services and Biomaterials throughout the year, Q1 consumable spare parts really, really strong. Q2, consumer spare parts came down, mill improvements came up, and we'd still have a good growth overall in Q2. Here in Q3, you can say that that trend has sort of continued consumables and spare parts down, particularly, I would say, in Europe and North America. And then where then mill improvement projects has gone up in China and in North America, in particular, where we've seen the biggest growth. I think it's important to note that the mill improvements really are important projects for us because that's where we really help the customer as well in improving their efficiency and their cost competitiveness. And we're very happy that we have seen a good track record of that. Clearly, of course, that's slower moving in the backlog or in the order portfolio, so that the sales comes out a bit later than if it was spare parts or consumables. Panu Laitinmaki: Okay. Then on the cost savings, how did the EUR 15 million split into the 2 divisions? And maybe on '26, so should we expect EUR 15 million to impact your EBIT if you kind of get EUR 30 million for this year? Or did you indicate that you aim to invest part of that to the business, so it will be like less than EUR 15 million support to the earnings or margins? Thomas Hinnerskov: Now you had 2 questions there. What was the first part? Just I couldn't really hear you coming through. Sorry. Panu Laitinmaki: It was how did it split, the EUR 15 million, into the 2 divisions? Thomas Hinnerskov: Okay. Yes. The split between Bio and Performance Solutions, think about it like 2/3 bio and 1/3 in the process performance because you also have to think about where we took the most complexity out was actually in the Biomaterial business. Pekka Rouhiainen: And then Thomas, about 2026. Thomas Hinnerskov: Yes, 2026, we will sort of have full run rate early 2026 of these EUR 80 million. We will reinvest some of that into growth, that I said. I would think of it like 80-20, where 80% goes into supporting the results and 20% maybe in the reinvestment. And of course, you also need to think about, I think we've also communicated that earlier, that it's split between white-collar COGS and white-collar SG&A. Panu Laitinmaki: My final one is on the Process Performance. So, you answered that there was maybe some commercial, they were ahead of the curve in -- so does it mean that prices were increased before the costs increased due to tariffs or so on, and that this will kind of go away or turn in Q4? Thomas Hinnerskov: Yes. Clearly, I mean, as you also have seen, the market has been very dynamic and also in particular in terms of the tariff situation. So we have needed to adjust our pricing according to that. And then some of that tariff has come through a bit later than was originally expected. Panu Laitinmaki: Can you quantify what is the magnitude of that in the margins? Thomas Hinnerskov: Not -- I don't think we supply that kind of level of information. But there was -- there was a good impact. But you also have to consider into that API was doing better, cost savings were coming through without the reinvestment into future growth. So lots of things sort of pointed or gave some tailwind into the margin development for PPS. Operator: The next question comes from Sven Weier from UBS. Sven Weier: The first one I got is just coming back on the services outlook. I was just wondering, obviously, after Q2, you already gave a slightly weaker outlook for services into the coming quarters. I just wonder the outlook that you give today on the coming quarters, is that incrementally weaker than what you had in mind in Q2? Or is it the kind of same softness? That's the first one. Thomas Hinnerskov: Sven, thanks for joining. Overall, we've seen, as you can see, that the daily operating rates, consumables and spare parts has come down. We've seen in Q2 and Q3 roughly 9 million of tons of capacity coming out of the market where we roughly have 4 of those. So that's, of course, impact the overall consumption of these spare parts and consumables. So that has impacted. Now it is -- you can say that the situation is quite dynamic, can change positive-negative quite fast with our customers and depending on how their situation is with their customers. So it's a bit hard to say, but we do see a risk of further softening, I would say, going into Q4. Sven Weier: And is it that customers can still actually destock? Was there maybe also a prebuy ahead of the tariffs, and that's also weighing on the spare parts demand? Thomas Hinnerskov: That was probably back to Q1 where we saw spare parts and consumables coming up quite a lot and not happening really in Q2 and not in Q3 either. So I think it's more about prolonged shutdowns to actually manage the overall capacity, which then drive the consumables. Sven Weier: The other question I have was just on the Biomaterial margins and the -- which were a bit weaker than we expected. I mean, is it also that Arauco is a bit to blame here in terms of margin dilution? And is the project going according to plan? Thomas Hinnerskov: So Arauco is really going according to plan. I was actually visiting on-site there a few weeks ago. So I'm super happy that you're asking. I was there together with the CEO of Arauco, and we made a joint review of the whole project together. And it's great to see how it's progressing according to plan, and the team are really playing together to make this a success for Arauco as a customer. So very happy with the progress there, I have to say. Then just maybe to give you a little bit more flavor on the Biomaterial overall margin. We have seen -- we are seeing that sort of the overall product portfolio margin is lower than what it has been historically. But that we see more or less throughout sort of the year, and that will also go into Q4. Sven Weier: Understood. And the final question from my side, if I may, is just on the -- coming back to the cost saving bit. I mean, did you say there is an incremental EUR 15 million in Q4? Or is the run rate staying at EUR 15 million in Q4? Thomas Hinnerskov: So we've achieved -- so I'm more saying the run rate will continue like this. You can also see that in the number of people that have actually left if you sort of click on that, you will see that we have achieved actually most of the savings from a run rate perspective. Some will come during Q4, Q1, right? But most of it… Sven Weier: But you will be an EUR 80 million annualized in Q1, beginning of next year, you said, right? Thomas Hinnerskov: Yes, sometime early 2026. So sometime during Q1. Sven Weier: And did you use some of these savings then to win this major tissue project? Or do you need to invest these savings in other end markets? Thomas Hinnerskov: No. So these savings are not related to the tissue win at all. So these -- when we talk about these EUR 15 million, they are solely related to the operating model change. And that's why we're also saying in order to actually deliver on the strategy, we will reinvest some of that very sort of focused and tailored in certain markets to win more share. And then if you think about our global supply, the EUR 100 million that we talked about back in June, that's going into sort of 2 buckets. One is overall cost improvement and then, of course, also cost competitiveness. The cost competitiveness piece is a little bit of a longer game than just sort of a few quarters. Sven Weier: And then I guess tissue is not a market where you need to invest into market share gains because you are already strong. Thomas Hinnerskov: Yes. Exactly. Operator: [Operator Instructions] The next question comes from Mikael Doepel from Nordea. Mikael Doepel: I have 2, if I may. Firstly, again, coming back to the service market. Just to be very clear here in terms of how to read your guidance. So should we see it, as you know, the market being down perhaps sequentially seasonally adjusted in absolute terms over the next 6 months? Or are you referring to kind of a year-over-year market trend, which might weaken from what we have seen now, for example, in Q2 -- sorry, Q3 with your orders being down by 2%? So just trying to get full clarity in a way on that so we don't misinterpret it how to read the guidance, please. Thomas Hinnerskov: Thanks, Mikael. I'm not sure -- I wasn't sure I understand the question, but the question is that when you -- when we say the guidance, it's -- are we comparing versus Q3 now for Q4? Or are we comparing with Q4 last year? Is that the question or? Mikael Doepel: Exactly. That's more or less the question. Yes. So trying to understand should we expect accelerating declines in demand year-over-year for the next couple of quarters? Or are you kind of looking at Q3 as a run rate and seasonal adjustment? Thomas Hinnerskov: Yes. Of course, I mean there's always seasonality in it. So we always think about sort of comparing versus the last year, not from sort of the starting point or the ending point coming out of the quarter. So I think you should think about it versus Q4, but you have to, in Q4, think about that that was impacted by the Arauco order in Q4. Not just in the capital side, but also in the Process Performance Solutions, but also in the Biomaterial Services as the service package comes through there as well. Mikael Doepel: Yes. That makes sense. Okay. And then secondly, on the U.S. market very briefly on the pulp market, in particular. Now I remember you have been talking about opportunities in that market. So you have a fairly old installed base on the pulp side, recovery boilers and all of that kind of expecting good opportunities there. I guess we haven't seen that much flowing through yet, at least in your orders. So I'm just wondering if you would like to give a bit of an update on how you see that market now. I mean, is the overall tariff or uncertainties putting things on hold? Or any color on that trend would be great. Thomas Hinnerskov: Yes. I mean North America market, a very good market. Overall, as you also alluded to, old installed base will eventually need to be upgraded and a lot of improvement projects will need to come through there. They are currently -- I would say, they've taken some capacity out during Q2, early Q3 as well to support sort of the overall situation there. However, they are running, I would say, close to optimal operating rates as we speak, right? And they are actually sort of being -- what can I say, they benefit from the current tariff situation, I would say, overall, but they still struggle with what sort of -- what's the direction when they're looking into the coming quarters and years. And therefore, I think that's also one of the reasons why you've seen quite silent CapEx market, not just in North America, but overall. Operator: The next question comes from Panu Laitinmaki from Danske Bank. Panu Laitinmaki: I wanted to ask about the EUR 10 million one-off costs. So if I understood correctly, this was a project settlement. So is this like the way you always treat this and so as an item affecting comparability? And how do you kind of define when it's a project loss test reported as part of normal business and when it's something that's taken out from the adjusted or comparable EBIT? Katri Hokkanen: Yes. Thank you, Panu, for the question. Actually, this was a delivery that we have done already 2 years ago. So in that sense, it has been delivered. And there has been a dispute with the customer, which required then corrective actions, and now we have settled it. So these are very rare, I have to say. Panu Laitinmaki: Okay. And if I may, another question. What about these large projects in pulp? So -- or the potential ones, what is like the timeline? When do you think the customers are making decisions? Is it '26? Any color on those ones? Thomas Hinnerskov: I mean, as usual, it is very, very difficult to predict when these comes out. They are very binary by nature. Of course, as you know, there are some of them in the pipeline, but question is when that decision is made. It's a bit about how the customers see actually the market for pulp developing into the future. And then -- so hard to give you sort of more insight on that one. But of course, we are working with the customers having to sort of help them out doing the solution engineering, figuring out how would actually the payback and the return on investment look like for them. Operator: The next question comes from Xin Wang from Barclays. Xin Wang: So my first question is on automation and flow control orders, which came at a very good level. Can you maybe talk about what's driving the demand, either by region or by customer groups? I think you mentioned hydrogen fuel and power in the release. And then you also talked about good pricing level being a driver. Is this across the sector or unique to Valmet? Thomas Hinnerskov: Very good question. I think if you look at our Process Performance Solutions, they actually also have customers that are in challenging situation with some overcapacity and some tough pricing in their markets. However, we do see that they are very committed to the future. They have done some CapEx investments in actually to driving their efficiency going forward or into the future. So we've seen, especially in automation, maybe we see more CapEx orders than what we've -- and then service orders or that mix have actually been a bit more heavy on the CapEx, which is great to sort of in terms of installed base and future businesses, right? Same go a bit with Flow Control. I think the pricing is more a Valmet specific thing than necessarily a sector thing. Xin Wang: Very good to hear. So maybe just a follow-up on this bit because when I look at your customer base in Flow Control, for example, I think there is 26% given out of your CMD slides being pulp and paper. For the other industries, what was the secret to gain pricing power in there in, I don't know, chemicals, renewable energy, metals and mining, et cetera? Thomas Hinnerskov: Yes. I think taking Flow Control is really about having a very strong solution offering that adds value to the customer more uniquely than any of the other competitor, having a very focused and specific commercial plan on how you're actually going to get this to market, what segments are you focusing on, not trying to go too broad, but actually being very specific on where does your solution offer a uniqueness into the market and then really pushing that. And that is actually quite a number of industries where we have -- as part of the solution where we have a uniqueness that -- where we can actually serve the customer better. Xin Wang: Okay. Great. Maybe if I can ask one more question. I think in Q3, you continued to benefit from China orders, although presumably at a far lower scale than Q2. Can you maybe comment on your expectations over there, please? Thomas Hinnerskov: Yes. So, what I also just said is that we saw several mill improvement projects in the Bio business in China, but we also had a -- also on the Process Performance Solutions, we also had some good orders coming in there. I mean I think you know the Chinese situation. It is, of course, a challenging market like it is also some other places. And you just need to be very, very focused in your commercial strategy when it comes to China in order to be successful. Otherwise, you end up getting lost and you end up getting marginalized because you're trying to do too many things for too many kind of customer segments. Operator: The next question comes from Antti Kansanen from SEB. Antti Kansanen: It's Antti from SEB. A couple of questions from me as well. I'll start with a clarification on the savings comment. So the EUR 15 million that you are flagging, am I correct to understand that this is the impact on quarterly EBIT and not any kind of an annual run rate number? So that would be the first one. Thomas Hinnerskov: That's correct. Antti Kansanen: So it's safe to assume that if -- and then I wanted to come back to the comment on reinvesting part of the savings next year. Was this originally the plan when you announced the EUR 80 million cost savings during the Capital Markets Day? Or has something changed since then? Thomas Hinnerskov: No, this was a clear part of the plan at the Capital Market Day. Antti Kansanen: Okay. Fair enough. Then the second question is on the outlook for… Thomas Hinnerskov: Antti, just to be clear, of course, we're not just flooding in resources, right? It is very tail -- it's back to the plan and the road maps we created for the strategy implementation and execution back, I mean, before the June 5, and that's where the investments are going into, in particular when it comes to certain sales forces where we do see that there are opportunities, but they're not necessarily done historically because the payback time is not within the year. Antti Kansanen: Okay. I mean that's very clear. But I'm kind of correct, assuming that this is basically the quarterly run rate of net savings that we should assume. I mean the EUR 5 million is roughly already close to 80% of, let's say, the gross number that you are talking about. So -- Thomas Hinnerskov: Not too far away. Antti Kansanen: -- repeated in terms of --yes. Okay. Good to have it correctly. But then I guess the bigger question that I had was on the service demand and on the consumables and parts side, obviously driven, as you mentioned, by the client production rates. So how do you look at it? Is this just a business cycle that you kind of have to suffer right now? Or are you seeing something more permanent happening within your existing service base that would maybe require actions that were not part of the ones that you outlined on the strategy and the CMD in June in terms of, let's say, permanent closures of shrinkening of installed base in some of your key service areas? Thomas Hinnerskov: No, I think it's driven by the moment. Of course, as I said earlier, the 9 million tonnes of capacity coming out. 4 million of those roughly is Valmet capacity or original Valmet equipment. That's, of course, a lot of it is quite old equipment, but anyhow it does, of course, drive demand. But then the lower operating -- I mean, as I also said, we're seeing very good operating rates in North America now. If they closed a few sites in Q2, in particular. Very good operating rates right now. Europe, I mean, struggling as you probably would imagine and know, and also in terms of the operating rates, right. So, it's basically sort of say demand side driven right here and now for the customer. Operator: The next question comes from Christoph Blieffert from BNP Paribas Exane. Christoph Blieffert: I have 2, please. Can you help me better understanding the margin profile of spare parts and consumables versus mill improvement projects and services, please? Thomas Hinnerskov: I think the right way to really think about it is that point one, we have a -- we set out an ambition for 2030 of having a 14% margin in our Bio business, right. That's sort of the aiming point. Secondly, that is then really about making sure we drive the lifecycle value for our customers, optimizing their outcome because we are the manufacturing equipment for the customer. In order to make them competitive, especially when it comes to older equipment, then these mill improvement projects becomes really important. And that then generates also then future service and consumable sales or parts and consumable sales. So I wouldn't try to sort of see it in isolation or the mix. I think that just clouds the bigger picture in terms of the direction of travel. I think the only thing is that it's more important to think about that it's slower turning in terms of the order book backlog that it doesn't come out tomorrow necessarily, right, with like a spare part would do. Christoph Blieffert: Okay. Understood. The second question is on 2026. Consensus expects some EUR 706 million of comparable EBITA for next year. I'm just wondering if you feel comfortable with the EUR 19 million year-on-year increase. Thomas Hinnerskov: I think -- I mean, a good question. And as you know, we do come out with our guidance for 2026 in connection with the Q4 results. I think we are standing on good grounds in terms of going into next year. We've got a good order backlog. We've got savings that helps us improve our profitability. So in that sense -- we've got PPS also having had some good growth during this year. So we are going into with some good things in the bag, but let's see back in after Q4, how that would play out and more specifically. Operator: The next question comes from Mikael Doepel from Nordea. Mikael Doepel: I just have a very small detailed follow-up on the 9 million tonnes of capacity that you're talking about taking out from the market. Are you referring to containable, consumable, pulp or everything together, just to be clear on that number? Thomas Hinnerskov: Yes, it's mainly in the paper and board segment. Mikael Doepel: Okay. But also pulp then or just that… Thomas Hinnerskov: Yes. No, I think that is -- I think you have sort of think about it as mainly a board thing. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Pekka Rouhiainen: All right. Thank you. There seems to be no questions from the digital platform at this stage either. So it's time to start to conclude the event. And the Q4 report will be due on February 6 next year. And yes, I hope to see many of you in the various roadshows and seminars we are planning to participate still this year. But now I'd like to hand over to Thomas for any final remarks. Thomas Hinnerskov: Thank you, Pekka, and thanks to everyone who joined us today. To sum up, Valmet delivered a good performance and an improving performance in the third quarter, even as market conditions remain challenging. Our healthy order backlog and ongoing cost savings, like we also just talked a lot about from the operating model renewal, gives us confidence in our outlook. We remain fully committed to our strategy and to create long-term value for our shareholders and stakeholders. So on behalf of the entire Valmet team, thank you, and thanks for their continued trust and support. We are looking very much forward to keeping you updated on our progress. And then have a great and wonderful day. Thank you.
Operator: Welcome to the Third Quarter 2025 Caterpillar Earnings Conference Call. Please be advised that today's conference is being recorded. I will now hand the conference over to your speaker today, Alex Kapper. Thank you. Please go ahead. Alex Kapper: Thank you, Audra. Good morning, everyone, and welcome to Caterpillar's Third Quarter of 2025 Earnings Call. I'm Alex Kapper, Vice President of Investor Relations. Joining me today are Joe Creed, Chief Executive Officer; Andrew Bonfield, Chief Financial Officer; Kyle Epley, Senior Vice President of the Global Finance Services Division; and Rob Rengel, Senior Director of Investor Relations. During our call, we'll be discussing the third quarter earnings release we issued earlier today. You can find our slides, the news release and a webcast replay at investors.caterpillar.com under Events and Presentations. The content of this call is protected by U.S. and international copyright law. Any rebroadcast, retransmission, reproduction or distribution of all or part of this content without Caterpillar's prior written permission is prohibited. Moving to Slide 2. During our call today, we'll make forward-looking statements, which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different from the information we're sharing with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder in the news release for details on factors that individually or in aggregate could cause our actual results to vary materially from our forecast. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. On today's call, we'll also refer to non-GAAP numbers. For a reconciliation of any non-GAAP numbers to the appropriate U.S. GAAP numbers, please see the appendix of the earnings call slides. Now let's advance to Slide 3 and turn the call over to our CEO, Joe Creed. Joseph Creed: Thank you, Alex, and good morning, everyone. Thanks for joining us today. Solid performance from our team generated strong results this quarter, driven by resilient demand and focused execution across our three primary segments, and as a result, sales growth and adjusted operating profit margin were both slightly above our expectations. Sales and revenues increased 10% to $17.6 billion, an all-time record for a single quarter. Backlog grew by about $2.4 billion, driven by strong orders in Energy & Transportation. The backlog is now $39.8 billion, which is also an all-time record and positions us for sustained momentum and long-term profitable growth. We also generated $3.2 billion of ME&T free cash flow, and we deployed about $1.1 billion to shareholders through dividends and share repurchases during the quarter. I'll start with my perspectives about this quarter's performance, then I'll discuss our outlook along with insights about our end markets, and finally, Andrew will provide a detailed overview of results and key assumptions. Turning to Slide 4. Sales and revenues were up 10% versus last year. The increase was primarily due to higher sales volume, partially offset by unfavorable price realization for machines. Higher sales volume was driven by higher sales of equipment to end users across our three primary segments. Third quarter adjusted operating profit margin was 17.5%. For the quarter, the net impact of incremental tariffs was near the top end of our estimated range of $500 million to $600 million. Despite the tariff headwind, adjusted operating profit margin was slightly above our expectation, primarily due to better-than-expected sales volume in Energy & Transportation. We achieved quarterly adjusted profit per share of $4.95. Compared to the third quarter of 2024, sales to users increased 12%, led by 25% growth in Energy & Transportation, while machine sales to users increased 6%. For Construction Industries, sales to users were up 7% year-over-year, broadly in line with our expectations. Let me take a minute to walk through the sales to users by region. North America increased 11% over the prior year and was better than we anticipated due to growth in both residential and nonresidential construction. While rental fleet loading was down slightly, dealers rental revenue continued to grow in the quarter. An increase in EAME was primarily due to growth in Africa and the Middle East. We saw a decline in Asia Pacific, which was below our expectations, resulting from softness in a few key subregions. Latin America increased but slightly lower than we anticipated. In Resource Industries, sales to users increased 6% year-over-year, which was slightly above our expectations. Mining was better than expected due to the timing of deliveries to end customers for large mining trucks and off-highway trucks. Heavy construction and quarry and aggregates were in line with our expectations. In Energy & Transportation, sales to users increased by 25% year-over-year with double-digit growth across all applications. The largest growth came from power generation with a 33% increase, primarily due to demand for reciprocating engines for data center applications. Turbines and turbine-related services also contributed to power generation growth. Sales to users in oil and gas, industrial and transportation all increased about 20%. The increase in oil and gas was primarily driven by higher demand for turbines and turbine-related services. Industrial grew from a relatively low level and was driven by sales into electric power applications. Transportation increased due to international locomotive deliveries. Moving to dealer inventory and our backlog. In total, dealer inventory increased by approximately $600 million versus the second quarter of 2025. Machine dealer inventory increased approximately $300 million, about in line with our expectations. As I mentioned, backlog increased sequentially by $2.4 billion, driven by robust order activity in power generation and oil and gas. Since the third quarter of 2024, our backlog has increased 39% with growth across all three primary segments. Moving to Slide 5. I'll now discuss our outlook. I'm pleased with the continued positive momentum in our business. With a record backlog, strong order rates and continued growth in sales to users, our outlook has improved since last quarter. For the fourth quarter, we anticipate strong sales growth versus the prior year. Sales growth is expected to be driven by higher volumes in all three segments. We also expect the year-over-year impact of price realization to be about flat in the fourth quarter. Excluding the net impact of incremental tariffs, fourth quarter adjusted operating profit margin is expected to be higher versus the prior year. When taking into account the net impact from incremental tariffs, we expect fourth quarter enterprise adjusted operating profit margin to be lower versus the prior year. Given the strength of our three -- across our three primary segments, we now expect full year 2025 sales and revenues to be higher than we previously anticipated, resulting in modest growth versus 2024. We continue to expect full year services revenues to be about flat versus 2024. Based on the incremental tariffs announced in 2025 and expected to be in place by November 1, we expect the full year net impact from tariffs to be between $1.6 billion and $1.75 billion. Tariff and trade negotiations remain fluid. Our team is continuously evaluating options to further reduce the impact of tariffs going forward, and we fully intend to implement longer-term actions once there is sufficient certainty. I remain confident that we'll manage the impact of tariffs over time. Excluding the net impact of incremental tariffs, full year adjusted operating profit margin is expected to be in the top half of our target margin range. Including the net impact from incremental tariffs, we expect full year adjusted operating profit margin to be near the bottom of the target range, corresponding to our current expectation for full year sales and revenues. This margin estimate includes the initial mitigating actions already implemented and currently planned throughout the rest of the year. We also expect ME&T free cash flow to be above the midpoint of the $5 billion to $10 billion target range. Andrew will provide more details on key assumptions for the fourth quarter and full year in a moment. To further support our sales outlook, I'll now share the latest view of our end markets. Starting with Construction Industries. As I mentioned earlier, we're encouraged by another quarter of growth in sales to users and strong order rates across many of our regions. Customers continue to be responsive to the attractive rates we're offering through Cat Financial. We continue to anticipate full year growth in Construction Industries sales to users despite softness in the global industry. In North America, overall construction spending remains at healthy levels and infrastructure projects funded by the IIJA continue to be awarded. We continue to expect full year growth for sales to users. Full year dealer rental revenues are also expected to grow, and we anticipate dealer rental fleet loading will increase in the fourth quarter compared to the prior year. In Asia Pacific, we anticipate full year sales to users to be about flat. China has shown positive momentum to start the year, and we expect full year growth in the above 10-ton excavator industry but from a very low level of activity. In Asia Pacific, outside of China, we expect economic conditions to be soft. In EAME, we expect growth for the year, driven by healthy construction activity in Africa and the Middle East and improving economic conditions in Europe. With ongoing weaker construction activity in Latin America, we now expect to be about flat for the full year. Moving to Resource Industries. We anticipate lower sales to users in 2025 compared to last year as customers continue to display capital discipline. However, we see positive momentum with healthy orders for large mining trucks, articulated trucks and large track-type tractors. Although most key commodities remain above investment thresholds, declining coal prices have caused an increase in the number of parked trucks. As a result, we continue to expect slightly lower rebuild activity compared to last year. Overall, customer product utilization remains high and the age of the fleet remains elevated. We also continue to see growing demand and customer acceptance of our autonomous solutions. And finally, in Energy & Transportation, we expect strong growth in full year sales for power generation compared to last year. Demand remains robust, driven by data center growth related to cloud computing and generative AI. We are also pleased by healthy orders for the prime power applications as evidenced by recent announcements with Joule Capital Partners and Hunt Energy Company. We continue to stay close to our largest data center customers and receive regular feedback on their long-term demand expectations. In oil and gas, we expect moderate growth in 2025. For reciprocating engines and services, we continue to expect softness in well servicing due to ongoing capital discipline, industry consolidation and efficiency improvements in our customers' operations. We do see positive momentum in demand for reciprocating engines used in gas compression applications. Solar turbines oil and gas backlog remains strong, and we see healthy order and inquiry activity. With our ongoing investment to increase large reciprocating engine capacity, we're continually improving manufacturing throughput to meet customer needs across a broad range of applications. Demand for products and industrial applications is improving from previous lows with order growth being driven by engines sold into electric power applications. Transportation is expected to remain stable. The strong momentum we achieved in the third quarter, combined with the anticipated growth through year-end, sets the stage for exciting opportunities ahead. As a result, I look forward to sharing more about our long-term outlook at our 2025 Investor Day on November 4. And now I'll turn it over to Andrew for a detailed overview of results and key assumptions looking forward. Andrew R. Bonfield: Thank you, Joe, and good morning, everyone. As usual, I will start with a brief overview of our third quarter results, followed by our segment performance. Then I'll discuss the balance sheet and free cash flow before concluding with our current assumptions for the full year and the fourth quarter. Beginning on Slide 6. Sales and revenues were $17.6 billion, a 10% increase versus the prior year. This was slightly better than we had expected on stronger volume. Adjusted operating profit was $3.1 billion, and our adjusted operating profit margin was 17.5%, both were slightly better than we had expected. Profit per share was $4.88 in the third quarter compared to $5.06 in the third quarter of last year. Adjusted profit per share was $4.95 in the quarter compared to $5.17 last year. Adjusted profit per share excluded restructuring costs of $0.07 in the quarter compared to $0.11 in the third quarter of 2024. Other income and expense was favorable by $132 million, primarily due to the absence of an unfavorable ME&T balance sheet translation impact, which occurred in the prior year. Excluding discrete items, the global annual effective tax rate was 24%, an increase versus our prior expectation of 23%. The higher rate had an unfavorable impact on our performance in the quarter by about $0.18. This is due to changes in recently enacted U.S. tax legislation. While the changes have a negative impact on the tax rate in 2025, they benefit 2025 cash flow. In 2026 and beyond, we would expect a positive benefit to the tax rate versus the previous estimated tax rate for 2025, subject to a consistent mix of profits. The year-over-year impact from the reduction in the average number of shares outstanding, primarily due to share repurchases, resulted in a favorable impact on adjusted profit per share of approximately $0.17. Moving to Slide 7. I'll discuss our top line results for the third quarter. Sales and revenues increased by 10% compared to the prior year, driven by higher volume, which was primarily due to stronger sales of equipment to end users. Changes in dealer inventory acted as a slight tailwind to sales, while price realization was a slight headwind. As I mentioned, sales were slightly better than we had expected in August. Moving to operating profit on Slide 8. Operating profit in the third quarter increased by 3% to $3.1 billion compared to the prior year. Adjusted operating profit increased by 4% versus the prior year to $3.1 billion. Stronger volumes, stronger sales volume and favorability in other operating income and expenses was more than offset by unfavorable manufacturing costs, unfavorable price realization and higher SG&A and R&D expenses. The unfavorable manufacturing costs largely reflected the impact of tariffs. You'll note that there was a headwind of $127 million in corporate items and eliminations this quarter compared to the prior year. The unfavorable impact was driven by higher short-term incentive compensation expense and an accrual for incremental tariffs and corporate items, which I will discuss in a moment. This was partially offset by the proceeds from an insurance claim. The adjusted operating profit margin was 17.5%, a decrease of 250 basis points compared to the prior year. The margin was slightly higher than we had anticipated, mainly due to better-than-expected sales volume in Energy & Transportation. As Joe mentioned, the net impact from incremental tariffs was near the top end of our estimated $500 million to $600 million range for the third quarter. Excluding tariffs, adjusted operating profit margin was slightly higher versus the prior year. This compares favorably to our expectations of a similar margin to the prior year, excluding tariffs. Tariffs impacted all three primary segments. And as I mentioned, part of the charge was recorded in corporate items, similar to what we saw in the second quarter. This timing impact reflects the additional tariffs that were announced within the quarter, which we noted in our 8-K filing on August 28. Moving to Slide 9. I'll review the performance of the segments. Starting with Construction Industries. Sales increased by 7% in the third quarter to $6.8 billion. The sales increase was about in line with our expectations. The 7% sales increase was primarily due to higher sales volume and favorable currency impacts, partially offset by unfavorable price realization. By region, Construction Industries sales in North America increased by 8% versus the prior year. Sales in the EAME region increased by 6%. In Asia Pacific, sales increased by 3% and in Latin America, sales decreased by 1%. Third quarter profit for Construction Industries was $1.4 billion, a 7% decrease versus the prior year. The segment's margin of 20.4% was a decrease of 300 basis points versus the prior year. The decrease was mainly due to unfavorable price realization and increased manufacturing costs largely due to tariffs, while the profit impact of higher sales volume provided a partial offset. The net impact of incremental tariffs in Construction Industries had a negative impact on the segment's margin of around 340 basis points. Excluding this impact from tariffs, the margin was slightly higher than the prior year and about in line with our expectations. Turning to Slide 10. Resource Industries sales increased by 2% in the third quarter to $3.1 billion. Sales were about in line with our expectations. Note that sales to users were slightly stronger than we had expected due to timing as shipments originally expected to occur in the fourth quarter were delivered to customers early. This resulted in a decrease in dealer inventory. Compared to the prior year, the 2% sales increase was primarily due to higher sales volume, partially offset by unfavorable price realization. Third quarter profit for Resource Industries decreased by 19% versus the prior year to $499 million. The segment's margin of 16% was a decrease of 430 basis points versus the prior year. The decrease was primarily due to unfavorable manufacturing costs from tariffs and unfavorable price realization. This was partially offset by the profit impact of higher sales volume. The net impact of incremental tariffs on Resource Industries margin was approximately 260 basis points. Excluding the impact from tariffs, the margin was lower versus the prior year and about in line with our expectations. Now on Slide 11. Energy & Transportation sales of $8.4 billion increased by 17% versus the prior year. Sales were stronger than we had expected due to higher sales volume. The 17% sales increase versus the prior year was mainly due to higher sales volume, including higher intersegment sales. Also, price realization was favorable. By application, Power generation sales increased by 31%, Oil and Gas sales increased by 20%. Sales in Industrial and Transportation each increased by 5%. Third quarter profit for Energy & Transportation increased by 17% versus the prior year to $1.7 billion. The increase was primarily due to the profit impact of higher sales volume and favorable price realization, partially offset by higher manufacturing costs, primarily due to tariffs. The segment's margin of 20% was an increase of 10 basis points versus the prior year. The net impact of incremental tariffs on Energy & Transportation's margin was approximately 140 basis points. Excluding this impact from tariffs, the margin was higher versus the prior year and slightly stronger than we had expected. Moving to Slide 12. Financial Products revenues were approximately $1.1 billion in the quarter, a 4% increase versus the prior year due to a favorable impact from higher average earning assets in North America. This was partially offset by an unfavorable impact from lower average financing rates across all regions except Latin America. Segment profit decreased by 2% to $241 million. The decrease was mainly due to a higher provision for credit losses at Cat Financial, higher SG&A expenses and an unfavorable impact from equity securities at Insurance Services. This was partially offset by a favorable impact from higher average earning assets. Our customers' financial health remains strong. Past dues were 1.47% in the quarter, down 27 basis points versus the prior year, the lowest third quarter in over 25 years. The allowance rate was 0.89%, remaining near historic lows. Business activity at Cat Financial remains healthy. Retail credit applications increased by 16% and retail new business volume grew by 7% versus the prior year. In addition, used equipment levels remain low and conversion rates remain above historical averages as customers choose to buy equipment at the end of their lease term. Moving to Slide 13. ME&T free cash flow was about $3.2 billion in the third quarter, approximately $500 million higher than the prior year as stronger operating cash more than offset higher CapEx spend. We continue to anticipate CapEx spend of around $2.5 billion this year. Moving to capital deployment. We deployed about $1.1 billion to shareholders in the third quarter. Our quarterly dividend payment was about $700 million, with the remainder reflecting share repurchases in the quarter. Our average balance sheet and liquidity positions remain strong. We ended the third quarter with an enterprise cash balance of $7.5 billion. In addition, we held $1.2 billion in slightly longer-dated liquid marketable securities to improve yields on that cash. Now on Slide 14, let me start with a few comments on the full year. Based on what we see today, we are optimistic about our top line momentum supported by healthy demand signals, including a robust backlog and growth in sales to users. Against this supportive backdrop, we now expect full year 2025 sales and revenues to increase modestly versus 2024, a slight improvement compared to our expectations last quarter. Now moving on to margins. Excluding the net impact from incremental tariffs, the full year adjusted operating profit margin is expected to be in the top half of our margin target range. Including the net impact from incremental tariffs, we expect full year adjusted operating profit margin to remain near the bottom of the target range. Given our improved sales and revenue expectations, adjusted operating profit margin should be slightly higher than we anticipated when we filed the 8-K on August 28. Based on the tariffs announced in 2025 and expected to be in place on November 1, we expect the impact from incremental tariffs for 2025 to be around $1.6 billion to $1.75 billion, net of some mitigating actions and cost controls. This assumes that the net incremental impact of tariffs will be greater in the fourth quarter than in the third, primarily due to the timing of tariff rate changes. As Joe mentioned, we expect ME&T free cash flow will be above the midpoint of the $5 billion to $10 billion target range. We continue to expect restructuring costs of approximately $300 million to $350 million this year. On taxes, as I mentioned, we now anticipate our 2025 global annual effective tax rate to be 24%, excluding discrete items. Turning to Slide 15. To assist you with your modeling, I'll provide our fourth quarter assumptions. Based on what we see today, we anticipate strong sales growth versus the prior year with higher sales volume across all three primary segments. We expect machine dealer inventory to decline slightly in the quarter compared to a $1.6 billion decrease in the prior year, which should result in a sales tailwind for the fourth quarter. We expect price to be roughly flat for the enterprise. By segment, in Construction Industries, we expect a strong sales increase in the fourth quarter versus the prior year on volume growth, driven mainly by the dealer inventory tailwind previously mentioned. Higher sales to users should benefit volume as well, while we anticipate the year-over-year price impact to be about neutral. In Resource Industries in the fourth quarter, we expect stronger sales versus the prior year, primarily due to higher volume driven by changes in dealer inventory. Note that we anticipate unfavorable sales to users in the fourth quarter in Resource Industries due to the timing impact that I mentioned a moment ago. The impact of price in Resource Industries is expected to remain unfavorable, but to a slightly lesser extent compared to what we saw in the third quarter versus the prior year. In Energy & Transportation in the fourth quarter, we anticipate strong sales growth versus the prior year, driven by continued strength in power generation. We also expect higher sales in oil and gas driven by Solar turbines and turbine-related services. Price realization should remain favorable as well. Let me provide some perspective on our expectations for Energy & Transportation. While we expect sales to increase sequentially in the fourth quarter, the increase will likely be different than the typical seasonal pattern. This reflects the impact from robust third quarter sales, which have tempered the usual fourth quarter uplift. As a result, the sequential sales growth rate between the third and fourth quarters is projected to be slightly lower than last year's level. Now I'll provide some color on our fourth quarter margin expectations. Excluding the net impact from incremental tariffs, we expect the fourth quarter enterprise adjusted operating profit margin will be higher versus the prior year. We anticipate stronger sales volume will be partially offset by higher manufacturing costs. As I mentioned, price realization for the enterprise should be roughly flat in the fourth quarter. Including the net impact from incremental tariffs, we anticipate a lower enterprise adjusted operating profit margin in the fourth quarter versus the prior year. As I mentioned, the tariff headwind should be larger than it was in the third quarter. We anticipate a net cost headwind of about $650 million to $800 million in the fourth quarter. At this point, we expect tariffs to have a minimal impact to corporate items in the fourth quarter as our current assumptions are based on tariffs announced and expected to be in place on November 1. Now I'll make a few comments regarding our segment margin expectations for the fourth quarter. In Construction Industries, excluding the net impact from incremental tariffs, we expect a higher margin compared to the prior year. This is driven primarily by the profit impact from higher sales volume, though the benefit within volume is lessened by unfavorable product mix compared to the prior year. Now including the net impact from incremental tariffs, we anticipate a lower margin in Construction Industries versus the prior year. We expect about 55% of the fourth quarter net incremental tariff impact will be incurred in Construction Industries. In Resource Industries, excluding the net impact from incremental tariffs, we anticipate a higher margin versus the prior year, mainly due to higher sales volume, partially offset by unfavorable price realization. Including the net impact from incremental tariffs, we anticipate a lower margin in Resource Industries versus the prior year. We expect about 20% of the fourth quarter net incremental tariff impact will be incurred in Resource Industries. In Energy & Transportation, excluding the net impact from incremental tariffs, we anticipate a higher margin versus the prior year, mainly due to a higher sales volume and favorable price realization. Higher manufacturing costs should act as a partial offset. Including the net impact from incremental tariffs, we anticipate a slightly lower margin compared to the prior year. We expect about 25% of the fourth quarter net incremental tariff impact will be incurred in Energy & Transportation. So turning to Slide 16. Let me summarize. We remain optimistic about our underlying business and now anticipate modestly higher sales for the full year, including a strong fourth quarter. Business activity and customer financial health remains strong as do our balance sheet and liquidity positions. Including the net impact from incremental tariffs, we expect to remain near the bottom of our target range for adjusted operating profit margins, and we expect to be above the midpoint of the target range for ME&T free cash flow. We continue to execute our strategy for long-term profitable growth. And with that, we'll take your questions. Alex Kapper: Excuse me, this is Alex. Just one quick clarification before we jump into the Q&A. The operating profit in the third quarter actually decreased by 3% to $3.1 billion compared to the prior year, and adjusted operating profit actually decreased by 4% versus the prior year to $3.1 billion. And with that, we'll take your questions. Operator: [Operator Instructions] Your first question comes from the line of Kyle Menges from Citi. Kyle Menges: It sounds like backlog growth was driven by power gen, and you alluded to orders for data center prime power applications as well. So could you just talk to the emerging data center prime power opportunity? How much latent capacity you think you have at Solar to meet this demand? And what you think you could actually deliver in the next year, given we've heard some big numbers getting thrown around by some of your customers? And then also just curious what that data center prime power backlog is looking like today. Joseph Creed: Kyle, this is Joe. So we're definitely really excited about the prime power opportunity with data centers and more broadly, just the demand for power that data centers and broader trends in the industry are putting on to the grid. We're going to see a lot more of this, I believe. Prime Power is a great opportunity for us because it creates services opportunity as we move forward as well. So definitely, you saw the Joule announcement that's in our reset. Part of our capacity addition there will go to serve some of that. And with Solar, we're seeing a lot of ordering activity, and it's really healthy, as you suggest. It's not just power generation. Power generation is seeing more activity, but oil and gas has been really strong, too, because we're moving a lot of natural gas, and I think that trend is going to continue. So definitely a really positive outlook at Solar turbines. We're able to keep up with the orders that we're seeing right now. Lead times are starting to get a little more extended at Solar. They're not to the extent of those super large class turbines that more utility scale, but they are starting to get extended. And I would say the way we're thinking it's shaping up in our backlog, the larger turbines, the Titan 250, Titan 350 are longer lead times than the smaller ones where we're able to react a little faster and have a little more. As it comes to capacity and things, we are always evaluating capacity. That would be a great thing when we need it. We're prepared to act when we feel like we need it, but we're in -- we feel like we're able to meet the orders that are coming in right now. Operator: We'll move next to Angel Castillo at Morgan Stanley. Angel Castillo Malpica: Congrats on the strong quarter here. Just kind of following up on that E&T conversation. Obviously, growth here remains quite robust. I wanted to touch a little bit more on the kind of price realization and margins for the segment. Those have remained a little bit more stable, and I think you talked about 140 basis point kind of headwind from tariffs. And maybe just to kind of expand on that topic a little bit more, just two quick questions. One, is there anything else kind of capping prices and margins for E&T as a whole? I don't know if it's mix first-fit versus services or anything else that you would note? And then related to that, for Power Gen in particular, should we be assuming something kind of greater than the 30% type of incremental margins you typically see in E&T given the strong pricing and volume trends there for the next 2 years? Or how would you kind of characterize that contribution to margins from power gen? Joseph Creed: I'll make a comment and I'll let Andrew maybe talk about the margins. But we're definitely each of our businesses and segments in a little bit of a different position. In the machine part of the business, we're in an unconstrained environment. We were constrained before, and we returned to a much more normal competitive pricing environment. In E&T, as you know, we're putting capacity in. Demand is really strong. And so we've been able to take pretty regular price increases, and we expect that trend to continue. Tariffs as well are not evenly spread across there. So we're a very heavy North America footprint in E&T. And so when you look at the margins, they've hung in there a little bit better than maybe a couple of the other segments. So pricing across our businesses, we take into account many different things, and E&T is definitely in a better position just given where that business is in the cycle and where we are from a demand standpoint and the outlook moving forward. Andrew R. Bonfield: Yes. And on margins, I mean, if you look this quarter, I think it was very impressive that E&T was actually able to manage flat margins despite the impact of tariffs and actually would have grown substantially without that. And I think that gives you an idea of the strength of the pull-through that is occurring. Just to remind you that if you look at our margin targets as a whole, and we manage margins at the enterprise basis, obviously, our focus is always on our absolute OPACC dollars and growing OPACC. So if there's a volume opportunity, which may not be necessarily as margin accretive, that doesn't mean necessarily we will pass on it because absolute OPACC dollars actually drives total shareholder return in our mind. But if you look at our margin targets, that requires a pull-through over 30% across the whole of the range when you look at where they are. So that gives you an idea of what we would be expecting from all our businesses when we're looking at margin accretion. Operator: We'll go next to David Raso at Evercore ISI. David Raso: Yes, building on that, I mean, given the backlog, retail activity, lower rates, secular growth, I mean, the revenues, the expectations on the Street for '26 are going to go higher. The real debate is going to be the incremental margin. And building on what you just discussed, not looking for '26 guidance, but just some puts and takes thinking about 2026 at a high level. Obviously, I was intrigued by the price realization comment about being flat in the fourth quarter. Be curious, in particular, when you think about that going to '26, especially for construction. Also the capacity expansions out there, the efficiency of that capacity coming on? Should we think of some potential headwinds adding be a turbine or even more recip capacity or maybe you can do it more efficiently, the sales mix, geographic, let alone product? And maybe lastly, of course, Andrew, anything else to consider puts and takes that we're not thinking about incentive comp, even things below the line tax rate. It's just that's going to be the debate, right, the margins, the incremental. So anything you want to answer from those, I'd really appreciate it. Andrew R. Bonfield: Yes, David, I think you -- I think your question actually covers about the whole of 2026 guidance. So I think, as you know, we will talk a little bit more about that when we get to January when we update you. We're still in that planning process. So it's still very early. I mean, obviously, just stepping back, though, obviously, demand across the business is strong with the backlog that positions us well. Obviously, as you look out, we are now lapping the impact of price. That's why we don't expect price to have an impact on the fourth quarter. So that's obviously a positive, which we don't have that headwind. Tariffs will still obviously be a headwind as we move into 2026. And you asked about the tax rate. And as I indicated in my comments, this year, we did see an increase in the tax rate. That's just due to the changes in the way the legislation works from the capitalization of R&D in particular, to the immediate expensing. That obviously is cash benefit to us, but booked tax negative. That obviously goes away. And then you'll start seeing some of the benefits of some of the foreign tax adjustments that were made in the legislation, which will be a positive for the tax rate as we move forward. But we'll give you more details. And hopefully, we'll give you a little bit more color on our expectations as we talk in Investor Day as well next week. Operator: And we'll move next to Tami Zakaria at JPMorgan. Tami Zakaria: Curious about your thoughts on what drove the acceleration in sales to end users in the quarter in every segment in every region, except APAC. It seemed like some light switch got turned on. Did you anticipate this acceleration maybe because you had product launches or dealer incentives planned? So my question is, are you gaining share or the end markets have just been getting better on all sides? Joseph Creed: Thanks, Tami. We're definitely pleased with the momentum we have in all three of our segments and seeing positive SKUs and momentum continue. Definitely in E&T, as we mentioned in here, right, we're trying to get out as much product as we can, particularly on large engines. So we were able to get out a little more product in the third quarter through the factory, and I'm happy with the way the capacity expansion is coming on. Many of you were able to see that earlier this year in Lafayette. But as we're bringing that capacity online, we continue to work with our supply base and the team there to get out as many units as we can. So that's creating some positive momentum there. I think -- and when you get to RI, some timing in some of the SKUs as to when some of the things get commissioned. And just remember that we've got great momentum in orders and the way that business is going. But from quarter-to-quarter, things can move from one quarter to the next. And we continue to see just great pickup, particularly in North America on our merchandising programs with CI. So we mentioned the industry dynamics are a little softer, and we're continuing to perform and able to make strides. And I think what we have in place is working and generating great momentum. And that gives us -- obviously, the backlog going up as well gives us good momentum heading into the fourth quarter and into next year. So we're just really happy with the way the business is performing right now. Operator: We'll take our next question from Mig Dobre at Baird. Mircea Dobre: I'd like to go back to Construction, if we can. So it's interesting that sales to end users are accelerating. I am curious how much of this do you think is simply a function of the various incentives that you put through rather than just the end market getting better. It sounds like your dealers are looking to add more fleet to their rental operations. So maybe you can talk a little bit about that. But perhaps the bigger picture, as we think about '26, if demand does look to get better, this segment has been absorbing the brunt of these tariff headwinds. How do you think about the puts and takes next year? Do you think that you have the ability to manage these tariffs on the cost side? Or should we be thinking that trends here are solid enough to where you can actually start pushing some price to be able to offset some of these very real cost headwinds that you've experienced in '25? Joseph Creed: Well, there's a couple of different questions there. I'll start maybe on the demand side. I think the performance of the business has been better than the general industry, and I believe that's due to the strategy we have in place and the merchandising programs that are out there. As we finish the year this year, as you point out, I think we'll be in a great shape on dealer inventory. So heading into next year, we'll see what happens, but we've got great momentum, and we're hopeful that, that continues into next year, and we'll talk to you more about that in our fourth quarter earnings call. As it comes to pricing, keep in mind, the fourth quarter, we said is flat at the enterprise level. So we're lapping the impact of these programs that are put in place. the way we're thinking about pricing is sort of our normal annual process, and we're heading into that time period now. Each of our segments, as I mentioned before, E&T is in a much different place than RI and is a much different place than CI. And then different regions of the world are also in very different positions competitively. So we take a lot of factors into the consideration. Cost inflation is one of them, but also market conditions, competitive situation. As Andrew said, our goal is to grow OPACC dollars. So any volume impacts to these decisions, we'll obviously take that into account as well. When it comes to tariffs, we've been able to really put some mitigating actions in, I would say, on the margins. They're the no regrets actions, same thing we talked to you about last time, short-term cost reductions, more belt tightening type of things. We've made limited sourcing changes where we have the ability to move sources without investments in our supply chain, but that's fairly limited. We work on certifying more USMCA compliant products. But when it comes to longer-term actions, we've sort of talked about this before. We're a global business with a very complicated supply chain. We are heavily U.S.-based. It's our largest footprint here. We have over 50,000 employees, 65 locations in 25 states. We're a net exporter. We've increased exports 75% over the last 9 to 10 years. At the same time, our hourly workforce has grown 29%, but we have a broad and diverse portfolio that's very global and the supply chain is complicated. If we're going to make longer-term adjustments to really offset tariffs in that way, it will require investments to do that, and they will take time because we'll have to certify components. We have to buy tooling, we have to validate them and test them. And so for us to make those types of decisions, we really need to have a greater level of predictability and stability in the situation. As we know, trade deals are still being negotiated, and we're watching that very closely, and we have a lot of scenarios at play. We'll use everything in our toolkit when the time is right to react to the tariffs or to mitigate the tariffs. But I'm confident we'll manage it over time. It's just right now, if we do something that requires investment, I don't want to have to spend that money and then turn around and spend money to reverse it. So we're trying to take a measured approach. But we have great momentum heading into 2026 and as we finish this year, and we're really happy with the way the business is performing. So we'll continue to update you as we move forward. Operator: Next, we'll go to Rob Wertheimer at Melius Research. Robert Wertheimer: I wanted to ask, I guess, around the shape of demand in resources, which you've touched on a couple of times. And is the order strength largely in gold, which obviously is going nuts and copper? Or is it a little bit more broad-based? And then if you had any comments, we've seen a couple of industry, including Cat investments in technology, software autonomy. Is there any upshift or change in customer orders on autonomy and/or advanced powertrains or anything else notable changing there? Andrew R. Bonfield: Yes. So I mean, obviously, order rates have remained pretty strong. As you would expect, where order rates are principally is around large mining trucks. That is the area of strength. From a commodity perspective, I would say to you rather than any commodity is strong, obviously, gold prices and copper prices are high. It's coal, which is probably a little bit of the drag, as you would expect and particularly in Indonesia. With regards to autonomy, we continue to see greater acceptance by our customers of the need for autonomous solutions. And I think we'll be talking to you a little bit more about RPM and also about where we think the industry is headed next week, Rob. So if you don't mind, I'm sure Denise will be giving you guys an update, and you'll be able to ask more questions there about some of the things within RI in particular. Operator: And next, we'll go to Kristen Owen at Oppenheimer. Kristen Owen: Two that are related to the backlog. Just first, can you comment on the contribution of CI and RI to the sequential backlog growth? And you made some comments on the year-over-year, but if you could hit the sequential backlog growth. And then second, when you talk about backlog or even revenue growth in oil and gas, would that include any turbine sales used for those prime power data center applications? Or should we anticipate that those will be allocated to the power gen backlog commentary? Joseph Creed: Yes. Thanks, Kristen. So the consecutive sequential growth in the backlog primarily came from E&T, and that was largely power generation and oil and gas contributing to that. As you did mention, year-over-year, we saw RI and CI up. So we're following a little bit of a seasonal pattern in those while still growing the backlog order activity across all three segments has been really strong in the quarter, and we're really happy with the momentum we have. When it comes to Solar and where those sales go and where you see them in the backlog and sales to users, if it's a data center application, it goes in power generation. If it's traditional offshore oil platforms or gas transmission, then it would be in oil and gas. So that's how you should look at where those end up in the numbers. Operator: We'll move to our next question from Michael Feniger at Bank of America. Michael Feniger: Joe, just in 2010, there was a filing that CAT had out that put turbines at $3.3 billion of revenue. That was 15 years ago. Is that business closer to like $7 billion today? Is that $7 billion too low, too high? And just the fact that some areas of oil and gas CapEx like offshore has been weak, is that why you have some capacity to meet the orders on power gen? Does that change at all to meet this demand when you open the order book for Titan 350? When does that kind of plan happen? And does that change the equation at all as you guys kind of think about capacity going forward? Andrew R. Bonfield: So with regards to revenues, we are not going to disclose Solar revenues. Obviously, you are referring to a period a very long time ago. We split the business into oil and gas applications and power generation and where it's mixed up with reciprocating engines for obvious reasons. But Solar is a very strong business. It's a very good business for us, as you know, and one that we will continue to support very strongly. With regards to capacity, both actually, oil and gas applications are doing pretty well as well. So there's a lot of pipeline orders, particularly around gas transmission. And so that doesn't -- so there's not necessarily weakness, which allows us to continue to meet other demand. It's really about prioritization. And as Joe said, we will discuss and make capacity decisions when we're ready and when we see the need to do that, we'll notify you accordingly. Joseph Creed: Yes. Just I mean, as you're thinking about this a long time ago going back 15 years to 2010, the world in oil and gas is much different now as well, right? So you would have had a lot more offshore power in the Solar, oil and gas business. And now post shale, we are moving a lot of natural gas, and that's where we are very, very strong is in the gas transmission side. So I think the business is different now. We continue to grow services and services footprint. It's the first business where we really leaned in on the digital front with long-term service agreements. And that's obviously, with Jim's background, helped shaped our strategy that's made us successful here in the last few years. So we're excited about the business. We're seeing a lot more demand in power generation. We -- when we announced the Titan 350 and put that program through, we obviously had room to produce those units. So we're excited that we're getting good uptake on them even sooner than we had thought when we started the program a few years ago. Operator: We'll move next to Jamie Cook at Truist Securities. Jamie Cook: Congrats on a nice quarter. I guess two quick ones for me. Joe, I guess what struck me about the quarter is just the backlog growth that you saw. I mean, to what degree do you think the Street should continue to expect backlog to grow? Because on one side, you have these projects like Joule, there could be more of those coming online. The other side of it is you have the law of large numbers and potentially capacity coming online. So just the ability to grow the backlog because it just provides such earnings visibility, and my second follow-up is just understanding what you're saying on tariffs, by segment, et cetera. But should the Street expect the fourth quarter to be the peak of tariff cost headwinds? Can it get better from here as we think about 2026? Joseph Creed: Yes. So when we look at -- you want to take the last one first. Andrew R. Bonfield: Yes. So with regards to tariffs, I mean, obviously, it really does the timing of mitigation actions, as Joe mentioned, will really be determined by the greater degree of certainty that we get out there. Obviously, all factors are on the table, and that will include potential for price. But obviously, that will -- we'll make those decisions as we would normally do within our normal time frame. With regards to -- obviously, the $650 million to $800 million is based on most of the -- all the tariffs that will be in effect on November 1. So there is one month for some of the tariffs, the 232s. Obviously, the other factors which impact tariffs are the degree of imports in any quarter. But that would be the sort of run rate on an unmitigated basis that you would expect to see. Joseph Creed: Yes. And Jamie, it's a good question on the backlog. And I think you expressed it well, right? There's a nuance to it. We continue to see significant demand, particularly in E&T. We're seeing more. I think we're at the early stages of the prime power opportunities. So we're excited to have more of those come online. We talk to our large data center customers, both hyperscalers and colos, frequently, monthly, mostly even to manage that forecast. So we have great confidence in the pipeline that's out there, and that's why we're putting the capacity in, and we continue to raise the capacity. So I think it kind of depends on the circumstance. We like the fact that the backlog is going up. I'd like to maybe if the reason the backlog goes up a little less is that I'm able to get out more and more product and keep up, I think that's a good thing. So we think it's positive. I would expect us to continue to see momentum in there. But we are getting pretty extended on some of our products in E&T, and I'd like to try to at least get that stabilized or brought back in if we can. Alex Kapper: Audra, we have time for one more question. Operator: Today's final question comes from the line of Stephen Volkmann with Jefferies. Stephen Volkmann: Great. Joe, you mentioned services a few times with respect to Solar. And I know for most of Cat equipment, a lot of that services revenue accrues to the dealer, but I think Solar is a little bit different. Can you just talk about how that's different and how the services business kind of impacts Cat directly rather than the dealers? Joseph Creed: Yes. It's -- as you stated, Solar is a direct business model for us. So in Cat branded products, obviously, the dealers service the equipment in the field. We sell them parts and support them with some other ancillary services. But when it comes to Solar, we have our own field technicians, our own group. So those units, as you know, run continuously. And so we pride ourselves as having tremendous customer service here, and that's why customers like us. So as you point out, as Solar sales pick up, even in the power gen space, it's all prime power. That's a great services growth opportunity for us. And I would say even in the Caterpillar side, projects like Joule, and that will come in a few years' time, not as much in the early years, the more prime power opportunities we're able to satisfy with our customers, the greater service opportunity for us down the road in a few years' time. So we're continuing to build that momentum in services. And you'll get a little chance, those of you who are coming to Investor Day next week. If you're able to stick around and go to the Solar plant in DeSoto, you'll be able to ask a lot more questions and get a better understanding of that. So with that, I'd like to thank everyone for joining us today. We always appreciate your questions and the interest in our results. We've had a great quarter. I'm really proud of our team for the solid performance. And so we're really excited to see you all next week at Investor Day, and I look forward to sharing more about our bright future and the attractive growth opportunities ahead. With that, I'll turn it back over to Alex. Alex Kapper: Thank you, Joe, Andrew and everyone who joined us today. A replay of our call will be available online later this morning. We'll also post a transcript on our Investor Relations website as soon as it's available. You'll find a third quarter results video with our CFO and an SEC filing with our sales to users data. Visit investors.caterpillar.com and then click on Financials to view those materials. As Joe mentioned, we look forward to hosting you for our Investor Day on Tuesday, November 4. The webcast information is already available on investors.caterpillar.com, and we'll issue a press release with more details the morning of November 4. If you have any questions, please reach out to me or Rob Rengel. The Investor Relations general phone number is (309) 675-4549. Now let's turn the call back to Audra to conclude our call. Operator: Thank you. That concludes our call. Thank you for joining. You may all disconnect.
Operator: Good morning, and welcome to Verizon's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Brady Connor, Senior Vice President, Investor Relations. Brady Connor: Thanks, Brad. Good morning, and welcome to our third quarter 2025 earnings call. I'm Brady Connor, and on the call with me this morning is our new Chief Executive Officer, Dan Schulman; and Tony Skiadas, our CFO. Before we begin, I'd like to point you to our safe harbor statement, which can be found in the earnings presentation on our Investor Relations website. Our comments this morning may include forward-looking statements, which are subject to risks and uncertainties. Factors that may affect future results are discussed in our SEC filings. This presentation also contains non-GAAP financial measures, and you can find reconciliations of these measures in the materials on our website. With that, I'll turn the call over to Dan. Daniel Schulman: Thanks, Brady, and good morning, everyone. On behalf of the Board and everyone at the company, I want to start off by thanking Hans for his leadership and passion and his many contributions to Verizon over the past 8 years. Hans executed a series of technology-related investments that have positioned Verizon for success. By building an enviable network and a strong foundation we can leverage going forward. Hans has been a friend for many years, and I appreciate your support as we enter this new chapter. Personally, I could not be more excited about the future of Verizon, and I am honored to be its next CEO. As most of you know, I come to this role with extensive experience in the technology, telecommunications and wireless industries. In fact, I began my career as an assistant account executive at New Jersey Bell and then spent 18 years at AT&T eventually becoming the President of its consumer division. So I have deep roots in the telecom sector and in many ways, this is like coming home for me. In the years since I've had the privilege to help lead and grow some of the most iconic consumer brands in the world, including AT&T, priceline.com, Virgin Mobile, American Express, PayPal and now Verizon. Those experiences have provided me with a strong perspective on customer-centric growth. And of course, I've served on the Board of Verizon for the past 7 years. So while I am only a few weeks into my tenure as the company's CEO, I've had a front row seat into the company's evolution since 2018, and therefore, come into this role with a rich perspective of where Verizon is coming from and what the opportunities are. For many years, Verizon has led the industry with our reliable and scalable network, and we will continue to advance our network leadership. As you know, we're significantly investing in cyber and in the power of convergence with our acquisition of Frontier, which we expect to close early next year. Verizon has deep strength and incredible potential, but the blunt truth is we haven't captured the customer growth opportunities this strong foundation enables. Verizon is at a critical inflection point. For years, our priority was clear: build the best and most reliable network. With that foundation firmly in place, our next chapter is about serving and delighting customers by building the industry's best overall value proposition and the best customer experience on top of it. We must shift to a customer-first focus and redefine our trajectory. This is not a course correction. It is a fundamental change in our strategic approach to customers. The only way we can drive sustainable value for our shareholders is by significantly raising our game and winning responsibly in the market. This is about financially disciplined growth, winning with the right customers at the right economics. Volume growth and profitability growth can go and will go hand-in-hand. We are fully committed to achieving both simultaneously. Before I elaborate on my vision for a revitalized Verizon, I'm going to hand it over to Tony to cover our third quarter performance. Anthony Skiadas: Great. Thanks, Dan, and good morning. Before I begin, I just want to take a moment to congratulate Dan on his appointment as CEO of Verizon. The leadership team and I are excited to work with him in creating this new chapter for our company. First and foremost, we remain on track to deliver our full year financial guidance, which includes our previously raised expectations for adjusted EBITDA growth adjusted EPS growth and free cash flow. In Consumer Mobility, we delivered strong postpaid phone gross adds up 8.4% from the prior year. However, gross add growth was offset by churn of 0.91%, which resulted in postpaid phone net losses of 7,000 in the quarter. We continue to see healthy retention benefits from our converged customers. At the end of the quarter, more than 18% of our consumer postpaid phone base took a converged offering more than 200 basis points above last year. We see significant opportunities to increase convergence in the Frontier footprint after we close the transaction. Importantly, converged customers on fiber have a mobility churn rate that's nearly 40% lower than our overall mobility base. We also saw a 16% year-over-year increase in consumer upgrades in the third quarter tied to our best value guarantee, which is resonating with customers. Moving to core prepaid, we delivered 47,000 net adds, our fifth consecutive quarter of positive subscriber growth. The strength of our key brands as well as the continued expansion of total wireless distribution positions us to continue to grow our prepaid business. Verizon business delivered 51,000 phone net adds. As expected, we continue to see disconnect pressure in the public sector, in part from ongoing government efficiency efforts. This was more than offset by strong demand from small and medium businesses and large enterprise customers as we continue to be the provider of choice for businesses. Shifting to broadband. We once again delivered solid results with 306,000 net adds. Our broadband base is up 1.3 million subscribers from a year ago and is now over 13.2 million subscribers. Fios internet delivered 61,000 net adds, our best quarterly result in 2 years. Given the demand for Fios, we're working to bring it to more and more premises within our footprint. In addition, we recently announced an initiative with Tillman that will enable us to bring our best-in-class Fios broadband offerings to even more households and businesses. The agreement combines Tillman's network design, build and operations capabilities with Verizon scale, distribution strength and brand power. We will focus on markets outside of the Verizon and Frontier footprint, expanding our Fios business to new places across the country and driving more convergence in these markets. Fixed Wireless Access net adds were 261,000 for the quarter. With approximately 5.4 million FWA subscribers, our annualized revenue has surpassed $3 billion and continues to grow. We believe FWA can be a long-term sustainable business. In addition, we recently announced an agreement to acquire Starry, which will enhance our MDU capabilities, combining our scale and resources with Starry's technical and go-to-market expertise. Moving to financials. Our third quarter performance keeps us on track to deliver on our financial guidance for the year. Third quarter consolidated revenue was $33.8 billion, up 1.5% from the prior year period. We delivered over $400 million of year-over-year wireless service revenue growth in the quarter. Wireless equipment revenue was 5.2% higher than the prior year, driven by higher gross adds and upgrade rates. Wireless service revenue was up 2.1% from the prior year, driven by continued ARPU growth from targeted pricing actions and further adoption of fixed wireless access and add-on services. Perks continued to provide a high-margin revenue stream, and we look forward to offering additional benefits for our customers. Additionally, prepaid revenue grew year-over-year for the first time since the TracFone acquisition. As expected, we faced the promo amortization headwind in the quarter, and we expect this headwind to continue. However, our underlying customer economics remain healthy. On the expense side, we have work to do to further reduce our cost of services and SG&A. As Dan will outline, we will be looking at cost with the new lens and will be focused on driving significant cost savings across all aspects of our business. Consolidated adjusted EBITDA was $12.8 billion, up 2.3% year-over-year. Year-to-date, we have generated almost $1.3 billion more in adjusted EBITDA compared to 2024, driven by a combination of pricing actions and cost reduction. Our adjusted EBITDA growth of 3.5% through the end of the third quarter is at the top end of our guided range. Adjusted EPS was $1.21 in the quarter, up 1.7% year-over-year, driven by growth in adjusted EBITDA. The cash generation of the business continues to be strong. Cash flow from operating activities was $28 billion for the first 9 months of the year, up over $1.5 billion or 5.8% compared to the same period a year ago. CapEx through the end of the third quarter totaled $12.3 billion compared to $12 billion in the prior year period. We're on track to meet all of our investment goals for the year and deliver within our guided range or better. The combination of our continued CapEx efficiency and our ability to drive profits to the bottom line resulted in third quarter free cash flow of $7 billion. This represents a nearly 17% improvement year-over-year and the highest reported in our industry by nearly $2 billion for the period. For the first 3 quarters of the year, we have generated $15.8 billion in free cash flow, an increase of 9% compared to the same period a year ago. In September, we raised the dividend for the 19th consecutive year reflecting our continued commitment to shareholder returns. Net unsecured debt at the end of the quarter was $112 billion, a $9.4 billion improvement year-over-year. We continue to make meaningful reductions to our debt throughout the year, resulting in our net unsecured debt to consolidated adjusted EBITDA ratio dropping to 2.2x as of the end of the third quarter. This puts us inside of our target leverage ahead of schedule and before the Frontier closing. We're focused on generating strong cash flow and committed to paying down our debt. We also remain committed to our long-term net unsecured leverage target range of 2.0 to 2.25x. This is not going to change. Looking ahead, we remain on track to close the Frontier deal in the first quarter of 2026. We have received approvals from 11 of 13 states and are making good progress in the remaining jurisdictions. Integration planning is on track. And through the third quarter, based on their public disclosures, Frontier is performing extremely well across both their fiber build and customer growth. While we continue to execute within the parameters of our financial guidance, we recognize there is significant opportunity ahead. And with that, I will turn the call over to Dan. Daniel Schulman: Thank you, Tony. When I look at our performance objectively, Verizon is clearly falling short of our potential. And as a result, we are not delivering the shareholder returns our investors expect. Despite investing significantly in network leadership, we have not been able to translate that into winning in the market. And consequently, we are not generating the financial profile necessary for share price appreciation. Our stock performance reflects this reality. My mandate from the Board is clear: unlock the growth potential of our platform while delivering strong financial results. Today, I intend to discuss my priorities and areas of focus. Our plan will not be about incremental change. We intend to aggressively transform the culture and financial profile of our company operating under the principles of being bold, customer-centric and executing with financial discipline with a focus on shareholder value. For the past few years, our financial growth has relied too heavily on price increases, a strategic approach that relies too much on price without subscriber growth is not a sustainable strategy. Every year, it gets harder to grow as we lap past price increases and experience higher churn. This cannot continue, and there is no question that meaningful change is needed. As we shift to a customer-first culture, we will simultaneously drive a much more efficient cost structure, that fully supports our incremental investments in delighting our customers. I reject the premise that delighting customers and winning in the market means that margins will decrease. I think this industry and clearly, Verizon are only scratching the surface of increased bottom line performance. My top strategic imperative for Verizon is to grow our customer base profitably across our mobility and broadband subscription businesses. I strongly believe that growing volumes is essential to drive sustainable long-term revenue and adjusted EPS growth. We are going to compete and grow responsibly across all market segments. And over time, meaningfully increase our share of net adds, particularly in postpaid. We aim to win fairly by having the best overall value proposition and delighting our customers across all elements of the marketing mix. This is not going to be about promotional activities that can be quickly imitated. It is about true innovation, not easily replicated by our competitors. We will leverage our network excellence to drive growth, but we cannot rely on it exclusively. Network quality is now foundational. Winning in the marketplace demands a revamped and superior customer value proposition and requires full attention to the entire customer experience. We will significantly elevate our game across multiple dimensions. We will work relentlessly to serve our customers, ensuring that every customer is fully satisfied with their Verizon experience. We must make it much easier to do business with us. You should expect bold execution powered by sophisticated and smart marketing, actions that strengthen loyalty and the elimination of practices and processes that detract from the customer experience. Raising rates without corresponding value rarely, if ever, delights customers. Our primary objective is to build loyalty and drive significant improvements in retention to optimize the lifetime value of our customer base. Verizon will no longer be the hunting ground for competitors looking to gain share. We are reinventing how we operate to make Verizon more agile and efficient. You should expect disciplined execution across marketing, operations and service. We will invest significantly across all elements of our marketing mix and customer experience to drive mobility and broadband growth, and we will fund these investments by aggressively reducing our entire cost base. We will be a simpler, leaner and scrappier business. This work is overdue and will be multi-year and an ongoing way of life for us. In addition, as some of you know, I am a strong believer in the growing power and resulting opportunities created by AI. We have barely scratched the surface of how AI-powered innovation can transform our customer experience. I intend to use AI as a key tool to simplify offers, improve the customer experience and reduce churn through smart, consistent and more personalized marketing and offers. And we will leverage AI throughout the company to make it easier for our employees to delight our customers and to dramatically improve service of reducing cost and complexity across the vast majority of our business processes. While we narrow our focus to invest in key growth areas, we will also aggressively sunset or exit legacy businesses where we don't see a clear path, profitable market leadership. We have a large opportunity to unleash meaningful margin improvement by doing so. And we will talk about this in more detail in January. Convergence is one of our most significant near-term growth opportunities. The pending acquisition of Frontier will enable us to serve approximately 29 million fiber passings, creating a massive cross-sell opportunity. Our wireless share significantly under-indexes in Frontier's territory, and we intend to address this on day 1. This will create a significant runway to capture mobility volume from our broadband customers and cross-sell broadband to our existing mobility base, driving meaningful revenue synergies. I recently met with the Frontier senior leadership team. Their focus and performance is impressive. The results are trending above the expectations when we signed the deal, and I am looking forward to having them join the Verizon team. We will continue to expand our fiber footprint through our own build and with strategic partnerships. I expect the actions we are taking will enable us to generate higher free cash flow in 2026 and 2025, even when we include Frontier. Our business is generating strong cash flow today, but I believe it can be even stronger. I am committed to prioritizing the customer experience, while maximizing returns for our shareholders and doing both in a fiscally responsible manner. I am closely examining not just our operating expenses, but also our capital spend, and our capital allocation framework. I believe that elements within our framework can change to optimize our capital structure and shareholder returns. This includes an ironclad commitment to our dividend, continued debt repayment and value-creating capital return. In short, we will be much more deliberate in how we allocate our spend to execute our strategy. Of course, we'll continue to invest in the business and we will do so with a critical eye towards growth areas. You can expect our capital envelope to support the completion of our C-band build-out and our long-term objectives for fiber expansion, while preserving our financial capacity and flexibility for strategic investments as the landscape evolves. To summarize, we understand changes needed, and we are aggressively making those changes. Our goals and our priorities are clear. First, delighting our customers to meaningfully increase our share of industry net adds. Second, cost transformation, fundamentally restructuring our expense base. Third, capital efficiency, optimizing how and where we invest and fourth, accelerating shareholder returns by increasing our bottom line growth, and a steadfast commitment to our dividend. You can expect to see a tangible difference in the way Verizon competes. Going forward, we will aggressively compete and fundamentally redefine what it means to be a Verizon customer. I'm confident in our strategy, our assets and the team's ability to execute. We have the network, the scale, the brand and now the strategic clarity and commitment to drive sustainable growth. We are planning to win, and this will be a different Verizon than the market is used to. This will not happen overnight, and there's no one silver bullet. It will require hard work, strategic focus and thoughtful execution. Importantly, much of the critical planning and evaluation is already well underway. We will provide 2026 guidance during our January earnings call and we will report progress against these objectives quarterly. Our shareholders and our customers have been patient. It is now time for us to deliver. Thank you, and Tony and I look forward to your questions and comments. Brady Connor: Brad, we're ready for questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] Your first question will come from John Hodulik of UBS. John Hodulik: Great. And good to talk to you again, Dan. Dan, can you expand on your vision of the company and what you expect to accomplish, say, over the first 100 days? And specifically, if possible, can you touch on or provide more details in terms of how you expect to turn consumer volumes? Daniel Schulman: Nice to hear from you, John, and good to work with you again. Look, let me take just a quick step back. I'm extremely excited about Verizon's potential. We are building off tremendous assets. We've got an excellent network. We have got an iconic brand. You've got tens and tens of millions of loyal customers. We have a really talented team, but it's clear we need to enter a new chapter. The existing status quo is not acceptable for us. And I wouldn't be here if I wasn't fully confident in our ability to pivot. The vision has 3 pillars basically to it. The first pillar is about shifting from being a technology centric to being a customer-centric company. This is about delighting our customers. This is about growing through retention basically. My aspiration is I want us to have the lowest churn rate in the industry. And when you talk about growing through retention, it is about creating the best value propositions segmented by the various segments in the market looking at all elements of our marketing mix quite thoughtfully and looking at creating the best customer experience possible. This is the full reboot of what Verizon means in the marketplace. And this is not about onetime noneconomic promotional activities. That's not how you're going to win over the medium and long term in this marketplace. It's about being thoughtful across all elements of the value proposition and marketing mix and winning responsibly. And that's kind of what we intend to do, and we are well underway throughout the organization in making that shift. But I don't want to underestimate or underplay how big a shift that is for us, but it is the way that we win over the long term. Second pillar that happens simultaneously with delighting customers because we want to drive shareholder return simultaneously. I want to deliver sustainable revenue growth, accelerated bottom line adjusted EPS growth. And as I mentioned in my script, the dividend is sacrosanct to us. We are going to examine every element of our OpEx and our CapEx, and we are going to fully fund all of our initiatives with OpEx savings and drop them to the bottom line so that we can accelerate EPS growth as well. And finally, the third pillar kind of supports all of this is a full review of our CapEx spend and our capital allocation. You can expect us to continue to invest heavily in growth areas with the path to profitability, whether that be completing our network, expanding our network, fiber aspirations, other opportunities as they become available to us in the ecosystem. We have a tremendous amount of financial flexibility on the balance sheet. We're going to do a hard look at portfolio rationalization and divest and exit legacy businesses where we don't see a clear path to profitability. As Tony mentioned, we'll continue to pay down debt. We'll continue to be steadfastly committed to our dividend. And we will review, frankly, other opportunities to return capital to shareholders. And so I think just to summarize, we want to win responsibly in the market. We're going to do that through, let's call it, kind of growth through retention, looking at all elements of how we delight customers and at the same time drive shareholder returns. We think we can do both, and we're committed to that. Operator: The next question comes from Ben Swinburne of Morgan Stanley. Benjamin Swinburne: Dan, thanks for all the helpful commentary in your prepared remarks. I had 2 questions sort of tied back to your comments. You made the point, Dan, that you think the reliance on price increases has been misguided or were not productive and not sustainable, I think it was your phrase. I think there's a view in the market that Verizon's back book is overpriced relative to sort of where the consumer is. And I'm curious if you agree with that probably oversimplified generalization? And more specifically, how do you drive share for Verizon higher in -- particularly in consumer without going through sort of a painful kind of back book repricing exercise, which I'm hearing from your financial commentary about accelerating earnings growth and free cash flow that you're not expecting. And then I just was curious, you guys were very clear on your balance sheet and leverage targets. But would you be open to flexing the leverage higher if the right opportunities presented themselves. There's a lot of spectrum in the market, more coming from the FCC down the road, you have this Tillman agreement. So just curious if you could talk a little bit about the potential to take leverage higher, at least temporarily if the opportunities were there. Daniel Schulman: Ben, thank you for all of your questions. I hope I remember a couple of them at least. Look, I think my view on our approach into the market is to be quite thoughtful and financially disciplined. I think that we need to look at the reasons why customers are leaving us. And there are basically 4 that customers there are more, but these are the top 4 are price increases that we've done that customers run into some friction in the experience with us and we need to fix that. There's a value perception. I think I call it a value perception, not pricing. Because the value is all about price to value. And I feel we offer good value and -- but there's a value perception. And then there's obviously competitive intensity. There are a lot of offers in the industry. Our game plan is going to address all of those pain points for our customers. We want to have the best-in-class experience. I want to leverage things like convergence. I want to create segmented and targeted value props and offers. I want to think carefully across all of the marketing mix. The are marketing 4 Ps. I always throw a fifth one in there, which is [ prayer ]. But I think like pricing is the last refuge of the marketing desperate. It is what you pull when you have nothing else in your quiver. And frankly, we have a ton of things to pull in terms of creating incremental value for our Verizon customers. And so although I won't go into specifics on how we're thinking about this because it's still early days and I'm actually never going to go into specifics because I don't want to tip off our competitors on what we're trying to do in the marketplace. But I think that we can begin to take our fair share of the new to the industry, postpaid adds, we're going to start off by increasing it because today, we take somewhere between 0% and some very low percent of the new-to-industry postpaids. We're clearly losing share, and that's not a sustainable path for Verizon. So we'll win eventually, our fair share of industry net adds going to reduce our churn to being the industry best. I want to responsibly win in a fiscally prudent manner. So hopefully, I hit a couple of your questions, at least there, Ben, anything else that you want me to hit on? Tony? Benjamin Swinburne: No, that was really helpful, Dan. I appreciate it. Just I was curious on the balance sheet, any openness to flexing up if you had the opportunities? Anthony Skiadas: Sure. Hi, Ben, it's Tony, good morning. So a couple of things there, very comfortable with the long-term leverage target. And as you know, we've had a long and demonstrated track record of execution with the balance sheet. The target is very appropriate for the company of our size, and the way we expect it to perform in the future. And I think you heard Dan talk about that. We have strong cash flows, as you've seen, we reiterated our guidance for the year at $19.5 billion to $20.5 billion for 2025. And as you heard Dan in his prepared remarks, we expect to have higher cash flows in '26 versus 2025. And that leverage target gives us the ability to invest for growth. And it also gives us a lot of flexibility and balance sheet capacity to be opportunistic should the need arise from a strategic standpoint. As we talked about, the deleveraging is on track. We're now inside of our long-term leverage target at 2.2x. We have Frontier coming in, as we said previously, that will add about 0.25 turn to the metric and that will be for a short period of time. So we are going to operate outside of it for a period of time. But the overall goal is not going to change. The focus is generating strong cash flows and execute across the entire capital allocation framework, and that includes continuing to pay down debt. Operator: The next question will come from Michael Ng of Goldman Sachs. Michael Ng: Good to be reconnected with you, Dan. I just have 2. First, are there any parallels between Verizon and PayPal that informs your view of the opportunity for improvement? Where in the Verizon business, do you see the biggest need for a change agent. And then second, Verizon's Perks and MIPlan seems like a strategy where it puts it closer to a super app strategy relative to peers. Is this something that is important to your strategic blueprint? Any opportunities or key benefits that you would call out? Daniel Schulman: Nice to hear your voice again, Mike. I look forward to seeing you again as well. I think when I think about kind of when I first started at PayPal and now first starting here with Verizon, there are definitely some similarities. One of the big things that we did at PayPal when I first came on was declare that we were going to be a customer champion. And declaring you're going to be a customer champion kind of easy words. But if you're really going to be a customer champion, it takes hard work and it takes challenging your business model as well. It means doing what customers expect and addressing all of their pain points and then figuring out how to delight and surprise them going forward. At PayPal, that was giving customers full choice on how they could pay, not by forcing them to pay with what was the highest margin funding instrument that they had in their wallet for us. And that unleashed a huge amount of growth for the company. And I think the same thing can happen here. We're going to invest heavily in our value proposition. We're going to fund all of that cuts in our cost structure. We have a tremendous amount of opportunity to be more efficient to be scrappier. In many ways, this is a turnaround for us and making sure that, culturally, we're ready to make that move from being technology-centric to being customer-centric. It takes some time, but there is no question that what I saw on PayPal, I see here in Verizon too. The team here wants to reclaim their market leadership. And they will do anything that they can. Big companies are extraordinarily good at responding to a crisis. They're not necessarily good at day-to-day, but responding to a crisis, they're amazing. And this is really a clarion call to the company to refocus, regain our leadership by focusing on customers, delivering what they want, not doing things that don't delight customers. And so there are a lot of similarities, obviously, very different industries, different ways of thinking about it. And when you talk about the value prop and things like super app versus how we might think about that. Just give us a little bit of time to develop our thoughts more from where we are at a full effort underway right now, and you'll hear more about that as we go into January and beyond. Operator: The next question comes from Mike Rollins of Citigroup. Michael Rollins: Dan, welcome back, and congratulations on taking over as CEO. You mentioned a few times the importance of convergence. I'm curious to get your perspective on where you would like convergence to go over time in terms of the physical fiber footprint, how many passings you want to see that get to and the path potentially to get there as well as how you're looking at fixed wireless and whether it's time to incrementally invest in fixed wireless as also a way to drive more broadband business for the company. And then just secondly, following on your comments about accentuating the growth side of the business and deemphasizing or exiting legacy businesses. Curious if you could put more context around that as -- when you look at the Verizon portfolio in totality, how much of Verizon do you view today as strategic and growing versus legacy. And what are the ways you're trying to better frame that internally as well as externally for shareholders? Daniel Schulman: Yes. Mike, it's great to hear from you again. You've been around this industry for a long time, and I appreciate your thoughts and your questions. I'm a very big believer in conversions. I think it is extremely powerful. I think it offers not just meaningful revenue synergies, but as Tony mentioned and as we see, when you combine mobility with fiber, you see churn rates that are almost 40% less than what we see with our traditional mobility. And I think thinking innovatively about how we bundle together broadband writ large, and that includes both fixed wireless and fiber with our mobility to drive both incremental broadband revenues as well as incremental mobility revenues will definitely be on the plate. So expect us to continue to invest in our broadband footprint and our fiber footprint as well as our fixed wireless as well, but also expect us to think about that innovatively as I mentioned, because I think there's a ton of opportunity in that. And as I mentioned in my opening remarks, we'll continue to invest appropriately and aggressively in that expansion. In terms of kind of portfolio optimization, I think that's what you were talking about, kind of legacy versus broadband and mobility. Clearly, we're focusing on broadband and mobility. There are other areas, by the way, that I think we can focus that are maybe potentially large opportunity areas. Clearly, AI infrastructure is booming, and we can be a part of that and should be a part of that. But we have parts of our business that are costing us billions of dollars of margin. And I think we can think much more clearly about how do we invest in growth areas and divest or exit those that are not that for us and are actually hemorrhaging margins for us. We'll spend more time on that in January and lay that out for you in more detail, but you can probably imagine what we're thinking about and talking about on that. But I'll be more specific about that, and Tony and I will both be more specific about that as we get into early next year. Operator: The next question comes from Sebastiano Petti of JPMorgan. Sebastiano Petti: Dan, congratulations on the role. I look forward to working together. Just maybe following up on the 2026 free cash flow. I mean, we're -- I understand the cost efforts will help -- basically help fund a lot of the growth initiatives that you're discussing here today and the pivot and your vision for the company. But relatedly and basically to Mike's question, and it's about the longer-term fiber footprint. How do we square 2026 free cash flow growth? I mean it sounds like CapEx is coming down this year, implication would be free cash flow probably trends towards the higher end of the range. And as you -- and Frontier is burning $1 billion of cash today. And so just trying to help understand that, the question we've been getting incoming from investors this morning. And then secondarily, I guess, just maybe thinking about the accounts growth in the -- accounts decline in the quarter on the consumer as well as on the total wireless segment. Anything to help square there? It was the highest losses we've seen since the first quarter of 2020, rather, the pandemic quarter. So just helping us understand the trajectory there, and how we should be thinking about that trend over time as you kind of focus in on convergent. Anthony Skiadas: Sebastiano, just on your question on free cash flow. So look, in the prepared remarks, we said we expect free cash flow growth to 2026 year-over-year. And that's all in, including Frontier. So some points on that, but that gives us confidence in that statement. So first, we have a very good starting point. The cash flow generation of the business continues to be very strong, and we have the strongest free cash flow in the industry. So we start there. And then in terms of actions, and I think Dan covered this multiple times, you should expect to see significant cost transformation. Dan talked about running leaner. Those plans are already underway. In terms of the portfolio, we're looking at everything and everything is on the table for us. So -- and it also entails being very efficient with our capital spend. And what we said in the prepared remarks that we expect 2025 to get all our initiatives completed and will be likely at the lower end of the range or better, and that's the goal. And then as we look ahead, we said prioritizing investments focused on both mobility and broadband and being very efficient with our capital spend. We know how to do this, and that includes maintaining network excellence and also making sure we deliver on the promise for customers. And as Dan said, areas not aligned to growth will be deemphasized. And those actions are underway, and we're acting with a sense of urgency. So we'll be back in January with the full view of that, Dan? Daniel Schulman: Yes. Look, on account growth, I mean it just plays basically into what I was talking about before. The status quo doesn't work for us. We're going to be much more aggressive in delighting customers, and that has to happen. Look, it's a competitive industry, and all attractive and great industries are competitive. That's why people come into them because they're super important industries and most industries follow the rule of 3, and wireless is no different in that. I think about competition, a little bit how I think about gravity. When I get out of bed in the morning, I don't think, oh my gosh, gravity is pulling me down, it wasn't around, I could jump 20 feet high in the air, same way about competition. If it wasn't around, I'd have 100% share, but it is. And both AT&T and T-Mobile are excellent companies. And with strong leaders with John and Srini, I have a ton of respect for both of them and their companies. But I feel like there's still plenty of room for growth in this industry. And on how you count it, somewhere between 5 million and 8 million new postpaid subs that enter into the industry every year. There's obviously switcher pools that are available. There's new and growing services, whether that be convergence or AI-powered infrastructure that can come in. So there's a lot of opportunity in the industry. The key here for us is to win smart and responsibly, focus on what our customers want, not on our competitors. I feel like we can win this fight the right way. We earn it every single day. There's no need to ratchet up high promotional spend. We want to be competitive. Obviously, we want to be consistent, but there's no reason for us to be rationally aggressive to win our fair share out there. So we'll focus heavily and you'll see that on creating the best value propositions, they'll be very different than what you see today, make sure that we have the very best customer experience, and we are going to do everything in our power to make sure we delight customers. And again, thoughtful around all elements of the marketing mix. Look, we want to be so good that prospects want to come to Verizon, and our Verizon customers never want to leave us in. So a lot of work to do underway with that, but we feel good that we've got a head start on that, and we know what we want to go do. Operator: The next question comes from Michael Funk of Bank of America. Michael Funk: Dan, welcome back and congratulations to you. So Dan, I heard you loud and clear on growing through retention. So curious to hear from you, what strategies or tools you think best for reducing churn? And then how we should think about these as being proactive versus reactive when you think a subscriber might be on the verge of churning. And a couple more, if I could. So curious to hear if you think about utilizing AI to address the efficiency offers you laid out for us in retention as well. And then you threw in your comments about AI infrastructure is booming and love to know what that means for Verizon as an opportunity? Daniel Schulman: Bunch of good questions on the -- as I mentioned, we have a pretty good idea of what's driving churn. And so we have a pretty good idea on how to address all of those. In many ways, this is a multipart complicated business. And otherwise, it's pretty straightforward, honestly. And so we just need to hit these things one by one to reduce churn, continue to grow by retention, but also we'll have the right offers in the marketplace. We'll be competitive. And I think -- you'll start to see evidence of that even beginning this quarter. But as I mentioned, this will take some time as well. When you want to turn around your entire offering to the marketplace, when you want to redefine the culture, financial profile of a large company like Verizon, we need to do it in a very thoughtful, prudent manner, but with a nod to urgency and moving as fast as we can. We're going to be a much scrappier company than we've been before. We have a lot to do, and we're going to go out and do that. On AI, I have spent a lot of time before I got here within the AI community help advise some of the CEOs in the AI community. So I haven't really keen understanding of where it's going. I think AI is the only technology I've seen in my lifetime where it does a step function improvement every 2 to 3 months the models that we have today are by far and away the worst models we're ever going to have. You can see anywhere between 300% and 600% improvement in those models over the next year. And obviously, they are becoming more and more powerful, and they are able to do more and more things. The other thing that AI is doing is clearly shifting the way the internet operates on its head. The internet is much more of a wide cast broadcasting and AI is much more narrow cast, much more individualized to you. I think that, as I mentioned, we are just scratching the surface of how we use AI inside Verizon. AI can obviously be used to be more efficient to do things and satisfy customers in ways that we can't do today and do so at a much lower cost, and that goes for across multiple functions inside any organization, including Verizon. But really importantly, AI can be used to dramatically improve the value proposition that we put in front of customers. To your point, we can anticipate when customers want to upgrade when they have an issue, what that might be proactively address it before it happens, tailor and customize offers at micro segment levels that can radically change kind of where Verizon is today and frankly, where our industry is as well. And so I think that AI is today, a very large opportunity. And as the years go on, will be an increasingly large opportunity for not just Verizon, but American industry. Brady Connor: Great. Thanks, Mike. Brad, we have time for one more question. Operator: Your last question will come from Peter Supino of Wolfe Research. Peter Supino: Dan, nice to meet you in this way. I wanted to ask you 2 questions. One about costs and the other about fiber. On costs, I wonder if you could discuss the nature of the cost opportunities you see if there are some common threads or themes through them. Verizon looks productive on a headline sort of benchmark to peers level? And then on fiber, Verizon is on course this year to pass about 650,000 homes incrementally with fiber organically. And at the same time, it's laying out $10 billion to buy Frontier. And the 2 seem somewhat inconsistent in the sense that it's a rather slow organic fiber expansion in a rather aggressive external fiber expansion. I wonder if you could sort of reconcile those and let us know what you think an ideal organic expansion rate for Verizon's ILEC footprint for the organic fiber extension might be over time? Anthony Skiadas: Yes. So Peter, on fiber, I'll start there, and I'll hand it to Dan on the cost. So on few things here. So number one, I mean, fiber is not new for us. I mean we've been at it for 20 years, and there's plenty of room out there in our combined -- outside of the fiber footprint that we have today and with Frontier to be first on fiber. And as you saw recently, we signed a deal with Tillman to further expand our broadband build and maybe just some aspects of that deal. It's a capital-light partnership and it gives us the opportunity to go outside -- in markets outside of the pro forma footprint that we have and Frontier has and to increase the convergence opportunity. And look, in this case, the fiber is going to be built to our standards, leveraging the Verizon brand and bringing Fios to more and more locations. It's a long-term deal, and it gives us a lot of optionality in the footprint to go in the future and really to go outside the footprint with good economics, and we did not have that ability before. And to your point, we're on track with our 650 (sic) [ 650,000 ] in terms of premise passed and Frontier, as you saw the results last night. We're also pacing to their fiber build. So we're not stopping. So -- and I think you see that in the results in the quarter and where we're heading and with the deal with Tillman, we have a lot of runway ahead with fiber. And then I'll hand it to Dan on the cost. Daniel Schulman: Yes, thanks for the question. First of all, our goal is to reclaim our market leadership. It's as simple as that. And we need to invest to be the best in the marketplace. And that's going to take significant investment to go and do that, and we're fully committed to that, and we're fully committed to covering all of those investments through cost reductions, and redeployment of those cost reductions into our value proposition. Cost reductions will be a way of life for us here. Honestly, I'm not that interested in comparing our productivity ratios to others and looking at how productive can we be as a company? What is the right place for us to invest, where are the right places for us to be leaner than we have, how do we use technology to do so. This is all about satisfying our customers, but there's tremendous opportunity for us to be a more nimble and agile organization. Thank you, everybody inside the company knows that we need to invest in our value proposition, that we need to be customer champions, and that there's a lot of area for us to find efficiencies. We'll talk more details about that as we're working through our plans, but we see plenty of opportunity to be the most efficient company in the industry. Again, we're looking at every element of our OpEx and our CapEx spend to make sure that we invest wisely that we capture the growth areas in front of us and that we drive bottom line performance for our shareholders. Brady Connor: Yes. Great. Thanks, Peter. Brad, that's all the time we have today. Operator: This concludes the conference call for today. Thank you for your participation and for using Verizon Conference Services. You may now disconnect.
Operator: Welcome to ITT's 2025 Third Quarter Conference Call. Today is Wednesday, October 29, 2025. Today's call is being recorded and will be available for replay beginning at 12 p.m. Eastern Time. [Operator Instructions] It is now my pleasure to turn the floor over to Mark Macaluso, Vice President, Investor Relations and Global Communications. You may begin. Mark Macaluso: Thank you, Gigi, and good morning. Joining me in Stamford today are Luca Savi, ITT's Chief Executive Officer and President; and Emmanuel Caprais, Chief Financial Officer. Today's call will cover ITT's financial results for the 3-month period ended September 27, 2025. Please refer to Slide 2 of the presentation available on our website, where we note that today's comments will include forward-looking statements that are based on our current expectations. Actual results may differ materially due to several risks and uncertainties including those described in our 2024 annual report on Form 10-K and other recent SEC filings. Except where otherwise noted, the third quarter results we present this morning will be compared to the third quarter of 2024 and include certain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures are detailed in our press release and in the appendix of our presentation, both of which are available on our website. With that, it's now my pleasure to turn the call over to Luca, who will begin on Slide 3. Luca Savi: Thank you, Mark, and good morning. I'd like to begin today with a sincere thank you to our ITTiers. Our teams around the world delivered strong results for yet another quarter. For all your hard work, my heartfelt thanks, especially to our team in Brazil as the plant was hit by a very destructive storm during the quarter, production was back up and running in less than 48 hours. Rodrigo, the entire Salto team and Nico, thank you for your dedication and commitment to our customers and to ITT. Now to our results. ITT's third quarter was another step towards our 2030 targets with organic growth and margin expansion compounded with M&A. Let me share some highlights. In Q3, we delivered nearly $1 billion of total orders for the third consecutive quarter, up 3%, bolstered once again by the strong order intake from our kSARIA and Svanehøj acquisitions. We grew revenue 13% total and 6% organic with all segments contributing to $999 million. Rest assured, we were on the phone after quarter end with the plan that left the millions back on the shop floor. Operating income grew nearly twice the organic sales growth rate and operating margin expanded over 100 basis points excluding M&A. Adjusted EPS grew 21%, and we grew free cash flow 46% to $368 million year-to-date and now expect to be at the high end of our previous range at $0.5 billion for the full year. Furthermore, free cash flow margin in the quarter was over 15%, surpassing the high end of our 2030 target communicated in May. We also continue to fund innovations like VIDAR, our game-changing industrial motor. VIDAR is installed with 3 large energy companies in North America. And now we have begun shipping Goulds Pumps with VIDAR motors. As Stan, our Global Head of Engineer remarked, the best just got better. Now let's get into the details. On revenue, we saw broad-based organic growth in Industrial Process and Connect & Control as we continue to convert the robust backlog. IP grew 11% organically mainly due to project, which grew over 50% including another strong top line performance from Svanehøj, growing 34%. In August, I was with the Svanehøj team reviewing the testing of our new deep well cargo and high-pressure fuel pumps. And I saw firsthand the shop floor full beautiful shining new pumps ready to ship. CCT delivered 25% total growth, bolstered by the kSARIA acquisition or 6% organically as defense momentum continues and aerospace demand ramps. And in MT Friction OE grew 4% organically, outperforming global auto production once again led by an outstanding performance in China, where we keep on winning with BYD, Great Wall, Geely and others. On profitability, we expanded margin 110 basis points excluding M&A. IP grew margins 70 basis points to nearly 22% and Svanehøj also improved its profitability with EBITDA exceeding 20% this quarter. MT grew margin to 110 basis points, driven by over 300 basis points of productivity savings offsetting 120 basis points of inflation and CCT grew margin 270 basis points, excluding kSARIA dilution. The team continues to make progress on key customer price negotiations, which we expect to finalize now in Q4. On cash, a robust performance, which allows us to pay down debt and lower our interest expense whilst funding investments for VIDAR and other game-changing innovations, including the Geo-Pad. The Geo-Pad is currently being tested on a dedicated platform with a large European OEM. More to come on this in the coming quarters. Given our strong performance to date, ramping contribution from acquisitions and the lower effective tax rate, we are raising our full year adjusted EPS outlook. Notably, the low end of our revised EPS guidance range is now above the previous high end. This represents 13% growth versus prior year or 16% if we exclude the lost earnings from our 2024 Wolverine divestiture. This is a testament to our team's ability to deliver for our customers and our shareholders day in and day out, no matter the environment. Emmanuel will talk more about our revised guidance shortly. Now let's turn to Slide 4 to talk about ITT's orders and revenue growth. As you recall from our Capital Markets Day in May, we demonstrated with numerous examples across all value centers that how ITT's differentiation is driving our share gains. Let's spend a few moments to discuss this further, beginning with orders. Year-to-date, over the last 3 years, orders have grown 19% to over $3 billion with strength across all segments and in attractive growing end markets, including defense and aero, rail and the energy transition. In Motion Technologies, the Friction team once again continued to outperform in the market. And in Q3 alone, we won 10 high-performance platforms and more than 40 electrified awards with leading OEMs in China, Europe and North America. Our market share in China has grown from 31% last year to above 34% today. At the same time, KONI expanded its leadership position on global high-speed rail and defense platforms. In Connect & Control, orders were up 27% and 6% organic on the strength in aerospace and defense. And our acquisitions continue to perform ahead of expectations with strong orders growth in 2025 and a book-to-bill comfortably above 1. kSARIA grew orders 58% year-to-date with a book-to-bill of 1.2, thanks to awards on coveted defense platforms. This included content on a vertical launch system with a brand new customer. We were at kSARIA headquarters in Hudson, New Hampshire together with the ITT Board earlier this month. We share with our Board how built-in process quality drives kSARIA's differentiation. Thanks, Mike and team, for your accomplishments. I'm incredibly positive about the growth we will drive together in the years to come. On Svanehøj, Soren and team won orders of over $250 million year-to-date. This represents 59% growth versus the prior year and the book-to-bill of 1.6. For the year, even with over 30% revenue growth, Svanehøj expects to end 2025 with a book-to-bill of nearly 1.3. This quarter, Svanehøj secured a first of its kind award to enter the U.S. land-based terminal market, which will involve the largest LPG pumping company history, capable also of handling ammonia. Notably, the Goulds Pumps team, which has strong connections on terminals in the U.S. introduced Svanehøj to this customer. Well done, Johnny and team for capturing this opportunity with a major U.S. EPC, another strong year with ITT. All in, our year-to-date book-to-bill of 1.08 resulted in an ending backlog of nearly $2 billion, up 13% compared to prior year-end. For the full year, we continue to expect a book-to-bill above 1, which puts us in a strong position to grow again in 2026. Speaking of growth, a main driver of our revenue growth has been our flawless execution on pump projects. One example of this is our Goulds Pumps team in Saudi. This team's performance secured another win rate of more than 95% in the last 2 years. In mid-November, I would be in Dammam with Bartek, [ Hamdi ] and the local team to recognize this outstanding accomplishment and to join the ribbon cutting of Phase 2 of our $24 million expansion to announce our manufacturing and testing capabilities to meet our future growth. The last thing I would like to highlight on growth is that 2/3 of ITT's revenue growth since 2023 came from volume and just 1/3 came from price. Clearly, we are gaining share. Now let me turn the call over to Emmanuel to discuss our Q3 results in more detail. Emmanuel Caprais: Thank you, Luca, and good morning. As you can see, ITT delivered another strong performance in the third quarter. We saw a step-up in growth with organic revenue, EPS and free cash flow well ahead of our initial expectations. Let's talk briefly about some of the many highlights. On revenue, all segments contributed to the performance, growing 13% in total and 6% organically. Industrial Process once again led the way with 11% organic growth on the strength of projects business, which grew over 50%. And from an orders perspective, for the second consecutive quarter, we saw growth in every short-cycle product category, most notably in parts and valves. CCT grew 6% organically with strength in both aerospace, which grew 18% and defense, which grew 4%. In total, CCT grew 25%. In Motion Technologies, KONI grew 12%, driven by share gains in rail. Friction OE outperformed global auto production by 360 basis points, growing 4%, led by China and Europe. On profitability, we grew operating margin 20 basis points to 18.5% on higher volumes, pricing actions, including related to tariffs and continued operational improvements. This more than offset the impact of inflation and temporary acquisition amortization from kSARIA, which will end in Q4. At the segment level, CCT margin expanded 270 basis points versus prior year, excluding the dilution from kSARIA. IP margin expanded 70 basis points to nearly 22 and in MT, Jeroen and the KONI team again delivered outstanding profitability, which is driving MT above 20% margin for the second consecutive quarter. The profitable growth drove adjusted EPS to $1.78, up 21% year-over-year. In addition to our strong operational performance, we also realized benefits from a lower share count, thanks to $500 million of share repurchases year-to-date and less unfavorable foreign currency impact, which more than offsets higher interest expense. Finally, on cash, an incredible performance by our teams to drive strong cash collections and negotiate customer advances while demonstrated early progress in managing inventory. These actions pushed free cash flow margin in the quarter to over 15%, while still funding further strategic CapEx towards innovation and productivity to ensure our performance continues. We're driving improvements in working capital, especially in MT and leveraging the learnings from Svanehøj whose working capital as a percentage of sales is now just 5%. All in, as you can see, a high-quality performance across the board. Let's quickly turn to Slide 6. The key takeaway here, similar to what I conveyed in Q2, is that the strong operational performance across our businesses, contributions from our acquisitions and a lower share count enabled us to grow EPS over 21%. We also realized a lower effective tax rate than planned. The earnings accretion from our acquisitions is increasing and will continue to do so as we lap the remaining temporary amortization impacts from kSARIA. We're also making strong operational improvements with 500 basis points improvement in Svanehsøj's EBITDA margin this quarter. Just to step back for a moment, even if you remove the $0.07 impact from the favorable FX, tax and other items, we still grew EPS over 16%. Now let's move to Slide 7 to discuss our revised 2025 guidance. After a strong third quarter performance, during which we grew revenue, expanded margins and generated a ton of cash, we are raising our total revenue and EPS outlook for 2025 and bumping our free cash flow outlook to the upper end of our previous range. On revenue, our total growth is now expected to be slightly higher at 6% to 7%, while organic revenue remains within our prior range of 3% to 5%. We expect continued growth in the project business in IP, given the strong backlog, firm demand in aerospace and defense and outperformance in Friction OE and rail. Our margin outlook remains strong. We expect to drive continued productivity in legacy businesses and significant margin expansion in our acquisitions as well as considerable pricing, particularly in CCT. Excluding M&A, we expect margin expansion to be more than 100 basis points for the year. On EPS, we're raising the midpoint of our guidance by $0.20 to $6.65, another step change in our EPS outlook for the year with a $0.27 increase at the low end and $0.13 improvement at the high end. This is due to improved productivity, profitable growth from our acquisitions and a slightly lower effective tax rate, now expected to be 21.5% for the year. Finally, on cash, we now expect to reach the high end of our guidance, delivering $500 million in free cash flow and a 13% margin this year. This reflects several years of structural improvement and disciplined execution from weekly receivable calls to a more granular approach to customer payment practices, ensuring ITT is top of mind with them, given the differentiated value we provide. These actions are driving consistently improving results, and we see further opportunities to strengthen cash performance, such as optimizing our advanced payments for large projects. With just 1 quarter left in 2025, let's spend a minute discussing our implied outlook for Q4. We expect high single-digit growth in revenue of mid-single-digit growth on an organic basis led by strong performances in Connect & Control and Industrial Process. Friction should once again outperform global auto production while strength in rail should continue. We expect operating margin to be up approximately 130 basis points, led by strong margin expansion at IP. In CCT, pricing and productivity should make -- should more than offset the remaining temporary amortization from kSARIA and MT should once again hit the 20% mark in Q4. In terms of other forecast items, we expect total corporate costs to be slightly up compared to Q3 due primarily to higher growth investments in VIDAR. This should collectively drive EPS growth just below 20% for the quarter. Let me now turn the call back to Luca to wrap up. Luca Savi: Thanks, Emmanuel. A few points before Q&A. Q3 was all about growth for ITT and another step on the journey towards our 2030 targets. The organic value creation through growth and margin expansion continued. And as you saw, we are compounding this growth with M&A as our acquisitions performed well ahead of expectations. Cash continues to ramp towards an expected $0.5 billion of free cash flow this year with a free cash flow margin this quarter of more than 15%. And we made another step change improvement in our full year EPS outlook, raising the midpoint by another $0.20. As you can see, ITT's growth is strong, ended its year to stay. Before opening the line for Q&A, there is one more heartfelt thank you I would love to give. Mark Macaluso, our Head of Investor Relations and Global Communications will be leaving ITT later this week to pursue another opportunity. Dear Mark, thank you. You had a real and great impact on ITT and in ITT. You elevated how we talked about our businesses. You challenged us and are thinking. You made us more efficient. You made us much, much better. You work hard, play hard and we had fun. Thank you. I learned a heck of a lot from you, and I would also have liked to keep on learning. One thing you didn't deliver though was to find an earnings call operator with a stronger Italian accent than mine to make me sound more [ anglicized ] accent. I know you probably wanted me to say fewer words, but we wanted you to know how grateful we all are. From all of us at ITT, thank you and best of luck. Gigi, please open the line for Q&A. Operator: [Operator Instructions] Our first question comes from Mike Halloran from Baird. Michael Halloran: Congrats, Mark. So two questions here. First question, maybe just spend some time given the state of the union as you see it for global auto production, Luca, and how you think that tracks in the next year. Obviously, the outperformance metrics will continue, but always good to understand your view on the baseline for the market. Luca Savi: Sure. So when you look at auto production, Q3 actually was a good quarter. The production worldwide was up and this is very much a China story where -- which was up 9.7%. But both Europe and North America were up as well. For the full year, Mike, though, the auto production will be overall up 2% year-over-year at 91 million vehicles produced. Once again, it's a China story. China up whilst Europe and North America are forecasted to be down low single digit. Now when it comes to 2026, it's still a little bit early to tell, but I would expect it to be flattish to low single digit up. And as you rightly said, we outperformed in the market in Q3, 360 basis points, expect to do so for the full year and also in 2026. Michael Halloran: That makes sense. And then maybe just a little thought process on the funnel and what you're seeing on the IP side specifically. Certainly, it sounds like the momentum hasn't really changed, timing a little variable, comps are harder. But what are your customers saying? And how confident are you that this funnel can convert to orders in a pretty orderly fashion here? Luca Savi: Sure. So when we look at the funnel, you can see that the funnel year-over-year is down, but 2024 was an incredible year in terms of the opportunities. But there are a couple of important data and signs that confirmed some positive that we shared in the Q2 earnings. The former is that the funnel is up sequentially, Mike, and by quite a bit, by 22%. And I'm talking about active quotes, projects that are active. And the latter data is that without energy, the funnel is also up year-over-year by a healthy 9%. So very good positive signs, and the funnels are up as well in North America, in APAC as well as in Latin America. Another data, and then I will stop is when you look at the green project, we had very good orders intake on green projects, but also the funnel of opportunity is up considerably as well as the budget quote. So good positive signs on that front, Mike. Operator: Our next question comes from the line of Jeff Hammond from KeyBanc Capital Markets Inc. Jeffrey Hammond: Best of luck to Mark. I'll plan to stay in touch. Just on the $0.20 guidance raise, I'm just wondering if you can unpack, I think you mentioned better profitability, better acquisitions and tax. I don't know if you can quantify those 3 pieces. It just seems like at a high level, the margins and top line aren't changing that much. Emmanuel Caprais: Yes. Thank you, Jeff. So yes, we raised our guidance -- full-year guidance EPS by $0.20, that's up 13% versus the prior year and plus 3% versus the prior guide. In Q4, like in Q3, we expect our businesses to exceed or come in line with the previous guidance. And we also expect lower corporate costs due to spending control measures. So if you think about it, Q3, we were up a little bit more than $0.10 compared to our previous guidance. In Q4, we're benefiting from higher revenue and improved margin from all the businesses, a little less than $0.10. And then we have a tax rate impact also that is positive, that is around $0.01. Jeffrey Hammond: Okay. Very helpful. And then I know it's a little early to look into '26 and you mentioned kind of views on auto production. But maybe just talk about any markets you think you're more excited about and maybe improving inflecting and others that maybe seem a little less certain. Luca Savi: Sure. So first of all, Jeff, we are entering 2026 with a strong backlog. And this is thanks to the IP project wins and also to the CCT Defense Awards. MT continued to outperformance. So I would say, from a market point of view, air and defense would be a tailwind. In automotive, the outperformance will drive the growth in Motion Technologies. And when you look the IP is a very strong backlog. And as we just shared with Mike, the funnel opportunity is also increasing. We are still very excited about the acquisition in terms of we expect Svanehøj and kSARIA to deliver on the growth in 2026, which is going to be fed by the huge orders growth that they had this year. Operator: Our next question comes from the line of Vlad Bystricky from Citi. Vladimir Bystricky: Congratulations, Mark. Sorry to see you moving on, but wish you good luck. So just a couple of quick ones for me. Just in IP, the commentary around short cycle orders being up 5% seems quite encouraging, I guess, in the current environment. Can you just talk about maybe any color on regions or end markets that are driving that and how you're thinking about the sustainability of short-cycle momentum in IP? Emmanuel Caprais: Yes. So thanks, Vlad. Yes, we were pretty excited to see good short cycle activity. We had strong activity in parts as well as in valves. And if you look at parts, while July wasn't great, August and September really showed -- delivered the growth for us. And then from a baseline pump standpoint, we had also good numbers, slight growth. Valves was very strong. And here, what we're seeing is the foray we've made in the medical valves, especially on those weight loss drugs, which is delivering for us. Luca Savi: And Vlad, if I may add is that the short cycle is 5%, the legacy short cycle growth was actually 7% in the quarter. And when you look at that 7%, 4% was volume. So this is also another good sign. Vladimir Bystricky: That's really helpful color. And then just sticking in IP, you highlighted again the strong win rates that you're seeing in Saudi pumps. Can you just talk about underlying market demand trends there and the opportunities you're seeing in Saudi and Middle East more broadly, whether you're seeing any change in demand patterns in that region for IP? Luca Savi: Sure. Well, we are very excited about our growth opportunities there. As you can see, in all the quotes that we put there, the team won 95% of those quotes. The funnel is increasing. And when we look at the funnel sequentially in the Middle East is up 21%, and these are active projects. So the opportunities are there. It's a growth area. We see investment going as well in terms of downstream in the long term, there are further investment in other areas. And this is the reason why we are enlarging our facilities there and investing in manufacturing and engineering. I will be there also in November, as I said, celebrating the opening of the expansion and also meeting with some customers, but definitely a growth area for us. Emmanuel Caprais: And as Luca was saying, the region is very dynamic. And I think in addition to this, customers are recognizing the performance in project management, where we really are able to deliver the pump that they want on time with the quality that they require, and this is really making the difference for our business. Operator: Our next question comes from the line of Joe Ritchie from Goldman Sachs. Joseph Ritchie: Mark, congratulations. I'm sure we'll keep in touch, but I wish you the best. Yes. So maybe just kind of starting off, look, Svanehøj and kSARIA so far has just been tremendous, right? And I know you talked a lot at Investor Day about this -- your ability to potentially compound via M&A going forward. So I just want to get a sense, Luca, just on the funnel, like how attractive is your M&A funnel today, types of acquisitions that you're looking at? Any potential color there would be great. Luca Savi: Sure. Thank you, Joe. So when you look at the funnel, the funnel is rich of opportunities. And I can tell you, I'm spending quite a bit of time together with Bartek and the business leaders to look at opportunities, meeting management teams and visiting also some company sites. So those opportunities in the funnel are progressing and so this is good. I want to restate, they are in flow. So it's mainly pumps and valves and some on the connectors as well, mainly focused on aero and defense. So that is happening and is good. One thing is also we -- as you said, the 2 acquisitions we made have been successful. They are overdelivering on all fronts. We need to ensure that our process stay rigorous, both in terms of from a strategic point of view, it has to be on strategy and also financially that we are going to create value for our shareholders. So -- but all of that, I'm positive on the progress we are making there. Joseph Ritchie: Yes. And Luca, I know sometimes these are really difficult to like figure out exactly when timing is going to work out, willing sellers, et cetera. As you kind of think about 2026 and your ability to get a few deals done, like how are you kind of handicapping whether you'll be able to get some things done? Luca Savi: Well, I would say, look, if you look at the last couple of years, for example, Joe, in the last couple of years since the beginning of 2024, we deployed $1.9 billion of capital. $200 million went on CapEx, $900 million went on M&A and $800 million went in dividends and share repurchases. So I would say we really are working hard to deliver the growth from an M&A point of view as well. But if things do not happen, we are going to deploy our capital and repurchase shares. So that is our backup option. But the capital will be deployed. Joseph Ritchie: Okay. Great. And then if I could just squeeze one more in. Just on orders, sounded like the activity is very good, particularly on the industrial process side. I know you mentioned the book-to-bill kind of greater than 1 for the year. But as I kind of look at the fourth quarter, you've been kind of -- you've been in that $1 billion range for orders the last few quarters. Is that kind of like -- are you tracking towards a number in that ballpark for 4Q? Luca Savi: Yes. I would say, yes, Joe. And one thing that I want to stress on the orders is there has been a lot of phasing if you think about this year, right? So if you think about Q3, for sure, the book-to-bill in Q3 is not great, but there was a very tough comparison in IP projects versus the prior year when we booked a huge project in the Middle East and also on Svanehøj, many customers anticipated orders in the first half. And our philosophy, Joe, is to take the orders as soon as we can get them. So on the orders front is a good story for ITT. The book-to-bill for the full year will be comfortably above 1. And the backlog that we will have at the end of the year is going to be higher than the backlog that we had when we started in 2025. And as Emmanuel said, also the picture is good on the short cycle as well, which is good. Operator: Our next question comes from the line of Matt Summerville from D.A. Davidson. Matt Summerville: Just on the auto side of the business, can you talk about what you're seeing in aftermarket? And if that business, as you look out over the next several years, does that still really stay relegated from a geographic perspective to Europe? And then how should we be thinking about the ramp in high performance and VIDAR over the next year or two? And then I have a follow-up. Luca Savi: Sure. When you look at the aftermarket, the aftermarket, we are staying in Europe, there is no move to other regions. This is only the market where we play and we decided to play. And also in that market, we position ourselves only at the top end. The aftermarket probably is the only area where we saw some decline, and that is mainly -- is a market related that is not a share conversation to be had there. Now when we look at the high performance, the high performance is progressing well. The plant internally is producing a supply to our customers. We continue to win awards. So if you look, we won several awards in Q3 with a company like Daimler as well as Audi and the plant is also using green energy. That high-performance plant can run 100% with actually the green energy. So very positive growth on the high-performance side. When it comes to VIDAR. Well, VIDAR as well, I would say, is progressing well. We have it installed with 3 major energy companies in the U.S.A. Now what you find here, Matt, is a revolutionary product in an industrial environment. So we really need to test it, the customer really needs to see it working for some time. You will face the typical S-curve. Having said that, we are still committed to $150 million of sales by 2030 and a 10% market share on a $6 billion market in the long term. We keep on investing a lot, Matt, in this one to ensure that we have the product for the European Union as well as the larger sizes in the U.S. Matt Summerville: And then just as a follow-up, I mean, the number of platform wins, I don't know the number off the top of my head year-to-date, but I feel like you've been winning 30, 40, 50 kind of on a per quarter basis here over the last couple of quarters. What is your actual win rate in MT friction OEM on the platforms you're competing on? Luca Savi: It's a very good win rate. So -- and I would say, if you look at also the electrified platforms, is year-to-date are 142, which is the same number of platforms that we won for the last year in 2024. So these platform wins is one of the pillar of our friction strategy to ensure that we keep on gaining share. So we are confident we will keep on improving our market share in the next few years as well because of these wins. Operator: Our next question comes from the line of Joseph Giordano from TD Cowen. Joseph Giordano: So I guess if you guys start [ being ] on corporate expense, we'll know you were paying Mark too much, right? Is that the way we should think about it? Luca Savi: You got it. You got it. Joseph Giordano: You got it. So there's been a lot of talk now about like these chip shortages in Europe for auto and like potential shutdown of production as that plays out. Just curious what you're seeing there and what you're hearing in terms of like near-term visibility. Luca Savi: Sure. Well, when we look at Q3, Europe posted a very slight growth in terms of production of 1%. But both Europe and North America are forecasting for the full year a decline in production of roughly 2%. So these 2 markets from a production point of view are still challenged. So this is what we're seeing. Our customers are challenged from an investment point of view with a new platform from a competitive point of view, because the competitive environment is getting tougher with the Chinese OEMs. So -- but at the same time, the way that they need to win is with new models, new products coming to the market, and this is an opportunity for us to keep on increasing our market share. Emmanuel Caprais: So regarding the chip shortage, we read the headlines with Nexperia like everyone else. For the moment, our customers are not voicing any concern directly to us. We had a pretty strong month of October in terms of deliveries for Europe. So we don't know exactly what that means, but Europe was a little bit stronger than what we were expecting in October. Joseph Giordano: Okay. And as you start thinking about 2026, like you look at some of these businesses that Svanehøj and kSARIA orders up so large. I mean, obviously, that's going to derisk the revenue profile into next year. But are those sustainable order levels? Like how do you prepare for like -- is there likely to have some big decline in orders that you need to like calibrate what's the real kind of underlying multiyear trend line? Like how do you kind of -- how do you operate when you have those kind of dramatic moves one way or the other? Emmanuel Caprais: Yes. So this year, for sure, I would say if you had told us that Svanehøj would grow more than 50% in terms of orders year-to-date, we would have said no way. So what we saw during the year, though, is that a really strong first half with really, really strong growth. And customers actually pulled in orders in order to secure capacity within Svanehøj. And so that's why the second half is a little weaker. I don't expect that next year will be as strong as what we're seeing this year because on average, remember, we said that we expect growth of low double digits for the next 5 years. And so I think 2025 was especially strong. We think it's going to normalize over the year, but still delivering over the long-term low double-digit growth. Operator: Our next question comes from the line of Damian Karas from UBS. Damian Karas: So obviously, you guys are doing quite well in IP, really strong organic growth there. We have been hearing from some peers out there that there's been some -- maybe some deferrals going on in the project space kind of in the process markets. Just curious if you happen to be kind of seeing any of that in your business? Luca Savi: So one thing that we share, Damian, the short answer is not really, not material. And as a matter of fact, the sign that we had in this quarter which was positive was on the funnel. The funnel has gone up sequentially by quite a bit. And when I'm talking about the funnel, I'm not inserting in the funnel budgetary quote. I'm talking just about funnel of active projects, so projects that are funded. So no, not really. We had in our orders some phasing because with programs always happen that away, but no. Damian Karas: Okay. That's good to hear. And Emmanuel, I was hoping you could maybe give us a little bit of framework for CCT margins thinking about 2026. There's that deal amortization, thinking about how that will factor in. And then maybe just some of the mix items that you think about the areas like OE and aftermarket and aerospace and events, energy and the like. Emmanuel Caprais: Sure. So let me start by saying that it's a little bit early for 2026, but let me give some broad strokes in terms of CCT. So obviously, CCT will continue to benefit from the aerospace recovery. And here, what's interesting is that, so far, we've seen more narrow-body recovery, and then we expect wide-body where CCT and our CT business is stronger in a chipset -- from a chipset standpoint. So aero volumes up. I think with that, this will be compounded by price. We have high expectations from a price standpoint for CCT. We -- on this point specifically, we continue to negotiate with Boeing, and we're making some really good progress. We value Boeing as a customer, and I think it shows in their proposal that they value us as well. And so this from a top line standpoint should be really a tailwind. And then from a profit standpoint, I think in CCT, there's a lot of -- there are a lot of opportunities from a sourcing and a manufacturing standpoint. We are seeing sites like our Orchard Park site, for instance, which is doing really well and also investing in automation process of projects in order to support the growth in bill rates. And we have other sites in CCT, where we still need to make progress. We still need to go after efficiencies. So we're working a lot of machining efficiencies. And so that should drive really margin expansion in addition to volume and price. And obviously, finally, the end of the temporary amortization that you discussed should bring a little bit more than $0.10 coming from kSARIA next year. Operator: Our next question comes from the line of Sabrina Adams from Bank of America. Sabrina Abrams: Congratulations, Mark. Mark Macaluso: Thank you very much, Sabrina. Sabrina Abrams: I'm going to follow up on Damian's question there on margins. With the incrementals have had a lot of temporary amortization in the past 2 years and have been running maybe closer to 25%. And I think I'm seeing the implied incremental somewhere closer to 33% in Q4 and when you're anniversarying kSARIA, I guess maybe just some thoughts on how to think about incrementals into next year versus what we've seen in the past couple of years, as you anniversary the amortization because I think historically, been able to do closer to even 40%, just any direction there? Emmanuel Caprais: Yes, Sabrina. So when you remove the impact of acquisitions, our incremental in Q3 were around 40%, right? And all the businesses were really strong with Motion Tech the strongest. In Q4, we expect similar incrementals, excluding the impact of acquisitions. For 2026, we -- I think around 30% to 35% is probably a good number to keep in mind. Sabrina Abrams: And I just want to ask a little bit about the pricing environment. Clearly, tariffs have not been an issue for your execution, but just in general, what are you seeing from your customers in terms of pricing acceptance? How is the pricing environment evolving? I think we've heard from some channel checks that there's been a lot of inflation push this year. Maybe next year, it will be more difficult, but I know you guys have some idiosyncratic pricing on the aero side. Just maybe thoughts there on how that's evolving. Luca Savi: Sure, Sabrina. So when it comes to pricing, the dynamic is different in the different businesses. I would say the most -- the area where we have more pricing power remain CCT. And this is where you will have -- you will see more impact. Now when it comes to IP, Sabrina, the pricing would be more strategic and so we will really have to be more analytical and understanding where we can really price the value for that specific pump in the specific region for the specific customers. And then when it comes to automotive, that is a completely different dynamic. Operator: Our last question comes from the line of Nathan Jones from Stifel. Andres Loret de Mola: This is Andres on for Nathan. I wanted to quickly ask, margins were very strong 20.2% for Motion Technology. Can you provide the margin impact from FX transaction? Emmanuel Caprais: Sure. So when you look at Motion Tech, we are very excited that for the second quarter in a row, they are above 20%. And so the FX transaction, I want to say, was still negative in absolute value, but year-over-year was a benefit of around 100 basis points. Andres Loret de Mola: I appreciate that. And then I guess we talked a lot about A&D. Can you just provide a little bit more color on prospects for improving growth aside from A&D within [ CCT ]? Emmanuel Caprais: Yes. So A&D for us has been pretty strong. As I mentioned, A&D historically has been a little weaker than everybody else because we are more tilted towards wide-body than narrow-body. But in the quarter, orders for aerospace were up in the high teens, and defense was also up in the mid-teens -- sorry, in the mid-single digits. kSARIA was really strong as well. So the quarter in Q3 was pretty good. I think when you look at Q4, we expect growth to continue to accelerate with both aero and defense to be around the 20% mark in terms of growth. And obviously, this implies that we have to ramp up our production to make sure that we support our customers in delivering the products that they need. Operator: Thank you. This does conclude today's conference. Please disconnect your lines at this time, and have a wonderful day.
Operator: Welcome to Hayward Holdings Third Quarter 2025 Earnings Call. My name is Donna, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Kevin Maczka, Vice President, Investor Relations and FP&A. Mr. Maczka, you may begin. Kevin Maczka: Thank you, and good morning, everyone. We issued our third quarter 2025 earnings press release this morning, which has been posted to the Investor Relations section of the website at investor.hayward.com. There, you can also find the earnings slide presentation referenced during this call. I'm joined today by Kevin Holleran, President and Chief Executive Officer; and Eifion Jones, Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind everyone that during this call, the company may make certain statements that are considered forward-looking in nature, including management's outlook for 2025 and future periods. Such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Forms 10-K and 10-Q filed with the Securities and Exchange Commission that could cause actual results to differ materially. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, the company will discuss non-GAAP measures. Reconciliations of historical non-GAAP measures discussed on this call to the comparable GAAP measures can be found in our earnings release and the appendix to the slide presentation. All comparisons will be made on a year-over-year basis unless otherwise indicated. I will now turn the call over to Kevin Holleran. Kevin Holleran: Thank you, Kevin, and good morning, everyone. It's my pleasure to welcome all of you to Hayward's third quarter earnings call. I'll begin on Slide 4 of our earnings presentation with today's key messages. I'm pleased to report third quarter results ahead of expectations, marking another quarter of strong execution by our global team. Our performance reflects the resiliency of our aftermarket model and continued traction in our strategic initiatives. Net sales increased 7% with growth across both our North America and Europe and Rest of World segments and adjusted EBITDA increased 16%. We delivered further solid margin expansion, driven by increased operational efficiencies, tariff mitigation actions and disciplined cost management. Gross profit margin increased 150 basis points to 51.2% and adjusted EBITDA margin increased 170 basis points to 24.2%. Cash flow generation was also strong, enabling us to further strengthen the balance sheet and reduce net leverage to 1.8x, the lowest level in nearly 4 years. This provides enhanced financial flexibility as we execute our growth plans and fund our capital deployment priorities. During the quarter, we continued advancing key strategic initiatives to position for profitable growth. This included expanding our customer relationships, developing innovative new products to further our technology leadership position and leveraging our operational excellence capabilities. At the same time, our teams are aggressively executing tariff mitigation action plans to support margins and deliver on our commitments to shareholders and customers. We've made great progress, and I'm confident in our team's ability to navigate this dynamic environment. As a result of our strong year-to-date performance and solid participation in our early buy programs with increased orders, we're raising our full year guidance. We now expect net sales to increase approximately 4% to 5.5% compared to our prior guidance of 2% to 5%. We now expect adjusted EBITDA to increase 5% to 7% to a range of $292 million to $297 million compared to our prior guidance of $280 million to $290 million. Turning now to Slide 5, highlighting the results of the third quarter. Net sales increased 7% to $244 million, driven by a 5% increase in net price and a 2% increase in volume. By segment, net sales increased 7% in North America and 11% in Europe and Rest of World. As I mentioned, gross profit margin expanded 150 basis points to 51.2%. Adjusted EBITDA increased 16% to $59 million, and adjusted EBITDA margin increased 170 basis points to 24.2%. This is a strong result in a seasonally lower sales quarter as we continue to make targeted investments in the business to drive future growth.Finally, adjusted diluted earnings per share increased 27% to $0.14. Turning now to Slide 6 for a business update. Starting with the demand environment, we are encouraged by recent trends. We had a solid finish to the 2025 pool season as our primary U.S. channel partners communicated improved out-the-door sales growth rates for Hayward products in the third quarter with stronger growth as the quarter progressed. This reflects the strength and stability of our aftermarket model as approximately 85% of our sales are aligned with serving the aftermarket needs of the existing installed base. Consistent with the trends in prior quarters, nondiscretionary aftermarket maintenance demand remains resilient. We also see continued adoption of our technology solutions to automate and control pools. Homeowners are adding technology to improve the pool ambience and experience rather than defeaturing to reduce cost as evidenced by the average value per pool pad continues to increase. As a result, we saw a double-digit growth in this critical product category of omni controls during the quarter, nearly twice the overall Hayward growth rate. The early buy programs are nearing completion in North America and International markets, and we are pleased with the progress to date. Incoming orders are trending in line with expectations. We anticipate solid customer participation and increased orders relative to the prior year. Importantly, we are working closely with our channel partners to maintain appropriate levels of Hayward inventory on hand relative to current demand levels and forward expectations. The pool industry has always been very disciplined on price. We increased pricing this year as needed to combat tariffs and other inflation, and we continue to expect positive net price realization of mid-single digits in 2025. We are progressing with our value-based pricing and SKU rationalization initiatives to optimize our price structure and enable our products to be priced appropriately relative to the exceptional value provided to pool owners. We expect these initiatives to yield further positive results going forward. The tariff environment remains uncertain. Our team is aggressively executing our mitigation action plans to offset the increased costs and we are making great progress. As previously communicated, we are accelerating our lean initiatives and significantly reducing our exposure, lowering direct sourcing from China into the U.S. as a percentage of cost of goods sold from approximately 10% to 3% by year-end. We intend to achieve this target regardless of any further tariff negotiation as it derisks our supply chain and limits exposure to geopolitical uncertainty. Our teams are responding to the current enacted tariffs while monitoring the ongoing media reports, and we remain agile and ready to take further action as needed. We continue to make investments to drive future growth. On the product side, we are investing in advanced engineering and product development to continue bringing innovative new products to market. We previously introduced you to OmniX, an industry-first automation platform providing a cost-effective way to accelerate technology adoption in the installed base and increase average equipment content per pool pad. While early in the rollout, we are pleased with the continued dealer response to the new OmniX enabled variable speed pump and we will launch other product categories with embedded OmniX control capabilities in the coming quarters. We are ramping up our targeted sales and marketing strategies to further increase our presence in high-value yet underpenetrated regions. This is already translating into wins with important dealers converting to Hayward. We're also improving the customer experience with the continued rollout of the Hayward Hub training and support centers and hosting premier industry events. In the second quarter, Hayward sponsored the prestigious 2025 Pool & Spa Network Top 50 Builder Award event. And in the third quarter, we hosted our 25th PACE Conference to educate and inspire our industry's most accomplished pool professionals. As we continue to invest in the industry and build upon our customer-first approach, we are seeing greater engagement and traction with dealers. As a technology leader in the industry, we are implementing AI tools to drive value for our customers. Our new AI agents are progressively fielding inbound customer service calls with no on-hold wait times resolving approximately 80% of these calls without the need for human intervention and even proposing enhancements to our training programs. Hayward has a long-standing commitment to continuous improvement throughout the entire organization, and this is a great example of an early success in customer experience. With that, I'd like to turn the call over to Eifion to discuss our financial results in more detail. Eifion Jones: Thank you, Kevin, and good morning. I'll start on Slide 7. As Kevin stated, we are very pleased with our third quarter financial performance. Net sales increased 7% and exceeded expectations. We delivered strong growth and adjusted EBITDA margin expansion to 51% and 24%, respectively and further reduced net leverage to 1.8x. Looking at the results in more detail, the net sales increase of 7% to $244 million was driven by a 5% positive net price realization and 2% higher volumes. Gross profit in the third quarter increased 11% to $125 million. Gross profit margin increased 150 basis points to 51.2%. By segment, gross margin increased 50 basis points in North America with Europe and Rest of World increasing 750 basis points year-over-year and 300 basis points sequentially. Adjusted EBITDA increased 16% to $59 million in the third quarter, and adjusted EBITDA margin increased 170 basis points to 24.2%. We are delivering this level of margin expansion while strategically reinvesting in the business to drive future growth with targeted initiatives in sales and marketing, advanced engineering and customer service. Our effective tax rate was approximately 23% in the third quarter and 24% year-to-date. Adjusted diluted EPS increased 27% to $0.14. Turning to Slide 8 for a review of our reportable segment results for the third quarter. North America net sales increased 7% to $208 million. Net price realization increased 7% and volume was stable. Net sales increased 6% in the U.S. and 21% in Canada. As previously mentioned, we are encouraged by the recent demand trends for Hayward products, and demand as reported by our primary U.S. channel partners increased late in the season, resulting in a solid third quarter performance. The performance in Canada also continues to improve, as we saw strong order growth during the quarter. Gross profit margin increased 50 basis points to a robust 52.8% and adjusted segment income margin was 29.6%. Turning to Europe and Rest of World. Net sales for the quarter increased 11% to $36 million, a 1% reduction in net price realization was more than offset by 8% higher volume and 3% favorable foreign currency translation. The reduction in net price was largely due to an increased mix of discounted early buy shipments relative to the prior year period. Net sales increased 15% in Europe and 6% in Rest of World. We took steps in recent quarters to improve the performance in Europe and Rest of World and are pleased to see continued margin progression in the quarter. Gross profit margin increased 750 basis points to 41.9%, and increased 300 basis points sequentially from 38.9% in the second quarter. This sequential increase was primarily related to the timing of a cumulative tariff refund during the third quarter. Adjusted segment income margins increased to 18.5% from 8.4% a year ago. Turning to Slide 9 for a review of our balance sheet and cash flow highlights. We are pleased with the quality of our balance sheet and the significant reduction in net leverage during the quarter and over the last 2 years. Net debt to adjusted EBITDA improved to 1.8x compared to 2.1x at the end of the second quarter and 2.8x in the year ago period. Reduced leverage provides additional flexibility as we execute our strategic growth plans. Total liquidity at the end of the third quarter was $552 million, including $448 million in cash and cash equivalents, short-term investments and availability under our credit facilities of $104 million. We have no near-term maturities on our debt as the term debt and the undrawn ABL mature in 2028. Our borrowing rate benefits from $600 million in debt currently tied to fixed interest rate swap agreements maturing in 2026 through 2028, limiting our cash interest rate on our term facilities to 6% in the quarter. Our average interest rate earned on global cash deposits for the quarter was 4.3%. Our business has strong and seasonal free cash flow generation characteristics, driven by high-quality earnings. The company typically has strong cash generation in the second and third quarters, while using cash in the first and fourth quarters. Year-to-date cash flow from operations was $283 million, compared to $276 million in the year ago period. CapEx of $21 million year-to-date was modestly higher than the prior year period, reflecting strategic growth investments and project timing. Consequently, year-to-date free cash flow was $262 million. Given our outlook, we increased free cash flow guidance for the full year by $20 million from approximately $150 million to approximately $170 million. This increase reflects improved profitability, CapEx, project timing and working capital management. Turning now to capital allocation on Slide 10. We maintain a disciplined and balanced approach to capital allocation, emphasizing strategic growth investments and manufacturing asset investments for tariff mitigation, maximizing long-term shareholder returns while maintaining prudent financial leverage. We continue to pursue additional acquisition opportunities in residential pool, commercial pool and flow control to augment our organic growth plans in addition to potential share repurchases. During the third quarter, Hayward's Board of Directors authorized through purchase of up to $450 million in shares over 3 years to replace a similar expired authorization. Turning now to Slide 11 for the full year 2025 outlook. We are increasing our guidance for net sales and adjusted EBITDA. For the fiscal year 2025, Hayward now expect net sales to increase approximately 4% to 5.5% or $1.095 to $1.110 billion, with adjusted EBITDA increasing approximately 5% to 7% or $292 million to $297 million. We continue to expect solid execution across the organization, positive price realization and continued product technology adoption. Relative to our prior guidance at the midpoint, this represents $17.5 million increase in net sales and a $9.5 million increase in adjusted EBITDA. Our guidance does not contemplate potential new tariffs effective on or after October 29. If that does materialize, we will respond accordingly with further mitigation actions. As a reminder, fourth quarter 2024 net sales benefited from incremental demand related to the 2 major hurricanes that impacted the Southeastern United States. We continue to expect solid cash flow in 2025 with a conversion of greater than 100% of net income. We increased our free cash flow guidance for the full year to approximately $170 million. We are confident in our ability to successfully execute in a dynamic environment and remain very positive about the long-term growth outlook for the pool industry, particularly the strength of the aftermarket. And with that, I'll now turn the call back to Kevin. Kevin Holleran: Thanks, Eifion. I'll pick back up on Slide 12. Before we close, let me reiterate how appreciative I am of the team's performance. Hayward delivered another strong quarter, exceeding expectations. Net sales increased 7% and margins continue to expand as we effectively countermeasure the tariff headwinds. We delevered the balance sheet to under 2x while investing in the business to drive future growth, and we increased our guidance for full year net sales, adjusted EBITDA and free cash flow. As the macroeconomic and tariff environment continues to evolve, we are excited about the fundamentals that drive our business and confident in our ability to execute our growth strategies and create shareholder value. And with that, we're now ready to open the line for questions. Operator: [Operator Instructions] Our first question today is coming from Ryan Merkel of William Blair. Ryan Merkel: Nice quarter. Wanted to start off on demand. Just talk about how the season progress since July? And then where did you see the upside in the third quarter? Kevin Holleran: Yes. As you know, Q3, from a shipping standpoint for Hayward, is one of our lower seasonal quarters but it's an important one for the industry from a sales-out standpoint as you're in the heat of the summer and closing out the seasonal year by the end of September. We felt really good about the sales-out demand as reported back to us or communicated by our largest channel partners. We saw progressively stronger sales-out for Hayward product as the quarter progressed really culminating with a really strong September. The other positive that comes with that is -- with that sales-out is it's really positioning channel inventory levels properly as we close out the season to then turn to early buy and what that demand signals for our factories and for the business. I would say that that weather -- warm weather really did help extend the season, which is always welcomed by the industry, and that certainly played out in many regions around the globe. From a product standpoint, in the quarter, we continue to see nice progression with the reception to OmniX. But then as I said in the prepared remarks, controls and lighting and even filtration, had strong performance in the quarter. Outside of the U.S., I'd really like to highlight Canada. Canada had a really strong quarter, up over 20%, which is welcome. We had a nice strong bounce back in all of 2024, particularly in the third quarter. So we didn't have an easy comp here comparing off a plus 17% in prior year, making the 20% growth even more impressive. Up there, we did see a relatively wet spring and then responded with strong seasonal flow orders, which was great. And there is some easing around the macro up there, particularly around some improved or lower mortgage rates. Continuing on that theme of International, Europe was up kind of low teens, which is also great with some improved supply chain capabilities. And because we struggled a bit with some early buy shipments last year, we actually started to ship some of the 2025 early buy into the channel kind of late third quarter this year. But Rest of World, was up mid-single digits, particularly Asia, up over 20% and Australia was high-single digits. So this quarter, in particular, we really did see nice balanced growth across a wide array of our markets. So now our attention obviously turns to early buy. As I mentioned in the prepared remarks, which is progressing nicely. So yes, it was a good quarter from a demand standpoint, a nice progression as the quarter played out. Ryan Merkel: That's great color. Yes, on the early buy, which is my second question, you called it solid and it's tracking expectations. How do we think about those comments relative to the market being flat? And what was the reception to your 6% to 7% price increase that you announced? Kevin Holleran: Yes. Well, as is customary with early buy, there is a discount off of that announced price increase by participating in early buy to go along with extended payment terms. The whole program allows us to more level load our factories and have the product on the shelf for when the new season breaks here in 2026. I would say, in general, we don't want to be passing the magnitude of the price increases on -- which has been multiple in a row here due to inflation and tariff headwinds. I would say that in general, I'd say, the whole population has inflation fatigue and our industry is really no different there. As it pertains to the tariffs, which I'm sure we'll talk more about here, what we've passed along in the early spring, which took effect really in the May time frame was really dollar for dollar offset to the tariff impact. And we took it upon ourselves internally through our tariff mitigation plans to claw back the structural margin from that. So I would say that we're as anxious as anyone to get back to more inflationary times and to maybe put more certainty around what the tariff environment will look like. And the sooner that happens for our industry, the more welcome that will be. Operator: Our next question is coming from Saree Boroditsky of Jefferies. Saree Boroditsky: Maybe just moving on those pricing commentaries, I think one of the key distributors recently talked about innovation and new products is making the recent price increases a little bit more palatable. Maybe you could talk about some of your investments in new products and how much of your sales are coming from this? And how is it helping the volumes versus price? Kevin Holleran: Yes. So as we've spoken about in prior calls, we had some very targeted investments in SG&A and operating expense in 2025, and that really continued a more recent trend. One of those targeted areas is around engineering, new product development, advanced engineering with some new technology and innovation, trying to bring some new technology to our industry. We continue to work on that, and that will continue to be an area of very targeted investment. I think technology matters and I think that innovation will ultimately dictate winners and losers in our industry like most. I mentioned OmniX, we're really proud of what that whole ecosystem brings to the aftermarket. That's an enormous opportunity for our industry to really start automating the more aged pools in the installed base that were built when automation and controls didn't exist. So our approach is to bring this ecosystem one piece at a time as break fix occurs. We have the initial product out, but there's more coming in the upcoming quarters to help automate and bring optionality and functionality and ambience to the installed base. Saree Boroditsky: Appreciate that. And then maybe just taking a step back on this theme. Maybe have you seen any trade-offs from price versus volume? And how do you think about that going forward as new pool construction, especially has just gotten so much more expensive? Eifion Jones: It's Eifion. We haven't necessarily seen any trade-off occurring at this time. We do know that many consumers, particularly at the entry level in the marketplace remain on the sidelines for the new pool and maybe some of the remodel business. But we continue to see in our product sales profile, continued adoption of technology throughout the aftermarket installed base and that also is reflective in the gross profit margin profiles that we're experiencing within the business. But certainly, at the entry level, I'm quite sure that people are waiting for interest rates to break the ability to move homes into that next level before they put the pool in. But we haven't necessarily seen larger-scale trade-offs across the aftermarket. Again, we see quite good adoption of new technology, great adoption in our controls category and we're continuing to invest behind that capability. Operator: Our next question is coming from Andrew Carter of Stifel. W. Andrew Carter: First question I wanted to ask about given the renewed focus on private label that's out there, have you been seeing anything incremental in terms of either the positioning by the distributors, the demand from your contractors, and I know it's kind of -- it's been mentioned that it's kind of a lower commodity side? What exposure do you have? And I get the price is high, but -- and in this environment, wouldn't it be a lot more difficult to do a private label program given the tariffs, et cetera? Kevin Holleran: Yes. I mean you used the term private label. I think that the way we look at it is maybe around some exclusive distribution rights. It's maybe the same thing. But I would say our industry has attracted lower-priced offshore competitors frequently. I mean it's consistently occurred over the -- over Hayward's history here. And while the recent inflationary environment and the tariffs impact in the U.S. market has perhaps opened the door further, we believe that while there could be a price delta there as the loyal dealer base of totally Hayward partners will continue to appreciate the value proposition of what Hayward offers them in the marketplace. When one of these Hayward dealers walks into a channel partner, they're asking for product by name. They're asking for a TriStar 900, not just a variable speed pump for the job that they're working on. So by no means am I dismissing the risk or the concern because I think it makes us sharper. But we continue to feel confident in our investments in innovation, as we just spoke about with Saree's question around new product development, the fact that we have a complete product line and can supply the entire pool pad to the trade. Our national coverage of Hayward authorized service centers and the technical resources for the trade to call upon, we proudly support the U.S. market with over 90% of the products sold in the U.S. are built in one of our 4 U.S. manufacturing facilities in Rhode Island, North Carolina, Tennessee and Georgia. So we think -- we take pride in that. We think it's smart to shorten the supply chain to be able to satisfy the market. And I think our reputation for quality and service and dependability that's been built over our 100-year history means more than just the lower price, and I expect that to continue to serve us well. W. Andrew Carter: Second question, shifting gears. Number one, why the raise in the cash flow guidance for the year of $20 million? And then just level set expectations, I believe that you have higher CapEx over the next couple of years around your supply chain efforts. Could you speak to that? And at this point, you're going to have a balance sheet probably likely below 2x over the next couple of years based on the estimates. What are your capital allocation priorities? And would you be aggressive on share repurchase? Eifion Jones: Andrew, it's Eifion again. Coming back to the cash flow increase of approximately $20 million, half of that is attributable to the increase in the midpoint of EBITDA, going from the midpoint $285 million down to a midpoint of $295 million. We had some project timing around CapEx, which will move some of the CapEx spend that we have planned for this year into next year. And finally, working capital improvements. And we've seen some modest but welcomed working capital days on hand reduction in our inventory, and that will be accretive to the cash flow in the year. Could you just repeat to me the second part of your question, Andrew? W. Andrew Carter: Yes, the next couple of years thinking about what your priorities are going to be, stepped up CapEx spend that you might be doing? And then just kind of with this improved balance sheet, where your capital allocation priorities lie? Eifion Jones: Yes. Okay. Got it. So as we've previously talked about, we will be stepping up CapEx into the business. Historically, it's been around 2% to 2.5%, maybe up to 3% at times of revenue. I believe over the next several years, it will be all of that 3%, if not slightly more, as we continue to invest in automating our manufacturing and supply chain capabilities. We've already had some great success this year doing that. So a call out to several of our plants, including our Nashville facility, which has made some interesting automation investments, but that will be the thematic going forward over the next several years. We are completing our ERP implementation. We've had some expenditures there this year and last year, and that will be a continuation into '26 and to '27. But the main focus of the organization right now is to take our facility capability up to the next level in terms of throughput, facilitated by automation and new technology platforms like AI and machine learning. In terms of the capital allocation priorities, it remains the same. We'll continue to do the organic CapEx I just mentioned. We continue to look at M&A. We nurture a pipeline of opportunities. We have the optionality now to focus on residential pool, commercial pool and our spill flow control business. For accretive M&A opportunities, we did initiate a share repurchase program authorization. Again, we have the opportunity to be opportunistic and maybe programmatic at some point. The nice thing about this business, which will now begin to very clearly demonstrate, it has great cash flow characteristics, which gives us this optionality across that capital allocation spectrum. Operator: The next question is coming from Mike Halloran of Baird. Michael Pesendorfer: It's Pez on for Mike. I just want to follow up on the capital allocation side and maybe dial in a little bit on the funnel. How are you thinking about the opportunities in both residential and commercial pool? I noticed that you threw flow control in there. I know that's a part of the business that doesn't get a lot of love. Maybe talk about how you're thinking about the makeup of the funnel, the actionability of the funnel. And to Andrew's point, obviously, the leverage is continuing to progress nicely. So any color on the M&A opportunities where you're spending most of your time? And what you're seeing from a valuation perspective would be helpful. Kevin Holleran: Yes. So in terms of a funnel, I mean, obviously, with the deleverage that's occurred over the last several quarters. it puts us in a different position. That said, while ChlorKing, which is now anniversaried and a little over a year old, which is about a fantastic shot in the arm for our commercial business. We haven't announced anything, but we certainly have been working in the background to accelerate and work on some diligence with some opportunities that really hit the 2 key platforms that you mentioned as around residential. I think we've been pretty open in saying that we have aspirations for commercial to become a growth platform for us, and we continue to look both organically as well as inorganically add some opportunities there. We did mention in the prepared remarks, our industrial flow control business. It doesn't get a lot of attention, but it's a fantastic business that provides great access to distribution and some nice growing end markets. We're relatively niche in the products that we offer today but we're progressively spending time as a leadership team looking at what that might be able to be for us. So that's getting increased attention from a strategy standpoint, again, both organically as well as inorganically. We're looking across all those platforms from a product technology standpoint, what that can bring to us, does it provide a regional diversity and growth for us and looking always to capitalize and leverage our distribution, relationships and partnerships and go-to-market strategies. So that's -- those are several of the elements that we look and assess opportunities across customers. Michael Pesendorfer: Got it. And then not to stick on a smaller part of the business, but maybe now that we're a year out of the ChlorKing acquisition, maybe talk about the success that you've seen in being able to expand ChlorKing's reach within your distribution channels and being able to bring that up to scale a little bit? And then on the flip side, maybe talk about what type of successes you've seen in pushing legacy Hayward product through that commercial market. Kevin Holleran: Yes. There's been success across all those elements as we have a fantastic leader over that business that joined us from ChlorKing with those resources with the acquisition, we melded our existing commercial team into one organization. And we're seeing cross-selling opportunities across both types of commercial tools. We talk about Class A and Class B, which is really just the size or the size of the commercial body. We had a pretty complete product line along Class B legacy Hayward did, which are the smaller bodies of water. But really where we weren't represented was Class A, which would be larger than 100,000 gallons which is really a sweet spot where ChlorKing participates. So with that acquisition and that integration, it brought relationships with the architects and the engineering firms and some of the specialized distribution that serves the large commercial market. So we're really pleased with the amount of cross-selling and collaboration that's occurring across now the broader commercial market where we were before ChlorKing really only participating and growing in the Class B side of the market. Operator: Our next question is coming from Jeff Hammond of KeyBanc Capital Markets. Jeffrey Hammond: Just on -- I got on a little late, so I don't know if you touched on this, but last year, there was a lot of storms and I think your fourth quarter benefited from some kind of repair work, and I'm just wondering how you're contemplating that comp given a quiet hurricane season? Kevin Holleran: That certainly presents what we see as a bit of a headwind for Q4. I mean it was a big fourth quarter, as you mentioned last year. I think we were up kind of high teens as a business in the fourth quarter. And it was certainly aided by a couple of unfortunate weather events that impacted the Southeast with Helene and with Hurricane Milton. So we're not expecting that to repeat and I think at that point, I don't think -- I know that that's factored into the guidance that we gave in our press release and our prepared remarks this morning. So what we did talk about, I'm not sure when you joined around early buy, we have had nice participation and nice response to our early buy program. It's really closing out here in a few days in the U.S. at the end of October, and it extends a little further for other international markets. But as we're talking this morning, we feel good about the participation, really what that -- what that says about channels, enthusiasm and position heading into the new year as well as what the dealer sentiment is because our programs get taken to the dealer base out there and that's what's culminated and aggregated into the early buy orders that we received from our channel partners. So I'll stop there. Eifion, do you have anything to add around Q4? Eifion Jones: Yes. No. I mean I think you captured it all, Kevin. I'd just add. We expect a modest improvement in the North American early buy program to ship out in Q4. That will be slightly offset by a timing movement of early buy shipments in Europe. Jeff, you may have not heard it earlier, we shipped a little bit more early buy in Europe in Q3 was we'll do less year-over-year in Q4. So net for total Hayward early buy will be a slight positive. And then as Kevin mentioned, in Q4, we don't expect to ship that hurricane-related business that benefited 2024. So on a net basis, volume, we expect to be slightly down in Q4 versus last year. Upside to the guidance would be an extension in the season at the low end of our guidance for Q4 would at this point, pretty much reflect on the negative weather impacts. Jeffrey Hammond: Okay. And then as we go through the different pieces, it seems like aftermarket holding up fine. Just maybe touch on what you're seeing on that repair replace dynamic that came up over the last couple of quarters. And then new pool I get it kind of not going down, but maybe just expand on what you're seeing on upgrade remodel, if that's still kind of the biggest question mark or any signs of improvement there? Kevin Holleran: Yes. As you say, the aftermarket is proving to be resilient. A question was asked earlier, are we seeing -- I think it was by Saree, whether we were seeing any kind of trade down. Frankly, our guide contemplates maybe a little bit of mix in the aftermarket, but not much because it's holding up fine. On the new construction side, I'd say that the permit count has moderated, which is welcomed as the year has progressed here, but still net through, call it, 3 quarters is still down. The trend continues that what is being built is at higher value year-on-year which I think says something about the features that folks are putting on and the fact that maybe the mid to upper end is holding up better than more of the entry-level pool. I would say, anecdotally, what we hear from our builders and our remodelers is that there's still lots of pent-up demand on the remodel side. The installed base continues to age, and it's moving sideways a bit. I think there's stabilization around the remodel bus I think with a little bit of back grow improvement around interest rates, around existing home sales, all of that will have a very positive impact on the pool industry, both from a new construction as well as a refurb and remodel. I will close by saying last quarter, there was some follow-up questions around parts and what that may signal for a desire to repair versus replace. We -- third quarter -- on a year-to-date basis, I think we're up about high-single digits on parts sales. Some of that is explained obviously by pricing. Third quarter was not necessarily a strong year-over-year quarter for part sales. So I think that this broad-based question or even concern around repair versus remodeling. Our data does not necessarily show that there's widespread repairing going on and deferral of the equipment replacement. Operator: Our next question is coming from Brian Lee of Goldman Sachs. Brian Lee: I just had 2 hopefully quick questions. I know a lot of ground has been covered. And sorry if you already covered this. But first question was just around the strong increase in margins in the international markets, if you could kind of provide some color around what drove that and how sustainable that is? And then the second question, it looks like net pricing in North America has kind of ticked up a little bit from the beginning of the year, even from last quarter to this quarter in terms of net price realization. As we think about kind of the trend you're seeing into year-end, the early buy season, et cetera, do you think '26 ends up being more of a normal kind of low-single-digit price year? Or are we going to see some of the factors from this year spill over into next where we're probably still going to be elevated, maybe more mid-single digits than the historical low? Just trying to get a sense of where kind of that pricing paradigm is heading to in '26. Eifion Jones: Let me tackle the Europe margins and then maybe between Kevin and I will talk a little bit about the price. But in terms of the European margins or ERW margins, more specifically, we did see an improvement year-over-year of 750 bps, approximately 300 bps sequentially. Year-over-year, I would say it reflects the non-repeat of some discrete inventory items that we have in Q3 of '24. So it's good to see that noise behind us. We've stabilized those facility -- facilities that we have in Spain that we've talked about this in previous calls. We've improved the management team there, both locally, supplemented with some expats or capabilities moving into that organization. And sequentially now throughout the year, we've been able to post margin improvements in our European business, which has affected positively the overall ERW segment. What I would say is in Q3 this year, we did have a couple of onetime benefits including a tariff refund, which is a cumulative tariff refund, so that probably benefited the Q3 margins this year by approximately 100 bps and then we had a couple of other onetimes that additionally contributed an additional 100 basis points. But even if you discount those elements, we still had good sequential margin improvement which again reflects the stabilization of our production capabilities in country in Spain, and we feel good about the progress that we have made. In terms of the pricing, net pricing realization did take a step up, obviously, year-over-year in Q3 this year, consequential primarily to the seasonal price that was enacted at the end of last year, plus the midterm pricing that we put in this year to protect against tariffs. That rolled through in its fullness in Q3. We've got a partial benefit in Q2. We had a full benefit in Q3. We have announced further pricing for 2026 of mid- to high-single digits in the U.S., much less elsewhere. Obviously, a lot of that is discounted through the early buy programs. But as we step into 2026, we'd expect to carry of that. But we're not specifically guiding yet on 2026, but we certainly would expect slightly higher than normal, let's call it, mid-single-digit pricing next year. We don't get how many line of sight into end of year inflation next year. So we're not willing to commit to what next year's Q4 seasonal price increases would be. But we're hoping we get back to a normal inflationary environment where we can get to that normal pricing dynamic. Operator: The next question is coming from Nigel Coe of Wolfe Research. Nigel Coe: Eifion, I just wanted to follow up on your -- I think you said 100 basis points benefits in the quarter from tariff refunds. Just a bit more color there. I mean, are you winning some exemptions on some of the imports? And is this a one-timer? Or would you expect this to continue in '26, recognizing that you are rebalancing away from China? And then maybe just give us an update on where you are with that supply chain realignment. Eifion Jones: Yes. An element of our ERW business is exported from the United States. And to the extent we are importing products into the U.S. manufacturing of those products and then reexporting them to service LatAm, Asia and the Middle East, we're then eligible for a duty clawback on any tariffs we had paid on that initial inbound into the States. So we've now taken a more aggressive position towards our duty refund time lines, given the pain we're feeling or have felt on the tariff charge coming into the business. It's not necessarily a onetime benefit, but it did take a pop in Q3 because it was a cumulative tariff refund. So a bit of catch-up in the quarter. We will continue to apply for the eligible tariff refunds that we are entitled to and we will continue to do that. We have a long practice of doing that in the United States and that we're now getting more details in those applications. In terms of the progression of our tariff mitigation programs, we're well progress, Nigel. We've said that the North American business, we're going to reduce our China exposure from 10% to 3%, we're well progressed. The team is doing a fantastic job getting after that mitigation. We're winning some success more so than we originally thought. So the actual cost to recalibrate the supply chain is coming in a little bit less than we had anticipated, which is a little bit of a tail to our margin. But yes, we're well progressed and very pleased with what we've been able to do there. Kevin Holleran: Yes. I mean our global supply chain and operations team deserves props here. We, I think, laid out a very structured, thoughtful approach to that was really 4 work streams ranging from supplier negotiations in the impacted regions to some strategic inventory buy ahead to defer impact in 2025. That obviously has a shelf life to it, some footprint and supply chain, reshoring or movement and then, as I mentioned earlier, are some pricing actions in the U.S., which was -- protecting dollar for dollar, but we internally felt we needed to, through our own actions in the future, protect the structural gross margins through internal actions. So proud of the progress, more work to be done, but well progressed on this movement from 10% exposure to 3%. As I said, irrespective of future negotiations, we're going to forge ahead. We believe that shrinking the supply chain or shortening the supply chain is the right approach and continuing to be more reliant on our U.S. facilities for U.S. sales. Nigel Coe: Okay. That's great color. And then a quick crack at the early buy. You sound like you're quite pleased with the program. If you could maybe just put a finer point on that. Are you seeing sort of flattish participation? Are we seeing some smallest growth here? And then when you think about going back in time, is there a coalition between sort of early buy strength and what actually transpires in the following year? Or is it just a reflection of other things? I mean, is there any -- if we see a strong early buy, does it tend to call it with a strong following year? Kevin Holleran: Yes. I don't know, maybe by asking the question, we can actually ask our BI team to look at that correlation. I don't have any general impressions to that question, but it's a good one, and we'll see if we could tackle that, Nigel and maybe I'll follow up with you. As for early buy when we laid out our expectations internally, there was in terms of goal setting or objectives, setting an ambition for some modest volume in addition to the year-over-year price. So that is in what we laid out with our internal targets. So when I say that we feel good about the progress and the participation and where we are with a few days left in it, that would reflect -- my comments would reflect some participation from a volume standpoint. Operator: Thank you. At this time, I would like to turn the floor back over to Mr. Holleran for closing comments. Kevin Holleran: Thank you, Donna. In closing, I'd like to sincerely thank our dedicated employees and valued partners around the world. The hard work, passion and unwavering commitment are the driving force behind our success and it's much appreciated. Please contact our team if you have any follow-up questions, and we look forward to talking to you again on the fourth quarter earnings call. Thanks for your interest in Hayward. Donna, you can now close the call. Thank you. Operator: Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Thank you for standing by, and welcome to the ESAB Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. I'd now like to turn the call over to Mark Barbalato, Vice President of Investor Relations. You may begin. Mark Barbalato: Thanks, operator. Welcome to ESAB's Third Quarter 2025 Earnings Call. This morning, I'm joined by our President and CEO, Shyam Kambeyanda; and CFO, Kevin Johnson. Please keep in mind that some of the statements we are making are forward-looking and are subject to risks, including those set forth in today's SEC filings and today's earnings release. Actual results may differ, and we do not assume any obligation or intend to update these forward-looking statements, except as required by law. With respect to any non-GAAP financial measures mentioned during the call today, the accompanying reconciliation information related to those measures can be found in our earnings press release and today's slide presentation. With that, I'd like to turn the call over to our President and CEO, Shyam Kambeyanda. Shyam Kambeyanda: Thank you, Mark, and good morning, everyone. ESAB delivered another solid quarter and returned to positive organic growth. We executed EBX with discipline in a dynamic environment, closed the acquisition of EWM earlier than anticipated, advancing our shift into equipment and furthering our compounder journey. As a result, we're raising our full year guidance. Let me take a moment to thank all of our associates as all of this would not have been accomplished without their passion and commitment to achieving our shared vision for ESAB. During the third quarter, sales rose 8% to $687 million, more importantly, organic sales increased 2% year-over-year, reflecting solid sequential improvement in the Americas and continued strength in EMEA and APAC, driven by our high-growth markets. Adjusted EBITDA increased 7% to $133 million, reflecting strong execution on margin, some additional tariff impact in the Americas as well as continued investment in sales and AI initiatives. All accelerating our mix into equipment and gas control. The recently closed EWM acquisition brings high-level talent, unmatched technology and highly accretive gross margins to ESAB. Our transition team are using our proven EBX integration process, and we're collaborating on growth, cross-selling opportunities as well as margin expansion initiatives. That said, there's more work to be done on our compounded journey, but I'm pleased to say that our pipeline is rich, and I'm confident in our ability to execute on our strategy and deliver long-term shareholder value. Turning to Slide 4. Let me give you a few examples of our team living our purpose and values of shaping the world we imagine. First, let me talk about our Remake This Town initiative, that just launched in Chicago with Doorways 2 Destiny, a citywide installation of 16 steel doors each stands over 10 feet tall and weighs roughly 3,000 pounds, and doubles as a job connector through the My Chicago and My Future apps, linking youth to apprenticeships, to internships and jobs in real time. In partnership with BUILD Chicago and Chicago YMCA, the doors appeared at YMCAs, schools, galleries and community centers. Welder underground led installations, and local artists transform the doors into public art. Youth engaged through welding demos, hands-on stations, collaborative art making and resource pop-ups. The mobile welding studio bus turned the streets into open-air classrooms and local welders joined following an online call to action. This tour directly addresses well the shortage, we convert curiosity into careers through paid internship pathways, industry certifications, mentorship from experienced craftsman and craftswomen, young people meet employers start with summer opportunities and progress into long, well-paid careers in skilled trades. We're expanding the pipeline globally with partners such as Vilnius Tech, Riga Tech and Burnley College, where students learn on ESAB equipment and on credentials that travel. ESAB is committed to building strong skills, strong wages and strong communities. This is a fantastic initiative. I'm really proud of our teams, their creativity and engagement. Transitioning back to our numbers and turning to Slide 5. In the Americas, total sales increased, and organic growth was positive year-over-year, with a clear sequential improvement from Q2 as expected. The U.S. delivered mid-single-digit growth and equipment, and automation grew mid-single digits across the region. This momentum is notable given that Q3 is typically our seasonal trough due to summer shutdowns. Mexico remained stable, and South America performed in line with expectations. Moving to Slide 6 to discuss EMEA and APAC. Our unparalleled global footprint continues to show its strength. EMEA and APAC delivered volume growth of 4%, supported by strong execution in high-growth markets and high single-digit growth in equipment and automation. We're seeing renewed investment and activity in Europe, and we expect developing market GDP over the next 5 years to outpace developed markets by roughly 2x. ESAB is well positioned to capture that differential. Turning to Slide 7. As mentioned before, we completed the acquisition of EWM, a premier provider of advanced arc welding and robotic solutions. EWM adds React technology that I've mentioned before, and innovation that can deliver 100% faster well speeds and 2x times the deposition rates and roughly 35% lower heat input versus traditional short arc processes. Customers see higher productivity, lower fume and improved quality. The impact is visible on the shop floor. EWM React is changing workflows. Combined with ESAB consumables, torches and our InduSuite digital overlay, we deliver an end-to-end ecosystem that is hard to match. The teams are executing our EBX playbook for integration and advancing EBX driven margin initiatives that we expect to see positive impact from in 2026. On that positive note, let me hand it to Kevin, who will take you through the financial details. Kevin Johnson: Thanks, Shyam, and good morning. Let's turn to Slide #8 to discuss our financial performance. We are pleased to have completed the EWM acquisition ahead of schedule, which contributed approximately 2 points of growth and roughly $1 million in adjusted EBITDA within our Q3 results. Our ESAB and EWM teams have begun the integration process as part of our commitment to strengthening our collective equipment and automation portfolios, enabling us to provide our customers with an unparalleled solution. Turning to our results. We experienced a return to organic growth as expected, with a 2% increase in organic sales. We continue to benefit from robust market demand in our high-growth markets within EMEA and APAC and delivered mid-single-digit growth in our U.S. business, while our other regions performed as expected. Total sales increased by 800 basis points year-over-year, supported by organic growth, contributions from acquisitions, including EWM and favorable currency movements. The adjusted EBITDA margin was reduced by about 20 basis points due to the impact of EWM, while our [ base ] business delivered expected profitability supported by EBX and our strong global execution. Turning to Slide #9 to discuss our Americas segment. Organic sales in the Americas rose mainly from strong U.S. equipment and automation growth as well as price discipline. Acquisitions added 300 basis points, offsetting FX. Adjusted EBITDA margin was 19.6%, which included ongoing investment for long-term growth and a drag driven by price/cost dynamics related to tariffs. We have launched several EBX cost and restructuring initiatives in Q4 and expect strong margin improvement in 2026 as volumes improve. Moving to Slide #10 to discuss our performance in EMEA and APAC. Sales grew 14% year-over-year to $395 million, driven by growth in Asia, India and the Middle East as well as our recent acquisitions, including EWM. Organic sales were up 3%, with volume increasing 4%. Adjusted EBITDA margin expanded to 19.3%, rising 40 basis points year-over-year. Excluding EWM, it would have been 19.7%, an 80-basis point gain. Our global teams continued to execute strongly with optimism for further strong growth in 2026. Moving to Slide #11 to discuss our cash flow. Free cash flow conversion exceeded 100% this quarter, driven by a strong team performance. We successfully expanded and extended our credit facilities early in Q4, increasing ESAB's long-term financial flexibility. We aim to use our seasonally strong Q4 cash flow to reduce net leverage to 1 to 2x and position ESAB for accelerated M&A activity in 2026. Turning to Slide #12 to discuss our 2025 guidance. Based on our year-to-date performance and the successful completion of the EWM acquisition, we have raised our full year guidance. We expect total sales of $2.71 billion to $2.73 billion, reflecting around 1-point of organic growth, a modest FX improvement on the EWM acquisition. Adjusted EBITDA is now $535 million to $540 million, including approximately $3 million from EWM. We will be investing in EWM over the next year to drive synergies for our white paper, and we expect a better than 10% ROIC within 3 years. Adjusted EPS has been tightened to between $5.20 and $5.30 reflecting improved profit offset by increased interest expense due to EWM. Additionally, free cash flow has been changed to around 95% because of EWM. ESAB continues to accelerate investments to drive both organic growth and M&A as we focus on delivering long-term shareholder value. With that, let me hand back to Shyam on Slide 13 to wrap up. Shyam Kambeyanda: Thank you, Kevin. Our path is consistent and proven. Our global footprint is an advantage, about 80% of our manufacturing is in region for region, which reduces tariff impact, shortened lead times and support share gains. EBX discipline continues to drive pricing, supply chain performance and productivity. We continue to have a robust list of productivity and transformational projects. And this year, we're integrating AI into EBX to raise the bar. We're shifting our mix towards equipment and gas control, building a higher margin, less cyclical enterprise aimed at 22-plus EBITDA margins by 2028 or sooner. We've have closed 4 acquisitions this year Bavaria, Delta P, Aktiv and EWM, expanding proprietary consumables, medical gas and welding equipment. The funnel remains healthy and discipline. Our third quarter performance shows resilience and strength of our enterprise. We returned to organic growth, closed EWM early, raised our guidance and have had a solid start to Q4. We're accelerating EBX, integrating EWM and using strong cash flow and a flexible balance sheet to advance our compounder journey. ESAB is built to perform, adapt and win. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Bryan Blair from Oppenheimer. Bryan Blair: Sequential improvement in Americas, this is obviously good to see. There was obviously some consternation last quarter regarding deferred automation shipments and then selling into Mexico. To what extent did your team catch up on that $15 million or so in combined revenue during Q3? And are there any lingering risks or concerns on either front? Shyam Kambeyanda: Bryan, the way to think about it is there was a bit of catch-up, but not much. Really, it was good execution from our teams, a lot more focus on some commercial excellence within the teams. Mexico stabilized. We continue to sort of drive some of our sales initiatives, and we talked about equipment and automation doing well. We did catch up to a little bit of that automation pushout, but not all of it. We think that sort of kind of feeds in into Q4 and a little bit into Q1. So all in all, we felt really good about the print that we had in the Americas. Overall, as you know, South America performed as expected. Mexico performed as expected. We obviously had some momentum in the U.S. market. And so feeling really good about the team, our execution plans and our start to Q4. Bryan Blair: I appreciate the color. The strategic fit of EWM seems quite powerful. It's nice that your team can begin integration a little earlier than anticipated. That in mind. How should we think about the year 1 deal model? I suspect cross-selling will be a solid lever at least over time. We know gross profit is very strong. It does seem like there's some relatively heavy-handed work to be done on SG&A structure. Just curious how we should think about those moving parts through the first year and perhaps the first couple of years? Shyam Kambeyanda: Yes. I'll let Kevin talk about the modeling piece. But let me just talk about EWM as a business. Really strong gross margins, better than 45%. So really thrilled about the gross margin percentage within the business. Really excited about the reception we received at Essen plus some customers globally. In almost every geographic region, our sales teams are now pulling on the product line, which is excellent to see. The third thing that I would say to you is and a lesson that we have learned over time is that we have to invest in the front end early to drive some of the growth pieces, and that's what we're doing. And you heard in our commentary, we're talking about growth initiatives and growth incentives that we're going to put in place to drive equipment sales and accelerate that mix. I'll let Kevin talk about the modeling piece. Kevin Johnson: Yes, Bryan, as I mentioned on the call, our expectation this year for EWM is around $3 million of profit. And obviously, again, as I mentioned, we are making some investments in that business, and we'll continue to make those investments over the next 12 months as we drive the business to its 10% ROIC target by year 3. But what I can say, we've been under the [Technical Difficulty] for about a month, and we're actually seeing some tremendous opportunities, both on the top line and also synergies right across the business, both not only in SG&A, but also within gross profit. So I think when we come to give our guidance in the first quarter, I think we'll be in a better position to build all of those in to our model and provide those to you in Q1 next year. Shyam Kambeyanda: But a really exciting addition to us, Bryan. I think an appropriate time as well. I think a good inflection point in Europe. So really excited about what that business brings to us, not just in Europe but globally. Operator: Your next question comes from the line of Tami Zakaria from JPMorgan. Tami Zakaria: Great results. Question on the Americas segment. EBITDA margin moved down about 100 basis points. Was this according to your expectation. If so, what's driving it? And is there any tariff headwind to call out there? Shyam Kambeyanda: Yes. The short answer is we did expect some of it. The couple of contributors were the first thing that we mentioned in the earlier piece is that we are investing in some sales and growth initiatives in the region that we believe will benefit us as we go into 2026. And then the second part of it is that we did see some tariff-based impact come at us late in the quarter that we will offset by making sure that we appropriately move the manufacturing to the regions, which happens in late Q1 or possibly early Q1 for us. So very confident about setting up the business in the Americas for margin expansion into 2026. And feeling good about the restructuring initiatives also that we have started that will accelerate that margin journey for us in the Americas. Tami Zakaria: Understood. That's very helpful. And one question on M&A. I think you did Bavaria and then EWM, both seem to be Europe-based. Are you consciously expanding footprint, particularly in Europe because you see more growth in the region? Or you remain agnostic, and you don't mind spending in the Americas or Asia? Shyam Kambeyanda: Yes, we're agnostic. I think what we're looking for are the best assets at the best financial principles that we have for the business. Both these businesses actually give us extensions into other geographic regions. Bavaria has the ability to supply into the North American market, the Middle East and Asia. EWM actually had made some nice inroads into North America. We're finding some additional opportunities in the Middle East and Asia for the EWM product line. And so these 2 businesses obviously strengthen our footprint in Europe but create opportunities and avenues for growth in North America, in particular, and also in the other geographic regions. Operator: Your next question comes from the line of Mig Dobre from Baird. Mircea Dobre: If we can go back to the margin discussion in Americas, I think I heard Kevin or maybe it was you, Shyam, saying that 2026, we should be seeing much, much stronger margins in this segment. I realize you're not providing '26 -- detail '26 guidance, but it would be helpful for us to understand why margins get better in '26? What's sort of within your control and maybe some of the restructuring that you're doing as opposed to just kind of a broader call on end market reacceleration? Shyam Kambeyanda: Yes. I think they were sort of twofold. We are not calling out the specific restructuring activities, Mig, as you can imagine. But we are -- some of the projects are already underway, and we expect that to complete sometime in early first quarter. The second aspect, obviously, is that we get to better comparables as we move into 2026. And the third aspect for us is as we sort of shift some of the supply chains to where they need to be appropriately, we feel we get another boost. So sort of 3 things happening. Pricing that will occur as we start the year, the tariff-based movements that we're making to sort of ensure our manufacturing is in the right spot, and then the restructuring that we're doing that all of it, which we feel will sort of come to fruition somewhere in that early first quarter, giving us really solid momentum for margin expansion in 2026. And we've always said this, Mig. We're very comfortable getting to that 22% plus EBITDA number by 2028. And you've seen in our historical pieces, we sort of have a couple of years where we're settling in and sort of creating momentum and then the following year, we sort of accelerate and build out, this would be no different than that. Mircea Dobre: Okay. Understood. Maybe in your EMEA and APAC segment, others pointed out, you are increasing your exposure to Europe, maybe with some of the deals that you have done. But as we're looking at 2025, right, it does seem that there's quite a bit of bifurcation between what you've experienced in Middle East and India versus what's been going on in Europe. So I guess it would be helpful maybe delineating the European region versus some of the other ones in this segment. And as a general framework for 2026, how do you think about Europe relative to these other regions? I mean can we count on actual volume acceleration in '26 if Europe picks up? Or are there some other factors that we need to keep in mind here? Shyam Kambeyanda: Yes, really detailed question, Mig. So let me sort of address all of it. So the first piece is we continue to see strong orders and strength in our high-growth markets. In fact, the entire team was here last week, and we got to interact with 2 of the regional presidents, especially from the Middle East and Asia and really strong momentum, and we expect that momentum to stay. The second piece of your question around Europe, we've actually done really well in Europe. And we get some data that's based off the European Welding Association. And I can tell you, our numbers are significantly better than what we think is happening in that industry, which sort of points towards significant share gain in the European market by our teams. And it's on the back of equipment and automation, we talked about high single-digit growth in equipment. And that's really where something that I've spoken to you about in the past, where we're winning over customers in Europe and the rest of the world with our equipment product line, which we believe eventually makes its way to the markets that we're most focused on, which is in the Americas. So we continue to have that particular momentum. The third part of your question, we are seeing orders and momentum increase in Europe based on defense, based on some infrastructure movements and energy investments in Europe. We expect that to accelerate as we go into 2026. So the overall picture for us in 2026 is, we still feel very good about this flywheel where Asia, Middle East continues its momentum forward and Europe gives an additional [ boy ] to that already strong marketplace that we have, giving us possibly some really good tailwind. Now we'll finish out the quarter and give you guidance as we get into 2026. But as we sit here, we feel that we're very well positioned to sort of take capitalize and win on that acceleration. Mircea Dobre: No, that's super helpful. And if I may squeeze one last one. When we're talking about EWM, can you talk a little bit about their legacy distribution and how that compares to your footprint? And how easy or maybe not easy, is it to take that product and be able to just kind of put it through your global distribution network? Shyam Kambeyanda: Yes. So I'll start with the conversation in Europe. Very rarely do I get an applause when I'm in a town hall very early in my commentary. And when we announced the EWM acquisition with our team in Europe, I can't tell you the excitement that existed in the team. The second part of it on distribution, it actually is very complementary. And as a result, we are actually seeing opportunities for us to move our products, especially consumables and torches into their distribution channel and sort of pick-up sales for ESAB on that particular front. And in terms of reception of their product lines, when we looked at the acquisition, the product lines were very complementary as well. We had a really strong light industrial line. They complemented the gaps that we had on the heavy industrial line. And as a result, when you look at our lineup today, Mig, it's incredible. And I'll also tell you, there is a U.S. customer that's been after us since FABTECH to kind of figure out how we can get that line into North America. And so really excited about the avenues that's opened up and the opportunities that we have in front of us. It's going to come down to execution like anything else, Mig, but that challenge will take on as a team. Operator: Your next question comes from the line of Nathan Jones from Stifel. Nathan Jones: I'll start with asking for a bit more color on your comment that you're off to a pretty good start in 4Q. If you could just expand on that and talk about what you're seeing to date in the fourth quarter? Shyam Kambeyanda: Yes. I think, Nathan, the way we look at our fourth quarter is we finished at about a 2% core growth rate in the third quarter. We're expecting that to be a little better in Q4 and October started off on that run rate. And that's really what I'm talking about is that our core growth improves from where we were in Q3, and we feel good about that as we sit here today. All in all, I think as you look at ESAB and you sort of project out, comparables get better. Our teams are focused on execution. I talked about the investments that we're making. One of the things that I do want to stress with the entire community that's on the call, we've always said to all of you that we are an [ AND ] business. We want to go out and do the productivity things for ESAB, but we also want to go ahead and invest in our business in terms of growth in our initiatives, and we're doing both of that. And we feel that, that returns the best -- that's the best return for our shareholders over the long term, and we're committed to that. And we're taking the opportunity here as we finish out 2025 to invest in the business, and take some productivity and cost out, we feel that, that sets us up well for '26. Nathan Jones: I guess a follow-up on price/cost in Americas. Obviously, it seems that's where the tariff impact is. You talked about getting some costs later in the quarter. Did you get to price/cost neutral on a dollar basis in the third quarter? Is there any color you can give us on what the drag was to margins in the third quarter and then your expectations for the fourth quarter on price cost? And I'll leave it there. Shyam Kambeyanda: Yes. It was a slight drag in the quarter on price/cost. Really, it came about towards the end when copper tariffs came in. And there were some products that we sort of build in the U.S. and ship out to other regions where we actually have manufacturing capacity. Nathan, so what we are going to be doing is moving that manufacturing capacity to the region that the products are sold in and take away that drag that we saw in the third quarter. In addition to that, we talked about doing some additional restructuring, which is actually already underway that we expect to finish out in the early part of Q1, creating that really nice tailwind on margin expansion for '26. Nathan Jones: And just to clarify, drag on margins or drag on dollars? Shyam Kambeyanda: It was a bid on dollars. So that's really causing the drag as well. So price cost slightly off of neutral. Operator: Your next question comes from the line of Neal Burk from UBS. Neal Burk: Good to see solid growth in equipment and automation. Can you just talk about what you're seeing in consumables? Shyam Kambeyanda: Yes. The way to think about our consumables business, we continue to do well. It's just that we sort of saw our new products, our new product introductions. We've introduced actually an engine-driven welder. Our Edge product line continues to do really well. We've introduced a Fabricator line and some new LIPs in other geographies that have sort of really caught the attention in the marketplace. And we've been focused for a while to get our channel to pick up and customers to pick up our equipment, and we're seeing success. In fact, I would submit that in some of the regions, we're really out there taking some significant share from the competition. On the consumable side, we're steady. And we feel that we're still doing better than market on the consumables side, but slightly lower sort of growth performance in that particular front. But we're excited about what's coming at us for 2026 and how Q4 has started. So nothing there that causes us any sense of alarm or concern but really excited about the entire portfolio now coming to work. And I mentioned that briefly, we're really working on workflow solutions, and I won't mention this -- I won't mention the customer, in particular. But we actually went into a large U.S. customer and provided a full workflow solution that had our equipment porches, filler metal and our digital solution set. And for the first time, we're certified for that customer globally. And so we're picking up a few orders on that particular front. And so really driving the full workflow solution set, which I think is going to benefit both our consumable business and our Equipment business going forward. Neal Burk: And just a follow-up. If my math is right on last quarter on this Mexico and automation headwind. I thought the headwind implied about like a 20% decline in revenues in those businesses in the Americas. And this quarter, it seems like it's -- it's more like maybe a mid-single-digit decline. I guess, is that math like roughly, correct? And I guess, like going forward, I mean, it looks like you're going to exit this year growing at around 3% to 4% in aggregate. So I mean, absent anything dramatically changing kind of the absence of the negative in those 2 businesses in Mexico and automation, is that like a good starting point for next year? Like any kind of like major puts and takes on the growth rate exiting the year and entering 2026? Kevin Johnson: I mean, Mexico, as Shyam mentioned, it's been pretty stable on what we saw in the second quarter. But yes, we are down in terms of volumes, and that's really the countermeasure to the fact that the U.S. grew in that mid-single-digit territory, which was a nice bounce back to what we saw in the second quarter. I think what you'll see as we step into 2026 is that our comps against Mexico will get significantly easier if that's what you're getting at. So we would expect that there will be some tailwinds on volumes as we step into 2026, particularly from Q2 onwards when the tariffs impacted us. Shyam Kambeyanda: But we can sort of talk offline, Neal, on some of the numbers. It does look a little off, but we can discuss those numbers on our separate call. Operator: And that concludes our question-and-answer session. I will now turn the call back over to Mark Barbalato for closing remarks. Mark Barbalato: Thank you for joining us today, and we look forward to speaking to you next quarter. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Hong Sung Han: Good afternoon. I am Han Hong Sung, Head of IR at Woori Financial Group. Let me first begin by thanking everyone for taking time to participate in this earnings call for Woori Financial Group. On today's call, we have the group CFO, Lee Sung-Wook; Group CDO, Oak Il-Jin; and the group's Risk Management division, Senior General Manager, Park Jang-Geun on the call. On today's call, the group CFO, Lee Sung-Wook, will give a presentation on the earnings performance. After which, we will have a Q&A session. Please note that the earnings call is being conducted with simultaneous interpretation for our overseas investors. Now let us start our presentation on Woori Financial Group's Earnings for the Third Quarter of 2025. Sung-Wook Lee: Good afternoon. This is Lee Sung-Wook, the CFO of Woori Financial Group. Let me go over the third quarter performance for 2025. I do have a cold, so please understand if my voice is a bit rough, and please turn to Page 3 of the presentation material that has been disclosed on our website. First, let me discuss net income. Woori Financial Group's year-to-date net income as of the third quarter end was up by 5.1% to KRW 2,796.4 billion, which was a Y-o-Y increase, as mentioned before, of 5.1%. Net income in the third quarter alone was KRW 1,244.4 billion, representing a significant increase of KRW 300 billion quarter-on-quarter. Amid uncertain internal and external conditions, including the exchange rate and outcome of tariff negotiations, this net income was the result of balanced growth between our interest and noninterest income and the contribution from the insurance acquisition. In particular, due to continuous efforts to rebalance assets and optimize funding and investments, our NIM improved for the third consecutive quarter. Stronger marketing capabilities from key subsidiaries, such as the credit card and capital business, led to fee income for the quarter to reach an all-time high. And in addition, the newly acquired insurance business contributed, which further have diversified the group's profit structure. In the third quarter, we completed the revaluation of the fair value of Tongyang and ABL's assets and liabilities and included this in the group's performance. So the bargain purchase price and adjustments from consideration together is around KRW 550 billion, while the decline in the CET ratio was only approximately 5 basis points, which enabled us to reconfirm that from a financial standpoint, it was an optimal M&A with almost no negative impact to our capital ratio. Moreover, in addition to the continuous asset rebalancing and active capital ratio management efforts that we have been making, we are now focusing on strengthening the stability of our financial structure by preemptively provisioning reserves for the vulnerable portions of our nonbank business. Based on these stable fundamentals, the group is planning to expand productive financing to support future sustainable growth. Next, let me discuss the group's capital ratios. As of September 2025, the group's preliminary CET ratio is 12.92% showing a 12% basis point increase Q-o-Q and [ 80 point ] increase from the end of last year, far surpassing the 2025 year-end target of 12.5%. In addition to the insurance acquisition, the weaker won against the U.S. dollar led to a 7 basis point decline in the CET1 ratio, but the capital ratio actually increased, proving the sound capital management capabilities of the group. This is the result of concerted efforts to manage risk-weighted assets across all business areas of the group, such as being selective in asset growth and continuously decreasing exchange rate sensitive assets. Going forward, the group will continue this capital management stance and swiftly execute value of plans based on its CET1 ratio. For Woori Financial Group, we relaunched our securities arm last year and also completed the insurance acquisition this year, completing the creation of a comprehensive financial services group, thus focusing on the 3 main pillars of the bank, brokerage and insurance business, we are planning to maximize group synergies. For example, between the bank and securities business, after acquiring the securities license, the group was able to do a KRW 3.9 trillion deal through CIB joint underwriting. And in Wealth Management in just 3 months of acquiring the insurance business, Tongyang Life and ABL's percentage of sales from the Bancassurance channel has grown from 9.8% to 22.5%. Moving forward by balancing growth between bank and nonbank business lines and ranking up synergies across group companies, Woori Financial Group will further strengthen its competitiveness as a comprehensive financial services group and create a business for sustainable growth. Next, let me dive into more details about earnings by business area, and please turn to Page 4. First, let me go over the net operating revenue and NIM. The group's third quarter year-to-date net operating revenue totaled KRW 8,173.4 billion, up by 2.3% Y-o-Y. And in the third quarter alone, it was KRW 2,773.3 billion, which is similar to the previous quarter. As financial market volatility and other internal and external uncertainties continue, margin improvements and selective growth led to solid interest income. In addition, the contributions from the insurance business led to better noninterest income, which has further solidified the group's revenue base. In addition, if we look at Woori Bank's third quarter NIM, it was 1.48%, which is 3 basis points higher Q-o-Q and 8 basis points more than the end of last year. It is the third consecutive quarterly improvement this year. This is the result of active funding cost savings and asset rebalancing efforts where -- which consistently improved our profitability. In the fourth quarter, even if the base cut is -- base rate is cut further, the bank is planning to expand its core deposit base and systematically manage ALM to continue stable NIM trends and maintain a level of 1.5% for the year. Next, let me go over the loan book. As of the third quarter end, the bank's loans totaled KRW 331 trillion, slightly increasing versus the end of June. On the corporate loan side, growth strategy is focused on new growth areas and high-quality corporates, which led to the loan book to remain flat quarter-over-quarter at KRW 178 trillion. On the retail loan side, in light of the government's policy to control total loan growth, the bank was more selective in loan origination, which resulted in loans growing 150% (sic) [ 1.5% ] quarter-over-quarter to KRW 1.5 trillion (sic) [ KRW 150 trillion ]. Looking ahead, Woori Financial, in line with the government's policy direction, will manage total household loan growth within the target level, while also utilizing its corporate finance competitiveness via the Future Co-Growth Project, increasing the flow of capital to more productive areas within the economy. In particular, we will join in efforts by the financial authorities to make capital regulation more reasonable and continue efforts by the group to rebalance assets to secure more capacity on capital ratios. In addition, risk management across all processes, from underwriting to loan management will be strengthened to ensure future growth can continue with any impact on capital ratios and asset quality. Next is on the group's noninterest income. As of the third quarter, the group's cumulative noninterest income amounted to KRW 1,441.5 billion, up 4.6% year-on-year. And on a quarterly basis, it rose 5.3% from the previous quarter to KRW 555.2 billion. Despite a decline in foreign exchange-related gains due to the rise in exchange rates, the group continued to post solid growth in noninterest income, supported by robust fee income and the inclusion of the insurance subsidiaries performance starting this quarter. In particular, core fee income, driven by improvements across all business lines of both the banking and nonbanking segments, including the wealth management business, credit card and lease, was up 7.9% versus previous quarter to KRW 563.7 billion, reaching a record quarterly high. Going forward, Woori Financial Group, through expanding the retail customer base centered on the insurance business and strengthening collaboration between the bank and securities IB segments, will actively pursue new business opportunities to enhance the group's proportion of noninterest income and to achieve balanced growth between banking and nonbanking operations. Next, I will elaborate on expense. Please refer to Page 5. Turning to the group's SG&A expense. As of the third quarter of 2025, the group's cumulative SG&A expense amounted to KRW 3,690.3 billion while third quarter SG&A expense stood at KRW 1,211.2 billion, a slight increase of 3.2% from the previous quarter. Accordingly, the group's cost-to-income ratio was 43.1%. Looking ahead, while we will continue to invest in the group's AX initiatives, enhancing digital competitiveness and strengthening brand value, we will also maintain disciplined cost management at the group level through reducing recurring operating expenses, optimizing channels and workforce and leveraging AI to improve operational efficiency. Next, I will discuss the group's credit cost and asset quality. As of the third quarter of 2025, the group's cumulative credit cost amounted to KRW 1,517.6 billion. Third quarter credit costs totaled KRW 574.3 billion, an increase of 13.1% from the previous quarter. This amount, including KRW 98 billion in provisions associated with completion-guarantee projects booked as part of the group's proactive risk management efforts from the previous quarter, incorporates approximately KRW 150 billion in one-off items. With this, most of the provisioning issues related to completion-guarantee projects appear to have been largely resolved. Excluding these one-off factors, credit costs remain at a similar level to the previous quarter, and the group's credit cost ratio is well managed within the target range at 0.42%. Amid continued uncertainties, such as exchange rate volatility, trade negotiations and concerns over a slowdown in the real economy, the group, through active NPL sales and write-offs and proactive risk management in the nonbanking sector, is conducting more thorough risk management than ever before, maintaining the proportion of prime corporate loans at around 84%, and managing the ratio of loan loss reserves and regulatory reserves to total credit at 1.6%, thereby securing a stable loss absorption capacity. This year, Woori Financial Group will conduct a comprehensive review of the group's risk factors. And after securing sufficient risk management capabilities, will pursue sustainable growth grounded in solid asset quality. I will now move on to capital adequacy and shareholder return policy. Please refer to Page 6. As mentioned earlier, as of the end of September 2025, the group's common equity Tier 1 ratio is expected to be 12.92% on a preliminary basis. Despite factors, such as the insurance subsidiary acquisition and the impact of a stronger exchange rate, the group CET1 ratio improved significantly by approximately 80 basis points versus last year-end, demonstrating the group's strong capital management capability. Woori Financial Group will not remain complacent with this achievement, and aims not only to stably exceed a CET1 ratio of 12.5% by the end of 2025, but despite ongoing uncertainties home and abroad, such as exchange rate volatility and potential regulatory fines, we'll also pursue swift and proactive capital management with the goal of achieving a 13% CET1 ratio ahead of schedule in 2026. Meanwhile, the Board of Directors of Woori Financial Group at its meeting held on October 24, approved a quarterly cash dividend of KRW 200 per share with a record date set for November 10, as previously announced. In this quarter, Woori Financial Group successfully completed the acquisition of an insurance subsidiary, a process that has been underway for over a year. Through this acquisition, we have faithfully upheld our commitment to the market to minimize any negative impact on our capital ratio and to avoid overpaying for the transaction. Now with a diversified business portfolio and enhanced group synergy, we'll begin in earnest, our transition towards becoming a comprehensive financial services group. Furthermore, in connection with the Future Co-Growth Project announced last September, we intend to leverage our corporate finance expertise to support the real economy, focusing on new growth and advanced strategic industries. And through this, we will not only fulfill the essential role of finance, but also establish a sustainable foundation for the group's long-term growth. Since the announcement of the corporate value of initiative, Woori Financial Group has faithfully implemented most of the plans presented to the market. Discussions and deliberations led by the Board of Directors on how to enhance corporate value are ongoing and will continue in the future. Through these efforts, we will focus the group's capabilities on enhancing long-term shareholder value. This concludes Woori Financial Group's Third Quarter of 2025 earnings presentation. Thank you. Unknown Executive: Yes. Thank you for the presentation. And now we will -- before starting the Q&A session, for this year, because there were some factors related to the presentation, including the insurance acquisition, there will be some additional comments related to the performance by the CFO. Sung-Wook Lee: Yes. So if we look at the third quarter this year, if you look at our performance, as you can see, there has been a lot of volatility. So overall, there were some one-off factors. And maybe I did believe that maybe touching upon these first would be appropriate. So of course, there was the inclusion of the insurance business, but also with regards to the preemptive provisioning, there were also some one-off factors there. So in the third quarter in total, if we look at the insurance business, of course, the profit increase is there. But in terms of risk management, there were a lot of efforts that we have made. So please take that into consideration and listen to what I have to say. So first on the insurance acquisition side, because of the bargain acquisition gains after we included the insurance business from July 1, we did the PPA. And as a result of that, there was a KRW 580 billion gain that we had recognized. And of course, for the past -- for the next 1 year, because of the accounting for that, there could be some adjustments to this. However, with regards to the adjustments for consolidation, there was a negative KRW 25 billion that was recognized. So at the end of the day, the bargain gain, in total, was around KRW 556 billion. So in addition to that, on the -- there was also a KRW 33 billion negative impact that was also reflect. And in the third quarter, for the completion-guarantee trust, there was also KRW 98 billion that we have recognized in terms of provisioning. So as a result of that, in total for this year, there was around KRW 200 billion that we have recognized. On the bank side, there are some areas in which there were collateral value decreases. And in light of that, there was some preemptive provisioning that we had did that was around KRW 54 billion. And recently -- there was some press reports about the situation. But with regards to KIKO there was a litigation in 2028, and the final results have came out, and there were some areas in which we lost. So there was a KRW 32 billion additional provision that we have set aside for that purpose. In addition, on the nonoperating side, related to the completion-guarantee trust, there was a significant provision that we have set aside. So therefore, for the goodwill, there were some impairment losses that we have also recognized of around KRW 39 billion. So in total, if you look at the overall impact of this, if you look at the bargain gains that we have enjoyed, and everything above that was on the operating business and others was on a nonoperating basis. So if we look at the net income basis, at the end of the day, there was one-off factors of around KRW 360 billion in total. So with regards to the completion-guarantee trust impact, there may be some small changes going forward, but we don't believe that there will be any significant provisioning that will be required. So I do believe that this is probably a question that you were very curious about. So I thought that it would be good to talk about this first before we went to the Q&A. Operator: [Operator Instructions] So for the first question will be from NH Securities. It will be Jung Jun-Sup. Jun-Sup Jung: There are 2 questions that I would like to ask you. So first would be that in the third quarter, because you did the insurance acquisition was completed, and I would like to know what the next phase is. So in terms of more efficient capital management, rather than being 2 separate entities, we believe that having it together and then also making sure that it would be a full subsidiary of the group as a whole. So with regards to the information that you can share with us, any more details that you could share would be appreciated. Second is that after the acquisition, if you look at the capital ratios, it still looks like their capital ratios are very sound. So even if it's not in the immediate future, but going forward, are there any M&A opportunities that you would be looking at in terms of interest areas? So maybe not in the immediate future, but even down the road, are there any areas that you would be interested in, in terms of M&A opportunities? Sung-Wook Lee: So thank you for your questions and maybe we can answer your questions. Yes. This is the CFO, Lee Sung-Wook. So first, in terms of the insurance, in terms of the merger and also the follow-up after the acquisition, I do think that this is an area that a lot of the investors are interested in. And also in terms of the Tongyang Life shareholders, they're also very interested in that also. So as of now, we did the -- and completed the acquisition as of July 1 for Tongyang and ABL Life. And since then, for the mid- to long-term direction, this is something that we're doing a diagnosis about in terms of the overall business operations. So for Tongyang Life, making it a 100% subsidiary or merging the 2 entities, this is something that we are still reviewing, but we have not made any decisions yet. And in addition, we do believe that it will require a bit more time for us to come to a conclusion. And in addition to that, whether we should make a 100% subsidiary or whether we will merge the 2, if there's any major decisions that are made, of course, we will make sure to disclose to and share to you. And in addition to that, we will look at the laws and regulations to make sure that everything is done according to the due process. Secondly, about your question about the M&A side. I think that this is something that we continue to talk about. But after the brokerage company, insurance company being added on, in terms of our business portfolio, we think that it has been completed. So over the mid to long term, I think that if you look in terms of focusing on strengthening the competitiveness of the companies that we have and also maybe expanding our presence, M&A could be an option. But right now, on the security side and insurance side, because we have been newly added, and we do believe that our overall business portfolio is complete. Right now, if there are any M&As that require capital, I think that being interested in -- rather than being interested in that, I think that we're more interested in strengthening our market competitiveness in the areas in which we're doing business already, particularly on the noninterest income side. So with regards to the nonbank businesses of securities and insurance companies, we want to strengthen that further. So that would be one of the main focus. And in addition to that, we will also continue to conduct our value program and also manage our risk-weighted asset and also conduct and successfully complete our Future Co-Growth Projects. So in the middle, I did talk about this during the presentation, but achieving the CET1 ratio of 13%, this was -- the target year was 2027, but we have accelerated that to 2026. So this is something that we are discussing with our directors. So by doing this and doing -- putting against our best efforts, we think that we can efficiently manage our capital and still also achieve the best outcome for the business. Thank you. Operator: The next question is by Baek Doosan from Korea Investment & Securities. Doosan Baek: Yes. I am Baek Doosan from Korea Investment & Securities. I also have 2 questions. The very first question has to do with the completion-guarantee project. I can see that it has been largely resolved. But in addition to that, I can see that there were still quite hefty preemptive provisioning. So taking that into consideration, I'd like to understand if there's any guidance in terms of the improvement going forward in terms of credit cost? And second, the Future Co-Growth Project that was launched and with regard to the funding, the plans that you have for key industries, this project in itself is a massive project. And therefore, in terms of capital ratio or noninterest income or corporate loans, I think that it will have an impact on all of these numbers. So we'd like to understand what are the plans? What's the forecast you have going forward? Unknown Executive: Yes. Thank you very much for the question. So please bear with us for just a moment as we get ready to answer your question. Jang-Geun Park: I am Park Jang-Geun, Senior General Manager from the Risk Management division. First, let me talk about credit cost. The third quarter credit cost increased by 3 bps to 52 bps. And that was already mentioned. In second quarter, KRW 86 billion for the trust and this quarter, KRW 98 billion, that was the provisioning in terms of managing our assets. And due to the sluggish economy in the sluggish construction sector, with regard to collateral loans at the banking sector, that was a total of KRW 54 billion of provisioning and one-off items amounted to KRW 152 billion. And therefore, the coverage rate also increased to 130%. So if we exclude these one-off items, the credit cost ratio is 42 bp. However, considering that there has been a delay in the rates -- the rate cuts, we believe that the cost -- the normalized credit cost will still be quite high. But we -- as mentioned, the completion-guarantee projects has been mostly resolved. So therefore, there wouldn't be any significant provisioning to follow going forward. And with regard to prime assets, especially in the banks, if we look at the corporate loans, we've been seeing a downturn in terms of new defaults in terms of corporate loans. Ever since 2024, we believe that there will be -- the impact of rate cuts is something that we are continuously monitoring at the Risk Management division. And in the future, with the economic boost, stimulus package with the government and with regards to the rate policy going forward, we believe that in the fourth quarter, credit costs will stabilize. So that is all for me. Sung-Wook Lee: Yes, this is the CFO, Lee Sung-Wook. And so with regards to the Future Co-Growth Projects, this is a very big project. I do think that with regards to capital and also in terms of the capital ratios, there may be some concern about such a situation. But with regards to this, maybe just elaborating a bit will help you out. So from us, we do want to transfer into providing more productive financing. So as of the end of September, we announced our future core growth project, and across the group for the next 5 years, there will be around KRW 80 trillion that we will be supplying and supporting. And so according to this project right now, in terms of the asset growth and the impact of this, this was all taken into consideration before we made the announcement to the market. So for the KRW 80 trillion across the 5 years, if you look at the impact on our risk-weighted assets, it will be around half. And on this, of course, how we can offset it against the capital ratio is probably an issue that you will be focusing on. And this year, if you look at the overall asset rebalancing efforts that we have made for the next 5 years, due to that, this is an effort that we will continue for the next 5 years. And in addition to that, because regulations are being eased at the financial authority side. And in addition to that, we also have a CET1 ratio target of 13%. So the trends that we see in our capital ratio was all taken into consideration before we formulated this plan. In addition to that, on the corporate loan side, we -- during the financial crisis, we have accumulated a loss. There's a very strong underwriting standards and price. So as a result of that, we do think that we can manage our capital ratio properly and still continue growth in this area. So within the year, I think that if you look at the capital ratio trends that we have seen, there has been an 80 basis point increase versus the end of last year. And this is even after the acquisition of the insurance arm. So we do think that we do have a credible trend that we are creating, and this is something that we have fully discussed with the BOD, and we will come up with our business plan accordingly. In addition, going forward, we will continue to also manage our loan balance through asset rebalancing and also manage the retail balancing side. So we're also planning to make other efforts. So for the shareholder value programs, this is something that we will continue to implement without issue and continue to provide total -- better total shareholder return. Operator: The next question is -- will be by Kim Do Ha from Hanwha Investment & Securities. Do Ha Kim: I have a question with regard to the acquisition. So when we had the acquisition ahead of us, you talked about the purchase -- market purchase gains is going to be utilized for a total shareholder return. And I believe that within a limit of 10% -- if it's within that, I've heard that the gains would be utilized for shareholder returns. So right now, we have around KRW 580 billion or so of gains and I would like to understand, would this be included in the shareholder return plan of this year? And I understand that the TSR will be maintained as such because rather than providing a dividend at year-end, after November, it could be in the treasury stock related plans that you may have? Or would it be something that would be utilizing next year? So if you can give us some more information on that, that would be great. And the second question is, around the world, these days, we've been witnessing security issues, hacking issues. So with regard to that, are there any investments being made right now to prevent or any cybersecurity-related prevention methods or plans that you have in place. Unknown Executive: Yes. Thank you very much for those questions. Please wait before we answer your questions. Unknown Executive: Yes. With regard to the bargain purchase gains, it's a total of KRW 580 billion and it's included in the net income. So in the first half, IR last year, based on our corporate value plan, in terms of our TSR, we've mentioned that we're putting our best efforts to have that included. And with regard to the insurance acquisition, the impact it has on the capital ratio, it was quite limited and minimized. But with regard to TSR, year-end, we have -- we want to see the CET1 and the overall financial volatility, and the TSR will be decided as such. And in the market, there are expectations, and we will try to cater to the expectations as much as possible, and we'll do our best to make sure that we can cater to those expectations. Thank you. Il-Jin Oak: I am Oak Il-Jin, CDO. So recently, there were major security-related issues at telcos and financial firms. And that's why there was a company to review across all subsidiaries, and there were no issues identified. Recently, there was, let's say, multi-authentication and security patches, terminal-related security issues. These were the shortcomings and we were able to understand that we were following all of the internal policy when it comes to security. And in addition to that, with regard to personal information and IT security, let's say, accidents. To prevent all this, what we've done was, in August until year-end, with security firm and the company, we will make sure to understand whether there are any loopholes. And for the recent 3 years, the government's investment into security is 11% when it comes to total IT investments. And it's 8.8% for financial funds and insurance firms. In the case of the U.S., it's 10.5% and it's higher than that at 11%. So with regard to information security investments, we will continue on to increase that portion in our investments. Operator: Yes, the next question is from HSBC, Won Jaewoong. Jaewoong Won: Amid a challenging environment, thank you for your strong performance. And there are 2 questions that I would like to ask you. The first question is with regards to an early retirement. So if we look at last year, we actually reflected into the first quarter of this year. So for this year's early retirement, would it be fourth quarter or would it be first quarter of next year? So if there any plans, if you could share that with us, that would be appreciated. So in terms of the CET1 assumptions or in terms of the overall profitability, it would be easier to assume or make the estimates. So if you could share the plans on this, that would be appreciated. And second, with regards to portfolio diversification, you have successfully acquired 2 insurance companies. And I do believe that you will properly manage this business going forward. But as far as I understand, the 2 insurance companies, after being acquired, next year in terms of the profit contribution, it will be 1% of the ROE. So that means that the overall contribution would be about KRW 300 billion. But up into the third quarter, if you look at the net income, right now, it has been around KRW 150 billion. So for ABL, I don't know what the third quarter numbers is. So I'm not 100% accurate, but I do think that it would be around this level. So do you think that it could be larger next year? And in terms of the bargain gains this year, it was around KRW 550 billion. So for next year, in terms of these gains, how much contribution do you think will actually be made on the net income line? So your thoughts on this topic would be appreciated. Unknown Executive: Yes, thank you for your questions. So maybe if you give us a few minutes, we'll answer your question. First, in terms of early retirement, in the case of last year, we actually did it in the first quarter of this year. And the reason why we did it that way is because it's based upon the agreement with the labor union. So therefore, there could be some difference of opinions. And as a result of that, that is why it was -- it took place in the first quarter. So right now, if you look at the discussions with the labor union that are ongoing right now, I think that it is something that we will have to see in terms of how it happens going forward. So it could be in December, it could be in January. But I think that because it needs an agreement, we will have to wait and see how it actually plays out. And with regards to insurance acquisition, as you have just mentioned, in 2025, if you look at most of the companies, their profits were very large. And then this year, also, there are some that are showing strong performance. But in terms of the K-ICS ratio or other product structures, I do think that with regards to the assumptions, there are some changes that are taking place. So this year, as we have continuously talked and mentioned, after the acquisition of the insurance business, the first thing that we have actually done is that we are doing a business investigation to look at how we can fundamentally change the competitiveness of the business in itself and it changes accordingly. So in 2026, we do think that, of course, there will be some profit contribution from the insurance side. But in terms of the K-ICS ratio, but on the capital side, we think that up and strengthening that up will be our top priority to make sure that the burden on the group from that would be minimal as small as possible. And also, we want to stabilize the organization. So in 2024, if you look at right now, there was around KRW 400 billion. And in terms of the percentage, it would be around KRW 300 billion in contribution that we would have seen. But for next year, we think that it would be difficult to reach that level in the net income side. So right now, in terms of priority, it will [ B2B ] the fixed ratio and the other sides. And then thereafter, I think that we could actually look at how we can expand our business going forward. So that have been said, so the ROE, 1%, is something that was based upon 2024. So though we will not go to that ratio, we do think that there will be a contribution that we will be able to see in full fledged manner from next year. Thank you. Operator: Next question will be by Jeong Tae Joon of Mirae Investment Securities. Tae Joon Jeong: Yes. I'm Jeong Tae Joon from Mirae Asset. I also have a question with regard to the insurance arm. So with regard to the profitability and as well as the interest cost and the securities, I can see that this has been reflected all separately in separate items. But in terms of net income and profitability, I'd like to understand what was the contribution in total this quarter? And it's similar to the previous question, where the bargain purchase gain was quite significant, more than expected. So then based on consolidation, it means that it's not as high based on consolidation. And that in terms of the contribution, it may be a bit difficult to book in it's significant absolute terms. But of course, I do know that the management diagnosis is still underway. But I think that if you can please give us a ballpark figure, it would help us better our understanding. Unknown Executive: Yes. Thank you for the question. Please wait. We will soon answer your question. Yes. So with regard to the income from the insurance arm, so we have investment income and insurance income. So all in all, if we combine the 2 companies, it is around KRW 70 billion to KRW 80 billion. And in terms of net income, it's around KRW 50 billion in terms of the contribution from these 2 firms. And in the future, with regard to adjustments from consolidation, that's how it would be booked. So in terms of insurance accounting, as was already mentioned, after the acquisition, within the insurance, there's an accounting that would follow, and there's also an accounting for the holding company because we went through the PPA process. So based on PPA, it will be a dual accounting, a dual booking. So in the future, we're going to run a simulation. And based on that, of course, it will all differ by year, but we believe that it will be around KRW 30 billion to KRW 40 billion annually, a positive, a plus KRW 30 billion to KRW 40 billion. So there could be some volatility or variances throughout the years. But based on our long-term simulation, we believe that there will be a plus KRW 30 billion to KRW 40 billion of contribution that can be booked. Operator: Yes, next question. In terms of the next question will be from Daishin Securities, Park Hye-jin. Hye-jin Park: Yes. And the question that I would like to ask you is that with regards to the [ bargain ] gains, I do think that there cannot help be a lot of questions. So with regards to the preliminary announcement of the PPA, and you said that for the next 1 year, there could be adjustments. So related to that, in terms of the adjustments that could take place, what would that actually be? So if there is an adjustment to that, I would like to understand what it would be in more detail. And the second would be with regards to the margin. So because of the asset rebalancing, I do think that the margins are being well defended. But with regards to the joint growth, you did say that you would continue such a situation. So for next year, in terms of margin, what is the outlook? And also lastly, for the securities side, also, I do think that there is probably some capital gains that you would have to actually conduct. So for those capital increases, what would be the outlook of that? Unknown Executive: Yes. Thank you very much. There are 3 questions that you have provided, and maybe we can answer your questions. Yes. With regards to the bargain gains, I do think that this is an accounting issue. So during the next 1 year, there is the room for adjustments to take place. So right now, for the first 3 years, there will be some refining. And then after that, that will be done. So if there -- we don't think that there will be a lot of fluctuation. But if there is any, then the main area is probably going to be and what we estimate, it would be with regards to some of the fines. So for example, that could be one of the items. But this accounting to the accounting standards, there is some that we have already reflected because we have made some assumptions there. So if that realizes, then we do think that, that would lead to some changes. But we don't think that there will be any big changes in itself. And secondly, with regards to the securities, this year, after being included into the group on August 1 and what we had actually invested into was manpower and also IT. And as a result of that, the SG&A had actually increased by KRW 50 billion. So in actuality, if you look at the net income as a result of that on a Y-o-Y basis, there was a slight increase, but not very significant. So this year, we do think that when we talk about productive financing, of course, we do think that securities arm will have a big role to play. And from next year in terms of the net income contribution also, we think that it will significantly contribute at a much higher level. So right now setting our targets, but we do think that on a Y-o-Y basis, it will be at a much higher level than what is contributing this year. So from next year, we do think that the overall growth level that we will be enjoying will be much larger. And then on the NIM, I think that for this year, there was a 3 basis point increase this year. And the biggest influence there was the asset rebalancing that we have done, some of the asset growth was more prudent. And in addition to that, the CET1 ratio was another area that we put a lot of attention to. So as a result of that, on the funding side, I think that we have a more favorable funding structure, and the funding cost also has gone down, which has led to the improvement in our net interest margin. So going forward, if you look at the NIM outlook, I think that, of course, we do believe that the benchmark rate will fall going forward. But for the NIM, if you look at the long-term rates, it's already something that is already priced into the market. So in the fourth quarter or whatever happens thereafter, even if rates are further cut, we don't think that, that will further decline the long-term rates. But this year was 1.45%. And then 2026, even if there are further rate cuts, we don't believe that the impact will be very large. And in general, we do believe that around 1.4% is something that we can maintain for NIM for the time being. Unknown Executive: Yes. Thank you. I believe that there are no more questions. So let us now respond to the questions that were posted on the website this quarter. From the 13th to the 24th of October, we received questions via our website. And in addition to our performance, AI, TSR, there are many questions across a number of domains. And we will exclude the redundant questions, but -- and 2 questions that were not addressed as of yet. One has to do with the total return on the dividend-related policy and also with regard to AI services. So with regard to the nontaxable dividend, the CFO will respond, and the CDO will respond to the second question. Sung-Wook Lee: Yes. So first, with regard to the nontaxable dividends and during the AGR in March, we've talked about the KRW 3 trillion that has been written back. So from the '25 dividend or retained earnings, that's when we will start to provide the dividend. So based on our corporate value of plan, we will engage in buybacks, cancellations and actively engage in shareholder return. So within -- in 2025, improving the CET1 by 80 bps to improve the TSR was the planned action taken. So we have continued on to engage in buyback and cancellation of treasury stock, and we have put in our best efforts to enhance shareholder return. And going forward, we will continue on to improve the CET1 and engage in our corporate value of plan and putting our best efforts to maximize shareholder return. Thank you. Il-Jin Oak: I'm Oak Il-Jin, CDO. So with regard to the AI services, Woori Financial Group, for our customer and for our employees, for the first time we've launched many services. And already, we -- based on Gen AI, we've actually launched our deposit-related products. And right now, we do have mortgage loans. And also, we have -- we will be expanding our AI advisory when it comes to real estate-related plans and loans. And at last year-end, we launched Woori TPT. And we actually see an accuracy rate of 90% plus for even complex jobs and work. And starting from the second half of this year, our focus, particularly would be on AI agent. So we want to enhance the productivity of our employees by utilizing the AI agent. Internally, when it comes to corporate loans and RM support, especially 5 domains that we have pinpointed in order to introduce the AI agent. It has been already been laid out. And starting from early next year and in the first half of next year, we are going to particularly engage in Phase 1 for work that can apply this immediately. And then moving forward, we're going to engage in a number of innovative product launches when it comes to Gen AI, especially for productive finance, especially for corporate loans, especially auto underwriting and in terms of reducing default amongst, let's say, high default rate borrowers, we are going to make sure that we can provide accurate and timely due diligence and underwriting utilizing AI. So basically, it's about utilizing AI agents to enhance productivity, and we're going to reengineer our work process so that we can make full use of this technology. Thank you. Sung-Wook Lee: Yes, I am the CFO. And with regard to the overall earnings, I would like to share with you the prospects, especially for 2026. But before that, in 2025, what we've done in terms of our business portfolio is the workforce IP system for the securities arm, acquisition of the insurance arm to complete our portfolio. So in terms of overall completeness of our business, we do have the nonbanking, including asset trust where it was about focusing on preemptive provisioning, completing all that. And then also, we have been able to significantly improve CET1 in 2025. So with regard to future growth and to enhance corporate value, I believe that this was a pivotal year in terms of making sure of putting in place the foundation. And we'll make sure to manage our asset quality in the remainder of the year. In terms of 2026 in the case of the nonbanking sector, as was already mentioned, the insurance acquisition impact will kick in, in earnest. In terms of the security side, we'll be seeing increased sales from that side. In the case of the existing nonbanking, it would be about preemptive risk management, which will lead to better performance and earnings. So in terms of the nonbanking operations, we will -- and we expect significant improvement in performance. And in terms of banking sector, this year, we've been getting an aggressive asset rebalancing, and a preemptive risk management foundation has been in place, which will enable a stable revenue. And in terms of the productive finance, we'll be expanding upon that to actively grow upon that. But when it comes to capital ratio as well as asset quality ratio, we're going to make sure that we maintain this stably, so that we achieve the ratio numbers. And with regard to our value of plan and our shareholder return plan, we'll do our best to make sure that we implement the plans that have been laid out. Thank you very much. Operator: Yes. Thank you. And this brings us to the end of Woori Financial Group's Third Quarter of 2025 Earnings Presentation. If you do have any further questions, please call the IR department, and we'll make sure to entertain your questions. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning. My name is Angela, and I will be your conference operator today. Welcome to Luxfer's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Now I will turn the call over to Kevin Grant, Vice President of Investor Relations and Business Development at Luxfer. Kevin, please go ahead. Kevin Grant: Thank you, Angela, and good morning, everyone. Welcome to Luxfer's Third Quarter 2025 Earnings Conference Call. This morning, we'll be reviewing Luxfer's financial results for the third quarter ended September 28, 2025. I'm pleased to be joined today by Andy Butcher, our Chief Executive Officer; and Steve Webster, our Chief Financial Officer. Today's webcast is accompanied by a presentation that can be accessed at luxfer.com. Please note, any references to non-GAAP financials are reconciled in the appendix of the presentation. Before we begin, a friendly reminder that any forward-looking statements made about the company's expected financial results are subject to future risks and uncertainties. We undertake no obligation to update any forward-looking statements, whether a result of new information, future events or otherwise. Please refer to the safe harbor statement on Slide 2 of today's presentation for further details. During today's call, we'll be providing adjusted third quarter 2025 financial results, excluding the recently sold Graphics Arts business and 2024 legal recoveries. Now let me introduce Luxfer's CEO, Andy Butcher. Please turn to Slide 3. Andy, please go ahead. Andrew William Butcher: Thank you, Kevin, and good morning, everyone. Thank you for joining us. The third quarter demonstrated strong execution and the earnings power of our core business. We continue to shift our mix toward higher-value markets where Luxfer differentiates through innovation and performance, particularly in defense and aerospace. These programs build on our proven technical capability and trusted position with key customers. Adjusted earnings per share was $0.30, and adjusted EBITDA was $13.6 million for an adjusted EBITDA margin of 14.6%. Margin expanded sequentially, supported by favorable mix in key end markets. Elektron remains a clear revenue and profit engine. Aerospace led performance as foundries worked through deep backlogs and higher defense spending, supporting new aircraft builds. Our magnesium heater platforms have been sizable contributors throughout the year, complemented by consistent activity in commercial powders and flare programs and improved demand in oil and gas applications. Gas Cylinders delivered in line with our expectations. SCBA volumes were higher in the quarter and aerospace inflatables increased significantly versus both the prior year and sequentially. As anticipated, market pressure in clean energy persisted, but the team offset much of this with strength in first response and aerospace helping to sustain a healthy mix. Cash generation was strong in the quarter, providing approximately $10 million of free cash flow, reflecting disciplined working capital management. We also completed the sale of Graphic Arts at the beginning of the quarter, sharpening focus on our core businesses and enabling a more concentrated allocation of resources towards higher-margin opportunities. And we were pleased to announce the addition of Stewart Watson to our Board with heavy experience in the aerospace and defense industry. Footprint optimization is advancing through our Centers of Excellence program. The Pomona to Riverside composite cylinder relocation announced last quarter remains on track. This automation-led initiative will capitalize on our technology and is expected to deliver up to $4 million of annualized savings when fully ramped. This quarter, we've announced plans to establish a Powders Center of Excellence in Saxonburg, Pennsylvania next year, which will concentrate operations to improve throughput and service for both our growing defense and specialty industrial customers while providing approximately $2 million of additional annualized savings. In short, the third quarter underscores our portfolio quality, operational resilience and our ability to align the business to higher-value sectors for stronger profitability. With that, I'll hand over to Steve to take you through the financials and our raised 2025 guidance. Steve? Stephen M. Webster: Thanks, Andy, and good morning, everyone. Let's turn to Slide 4 for a review of our consolidated financial results. In the third quarter, sales were $92.9 million, up 1.6% year-over-year, reflecting continued strength in defense and aerospace, partially offset by softer demand in certain gas cylinder end markets. Adjusted EBITDA was $13.6 million, up slightly from last year, with margins at 14.6%. Profitability was driven primarily by Elektron, where favorable mix and higher volumes in defense and aerospace, particularly in MREs and other specialty programs, supported strong margins. Pricing improvements in Gas Cylinders also contributed, helping to offset softer industrial and automotive demand. Adjusted earnings per share was $0.30, an increase of 11% year-over-year. Cash generated from operations was $11.8 million, reducing net debt to $37.3 million, resulting in a leverage of 0.7x. Year-to-date, sales have increased 5.3% to $280.5 million, driven by strength in defense, aerospace, space exploration and steady SCBA demand. Adjusted EPS improved 18.6% to $0.83, reflecting higher margins from mix improvement and disciplined execution across both segments. Turning to the quarterly prior year sales bridge on the right. Positive price action, largely in Gas Cylinders contributed $2.1 million. Volume mix declined by approximately $0.8 million with softer demand in clean energy and automotive markets, partially offset by defense and aerospace. For our adjusted EBITDA walk, higher pricing and inflation recovery together added approximately $2.9 million, complemented by a $0.6 million benefit from favorable volume mix driven by Elektron. These gains were offset by $3.4 million in planned investments to support defense and aerospace programs as well as higher operating expenses primarily related to overhead costs. For a full breakdown, please see the detailed waterfall in the appendix to Slide 12. Overall, the quarter demonstrated strong execution, steady profitability and mix improvement across our core markets. With that, let's move to Slide 5 for a closer look at Elektron's quarter 3 performance. Q3 marked another strong quarter for Elektron, powered by ongoing defense and aerospace momentum, driving higher volumes and positive mix. Sales were $50 million, up 2.5% year-over-year, reflecting elevated demand in higher-value programs. This, in turn, delivered adjusted EBITDA of $9.9 million at a 19.8% margin, up 160 basis points from last year. Defense and aerospace remained the primary growth drivers, supported by steady demand across major programs and further strength in core platforms such as flameless heating. In transportation, commercial aerospace-related alloy demand stayed firm, offsetting lower activity in auto catalysis. Specialty Industrial was softer this quarter due to weaker industrial demand in zirconium, partially offset by improved activity in oil and gas applications. Looking ahead to strengthen future efficiency, I'm pleased that we are establishing a powder center of excellence. This initiative is expected to deliver approximately $2 million of annualized savings while enhancing quality, throughput and service for defense and specialty customers. Overall, Elektron continues to execute well with elevated performance in its core markets, strong cash conversion and sustaining margins near 20%. With that, let's turn to Slide 6 for our Gas Cylinders results. Gas Cylinders performance was stable overall with sales of $42.9 million, up slightly year-over-year, driven by steady demand in SCBA and helping offset broader market softness in clean energy. Adjusted EBITDA was $3.7 million with margins holding near 9%. While mix and volume were lower in several end markets, increased pricing and ongoing cost control helped maintain profitability in line with expectations. Within the segment, SCBA remained the primary driver, continuing to deliver stable demand for first response and defense applications. Aerospace inflatables demand remained solid, though space shipments were lower this quarter due to expected off-cycle timing following a strong first half. Importantly, we still view space exploration as a meaningful long-term growth opportunity. Our Pomona to Riverside Center of Excellence remains on track. This automation-led consolidation is expected to deliver up to $4 million in annualized savings while leveraging technology for long-term efficiency gains. Let's now move to Slide 7 for a review of our updated 2025 guidance. We have raised our full year guidance, reflecting strong performance from the first 3 quarters of the year. We have increased the adjusted EPS range to $1.04 to $1.08, up from $0.97 to $1.05 from last quarter. Adjusted EBITDA has been refined to a tighter range of $50 million to $51 million, reflecting increased confidence in our outlook. We are maintaining our free cash flow guidance of $20 million to $25 million and continue to expect low single-digit sales growth versus 2024. Momentum remains centered in defense and aerospace, driven by sustained demand for defense programs and ongoing aerospace build rates, the latter supported by solid backlog visibility. That said, we continue to see some softness in automotive within Elektron and alternative fuels within gas cylinders, and these are reflected in our guidance ranges. Operational discipline remains strong with consistent performance as defense production levels stabilize following elevated early year activity. From a risk management standpoint, the direct impact from tariffs remains modest, and our teams continue to monitor and manage our supply chains. With 1 quarter to go, we're focused on closing out and positioning our investments in innovation towards markets where we have the greatest opportunities. Now I'd like to turn the call back to Andy. Andrew William Butcher: Thank you, Steve. Please turn to Slide 8. Our Luxfer Business System provides a clear structured framework to innovate, drive efficiency and stay agile, always focused on meeting customer needs and delivering profitable growth. This slide highlights how we differentiate through the Luxfer Business System and our leadership in strategic markets such as aerospace and defense. At Elektron, our advanced magnesium alloys remain a key competitive advantage. These lightweight materials deliver high strength and heat resistance at roughly 2/3 the weight of aluminum, improving range, payload and efficiency for our customers' most demanding platforms. We use operational excellence to underpin this success. We are a trusted material supplier to major OEM programs with precision manufacturing and process control that ensure mission-critical reliability. Our performance advantage lies in lightweighting that directly enhances mobility, response time and equipment handling in the field, whether it's a lighter gearbox housing that improves aircraft performance or a rugged magnesium component that reduces weight in, for example, night vision systems. Our materials provide measurable advantages where strength, precision and endurance matter most. And finally, we are seeing proven results in higher revenues. The Luxfer Business System continues to drive performance, quality and innovation, positioning us for sustained growth in core markets, where we are consistently winning new opportunities. Now please turn to Slide 9. As we close, I want to take a step back from operations and highlight how we are driving value creation for Luxfer shareholders. Our strategic approach is centered on focus and prioritization. We are aligning the business around specialized high-value products and markets where we hold leading positions and can sustain pricing power. We are strengthening customer partnerships across defense, aerospace and key industrial programs by building deeper, longer-term relationships that provide both stability and growth opportunity. Financially, we maintain a healthy balance sheet, investing selectively and quickly for growth and generating consistent free cash flow to support shareholder returns. Our operational optimization continues through the Centers of Excellence, which will deliver tangible cost savings and improved capital efficiency across both segments. We are also evaluating nearer-term opportunities to drive additional value, including portfolio simplification, operational partnerships and technology-driven growth. We remain focused on driving greater operational performance while also monitoring conditions to maintain full optionality and preparation to take strategic action at any time to maximize shareholder value. Ultimately, we have sharpened our execution focus, strengthened our balance sheet and created the foundation for sustained earnings growth and long-term stand-alone value creation. We'll now turn the call back to the operator for questions. Angela, please go ahead. Operator: [Operator Instructions] And we'll go to Steve Ferazani with Sidoti. Steve Ferazani: Andy, I guess the surprise to me was the strength in Elektron given you were comping to what was by far the strongest quarter of the year last year for Elektron. I know you had some pull forwards in the year ago quarter. I'm trying to figure out how you even top that revenue and the significant margin expansion. Can you sort of walk through what led to that given what was clearly a challenging comp? Andrew William Butcher: Yes. Thanks, Steve. It was a very nice result in Elektron. The strong demand continued in both aerospace and defense. We match that with increased orders. We also saw slightly better order intake in zirconium. The mix was nice with some higher-value products, pushed our margins up towards 20%. So yes, broad-based strength in Elektron, very pleased about that. Steve Ferazani: Can you talk a little bit about pricing and costs and how much that could be reflected in those margins? Or is it purely mix that we're looking at? Andrew William Butcher: It was mainly a mix for Elektron, a nice mix around those aerospace and defense products, continuing strength in the MRE heaters, which have been good all year with that baseline FRH demand, the add-on order and some exports. The pricing came mainly from the cylinders part of the business, where we were pleased with the improvements we were able to make there. Steve Ferazani: Yes. Turning to Gas Cylinders a little bit. I mean you've highlighted the weakness in alternative energy that we were expecting, but you've offset a lot of that this year. Can you talk a little bit about commercial space market and what you think the opportunities ahead are, which seems to be really helping out? Andrew William Butcher: Yes. The market for clean energy is down at the moment, not too much demand for CNG and hydrogen. Still winning some nice orders. But as you've said, we've been able to repurpose much of our large cylinder capacity to the space exploration market, which has been a nice win for us. Sales in Q2 were up on a strong Q1. And although Q3 was lower, that was expected, and we're now ramped up again with strong order visibility for Q4. Space exploration is a demanding application, and we operate at tight tolerances and we achieve good margins. And we believe we excel in that field and the market growth rates are high. Steve Ferazani: Okay. We know the ongoing trend consolidation on Gas Cylinders with relocation to Riverside you've said $4 million in annual savings. Now if you can provide a little bit more detail on the Powders Center for Excellence. You talked about that being $2 million in annual cost savings. I guess 2 questions here. One, if you could talk a little bit more about what's going on with the powder side because it's the first, I think I'm hearing about it. And then two, what's the timing on this net $6 million in cost savings between those 2 moves? Andrew William Butcher: Yes. So talking about the Powders Center of Excellence first. We currently operate 2 manufacturing locations in the U.S. for production of our magnesium powder. So as part of continuing our Centers of Excellence program, we've identified and we're actioning an opportunity to invest significantly in our Saxonburg site. We'll invest over $6 million of CapEx there to create a greatly improved footprint that will support our customers' needs for growth for high quality, tighter particle tolerance and also bring those efficiency and automation benefits worth around $2 million a year. And in terms of timing, we intend to complete the project over the course over the next year. With the Riverside Center of Excellence, the move from Pomona, that project was announced last quarter. That's underway. And we broke ground on that last week in Riverside, pouring some foundations. And so we'll start to see that ramp through 2026. Steve Ferazani: Okay. I know we won't hear from you again until the next conference call will be the 4Q when you're going to -- and I know it's way too early to start guiding for 2026. But are you seeing pockets for growth in 2026? Or is that going to be more of a margin story as you see things right now? Andrew William Butcher: Yes. I think you're right. It's a little early to be talking about 2026. We will give our guidance for that at the end of our full year earnings call. I do believe that we'll be seeing some areas of growth as part of that. And of course, we just covered the cost reduction programs that we're working on as well. Operator: There are no more questions in the queue. At this time, I'll turn the call over to CEO, Andy Butcher for final remarks. Andrew William Butcher: Thank you, Angela. We are very proud of the progress the team delivered this quarter, and we remain focused on delivering long-term shareholder value. I'd like to close by thanking the entire Luxfer team for their exceptional execution and commitment, and thank you for your continued support. Operator: This concludes Luxfer's Third Quarter 2025 Earnings Call. A recording of this conference call will be available in about 2 hours. A link to a recording of this webcast will be available on the Luxfer website at www.luxfer.com.
Debra A. Wasser: Hi, everyone, and welcome to Etsy's Third Quarter 2025 Earnings Conference Call. I'm Deb Wasser, VP of Investor Relations. And joining me today for our prerecording are Josh Silverman, CEO; Kruti Patel Goyal, President and Chief Growth Officer; and Lanny Baker, CFO. In addition to our quarterly results, we have some exciting news to review regarding our leadership transition. Once we are finished with the presentation, we will take questions from our publishing sell-side analysts on video. Please keep in mind that our results today include forward-looking statements related to our financial guidance, our business, our operating results and our leadership transition, as noted in the slide deck posted to our website for your reference. Our actual results may differ materially. Forward-looking statements involve risks and uncertainties, some of which are described in today's earnings release and our most recent periodic report and which will be updated in future periodic reports that we file with the SEC. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we disclaim any obligation to update them. Also during the call, we'll present both GAAP and non-GAAP financial measures, which are reconciled to GAAP financial measures in today's earnings press release or slide deck posted on our IR website, along with a replay of this call. With that, I'll turn it over to Josh. Joshua Silverman: Thanks, Deb. Before we dive into our third quarter results, I want to acknowledge the news we announced earlier today. After 8.5 years as Etsy's CEO, I've decided that this is the right time for me to hand over the leadership baton to the next generation. Therefore, we'll be transitioning over the next few months, and I'll become Executive Chair, while the fabulously talented Kruti Patel Goyal takes the reins as our CEO effective January 1. It's been an incredible privilege to lead Etsy through several chapters of evolution and transformation, from the turnaround of 2017 to managing through the hyperscaling of the pandemic to steering us back towards growth again in a more app-centric, discovery centric world. We've adapted and evolved with creativity, agility, urgency and heart, all while keeping our sellers at the center of everything we do. Now in our third decade, Etsy is entering a new phase, one focused on harnessing AI to further personalize and transform the shopping experience in ways that were previously unimaginable. It's an exciting moment and perfect timing, I believe, for fresh perspective and a new leader. As you know, following an incredible 2-year run as Depop's CEO reigniting their growth, I asked Kruti to return to Etsy last year as Chief Growth Officer. Kruti has been a key part of Etsy's leadership for over 15 years, and she brings deep knowledge of and passion for our mission, marketplace, customers and community. Since coming back and ramping up, she's already made a significant impact on the business, evolving our strategic priorities, redefining how we measure success and shifting how we work. She's also already taken on leadership of many of our day-to-day operations. So it's natural and an exciting next step for her to become Etsy's next CEO. If I was the right person to lead Etsy's last chapter, Kruti is the right person to lead our next. Our Board of Directors has been deeply engaged in our succession planning and wholeheartedly endorses her appointment. I also want to acknowledge Fred Wilson, who's been a part of our growth journey since 2007, first as a Board member and then as Chair. He's been an absolutely incredible Chair, passionate, wise and highly engaged. I couldn't have asked for a better partner, and we're thrilled that he will remain on our Board. On a personal note, serving as Etsy's CEO has been the honor of a lifetime. While I'm incredibly proud of the results and the growth we've delivered as a team, what I'll remember most is the impact we've had on the lives of our sellers and buyers and our role in preserving creativity and human connection in a world increasingly shaped by automation and commoditization. And I'll continue to love hearing I love Etsy every time I hear the Etsy brand mentioned. I've always found purpose in leading through transformation, and I'm excited to make room for new growth, both for Etsy and for myself. Thank you for the trust and confidence you've placed in me. I'm confident Kruti will similarly earn your trust as our next leader. With that, let's turn to our results. We're making steady progress improving our performance in 2025 with our third quarter results exceeding expectations on all 3 key financial metrics: GMS, revenue and adjusted EBITDA. I'm pleased to report that GMS for Etsy and Depop combined returned to year-over-year growth, with further sequential improvement expected at the midpoint of our fourth quarter guidance. Etsy marketplace results improved sequentially as we continue to see that the customer-centric priorities Kruti has defined are starting to gain traction. GMS improved approximately 300 basis points sequentially to $2.43 billion, down 2.4% year-over-year. In addition to the impact from these initiatives, there were some exogenous factors, which also impacted our results, and Etsy once again proved its resiliency. It gives me tremendous comfort that we benefit from such a dynamic and fundamentally sound business model. Depop's third quarter growth accelerated about 400 basis points sequentially, with GMS up 39.4% year-over-year to $292 million. New user growth and improvements to buyer conversion were primarily responsible for 59% year-over-year growth in Depop's U.S. GMS. And while not a meaningful growth driver in the third quarter, Depop launched its largest ever brand campaign targeted at raising awareness in the U.S. We're really excited that Peter and his team are continuing to build on the foundation that Kruti built at Depop, which has led to the great momentum the business has seen over the past 2 years. That said, we're all clear eyed that there's significantly more work to do. So I'll turn the call over to Kruti. Kruti Goyal: Thank you, Josh, and good morning, everyone. Since returning to Etsy earlier this year, I've been reminded at every turn that this company is built on something rare in e-commerce today, creativity, human connection and purpose. So it's an incredible honor to be named our next CEO. I'm deeply grateful to our Board for their confidence in me and to Josh for his leadership, mentorship and support over so many years. He's led Etsy through extraordinary growth. Our customer base, GMS, revenue, profitability and market cap are all multiples larger than when he started. But Etsy isn't just bigger, Etsy is better and well positioned for our next chapter of growth. We'll continue to work closely together through this transition period, and I'm so pleased that Josh will remain a sounding board for our executive team and me as our Executive Chair. I'll now cover our 4 strategic priorities, which are working together to deliver tangible value to our customers and support sustainable growth. We're showing up where shoppers find inspiration, matching them with items that feel tailor-made for them, working to deepen loyalty across our community and amplifying what sets us apart, the creativity and authenticity of our sellers. Each priority fuels the next, creating a cycle of discovery, engagement and connection that truly differentiates Etsy. Starting with showing up where shoppers discover, we know today's shopping journey isn't linear. People find inspiration everywhere. To capture this behavior, we're meeting shoppers in more of those moments with content that feels personal and relevant. A great example of how we're capitalizing on the evolving shoppers journey is our partnership with OpenAI, which gives us an early foothold in a fast-growing high-intent discovery channel and helps to create another seamless path from inspiration to purchase. In September, Etsy became the first live partner for their instant checkout feature, allowing users to buy items on Etsy directly through ChatGPT. We now provide a dedicated product feed that enables eligible purchases to be completed seamlessly within the chat experience, processed through Etsy Payments. This integration was designed to ensure buyers know its Etsy. When a customer purchases a product through Etsy and ChatGPT, they'll see the Etsy brand mark, information about the human seller and an order confirmation from us. Agentic visits represent a small slice of e-commerce traffic today but they're growing quickly. An early analysis suggests that these buyers come to Etsy with higher purchase intent than those from traditional search. And over time, we believe these types of integrations will drive incremental growth and importantly, brand consideration for Etsy. Another example of how we're showing up where shoppers discover is our marketing approach this holiday season. As we've told you, we're significantly reallocating our brand marketing spend away from linear TV into upper funnel channels intended to spark engagement and inspiration such as social video and streaming. You'll see us highlight the many ways people shop, decorate and celebrate, how they're discovering the trends shaping the moment or honoring the traditions at the heart of the season because shopping on Etsy isn't about checking a box, it's about finding something that makes someone feel seen and reminding the world that the most meaningful items come from real people. Of course, once we get shoppers' attention, the experience on Etsy has to deliver. We've made strong progress improving the Etsy app. In Q3, app GMS outperformed non-app GMS by 13 percentage points, a meaningful indicator that our work is beginning to pay off. This progress reflects a series of thoughtful improvements from a redesigned home screen central hub of what's new and relevant to simpler navigation that helps shoppers reach key features faster to a completely reimagined discovery feed powered by a new recommendations model designed to anticipate what each shopper might love next. Early results are encouraging. Engagement on our app home screen is up significantly, and app home GMS grew 20% year-over-year in the third quarter. Advancements in AI and machine learning power much of this work and are central to how we match shoppers with the right items. Over the past few months, we've made meaningful progress in our machine learning capabilities, particularly in 2 areas that are core to Etsy's differentiation, buyer understanding and item understanding. In buyer understanding, we've developed new models that more deeply interpret our users' interests through a combination of advanced ML and emerging LLM techniques. These models now power our app discovery feed where they've already driven double-digit increases in engagement metrics and have also demonstrated positive impact in our e-mails and our web homepage experience. In item understanding, we've strengthened our ability to extract richer insight from listing images, enhancing how we represent and connect inventory. This improvement has delivered measurable conversion gains across search and ads with further opportunities ahead. Rafe and his team's rapid time to market on these initiatives has been excellent, and we're excited to continue testing and iterating. Turning to our most valuable customers, starting with our buyers. We see strong opportunity not only to deepen loyalty with our top buyers, but also to nurture customers with the potential to become them by making shopping on Etsy easier and more rewarding. In the near term, we're piloting targeted offers for our most active buyers and launching the latest beta iteration of the Etsy Insider Loyalty program. We imagine with our top buyers in mind, so they feel rewarded every time they shop, with shipping discounts and 5% back in Etsy credit on every purchase, all while seeking to deliver sustainable economics for Etsy. From my perspective, one of the most important elements to our long-term success will be Etsy's ability to continue to attract creative entrepreneurs and support their ongoing success because their creativity and innovation is what makes the Etsy experience like nowhere else. Since becoming Chief Growth Officer, I've been connecting weekly with many different groups of sellers. And it's clear we can better help them spend less time managing and more time creating. We've launched new AI-powered tools to help sellers generate listing titles and draft buyer messages, 2 of the most time-consuming parts of running an Etsy shop and improved issue resolution with increased access to live knowledgeable support. We're pleased to see that our efforts are starting to make an impact. For example, seller satisfaction scores are up more than 10 percentage points from this time last year. Finally, we're amplifying our competitive differentiation. The human connection at the heart of our marketplace. It underpins and is intertwined with each of the other 3 priorities. And while we see abundant opportunities to weave human touch more deeply into every part of the Etsy experience over time, we've started with simple high-impact updates that bring sellers and their stories closer to buyers, like adding richer seller information directly on to listing pages. Early test results show that these changes are helping buyers trust listings faster and make purchase decisions with less friction. In closing, thank you to our employees, our community and to all of you for your confidence in partnership. I'm excited to take the helm come January. While we've been showing continued improved performance, there is so much more we need to do. You'll hear more from me as I continue to evolve our vision and plans for the business. And with that, I'll turn the call over to Lanny. Charles Baker: Thank you, Kruti. When I joined Etsy, I told our investors and analysts how much I have admired Josh's stewardship and transformation of this incredible business. I want to thank Josh for leading the company to where we are today and setting Etsy up for what comes next. And I can speak on behalf of the full executive team that we are incredibly excited to be part of this next phase of our journey with Kruti as the CEO. As we review our results, please keep in mind that we completed the sale of Reverb on June 2, and we've provided Reverb's Q3 2024 GMS and revenue so you can more easily separate the impact of that sale from the results of our ongoing business. Third quarter consolidated GMS was $2.72 billion, which exceeded the top end of our guidance range driven by better-than-expected results at both Etsy and Depop. Excluding Reverb from all periods, consolidated GMS grew 0.9% year-over-year and consolidated revenue grew 6.1% year-over-year to $678 million. Adjusted EBITDA was $172 million in the third quarter representing a consolidated adjusted EBITDA margin of 25.4%. Within that, Etsy marketplace margin was just shy of 30% for the quarter, and Depop's margin declined sequentially as we began to accelerate brand marketing to expand Depop's opportunity, particularly in the U.S. Etsy marketplace GMS was down 2.4% year-over-year in the third quarter and down 3.2% year-to-year on an FX-neutral basis. While we're not satisfied with any decline in Etsy GMS, we are encouraged that year-to-year GMS comparisons continued the momentum established earlier this year and improved by another 300 basis points from Q2 to Q3. Importantly, we believe that initiatives aligned with the 4 priorities that Kruti described earlier were critical factors contributing to that progress. On the tariff and trade lane front, we experienced some pressure on our U.S. import trade route during the quarter. However, sequential improvement in our U.S. domestic trade route helped offset the impact. The expiration of the de minimis exemption at the end of August weighed on performance immediately thereafter, and our business stabilized as we moved through the quarter, resulting in only a modest headwind to quarterly results. While we remain cautious about the potential impact of tariffs and trade restrictions, especially on consumer discretionary expenditures, we are encouraged by Etsy's resilience and responsiveness thus far. We believe we have benefited from the massive amount of inventory on the marketplace and a very high replacement rate on disruptive items. As we've mentioned, we have an abundance of U.S.-based supply including over 60 million active U.S. listings. And we've been highlighting domestic inventory to U.S. buyers for some time. Additionally, our team has been extremely proactive in providing non-U.S. sellers with information, advice and viable alternative solutions to help them continue shipping into the U.S. Etsy's active buyer count was 86.6 million on a trailing 12-month basis, down 5% year-over-year and 0.8% lower sequentially. We attracted 4.8 million new buyers in the third quarter and reactivated another 6.6 million lapsed buyers. Combined, new and reactivated buyers totaled 11.4 million for the quarter, a slight improvement compared to the second quarter. GMS per active buyer was $121 in the third quarter and this trailing 12-month figure has been stable year-to-date. When we look more closely at GMS provider trends, on a month-by-month basis rather than a trailing 12-month basis, we've seen encouraging improvements since April 2025, with higher average item values as well as improving purchase frequency per buyer. Slicing GMS performance according to estimated household income, we saw a favorable year-over-year inflection across all income levels in Q3, with the strongest performance among our highest income buyers, which is consistent with the U.S. consumer spending trends we are all reading about. GMS comparisons across most of our top 6 categories improved sequentially. We saw particular strength in Vintage Home & Living, jewelry above $100 and wedding and engagement rings. Kruti mentioned the great progress we're making with the Etsy app, and I want to underscore the importance and the effects of this focus. In the third quarter, on average, Etsy's app users visited roughly 5x more often than our non-app users. They viewed 3x more pages per visit and were 1.5x more likely to convert with a purchase. As we've said before, the app platform allows us to deliver a more engaging and personalized experience, form stronger, more direct relationships with buyers and increased customer lifetime value. With that in mind, we were pleased to see app downloads grow 9% year-over-year with even faster growth in downloads among new buyers. Mobile app GMS accelerated to mid-single-digit year-over-year growth in the third quarter, and the app's contribution to total GMS increased to 46% compared with just under 45% a quarter ago and 42.8% a year ago. Shifting to the seller view. Following stabilization last quarter, active sellers grew 1.7% sequentially in the third quarter leading to a moderation in the year-over-year decline. In fact, both U.S. and international seller counts began growing again on a sequential basis. The number of new sellers who made a sale in the third quarter of 2025 saw strong double-digit year-over-year growth. In addition, the percentage of total sellers with the sale in the last 12 months increased year-over-year, rebounding from the Q1 2024 trough. Moving to revenue performance. Consolidated revenue was $678 million, up 2.4% on a reported basis, which includes Reverb in the prior year period. Services revenue grew 12.7% year-over-year driven by growth in Onsite Ad revenue at both Etsy and Depop. Etsy Ads delivered another quarter of meaningful growth, supported by model enhancements that optimize seller budget pacing and improved ad quality and relevance while Depop continued to expand its boosted ad offering across the platform. Marketplace revenue decreased 1.7% year-over-year, largely reflecting the impact of the Reverb divestiture, which removed that contribution from consolidated results. Consolidated third quarter take rate improved to 24.9%, ahead of our guidance and up 90 basis points sequentially. Compared to 1 year ago, consolidated take rate expanded by 220 basis points, reflecting the divestiture of Reverb and the benefit of the growth in services and ads revenue that I just outlined. Consolidated product development spend increased by 5.7% year-over-year to $113 million, growing slightly as a percentage of revenue, as shown on the left of this slide and reflecting an increase in the number of dev employees on a year-over-year basis. We continue to be disciplined and focused in our hiring with the majority of our engineering hires this year allocated towards growth initiatives. Third quarter consolidated marketing spend increased 6% year-to-year to $208 million, representing 30.7% of revenue. The increase in consolidated marketing spending was driven primarily by incremental brand investment at Depop. Etsy marketplace spend was up only slightly from the prior year. As shown on the walk on this slide, Etsy's marketplace marketing spend gained leverage year-over-year as a percentage of consolidated revenue, whereas Depop's marketing spend lost some leverage, netting to a slight deleverage on a consolidated basis. Within Etsy marketplace marketing strategies, we remain highly encouraged by our owned marketing channels. E-mail and push notifications, combined with enhancements to our app, are allowing us to deepen our direct connections with buyers. And these channels are becoming meaningful high-growth drivers of attributed GMS without an associated investment in external ad spend. We also optimized our paid social portfolio through targeted mix shifts informed by incrementality testing, making us even better able to target higher-value audiences. In addition, we shifted low-funnel efforts to zero in on new and lapsed by our audiences and expanded mid- and upper funnel investment in high-performing channels like TikTok. Lastly, while competitive spending patterns in the Google PLA auction were helpful during the quarter, we continue to reap the benefits of our own data feed optimizations and advanced PLA segmentation strategies. Turning to our financial position. We generated a very healthy $200 million plus in free cash flow in the quarter and $635 million in the trailing 12 months. We ended the quarter with $1.6 billion in cash and investments and approximately $3 billion in convertible debt. We repurchased 2.1 million shares of Etsy stock at a total cost of roughly $120 million. Taking a longer-term view, you can see in the chart on the right that we've reduced our share count by 17% since December of 2023 through our stock buyback program, delivering significant value to our shareholders. Moving to our outlook, which assumes a stable macro environment from where we are now. Although we recognize that there is a higher-than-normal degree of uncertainty about consumer spending into the holiday season, both in the U.S. and overseas, we currently expect Q4 consolidated GMS to be between $3.5 billion and $3.65 billion, which, at the midpoint, would represent further quarter-over-quarter improvement in the apples-to-apples growth rate. We expect that our Q4 consolidated take rate will be approximately 24.5%, primarily reflecting some seasonality. Consolidated adjusted EBITDA margin will be approximately 24% reflecting stable, strong profitability for the Etsy marketplace paired with a significant sequential increase in brand marketing investment at Depop, which will compress margin performance. This investment in Depop is discretionary and opportunistic arising from our excitement about the scale and growth of the apparel resale market as well as Depop's own very encouraging momentum as the business is now at an annualized run rate of $1 billion plus. Depop's nearly 60% year-over-year GMS growth in the United States is built on top of similarly strong growth in both buyers and sellers, and we see a meaningful opportunity to increase awareness and penetration across a broader demographic range of buyers that are coming into the vintage and resale markets. Thank you all for your time today. I'll now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question will come from Maria Ripps with Canaccord. Maria Ripps: Kruti, congrats and Josh, best of luck with the transition. I guess, I just wanted to ask about your OpenAI partnership. So is this integration available to sort of to all U.S. sellers? And how do you prioritize sort of listings that are included? And maybe secondly, can you maybe help us think through sort of the performance fee since Etsy's covering this fee, is it fair to think about this sort of an extension of your offsite ads? Or are there any sort of transaction cost on your end that you will not be incurring sort of to compensate for this additional fee? How should investors think about this? Joshua Silverman: Great. Yes, I'm happy to start. Thank you, Maria. First of all, we are incredibly excited about the opportunity for Etsy in a world of agentic commerce. And being the first partner to partner with OpenAI, we think, is a demonstration of the fact that we see a ton of opportunity where many others in e-commerce, I think, are feeling the need to play more defense. For many people in e-commerce, they're selling the exact same product that's for sale in many other places. And it just becomes a game of who can sell it cheaper and ship it faster. An agentic commerce is going to honor that for buyers. Etsy has something genuinely unique and different to offer. And so we think it's incredibly exciting that this is an opportunity for many consumers to raise consideration of Etsy and a lot of purchase occasions where they may not have thought of Etsy. And for the big model builders, they're interested in really unique pools of data, which Etsy offers unlike most and a really strong engineering culture that can actually keep up with them. And so our ability to be at the front edge of this we think positions us really well to help shape what agentic commerce can be. What kinds of data they're ingesting, how they're presenting it to their buyers, how our brand is presented, for example, which is very important to us. And so being at the table early, we think, is really critical. Maria, specifically to your questions, we -- OpenAI and the others will scrape Etsy and organically provide Etsy listings as part of their organic experience. But if you want to actually purchase the way that works, we provide a data feed directly to OpenAI that they consume and the products that are in that data feed, which is the substantial majority of Etsy's products that actually allows a buyer to actually complete the transaction within OpenAI. And importantly, that still goes through Etsy's Payment rails. So it still shows up as a guest checkout on an Etsy customer, and it's very clear to the customer that they're buying from Etsy. We pay a commission, a success-based transaction fee to OpenAI for each of those purchases. And it's not unlike what we would pay to an influencer, for example, or an affiliate. So it's a CPA-based transaction fee. At this time, we are not passing that through to our sellers. So it's not part of our offsite ads program, and we'll consider as time goes on, how to think about that. Operator: Your next question will come from Steve Forbes with Guggenheim. Steven Forbes: Congrats all around. Maybe for Kruti and Josh, maybe love to hear maybe from Kruti on this one. Given the recent changes, you mentioned sort of improvements in engagement on the app. I'd love for you maybe to just expand on that, sort of what you've seen on the engagement front, given the changes in screen real estate towards discovery. And then curious, any initial thoughts on how the recent learnings are impacting or informing your product development plans for next year as we continue this journey -- this return to growth journey and hopefully continue to see GMS trends improve next year. Kruti Goyal: Sure. I can start that out, and then feel free to add on. So on the app side, as you mentioned, we've made some meaningful investments in reshaping what the home screen looks like. And that's really intended to deliver on that first priority that we talked about showing up in a way that really enables discovery on Etsy. And so what you've seen is that we've gone from what was essentially trying to guess exactly what it is that you wanted when you first open the app to now giving you multiple windows and doorways into Etsy. And so you'll see that at the top of the home screen with that central hub that we mentioned, where you can not only pick up where you left off last but look at things that are like what you favoured it before or items that you've added to a collection before. And then below that, we've invested in ML to power a much more discovery focused feed of items that are really intended to anticipate what else you might like next that you haven't necessarily engaged with in the past. And that's been basically through leveraging new ML models that are really deciphering what interest you as a buyer might have, and then connecting that to what items match those interests. And we're seeing a meaningful uplift in the engagement in the home screen, particularly through that feed. And we're really encouraged by that. How this is playing into our product development plans more broadly? We're really encouraged by the progress that the teams have made very quickly against all the 4 priorities, the strategic priorities that we've laid out. And we're really encouraged by the early traction that we're seeing from them. We're seeing really great momentum and early indications of growth across metrics. And so what that does is that gives us confidence in the priorities that we have set and continuing to deepen our focus in those as we go into next year. Really, these 4 priorities address accelerating the entire flywheel for us through driving discovery, engagement and connection in ways that we think are going to affect all the metrics that drive our marketplace growth. And so the early traction that we're seeing is encouraging and indicates that we'll continue to invest across these 4 priorities. Joshua Silverman: And a couple of nuggets we gave in the call, app -- people who've downloaded and are using our app visit 5x more often than people that are web only. And in each of those visits on average, they see 3x as many pages. So they're visiting more often, and their engagement is a lot higher and as Kruti's talking about that flywheel, that gives us an opportunity to get to know them so much better. So that each visit we're able to become a lot more personalized and we've talked for so many years about the consideration opportunity at Etsy. The people think of us for home furnishings or they think of us for clothing or they think of us for gifts. And we want them where we can serve so many of their needs. And of course, you can buy TV ads saying, think of us for lots of things. But the best way to do it is when you're on Etsy to show you not only the thing you came for, but also to exposure to really cool things, you didn't even think to ask of, so you broaden your understanding of Etsy. And that's the flywheel where -- we're encouraged by the early results we're seeing from these efforts. Charles Baker: I'm going to pile on just to say that all of that also is powering our owned media channels. And so the data that we're gathering about those app users when they're visiting much more frequently, when they're looking at many more pages, when they're responding to the ML prompts that we are providing to them is helping us profile them, which is helping us better target our outbound e-mail and push notifications, which are becoming -- quickly becoming a really prominent and very high return marketing channel for Etsy. So the flywheel connects through the marketing as well. Operator: Our next question will come from Anna Andreeva with Piper Sandler. Anna Andreeva: Great. And let me add my congrats as well to Kruti and Josh. Josh, you will be missed. But yes, congrats, guys. We had a follow-up on the guide for the fourth quarter. So great to hear about the sequential improvement at core Etsy GMS. Are you seeing further improvement here in 4Q, just given the momentum of the initiatives and the easy compares that the business is lapping? And just curious, talk about maybe how you approach the holiday. Any specific opportunities for the business? We had a shortened holiday last year, which was not a positive. What could Gift Mode do this year? So curious on that. And then, Kruti, maybe it's early for this question, but Etsy's profitability is some of the highest among the peer set. Just strategically, do you think there's an opportunity to invest more just to reignite growth even faster? Or do you think it's important to preserve profitability? Charles Baker: Let me talk first about the outlook for the fourth quarter GMS. As we said, the consumer outlook remains uncertain. There's probably a higher degree of uncertainty around the consumer going into this holiday season than there has been for prior seasons, for some prior seasons anyway. But our assumption is that, if the consumer health stays about where it has been year-to-date into the fourth quarter. So that's the sort of underlying macroeconomic consideration. When we look at the progress we've made since the start of this year to where we are today, we believe a lot of that progress has been a reflection of the things that we've done on the initiatives that Kruti talked about earlier. And we expect to continue to make that progress into the fourth quarter. So as you look at the ranges that we've outlined for the fourth quarter, as Josh said in his prepared remarks, at the midpoint of the outlook range, it would equate to a further sequential improvement in the year-over-year growth rate for our consolidated picture as well as for the Etsy business. And we think that's -- we provided a range at the upper end of the range, it would probably be in a healthier consumer and more progress in our own initiatives and the lower end of the range might mean a little bit more challenging consumer environment. We've really tried to provide you the best picture we have today with what the fourth quarter looks like, and that's what's put into our outlook. Joshua Silverman: For our holiday season, we've got a really exciting campaign planned that really leans into the humanity of Etsy. What makes Etsy really different than the fact that you are seeing what's special in the other person and recognizing what's meaningful in the other person. It's a really great set of campaigns that will be reaching people where they consume media now, which is very different than where they have in prior years. So we're really excited about that. And on Gift Mode, in particular, it's really now deeply integrated into search and the core home screen. And so instead of having to go to a separate tab for it, it's really integrated into the core experience. And as we're getting better and better at recommendations with these new ML models, we're also getting even better at finding the perfect gift for you, both through edited and curated gift lists and then ML just for you. So we're super excited about that. Kruti Goyal: And then on the last part of your question, it is early to comment on the specifics there. But what I will say is that we have seen the profitability of our marketplace is the real strength of our marketplace. And we've always been really disciplined and thoughtful about our investments. And so I would point to Depop as really a great example of where we've been willing to make deeper investments where we think there is a lot of opportunity. And just to step back and talk about that for a moment. I'm really proud of what we've been able to accomplish at Depop. We went from 3 years of flat GMS to 2 years of accelerating growth. And over that time, we nearly doubled the scale of GMS and the number of active users and tripled the number of listings on the platform. And I think all of that goes to show that we've really achieved incredible product market fit and the growth is not just momentum, it's sustained growth based on that product market fit. And so this is really the perfect time to be making that step-up in investment against marketing Depop to really increase the exposure that we're giving to people who may not have heard of Depop before, but for whom the value proposition is really relevant and will resonate. And so I would just look to that as an example for us of when and where we think there are really great opportunities to invest more, we will absolutely take them. And we continue to see our profitability profile as strength of the business. Operator: Your next question will come from Bryan Smilek with JPMorgan. Bryan Smilek: Congrats on seeing the good improvement in execution overall. Kruti, as you step into the CEO role, can you just elaborate a bit more on how you strategically are thinking about driving sustained GMS growth here? Is it more of the same execution or leveraging the Depop playbook across product marketing? Or is there just anything else to keep in mind? Kruti Goyal: You're right. My focus is squarely on delivering robust sustainable growth, and that has been my focus since the moment I stepped back here at Etsy from Depop. And so one of the nice things about the way that this transition is playing out is that you're -- I've had the ability to really lay the groundwork for growth over this last year. So you're already seeing the investments and the changes that we think are going to be really critical to driving growth next year and over time. And so the way that I would think about it is that we step back and said, what are the things that we really need to do to strengthen the value proposition of Etsy for our -- both our buyers and our sellers, our entire community. That's what really underpins the 4 strategic priorities that we've laid out, really driving that flywheel of discovery, engagement and connection, all with human connection at the center of what makes Etsy different. And I think we all feel very encouraged by the quick progress that we've made, the quick time to market against many of these priorities and the early traction that we're seeing. We are excited about the traction, but we're far from satisfied with the growth that we're seeing. So there is a ton of potential ahead. And because we see these working, you can expect us to continue to invest in these strategic priorities going into next year. Operator: Our next question will come from Eric Sheridan with Goldman Sachs. Eric Sheridan: Just wanted to come back to loyalty and rewards and sort of build on that as a broader conversation piece. What have been your key learnings so far as you've rolled out more loyalty on the platform? How do those learnings inform the innovation or iteration of loyalty you're announcing today that looks like it's going into beta this week? And how should we think about the GMS opportunity attached to loyalty over the longer term? Kruti Goyal: Sure. I can start on that, and then please feel free to add on. So look, at the core of this priority around loyalty is the idea that Etsy should get better and better for our customers as they use it more and more. That's true for buyers and sellers, but let's talk about buyers in this case since you asked about the loyalty program. I think there are 2 main ways that Etsy can feel like that, can feel like it's getting better as you use it more. The first is what we were talking about earlier, which is our investments in personalization. It's really the #1 way that we can show our buyers that we really understand them that we're paying attention to all of the signals that they give us, and that's informing an experience that feels really tailor-made just for them that we think drives engagement -- the ongoing engagement and loyalty over time. Another piece of that is our investment in the Etsy Insider Loyalty beta program. And as you noted, we are evolving that program into version 2.0 of our beta. What we've learned from the initial version is that the rewards that we offered both drove adoption of the loyalty program and drove a meaningful uplift in frequency of engagement and purchasing. And so that was a really important learning from this first version. What we're changing in this next version is we're really reorienting it to really focus on our more frequent buyers. So again, to that point of making sure it feels like you are recognized and rewarded for the time and investment that you make in Etsy. And so the changes that we're making are really around the reward structure, so that the benefits that you get are benefits that you experience with every purchase. So shipping discounts on every purchase, rewards, Etsy credit back on every purchase. And what we're looking for is, again, to see continued adoption, frequency of engagement, frequency of purchasing and over time, renewal rates in that loyalty program. So that's the goal. And as we learn more, we'll share that. Charles Baker: I would just say from a -- thinking about the GMS opportunity, I would start out by thinking about Etsy generating $120 in GMS per buyer on a 12-month time frame. And our opportunity to increase purchase frequency through rewards and through incentives and through retention benefits, that's a huge lever for us. We feel like that number -- we know we've got plenty of customers who are spending 5 and 10x that amount with us in a given year. And we're lining up programs and marketing and communication personalization, all these things to induce more of our customers to think of Etsy earlier on and the leverage point really comes back to that GMS per buyer in the long term. Operator: Your next question will come from Youssef Squali with Truist. Youssef Squali: Excellent. Congrats all around. So maybe first question for Josh or Kruti, and this is really a follow-up to the prior question, but how do you balance the push for traffic from these GenAI platforms versus maybe direct/mobile where arguably the value that accrues to Etsy over time is higher? And then, Lanny, can you maybe unpack a little bit more the nature of the investments planned for Depop in Q4, which will compress margins near term? Is this a 1 quarter type of phenomenon around the holidays? Or is this more structural going forward? Joshua Silverman: I'm happy to start with the agentic commerce. The great news for Etsy is I don't think that it's a zero-sum game. I don't think it's an or. I think it's an and. I think people are going to shop agenticly sometimes. And when they do so, I think the smart agents are not going to say, here's the answer. Very rarely is there one right answer. I think they're going to provide a range of choice. They're going to say, for example, this is the cheapest thing you can buy. This is the thing that will arrive the fastest. And this is the thing that's most special or unique. And in that offering of here's a few curated choices, I think disproportionately Etsy is going to be presented and is going to win and a lot more often than consumers on their own might have thought of Etsy. And in all of those presentations, whether they buy that particular thing from Etsy or not, they're going to be constantly reminded, oh, Etsy has something to offer for you. And those customers are also going to go and launch their app. It's going to prompt people to think, "Oh, Etsy is so relevant for me so often." And I don't think in any near-term future, people are going to -- most people are going to exclusively shop via agents. They use agents sometimes, and they'll continue to use the app sometimes. And I think it's going to actually be a virtuous cycle that accrues disproportionately to Etsy's benefit. Charles Baker: In terms of the marketing investment, thanks for that question. Kruti said earlier, this is a really big market. We have a strong position. We have a product at Depop and a value proposition that we feel really good about. And it's an opportunity right now to really make this business quite a bit bigger and more valuable in the long term, and we're going after that pretty aggressively. The big opportunity for us in the near term, Youssef, is to expand the awareness of this great product and this great service. And so it's a brand campaign. It's not going to be concluded in 3 months. It will carry over into the first half of next year. It will take some time, frankly, for us to be able to really assess how we're performing, and we're committed to staying with that brand investment through the time that it will take to be sure that we're really expanding awareness of that product. We really like the long-term opportunity here. So it will be -- it will compress margins in this quarter, and we'll continue to make that investment going forward. Now if things look a lot better than we thought, we might step it up. If it doesn't look like it's going as we expect, we can be very maneuverable on our spending there. But our intention right now, given where we are and what we see in this marketplace is to invest there for the longer-term play in that business. Over the last couple of years, as we've leaned into the product and improved it and grown users as we've -- and they've grown really quickly, that business has demonstrated an ability to deliver very high percentage of incremental revenue growth down to the bottom line. So we know, trust and believe in its long-term profitability. We just really want to change at scale. Joshua Silverman: The cool thing on that is there's a huge opportunity for the core Etsy business in the future, but there is also a huge opportunity in Depop. Can Depop be the Venmo to our PayPal. Depop, I think we think can be on its own a multibillion-dollar asset. And so what you're seeing is us take a discrete amount of investment dollars to invest in marketing. We think it's got a good chance of working. We'll be measured and disciplined about how we track progress there. If it doesn't work, we can turn it off. But we think it's likely to work, and we think there's huge potential for Depop. Operator: Your next question will come from Shweta Khajuria with Wolfe Research. Shweta, it appears your microphone is open but we're not able to hear you, you need to select a different input [Operator Instructions]. We're still not hearing, Shweta. Why don't we go to our next question and we will return to you. Our next question will come from Nikhil Devnani with Bernstein. Nikhil Devnani: And Josh, thank you for all the help over the years, and congrats to Kruti as well. I wanted to follow up on the OpenAI theme. I think there's clearly some benefit that you and other marketplaces can realize in terms of incremental traffic and engagement in GMS. But investors are starting to worry longer term about what this means from a retention of buyer perspective and what it means for direct traffic and core profit pools for businesses like yours with on-site ads. So when you evaluated this partnership, how did you kind of think about the risk/reward longer term of something like this? Joshua Silverman: Yes. I think Etsy is different than a lot of places in that -- we have a lot of confidence in our value prop. We have a lot of confidence in the importance of our brand. Etsy is a community of over 5 million unbranded sellers selling unbranded items. And we know that when they set up their own shop and try to market themselves, it's very, very difficult for them to rise above the noise. But the Etsy brand next to their shop really helps to instill confidence in buyers and helps to elevate their product, their shop. So we know that Etsy as a brand should be pulled through in the agentic experience. When you're shopping with an agent, you want to see it's this seller powered by Etsy. And we have a lot of confidence in that value prop because we've seen it tested in the real world. So we know it makes sense to pull the Etsy brand through and have the Etsy brand be prominent. It's also been my experience from decades of doing this, that customer behavior changes much more slowly than people think. We will have an app, I believe, for many years to come, and people are going to shop agenticly. And both are going to be good and both are going to be complementary. But the great news here is that we think Etsy really does genuinely add a lot of value to our sellers and to our buyers. And I think that the agentic commerce is only going to help make that more prominent to customers and be a real win-win for all of us. The other thing is our position being an early adopter which comes from the fact that we have such a large set of inventory and a strong engineering culture means we're really at the table to help shape what this experience can be. How is it presented to the buyer? What do the economics look like? We are really at the table there. And I think that is exactly where you'd want to be in such a titanic ship like this. Kruti Goyal: Yes. One thing that I would add there is if you just like getting into the mindset of the consumer for a moment, it's really important that we are showing up where they are discovering. And this is a really great example of that. I think that we will continue to evolve as shopping behavior evolves. This is a great example. Josh, we mentioned earlier that the importance of our brand showing up in those moments, both to give buyers trust in the shops that they're looking at, but also every interaction through any channel, including agentic shopping is a reminder of Etsy and the brand so that the next time you're shopping, you're reminded to consider Etsy. So we think that it actually creates a real virtuous cycle whatever channels shoppers are shopping on. Great. All right. Hopefully, we can get Shweta back. Operator: For our next question, we'll return to Shweta. Unfortunately, we still cannot hear you, Shweta. Yes, unfortunately, we still cannot hear you, Shweta. So we are going to go to our next. For our next question, we'll go to Ygal Arounian with Citi. Ygal Arounian: Josh, we'll certainly miss working with you and Kruti, congrats on the new role. Let's see, maybe just like a quick follow-up first on the agentic AI opportunity. And first, do you think -- well, actually, I guess, first of all, I know it's super early, it might just be a very annoying question, but are there any early insights to what you've seen with the partnership so far, things like convert rates or average selling price, things like that? And is there an Etsy Ads or Offsite Ads opportunity with this as well? And then a follow-up question, just with the trends overall getting better here and starting to see some nice progress. I know we've moved away sort of from the House of Brands mentality. But just wanted to get updated thoughts on M&A capital allocation, if there's more opportunities to kind of the resale market grow here to kind of tag along with Depop. Joshua Silverman: I can take the OpenAI, you can take [ capital question ]. So yes, not an annoying question at all. We're tracking very closely what's happening with the data from agentic commerce. So what I'd say is with the partnership, we definitely saw a spike in purchases from that, but off of a very, very small base. And so good growth but off a very small base. The early data is that the traffic coming from agents is higher intent than traffic even that we normally get from search. So the conversion rate is even higher. However, I would again emphasize that it's a very small data set still. And so while we are very optimistic about this over a period of years, it's still very early days. Charles Baker: And from the capital allocation and your question about M&A and House of Brands, we've got 2 incredible brands in Etsy and in Depop. And if there were other brands that were similarly interesting and attractive, exciting to us, we might look at them. But from a -- we've been buying back our stock pretty aggressively over the last couple of years with a belief that the brands that we have are -- have tremendous long-term value in them. We've changed the momentum, we believe, at Etsy, and as -- we're not satisfied where we are, but we've made some progress, and we think we've got the plans to get the Etsy business into a stronger long-term sustainable growth mode. And Depop has got great growth under sort of looking back, and this really attractive opportunity right now for us to deploy more capital into it. So I guess what I'd wrap it up by saying is we really like our financial resources, and we really like the assets we have, and we're going to keep leaning into them very aggressively right now. Debra A. Wasser: Okay. Operator, we can get one more in. Operator: Your next question will come from Robert Coolbrith with Evercore. Robert Coolbrith: Josh and Kruti, congratulations to both of you on the transition. A couple of questions. So just on the agentic commerce, Kruti, you spoke during the call about the tailwinds you're seeing from improved buyer understanding. Just wanted to ask if you think there's a continued opportunity there in agentic context. Do you think there's going to be a meaningful sort of agent-to-agent communication and associated optimization opportunity in those channels over time? And then, Lanny, a quick follow-up. Can you just maybe help us size a bit the exogenous factors, the de minimis impact to the extent you saw it over the course of Q3? Kruti Goyal: Sure. So I can start with -- look, we think there are a lot of exciting possibilities ahead, both what you mentioned and others that we haven't even considered yet. I think our investment in deepening buyer understanding is going to serve us in any of those paths ahead with whatever opportunities present. The team has done a really incredible job of moving very quickly to take advantage of these -- the evolving capabilities of AI and LLMs to really deepen our buyer understanding in a way that is showing up most prominently right now in terms of the models that we're deploying on-site, so in our on-site and on-app experience, both across search and recommendations. And so those are some of the improvements to engagement that I mentioned earlier, especially on the app and some of the improvements to conversion on search and ads that I mentioned in the prerecorded remarks. So we are excited about the possibility that, that deepening buyer understanding opens up, and we'll certainly leverage that as new opportunities come up in channels like agentic search as well. Joshua Silverman: Can I just build on that for just a sec. One of the ways that customers are trained right now is to give 3 keywords or 2 keywords. And Etsy has just an unusually vast amount of inventory of really neat things that are relevant, and people are suddenly being trained to give paragraphs of information and context. And that's going to be exceptionally helpful to us in getting into the very perfect thing. So we're super excited about that. Charles Baker: On a quick tour of exogenous factors, the foreign currencies were about the same in the third quarter as they were in the second quarter. The competitive dynamic continued to allow us to gain opportunistically some search market share, as we described. And from a trade and tariff perspective, there -- we've seen the resilience in Etsy marketplace of stronger growth in U.S. domestic with a little bit slower growth in the international imports in the United States, right around a couple of weeks of the end of the de minimis exemption, we saw a little bit of pause in the marketplace, but that came back and was a very modest headwind for the total quarter. Debra A. Wasser: Great. All right. We are out of time. Thanks, everyone, for [ joining ] this morning. Joshua Silverman: Thank you all. Kruti Goyal: Thank you. Charles Baker: Thank you.
Unknown Executive: [Audio Gap] 9 months of 2025, client deposits totaled PLN 221 billion, and client funds including investment funds reached PLN 249 billion. The gross loan portfolio stood at PLN 165 billion and total assets amounted to PLN 317 billion. On Slide 8, we are presenting core financial results. Like I said, net profit PLN 4,892 million. Net interest income, PLN 9,549 million. Net fee and commission, PLN 2.2 billion, up 5%. Total income, PLN 12 billion, up 6% year-on-year. For Q3 alone, it was nearly PLN 4 billion. Our capital position remains solid. Return on equity, 21.6%, excellent liquidity, LCR of over 203%. On Slide 10 and 12, we'll present the new features we've introduced to our offering. Just yesterday, we became one of the first to offer the Samsung Pay digital wallet. We are continuously committed to providing a wide range of payment solutions, and we remain a leader in the area with 1.3 million active cards in digital wallets. So very impressive. Same applies to the number of transactions. For SMEs, we've enabled multicurrency support on business cards. We've also introduced improvements to the Smart Loan process. Let's move on to Slide 13. Business data for first quarter. In retail banking, 4.8 million personal accounts we maintain at the moment, that's up 2% year-on-year. In quarter 3 alone, we opened 113,000 accounts. In cash loans, we issued PLN 9.3 billion in cash loans. In Q3 alone, this amounted to PLN 3.3 billion, 9% more year-on-year. And this marks a record-breaking quarter for cash loans, which we're very pleased about. For mortgages, this has been the best period for 5 quarters. In Q3, sales was PLN 3.1 billion. So similarly to previous quarters, most bulk of sales was based on fixed interest rate and the share of those loans in the total PLN portfolio is 48.6%. In the SME segment, over the first 9 months of the year, we issued PLN 3.9 billion in loans with PLN 1.3 billion in Q3 alone. We're advancing digital processes and the volume of SME loans issued entirely online has increased to leading continuously good results, PLN 3.5 billion, a 17% increase year-on-year. In Q3, this amounted to PLN 1.2 billion. Our e-loan, ePozyczka product is selling increasingly well, and it is now available to start-ups, too. In Business and Corporate banking, loan volumes increased by 8% year-on-year, FX income by 11%. Client activity in remote channels is growing, digital plus mobile customers. Now Corporate and Investment banking, revenues from capital markets rose by 56% treasury transactions up 15% year-on-year. Now moving on. Slide 15, the activity I mentioned previously. This, of course, is driving the size of our balance sheet. As of the end of September, the gross loan book was PLN 165 billion. On Slide 25 in the appendix, we show the sustained strong level of new loan sales across segments. As you can see, we see significant growth. And again, we're very pleased about, especially in corporate banking, 8% year-on-year and quarter-to-quarter, up 2%. Slide 16, client funds, PLN 249.5 billion. Deposits, PLN 221 billion, slight decline in deposits from individual clients, but term deposits, on the other hand, an increase in balance. The drop in current accounts was triggered by the drop in savings accounts. Corporate deposits at 2% increase, term deposits up nearly 8%. Deposits from the public sector increased by as much as 5% this quarter, and term deposits and current account balance also increased. Investment funds reached 23% increase year-on-year and 8% quarter-on-quarter. Now profit and loss account. Net interest income and NIM, that's Slide 17. The net interest income was PLN 9.5 billion, which is 5% better year-on-year. In quarter 3 alone, the growth was by 0.5%. Year-on-year, interest income increased by 6%, while -- and let me highlight that net interest income in quarter 3 is the highest this year and it's nearly as high as the record high quarter in 2024. And that's despite the interest rate cuts. Our NIM was 4.88% on continued operations. So the decline was really marginal. And let me highlight that was despite the interest rate cut. Slide 18, that's net fees and commissions. On a year-to-date basis, they total PLN 2.2 billion, which is 5% up on the last year. In quarter 3 alone, net fees and commissions was 3% higher than a year ago. We saw really nice growth in asset management fees by 18%, insurance fees, FX fees and brokerage fees. Quarter-on-quarter, FX fees increased, insurance fees increased and the asset management fees. Just like in previous quarter, let me highlight that this is the follow-up on this bigger number of transactions done by our clients. We have not changed our prices at all. Slide 19 outlines income. Total income, PLN 12 billion, as I've already said, growing by 6% year-on-year. Let me highlight that in the first 3 quarters, the gains on financial operations were much better than a year ago. In quarter 2, let me remind you, thanks to conducive market landscape, we earned outstanding results under the trading and valuation. Of course, this was driven primarily by FX transactions and trading. In quarter 3, the gains and losses on financial operations position actually normalized. Slide 20, very important for us, operating costs. After 3 quarters, this is PLN 3.6 billion, growing by 8% year-on-year. As you might remember from previous presentations, this is driven by higher contribution to the banking guarantee fund. Excluding regulatory costs, total costs increased 5% compared to the previous year, of course, driven by inflation, pay increases and cost of services. Compared to the previous quarter, the cost in total increased by 2%. Administrative costs without the regulatory costs grew by 4% year-on-year, but compared to the previous quarter, they declined by 7%. Staff costs, they increased by 5% year-on-year and 7% compared to the previous quarter. But this is clearly impacted by accruals for performance-driven bonuses and the focus we have for our performance this year. So the pace of growth in cost year-on-year for 3 quarters remained low at 3%. So as you can see, the pace of growth in cost is close to the growth in inflation, and we keep it under strict control. Loan loss provisions, the net balance for -- of the loan loss provisions for expected credit losses was PLN 439.5 million, much lower than the last year, but this was driven, first of all, the high comparative base. Last year, you might remember, we expanded the criteria for classifying exposures to Stage 2 and the impact of that was PLN 125 million. But the other reason for that is the sound and stable quality of our loan book. The cost of credit risk, 33 basis points, is one of the lowest historical results in the bank. Other key risk indicators like the share of NPLs at 4% remain at a good level. We also can see the stable levels of past due payments and new entries to the NPL. In quarter 3, we did not record any one-off major events. And as you can see on the next slide, we sold nonperforming debt worth nearly PLN 400 million, while the gain on that was PLN 98 million. Slide 22, banking tax and regulatory costs. As I said, in quarter 3, the regulatory and tax levies totaled as much as PLN 730 million. After 3 quarters, our PBT was PLN 6.4 billion, while the tax and regulatory levies totaled PLN 2.5 billion. Summing up our performance after 3 quarters at Slide 23. You can see here all the key lines and figures. I will not repeat it. Let me just highlight the effective tax rate. In nominal terms, the corporate income tax is 19%. But we have many lines in our P&L without the tax shield. So the effective tax rate is now 23.2%. So summing up, I'm happy with business performance. We can see the -- how active our clients are. Sometimes, you can see even record high sales volumes. We have really good quality of our portfolio. We have a high number of transactions and the growing number of transactions made by our clients, mobile transactions in digital channels. So all of that bodes well. We are really looking forward here to the results of rankings by Newsweek and Forbes to be announced today. So we are always curious how we benchmark against other business. And Agnieszka, over to you to the questions-and-answers portion. Unknown Executive: We've got the questions ready. Thanks, Agnieszka. I tried to group the questions. So let's start from the question. It refers to the Polish government recently proposing changes to the bank's corporate income tax. What is your current estimated impact from these changes on the bottom line? What do you think about it? Do you have any strategies you could implement to alleviate this impact? Unknown Executive: Well, let me take this question. In reference to what I have already said, banks are the biggest CIT payers. Every [indiscernible] PLN is paid by banks. Last year, out of 10 top payers, the 10 top payers included 6 banks, and the top 3 payers are banks only, including ourselves. So in my opinion, banks significantly contribute to the state budget. It's slightly surprising to us to make this sector the only one to contribute more, the sector that is contributing most really. So there are many opinions about it, some lawyers say there is a significant constitutional concern. The additional CIT rate should not solely rely on one sector. We contribute to the defense and military expenses. Maybe we'll have a separate conference about it, but also other social initiatives, education. We pay our taxes in Poland. We don't do any optimization abroad, we pay taxes here. So it should be stressed out that we share our profit with the state and with the Polish investors, including the pension fund. Let me remind you that over 23% of bank shares are held by [ office ], that's over 40 million future retirees. And if you look at the stock data, that means return on assets or yield. The banking sector is not the most profitable. The Association of Polish Bank did a research on that. There are 12 more profitable industry compared to the banking sector. We are -- our sector ranks only 13th in terms of profitability. And yet, we already paid the highest taxes in the country. So something very important that the nominal tax rate versus the effective tax rate, there is a difference. We pay more in terms of the effective rate. The nominal rate is 19%. So that would be an increase of 60% [ EBITDA, ] what impact this would have on our P&L. That's the comment I have when it comes to CIT. Unknown Executive: Okay. We have a few questions regarding net interest income and the volumes. What is your current outlook on -- into 2025 and 2026? What is the sensitivity to rate cuts? Unknown Executive: So we assume, it will go down to 4% beginning of 2026. So there will be 2 cuts of 25 basis points. We don't quote cuts in November, but if it's cuts then, of course, well, we forecast it will go to 4% in total, the market prices it in deeper -- but we assume 2 cuts in total sensitivity, no major changes. I said the same thing last quarter. Without SCB [ 257 ] sensitivity, if we have a cut of 100 basis points in the 12-month horizon. We presented on Slide 20. You can look at our NII, rates went down 100 percentage points, and our income is higher. So the bigger size of balance sheet neutralizes those effects. And we are nearing the easing -- the end of the easing cycle. What else? Expectations with regards to the growth in loans. We are optimistic. And so our CEO said, we are growing retail mortgages. We expect the trend to continue also in the business segment. And growing the business segment was 9%. So we think that in 2026, we will see growth in investments and the growth in loans to businesses will be solid. Unknown Executive: And there's also question in English, when do we expect big cuts for loan volumes? Unknown Executive: Well, we started the pickup in 2024. So we are not complaining about the lack of growth. In quarter 3, we can see the effect. But this is a one-off seasonal development. Sometimes, we have things coming into the portfolio and getting out especially in CIB. But for CIB, all other segments show solid growth. That's about -- referring to this section of questions. In referring to costs, there are 2 questions. A general one and a detailed one. Wojciech, the outlook for the growth in cost in 2026. Wojciech Skalski: Just to remind you, and by way of a disclaimer, our bank does not publish official forecast. We can just treat it as some guidance. And as we follow the strict cost discipline, and nothing changes here. We know how to keep it in place. When it comes to our fixed cost overhead, we can say that if we take a look at the inflation outlook for the next year, that will be the indicator of the growth, the band of changes, but we shouldn't forget that there will be costs related to the change of the owner, but we are not ready yet to give any result figures. But I think that our next meeting, we will be able to tell you more. But that will be a separate category of cost for us because there will be nonrecurring. Looking at the detailed questions, let's read it out. What part of cost represented the cost of IT employees. But that depends how you define it, IT people. I try to take a look at that, and people who deal with technology in the common understanding, who works in the unit called the digital transformation division. But there are also people supporting operations in the bank, and we wouldn't treat that as IT. That's roughly 15% of our staff costs. But at the same time, we should remember about 2 things. People with IT skills work not only in this division, but also in others. So we are not capturing that so that we could give you a detailed analysis. But the other thing is also that the bank supported itself when we need short-term or especially support by contractors, IT specialists. When spending on this type of technological solution is that the total development is capitalized and then it's amortized totally, so its impact on cost -- so of those costs are quite wide ranging. But roughly, we can say, 15%. These are the people who work in the IT division. Unknown Executive: Thank you, Wojciech. And the section about foreign currency mortgages. But we can actually boil down the answer to answering future risks and the expectations of provisions. Now once again, we have Michal Gajewski. Michal Gajewski: Let me answer that. First of all, we believe that our provisions are adequate. The coverage ratio is 154% on average. We are reviewing parameters in our models, and we will have such a review in quarter 4. All the time, we keep supporting the settlement program. At the end of September, we signed more than 11,000 settlements because we think that this solution is the best for clients and for us as a bank. And that will be my comment to it. Unknown Executive: A couple of credit risk. What do you think will be the normalized cost? Unknown Executive: I don't know what you mean in terms of normalized, in what horizon. But we can -- but to give you some guidance for the future, we do not expect major changes here, either in the profile of cost of risk, and that's been mentioned in the presentation. And in the months to come, it should stabilize. You might remember that in our strategy, we had KPIs and the cost of credit risk across the cycle was from 70 to 90 bps, and that was given for consolidated data with SCB. And on Slide 24, as I said last quarter, the difference was in the order of 10, 15 bps. So you should really adjust that bank by this. But at the moment, we are at this point of the cycle with such macro outlook now and for the next year that we cannot see any dangerous signals. So when it comes to credit risk, we are optimistic and we expect stabilization. Unknown Executive: There are a few detailed questions about deposits, hedges and NII. Let me start with a few questions referring to a decline in current deposits, that 4% in retail. What is the reason, the outflow? Is there any impact on that triggered by the owners change? But when it comes to the decline in current deposits, our CEO mentioned that, and it is stated directly in the presentation and in our report. And you have the figures there, current deposits in Poland include savings account and the decline in current deposits in quarter 3 was driven by the decline in balances and savings accounts because in quarter 2, we have special offers. When it comes to the current account just for daily banking, we can see positive transfer. So this was a one-off driven by savings accounts. And the explanation of that is on the presentation and the report. Corporate deposits, they increase. And there is a question about it, while interest expense declined at the same time on those deposit, how does it happen? The deposits are growing because the good relationships we have with our clients, and the interest expense declines because our -- because interest rates are cut because the beta, that is the percentage to -- but the extent of percentage share, we reflect the interest rate cut. So we reflect this interest rate cut in repricing our term deposits. So that's several percent, so that's beta. And that is the reason for the decline in our interest expense on deposits. And moving on to the next question about strategy. We will continue the strategy for term deposits, where for current deposits including savings accounts, we assume they will be growing. So our deposit strategy remains unchanged. So just one more detailed question about hedges. Is there anything exceptional happening in quarter 3? Not really. And I think, maybe as I do not understand the question. So if you have any doubts, please contact Agnieszka to discuss, and we will get that clarified. But our strategy assumes that at this point, some hedging positions for swapping the floating to fixed rates, and we are renewing them and rolling at lower rates. But otherwise, our strategy remains unchanged. And each quarter, the share of fixed rate loans and total loans keeps growing, which is the effect on the one hand of our hedging strategy, and on the other hand, this is the follow-up of the percentage of loans represented by fixed rate loans in the total sales. So we haven't changed our approach. More questions. I think we've got 3 left. Will there be a wider marketing campaign in the fourth quarter to support the loan volumes? No, the volumes are going up. They're beating the market. So I don't think we need any action to boost production. All right. Now legal risks linked to unauthorized transactions. There is a similar question whether the bank will take action to verify whether the potential change in terms of the CIT rate is not in breach of the constitution. Well, here, we're talking to the Association of Polish Banks about it. That's the forum where we discuss it. No decisions have been taken yet in that respect. Unauthorized transaction, maybe let's take that separately. We're not -- we don't have provisions in the third quarter for lawsuit, potential lawsuit in that respect. Nothing like this happened. We don't have any development in that respect to change our perspective regarding the legal risk versus the previous quarter. That's the end of this question. Lower credit fees, what was it driven by? The line includes the brokerage costs. We have a higher retail lending book, and it stimulated also the -- our network of brokers. And those costs, of course, encumber that line in our financials, hence, generating the drop. Any other questions, Agnieszka? Agnieszka Dowzycka: No, we've exhausted the list. Unknown Executive: If you have any questions after this call, of course, we'll be happy to take them. Send them to my office. Thank you very much. Goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Greetings, and welcome to the Reynolds Consumer Products, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Swartzberg, Vice President of Investor Relations. Thank you, sir. You may begin. Mark Swartzberg: Thank you, operator. Good morning, and thank you for joining us for Reynolds Consumer Products' Third Quarter Earnings Conference Call. Please note that this call is being webcast on the Investor Relations section of our corporate site at reynoldsconsumerproducts.com. Our earnings press release and investor deck are also available. With me on the call today are Scott Huckins, our President and Chief Executive Officer; and Nathan Lowe, our Chief Financial Officer. Following prepared remarks, we will open the call for a brief question-and-answer session. Before we begin, I would like to remind you that this morning's discussion will contain forward-looking statements, which are subject to risks, uncertainties and changes in circumstances that could cause actual results and outcomes to differ materially from those described today. Please refer to the Risk Factors section in our SEC filings. The company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after the call. During today's call, we will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these GAAP to non-GAAP financial measures are available in our earnings press release, investor presentation deck and Form 10-Q, which can be found on the Investor Relations section of our site. Now I'd like to turn the call over to Scott. Scott Huckins: Thank you, Mark, and good morning, everyone. I am pleased with our latest results and how we are performing in what continues to be a challenging environment. As we review the third quarter, we achieved strong retail performance, gaining market share overall and in the vast majority of our categories. We demonstrated increased agility and effectiveness in managing profitability. Additionally, we successfully advanced long-term initiatives that enhance our value, including our strength as a U.S.-centric business. I will review our performance and these initiatives before turning the call over to Nathan for more on the quarter and our guide. Our retail share increases were driven by multiple business units and product lines. These include Hefty Waste Bags, Hefty Party Cups, Reynolds Wrap, Reynolds Kitchen Parchment products and store brand food bags. We are pleased by the breadth and depth of the share gains, demonstrating that both our products and our execution are winning in the marketplace. In terms of pricing, the increases in aluminum foil that we talked about on the Q2 call were implemented according to plan. Reynolds Wrap volume outperformed the category in the third quarter and reflected our position as the U.S.'s only vertically integrated foil manufacturer. This performance was driven by several factors, including the brand's strong equity and reduced price gaps compared to store brand foil, offering consumers a compelling value proposition. The combination of share gains and pricing actions across the portfolio, together with continued cost discipline delivered improved results in all 4 business units in the quarter. In terms of cost discipline, we are making progress managing manufacturing, supply chain and SG&A costs, while continuing to drive our categories and gain market share. Turning to the environment. The operating environment remains challenging with low and middle-income consumers under continued pressure and retailers facing cost inflation, especially from overseas suppliers subject to tariffs. This backdrop presents both opportunities and risks. In terms of risks, this environment can lead to more transactional relationships between suppliers and retailers. For example, our leadership in store brands could result in a customer shifting part of their business to another supplier. However, this also presents a huge opportunity. We can leverage our category leadership while working to become an even more valued supplier by reducing product costs and inefficiencies in our supply chain. Our strong U.S.-centric manufacturing footprint and supply chain remain a source of advantage, especially in this climate of economic and trade uncertainty. Our new Chief Commercial Officer, Carlen Hooker, has hit the ground running and is leading growth programs to further drive share category by category at each of our major customers. There are multiple components of her team's work, including the improvements in revenue growth management processes and tools that I mentioned last quarter. These improvements benefited performance in multiple channels in the quarter, and we are continuing the shift to higher return programs this holiday season and beyond. Household foil is an important category for us and an example of where the implementation of these tools contributed to solid category performance in the quarter. Reynolds Wrap retail sales were up 7%, similar to the category with volumes a point better than the categories minus 1%. As I mentioned, price gaps to store brands also narrowed in the quarter, creating a constructive backdrop further benefiting volume performance. As you would expect, we are monitoring aluminum costs and foil dynamics very closely and we'll continue adjusting our pricing and promotional plans to advance the category in our business. Our innovation is another competitive advantage, and we are strengthening our ability to convert consumer insights into products that drive their categories. Reynolds Wrap Fun Foil is expanding distribution for the holidays in performing strongly online, creating new usage occasions by responding to consumers' appetite for customization and variety. The Reynolds brand also continues to drive transformation in the rapidly growing parchment segment. Circana recently recognized Reynolds Kitchens Air Fryer Liners as a 2025 new product pacesetter for our record of growth and strong alignment with consumer trends. Further, our newest parchment innovations, Reynolds Kitchens Air Fryer cups and parchment cooking bags recently earned additional e-com and mass distribution gains. Our other flagship brand, Hefty, is a nearly $2 billion brand that might be best known for its waste bag momentum. However, Hefty's growth potential extends far beyond waste, consistent with its positioning as a brand that is both strong and dependable. Our 80-count Halloween party cups were recently introduced in mass and are doing well. Velocities for new Hefty ECOSAVE compostable cutlery introduced in club and mass earlier this year continue to be very encouraging. And Hefty remains very strong in waste bags, leading the scented waste bag segment, which is driving the more than $4 billion waste bag category. The Hefty Fabuloso combination of brands immediately resonated with consumers when it began 4 years ago, including the opportunity to build on the 2 brands strong shopper loyalty. Today, the Hefty Fabuloso portfolio continues to drive the waste bag category as more and more consumers find scents they love in a waste bag associated with strength that they can trust. Our newest line, Hefty Fabuloso Watermelon has achieved ACV of over 50 less than a year after launch and is especially popular with the Gen Z consumers who love it not only for its scent, but also for its fun hot pink color. Our innovation is not limited to Reynolds and Hefty either. We are winning in multiple other categories as well. Notably, our store brand food bag business is gaining significant market share driven by the increased distribution of new products in the club channel. In fact, all of the growth in the food bag category was driven by RCP supplied products in the quarter. These new products are performing well because they offer consumer strength, reliability and product features at a retail price that represents strong consumer value. Turning to profitability. As I touched on earlier, I am pleased to report that we are driving out manufacturing and supply chain costs. We have been making progress on manufacturing productivity since the start of the year and are now moving to the next leg of that journey. That involves leaning more heavily on technology, the expansion of lean principles and additional automation throughout our operations. To lead us in that work, we recently hired Scott Vail as Chief Operations Officer. Scott is responsible for the implementation of our manufacturing initiatives across our entire organization in partnership with our business unit teams. In closing, we are operating with increased agility, outperforming our categories and driving improved financial results. We are also making RCP even stronger by driving out manufacturing and supply chain costs, positioning us as an even more important supplier to our customers, in source of value for our shareholders. Nathan, over to you. Nathan Lowe: Thank you, Scott, and good morning, everyone. I am pleased to review our third quarter performance, which demonstrates our effectiveness driving results as revenue exceeded our expectations and earnings was at the upper end of our guide. Third quarter net revenues were $931 million, an increase of more than 2% from $910 million in the year ago period. Retail revenue of $864 million increased 1% by comparison to retail revenue in the third quarter of 2024, and our retail volume grew 1%, excluding foam products. As Scott mentioned, we increased share in multiple categories, and our pricing actions have been executed as planned. Our non-retail revenues also increased $13 million to $67 million in the quarter. In terms of profit, each of our business units grew EBITDA in the quarter and consolidated adjusted EBITDA was $168 million compared to $171 million in the year ago period, reflecting improved results in all operating segments and the timing of corporate expenses in the prior year. Adjusted EPS was $0.42 versus $0.41 in the year ago period reflecting lower interest costs and tax initiatives. Third quarter 2025 adjusted EPS excludes $0.04 of strategic investments in revenue growth and operational cost savings initiatives as well as CEO transition costs. Before turning to the guide, there are a few points I want to highlight regarding gross profit, SG&A and performance in our tableware business. Gross profit was down $6 million versus the year ago period, but to a much lesser extent than in the second quarter with increased alignment between pricing and input costs driving sequential improvement. As a reminder, implemented and in-flight pricing is designed to fully recover commodity and tariff impacts. SG&A was similar to the second quarter levels and down $29 million year-to-date, reflecting changes we have implemented to lower our cost base and create a more agile organization. And our tableware business grew EBITDA in the quarter, in contrast to tableware sales volumes, which were down 13%, demonstrating increasing success, driving profitability in this business as we tailor strategies for managing the various parts of the portfolio differently. Looking ahead, we are pleased to increase our revenue and adjusted EPS guidance for the year reflecting confidence in our retail trends and the programs we are implementing to drive near and longer-term results. As a result, for the full year, we now expect net revenues to be flat to down 1% by comparison to 2024 net revenues of $3.7 billion. Adjusted EBITDA of $655 million to $665 million and adjusted EPS of $1.60 to $1.64. Key features of our expectations include the following: retail volume performance in line with or better than our categories, pricing representing full recovery of increased commodity and tariff costs, non-retail revenue contributing 1 point of growth for the year, early flow-through of productivity gains from the various strategic initiatives we have been working on and continued discipline in all areas of controllable costs, including SG&A. Our full year expectations for adjusted EBITDA and adjusted EPS exclude debt refinancing costs recognized in the first quarter and approximately $40 million of pretax costs to execute strategic initiatives and CEO transition costs. In the fourth quarter, we expect net revenues to be down 1% to 5% by comparison to the fourth quarter 2024 net revenues of $1.021 billion including an assumption of flat non-retail revenues. We expect adjusted EBITDA to be between $208 million and $218 million by comparison to fourth quarter 2024 adjusted EBITDA of $213 million. And we expect Q4 adjusted EPS in a range of $0.56 to $0.60 versus $0.58 in the year-ago period. Turning to cash flow and capital allocation. Subsequent to quarter end, we made a voluntary principal payment of $50 million on our term loan facility. The elimination of relatively high-cost interest expense generates an attractive return in addition to the other attractive capital allocation options for us. We continue to be inside our target leverage range of 2 to 2.5x EBITDA, positioning us well to continue investing against our pipeline of attractive capital investment opportunities. We still anticipate an approximately $30 million to $40 million increase in capital spending for the year as we invest in high-return projects to support growth, drive margin and deliver a more robust earnings model. Much of this investment is in support of growth, the manufacturing initiatives Scott mentioned, and accelerated onshoring of production, reducing the already small portion of our business, not self-manufactured. And we have multiple in-flight programs across our business that are driving productivity and cost improvements that require no additional capital for implementation. In closing, we head into the holiday season driving our categories and pulling all levers to drive earnings in a dynamic operating environment. In addition, we are investing in the business and remain on track implementing programs that unlock even more of RCP's long-term growth and earnings potential. With that, let's open the floor for your questions. Operator? Operator: [Operator Instructions] Our first question comes from Kaumil Gajrawala with Jefferies. Please proceed with your questions. Mark Swartzberg: Maria, maybe we go to Robert and then come back. Kaumil is having a problem with his line. Operator: Okay. Perfect. Kaumil, are you there now? Okay. We will move over to Rob Ottenstein with Evercore ISI. Robert Ottenstein: Great. So I was wondering if you can kind of give us a sense of how you see the setup for the important holiday season, both in terms of promo intensity, we're seeing increase in promos in many categories. And I think your promos is starting to tick up a little bit in a couple of areas. So do you see that continuing? So love to get the sense of the promo intensity will that continue? And then on the other hand, how is the consumer -- how do you see the consumer developing into the holidays? Affordability is an issue. You mentioned stress on middle and lower-income areas sections of the population. How are you playing into that? And do you think that, that can drive growth over last year? So that's my first question. And then as a follow-up, I also wanted to ask, you mentioned in the call that you saw a risk that retailers could shift store brands to other suppliers. Just wanted to understand why you flagged that. Is there something that looks like it's in the works? And how are you dealing with that? Scott Huckins: Rob, it's Scott, Thanks for, I guess, a series of questions. I'll try to take them, I think, in the order that you asked. So I think on the topic of promo intensity, there's really 2 categories in our portfolio that we see away from us a degree of increased promotional activity. And those 2 categories would be waste bags and food bags. When we think about, though, our level of promotional intensity in each of those categories, they're really in line, meaning they look a lot like our overall level of promotion which, in turn, looks a lot like the level of promotion, we've seen pre-pandemic. And I think the results are important, right, which is as we look at waste bags, you look at Hefty branded waste bags year-to-date, retail takeaways are plus 9%, outperforming the category in the quarter by 10 points. If you look at food bag performance, you can see on the Presto segment, volume growth of 9%. So I would say we feel pretty good about our ability to navigate the promotional environment. Second question, I think, is around the state of the consumer. And I go back to just to remind, I think when we initiated the 2025 guide, we talked about we felt a consumer that was challenged and under pressure, that remains to be the case. A couple of bullet points there, I think, that will help put some dimension to that. As we think about elements of the economy, we still see inflation in that sort of 3% zone above the Fed's target of 2%. So generally not helpful or ideal. Number two, we also see the labor market cooling a bit, unemployment levels in the low 4s. But I think the most important one is we see it would be consumer sentiment. Yet again, a move 3, 4 points down in terms of confidence in the month of September, October came out last night down again a point. But the takeaway there to me is we're double digits down year-to-date heading into the holidays. So we remain of the view that consumer is under pressure. I think the sub question you asked then is how is the business prepared to respond to that. And I think it's a bit of a barbell. So more affluent consumers will tend to be brand shoppers and brand loyalists. We certainly have formidable brands that address those sets of consumer needs. The lower income demographics will tend to be more value-oriented potentially more store brand focused. Our portfolio has got a fulsome offering there and feel good about our ability to serve, if you like, both parts of the barbell. I think the last question was about flagging what's happening in store brands or activity there. The reason for bringing that up is in a climate where you've got general challenges in the economy, uncertainty in supply chains from all the tariff activity, we would certainly expect to see a step up in retailers bid activity for private brands business as those retailers are trying to drive value for their consumers in an effort to take share. And so we expect to see that environment. But I'd say having said all of that as a U.S.-centric manufacturer, we would certainly expect to win more than we lose, but we thought it was -- is important to flag as we see that evolution. Operator: Our next question comes from Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: Sorry about that earlier, guys. So I guess you're doing some hiring, you're making some changes in terms of operational capabilities. Can you maybe just talk about what the sort of grand plan is related to -- does that maybe tick up what the long-term algorithm should be? Is it more about share gains? Is it more about category growth? Just some of the things that you talked about very specifically in your prepared remarks. Can you maybe just talk about the -- where it should -- what impact that should have on the business going forward? Scott Huckins: Sure, Kaumil. So a couple of thoughts. We've certainly added some key executives that the team really, if you think of it from a P&L landscape perspective, a new Chief Commercial Officer, Carlen Hooker, who comes to us with an extensive background of building growth programs. And I mentioned in prepared remarks, the addition of Scott Vail as Chief Operations Officer. So I'll just stay with those 2. With -- those are designed to do is if you go back to the beginning of the year, we talked about initiatives across the business: one, to drive growth. And just as a reminder, we're after there is 3 things: prioritized innovation, two, the implementation of revenue growth management tools, which we commented on in prepared remarks. And then three, our opportunity to drive additional share at the customer by customer and product level. Then on the cost side, we've talked about driving manufacturing and supply chain costs out of the business. And so what we see in Scott is additional veteran leadership who has experience driving results in partnership with our business units over time. So really just think of that as key talent being added to the organization maps specifically against the initiatives we talked about at the beginning of the year. Operator: Our next question comes from Lauren Lieberman with Barclays. Lauren Lieberman: I wanted to, I guess, first just ask about tableware. So down probably more than we expected, but more importantly, just line of sight to stabilization. Where are we now on how large or how small foam is? And how should we maybe think about it look more broadly, say, over the next 12 months? Do we get to a point where it has less of a weight on the overall company performance? Scott Huckins: Yes, you bet. Laura, let me start. So tableware definitely down in the quarter. Maybe put some dimension to it. About 80% of the decline would have been a function of the foam headwinds, which we'll come back to in a moment, 20% a function of non-foam declines. And on that second point in the non-foam part of the portfolio, more a reminder that nearly 2/3 of the use occasions in disposable tableware are really convenience and probably more discretionary certainly than the portfolio take it as a whole. Having said all of that, we're very pleased, frankly, with how Ryan and that team have managed the business because if you look at the profit metric despite the volumes being down low double digits, profits actually increased about 10%. So I think we're managing that quite effectively. In terms of foresight, not a ton to add, this year certainly stands to be greater headwinds than one would reasonably think about in foam for next year more a function of the state of California as an example, we're comping all year long this year, not selling foam versus obviously a very large state in the U.S. economy where you did sell foam in the previous year. So I think takeaway would be we would generally see foam being a lesser degree of a headwind next year and very pleased about how we're managing the business from a profit standpoint. Operator: Our next question comes from Andrea Teixeira with JPMorgan Chase. Andrea Teixeira: My question is more on the Hefty waste and storage, I mean, definitely impressive numbers on the volume side. And I guess, year-to-date, you're pretty much profitability and it's impressive also because that's the highest profitability you have among all the 4 divisions. It's slightly down, but I was hoping to see if -- I mean, obviously, it's a function of the -- of your RGM and promo most likely. And correct me if I'm wrong, but also the fact that you've been gaining distribution. So I was hoping to see if you can give us a little bit more of a detail on the promo impact and also how to think about like when you're going to lap those distribution gains or if you are hoping to see more of those as you go into 2026? Scott Huckins: You bet. Andrea, thanks for the question. So I think from a promo environment standpoint, we certainly have seen competitors in the category step up level of promo intensity. We feel as though ours are very much in line. I was mentioning a moment ago that with our level of promotional activity really looks a lot like the rest of the company, and in turn, what we've seen pre-pandemic. So what that tells us is, ultimately, products and execution are really driving that business. You commented on the plus 9% year-to-date, I think that would be pretty good evidence of both the products resonating from insights with consumers, and our supply chain team has done an outstanding job keeping those products in stock. I mean, we are consistently running in the high 90s in terms of case fill rates for our customers. So I think those are really the ingredients for success. Not a lot to offer for next year other than we continue, as I've said before, we're going to continue to invest our financial and human resources against innovation that has some size and durability. And I think if you looked at the Hefty waste and storage portfolio, certainly scented waste bags have been winning in the marketplace. Andrea Teixeira: That's super helpful. If I can just like a follow-up to that, ask, obviously, your private label is huge in that segment. Can you comment on how -- and you spoke before the barbell and it's pretty much a good representation of what the consumer is right now. But if you talk about like how you're positioning yourself into that consumer that needs a higher value product, especially your largest client, if you can kind of give us the state of the union, how that consumer has been behaving and if you're taking any pricing to offset anything, I'm assuming you did not on the entry level, but just curious how you're balancing that part of the portfolio, both the high end, obviously, with the fragrance led, Fabuloso on the bags on the higher-end bags, but also on how to protect the value for the entry level. Scott Huckins: Sure. What's interesting, and this is probably a good comment for the company taken as a whole. We operate in very, very stable categories. And so we generally do not see much movement in the mix between brands and store brands taken as a whole. Meaning, in any given period, you might see a 1- or 2-point change in either direction. Interestingly enough, the sales mix and waste bags is really quite static. Said differently, there's not a pronounced change in the brand store brand mix. So I think what that at least tells us is the brand loyalists continue to an increasing degree by the hefty items. And by definition, looking at the plus 5% of volume growth in the segment overall, that must also mean that we're doing a pretty good job satisfying that private label. Operator: Our next question comes from Peter Grom with UBS. Peter Grom: So 2 for me. First, just a follow-up on the promotional commentary, your response to Andreas and Robert's question was helpful. But we're starting to hear -- we've heard from some larger food companies, including one last night. But the return on kind of these promotions are not in line with what we've seen or what they have seen historically. So I know you feel good about your performance, but I'm curious if you're seeing a similar dynamic in the categories where you compete. Scott Huckins: I guess not a ton to offer but all I can really say to that is we have certainly spent a lot of this year as I think you're aware, really investing in building out a more robust RGM or revenue growth management capability, which by design, really is about migrating trade or investment promotional dollars to their highest value at use. I wouldn't really call out anything positive or negative in terms of kind of structural characteristics about trade effectiveness, for example, I would more say our focus remains on ensuring that those dollars are optimally deployed at both the product level and customer level. Peter Grom: Okay. That's helpful. And then a follow-up just on gross margins and maybe just some perspective on what you're seeing from a cost tariff standpoint. I think back in the summer, the outlook contemplated a 2- to 4-point headwind from commodities and tariffs. So is that still the case as we sit here today? And then just the commentary on the gradual recovery as we move through the year as pricing begins to flow through. So how should we be thinking about fourth quarter gross margin? And maybe specifically, how does that exit rate inform our view of looking out to '26? Scott Huckins: Okay. A few questions there. So let's start with the pricing. So I'd say 2 to 4 points is still a good estimate, both of the cost headwinds from commodities and tariffs. So both the cost and the price side, 2 to 4 points is a good estimate. That was a full year estimate. As you look at the third quarter, there's roughly 4 points of pricing, so that would tell you that we're -- and year-to-date 2 points. So we're right in the inside range as expected and with all of the pricing intended to fully offset those costs headwinds. We don't get into specifics around gross profit or EBITDA from a guidance perspective. But certainly, we're pleased with the progression of gross profit from quarter-to-quarter this year and would expect some continuation of that. Really happy with how our earnings is starting to inflect as the guide would be the strongest EBITDA performance for quarterly performance for the year and really happy with the progress we're making on the various strategic initiatives. So we'll, of course, be back in February to tell you more about that and what it means for '26. Operator: [Operator Instructions] Our next question comes from Brian McNamara with Canaccord Genuity. Brian McNamara: So my first one is kind of a 3 for 1, but it all ties into the same theme here as it relates to consumer behavior. So Hefty waste and storage continues to do well. I know innovation is helping there, but how much is the typical lower price point in some of the categories there relative to your primary branded competitor help in this environment? Second, Presto had its best quarter for volume growth, I think, since 2020. I know you mentioned share gains across store branded bags, but does that also reflect store-branded share gains from branded bags as a whole as consumers trade down? And then finally, restaurants continue to see traffic declines. So why wouldn't we be seeing better volume growth in Reynolds Cooking and Baking, acknowledging you're outperforming there? Scott Huckins: Yes. Brian, thank you for the questions. I guess the first one is really around the waste bag category and what I think the question is really around what's driving the success there? And I think it's 2 constructs. the first, certainly, innovation has been a large part of that business for many years, and we are enjoying that today. So I think I mentioned in prepared remarks. And I think certainly the second would be really we represent the performance brand. So certainly, a performance brand, I think, in this climate, especially is probably a solid place to be in that part of the marketplace. In terms of Presto, thank you, the team will enjoy those comments. You're right, there's significant growth in the quarter, 9 points of volume. No question, there were some share wins in the food bag category, from both other store brand players as well as brands. And I think the why is around that team has had a very, very efficient or has been very efficient at designing really premium quality bags that yet are able to be priced at retail in a fashion that offers considerable consumer value. And I think that strategy continues to win in the marketplace as evidenced by the plus 9. I think the last question you asked about is consumer behavior with respect to dining out versus at home and how that might interact with the Reynolds Cooking and Baking business unit? I'd say there's probably some modest tailwinds from incremental cooking at home, I think that would be a fair assessment. And I think what probably is a bit of an offsetting effect to that, though, is increasing prices in the marketplace, reflecting the run-up in aluminum. So it's hard to be super precise about that. But I think those are the 2 forces competing against each other. Brian McNamara: That's helpful. Scott, you laid out a new strategy in February with new work streams with dedicated leaders, process, resource to go after incremental growth in ROI. You've also operated in a very difficult environment to say the least this year. So I'm curious where is the company today relative to where you thought it would be on those initiatives? And what should give investors confidence that these will bear fruit as we finish 2025 and go into 2026? Scott Huckins: I very much appreciate the question. We are feeling really good about the progress that we're making. Obviously, as we started the year, A lot has changed in the year from a macro climate as everybody on this call is well aware. So we've been put to the test, I think, to execute in a pretty challenging environment. But I think the direct answer is we're really seeing Carlen in our commercial part of the business or the front end of the business, really hitting stride. It's been off to a very fast start, both in leading the RGM initiatives, but also what we refer to as share gap selling again, where we may have share of x percent in a category, but that's not necessarily true of every retailer. And so putting programs in place to drive against those very pleased with that progress. And then the second on cost, I think whether you look at COGS or SG&A, again, I feel like we're right on schedule with the progress that we're making. And as you heard a few minutes ago, also investing importantly in talent against those to drive those forward. So I'd say we're about where we had hoped to be, and we're certainly seeing the effects starting to flow through the P&L. Operator: We've reached the end of our question-and-answer session. I would now like to turn the floor back over to Scott for closing comments. Scott Huckins: Thank you, operator. And certainly, thank you to our analysts and investors for your interest in our business. Also like to pass on our appreciation for our 6,400 teammates as we continue to do the work to unlock additional value for the company. And with that, I wish everybody a great day. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.