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Operator: Good morning, ladies and gentlemen, and welcome to Hypera Pharma's Conference Call where we will discuss the earnings for the third quarter of 2025. We have with us Mr. Breno Oliveira, CEO; and Mr. Ramon Sanches, CFO and Investor Relations Officer. We would like to inform you that this event is being recorded, and you may watch a recording of this video on the company's Investor Relations website, ri.hypera.com.br. [Operator Instructions]. Before we continue, we would like to highlight that some of the information in this conference call may include projections and statements about future results. This information is subject to known and unknown risks and uncertainties that may make these expectations not come to pass or to substantially differ from what was expected. We will now hand it over to Mr. Breno Oliveira, who will begin the company's presentation. Go ahead, sir. Breno Pires de Oliveira: Good morning, and welcome to the Third Quarter 2025 Earnings Call. We're going to start on Slide 3. This is the first quarter after concluding the working capital optimization process that was started last year. And results show that this was implemented successfully. There was no impact to sellout. We conserved profitability, and we had a significant improvement in our operational cash generation. And we've also maintained investments and shareholder remuneration as planned last year. Sell-out went up nearly 2 percentage points above the market and nearly 3 percentage points above our growth in the second quarter. Our highlights were influenza medication, pain killers, gastric, cardiology, skin care and hydration. This acceleration in sell-out and market share gains are a result of the recent initiatives to strengthen our portfolio of leading brands with new launches and more investments in marketing in points of sale and digital media. We've maintained our operational profitability, reaching an EBITDA of nearly BRL 760 million with a 34% margin. This level is similar to what we had before the working capital optimization process, and it is higher than last quarters. We reduced investments in working capital as a percentage of net revenue to 30%, the lowest in the last few years. This has been led especially by reduction in accounts receivable, which was at 58 days at the end of the quarter. This quarter, we combined sell-out growth, profitability and strong operational cash generation, sustaining shareholder payouts and strengthening our corporate governance and I'll go into details about that on Slide 4. We approved payments of BRL 185 million. And we've updated the committees in the company to strengthen the governance and the technical competence of these committees. Ramon will continue with more details about this quarter's results. Ramon Frutuoso Silva: Thank you, Breno. Good morning, everyone. We will begin on Slide 5. Our net revenue went up 16% to BRL 2.2 billion, a result of the combination between sell-out growth in retail and a reduction of 4% in the institutional market. This reflects a lower level of sales to the public market. And this improved our performance due to the optimization process concluded in the last quarter, and it was started in the third quarter of 2024. As I mentioned in the last call, our expectation is to combine sustainable growth of sell-out with maintaining operational profitability and thus conserving our margins. Gross margins were 61.2%, slightly higher than the second quarter of 2025 and the third quarter of 2025. And this was benefited by a mix in products sold that was not impacted by the working capital optimization strategy. Marketing expenses came to a total of BRL 367 million, the same level as the last 3 quarters and it was mostly more directed to digital media. Selling expenses were 5% lower than what was posted in the third quarter of 2024, showing a reduction in R&D expenses, which had a positive impact by the [indiscernible] benefits and also some synergies from the sales structure reorganization carried out in the first quarter. General and administrative expenses went down to BRL 85 million as a result of better efficiency in expenses with teams. Therefore, our EBITDA margin from continuing operations reached a -- reached 34% converted into cash flow this quarter, as I'll mention in the next slide. We also reduced investments in working capital, representing 30% of our net debt at the end of the third quarter. Last year, we had been investing half of our net debt into working capital. This reduction has led us to the lowest historical level of operational cash with a growth of 16% versus the third quarter of 2024. We invested in CapEx for the scopolamine extraction plant. That's the raw material behind the Buscopan brand and the Itapecerica plant, which will produce the products acquired from Takeda. Intangibles were BRL 55 million. This is mainly innovation, research and development. We also concluded the 20th debenture issuance with a term of 5 years and the lowest historical spread, CDI plus 0.75%. This issuance is being used to pay the higher spread issuances, allowing us to extend the average term of our debt. With that, the company's total cash generation was BRL 630 million, which reduced our net debt to 7.3 or 2.4x our annualized EBITDA for the quarter. Now we will hand it over to Breno for his closing remarks. Breno Pires de Oliveira: Thank you, Ramon. What we saw this quarter was a good summary of our long-term strategy, growth with profitability and strong operational cash generation. We accelerated our retail sellout growing nearly 2 points above the current market, and we increased our investments in leading brands without compromising our profitability. We also reached the highest operational cash flow in our history. We have many opportunities to grow sustainably on the short and medium term, extending our leading brands and launching products in new markets, including those that will no longer be exclusive such as semaglutide. Our pipeline for the next years has several products across all of our business categories. They are selected carefully in order to maximize value generation for our shareholders. We are the only company that has a leading position across all segments in the pharmaceutical industry. And with our leading brands and our innovation pipeline, we are well positioned to capture growth opportunities in the medium and long term. Thank you, and we will now continue with the questions-and-answer session. Operator: [Operator Instructions]. The first question will be asked by Mauricio Cepeda from Morgan Stanley. Go ahead sir. Mauricio Cepeda: We have a few questions about the future. Semaglutide is nearly having its patent expired. And I know that this will be an important moment for you as a competitor in the generics market. So I'd just like to ask a few things about how competitive you believe this market will be. We know that ANVISA gave some registration priority to local production and you are licensed for that. So are they considering other stages in the production? And have you received a position from ANVISA about that. Also, one of the concerns we've seen for semaglutide globally is the production bottleneck. It seems to have many bottlenecks, the pen, the purification stage. So do you have any confidence in the supply from your licensor? And do you think there could be bottlenecks in the purification stage and in the production of the pen? And if there is a shortage in the industry, is the -- can the original price of the generics be higher? Breno Pires de Oliveira: Cepeda, considering some points in your question. Just one clarification. We're not trying to license it. We have a partnership, but the product is ours. It's -- the registration belongs to Hypera. And we have a third party manufacturing it for us. This is different from licensing. Also, we don't intend to place this in the generics market. Our goal is to have a brand, have a branded product. We would have medical visitation teams. So there is space for more -- better margins than just having a generic approach. Considering availability, we don't have any indications from our partners that amounts will be limited. In fact, we've been talking about these amounts for initial requests, and there's no indication that this would not be met. I think the timing for the patent expiring is good because Brazil will be one of the first countries in which the patent will be expired. So production could happen here in Brazil. If this happened in other developed countries, I think that could be an issue. Concerning the priority Q, I'm not going to go into details, but we wanted to launch it as soon as the patent breaks. We believe that the first players to launch will have a competitive advantage, and that will be significant, especially in the beginning, right, because the market will be less competitive. And also, they will be able to establish their brands. In the future, when there are more competitors, they will have a stronger brand position because of that. As you know, this is a big market. We have GLP-1 market and the most recent figures are around BRL 10 billion per year. So semaglutide is about half of that 8%. So there was no opportunity -- there was never such a big opportunity than what we will have, and we're working to launch a product as soon as the patent expires. There are many risks, especially timing, registration, but we're confident that we have a very strong dossier. And we believe that we'll have approval to sell after the patent expires. Operator: The next question will be asked by Mr. Bob Ford from Bank of America. Go ahead sir. Robert Ford: Congratulations on your results. Well, there are several other molecules whose patents will expire next year. What are you thinking about the rest of the pipeline for 2026? Breno Pires de Oliveira: Bob, yes, this is a great opportunity. Semaglutide is a major opportunity for Hypera and for new entrants. But like you said, there are other products. We're trying to develop new projects that were started 3 or 4 years ago. We have some impacts from ANVISA because their approval times are a bit longer than when the business cases were created. But we're making a big effort with ANVISA, with the new directors and the new head so that, that can be reduced. So we hope that this line will be reduced and that we can launch things beforehand. But there are products like [indiscernible] and other major products that we will have an opportunity to use. Their patents have either been recently expired or will expire very soon. And also, it's important to say that our pipeline is not limited to medications whose patents have expired. There are many other products that we can invest in and we vested in the past. One examples of the over-the-counter muscle pain market. So we invested BRL 1 billion into muscular Neosaldina, and it's doing very well according to our plans here. We also went into the probiotics market, which has over BRL 400 million with Neogermina and Tamarlin Germina. These are also doing very well, but this takes time to mature. So the cough market, we are already working in, but we should start with a new molecule with a BRL 400 million market. So these are many other markets, just as examples that have no patents where we have been investing with line extensions. There's one more major market for medical prescriptions for vitamin B12. This is a big market where there are no patents, and we're also working hard to go into it. So our R&D has several fronts, business development. We are looking at patent breaks, of course, but we're also looking at major markets in Brazil that haven't -- that where we don't work yet. We're going to start hearing the results from these investments, and we'll start to understand the results of these investments. Operator: The next question will be asked by Gustavo Miele from Goldman Sachs. Gustavo Miele: I'd like to talk about 2 things with you. So considering sell-out, when we talk about this market, we know that this was a tougher winter this year. Hospital occupation rates were higher. Is that reflected in your operations? We see that influenza medication has performed better this quarter, but how relevant was it this year versus the last few years? I think that will allow us to understand the sellout effect this quarter. Also, if I could ask about October, I know that it's still early, but if you're seeing sellout rates similar to what we saw in the third quarter and if the winter has impacted it. Also, I have a question about the [ Lei do Bem ] and why it was higher this quarter, BRL 38 million. I'm just trying to understand the concept. Maybe this could be a good reference for the fourth quarter. Breno Pires de Oliveira: I'll answer your first question, and Ramon will answer the second one. So about sell-out for the third quarter. The winter has been a bit tougher this year than the last 2 years, but I wouldn't say it's higher than average. The growth in the second quarter was higher. It was about 20%. But on the other hand, pain killers and -- had a lower growth in the second quarter. So our biggest over-the-counter categories grew about 7%. So growth was about 7%, and we were able to gain market share across all of these categories. So it's hard to foresee, but we still see an impact from the temperature variation is also impacting October and growth has been in line in October. As you said, these are still preliminary figures, but we have been seeing growth levels similar to what we had in the third quarter. Ramon will answer your second question. Ramon Frutuoso Silva: Considering the [indiscernible] , we did have a higher rate this third quarter. This benefit depends on 3 main factors. First, expenses with innovation; and second, the real income for this period. So the real income was higher this quarter, which has resulted in this higher benefit. But this value is what we expect for the year. So for the fourth quarter, this benefit will be lower. And this impact is more regular with what we expect to see looking at our history. This higher value was a one-off this quarter because of the factors I mentioned. Operator: The next question will be asked by Mr. Lucca Marquezini from Itau BBA. Lucca Marquezini: We have 2. First, about cash generation. So looking towards the future, I would like to ask if it makes sense to consider a drop considering OTCP payments? That's my first question. And also, I have a question about the institutional market. There was a drop due to lower level of sales. I would like to know if this is a one-off or if we should expect that for the next quarters. Ramon Frutuoso Silva: Lucca, this is Ramon. So considering cash generation, it was high. We captured this benefit from the working capital adjustment. So we do expect to see a reduction in operational cash flow, considering free cash flow or the total cash generation, excuse me, it will be a bit lower due to the dividends being paid out, as you mentioned, the OTCP payments that is done every fourth quarter. And Breno will answer the second question. Breno Pires de Oliveira: Considering the institutional market, we saw a deceleration in the market because of the performance of the government, and this also impacted several national companies, not only ours. But we've been seeking short-term alternatives to minimize this effect. We're trying to be more competitive in prices for some specific molecules that we have the production capacity for where we have some idle capacity and a potential of generating profits even being more aggressive commercially. But that's for the short term. For the medium and long term, our institutional focus is the private market. So increasing our participation in the private market through development, our medication pipeline, we've had 4 or 5 launches that are performing according to what was foreseen, reaching market shares of 5%, 10% across the categories that we recently entered into. So over time, growth in the institutional market will be much more in the public -- excuse me, in the private than the public market and in more strategic categories in the future, such as oncological and biological drugs. We're starting to see the first products in those categories in 2026. That was very clear. Thank you. Operator: The next question will be asked by Mr. Leandro Bastos from Citibank. Leandro Bastos: I have 2 questions. First, I'd like to ask about R&D. You mentioned the effects from the [ Lei do Bem ], but we see investments in R&D and intangibles very similar to what we had in 2022. So I'd like to ask about the pipeline opportunities and so on, if you are running at an optimal R&D level or if we should expect any accelerations in the future? That's the first point. My second question is, we saw high discounts this quarter, still a bit above sell-out. So I'd like to get an update on that competitive dynamics and the company's strategy on the commercial side. Breno Pires de Oliveira: Leandro, I'll take the first question, and Ramon will answer the second one. About the R&D level, we think that the current level, although nominally, it is not growing, it's at an optimal level. So basically, revenue has been going up. Our R&D has been working deeply on that, on sales. The full team is still working. And we've been focusing on, one of the things we learned in the last few years is to focus on more relevant projects. We're also looking at this from a marketing context. The launch is not just about a new product being successful. It's not only about R&D. We have to do the launch plan with investments in media, working with clients to position these products as soon as we can. And on the prescription side, the medical promotion so that these medications are promoted in a relevant way. And so that will lead to increase in sales. So our pipeline has not changed especially when you have pilot batches and clinical studies, it varies. But in the -- but also in the number of projects. This is at the same level still. Ramon will answer the second part of your question. Ramon Frutuoso Silva: Leandro, to answer your second question, this increase in the discount is related to a variation in the product mix. We had above-average sales in generics and similars, and we don't expect a huge variation from that level for the next quarters. Operator: The next question will be asked by Mr. Samuel Alves from BTG Pactual. Samuel Alves: We have 2 questions. First or rather both of them are related to working capital, which was more positive this quarter. The first question is about CapEx. We noticed there was a drop of 11% when you look at CapEx as immobilized tangibles year-on-year. So if you could talk about the seasonal pattern for this CapEx for the rest of the year, if we should expect a deceleration and be executed versus the budgeted for the rest of the year? That's my question about CapEx. Secondly, the company had robust cash generation this quarter. And the suppliers line was very helpful at doing that. We saw an improvement year-on-year and quarter-on-quarter. So I'd just like to understand if any credit was granted or if there was any outside factors this quarter that helped in this cash generation. That's all. Thank you. Ramon Frutuoso Silva: Samuel, this is Ramon. First, about CapEx. This was aligned with what we expected in our budget for the quarter and it's a level that is very similar to what we expect to see. To answer your second question on suppliers, we started buying inputs in a more normalized way after this working capital adjustment, so more in line with the sell-out rate. When we reduced inventory in channels, we also reduced some expenses that we did not expect. And these purchases were concentrated in inputs with lower terms or shorter terms, excuse me. So as we go back to the normal sellout level, we have longer terms. This impact came from the mix, and this will benefit our cash flow for this quarter specifically. There were no changes in these credit sessions. I mean, if you look at the levels, it didn't change that much. So we didn't change it. This impact is coming from a change in mix quarter-to-quarter. Operator: This concludes the company's question-and-answer session. We will now hand it over -- we'd like to thank everyone for participating and wish you a good day.
Operator: Thank you for standing by, and welcome to Invest Trust's Third Quarter 2025 Earnings Conference Call. My name is Becky, and I will be your conference call operator today. Before we begin, I would like to remind our listeners that today's presentation is being recorded, and a replay will be available on the Investors section of the company's website at inventrustproperties.com. [Operator Instructions] I would now like to turn the call over to Mr. Dan Lombardo, Vice President of Investor Relations. Please go ahead, sir. Dan Lombardo: Thank you, operator. Good morning, everyone, and thank you for joining us today. On the call from the InvenTrust team is DJ Busch, President and Chief Executive Officer; Mike Phillips, Chief Financial Officer; Christy David, Chief Operating Officer; and Dave Heimberger, Chief Investment Officer. Following the team's prepared remarks, the lines will be open for questions. As a reminder, some of today's comments may contain forward-looking statements about the company's views on the future of our business and financial performance, including forward-looking earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call or that are in the quarterly financial supplemental or press release. In addition, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website. With that, I'll turn the call over to DJ. Daniel Busch: Thanks, Dan, and good morning, everyone. I'm pleased to report another strong quarter for InvenTrust, one that reflects the consistency of our execution and strength of our strategy. Since our public listing 4 years ago, we've increased FFO per share by nearly 30%. That track record is a direct result of a deliberate and disciplined approach that has remained consistent. Our success stems from a proven playbook, maintaining high occupancy, embedding contractual rent escalators, attaining strong tenant retention, achieving healthy renewal spreads and pursuing selective accretive acquisitions. This quarter, those fundamentals once again delivered tangible results as same-property NOI grew over 6%. Rent spreads remained healthy and leasing activity was positive across both anchors and small shops. We've built a scalable, high-performing platform that allows us to operate efficiently and grow strategically. Our hub-and-spoke operating model enables us to manage a broad network of top-tier assets across Sunbelt markets with minimal incremental G&A impact. As we expand our portfolio, our structure provides both operating leverage and flexibility, positioning us to continue scaling efficiently while maintaining the hands-on oversight that defines our approach. Turning to the macro environment. We continue to see encouraging fundamentals in the Sunbelt consumer base. While national data presents a mixed picture, we view the region's underlying dynamics as a net positive. Census data shows retail sales are up year-over-year and industry research points to sustained strength in suburban centers across the Sunbelt, where foot traffic and occupancy remain well above national averages. Hiring momentum in major Sunbelt MSAs remains healthy, and CoStar recently noted that 9 of the top 10 U.S. retail metros are in the Sunbelt, the same markets where we are most heavily concentrated. That said, we're not ignoring the data points that signal caution. Household debt levels are edging higher and consumer confidence has weakened. While sentiment has softened, day-to-day consumer behavior in our centers remains resilient, underscoring the essential nature of our tenants and the stability of our asset base. Another competitive advantage we see is the limited level of new open-air retail development. The economics for new strip center construction remains challenging, rising costs, tight capital markets and restrictive zoning have kept new supply muted. Meanwhile, obsolete retail inventory continues to exit the market. Strategic capital deployment has been an important part of our success this year. During the quarter, we completed the full redeployment of proceeds from the sale of our California portfolio into higher-growth Sunbelt markets, a rare and highly accretive rotation of capital. Two of our newest assets located in Asheville and Charlotte, North Carolina, which Christy will discuss shortly, are perfect examples of what we seek, strong grocery anchors, exceptional demographics and embedded rent growth potential. In addition to these recent acquisitions, we have been awarded 2 properties totaling over $100 million. Our capital allocation strategy remains measured and disciplined. We continue to target opportunities that align with our strict return thresholds and enhance the overall quality of our assets. Roughly 70% of our portfolio is comprised of neighborhood and community centers, with the remaining balance consisting of power and lifestyle properties that share similar market dynamics and demographic profiles. This balanced approach provides diversification while maintaining focus on the formats where we have the greatest operational advantage. Looking ahead, strip center fundamentals appear to remain favorable, supported by low vacancies, limited new development and steady leasing demand. With a focused Sunbelt footprint, high-quality tenant base and financial flexibility, we are confident in our ability to deliver solid total returns for our shareholders. With that, I'm going to turn it over to Mike to review our financial results. Michael Phillips: Thanks, DJ, and good morning, everyone. Same-property NOI for the quarter was $44.3 million, representing a 6.4% increase compared to the same period last year. The growth was driven by embedded rent escalations, which contributed 160 basis points, along with occupancy gains and positive rent spreads, each adding 100 basis points. Further contributions of 60 basis points from redevelopment activity, 60 basis points of percentage and ancillary rents and a 220 basis point lift from net expense reimbursements. These gains were offset by a 60 basis point impact from the bad debt reserve. Year-to-date, same-property NOI totaled $128.3 million, a 5.9% increase over the first 9 months of 2024. For the third quarter, NAREIT FFO came in at $38.4 million or $0.49 per diluted share, representing an 8.9% increase compared to the third quarter of last year. Core FFO also increased 6.8% to $0.47 per diluted share for the 3 months ending September 30. Components of core FFO growth per share for the quarter were primarily driven by same-property NOI and net acquisition activity and partially offset by the impact of an increased share count. For the first 9 months of the year, NAREIT FFO was $111.1 million or $1.42 per diluted share, reflecting a 6% year-over-year increase, while core FFO was $1.37 per diluted share, up 5.4% compared to 2024. Turning to the balance sheet. We continue to strengthen our financial position during the quarter by executing on an extension of our existing term loans. This recast moved the maturity dates on the 2 $200 million tranches to August 2030 and February 2031, increasing our weighted average maturity to 4.7 years. We entered into 4 starting interest rate swaps that locked in fixed rates of 4.5% and 4.58%, respectively, and will take effect upon the expiration of the in-place swaps in 2026 and 2027. As of September 30, total liquidity stood at $571 million, including $71 million in cash and the full $500 million available under our revolving credit facility. Our weighted average interest rate is 3.98%, and our net leverage ratio is 24%. Net debt to adjusted EBITDA remained at a sector low 4x on a trailing 12-month basis. With a long-term debt policy targeting a leverage range of 5x to 6x, we have ample capacity to execute our capital plan while maintaining balance sheet strength. We also declared an annualized dividend of $0.95 per share. During the quarter, we completed 4 acquisitions totaling $250 million. These transactions were funded primarily with cash on hand and 1 secured mortgage that we assumed with the transaction. Turning to guidance. Based on the year-to-date results and current visibility, we are raising our full year same-property NOI growth guidance to a range of 4.75% to 5.25%, while reducing our bad debt reserve to 55 to 75 basis points of total revenue. We're also increasing the midpoint of our NAREIT FFO guidance to $1.87 per share and raising the low end of our core FFO guidance to a range of $1.80 to $1.83. As reflected in our guidance, we expect some deceleration in the fourth quarter, primarily due to property operating expenses being more backloaded in the fourth quarter and our remaining bad debt reserve. Finally, we have revised our net investment guidance from $100 million to a range of $49.6 million to $158.6 million. Further details on our guidance assumptions are available in our supplemental disclosure. And with that, I'll turn the call over to Christy to discuss our portfolio activity. Christy David: Thanks, Mike. Operationally, we continue to see strong tenant engagement and healthy leasing momentum across our portfolio. Our focus on necessity-based convenience-oriented retail continues to pay dividends. Anchor tenants are renewing at solid rates and small shop demand has been steady. Our proactive asset management approach emphasizes relationship building and real-time market awareness. By staying close to our tenants, we're able to anticipate needs, identify early renewal opportunities and support them in ways that enhance retention and portfolio stability. The result is consistent occupancy and strong rent collections across the platform. We also continue to manage expenses effectively, supported by active oversight and strong vendor partnerships. At the same time, we are investing selectively in property enhancements that improve curb appeal, energy efficiency and tenant and consumer experiences. These targeted upgrades help sustain the long-term competitiveness of our centers while supporting both rent growth and retention. A key area to highlight this quarter continues to be the consumer preference for dining out. Quick service restaurants and convenience-driven dining concepts remain a significant catalyst for retail demand. Restaurants, bars and coffee shops represent a meaningful share of new leasing activity, reflecting the public's sustained appetite for experiential and on-the-go dining. These macro trends have translated into meaningful small shop demand. New leases for the third quarter achieved a 25.6% spread, while renewals averaged 10.4%, producing a blended leasing spread of 11.5%. Notably, more than 90% of our renewal leases include annual rent escalators of 3% or more. These built-in mechanisms, while straightforward, are a powerful driver for sustainable NOI growth over time. Our retention rate year-to-date is 82%, reflecting the impact of a single anchor space at our Gateway property in St. Petersburg, Florida, which will be going through a transformational redevelopment. Excluding that space, our retention rate was 89%, consistent with previous quarters. On the tenant health side, our exposure to bankruptcies or at-risk tenants remains minimal with a modest and actively monitored watch list. When an occasional vacancy does occur, our operations team is well positioned to mitigate downtime and secure high-quality replacements. At quarter end, total lease occupancy was 97.2%. Small shop lease occupancy maintained its portfolio high of 93.8% and anchor space finished at 99.3%. Equally important for our cash flow visibility is that approximately 90% of 2026 leasing is already executed. As DJ mentioned, since our last call, we added 2 high-quality assets in North Carolina, Asheville Market in Asheville, anchored by Whole Foods and Ray Farms in Charlotte, anchored by Harris Teeter. Asheville offers a strong health care and education foundation, a vibrant tourism economy and population growth projected to exceed the national average over the next 5 years. Charlotte, one of the fastest-growing large metros in the U.S. continues to see in-migration, job expansion in financial services and technology and above-average household income. These transactions demonstrate our acquisition strategy in action, investing in high-growth markets and premier properties that fit our operating model. Looking ahead, we remain encouraged by the leasing pipeline as we move into the final quarter of the year. Renewal discussions are active and small shop inquiries remain strong across the portfolio. With that, I'll turn the call back to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Andrew Reale from Bank of America. Andrew Reale: DJ, I appreciate some of your comments at the beginning just on the Sunbelt consumer overall. And obviously, bad debt has been trending favorably. But I'd just be curious if you could talk a bit more about tenants in some of your more discretionary categories, including restaurants. And I know, Christy, you mentioned that consumer preference for dining out remains strong, but obviously, there have been some negative headlines in recent months just around quick service restaurants and dining out. So would just be curious to hear your thoughts on some of those categories and how you're thinking about renewals if we do see a pullback on discretionary spend? Daniel Busch: Yes, Andrew, thanks so much. To your point, I mean, I think from our perspective, and Christy said it in her prepared remarks, we still see a lot of demand from quick service, both fast casual and sit-down dining. I think we -- in our portfolio, we're fortunate to where we can kind of go through on a tenant-by-tenant basis and kind of identify whether there's an overarching theme related to some of the tenant disruption or if it's really an operator -- an operating issue. And in our case, it's mostly been the latter. There's certainly a tremendous amount more restaurants doing quite well in our portfolio versus the ones that we're seeing that are struggling. And there's a lot of different reasons for that, whether it's concept, operations or whatnot. But generally speaking, we still see a lot of demand. We will have a couple of restaurants turn over going into the end of this year. But we already have solid demand. And frankly, some of those have already been leased to another food use. Andrew Reale: Okay. And if I could just ask a follow-up. I guess, broadly, just within the acquisition pipeline, what percentage is core grocery versus more power and lifestyle? And then just any color around the size of the pipeline and the latest on what you're seeing on pricing? Daniel Busch: Yes. Yes, it's a good question. I think our pipeline still remains pretty robust. I would say, at any given time, we're looking at over $1 billion of assets. And to your point, it kind of runs across the spectrum of open-air retail. Obviously, most of the stuff we look at has some sort of grocery component or essential nature to the merchandise mix. The 2 assets that I alluded to and that Christy mentioned that we've been awarded, both are grocery anchored as well, in some cases, multiple grocers. But the mix that we look at is really just the -- when you look at our pipeline and what you should expect us to continue to transact on is very similar to the makeup of the current portfolio. We really like the idea of having the predominant or the majority of our assets having that core grocery component, whether it be a smaller neighborhood center or community center with grocery. But we also do like having a small mix of power centers as long as they fit our strategy and are in markets that we truly believe in, and we're certainly looking at some of those opportunities as well as some of the smaller lifestyle deals that you've seen us do in the past. So as I mentioned, over 70% has some sort of core grocery component. And then we have a small mix of other open-air assets that fit our strategy within our markets. I think that, that's a fair kind of mix within the portfolio that you can expect us to look at going forward. Operator: Our next question comes from Linda Tsai from Jefferies. Linda Yu Tsai: Occupancy over 97%, how are you thinking about the trajectory over the next couple of quarters? Daniel Busch: Yes. Good question, Linda. Obviously, we had a high watermark this quarter again in small shop. We do expect the small shop to decline a tad going into the end of the year and into the first quarter with the reacceleration in '26. And at some point in '26, hopefully hitting yet another high watermark. That just speaks to the demand that we're seeing on the small shop side, even with a small amount of fallout, which is nothing out of the ordinary. As a matter of fact, we don't expect to hit or exhaust our bad debt as has been the case in the years past. And then on the anchor side, I think we have about -- I think we have 4 anchor vacancies today. By the end of the year, I think we'll have 5. 3 of those are at a redevelopment opportunity in West Florida. So we've strategically kind of deleased those spaces with the expectation that we're going to do a redevelopment and a rebuild with a grocer. And then the other 2, one is in Southern California. Obviously, our last asset there, we're expecting to sell and another really good opportunity in Dallas. So it's always nice when you can fire off the amount of vacancies in a -- quickly. That just speaks to kind of the demand that we're seeing there. But there will be a little bit of cadence change going into the year, but we expect it to reaccelerate, like I said, in '26. Linda Yu Tsai: That's helpful. And then from where you sit today, how are you thinking about CapEx for leasing and TIs in '26 versus '25? Daniel Busch: Yes. So in '25, I think it's been a similar kind of spend. We do have some redevelopment opportunities that are more value-add going in, like I said, some of these grocery opportunities, we have a couple of those coming up. Those tend -- those do cost a decent amount of money. We get a tremendous amount of return out of those opportunities. And I know we've spoke about this in the past. I think now that we have a lot of our anchor leasing and build-outs done, especially as we look into the mid-2026, our expectation is that our CapEx burden will come down just due to where the occupancy is in the portfolio, which should lead to greater free cash flow as we look into '26 and beyond. Linda Yu Tsai: That's really helpful. Just one quick one for Mike. I think earlier, you mentioned that there are more back-end loaded expenses in 4Q. Can you just give us some context there? Michael Phillips: Yes. Just the last couple of years, we've had in the fourth quarter, just our normal operating cycle, we've had higher property operating expenses in the back half of the year. This year, that will show up in Q4. And then on top of that, our corporate expenses typically in Q4 just tend to run a little bit higher. Operator: Our next question comes from Cooper Clark from Wells Fargo. Cooper Clark: I was curious if you could walk through the puts and takes as we think about the current net investment range with respect to the last California disposition and the acquisition pipeline. Just thinking about some of the moving pieces into the end of the year that get us to the high or the low end of the range from a timing perspective? Daniel Busch: Yes. No problem. Basically, the reason we changed the range is we do have 2 deals that have been awarded to us, and it's going to be really close on whether they close in 2025 or not. So really, it's just a timing issue. The low end of the range is things that we've already transacted on. The high end of the range is things that we are hopeful that we can get across the finish line before the end of the year. But if not, those will show up in early 2026. On the disposition side, as you mentioned, in California, really that one, we're expecting to sell probably early in '26 or at some point in '26. We're just dealing with some administrative issues with that asset based around environmental. But it's a great asset in -- or the last asset in Southern California, and we do expect to transact on that one as well, but it probably won't be this year. Cooper Clark: Okay. That's helpful. And then could you just talk about the confidence level to grow accretively from here on acquisitions as we move into '26? I appreciate the positive spread on the California dispositions year-to-date, but curious on growth from here as you shift towards funding acquisitions with balance sheet capacity? Daniel Busch: Yes. Obviously, we look at our -- and it's a great point. We look at our different pockets, our sources of capital differently. Obviously, the California rotation gave us an opportunity that's unique. We were able to, from our perspective, upgrade the portfolio materially in markets where we've seen really good growth and that we're excited about. And we're able to do that on a positive spread day 1, with even better growth over time. Now obviously, when we're looking at growing on our balance sheet, that cost of capital is a little bit different. And we've already kind of made that shift as we go through investment committee and we're looking for those new opportunities because it is important. I mean, at the end of the day, this platform is scalable, but we got to do it in a responsible way, and we got to do it on an accretive manner for our shareholders, and that's kind of where we're at today. So that comes -- when we think about our overall transaction opportunity set, it really is as a response I mentioned earlier, we're looking at a lot of different formats, a lot of different property types. And we can get to accretive cash flow in many different ways because of the opportunity sets that we see in our markets. Operator: Our next question comes from Mike Mueller from JPMorgan. Michael Mueller: First, when it comes to the remaining budgeted bad debt expense for the year, does most of what's being assumed for the fourth quarter fall into the -- it's visible or more into the -- it's still an assumption bucket? Michael Phillips: Yes. I think -- I can take that. This is Mike. I think it's a little bit of both. So in our forecast, our range is 55 to 75 basis points right now in our forecast, we have visibility probably into the bottom of that range at 55 basis points. And then to get the top of the range is kind of reserve for unforeseen fallout that might not be right in front of us. Michael Mueller: Got it. Okay. And then going back to occupancy for a second. The small shops are a little under 92% occupied. What do you see as being a ceiling for that metric? And do you think the current backdrop is one where you can ultimately get to it sometime over the next few years? And I understand the comment about near term, we may see a little drop off though. Daniel Busch: Yes, Mike, from what we see in the pipeline and the demand that we continue to see, I think we expect that we can continue to kind of march higher. Obviously, once you get into the mid-90s from an occupied standpoint, you're really only talking about frictional vacancy, and it's hard to push that further and further just because some space is just always going to be a little bit more structurally challenging to lease. We do have a full strategy around that, whether it be lower rents, percentage rent deals, giving tenants an opportunity to succeed in areas that have probably been vacant for quite some time, which is an issue across the industry. There's always space that's a little bit less desirable no matter how high of quality your center is. So we'll continue to do that. But at the end of the day, if we can hold occupancy where we're at, and continue to get the escalators that we have been getting, and that continues to deliver real NOI growth on a year-over-year basis. And then we get our double-digit spreads that we've gotten 8 quarters in a row on a renewal basis. All that with a very high retention, it's just a tremendous opportunity for us to accelerate free cash flow growth because we're not churning our tenants as much as we have in the past. Now there will be churn, there always is in retail. But from when we look at -- and I think I've heard some of our peers mentioned this on their calls as well, the quality of our tenant base is just so much -- it's far superior than it has been in the years past. The credit quality, the merchandising of our tenants, we just don't have the large tenants that, specifically anchor tenants, that are struggling right now. And whether that changes over the next couple of years, we'll see. But right now, we feel very confident in our anchors. We feel very confident in our national and regional small shops. And then obviously, the local flavor of our small shops have been doing phenomenal for quite some time. Operator: Our next question comes from Michael Gorman from BTIG. Michael Gorman: Just wanted to ask a question on the lease to economic occupancy spread continued to compress in the quarter. And I'm just curious, given the strength of the leasing in the pipeline, strength of demand, the strong retention rate, can that compress below the 2021 levels? Or where should we expect that to stabilize as you move into 2026 and beyond? Daniel Busch: Yes, Michael, it's a good question. When we look at our -- when we look at the spread, a lot of that just comes down to timing. And I kind of mentioned it like depending on when we're signing new deals versus when we're expecting a tenant to vacate and then obviously, when we're expecting to -- that tenant -- the new tenant to take ownership or occupancy. So a lot of the spread comes down to timing. I think from our perspective, anywhere between 150 to 200 basis points is probably the normal run rate, and that's going to ebb and flow. The way we think about that spread is more just what's in the pipeline. We have $5 million in our signed but not open pipeline. And we're expecting about 80% of that to be captured next year. So a substantial portion getting open and occupied and paying rent in the first quarter. And then driving substantial new NOI in the next -- in the upcoming year. But that spread will always kind of ebb and flow. But you're right, it did contract a little bit this quarter. Michael Gorman: Great. That's helpful. And then, DJ, you talked about some of the macro signals that you were looking at but not seeing in your portfolio yet. One of the things that we've been trying to understand a little bit more is, obviously, the grocer sector continues to be pretty strong. But at the same time, you're seeing a climbing percentage of spend on eating out and takeaway food and QSRs and everything. How do you think about that balance going forward? Can both of those sectors continue to grow and be strong here? Or how does the consumer adapt if it continues to show some weakness and the economic environment continues to soften? Like how do those 2 balance out? Daniel Busch: Yes. it's a great question. And I don't have a great overarching answer. But I will tell you, within our portfolio, it's been interesting because we haven't seen those 2 categories, whether it be our grocers versus our quick service or eat away from home, as you said, being as substitutes. They've been more complements. We've had our quick serve -- our restaurants across the different formats have continued to do quite well. Also, our groceries have been doing very well. Some of that is inflationary driven, certainly, but our grocers continue to march forward. I think it speaks to, one, the markets that we're in, we've just seen a lot of in-migration growth kind of -- which rises -- the tide rises all boats in that case. and the types of grocers that we're dealing with, obviously, one of our top tenants is Publix. I know in the Southeast, they're a formidable grocer, a phenomenal operator, HEB in Texas, obviously, Kroger and Albertson's are at the top of our Top 10 list as well. So the types of grocers that we're dealing with, I think, have been more or less been investing in their stores, we've been able to grow [ ID ] sales. And it's been an interesting dynamic over the past couple of years where food at home and food away from home have been able to grow. Operator: Our next question comes from Paulina Rojas from Green Street. Paulina Rojas Schmidt: Looking at your recent acquisitions, I see that they have skewed towards secondary and tertiary markets. And I'm curious, would you be comfortable if tertiary Sunbelt markets grew to represent a materially larger portion of your portfolio and perhaps doubling their current share? How do you think about that? Daniel Busch: Yes, it's a good question, Pauli. And look, it's a good observation. I we tend to not get caught up in gateway secondary, primary, secondary, tertiary. I think the predominantly -- obviously, the vast majority of our portfolio are in cities that we like to call 18-hour cities, obviously, big CBDs perhaps considered primary or secondary markets. But I mean, I would argue that Charlotte is one of the fastest-growing markets, albeit it has traditionally been called a secondary market. Certainly, the dynamics on the ground in a market like Charlotte are quite different. And what we found in it for our ability to grow our portfolio, I mentioned it in my prepared remarks, we really, really like the hub-and-spoke model. So Charlotte is a core market for InvenTrust. From that market, we can also invest in markets like Asheville, which has seen tremendous amount of migration. It's gone from something that's been more of a secondary residence area to a primary residence area. Now obviously, Asheville has its own tragedy in not-too-distant past, but we feel very confident that, that market is going to rebound in a big way. Now having said that, when you mentioned secondary and tertiary markets, our quality -- the level of quality has to be higher. If we're going to be in that secondary market, we got to make sure that we're going to own and operate the best asset in that market or the second -- the best asset in the market where certainly in larger gateway markets or primary markets, you certainly can own a lot more because there's certainly just a lot more population and density to accommodate that. Paulina Rojas Schmidt: Do you think cap rates change if you go to markets that are less by typical institutional investors where local trade area demographics are equally strong. Do you see the cap rate different? Daniel Busch: Sure. Well, it all comes down to what's the risk-adjusted return that you're trying to get. And that's why I mentioned the quality is very important. We got -- you have to make sure that you're at the high end of the quality spectrum when you do go into a smaller market. I wouldn't call it a tertiary market. Certainly, some of them are tertiary. We've tended to stay away from markets that are very thin in population unless there is green shoots of impressive growth coming in the future. But there -- what we tend to look at, Pauli, is anywhere from, call it, high 5s to high 6s from an initial yield standpoint. And that tends to get us to our risk-adjusted returns that are comfortably in the 7s. I know people quote IRRs quite differently, but from the way we look at the world, we can make that accretive to our business. But certainly, there are cap rate nuances, not only from market to market, but property type to property type and depending on your merchandise mix. Paulina Rojas Schmidt: Yes. I guess what I was getting to is something that is more an opportunity, more a market inefficiency because fewer investors are looking at those markets and where perhaps the return that you were able to get it is not really explained by higher risk and that it's really a function of that demand. Daniel Busch: No, that could be the case. I mean, look, I think one of the interesting dynamics, obviously, our decision to move -- to exit out of California was a strategic one for InvenTrust. It's a core market for almost every other private or public operator. And California trades differently than most any other state or the markets in California trade differently than any other markets in the country. And to your point, it's because of the demand and the liquidity that it offers. Now we're as a public REIT, as a perpetual vehicle, that's really not as important to us. What's important to us is to create sustainable free cash flow growth over a long period of time for our shareholders. And we can do that in other areas outside of California, which allows us to take advantage of for lack of a better term, some sort of arbitrage. Operator: Our next question comes from Cooper Clark from Wells Fargo. Cooper Clark: You spoke to operating leverage in your prepared remarks and margins look to be up about 100 basis points year-over-year. I was curious if this is mostly timing related as you noted some backloaded expenses earlier on the call. And if you could provide color on the potential for further upside to margins as additional occupancy comes online. Daniel Busch: Yes. So like, obviously, we get operating leverage as our occupancy climbs higher, as you mentioned. We do expect to continue to get marginal operating leverage as we continue to grow the portfolio. That's one of the best things about having the platform that we have is we can continue to scale it, and there should be real tangible benefits not only at the operating margin level, but also at the EBITDA margin level. And that's just going to come as we continue to grow the asset base. The piece that you're probably alluding to this quarter is our recovery rates continue to get stronger as we continue to transition to a more fixed CAM model. Operator: Our next question comes from Hong Zhang from JPMorgan. Hong Zhang: I guess if I think about same-store growth, you've managed to sustain mid-single-digit same-store growth historically. But just reading between the lines of your comments about occupancy, do you expect that to be sustainable going forward? Or do you think occupancy is going to be a little bit of a headwind to same-store growth in the near term? Daniel Busch: Thanks for the question. I wouldn't call it a headwind. And this goes back to my comments on CapEx. As we move forward, obviously, you do get a decent amount of same-store growth out of occupancy gains, no doubt. But with those occupancy gains as you're doing new leases comes with real costs, especially in the retail business. So we look at it as an opportunity even if our same-store NOI growth would slow down from what's been a real nice run of, I think, 5% for several years running now. Even if that were to moderate a little bit, it would only be due to a higher retention rate across the portfolio. So we'd be doing more renewals. We'll get our embedded escalators, a little bit of redevelopment. And then with that should be stronger free cash flow growth. Operator: We currently have no further questions. So I'll hand back to Mr. DJ Busch for closing remarks. Daniel Busch: Thank you, everyone, for taking the time. Thank you for your interest in InvenTrust. We're excited about finishing the end of the year strong, and we're even more optimistic as we move into 2026. Looking forward to seeing you guys at many of the conferences coming up later this winter and into next year. Have a great day. Operator: This concludes today's call. Thank you for joining us. You may now disconnect your lines.
Operator: ” Megan Repine: ” D. Childers: ” Douglas Aron: ” James Rollyson: ” Raymond James Douglas Irwin: ” Citi Timothy O'Toole: ” Stifel Eli Jossen: ” JPMorgan Gabriel Moreen: ” Mizuho Michael Blum: ” Wells Fargo Nate Pendleton: ” Texas Capital Joshua Jayne: ” Daniel Energy Partners Steve Ferazani: ” Sidoti Elvira Scotto: ” RBC Capital MarketsGood morning, and welcome to the Archrock Third Quarter 2025 Conference Call. Your host for today's call is Megan Repine, Vice President of Investor Relations at Archrock. I will now turn the call over to Ms. Repine. You may begin. Megan Repine: Thank you, Julianne. Hello, everyone, and thanks for joining us on today's call. With me today are Brad Childers, President and Chief Executive Officer of Archrock; and Doug Aron, Chief Financial Officer of Archrock. Yesterday, Archrock released its financial and operating results for the third quarter of 2025. If you have not received a copy, you can find the information on the company's website at www.archrock.com. During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 based on our current beliefs and expectations as well as assumptions made by and information currently available to Archrock's management team. Although, management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. In addition, our discussion today will reference certain non-GAAP financial measures, including adjusted net income, adjusted EBITDA, adjusted EPS, adjusted gross margin and cash available for dividend. For reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial results, please see yesterday's press release and our Form 8-K furnished to the SEC. I'll now turn the call over to Brad to discuss Archrock's third quarter results and to provide an update of our business. D. Childers: Thank you, Megan, and good morning, everyone. Third quarter performance again demonstrated the strength of our operations and the natural gas and compression markets. The U.S. natural gas infrastructure build-out continued to support robust third quarter and full-year 2025 performance, and we expect this to continue into 2026 and beyond. At Archrock, customer service remained outstanding, operational execution excellent and profitability at high levels. We continue to expand our adjusted EPS and adjusted EBITDA during the quarter. Compared to the third quarter of 2024, we increased our adjusted EPS by 50% and our adjusted EBITDA by more than 46%. Our contract operations and Aftermarket Services segments both delivered impressive revenue and gross margins due to strong activity levels, a supportive pricing environment and the efficiency improvements we've driven across our operations. We maintained our sector-leading financial position, including an attractive quarter end leverage ratio of 3.1x, driven by the stability of our cash flows. Our quarterly dividend per share was up 20% compared to a year ago, and we maintained robust dividend coverage of 3.7x. We also continue to accelerate the repurchase of shares on the confidence we have in the durability of natural gas demand, compression market strength and Archrock's competitive position. Since the inception of our share repurchase program in April of 2023, we've repurchased more than 3.9 million shares of common stock at an average price of $20.21 per share. I'm both excited by and proud of the level of operational and financial execution we are achieving, which is also giving us strong momentum heading into 2026. Day-to-day, we remain focused on driving the next increment of Archrock's success through our first-rate customer experience, implementation of innovative technology and our returns-based capital allocation. When coupled with the opportunity-rich market for compression, we believe we are in today and see for the period ahead, we believe that Archrock is set up for an extended period of strong and sustained growth in earnings, free cash flow and returns to our shareholders. With that overview, I want to dive more into the constructive compression dynamics we see on both a short- and a long-term basis. Beginning with the short term. The current environment is characterized by commodity price volatility, oil rig count declines and the possibility that oil volumes could flatten or even decline slightly in 2026. Should this scenario play out, however, we still expect natural gas production growth in the U.S. with a rate that is likely in the low single digits, including continued gas production growth in the Permian Basin. The dynamic of natural gas production outpacing oil production is one that is consistent with historical trends in other more mature associated gas shale plays like the Eagle Ford and the Bakken, where rising gas-to-oil ratios have led to natural gas volume growth long after oil volume peaks. Because of this, we expect short-term gas market fundamentals will require a similar amount of growth investment by the industry and Archrock during 2026 compared to 2025, a point I will return to in a bit. Shifting to the long-term, we believe the compression industry has entered a durable upturn driven by natural gas demand growth and bolstered by the pervasive level of capital discipline across the energy complex, including by the producers, midstream operators and compression service providers. Expanding on natural gas demand growth, in particular, we see visible growth in U.S. LNG exports and emerging demand for AI-driven power generation. Combined, we expect these demand pressures will require a significant call on U.S. natural gas production to the tune of an incremental 20 to 25 Bcf a day by 2030, depending upon the forecast and with similar levels of growth likely into the next decade. First, on LNG export facilities. U.S. demand is expected to grow by more than 17 Bcf a day by 2030, much of which is already under construction and at least another 6 Bcf a day of projects could be operational before 2035. Second, the proliferation of AI is creating a new and meaningful source of domestic energy demand and the opportunity for natural gas production and infrastructure to play a critical role is becoming more tangible. We've now seen hundreds of data center projects announced across the U.S., driving a virtual arms race for power. This includes investments in new power plants by utilities and more recently, natural gas pipeline expansion and direct power generation projects to meet this growing demand. Variation in the forecasted magnitude and timing of this opportunity remains wide, but the risk forecasts through 2030 are significant, totaling up to 10 Bcf a day with additional growth expected well into the next decade. Simply put, we need all the gas we can produce, transport and therefore, compress. At Archrock, we expect to fully participate in these developing markets and are increasingly encouraged by these leading indicators for our business. Moving on to our contract operations segment. Our fleet is younger, larger and positioned in competitive basins with high-quality customers. This is translating into enhanced performance across several fleet metrics. First, utilization. We remained fully utilized during the quarter with utilization exiting at a rate of 96%. I'm proud to share that we've maintained utilization in the mid-90s range for the past 12 quarters. Second, stop activity. Stop activity year-to-date remains at historically low levels. Third, time on location. Based on 2024 data, the average time at Archrock compressor stays on location is now more than 6 years, representing a 64% improvement since 2021. With the investments we've made to high-grade the quality of our fleets and given what we see in the market today, we expect these recent trends in utilization, stop activity and time on location to continue into the foreseeable future. At quarter end, we had 4.7 million operating horsepower. As a reminder, on August 1, we completed the sale of several small high-pressure gas lift units for $71 million. Excluding this and other active asset sales, we grew horsepower organically by approximately 56,000 horsepower on a sequential basis in the quarter. As we look ahead, we have a substantial contracted backlog and continue booking units for 2026 delivery to meet strong customer demand led by the Permian Basin. Spot pricing continued to increase during the quarter, and as our team remains focused on achieving market rates for all of our units, rates on our active fleet also moved higher. Now as many of you track trends in quarterly revenue per average operating horsepower per month, I wanted to point out the impact of the recent acquisition and divestment activity on that calculation this quarter. As I mentioned, pricing on our installed base of compression increased sequentially in the quarter. Third quarter 2025 revenue per average operating horsepower per month declined slightly compared to the second quarter of 2025, however, due to 2 factors. First, the average size of our compression units increased from 899 horsepower per unit to 927 horsepower per unit in the quarter, which was primarily the result of the high-pressure gas lift unit sale I just mentioned. Second, the full quarter impact of NGCSI fleet acquisition, that we had an average pricing on an equivalent unit basis a bit lower than the Archrock fleet, but we believe this gives us the opportunity to bring rates on those units up to market over time. Concurrent with the decline in revenue per average operating horsepower per month, as you would expect, part of the cost per average operating horsepower per month decline we experienced in the quarter was also due to this increase in average horsepower size. We achieved a quarterly adjusted gross margin percentage of 73%. Strong pricing and solid cost management drove underlying contract operations gross margin to 70.4%, up slightly from the prior quarter. Third quarter 2025 adjusted gross margin further benefited from a $9.9 million cash tax credit, which is the driver of the gross margin increase from the 70.4% level to the reported 73% level. In the Aftermarket Service segment, the large base of owned compression continues to support strong AMS activity, particularly in contract maintenance and service work, and great customer service is driving repeat business. Third quarter 2025 AMS gross margin percentage remained at impressive levels and was consistent with guidance. Shifting to our capital allocation framework. We remain committed to our prudent and returns-based approach. The successful execution of this capital allocation strategy has put us in a position to generate positive free cash flow after dividend moving forward. Over the long term, we are committed to positioning and managing this business to generate positive free cash flow and increase returns to our shareholders. Now more on our objectives as we look into 2026. We see an opportunity-rich market ahead and the IRRs at which we expect to invest new build capital remain robust. As I mentioned earlier, the average compressor time allocation has extended to more than 6 years, which is beyond our expected payback period on new investments. Our investments continue to be underpinned by multiyear contracts with blue-chip customers in highly profitable basins. As we indicated last quarter, we expect 2026 growth CapEx to be not less than $250 million and within the range of investment levels that we've made annually since 2023. We believe this is the level of CapEx required to support the infrastructure build-out we are experiencing in the U.S. in order to satisfy the growing demand for natural gas described earlier. As we invest in these compelling opportunities, we're committed to maintaining an industry-leading balance sheet and plan to maintain a target leverage ratio of between 3x to 3.5x. At the same time, we're delivering on our promise to provide an ongoing and growing return to our shareholders through the payment of a quarterly dividend. We will continue to also use buybacks as an additional tool for value creation for our shareholders. We've returned $159 million to stockholders through dividends and share repurchases during the first 3 quarters of 2025, compared to $93 million at this time last year. Given our confidence in the company's strategy and our commitment to returning capital to shareholders, the Board has approved a $100 million increase to our existing share repurchase program. After accounting for the recent repurchases during the third quarter of 2025 and in October, with this additional authorization, our current capacity is approximately $130 million. In summary, 2025 continues to be a tremendous year for our company, and I'm as optimistic as I've ever been about where we can drive this business in 2026 and beyond. As the structural growth in natural gas production and compression continue to take hold, we are focused on growing our business, growing our attractive and durable earnings power and growing our free cash flow generation. With that, I'd like to turn the call over to Doug for a review of our third quarter performance and to provide additional color on our updated 2025 guidance. Douglas Aron: Thank you, Brad, and good morning. Let's look at a summary of our third quarter results and then cover our updated financial outlook for 2025. Net income for the third quarter of 2025 was $71 million. Excluding transaction-related and restructuring costs and adjusting for the associated tax impact, we delivered adjusted net income of $73 million or $0.42 per share. We reported adjusted EBITDA of $221 million for the third quarter of 2025. Underlying business performance was strong in the third quarter as we delivered higher total adjusted gross margin dollars on a sequential and year-over-year basis despite the lost revenue and profits from a larger asset sale during the quarter. We reported a $4 million net gain on the sale of assets, which was offset by $4 million in other expense and related to an amendment fee for our MaCH4 natural gas liquid recovery new venture agreement with our partner. Turning to our business segments. Contract operations revenue came in at $326 million in the third quarter of 2025, up 2% compared to the second quarter of 2025, driven by growth in horsepower and pricing, and revenue would have been up even more at 4% sequentially, absent the sale of active horsepower, as Brad discussed. Compared to the second quarter of 2025, we grew our adjusted gross margin dollars by more than $17 million. We expanded our adjusted gross margin percentage by approximately 73%. Underlying operating profitability was 70.4% in the quarter, up slightly compared to the second quarter of 2025. Results further benefited from the receipt of a $9.9 million cash tax settlement. In our Aftermarket Services segment, we reported third quarter 2025 revenue of $56 million compared to the second quarter of '25 of $65 million, but up 20% from $47 million in the year ago period. Third quarter 2025 AMS adjusted gross margin percentage was 23%, consistent with the second quarter of 2025 and consistent with guidance. Turning to our balance sheet. Our period end total debt was $2.6 billion and available liquidity totaled $728 million. As previously announced in October, we intend to take advantage of the lower rate environment and use existing capacity on our ABL facility to redeem all $300 million of our outstanding senior notes due 2027 at par. The redemption date for the notes will be November 17, 2025. Our leverage ratio at quarter end was 3.1x calculated as quarter end total debt divided by our trailing 12-month EBITDA. This was down from 3.3x at the end of the second quarter of 2025. With continued strong performance in our business, we expect to continue deleveraging as the year progresses. We recently declared a third quarter dividend of $0.21 per share or $0.84 on an annualized basis. This level was consistent with the second quarter of 2025 and represents a 20% year-over-year increase. Cash available for dividend for the third quarter of 2025 totaled $136 million, leading to impressive quarterly dividend coverage of 3.7x. In addition to our quarterly dividend payment, we repurchased approximately 1.1 million shares for approximately $25 million at an average price of $23.18 in the quarter. Including the additional $100 million authorization, this leaves approximately $130 million in remaining capacity for additional share repurchases on the replenished authorization as of October 22. Turning to our updated outlook. Archrock increased its 2025 annual guidance to reflect continued outperformance during the third quarter of '25 and our expectation for continued strength in our underlying business during the fourth quarter. As a reminder, our guidance reflects 8 months of contribution from the NGCS acquisition and outperformance in our business, partially offset by the removal of 5 months of contribution from the high-pressure gas lift units we sold. We are raising our 2025 adjusted EBITDA range to $835 million to $850 million from the prior range of $810 million to $850 million. Additional detail can be found in our earnings release issued last night. Turning to capital. We are narrowing our growth CapEx guidance range to between $345 million and $355 million to support investment in new build horsepower and repackage CapEx to meet continued customer demand. Our growth CapEx is underpinned by multiyear contracts. Maintenance CapEx is forecasted to be approximately $110 million to $115 million. We also expect approximately $35 million to $40 million in other CapEx, primarily for new vehicles. Total capital expenditures are expected to be funded by operations and further supported by non-strategic asset sale proceeds, which total more than $114 million in 2025 year-to-date. In summary, as the structural growth in our natural gas production and compression continues to take hold, we are focused on finishing out the year strong and setting a solid foundation for even higher levels of customer service, operational execution and financial performance in 2026. With that, Julianne, we are now ready to open the line for questions. Operator: [Operator Instructions] Our first question comes from Jim Rollyson from Raymond James. James Rollyson: Great job as usual. Brad, you're in an interesting position where it's kind of the first time that I can recall in a long time where you guys generated free cash flow, and as you mentioned, you're set up to do that going forward. At the same time, you're at the bottom end of your leverage goals and you're basically set up to just continue to put cash. I'm curious how you think about deploying that. Obviously, you've been growing the dividend, and there's obviously room for that to continue to grow even today. You just expanded the repurchase program. You've been active in M&A, but maybe just a little color about how you think about that given the kind of unusually strong position that you're in today. D. Childers: Thanks, Jim. I appreciate it. I'm sure you don't want to expand on that question anymore because I love the way you asked it. We have a tremendous opportunity to create value for our shareholders. When we look at our capital allocation priorities, our absolute best use remains investing in and growing this business. The returns that we get by growing our fleet organically by expanding our footprint with our great customers remains our best -- the best return we can generate for our investors going forward. We have the additional tools because we are generating sufficient cash. We have great coverage. I think we exited 3.7x what I talked about. We have a tremendous opportunity to continue to grow our dividend over time. As we've demonstrated in the past, it's up 20% on a year-over-year basis. We can grow that over time as we continue to grow our business. In this market today, the macro is dislocation to our stock price, giving us also the opportunity to deploy capital and buying shares when the market is not valuing it appropriately. We get to buying shares with this complicated oil market and this dislocation and generate additional and great returns for our investors that way. We intend to use all 3 tools for capital allocation going forward, but the priority is, we get to grow our business. The market that we see ahead for natural gas demand is tremendous, and that's what we expect to do with most of our cash. James Rollyson: Appreciate that color. Then maybe my second question, just circling back to margins. Even without the tax benefit, you topped 70%. My math on midpoint of guidance implies 71.5% for 4Q. Maybe just a little color about some of the things that are helping drive this outside of just pricing gains and sustainability and upside. We've had this discussion, I think, off and on every quarter because you keep having better and better margins, but just curious the latest state of the union on margin opportunity. D. Childers: The first comment I want to address is that this business, the base business, absolutely outperformed without the tax benefit. We saw that in the roughly 70.4% gross margin that we delivered, which was delivered over a combination of continuing pricing prerogative as well as excellent cost management by our teams throughout the organization and especially in the field. That outperformance that you cited is absolutely independent of the tax benefit that we got to claim back, which is a cash tax benefit. Now on the substance of your question, One of the biggest drivers beyond pricing that we have in our operation today is we have been investing in a very disciplined way over the years into technology, the combination of telemetry sensors on the edge on our equipment, a big data engine that gets to sort through the data and help us prioritize our customer service so that we can maintain better run-time for our customers for the benefit of our customers as priority one, but also we drive a lot more efficiency in how we are touching the units. The units are telling us more and giving us more information. Our mechanics are able to dispatch in a more efficient way, well-equipped when they arrive on location and it just creates a much more cost-effective approach to managing the operation. We've gotten the benefit of those investments in our numbers today, and we expect to continue to drive improvement in those numbers in the future based on those investments in technology. Operator: Our next question comes from Doug Irwin from Citi. Douglas Irwin: I wanted to maybe start on the demand side, and I know you kind of touched on it in your prepared remarks already. We've seen an uptick in LNG project FIDs and data center announcements over the past couple of months. These are obviously drivers you've been talking about for a long time now. Just curious if some of that recent activity has maybe translated into an acceleration in some of the discussions you're having with customers on your end? Then just generally, how that momentum might impact the way you're thinking about your multiyear growth outlook and especially kind of where and what basins that growth might be coming from moving forward? D. Childers: Sure. Thank you, Doug. Look, what I said in my prepared remarks, I can expand on just a little bit, the point the market is giving us today is that the world is short of power, and that is driving robust demand for LNG. That's a global phenomenon. We like to say at Archrock, we power a cleaner America, and now with so much of our natural gas going into the form of LNG -- exports of LNG, we know we're also participating in powering a cleaner world, and we're very proud of that. That LNG demand is spiking, and we're seeing just a tremendous amount of demand generated there. By the way, we're also seeing growth in -- I think we had peak exports to Mexico in the quarter as well, so it's not just LNG. We're also seeing pipeline gas going to Mexico. Then on the AI data centers, what's interesting about the wide variation in forecast is that the forecast ranges from a low of 3 Bcf a day to 2030, which I think most people think will blow through, up to 12 Bcf a day of incremental demand through 2030 and then at least that much again beyond 2030. What we're seeing today is an acceleration in pipes, LNG facilities, FIDs, as well as data centers. What we're also experiencing is the buckling of the pressure of we've underinvested in infrastructure. We've underinvested in infrastructure in pipes, in power, and that really has to catch up. The pressure we're seeing on our business is a really excellent immediate interim and long-term demand for our units. That's translating to be concrete now into our CapEx guidance of a minimum of $250 million for 2026, which is consistent with our levels for 2025, but we see that we have a lot more confidence in the multiyear growth scenario ahead, deploying that level of CapEx to help support this expanded infrastructure requirement for power and for LNG exports. Douglas Irwin: Then maybe for a follow-up, I guess you've talked a few calls in a row now about units staying on location longer-and-longer than they did even just a few years ago. Just curious if you've seen this translate into increased customer demand for longer duration contracts, even if it's maybe just a shift towards the higher end of your typical 3- to 5-year contract range that you talk about. Then just curious if you can maybe comment on how you're thinking about the right mix of month-to-month versus long-term contracted capacity moving forward. D. Childers: The good news is, as we discussed, that our units are staying on location now greater than 6 years, which is a few things -- a few aspects that are important about that. One is that it's a market improvement over the past. This really reflects Archrock's focus and shift to large horsepower installations and the midstream infrastructure position that this business now occupies today, which means that we're going to stay on location longer. We're going to have tremendous stability in those operations as we become an integral part of our customers' operations and capital stack. That's the benefit of the investments we've made into large horsepower over time. The contract terms remain in the 3- to 5-year range, but yes, because it's predominantly large horsepower, these are large capital investments, we have seen it move to the higher end of the 5 years on entry into these contracts, but we have not either seen and we have not tried to drive a shift in those contract terms. The important point about the position we have with our major customers is that it's not just about those contract terms on the individual location contracts. It's also that with our largest customers, we have a strategic position and a master services agreement, which builds a longer-term relationship. It gives us the confidence given how critical we are in our customers' operations today that our units stay on location as long as they are operationally required independent of contract term, so it's that time on location. It's the fact that it costs a lot of money that the customer has to bear to switch out a unit that is giving us that longer live application on location and generating much more stability over time. Operator: Our next question comes from Selman Akyol from Stifel. Timothy O'Toole: This is Tim on for Selman. Congrats on the quarter. Just wanted to get an update on how lead times are trending. Just wondering if there's any update to that. D. Childers: Yes. The gating item for lead times remains Caterpillar engines predominantly for our gasifed engines. Those are in the 60-week lead times now we order a new unit from Caterpillar. There are some units available in the market that we can get sooner just because with all this pressure right now for growth, people are ordering equipment, the packagers are maintaining a bit of equipment available. That will get sucked up pretty quickly though or used up pretty quickly. There' the lead times are 60 weeks with a little bit of opportunity in the market to grab engines from others if we needed to. Timothy O'Toole: Then just my follow-up. Curious on how some of the customers are maybe shifting behavior in a lower crude environment. Are you seeing any more outsourced opportunity? Or is there any changes to the AMS business? Are they looking to defer some of those costs? Just curious on real-time changes in customer behavior. D. Childers: Sure. Other than the seasonality of order activity, what I mean by that is that customers are in the -- right now are in the budget preparation time for their 2026 business plans. I think we are now in the phase where we're working with our customers on their new equipment needs, on pricing discussions that are starting to occur. It's at this time of the year and also candidly, we have the holidays this time of the year where we see a little bit of slowdown as people are gathering their plans together. Aside from that, we've seen no major shifts in either the allocation of capital by the customers using an outsourced compression provider like us or in-sourcing their own capital or their own compression equipment. We see no major shift in AMS activity. That still remains robust. The industry is so highly utilized with us at 96%, our competition at high levels of utilization, our customers' fleets at high levels of utilization, we're seeing activity in both contract ops and AMS at high levels to make sure we're keeping the gas moving and keeping the equipment serviced. We've not seen a change in that at a macro level. Operator: Our next question comes from Eli Jossen from JPMorgan. Eli Jossen: I wanted to touch on the extended time on location you're seeing from your customers and you talked about it in your opening remarks. Obviously, that reflects really strong utilization and demand from those customers, but can you talk a little bit about how it impacts recontracting? Obviously, we're seeing the dollar per horsepower per month broadly move up into the right, but just how should we think about overall recontracting discussions with those customers? D. Childers: Sure. I mean I think there are 2 components to the recontracting question in my head. The first is recontracting that unit so that it stays on location longer. I'm going to point out that even with the -- greater than 6 years' time that we're achieving, that includes with a mix of horsepower that's smaller. As we continue to add more large horsepower, my expectation is -- my belief is that we're going to see that time on location continue to grow and expand. The second component to recontracting, I think, which may be at the heart of your question is really what happens to pricing and what's the opportunity to drive pricing going forward. On the good news front, the way we've structured our contracts, the vast bulk of our large strategic accounts include pricing mechanisms built into the agreement, so that either we reprice on an index or we have a repricing opener. Then with our nonstrategic accounts, we have the ability when they roll off a contract to redo pricing. On a percentage basis, as in prior years, it remains fairly consistent because of the way we structured the business that we get to reprice annually, 60% to 65% of our contracts are open for repricing, either through a negotiation built into the contract, an index built into the contract or as they roll off their primary term. We're quite optimistic that in this market that at the high levels of utilization we're achieving that we will have the ability to continue to drive pricing forward and certainly in 2026. Douglas Aron: Eli, this is Doug. I may make another point that we really haven't talked much about, if at all, on this call, and that is the level of stop activity or units getting returned. We really are seeing that at historically low levels. That's a function of a lot of different things, but most notably, gas volumes are growing in the U.S., and there's just a real lack of available equipment. Archrock at 96% utilization, the industry at a very similar level, I think our customers have started to understand there's a real need to plan in advance for units, and so part of the contracting is that if we don't have units that are stopping on location, we don't have those available to rebook. All of that, as Brad talked about, leads to an opportunity to continue to reprice. I think, again, if you think about that utilization for the industry as the best sign of just, frankly, how healthy this business is, and we expect it to continue to be. Eli Jossen: Then maybe just in that contracting equation, flipping to the cost side, I just wanted to get a sense how input costs are trending. Obviously, the OEMs like Caterpillar, we can expect there's some inflation in those businesses. I know you guys are obviously able to pass along a lot of those costs, and that's what we're seeing -- part of what we're seeing in the dollars per horsepower per month equation, but just if you can frame the way that costs are trending in the business, maybe in the Permian versus elsewhere and what that does to margins in the longer term? D. Childers: The costs overall are trending at what I would say is a normalized level of inflation, and that's in the low single digits. That's what we're seeing out of the OEMs, both for new equipment and as well as for parts and materials going forward. Lube oil pricing, as you would expect, has actually moderated given the lower crude oil pricing today. Finally, the only one that's the exception of that is labor costs, especially in the Permian, still run in the mid-single digits. There's more pressure there just because labor is so short, so tight in the -- overall in the energy industry and certainly in the Permian, so that's the way costs are running. It's a very manageable level right now. It feels like a very comfortable level to build in and budget for, I think, for our customers, but also for us. You're right, we do expect to have the ability to continue to pass on and share cost increases through rate increases over time. Operator: Our next question comes from Gabe Moreen from Mizuho. Gabriel Moreen: I just want to circle back on capital return a little bit. Any thoughts -- you've been really good opportunistically here, I think, at share buybacks. Any thoughts to making it, I guess, more programmatic and on a related basis, I'm just curious, Doug, if there's any lower bound leverage level that you just don't want to go below that floor? Or were you just thinking, hey, we're underlevered here and our balance sheet could take more on at these levels? Douglas Aron: Yes. Look, fair question, Gabe. I think Brad outlined, we really believe we somewhat uniquely even in the compression space are positioned to be able to do all of the above. That being deploy capital to our customers, grow our dividend and ask our Board for an incremental $100 million share authorization. I think we've been pretty consistent repurchasing shares quarterly. I don't certainly want to share exact specifics of where and at what target price. Look, as you point out, our leverage is trending towards and headed to even below our target range, which means that not to say we won't end up below that for some period of time, but we have both the luxury and the desire to do all of the above. I think you should expect to see us continue to do that. Gabriel Moreen: Maybe, Brad, if I can ask an open-ended question. You talked about the arms race around power gen. It seems like not a week goes by where there's not some sort of creative solutions to get near-term power to procure to those who demand it. Just curious if Archrock is looking at, in some way, shape or form, participating more directly in that power procurement. Again, open-ended question, but I'll leave it at that. D. Childers: What we're excited about for the future is the amount of power that is going to be required is going to require the production and the increased production growth in natural gas. That is where we are focused in deploying compression to support natural gas to help support the power growth. The unique position of the industry today is that only natural gas can respond as quickly as is needed to deliver on an intermediate and I think also a long-term basis, but on an intermediate basis, the amount of feedstock required for the dense sharp, incredibly high demand growth for power that we see ahead. Our primary goal right now is to deploy our capital to grow our compression infrastructure business to support that growth. We're excited about that investment opportunity, first and foremost. Operator: Our next question comes from Michael Blum from Wells Fargo. Michael Blum: Just wanted to ask about the $250 million CapEx for 2026. You obviously have very positive comments on the call, both this quarter and the outlook. Just curious if that's just conservatism on your part? Or are there other factors at play that we should be thinking about? D. Childers: Thanks for the question. It's interesting in the past, I never would have thought a $250 million growth CapEx budget would be positioned as conservative. We consider it to be very consistent with the levels of CapEx that we've invested in the business at the high end of the CapEx levels we've invested in the business in prior years. I'll point out that even though it feels like a step back from the $350 million midpoint that we've guided to in 2025, approximately $70 million of that CapEx budget and CapEx spend in 2025 is directly attributable to CapEx budgets that we inherited or CapEx expenditures that we inherited as part of the 2 acquisitions we made. When you think about the delta on our overall fleet compared to that, it feels much more consistent on a year-over-year basis and pointing out that we're getting these huge cash flow benefits in from the 2 acquisitions we made without those requiring the same levels of CapEx that position this business before the acquisition. We love that actual capital efficiency from the acquisitions. What you're seeing on a year-over-year basis is probably more consistency than may have been apparent in the CapEx budgets, which give us a tremendous amount of growth with our core customers and in the marketplace. We're excited about that level. Again, we pegged that as a minimum for next year. As I also pointed out, our customers -- some of our customers remain absolutely in budget territory right now, so we'll see how the rest of that shakes out. Operator: Our next question comes from Nataniel Pendleton from Texas Capital. Nate Pendleton: Congrats on the strong quarter. A lot of commentary has understandably been on the strong outlook for natural gas demand and moving that gas to end markets, but with a large amount of horsepower still dedicated to centralized gas lift, can you speak to how those markets are evolving? D. Childers: Sure. With, I think, a slowdown in oil drilling and a flattening of oil production possible right now, we're absolutely seeing a bit of a flattening in order activity attributed directly to gas lift, and we're seeing much more of the demand right now on a mix basis toward gathering. I'll point out that the great news is that when these units go out for to support gas lift and production, they remain out. As Doug pointed out, we said in our prepared remarks and Doug highlighted just a minute ago, our stock activity is at absolutely historical low levels. It's a reflection of the strength of this business model that we are leveraged to production, oil for gas lift and natural gas for transportation. Both of those are absolutely at high levels of utilization and incrementally growing going forward. Right now, as you would expect, we are seeing a bit of a pause in the oil-directed gas lift order activity in the mix. It's still there, but it's definitely at a lower level in the mix. We remain, however, optimistic that gas lift has become an absolutely critical component in the oil production system and that, that demand will come back as the market recovers. Nate Pendleton: Can you provide more color about the MaCH4 natural gas liquid recovery amendment fee mentioned in the release and the progression of a few of those new venture investments? D. Childers: Sure. On the MaCH4, particularly, the joint venture was structured where there was a minimum commitments to purchase equipment, and we wanted to change the timing of our commitments, so we basically just bought that out. That was the main impetus behind the amendment, so we pay a charge upfront to buy out the commitment and change the time frame for when those commitments will take place. On the MaCH4 itself, the good news is that we had a very successful pilot, and we're in the early phases of getting the first units out to see if we can build enough of a commercial market. On the very exciting side, customer enthusiasm for the product is great. I'll just remind everybody what this product does, is it takes a sliver of the natural gas that we would otherwise that we're putting through our gas drive engines, and it takes out the heavy liquids, preserving the quality of the heavier liquids value to be captured downstream and provides residue quality gas for that compressor, which really helps with compression operations. It also reduces the VOCs coming off that unit. It's really an attractive product. We're in those early phases right now, and we've received great support from the customers. On our other new venture investments, I've been clear in the past, what we are really focused on doing is changing the way we conduct business as an industry. keep the methane in the pipe and eventually put the CO2 back in the ground and our investments in Ecotec, which primarily is our handheld devices that allow us to detect methane and see the leaks to support [indiscernible] repair. That business continues to grow and is doing well. We talked about the MaCH4. Then the CARBON HAWK, which is a product that captures gas otherwise discharged the atmosphere to the flare in normal operations. We're absolutely seeing a bit of a slowdown in that -- in market acceptance on that product just based upon the regulatory environment changes since we've had a change in administration, but we still remain optimistic that this is a very valuable product for the industry to keep the methane in the pipe instead of venting it to the atmosphere or sending it to the flare. Neither of the Ecotec or that one do we expect to be needle movers for us financially. We've built nothing into the forecast for that, but we do believe these products are incredibly valuable and useful to the industry to conduct the most sustainable oil and gas operations we can for the future. Operator: Our next question comes from Josh Jayne from Daniel Energy Partners. Joshua Jayne: First one for me. You've talked about the $250 million of CapEx for next year, and then also items like engines having 60-week lead times. I'm just curious, do you see a scenario in the next few years where the market maybe supports you spending, for example, let's pick a round number, $400 million, $500 million in growth CapEx, all supported by contracts? Or is something like that level not really feasible because of supply chain constraints. Maybe you could just talk about that a little bit more. D. Childers: That level of CapEx is foreseeable. I do believe that while there are constraints out there on equipment lead times and deliveries, I'm going to point out, we were at $350 million last year, inclusive of the CapEx budgets that we took over with the acquisitions of NGCSI and TOPS, and so the gap to get from 350 to 400 is completely foreseeable for the future for this industry. I do believe that while there are supply constraints, that level of CapEx could be achieved even within the existing supply chain. Joshua Jayne: Then a shorter-term question. You highlighted the full quarter impact of the NGCSI acquisition that hurting some of your metrics in Q3. Could you just speak to when you expect the pricing of that fleet to essentially mirror the rest of your fleet? How long ultimately do you think that takes? D. Childers: What we're optimistic about is that we knew the -- obviously, we knew the pricing of this when we acquired these units, and they still remain at excellent gross margins, and we will work with that customer base to drive those changes over time, but now it's a part of our fleet. Now the separation has basically disappeared, and we will treat those operations like we would any other units in our installed base to drive pricing up over time. Then finally, I'm going to point out that with the NGCSI acquisition, in particular, we acquired units that were predominantly a majority of which were with one of our existing key customers with whom we have a great relationship. We expect to do that over time, but candidly, the separation of those units has now disappeared, and we'll see that -- we can see it in the quarter when it impacted us, but it's going to be hard to track that going forward other than it gives us another chunk of units that will allow us to raise price and improve profitability over time. Operator: Our next question comes from Steve Ferazani from Sidoti. Steve Ferazani: I just wanted to ask now that you've successfully integrated NGCSI after the larger TOPS deal. Now that you've flexed those muscles, do you see other opportunities out there? Does it get easier? Or does it really always come down to whether the quality of the compression meets your standards? D. Childers: Your latter point is correct. It really is driven by whether or not the fleet position and the potential of the acquired fleet fits our strategic position of focusing on large horsepower with the customer base that we've built and the geographic locations that we operate in and are excited about growing in, as well as the quality of the fleet age and the configuration. Those are the primary factors, starting with the strategic and then moving to the operational. That drives our analysis for sure. The other 2 components though that are interesting is that, the right opportunity has to be in the market at the time, and we have to have a willing seller and in a transaction that makes pricing sense. On the good news front, there remain other compression companies out there that are operating excellent fleets that are operating really well. They're building their own customer base. What you're seeing in our business, which is absolutely supported by this market demand, other people have noticed too that this compression business is an attractive business and can drive great returns. I believe that could and should yield additional opportunities in the future that look something like either TOPS or NGCSI or others. Steve Ferazani: Is there anything complementary services or equipment that could fit as well? Or will you remain compression? D. Childers: We have a ton of investment opportunities and growth ahead in our compression space. We're excited about investing there right now. That's where we expect to deploy both our capital and keep our focus in the strategically as we look out into the market today. Operator: Our last question today will come from Elvira Scotto from RBC Capital Markets. Elvira Scotto: Can you talk about what you're seeing in basins other than the Permian? If you've seen any growth as a percentage of your fleet going to some of these other basins? How you see that evolving in the medium and longer term, especially as we see an increase in LNG export capacity? Then does that change any pricing or cost or economic dynamics? D. Childers: Thanks, Elvira. 60% of our growth is still tied to the Permian. We think 60% of our growth going forward is likely to remain tied to the Permian, and it could go actually higher. Remember, that's really driven by just the breakeven costs and the lower cost of the producers to move oil and gas in the Permian, so that's number one. We have seen bookings and incremental growth in other basins, including the Haynesville, the Rockies and in the Northeast in the Marcellus. Those basins are absolutely being reactivated. We haven't seen reactivation of dry gas basins, significant reactivation in dry gas basins beyond those, but in those basins, we have seen incremental growth, but the Permian remains the inexhaustible and focus for the energy industry right now. As far as will that change some of the dynamics in the industry? Pricing, hard to see that changing even if we see equipment and infrastructure moving into other plays, given the high levels of utilization, those plays have to compete on a CapEx allocation level to take that capital away from the Permian and put it in other plays. I do believe that the returns that we're going to achieve in other plays have to be comparable to what we're achieving -- the industry is achieving in the Permian to attract CapEx away. Finally, I think that to support LNG expansion, we do think that Eagle Ford, not dry gas, but Eagle Ford Shell will also see a growth resurgence and that the LNG export should really be mostly supported by the Haynesville, Permian and Eagle Ford going forward, but the Northeast is going to require for data center demand and power demand, in particular, some growth ahead as well, and that's going to require some compression. That's the way we see how this is shaking out in other plays and how some of the dynamics could be impacted. Elvira Scotto: I think in your prepared remarks, you noted that you'd finance the CapEx through internally generated cash flow and some potential asset sales. If you look across your portfolio, what is the potential for asset sales? D. Childers: Thank you for the question. I think this is an area that's underappreciated in the dynamic of our business and how we run it today. When I look over the past 5 years, our asset sales on -- for 5 years have averaged more than $95 million per year. If I look back 5 years before that, our asset sales averaged still north of $40 million a year. In other words, when you have a fleet business the way, like we have, to keep it fresh and competitive and moving both through customers, through basins, through generations of equipment, having a prudent approach to asset sales is really critical to the business. I think you can snap the chalk line by saying in the low end is somewhere in that $40 million range and the higher end is more in the $90 million range with some variation off of both of those, but that's a way of thinking about how we attend to keeping our fleet as young and as competitive as we can keep it. Elvira Scotto: If I can sneak in one more. You mentioned that lead times for the Cat engines are about 60 weeks. How does that compare to maybe where it was 3 months ago or 6 months ago? D. Childers: I'm not sure I can keep track of all those time frames, Elvira, but 6 months ago, I think we were more in the 42-week time frame, and we've seen that increase out. That's the best collection I can offer on those time frames. Operator: There are no more questions. Now I'd like to turn the call back over to Mr. Childers for final remarks. D. Childers: Great. Thank you, everyone, for participating in our Q3 2025 earnings call. I look forward to updating you on our progress next quarter. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to the BioInvent Q3 Report 2025 presentation. [Operator Instructions]. Now I will hand the conference over to the speakers CEO, Martin Welschof; and CFO, Stefan Ericsson. Please go ahead. Martin Welschof: Yes. Welcome, everybody, to our Q3 report presentation. And as usual, Stefan and myself will go through what has happened during that time period. Stefan will cover the financials. I will do the rest. And without any further ado, I will start the presentation. Our forward-looking statement. And I would like to start with a quick summary what has happened, events in the third quarter as well as the events after the end of the period. And obviously, one very important events during the third quarter was our prioritization in the portfolio to really focus on the two lead programs, all the resources doubling down on the two most advanced programs, 1808 and 1206, and I will come back to a little bit more details later. And then the other thing was that there was a change in the Board. So Vincent Ossipow, who is with us for many, many, many years, stepped down for priority reasons. And I think this is a very normal change. And as I said, he has been with us almost 10 years. So then the events after the end of the period. So the most important thing, and we probably will discuss it also later a little bit more in detail, BI-1206, we started the Phase IIa trial in advanced or metastatic non-small cell lung cancer and uveal melanoma, and this is a first-line study. So super exciting. So this is basically based on the good data that we have generated in heavily pretreated patients. We showed that data to Merck and they agreed that we could go in the combo trial in first-line non-small cell lung cancer and uveal melanoma. So very, very exciting. Then we had some data presentations, so the Phase I clinical data for BI-1910, our TNF receptor 2 agonist for the treatment of solid tumors, will be presented at SITC in 2025. And then together with Transgene, we presented translational data and updated clinical results on the armed oncolytic virus program, BT-001 that was at ESMO this year. So coming back to our prioritization. So what you see here on this slide is the portfolio, and that's still our portfolio. So we think what we're doing is, of course, now we prioritize the two lead programs, and that was -- makes a lot of sense because those 1808 and 1206 are now in advanced clinical studies, which means Phase II. Those are two assets that are active in liquid as well as in solid tumors, first-in-class and the other programs on 1910, our second TNF receptor 2 program as well as 1607, our second anti-Fcgamma 2b program. They are now paused and then the BT-001 program in solid tumors, which is basically the oncolytic virus containing our anti-CTLA-4 antibody, is continued based on investigator-initiated trials. So we are really now focusing and doubling down on 1808 and 1206. And on this slide, you have a summary of what I partly already have said. So in August 2025, we announced the decision that we will focus on our two most advanced programs, BI-1206 and BI-1808. And what I always say, this is obviously an unfair competition, because 1910,1607 might be also interesting, but they're much, much more early. They're still in Phase I, dose escalation. And of course, 1206 and 1808 are already in Phase II. So the earlier clinical programs, as I already have said, will be paused after a [ wind-down ] period to complete the ongoing trial activities, because we want to pause it in a way that we can reuse it either ourselves or with a partner. And also the underlying research activities are now streamlined to better support the 2 lead clinical programs, 1206 and 1808. So this slide then would show you the prioritized portfolio where we then have basically 1808 and 1206, as I already said. So 1808 is our anti-TNF receptor 2 program, which is running as a single agent as well as in combination with pembrolizumab in solid tumors and T-cell lymphomas. And BI-1206, our lead anti-Fcgamma IIB program is running in combination for non-Hodgkin lymphoma with rituximab and acalabrutinib and in solid tumors with pembrolizumab. And there, I already mentioned that this trial has been kicked off where we're focusing on first-line non-small cell lung cancer and uveal melanoma. Then BT-001, as I already said, continues development in an investigator-led Phase I/II trial in collaboration with Transgene. Just for completeness, on the right-hand side of this slide, you see our partners. So whenever we use pembro, we do this under a supply and collaboration agreement with Merck. And whenever we use acalabrutinib, this is under a similar agreement with AstraZeneca. And that, of course, is something very interesting, because those are two potential partners that are already sitting at the table in a way. And then, of course, the last name, this is our long-standing partner in China, CASI. They have exclusive rights for 1206 in China, Hong Kong, Macau and Taiwan. So a little bit more then in detail around the programs, just to recap where we stand. So as I already mentioned, 1808 is developed in T-cell lymphoma as well as in solid tumors as a single agent as well as in combination. Here on this slide, this is the data that we presented in June this year. Basically, the monotherapy showing really promising strong efficacy in CTCL and PTCL. We had 100% disease control in nine evaluable patients, complete responses, partial responses and stable disease. And of course, it's important to remember or to remind everybody that these patients are heavily, heavily pretreated. But we also have then on top of that, two available patients in PTCL, which is an even more severe form of T-cell lymphoma, where we have one partial response in one patient with stable disease. Important to note that the treatment is well tolerated with very mild to moderate adverse events. So basically no toxicity issues. And also very importantly, immune activation was observed early on with depletion of regulatory T cells and the influx of CD8 positive T cells into the skin lesions, which is very, very important. And then to remind everybody, so we have Orphan Drug Designation for T cell and Fast Track designation for CTCL. So what is next? This will be actually additional data already this year, additional Phase IIa data. I think we guided the market that this will come next year, but we have good progress, and we will have already an update this year. Then going into the other parts of the 1808 program, which is the solid tumor study. We have established single-agent activity, which is really something exciting, because antibodies against TIGIT or LAG-3 never have done this. So we saw complete responses, partial responses, and we had actually 11 out of 26 available patients that showed a response. And obviously, again, here, very, very heavily pretreated patients. And again, I emphasize this is single-agent activity. Very good safety profile. And then what we also -- and that was presented at ASCO and what we also presented at ASCO in June 2024 is some first activity or data that we had in the combination, which, of course, was a little bit later since we start with -- started the single-agent clinical development first and then followed on with the combination with pembro. And here, we already guide the market. So the Phase IIa pembrolizumab combination data in solid tumors, there will be also a first data point or the second data point actually after then the ASCO in 2024 this year. So basically, for 1808, there will be an update on monotherapy for CTCL and as promised already the update on the combination with pembrolizumab in solid tumors, both this year. Then I switch to our anti-Fcgamma IIB program, BI-1206 that we develop in non-Hodgkin's lymphoma and in solid tumors. And start with the data that we presented also this year. That is the combination with acalabrutinib and rituximab. We had 100% disease control in the first 8 patients out of 30 patients in the complete trial and complete responses, partial responses and stable disease, a good overall response rate. And again, also this treatment has been well tolerated with no safety and tolerability concerns. And of course, it's important to note that 1206 is subcutaneous. So that means we have a very convenient and safe profile of this combination and which is a highly competitive option in the evolving non-Hodgkin lymphoma treatment landscape. We have Orphan Drug Designation and also here, we have an update, because we guided the market that will come out with a next data set during the first half of next year, and that will already happen this year. So also very, very exciting, which means that is already the third update that will come to in addition to what we already had guided the market for. So then on the other side, the solid cancer study, you might remember the data that we have shown. So very strong also data targeting patients that do not respond anymore to anti-PD-1 or anti-PD-L1 and that were patients that have received two or more -- two and three, so two or more IO treatments. We saw complete responses and partial responses. We showed that data to Merck, and they agreed that we can move into first line. And that's what we have started already. So there was a press release a week or two weeks ago. And we're focusing on advanced metastatic non-small cell lung cancer and uveal melanoma, and we are focusing on sites in Georgia, Germany, Poland, Romania, Spain, Sweden and the U.S. And here, as we have guided already the market, so we will have a first glimpse of the data during the second half of next year. Then very briefly on CTLA-4, even though that is not our core, but at least since it happened, so that was presented at ESMO. We could show that the BT-001 inject in combination with pembrolizumab was well tolerated, showed positive local abscopal and sustained antitumor activity in injected and non-injected lesions, long-lasting partial responses were observed and the overall data support further developments across a range of solid tumor types to improve responses to cancer immunotherapies. And the next step here is that the evaluation of BT-001 via the investigator-led trial in early-stage setting, what I already have mentioned. And then I hand over to Stefan for the financial overview. Stefan Ericsson: Thanks Martin. Okay. I will present the financial overview for Q3 and the 9-month period, January to September. All amounts are in SEK million, unless otherwise mentioned. Net sales were SEK 3.3 million in Q3 2025 compared to SEK 12.8 million in Q3 2024. That decrease is related to the production of antibodies for customers was SEK 9 million lower in 2025. Net sales for January to September 2025 were SEK 223 million. For the same period in 2024, net sales were SEK 23 million. That's an increase of SEK 200 million. The increase is mainly related to the $20 million payment when XOMA Royalty acquired future royalty rights to mezagitamab. Prior to that, a $1 million milestone was received in the collaboration with XOMA. Operating costs increased from SEK 120 million in Q3 2024 to SEK 137 million in Q3 2025. That's an increase of SEK 17 million. We had quite higher costs in BI-1808 and higher cost in BI-1206 and somewhat lower cost in BI-1910. And we also had higher personnel costs in Q3 2025. For January to September, the increase of operating costs was SEK 77 million from SEK 369 million in 2024 to SEK 446 million in 2025. During the period, we had quite higher cost in BI-1206 and BI-1808 and higher costs in BI-1910 and personnel costs in 2025 were quite higher compared to 2024. And the result for Q3 2025 was minus SEK 129.2 million, and the result for January to September was minus SEK 207.1 million. Liquid funds and current investments end of September 2025 amounted to a total SEK 690 million. And based on our current plans, we are financed into Q1 2027. Over to you, Martin. Martin Welschof: Thank you, Stefan. So then at the end, I would summarize again the key catalysts for the remaining 2025 and 2026. I think I mentioned it already, but I think it's always good to go over this again, and you see it here on this slide since there has been some changes, because originally, we guided the market that we will have for 1808 in solid tumors, a data update in combination with pembrolizumab. But in addition to that milestone, we also will update on 1808 additional Phase IIa single-agent data this year as well as additional Phase IIa data with rituximab and acalabrutinib for 1206 in non-Hodgkin's lymphoma. Otherwise, then for next year, so we'll have then the Phase III data with pembro in [ TC/TCL ] for 1808. And then there will be then, of course, additional triplet data, so for BI-1206 in non-Hodgkin lymphoma in combination with rituximab and acalabrutinib. And then in the second half, we'll have the first data update regarding 1206 first line in solid tumors, and that will be the first readout that will be during the second half of next year. So I stop here and open up for questions. Operator: [Operator Instructions] The next question comes from Sebastiaan van der Schoot from Kempen. Sebastiaan van der Schoot: There appears to be a lot of data still coming in 2025. And I just wanted to know whether you can provide a little bit more color on the different readouts. Maybe starting with the triple regimen for 1206. I noticed on the slide that said disclosed data on the first 8 out of 30 patients total. Does that mean that we will get an update on the total patient on 30 with the next one? And how long will the follow-up be for that particular readout? Martin Welschof: Yes. So for that -- Sebastiaan, for that program, BI-1206, that's in combination with acalabrutinib and rituximab. So basically, we have now more patients. We'll have an update on the overall response rate. We'll have an update on the complete response rate. So basically, an update on the study as it's going at the moment. Sebastiaan van der Schoot: Okay. Got it. And could you also provide a little bit more color on the 1808 readout in CTCL for the combination of pembrolizumab in tumors, like how many more patients will we get? Is it going to be like a handful? Or is it going to be a substantial update? Martin Welschof: For the -- so 1808, I'm just repeating because you were interrupted actually because there's some background noise where ever you are, Sebastiaan. So for 1808, this is, of course, monotherapy in T-cell lymphomas, right, so not combination. And because the combination will be next year as already guided. So this is an additional update that we have. And as you might remember, so the single-agent part or dose escalation has been done, and that will be basically then a further analysis on that data and update where we are with the different complete responses, partial responses and stable diseases. And then also quite some interesting information on the translational side. Sebastiaan van der Schoot: Okay. Got it. Thank you so much Martin. Operator: The next question comes from Richard Ramanius from Redeye. . Richard Ramanius: I just continue where Sebastiaan left off. And could you remind us about the next steps for both BI-1808 in T-cell lymphoma and BI-1206 in normal lymphoma in 2026? Martin Welschof: Yes. So basically, I start with 1808 first, as I said to Sebastiaan. So the single-agent part, the dose escalation, et cetera, has been done, so that is finished. What we have already have started is also the combination with pembrolizumab. And the reason why we do this is just to see whether it can be even better. So as you remember, so the data, the single-agent data is very impressive. But nevertheless, we also wanted to test the combination. And that is currently ongoing and the update on that data will then be at some time point next year. And then for 1206, the update that is coming now is basically a further progress of the study. And then next year, we will, of course, then finish the 30 patients. And then it depends on the data a little bit where we move, but we already had discussions with the regulators, such that we potentially could do at some time point a pivotal study. But as you know, so this is something that we want to do in a collaboration. So basically, what we're doing is to finish really up the 30 patients that will happen during next year and hopefully, with a very strong overall response rate plus a very high rate of complete responses, and we are quite optimistic that we can achieve that. Richard Ramanius: And I was thinking about your potential license partners. You're going to get some data in the triple combination now and somewhere in early 2026, while the data in combination with pembrolizumab in non-small cell lung cancer and uveal melanoma will be one year later. So what -- hypothetical question, what if AstraZeneca is very interested, what are the options for MSC Merck then? Martin Welschof: Yes. It's a very interesting question. Obviously, first of all, maybe a slight correction. So the first data that we'll have for the 1206 pembro combination will be during the second half of next year. So it's not a year later because I think we'll have during the first half, we'll have then further update or actually what we have guided now it's mid next year on the triplet. So I think we might even have -- and as you know, Merck as well as AstraZeneca, they don't have any rights, but they see the data a little bit earlier. So what we're doing now is pushing really hard on the 1206 pembro combination as much as we can, such that we might have already some interesting data that we may be -- that are not in the market yet, but that Merck will see since they are following us closely, and that could then trigger interesting discussions. So that might be enough, let's say, AstraZeneca would make the move. And if Merck would see something that is bubbling up, something interesting that is bubbling up, they might be able to counter. And also, I think I will use the opportunity here to update or to remind everybody. So with 1206, obviously subcu. And if you only would see, let's say, a 10% increase of responses to KEYTRUDA first line, this is, of course, a very interesting thing for Merck because Merck KEYTRUDA or Merck's KEYTRUDA has been just approved as subcu. So you could then really think of co-formulating KEYTRUDA subcu and 1206 subcu into one injection basically. And that could be something very, very interesting. And coming back to your question. So I think if we see initial data and Merck would see that rather early, they might then still be able to react in case AstraZeneca should come forward and is interested in a collaboration. Richard Ramanius: And what about an interest from AstraZeneca in combining BI-1206 with Imfinzi or durvalumab, their checkpoint in... Martin Welschof: Absolutely. That could be another option. So because the thing is because I get this question a lot that some people think, okay, AstraZeneca might, if they're interested to collaborate on non-Hodgkin lymphoma and Merck on solid cancers. But if either party is interested to do that, then probably they will opt for the full program, even if they have some specific interest. So AstraZeneca absolutely could also then consider if they think 1206 is interesting enough for them to consider collaboration to also consider on other applications besides non-Hodgkin lymphoma, absolutely. Richard Ramanius: Okay. Then I just have one more financial question. Are we going to see any more results of the cost-cutting measures just recently? And what type of burn rate could we expect going forward? Stefan Ericsson: I think you could say -- you see right now, we had -- for the first three quarters, we have SEK 446 million. So you could extrapolate that to the full year, a little bit less than SEK 600 million, and that will go down a little bit next year. Operator: The next question comes from Oscar Haffen Lamm from Stifel. Oscar Haffen Lamm: My first one would be on the readout coming out earlier than last communicated. Could you just give us some granularity on the reasons behind? Is it simply due to a faster recruitment than you initially planned? Martin Welschof: It's basically due to progress on different fronts. Obviously, recruitment is one part of it. But the interest in both studies is very high. So recruitment is going very well. And then, of course, you have better progress than we originally planned. So that's the main reason. That's the main reason. Oscar Haffen Lamm: Okay. Got it. And then a second question on the 1206 triplet combo data. What is the next data patients that are treated with higher dose of 1206 compared to last update? I'm thinking the 225 milligram compared to 150 milligram that was mainly used in the preliminary data. Martin Welschof: Yes. So basically, the data that you will see is a continuation of the data that we already presented earlier this year. So it will be the same dose, just a higher number of patients. Operator: The next question comes from Dan Akschuti from Pareto Securities. Dan Akschuti: Just one follow-up on the previous one. So in May of this year, you showed that all 8 patients in the triplet combo in NHL had shown a reduction of some of the target lesions, even the stable disease ones moving towards response. And now I'm just wondering, is this end of this year, is that going to be another interim readout? Or will it be of the full 30 patients? Or will we get the full one then still in the first half of next year or -- is there a possibility to go into Phase III as a single agent for 1808 in CTCL number? Martin Welschof: Yes. So starting with 1206 first. So the full 30 patients will be then at some time point next year. So I think roughly by mid next year. So what we have now is not the full 30 patients yet, but significantly more what we have shown in May. And on 1808, so yes, absolutely. So the plans and what we have discussed with the regulator is single-agent pivotal study. And I don't have the slide here in the deck, and I just have to memorize what we will do. So as I said already earlier, so we're currently running the combination with pembro. In parallel, we will start with dose optimization such and then also preparing for the pivotal study such that -- and those plans are still the same. We potentially could start a pivotal study for monotherapy first line in 2027. Operator: The next question comes from [indiscernible] from DNB Carnegie. Unknown Analyst: So good to see the planned readout being ahead of schedule. So first off, on 1206 and the triplet, you've seen pretty upbeat, Martin, on response rates being able to move up as patient numbers increase. So can you say anything about your expectations for the readout before year-end? And what would make this readout live up to expectations? And secondly, you should have a pretty substantial data set on the doublet, and we've seen some really nice long-lasting responses. And we've also seen the duration of complete responses. But can we also expect you guys to disclose the median duration for all responses? Is this data mature enough essentially? I'll start there. Martin Welschof: Yes. Thank you. So for the data package, what we're expecting is basically, as I already mentioned earlier, the overall response rate that should be, and that's our target above 75%. And then on -- then the other point, obviously, is a very high ratio of complete responses. So that is what we hope to present to the market. And then just remind me of the second part of your question. Unknown Analyst: Yes. So that was on the median duration of response for the doublet and whether or not that data is mature enough to present. Martin Welschof: Yes. So what we have, we can present. But obviously, so the study did not start that long ago. But it looks like what we have seen, but it's, of course, since the study is still relatively young, still preliminary data, but it looks that we have a similar or the same duration as we already have presented when we came out with the doublet data. And also to tell everybody, so those patients that were in complete response are still in complete response. So now this is more than 3 years for some of those patients. But obviously, we don't have the same length with the triplet combination because that just started less than a year ago. But we can see that the responses that we get are enduring basically, right? But it's still early days. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Martin Welschof: Yes. Thank you, everybody, for participating and also for the good questions. So we are, of course, happy and excited that we can update the market earlier than what we projected around 1808 single-agent CTCL and 1206 in non-Hodgkin lymphoma. I think this is very good and shows the interest in the study regarding the sites that are involved. And of course, this is driven by good data. Obviously, otherwise, we wouldn't have that progress. And then also next year, I think we are really then zoning into a very interesting phase of the company because then we have more mature data, which should drive partnering and/or financing. And I'm really looking forward to that, especially partnering. So I think I will conclude with those words. I don't know, Stefan, do you have any final comments from your financial perspective? Stefan Ericsson: No further comments. Martin Welschof: Okay. Then I think we can close the meeting. Thank you very much, and talk to you soon.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to Ternium's Third Quarter 2025 Results Call. [Operator Instructions] I would now like to turn the call over to Sebastian Marti. Please go ahead. Sebastián Martí: Good morning, and thank you for joining us. My name is Sebastian Marti, and I'm Ternium's Global IR and Compliance Senior Director. Yesterday, we announced our financial results for the third quarter and first 9 months of 2025. This call is meant to provide additional context to that presentation. I'm joined today by Maximo Vedoya, Ternium's Chief Executive Officer; and Pablo Brizzio, the company's Chief Financial Officer, who will discuss Ternium's business environment and performance. After our prepared remarks, we will open up the floor to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on Page 2 in today's webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that, I'll turn the call over to Mr. Vedoya. Maximo Vedoya: Thank you, Sebastian. Good morning, and thank you all for joining our quarterly conference call. In the third quarter of the year, Ternium continued to improve its performance. We saw an increase in EBITDA, driven mainly by a decrease in cost per ton supported by the continued execution of Ternium's competitiveness plan. Our cash generation remains strong with operating activities contributing over $0.5 billion during the quarter. Additionally, Ternium's Board of Directors declared an interim dividend of $0.90 per ADS, which keeps the payment level the same as last year. Meanwhile, the business environment continues to be marked by uncertainty, largely resulting from the ongoing changes in the U.S. tariff framework. Within this environment, the U.S.-Mexico trade agreement stands out as particularly significant for our business. In recent weeks, we have engaged in dialogue with stakeholders on both sides of the border. This conversation had revealed support for policies that strengthen the USMCA framework and promote deeper regional integration. The Fortress North America concept is gaining traction, highlighting the importance of deeper economic and industrial ties among the USMCA members. As trade negotiations progress, the focus remains on maintaining fair competition, addressing imbalances and reinforcing rule of origins, all of which are important to ensure the long-term resilience and growth of the industry in the region. Along these lines, the first formal step have already been taken for the planned USMCA review with consultations launched to obtain feedback on the agreement from interest parties. In Mexico, uncertainty resulting from U.S. trade policies has had a significant impact on steel demand during 2025. Recognizing the challenges created at this period of trade volatility, the Mexican government is prioritizing efforts to fortify the country's value chain, aiming to promote greater self-sufficiency and resilience against external competitive pressures. These incentives are closely aligned with U.S. priorities. Throughout 2025, the Mexican government has taken a proactive stance by launching initiatives such as the Plan Mexico, implementing targeted measures to counter unfair competition from certain Asian countries and imposing tariff on imports from nation without a trade agreement with Mexico. For example, in September, a proposal was published to increase tariff on close to 1,500 categories, including steel and its derivatives for imports originating from countries without a trade agreement. It is expected that tariff on steel currently at 25% and its product, auto parts, engines and [indiscernible] will rise to 35%. In the case of light vehicles, the tariff is expected to increase to 50% versus the current 20%. A ruling is expected in November following the approval of the final proposal for the tariff increase. These efforts are primarily aimed at increasing local value adding, promoting more resilient North America supply chains and reducing reliance on imports from Asia. We strongly support these policies, and they are vital for the region's economic development and for the continuous growth of the steel industry. In Brazil, industrial activity continued to expand even in the face of high interest rates. The overall steel environment remains healthy with expectation of 5% growth in apparent steel demand in 2025. In addition, our ongoing efforts to increase efficiency of our operations in the country are yielding positive results, with continued decrease in cost per ton. But still, the Brazilian markets continue to face a high level of unfairly trade imports, primarily from China. In the first 9 months of 2025, import of finished steel products rose by 33% in Brazil as excess production from China floods to international markets. Unlike the United States, Europe or Mexico, Brazil still lacks effective trade defense mechanisms. It is crucial that ongoing antidumping investigations conclude with imposition of duty, whether preliminary or final, under relevant products under review to address these challenges and defend the domestic industry. Turning to Argentina. After a period of growth, activity across the steel value chain leveled off due to increased uncertainty leading up to the midterm elections. Now that the elections are behind us, I am optimistic that Argentina may be entering a period of structural reforms, paving the way for significant growth opportunity across steel value chains. This is especially true in the country's most dynamic sectors like agriculture, mining and oil and gas. Before moving on, I am pleased to share that this quarter, we received a Steelie Award for excellence in sustainability from the World Steel Association. This award recognizes Ternium's Winds of Change project, our first renewable energy initiative in Argentina. The wind farm now provides approximately 90% of our externally sourced electricity in the country, significantly reducing our environmental footprint and delivering considerable cost savings. To sum up, the U.S. transformation of the global trade framework has brought significant challenges, but these adjustments are necessary in light of aggressive trade practice by China and other Asian countries. To navigate the environment in global trade environment -- evolving global trade environment, we are focused on strengthening our market position through ongoing optimization and cost reductions. This effort ensures Ternium remain resilient, efficient and able to deliver sustainable value to stakeholders while adapting to change and pursuing growth. Thank you very much for your continued support. Pablo Brizzio: Okay. Thanks, Maximo, and thank you, everybody, for sharing today this conference with us. Let me review our operational and financial performance following the webcast presentation. Beginning on Page 3, adjusted EBITDA increased sequentially in the third quarter, driven by improved margins. Looking ahead, we expect a slight decline in adjusted EBITDA for the fourth quarter, primarily driven by the usual seasonal slowdown in shipments across all our markets. Adjusted EBITDA margin should remain consistent with the previous quarter as the expected decrease in revenue per ton in Mexico and Argentina is projected to be largely offset by continued reduction in cost per ton. Let's move on to the next slide. Our net result for the third quarter of 2025 was a loss of $270 million. This figure reflects, firstly, a $405 million non-cash loss related to the write-down of deferred tax assets at Usiminas. And secondly, a $32 million loss related to the quarterly update of the value of a provision for ongoing litigation concerning our acquisition of stake in Usiminas. This was driven by interest accrual and by the appreciation of the Brazilian real in the quarter. Without these effects, net income would have been $167 million in the fourth (sic) [ third ] quarter, and earnings per ADS would have been $0.73. You can also see that compared to the second quarter of 2025, the largest impact was related to the write-down of deferred tax at Usiminas and also to $143 million decrease in income tax results, mainly due to lower deferred tax results in the third quarter, our significant gain in the second quarter, driven by the appreciation of the Mexican peso against the U.S. dollar. Let's move to Page 5 to review our steel segment performance. Shipments posted the most increase during the quarter, driven by growth in Mexico and Brazil. This was partially offset by lower volumes in other markets and somewhat in the southern region. In other markets, weaker shipments to the U.S. were partially offset by higher sales volume in other destinations. Looking forward to the fourth quarter of 2025, the company anticipated a sequential reduction in shipments in Mexico influenced by softer construction activity and the typical year-end seasonality. In Brazil, despite persistent challenges stemming from unfair trade steel imports, particularly from Asian producer, Usiminas continues to enhance in competitiveness through cost efficiency initiatives and operational improvements. These efforts are expected to result in a more favorable cost per ton compared to the previous quarter. And in Argentina, we are positive about demand growth opportunities throughout the company's value chain. Turning now to Page 6. Cash operating income in the steel segment continued [ improving ], mainly due to a margin increase. Although there was slight decrease in revenue per ton, this was more than offset by a lower cost per ton as a result of lower prices for raw materials and purchased slabs as well as ongoing efficiency improvements. On the following slide, let's review the performance of our Mining segment. Net sales declined quarter-over-quarter, primarily due to slightly lower iron ore shipments and a decrease in the margin, mostly due to an increase in cost per ton in Las Encinas, one of our Mexican mining operation as a result of a temporary decrease in production. Looking forward, production levels in Mexico are expected to normalize in the fourth quarter. Let's review now our cash flow and balance sheet performance on Page 8. During the third quarter, we had solid operating cash generation, supported by a further reduction in working capital, largely attributable to lower unit cost in [ passive ] inventories. Capital expenditures peaked in the second quarter and totaled $711 million in the third quarter, reflecting our ongoing progress in developing new facilities at the Pesqueria industrial center in Mexico. Net cash position continued decreasing in the third quarter, driven by the funding requirements associated with the ongoing expansion, together with $114 million decrease in the fair value of Argentine securities as of the end of September, which have since then been regained as of yesterday market prices. Let's now turn to the final slide where we will summarize our performance for the 9 months of the year. Adjusted EBITDA decreased in the first 9 months of the year, mainly due to lower margin and shipments. The margin reduction was primarily driven by lower steel prices, partially offset by improved cost performance. We had a robust cash from operations in the period, boosted by working capital decrease and CapEx increase compared to last year as 2025 is a peak year for the growth projects in Pesqueria. As a final remark, yesterday, our Board of Directors approved an interim dividend of $0.90 per ADS, unchanged from last year interim dividend. Together with the $1.80 per ADS paid in May, this brings the total distribution during 2025 to $2.70 per ADS, equivalent to a dividend yield of 7%. This interim dividend will be paid on November 11. With this, I'm concluding my prepared remarks. We are now ready to take any questions that you may have. Operator, please open the floor for the Q&A session. Operator: [Operator Instructions] Your first question comes from the line of Carlos De Alba of Morgan Stanley. Carlos de Alba: My 2 questions. One is, given the results of the elections -- mid-term elections in Argentina, what sort of strategic opportunities do you see in trying to make more efficient the ownership structure of the company with potential stakes in Siderar or Ternium Argentina and Ternium Mexico? Maximo Vedoya: Yes. I mean, I think the election doesn't change the project that we -- what you have. You remember that we have an opportunity now. We analyze simplifying the structure. It couldn't be done. We are not seeking that right now. but the things that can come online, but not because of the election. I think that the change in the election is that, well, we are going to left behind the noise of everything that will happen in the market in Argentina. I think with this election, there are going to come structural reforms in Argentina that probably will make more competitive the industry. I mean, Argentina is in need of these reforms. And I think we can see in the future a market -- a growth in the market, but also a growth in the competitiveness of Ternium Argentina, which is what we need in Argentina. I think those are the change of the election. Carlos de Alba: And then, under what circumstances would you try that initiative that you presented in the past that didn't work to make the structure more efficient? Maximo Vedoya: I think it doesn't depend on us. Remember that a good part of the share of Ternium Argentina is in the ANSeS. So that -- it doesn't depend on us to do that. I don't know, Pablo, if you want to add anything else to that. Pablo Brizzio: Yes. Carlos, you know that -- as Maximo mentioned, we have tried in the past doing that. It's also, as he mentioned, nothing that we can do at this moment. But this is a project that continues to be in our mind. So, if there is, in the future, an opportunity to move forward with this, it's something that we will take in consideration. It will require a full analysis on the process and on the project, but it's clearly something that we may consider. I think that, first of all, you need to see in order to start thinking about this kind of project, the reforms that the government will try to pass, how these are evolving -- how are this evolving and the way they are approved in Congress. So, with all of that behind us, probably opportunities could appear to further analyze this project. So, again, a lot of things moving on in Argentina. We need to see if this evolution is going on the positive direction. And probably after that, there will be a possibility to further analyze this project. Carlos de Alba: Great. And then my second question is related to what would -- I mean, I know that you guys are talking to the government in Mexico and in the U.S. The Mexican government is still negotiating with the U.S. government. But what would be Ternium's planned, or action planned if the U.S. keeps the melt and pour conditions for steel using products that are imported into the U.S. Maximo Vedoya: Well, we are going to continue with the plan we already put forward. I mean, the new investment was exactly because of this. Remember, we have 2.5 million tons of flat products, not including long products there of melt and pour. And with the new steel shop, we are going to have 2.6 million additional to that. So, we are investing because I think that the melt and pour, in some cases, as in the automotive industry, is something that is going to stay or it can be increased. So that's why we made those huge investments, Carlos. Carlos de Alba: All right. I understood that right now, it has to be melt and pour in the U.S., not in Mexico that's included… Maximo Vedoya: Well, yes, you're right about that. That is not to pay -- you're right, I misunderstand the question. I thought you were talking about the USMCA. I mean, if the negotiation or looking forward, that if we are going to have a USMCA, that has to change. The vision or the path we see is that it has to be melt and pour in the region. It cannot be melt and pour only in the U.S. if we have to have a negotiation. You cannot have an agreement where you only have U.S. melt and pour. In the meantime, there are some customers of us -- probably your question also goes through that. There are some customers of us that are -- as you said, are -- well, some I don't know, some affections because of it because there are some steel derivative products, you said that if there are melt and pour in the U.S., they have discounting in the tariff they pay. But we are working with each of these customers for each of these products in particularly to support their sales so that we don't lose any volume. But this is a temporary thing, I guess. Operator: Your next question comes from the line of [ Rich Emerson ] of Goldman Sachs. Unknown Analyst: Can you hear me? Maximo Vedoya: Yes, Rich. Unknown Analyst: Okay. I have 2 questions. The first one, looking at the 4Q outlook, I'd like to understand a little bit more on, first, the cash cost outlook. You guys mentioned that there are ongoing efficiencies in the operation. But could you please just break this down between the cash cost performance at Usiminas and at Mexico and Argentina? So, looking ahead, you guys expect cost to improve also in the operations in Mexico and Argentina. So, this is the first one. And the second one, in terms of prices, I understand that Mexico is undergoing a subdued activity in the construction segment. And prices in Argentina continue to be subdued as well. So, what can you guys share in terms of what you expect on prices for Argentina and Mexico going forward? So this is the second point on the first question. And just another point on CapEx. In this quarter, there was a small decline. So, just trying to understand if you guys still plan to reach the $2.5 billion for this year or indeed we should see lower CapEx for the year, considering that we saw this decline in 3Q? Maximo Vedoya: Thank you, Rich. I'll start from the third one and going up. CapEx, yes, we had said that 2Q was the highest of our CapEx. It was around $800 million (sic) [ $800 million ]. This quarter it's $7 million (sic) [ $700 million ]. Probably in the fourth quarter, the number we are seeing is around $600 million, putting the total CapEx of the year between $2.5 billion and $2.6 billion. For 2026, CapEx will be probably $1.9 billion. So probably every quarter will be around $500 million. And in the 2027, probably will return to $1.11 billion. So, as I said before, the peak of all this CapEx investments, of all this CapEx plan was in the second quarter. That -- I hope I answered the third one with that. Second, you're talking about prices. Prices for the fourth quarter are going to have a little bit of a decrease in Mexico and Argentina, but only slightly and some part of that is because of the mix. Remember, the fourth quarter is usually a low volume quarter and also the mix change a little bit. So, prices -- when you see our prices in the fourth quarter, could be a little bit low, but not very much. Prices in the North American region are stable and prices in Mexico has recovered a little bit from the U.S., but we are not seeing any decrease and probably we are going to start seeing some increases in some of the sectors in Mexico late in the fourth quarter or early in the first quarter. And the first one, Pablo? Pablo Brizzio: Yes. Perfect. Rich, let me try to answer your question by dividing the cash cost from the different operations. But before doing that, in a general view, you have seen that our margin during the third quarter has increased in comparison to the third. That was somewhat practical and something that we announced during our last conference call. And this was due to different things. First of all, of course, there was a reduction in raw material and purchased slabs, which are very important for overall cost structure. But also, there was the implementation of our cost reduction plan that is expected to be fully implemented by the end of this year. So, this is the 2 components of why we have been reducing cost. And if you split up between the different markets where we are, you have an increase of margins in Argentina, somewhat in Mexico and in Brazil, taking into consideration numbers that Usiminas presented to the market last week, you have seen also some increase in margin. The expectation for the fourth quarter is to further increase our cost reduction. And if all other things were equal, our margin should increase. But we know what we have said and Maximo has just answered one question to you, where you will see that our average price, both in the Mexican and the Argentine market will decline a little bit, but we will be able to sustain our margins in the different market. That's why the outlook for the fourth quarter is for sustained EBITDA margin and a small reduction in volumes, and that's where we will see our EBITDA generation. But all in all, we continue or we're expecting to continue to have better margins in the different regions where we operate, and that will be clearly reflected in the cash cost. Operator: Your next question comes from the line of Alfonso Salazar of Scotiabank. Alfonso Salazar: I have 2 questions. The first one is regarding the outlook for demand in Mexico for 2026. I mean, we know that 2025 was pretty weak. And if you think that there is going to be a recovery in 2026, I would like to know what's going to drive that recovery. And more generally, what is your -- the outlook in your view for North America? We know that the situation with tariffs now with Canada an extra 10%. It's very unclear what's going to happen with tariffs the next week and then 1 month from now. But if you can help us to understand, first, how the U.S. has been sourcing all the steel that they need this year so far with the tariffs? And how you think it's going to be once the situation normalizes, let's say, 2 years from now, if we can think of a normalization of the steel trade situation that we are facing today. That would be very helpful. Any comments on that would be very helpful. Maximo Vedoya: Alfonso, I will try to make magic and answer the second question. But first, the outlook of Mexico. Yes, demand in Mexico in 2025 is not good, as you said. Last week, I think the Worldsteel disclosed the SRO for the whole world and apparent consumption in Mexico is probably going to be down 10% in Mexico, steel apparent consumption, which is a very, very big number. What we are seeing for 2026 is a recovery in Mexico demand. We'll still put this at 4%. But probably if the infrastructure -- I mean, part of that decrease in the apparent consumption in 2025 is due to -- well, it's always in a new year from a government, always infrastructure down. Infrastructure is down like 28% to 29% in the first 9 months of the year. So that's a huge number, and it's still intensive. So, this is going to grow next year. Construction will probably start growing again. And the stabilization in the trade between the U.S. and Mexico. I think that's something that is also a driver of improving demand or going back to the demand we have in 2024. So, in the sense for Mexico, we are optimistic that demand is going to recover at least partially in 2026. Outlook for the North America, you said what is going to happen in 2 years? Clearly, I mean, today, imports in the U.S. are decreasing. There are still some countries that are paying the tariff of 50% and shipping to the U.S. But in general, imports are decreasing. I think that at least in the region, I am confident. I don't know if the confident is the word, but I think that USMCA is going to be renegotiated and in at least trade between the USMCA countries is going to be liberalized. I think that the U.S. has a clear vision of that manufacture, industrialization has to come back to the region. And I think that including Mexico and Canada, but I'm speaking about Mexico. In this region was, how to improve the industrialization in the region, I think it's a better outlook for everybody. And everybody, I think, has the same vision. When is this going to happen? It's not clear, but the renegotiation, it's already started. So, I guess that by the mid part of next year, we are going to have an outlook of where this negotiation goes and how tariff between the 2 countries start diminishing. That's at least our vision. I hope that also -- I give some clarity. Alfonso Salazar: Yes. Maybe just a follow-up on what you mentioned. The fact that we already see some bottlenecks for this reshoring of manufacturing, one of them is certainly labor. The second one is energy with data centers consuming so much energy. If you want to make more steel used electric furnaces, that's also going to require a lot of energy. Maximo Vedoya: You're right, Alfonso. That's why I think that a vision of a region more than only the U.S. is what is in the best interest of everybody, including the U.S. I think Mexico can be a partner, if it follows the rule of the USMCA, can be a very, very good partner to help with the vision the U.S. has. And I think that's a common understanding of everybody. Operator: Your next question comes from the line of Alex Hacking of Citi. Alexander Hacking: I guess just following up on the trade point. Have any of your auto customers started to rebalance production back to the U.S. and away from Mexico? Maximo Vedoya: They still didn't rebalance production. Our discussion with our customers are, how they -- I mean, they are sourcing steel from the U.S. They are sourcing steel from us in Mexico, and they are also sourcing steel from some Asian countries, and we are discussing how to -- if we are able to source that steel that they are bringing from, let's put Asian countries back to Mexico. And so, we have very good discussions with them trying to make a ramp-up of that sourcing. From a broad point of view, I mean, the U.S. consumes somewhere around 16 million units in light vehicles per year. They produce today 8 million and Mexico export 2.5 million; 2.3 million, 2.5 million. I mean, I understand that what the Trump administration is trying to accomplish is to increase that 8 million units. And I think that's possible. But I don't think that this is going to be on taking an account in Mexico production. Probably it's going to take account or it's going to gain market share of production in the U.S. against other suppliers because you have to put that -- every car that is exported from Mexico to the U.S. at least has between 35 and 45 U.S. contents. So, in the interest of everybody, if you're going to produce more in the U.S., you have to substitute imports of cars from outside the region and not from Mexico. So that's the vision I think everybody is looking to. I hope I did answer the question, Alex. Alexander Hacking: Yes. No, that's very clear, and it makes sense. I guess a second question would just be, I've seen various news reports about Mexico increasing their own steel tariffs. I guess, what is the current proposal and what will be the timing of implementing any changes? Maximo Vedoya: Look, there are several initiatives in Mexico that are following in a sense also what the U.S. -- not because the U.S. is asking, I think, but because this is what a clear vision of this new administration. I think the new President before she was even elected and when she was already elected but not in office, said that the vision of the Plan Mexico was to -- I mean, to increase value-added content in Mexico and in the region. So, there's a lot of initiatives. There's one initiative that I said, I think, in my initial remarks, that there are almost 1,500 products that are ready in Congress to increase tariff. Those include those of steel and some steel derivatives from 25% to 35%. This should be approved in November. And there are also other initiatives I know they're discussing to try to limit imports whenever it's possible to produce that in the region. That's in the North American region. Alexander Hacking: Okay. And then I guess just one final one, if I may. I mean I assume that Ternium would generally be in favor of sort of creating Fortress North America for steel, where Mexico, Canada, the U.S. have steel import policies -- tariff policies that are fairly aligned with each other, but then relatively free trade amongst each other. I assume that's something that Ternium would generally be in favor of and would be quite positive for Ternium. Maximo Vedoya: Yes. And I have been out talking about that. So yes, I can say it without any doubt. I think that each country has to have some differences because the production matrix of the countries are different. But I think internally to say that we are in favor of a North American fortress, and we are actively asking for that. Operator: Your next question comes from the line of Rafael Barcellos of Bradesco BBI. Rafael Barcellos: So, first question, I would say that over the past few years, you worked to simplify the overall shareholder structure of your subsidiaries, right? So, I just wanted to understand how comfortable you are with the current structure across regions. And the second question, if you could provide an update of the Pesqueria project. I mean, if you can go through the expected start-up CapEx, I mean, after the recent CapEx revision, whether you are now comfortable with your estimate. And given the overall market conditions, if there's any change in your commercial strategy for the project? Maximo Vedoya: Thank you, Rafael. I'll start with the second one, Pesqueria. I mean, you know the Pesqueria has several projects. The first one or the first part is the galvanized, the new galvanized line and the new PLTCM, the cold-rolling mill. The galvanized line is going to start the running curve in December, is in time. We are going to start it in December. And the PLTCM is going to start it in January. Remember, this has -- they are very complicated line. So, the ramp-up curve is not very -- it's not short, but we are going to start production in December, and we are going to start production in January, plus/minus some days. And so -- I mean, we are confident of that. The other project is the DRI and the EAF facility. That is going on time. I mean we have on our budget that is going to start in the fourth quarter of 2026. If you see the site, I mean, it's impressive. It's really worthwhile going to visit the site because it's clearly amazing and the tower and 140 meters of the DRI facility going direct to the EAF without any -- I mean, hot DRI. So, we have a lot of efficiency in energy. But -- and today, we have the same budget as we announced. I think it was $2.7 billion. We are in that budget. Of course, still 1 year until we start the production. But so far, it's going very good. And then, we have the structure, Pablo? Pablo Brizzio: Yes. You know that we have been discussing this at length during many conference calls on our idea to simplify the corporate structure. So, clearly, we are not comfortable with the structure that we currently have. We think it would be a plus for Ternium to simplify its corporate structure. But also, you know that it's not a simple proposition. It's not just a decision that from one day to the other, we can achieve. So, we need to be very cautious on the message that we passed that clearly, we are comfortable. Clearly, it's something that at some point, we would like to simplify. But the process to do that is not straightforward, and we will analyze, and we will continue to analyze not only from an economic standpoint, but also from a formal standpoint, how we can achieve that. But again, I guess that we answered this question also from our point of view during this call. It's something that we keep in our short list of things to be done in the future. Nothing that we can do at this specific point, but it's something that we will try at some point to achieve. Operator: [Operator Instructions] Your next question will come from the line of [indiscernible] of J.P. Morgan. Unknown Analyst: So, I would just like to follow up a little bit on the questions that my colleagues did. And the first one is a little bit about your expectations for '26. So, I think there is like the magical number of EBITDA per ton that we like always discuss, $150 per ton. And I would just like to understand if this is your expectation for next year. If not, what is the level that you guys have confidence that you might deliver? And what is the premises that you have been considering for this number? So, does this include like antidumping structures for Brazil or this is like base case that we are not going to have anything at Usiminas level. So just to understand a little bit your rationale here. And I think lastly, we discussed like every earnings call a little bit on what is the update or the most recent update on Compactos, if this is going to be like a project that you have on your pipeline for Usiminas for coming year. I think the last update that we had is, this is going to be a discuss for 2026. But I would just like to understand if there is a space or room for maybe a postponement since like we don't have the best environment right now in the market? Or if this is a priority since like the iron ore mining project still. Maximo Vedoya: I'll start with the Compactos. As I think I said before in some of the conference, I mean, the decision of the Compactos, we don't have to take a decision until next year, I think it was mid or late next year. In the meantime, we are working on all the alternatives. And we are asking the environmental permissions, and we are going through the analysis of the projects. There are several alternatives now for the Compactos. So, we are analyzing the different alternatives. In the meantime, we are doing some work in MUSA, where we are extending a little bit the life of all the non-Compactos with [ interfit ]. But so, we have some more work to do or more time in feeding Usiminas and selling the rest to the market. So, I mean, again, we are analyzing different options, different plant structure for the Compactos, different way of taking the iron ore out of the mine. And probably we have an update by mid-2026. The first one, Pablo, the EBITDA ratio. Pablo Brizzio: So, you're right that this has been our target. And in fact, we have been above this number for a very long period of time. after the increase of our participation in Usiminas, we mentioned that then you need to sum up both things. And if you take into consideration what Usiminas comment last week in their own conference call, the margin that they presented was 7%. And if you take the margin that I mentioned in answering the previous question of our operations in Argentina and Mexico, we are without Usiminas closer to 12% EBITDA margin. Clearly, it is something that we need to keep working. We already commented that we are expecting to increase our margins marginally or some during the rest of this year, 2025. And also, Usiminas has mentioned exactly the same. So of course, we will not arrive to this number during the rest of this year, meaning the fourth quarter of 2025. It will depend on many different things, the possibility of reaching that number during 2026. You mentioned some of them, the tariff, some reduction of imports in Brazil, improvement. On our side, we are doing a lot of things. We are fully implementing our cost reduction plans in order to sustain the reduction of our own cost. But at the very end, also will depend on the scenario on the trade negotiations, the growth in the different markets where we are. It's very difficult for us, especially with uncertainty related to the trade discussions to put a number today to 2026 EBITDA margins. Clearly, we continue to have this as a goal. Clearly, it's something that we will pursue. We are improving. We are entering into 2026 with a margin above 10%. The last one was 11%, and we will continue to work on to that direction. So, we are not that far for that goal. Clearly, it is one target that we have, and we will keep working to achieve as much as we can during the rest of 2026. Operator: There are no further questions at this time. And with that, I will turn the call back to Ternium's CEO. Please go ahead. Maximo Vedoya: Okay. Thank you to all of you for participating in today's call. We really appreciate your insight and encourage you to share any feedback. And have a great day. See you in 3 months. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect.
Operator: Good afternoon, and welcome to the Ethan Allen Fiscal 2026 First Quarter Analyst Conference Call. [Operator Instructions] please note this conference is being recorded. It is now my pleasure to introduce your host, Matt McNulty, Senior Vice President, Chief Financial Officer and Treasurer. Thank you. You may begin. Matthew McNulty: Thank you, operator. Good afternoon, and thank you for joining us today to discuss Ethan Allen's Fiscal 2026 First Quarter Results. With me today is Farooq Kathwari, our Chairman, President and CEO. Mr. Kathwari will open and close our prepared remarks, while I will speak to our financial performance midway through. After our prepared remarks, we will then open the call up for your questions. Before we begin, I'd like to remind the audience that this call is being webcast live under the News and Events tab within our Investor Relations website. A replay and transcript of today's call will also be made available on our Investor Relations website. There, you will find a copy of today's press release, which contains reconciliations of non-GAAP financial measures referred to on this call and in the press release. Our comments today may include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. The most significant risk factors that could affect our future results are described in our most recent quarterly report on Form 10-Q. Please refer to our SEC filings for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. With that, I'm pleased to now turn the call over to Mr. Kathwari. M. Kathwari: Thank you, Matt. We are pleased to have you all on this call. Considering the many challenges, we are very pleased that our unique vertically integrated enterprise and our focus and investments over the years are providing strong results. Our interior design focus, investments in technology and many years of developing a strong retail network, our North American manufacturing and logistics have positioned us well. Our written sales in the first quarter increased by 5.2% despite the question of tariffs. We continued our history of returning capital to shareholders by paying $16.4 million in cash dividends and ended the quarter with $193.7 million in cash and no debt. Our U.S. government sales were impacted by delays in advance of the government shutdown. I will discuss a lot of this in more detail after Matt provides a brief financial overview of the quarter, and we will also discuss our initiatives to continue to strengthen our enterprise and provide an opportunity to grow our sales and earnings and cash. Matt? Matthew McNulty: Thank you, Mr. Kathwari. Our financial performance in the just completed first quarter was highlighted by retail written order growth, strong gross margin, positive operating cash flow and a robust balance sheet. Despite macroeconomic challenges, our operations produced positive financial results, which I will now discuss. Our consolidated net sales were $147 million as higher average ticket prices and designer floor sample sales were offset by lower delivered unit volumes, reduced traffic and fewer contract sales. Retail written orders grew for the second consecutive quarter as demand patterns continue to improve. Retail written order growth of 5.2% was driven by improved order conversion, increased promotional activities, the strength of our brand, the loyalty of our clients, new product introductions and additional marketing efforts. Wholesale orders decreased by 7.1% during the quarter as the segment was impacted by lower contract business, including reductions in government spending. We ended the quarter with wholesale backlog of $53.5 million. A lower volume of contract orders, combined with improved customer lead times helped reduce our backlog from a year ago. However, in the last 3 months, our wholesale backlog rose by $4.7 million due to the timing of incoming contract orders. Strong consolidated gross margin of 61.4% was driven by a change in sales mix, lower raw material input costs, selective price increases, lower headcount and a higher average retail ticket price, partially offset by increased promotional activities, elevated designer floor sales and higher inbound freight, including incremental tariffs. Our adjusted operating margin was 7.2%. For historical context, our pre-pandemic fiscal 2020 first quarter operating margin was 20 basis points lower. Our current year operating margin was impacted by fixed cost deleveraging from lower delivered sales combined with increased promotional activity, additional marketing, higher occupancy costs from new design centers and sales of floor inventory to make room for new products. Partially offset by a disciplined approach to controlling operating expenses, including reduced headcount. Our headcount totaled 3,189 at quarter end, a decrease of 4.7% from a year ago as we continue to identify operational efficiencies and streamline workflows. Adjusted diluted EPS was $0.43. Our effective tax rate was 25.4%, which varies from the 21% federal statutory rate primarily due to state taxes. Now turning to liquidity. We ended the quarter with a robust balance sheet, including total cash and investments of $193.7 million with no debt. We generated $16.8 million in operating cash flow during the quarter through lower inventory levels and higher customer deposits. Capital expenditures of $2.4 million were primarily for retail design center build-outs and investments in technology. We continued our practice of paying cash dividends. In July, our Board declared a special cash dividend of $0.25 per share in addition to our regular quarterly cash dividend of $0.39 per share, both of which were paid in August. We have paid a special cash dividend in each of the past 6 fiscal years and a cash dividend every year since 1996. Also, as just announced in our earnings release, our Board declared a regular quarterly cash dividend of $0.39 per share, which will be paid in November. In summary, we are pleased to deliver positive first quarter results. With a resilient client base, a debt-free balance sheet and a vertically integrated business, we are navigating the current environment focused on what we control, what we can control, which is talent, service, marketing, technology and social responsibility. Looking ahead, we remain focused on our strategic initiatives in the face of ongoing economic uncertainty. We are confident in the strength of our business model, including our North American manufacturing base and vertical integration, which allows us to provide clients with custom furniture and complementary design services. With that, I will now turn the call back over to Mr. Kathwari. M. Kathwari: All right, Matt. Thanks very much. Now as we have mentioned, considering the many challenges, we are pleased with our results. Our written sales increased by 5.2% despite lower traffic. This is due to: number one, we have continued to position Ethan Allen as a desirable brand. Two, we had more qualified customers who visit our design centers, less customers but more qualified. We continue to focus on key areas of strengthening the following: talent. We have strong dedicated team members in our vertically integrated structure. In marketing, during the quarter, we increased our national marketing with many initiatives. Our marketing costs at the national level increased 44%, going from 2.4% of net sales last year to 3.4% in the current period. We believe that we should continue to see the benefit of this increase as we move forward. In technology, continued utilization of technology in our vertically enterprise is a game changer. This time included technology in our manufacturing. This has included technology in our manufacturing, retail, marketing and logistics. Our focus continues, reinvention has positively impacted many areas included interior design network. We have relocated about 75% of our design centers in the last 20 years, while reducing the design center footprint that's the size of a design center by 25%. We have stronger interior design talent. We have 50% less designers today than 10 years back but generating 75% more business per retail associates, again, combining good talent, technology, products and all the other things we do have made it possible. We invested in our manufacturing, including new technology. Opening new retail locations while closing other locations has been important, new design centers that were opened in Colorado Springs, Greater Toronto and Greater Houston. We have 173 retail design centers in North America, including 143 company-operated and 30 independently owned and operated. About 75% of our furniture is made in our North American manufacturing and almost all custom on receipt of custom orders. This is very different than what happened, say, 20 years back when about 80% of our case goods was made for stock. We deliver our products at one price to our clients in North America with our white glove delivery service. This is very, very important. Not easy to do to deliver the product, whether you are in Seattle or you are in Miami or New York at one delivered price to the customer with white glove service. It is unique, but very important for us. We have consolidated our national distribution into one major distribution center while reducing the number of company-operated retail centers location by 35% in the last 10 years. Keep in mind, we had about 10 national distribution centers. Now one major distribution center with two smaller locations is what makes it work. On social responsibility, our teams continue to focus operating a socially responsible enterprise and treating our associates and our clients with respect. In addition, we focus on operating in an environmentally responsible manner. We recently had our annual convention about 2 weeks back, which was attended both physically and virtually by our entire enterprise. Under the theme of always moving forward, we reviewed our many initiatives, including the launch of new products that will be presented to our clients in the spring of 2026 in our design centers. The new products have been important. We have launched new products in the last 1 year, which, of course, resulted in our selling of floor samples, but we also have included new products, which we introduced in Danbury in 2 weeks back and will be in our design centers by spring of next year. As I stated earlier, both the domestic and international economies are going through major changes. We remain focused on providing great service to our clients through our vertically integrated structure. We remain cautiously optimistic. At this time, we are open for any questions or comments. Operator: [Operator Instructions] Our first question is from Taylor Zick with KeyBanc Capital Markets. Taylor Zick: First off, congrats on the strong comp here in this fiscal first quarter. I just wanted to ask more specifically about the cadence of retail written order trends during the quarter, maybe what you saw during the Labor Day sales period and outside of that as well. M. Kathwari: Yes, that's a good question because the first quarter, we were looking at all these -- the challenges of government shutdowns and everything else. What we saw was much lower traffic, interestingly but more qualified people and the ones who came in were buying. And what we saw was that mostly -- most of the quarter, we maintained more or less the similar increases. We did not see any major highs or lows during the quarter. What we saw was people coming in, working with our designers and buying. Now if the environment was different and we didn't have about a 30% -- 30-plus percent lower traffic into our design centers because of the fact of the economy and what is taking place. But the people who came in were interested, qualified. They worked with our designers, thereby helping us increase our business. Taylor Zick: Yes, that's great. Maybe just a follow-up here on promotional activity. Obviously, we've seen the industry become more promotional over the past few quarters. You noted it this quarter here for Ethan Allen. Can you talk a little bit more about what you're seeing and maybe what your expectations are for the balance of the year or 2026, if you want to comment on that? M. Kathwari: Yes. I mean we are watching what is happening in the industry. We have more or less maintained our promotional activities across the Board. We have not gone into any major promotions we have -- we do give special savings every quarter, and we have maintained that. And we felt we do also provide financing, but also at the levels that we have been doing in the past, small changes, but not much. So we have maintained our -- and that's because of that, you see our margins have been maintained. If that was not the case, we would not have the gross margins that we have today. Taylor Zick: And then I guess just one last question for me before I turn it over. Tariffs continue to impact the industry pretty broadly. What are you seeing in terms of pricing across the industry? And then maybe if you've taken any pricing yourself? M. Kathwari: Yes, that's an important issue. And of course, it's changing consistently. So we do not know where we're going to end. We do make about close to 80% of our product or 75% to 80% of our furniture in North America. In Vermont, North Carolina, then we have in Central Mexico and in Honduras. Now there has -- first, there was no -- hardly any tariffs in Mexico, then there were tariffs and now they are thinking of not having the level of tariffs that they had last 2 weeks. It's ever changing. So fortunately for us, while on the furniture side, we are less impacted by tariffs, we are able to manage it because of the fact of our North American presence. Our other products, which is our non-furniture products, a lot of that does come from overseas, and that has been impacted by tariffs. Now we have taken and again, that changes. So one has to be careful that you don't act too fast. But we have made some changes. We have taken some price increases anywhere from depending on the country, the region, anywhere between 5% to 10%. Some of our partners overseas have worked with us to manage the costs. So overall, I think that we have been much less impacted by margins -- by this question of tariffs, but most of it has been on our non-furniture product. We do have one major plant that we have in Southeast Asia, which has been impacted. But again, we have to watch that every month, the tariffs change. So overall, I think we're managing it well because of our strong presence in North America and our own manufacturing. Operator: Our next question is from Cristina Fernández with Telsey Advisory Group. Cristina Fernandez: I had a couple of questions. I wanted to start with the retail segment. It's been two quarters where the written demand has been positive, but sales for this quarter for that segment were still down 3%. So at what point will we see that demand translate into growth for that segment? M. Kathwari: Well, if you take a look at our retail, we had -- on the -- interestingly our delivered retail was about 3.3% or 3.2% lower than last year. We were able to maintain our relative cost structure. I think that at this stage, our objective is to work towards -- and we are seeing that, that there are challenges that objective is to come close to what we did last year. That's what our objective is. We'll see what happens in November and December. October is just ending. But people, as I said, have been challenged. Our traffic has been down considerably, fortunately, because of the fact of qualified people coming in and especially our talented interior designers. If we didn't have that, the chances are we would be severely impacted with lower sales. So I think that at this stage, Cristina, our objective is to still watch but to come close to what we did last year. Cristina Fernandez: Got it. And then on the contract side, can you talk more about what's happening with the state department? It seems like this was a pretty challenging quarter for that particular contract. So do you think it can normalize here in the near term over the next quarter or 2? Or should we expect this lower trend to be a new steady state? M. Kathwari: Well, it's a good question. It depends upon the opening of the government, where what we have seen is this and what we hear is that we would get orders if the government was open because the government is not open, new orders are not coming in. So it all depends upon where -- what happens with the government. And it also had to some extent, impact on our sales, not completely, we were able to ship some products but it's mostly on the new orders coming in. The government is closed. So we hope that the government opens up and what we hear is that there is some higher pending orders that they will forward to us when they open. And if that happens, again, let's assume that it happens in the next -- in this quarter, then the impact of that would be towards middle or end of the following quarter because we got to make that product. Cristina Fernandez: And then my last question was on the increased marketing spend year-over-year. Can you share where the spending is going? Is it reaching more customers? Is it a different type of, I guess, advertising that you're doing compared to last year? And where are you seeing the benefit of that advertisement and traffic or conversion? Or where do you think you're seeing the return? M. Kathwari: Yes, it's a good question. And where we did was where we increased is on at a national level, we increased it in additional direct mail and paid search and paid social campaigns. We didn't have much in paid search and paid social campaigns in the past. So we accelerated. That's where most of the increase at the national level took place, close to 50% increase. Now we don't see the benefit of it right away. I would say that we should see some benefit as we go forward in this current quarter and as we move forward because this is a longer-term investment, but we believe it made sense. It also made sense that we had also this past quarter an additional direct mail that we didn't have in the previous year. So going forward, we'll continue with our direct mail as we have in the past. But to answer your question, most of the money, the new money, new advertising was on paid search and paid social campaigns. All right. Any other questions? Operator: There are no further questions at this time. I'd like to hand the floor back over to Farooq Kathwari for any closing comments. M. Kathwari: Thank you very much. We are fortunate that we have a very, very strong team. As you know, I always talk of 5 things. So we have very strong talent, even though we have been able to reduce the number of associates, but the team members that we have are very motivated, knowledgeable. And it is also due to the tremendous increase in technology that is helping us in our work. We have reduced the size of our design centers. We have refreshed our design centers. We are opening new design centers and we'll continue to do that. Many of them are relocations. We also have -- we believe very strongly that the new products are going to continue to position us well. So with strong talent, strong product programs, vertical integration, our focus on technology, we believe we are well positioned and in somewhat challenging conditions because we do not know the overall international and the domestic situation. But despite all of that, we have done well in this first quarter, and we believe that we'll do relatively well going forward. Thank you very much for participating. And I'm sure if you have any other questions, please let us know. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, and welcome to the Zurn Elkay Water Solutions Corporation Third Quarter 2025 Earnings Results Conference Call, with Todd Adams, Chairman and Chief Executive Officer; David Pauli, Chief Financial Officer; and Bryan Wendlandt, Director of FP&A for Zurn Elkay Water Solutions. A replay of the conference call will be available as a webcast on the company's Investor Relations website. At this time, for opening remarks and introduction, I'll turn the call over to Bryan Wendlandt. Bryan Wendlandt: Good morning, everyone, and thanks for joining the call today. Before we begin, I'd like to remind everyone that this call contains certain forward-looking statements, which are subject to the safe harbor language outlined in our press release issued yesterday afternoon and in our filings with the SEC. In addition, some comparisons will refer to non-GAAP measures. Our earnings release and SEC filings contain additional information about these non-GAAP measures, why we use them and why we believe they're helpful to investors, and contain reconciliations to the corresponding GAAP information. Consistent with prior quarters, we will speak to certain non-GAAP metrics as we feel they provide a better understanding of our operating results. These measures are not a substitute for GAAP. We encourage you to review the GAAP information in our earnings release and in our SEC filings. With that, I'll turn the call over to Todd Adams, Chairman and CEO of Zurn Elkay Water Solutions. Todd Adams: Thanks, Bryan, and good morning, everyone. I'll get right to it on Page 3. In aggregate, we had a decent third quarter. Our sales grew 11% organically year-over-year and EBITDA grew 16% to $122 million as margins expanded 120 basis points to 26.8%. We leveraged our free cash flow of $94 million in the quarter to repurchase about 600,000 shares, bringing our year-to-date repurchases to $135 million or about 3.8% of total shares outstanding, and all this while leverage declined to 0.6x. As you may have seen in the release, we also raised our dividend 22% and our Board has refreshed our share buyback program to $500 million. Dave will highlight it more in his comments, but we also completed our U.S. pension plan termination in the quarter, which is really just a nice thing to have behind us. This morning, as we've done in prior years, we'll take everyone through all the market data we have on the U.S. nonresidential construction market and dissect it in ways we believe makes the most sense to understand how the macro data flows through to our end markets and ultimately into our business, setting the stage for what we think the market grows over the coming years. To cut to the chase, we think our markets in 2026 look a lot like they did in 2025. Last year this time, the data showed an acceleration into 2026 that, with some of the uncertainty around tariffs and really the lack of interest rate reductions throughout '25 relative to what was projected a year ago, pushes that acceleration to 2027. The market outlook being relatively stable over the past few years, we've been much more focused on what we can control, which is leveraging our internal growth initiatives, which are amplified by the competitive advantages we've cultivated around our product portfolio breadth, high levels of specification and our unique go-to-market positioning. As we discussed last quarter, we feel like we continue to demonstrate that our teams have got a really good handle on the tariff, supply chain and pricing dynamics. And Dave will update you on all the numbers in a bit, but overall, relatively consistent with what we communicated in the second quarter. All year, our approach to outlook has been to take things a quarter at a time because there's been several scenarios as to how all this change could have played out. But with only 1 quarter to go and basically only 2 months left in 2025, we are again raising our full year estimates for growth, profitability and cash flow. Now I'll turn it over to Dave, and he'll take you through some more color on the quarter. David Pauli: Thanks, Todd. Good morning, everyone. Please turn to Slide #4. Our third quarter sales totaled $455 million as we continue to have solid execution on our growth initiatives. $455 million of sales represents 11% core growth year-over-year. In the third quarter, we generally saw our end markets perform in line with our expectations as the nonresidential market remains positive while the residential market continues to experience softness. Core growth reflects both a full quarter of impact and higher realization of the tariff-related price increase that we put into the market in April. We also saw about $8 million of incremental demand shipped in the quarter as a result of customers ordering ahead of a discrete pricing action we put in place in mid-September within our water safety and control products. The discrete pricing action was primarily to reflect incremental tariffs on copper-related goods and the updating of country-specific tariff rates. Turning to profitability. Our second quarter adjusted EBITDA was $122 million and our adjusted EBITDA margin expanded 120 basis points year-over-year to 26.8% in the quarter. This strong margin and year-over-year expansion was driven by volume leverage, productivity initiatives, leveraging our Zurn Elkay Business System and continuous improvement activities across the organization. 26.8% consolidated EBITDA margins are the highest quarterly margins we've had since the Elkay merger. Year-to-date, our sales and EBITDA have increased $93 million and $39 million, respectively, which represents a 42% drop-through on the year-over-year volume increase. Our year-to-date EBITDA margin improved 120 basis points year-over-year as our core sales grew by 8%. Please turn to Slide 5, and I'll touch on some leverage and free cash flow highlights. With respect to our net debt leverage, we ended the quarter with leverage at 0.6x, the lowest leverage we've had as a public company. We continue to repurchase shares, and in the quarter, we deployed $25 million to repurchases. That puts our year-to-date repurchases at $135 million. Free cash flow again finished strong at $94 million in the quarter. We continue to cultivate and evaluate our funnel of M&A opportunities, and our combination of management team capability, low leverage and cash flow generation all support our ability to execute on the right M&A opportunity while at the same time entering adjacencies through investment and internal development. Todd mentioned it in his opening remarks, we exited the U.S. pension plan in the quarter. That eliminates an approximately $200 million liability and the related assets, and also eliminates the need for cash payments to support the pension plan on a go-forward basis. So a nice win for the team to remove that and exit the plan in the quarter. I'll turn the call back over to Todd. Todd Adams: Thanks, David. And I'm back on Page 6. We continue to make solid progress this quarter toward our sustainability goals, advancing initiatives that support long-term value creation really for our customers. You can see some of the highlights here. Beyond delivering 1.8 billion gallons of safer, cleaner filtered drinking water so far this year through our commercial bottle filling stations, and eliminating the need for 14.6 billion single-use plastic bottles, we're continuing to find new ways to bring our commercial-grade filtration to even more people. Many people assume their water is safe because it tastes fine or it comes from a trusted municipal source. But the reality is our sense can't detect contaminants like lead, forever chemicals and microplastics. And while the refrigerator or pitcher filters are convenient, most are only certified to improve taste and odor, not remove harmful contaminants. At Zurn Elkay, we've been tackling these challenges for years, protecting kids in schools, travelers in airports and employees in offices with our commercial-grade filtered bottle filling stations. Now we're bringing that same trusted technology into the home with our Elkay Liv built-in filtered bottle fillers. These sleek modern units complement any home design and deliver filtered water to every room, from home gyms and mud rooms to primary suites. Our newest Liv EZ models bring convenience anywhere there's a water line. No electricity, no drain needed. Just a wall, a water line and a couple of batteries. We're supporting this launch with a robust marketing effort, including influencer partnerships focused on families, health and DIY audiences, helping more people experience the benefits of cleaner, safer water right at home. David Pauli: Thanks, Todd. I'm on Slide 7. And similar to the data we've shared in the past, I'll provide an update on the market. As we look ahead to 2026, it's helpful to revisit some of the key indicators that shape our view of how the market will perform and what that means for our business. On the top of the page are 3 macro indicators that we track: the Dodge Momentum Index, Architectural Billing Index and construction backlogs. I'll talk through each of these. The Dodge Momentum Index measures the value in dollars of nonresidential building projects in the planning process against a baseline year of 2000. The index is meant to be a leading indicator for all future nonresidential construction spending, and therefore, it's generally used to monitor the future direction of construction spending. Think of the Dodge Momentum Index as a 9 to 12-month preview of what's likely to start. But also recognize that there's a lot of -- there's a lot in there: price, various end markets and geographies. Next is the ABI, which is a sentiment survey that tracks a cohort of partners of AIA member-owned architectural firms, whether their billing activity for the previous month grew, declined or remained flat. The way to interpret ABI is a score of 50 indicates a balance between positive and negative reports, while a score of 100 indicates all firms reported improvements. A rise in the index above 50 means that more firms reported an increase in demand for design services than reported a decline in demand. It's important to note that a rise in the index above 50 is not a direct measure of the rise in demand because the survey does not ask firms reporting stronger demand to quantify the level of increase in demand, nor does it provide information on the size of those firms. That being said, higher readings in the ABI generally coincide with growing demand. Finally, on the right, construction backlog, which measures the amount of work surveyed contractors have in their current backlog. In some ways, it's their lead time to taking on new business. And as you might expect, it's their best estimate, assuming no delays and consistent levels of staffing. All 3 of these metrics have a level of validity in them on how we think about the future. But as you know, our business is hyper-local, hyper-regional and it all varies by region, vertical. And other than the backlog reporting, there's limited certainty as to what's really going on in the ground level where the projects are actually happening every day. While the 3 macro indicators we just walked through on the top of the page were third-party data, the bottom section is specific to our business. On the bottom left, you can see how our portfolio of products participates across the full construction cycle, from the start of the job all the way through to finishing front-of-the-wall product 18 or so months later. Nonresidential construction is a complex ecosystem, coordinating multiple trades, supply chains, permitting and weather impacts. On average, projects take about 18 months from start to finish. And our portfolio is uniquely positioned across that time line. From flow systems early in the build, to water safety and control mid-cycle, and hygienic and environmental solutions and drinking water at the completion. With an understanding of how our products participate across the construction cycle, the other item to factor in is the lag effect. And this concept is illustrated in the chart on the bottom right. The lag effect shows how Dodge starts ultimately translate into Zurn Elkay sales. In a typical year, roughly 20% of our new construction revenue is tied to projects that started in that same year, while the other 80% reflects work initiated in prior years. I'll talk through this more a bit. Start with Q1 of 2026. Virtually all of our new construction sales come from starts that happened in 2025 and before. And by the time you get to Q4, current year 2026 starts will have about a 40% contribution to our sales. This lag effect, combined with the breadth of our portfolio, gives us visibility in the demand and confidence in the durability of our growth as we look into 2026. Moving to Slide 8. We have Dodge starts on a square foot basis, with actual starts data from 2023 and 2024 and then Dodge's projections out to 2028. The Dodge data in this slide and the next slide is the most recent report published by Dodge as of August 2025. We like to look at square footage because it strips out pricing, renovations and alterations, providing a clear view of the market-driven growth that underpins the roughly 55% of our business that comes from new construction. A couple of things I'll point out with the data. The Dodge data is separated between institutional and commercial end markets. For us, it's the majority of our revenue. The pie charts on the right-hand side shows the 2026 square footage starts by building type. And you can see that within institutional, education dominates the square footage at 40% of the total. And within commercial, warehouses are the largest building type at roughly 50% of the square feet starts. And the last item is just a caution, that focusing only on the headline Dodge starts growth for these categories can be misleading since the mix of education and health care within institutional, and warehouse within commercial, affects growth differently than how these segments are weighted within our own portfolio. Turn to Page 9. This is the same Dodge data in square foot terms now further broken down by our key verticals. As we highlighted last year, when reviewing the Dodge data, the resilience of our business over the past 20 years reflects in part our significant overweighting to the strong, stable segments within nonresidential construction. On the top left, the graph shows the education and health care vertical starts information for the same time period as the page before. These 2 verticals represent 60% of the entire institutional index within Dodge and 80% of our exposure to the institutional nonresidential construction market. Simply said, we're materially over-indexed to the strong, stable parts of the institutional nonresidential construction market. On the bottom left, this graph is for office, retail and hospitality verticals, again, same periods as the page before. With the conclusion being that these verticals represent only 30% of the overall commercial starts within Dodge, yet represents 75% of our exposure. When we focus on the building types that are critical to our sales, we see that both health care and education and retail office and hotel starts are projected to continue to increase in terms of square footage each year, with growth rates generally accelerating in the out years. While the starts data has evolved this year as events like tariffs have come into play and the projections around interest rates have continued to change, the level of construction starts remain strong. Ultimately, the Dodge data supports that our pure end market growth in 2026 should look a lot like what we just experienced in 2025, a low market growth environment. As you know though, beyond end market, we have other factors when we consider our outlook: growth within drinking water, our other key initiatives as well as price. We've shared this stat in the past, but as of this quarter, we have had year-over-year quarterly growth 55 out of the last 59 quarters. That's a 15-year track record of consistent growth. I'll turn the call back over to Todd. Todd Adams: Okay. Last one for me is on Page 10. And hopefully, most of you have seen this page before. But if not, it's been our simple and, we believe, effective way to depict how we think about and manage our business, leverage our operating philosophy and ultimately how we measure ourselves. And honestly, it's more than just a chart; it's exactly how we operate the company day in, day out. And even more importantly, inside the company, everyone can see how and where their impact is expected, creating great accountability and alignment throughout the organization. Beginning on the left, it starts with a relentless focus on the game we want to play. The choices here require discipline, and we've been very intentional and, I'll say, picky about getting this piece right. Because it's easy to drift and convince yourself that it's close enough to make sense, but having this filter, if you will, provides perfect clarity and avoids distractions or any strategic drift. It guides how we drive our strategy, beginning with our end markets, what we look for in terms of what geographies, competitive dynamics and characteristics, approach around our portfolio, and most importantly, our relentless focus on being a premier pure-play water business in North America. In the middle, we highlight that the glue to all of this is the Zurn Elkay Business System. It's our common language and deep culture of continuous improvement. It drives the manner in which we operate every day, everywhere and defines the capabilities we can leverage or, in some cases, need to build, while aligning all of our resources to drive organic growth, profitability and free cash flow. Finally, on the right, measuring our performance across all of our stakeholders: customers, shareholders, associates, and the impact we can have on a much broader scale through sustainability. At the end of the day, if we get all these facets within our business model, I'll say, right, or close to right, we end up building sustainable, competitive advantages, which we feel over time drive superior outcomes for all stakeholders. As we sit here near the end of 2025 and begin thinking about 2026, one thing I would call out or emphasize is that over the coming years, we intend to further sharpen our focus capabilities and resource investment on driving even more organic growth into adjacent categories. We feel more confident than ever that we're in a position to exploit our competitive advantage around driving specification, establishing robust supply chains and leveraging best-in-class go-to-market capabilities into adjacent markets with new, innovative products that we have a long track record of introducing into our core markets, which has led to the kind of organic growth record that Dave just talked about. So more to come on that in the coming quarters and years, but now I'll turn it back to Dave for the outlook. David Pauli: For the fourth quarter of 2025, we are projecting year-over-year core sales growth to be in the high single digits and we anticipate our adjusted EBITDA margin -- or our adjusted EBITDA to be between $99 million and $102 million. As a result, we are again raising our full year outlook for core sales growth, adjusted EBITDA and free cash flow. We now see core sales growth of approximately 8% for the full year, adjusted EBITDA in the range of $437 million to $440 million and free cash flow greater than $300 million. We've included our fourth quarter and full year outlook assumptions for interest expense, noncash stock compensation expense, depreciation and amortization, adjusted tax rate and diluted shares outstanding. I also wanted to provide an update on total tariff costs for the year. Last quarter we expected our tariff costs before any offsetting price for 2025 to be between $35 million and $45 million. As country-specific tariff rates were updated and new tariffs on copper came into play during the third quarter, we now believe our tariff cost impact on 2025 will be modestly higher and be approximately $50 million for the year. While the environment around tariffs continue to be a bit of a moving target, our team is confident that we can remain price/cost positive in the short and long term. Thanks, everyone. We'll now open the call up for questions. Operator: [Operator Instructions] Your first question comes from the line of Bryan Blair with Oppenheimer. Bryan Blair: Another very solid quarter. The Q3 market updates and outlook and framing of ZWS participation across the build cycle is helpful. With that in mind, has there been any meaningful divergence in the growth rates across legacy Zurn product categories over Q3 or into Q4? And then given the run rate market reads and the lag effect detail on the new construction side, can you offer any finer points on how your team is thinking about momentum into the first half of 2026? Todd Adams: Yes, Bryan. I mean first of all, I think we'll talk about '26 in '26. But when you look at many of our -- almost all of our core categories are experiencing solid unit growth on top of a little bit of market, on top of a little bit of price. And so I wouldn't say that there's been any significant change from maybe the second quarter. And I don't see any reason why that momentum changes as we head into the fourth quarter. Bryan Blair: Okay. Understood. I caught a bit of a play in words with the filter afforded by the Zurn Elkay Business System. With that said, maybe you can offer a little if there's an update on the reception of Elkay Pro Filtration, whether there'd been any surprises positive or otherwise in the early going? And then it would be great to hear more about the market opportunity with the Liv EZ line, and how impactful that launch might be to growth going forward? Todd Adams: Sure. I think as we highlighted last quarter, the introduction of the Pro Filtration was really significant in terms of taking a lot of the market feedback around ease of installation, the incremental filter capacity, along with the pre-sediment filters and a lot of those things. And so we've seen a really strong uptake right away. We expect that to continue. I mean if you can change it in 30 seconds or less and you can change it essentially once a year, I think these are things that were right at the heart of the feedback that we got as we were developing the product. And so really good -- I think a really good, solid start, but it's only a start. With respect to the Liv unit, we've had a, I would say, a more expansive Liv unit with a drain that required, I would say, higher levels of installation capability. This product was developed really to make it easy and do-it-yourself. And we're excited about it. I think it's just good exposure to begin to tap into a market that is not big. I mean this is not something that everyone is going to put in their home for a whole bunch of reasons. But we do think it's a nice extension of what we're doing, and it affords people the opportunity to gain the benefits that they get from using these filters when they're at school, when they're in the office, when they're in the airports, et cetera, you can get that same kind of quality water at home. And so I expect it to grow nicely, but I don't know that we're counting on this to be sort of a pillar of what our commercial drinking water offering is. It's something that we're excited about and I think the uptake on it will be pretty nice. Operator: Your next question comes from the line of Nathan Jones with Stifel. Adam Farley: This is Adam Farley on for Nathan. My first question is going to be around growth, and specifically volume expectations. So it sounds like there's a little bit of volume may be pulled forward into the third quarter. But you're guiding strong high single digits for the fourth quarter. So how should I think about volume in the back half? Todd Adams: Well, Dave, maybe you can clarify, but we saw good volume growth absent even this modest pull-forward in Q3. And we expect sort of the same as we go into Q4. I will tell you that I think that some of the pull-forward is essentially offset by, I would say, a little bit of incremental weakness in the residential market. And so when you look at it all the way through, I think the growth in Q3 is relatively high quality. And I think the way we're guiding Q4 is equal to that kind of momentum that we saw in really Q3 and for the second half. David Pauli: Yes. The only thing I'd add, Adam, is in the quarter we had a price increase late September, and so we saw customers order in advance of that. And so about $8 million was pulled from Q4 into Q3. If you look at where we've -- if you eliminate that from Q3 and look at where we've guided Q4 to, it's about the same. The unit volumes continue to grow nicely. Todd Adams: Yes. We don't communicate order rates. But if you go to the first 9 months of the year, the order rates in aggregate are a touch above 1. And I think we're sort of guiding to book-to-bill of about 1 in Q4. So nothing crazy. A little bit of choppiness from Q1 to Q2, Q2 to Q3, but I think when you get to the Q4 numbers, it sort of plains out and we're delivering to real live demand. Adam Farley: That's great to hear. Thanks for that additional detail. My second question is going to be around capital allocation. So increased the dividend, increased the share repurchase authorization. So what are the priorities going forward? Has anything changed? Should we maybe expect a little more share repurchase going forward? Any color there? Todd Adams: Yes. As we've done for a long time, we obviously generate significant amount of free cash flow. If you go way back, the objective initially was to reduce our leverage to a very comfortable zone, continue to invest in our core business, cultivate proprietary M&A opportunities, establish a dividend and then look at the value of our stock relative to what we think the intrinsic value of the company is. None of those things have changed. And so I think that we continue to generate significant amount of free cash flow. Our dividend yield, we've tried to leverage that cash flow to keep the dividend yield right around 1. We're in the process of looking at the next 3 years and determining what we think we can do and how that translates to where the current stock price is. I think we will be sort of steady repurchasers. And obviously, this gives us just incremental flexibility to the extent there's a larger dislocation for whatever the reason. So I don't think we're signaling anything new, just that over the last 3 years we've generated a ton of cash, we've increased the dividend, we bought back some shares and cultivated M&A. And I think that's what you should expect going forward. Operator: Your next question comes from the line of Mike Halloran with Baird. Michael Pesendorfer: This is Pez on for Mike. Maybe following up on Adam's question here, Todd. Maybe if you could provide a little bit more color on the M&A funnel. How has it changed over the last 12 months in terms of actionability, the pricing expectations? And then maybe if you would comment a little bit on the mix of hygienic and environmental versus drinking water. If we could just get a little bit more color on what you're seeing in the funnel and how that's evolved over the last 12 months. Todd Adams: Yes. I mean the funnel hasn't changed a bunch near the bottom. I think near the top of the funnel, some incremental things have come in, and we continue to cultivate those things. As far as valuations and actionability, it sort of -- it depends, right, depending on the fit, depending on where people are thinking. So I don't know that you're ever going to get us to talk about valuation because we look at M&A through the lens of what can we -- what kind of returns on invested capital can we generate at a particular value and the synergies we bring to the party. So I don't think much has changed in aggregate. There's been a handful of things that are in an auction process. Some modestly interesting, others not at all. So we continue to do the work, and I wouldn't characterize our funnel as unique to just drinking water. I think our flow systems funnel, I think our valving funnel, all those are equally important. And so it's broad. Not much has changed in the middle to the bottom. I would only say that the top of the funnel has gotten modestly larger really over the course of the last 12 months. Michael Pesendorfer: Got it. That's super helpful. And then maybe just on a more philosophical question, obviously, moving into residential drinking water with the Liv EZ product. Maybe could you tell us a little bit about how you think about your aspirations for drinking water on the residential application? Is there broader aspirations to get into residential drinking water? And is that something that can be developed internally? Is there something externally that might be interesting? Maybe just a little bit of thoughts on how you think about the opportunity within residential drinking water beyond maybe the Liv EZ product. Todd Adams: Yes. I wouldn't characterize our appetite to go into residential filtration as high. I think this is more of an extension of what we're already doing to a relatively small market that we have access to. So the technology -- it's an opportunity for us to try some design work, try some technology with speed, and I don't think you're going to see us wade into residential filtration in a meaningful way. I think this is more of an extension from what we're doing on the commercial and institutional side to a relatively small market that gives us the opportunity to test some things and learn. Operator: Your next question comes from the line of Andrew Buscaglia with BNP Paribas. Edward Magi: This is Ed on for Andrew. Another very strong margin quarter with high incrementals. Just wondering if you could speak to the consistent strong margin results and how to think where we can go from here off of these record levels? David Pauli: Yes. I mean I would say we've had consistent margin expansion. If you go back to when we merged with Elkay and just look at the quarterly progression each year, we've seen nice margin expansion. So started with delivering on the synergies, leveraging our Zurn Elkay Business System, the #CI improvements. So I think we're confident that the level that you're seeing is a new baseline in terms of where Zurn Elkay margins can be. I would just think about a more long-term view as 30% to 35% incrementals on volume. Edward Magi: That's helpful. And then just a follow-up here. You managed the tariff environment very well on the top and bottom line. Can you speak to the Zurn Elkay Business System and remind us why you would consider yourselves perhaps relatively -- in a relatively stronger position to navigate the tariff environment versus competitors? And yes, I'll leave it there. Todd Adams: Yes. I won't really speak to comparisons because I wouldn't want people speaking about us. I think what we did going on 5 years ago is think through the risks to our business and how we protect our service levels over a long period of time and developed a plan to primarily move our manufacturing supply chain partners out of China to other regions, including the U.S. And so over 50% of our COGS comes from the U.S. today, and by the end of next year, only about 2% to 3% will come from China. And so I think it speaks to that front end of what are we trying to do, what game are we trying to play, getting in front of it, doing the hard, long work to position ourselves. And as it turns out, no one, including us, would have predicted the kind of tariff environment that we saw beginning in April, but by starting well in advance, doing the long, hard work, I think it's positioned us really well, not only this year, but really for the long term. Operator: Your next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. David Tarantino: This is David Tarantino on for Jeff. Maybe could you give us what price versus volume was in the quarter? And then maybe could you give us what you think the carryover pricing into next year will be based on the increases you've already taken to date? I think you highlighted another increase in 3Q. So do you think this supports another year of above-average price realization in 2026? David Pauli: Yes. So I think, David, to start, price realization in the quarter, we saw about 5 points of price in the quarter. I think we'll wait to provide 2026 price till we provide guidance. But I think the way to think about it is we've been deliberate with the pricing actions and how that has followed our cost. And so as we've seen incremental tariff costs, we put the right amount of price to be price/cost positive into the market. And so as we think about price next year, what I will say is think about it in terms of last year -- or this year, Q1 into Q2 had very little price and then you start to get to a run rate price here in Q3 and Q4. So more price in the first half than in the second half going into next year. And then we'll evaluate whether or not a 2026 price increase is necessary as we move forward here. David Tarantino: Okay. Great. And then maybe just to put a finer point on the 2026 commentary around the end market. It seems like this points to market growth in the low single-digit range. So any more color there would be helpful. And then how should we think about the outgrowth levers into next year between the key product lines both in and outside of drinking water? David Pauli: Yes. So our read of the Dodge data that we presented is really, from a pure market perspective, 2025 and 2026 looks a lot alike. And so that's a low-growth environment. If you look at where we think some of the levers are going on a forward basis, I would think about things like we've continued to see outperformance in drinking water. We've continued to see some of the other sales initiatives, whether that's in product categories like our water safety and control have outperformance, the new products that we've talked about, adjacent markets. And so there's a number of things as we look forward that we feel like we have the opportunity to outgrow the market. And so when we think about growth, it's market, price and then our initiatives. And if you put those together, that's how we think about our ability to grow. Operator: Your next question comes from the line of Brett Linzey with Mizuho. Brett Linzey: This is Brett Linzey on for Brett Linzey. Just wanted to come back to the Filter First and really wondering if you had a post-mortem assessment on year 1 of that program specific to Michigan. Are you able to quantify the contribution from those installments thus far? And any color on some of the share capture as part of that program? David Pauli: Yes. I would say we've done a really nice job in Michigan. There's about 1.5 million students in Michigan, and the law requires 1 bottle filler per 100 occupants. And so you can do some math on that, Brett, just to see how much the opportunity is. But I would say our team has done a nice job of capturing what we expected in terms of the Michigan opportunity, and it's still ongoing. And so this was the first year that schools actually were able to access the money from the state. The state set aside $50 million to accomplish Filter First, and it will continue into next year. And so while we saw a lot of schools comply with the law this year, there's still a series of schools that need to comply next year. I'd say also on the Filter First front, while not a Filter First fill, we did see New Jersey enact some legislation and release some funding that will help accomplish the same thing: allow schools to purchase filtered bottle fillers to eliminate lead and other harmful contaminants for students. So we spent some time in New Jersey over the last 90 days helping schools work through what their drinking water plans are and really just helping keep students safe in New Jersey and Michigan. Brett Linzey: Okay. Great. And then just back to Slide #8 and specific to the project cycle that you laid out, you illustrated the flow systems tends to lead. I guess has there been any discernable increase or inflection in those categories or that product segmentation that maybe informs you some of these areas like commercial are beginning to show some improvement? Todd Adams: Taken as a whole, our flow systems business has grown at or above the fleet average the entire year. So I think that portends I think the kind of market that we're talking about, which is relatively stable to low growth, at least for the near term, with the opportunity to accelerate moving forward. So I think from a leading indicator perspective, our flow system business has done well really over the course of the last 24 months. So I think we're monitoring all these things, but recognizing that we're sort of in a unique environment, to say the least. But we do find that that leading indicator is relatively encouraging for us. Brett Linzey: Congrats on the quarter. Operator: That concludes our question-and-answer session. I will now turn the call back over to Bryan Wendlandt for closing remarks. Bryan Wendlandt: Thanks, everyone, for joining us on the call today. We appreciate your interest in Zurn Elkay Water Solutions. And we look forward to providing our next update when we announce our fourth quarter results in early February. Have a good day. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: " Mohammad Abu-Ghazaleh: " Monica Vicente: " Christine Cannella: " Mitchell Pinheiro: " Sturdivant & Co., Inc., Research Division Operator: Good day, everyone, and welcome to Fresh Del Monte Produce's Third Quarter 2025 Earnings Conference Call. Today's conference call is being broadcast live over the Internet and is also being recorded for playback purposes. [Operator Instructions] For opening remarks and introductions, I would like to turn today's call over to the Vice President, Investor Relations with Fresh Del Monte Produce, Ms. Christine Cannella. Please go ahead, Ms. Cannella. Christine Cannella: Thank you, Regina. Good day, everyone, and thank you for joining our third quarter 2025 conference call. Joining me in today's discussion are Mr. Mohammed Abu-Ghazaleh, Chairman and Chief Executive Officer; and Ms. Monica Vicente, Senior Vice President and Chief Financial Officer. I hope that you have had a chance to review the press release that was issued earlier via Business Wire. You may also visit the company's IR website at investorrelations.freshdelmonte.com to access today's earnings materials and to register for future distribution. This conference call is being webcast live on our website and will be available for replay after this call. Please note that our press release and our call today include non-GAAP measures. Reconciliations of these non-GAAP financial measures are set forth in the press release and earnings presentation, which is available on our website. I would like to remind you that much of the information we will be speaking to today, including the answers we give in response to your questions, may include forward-looking statements within the safe harbor provisions of the federal securities laws. In today's press release and in our SEC filings, we detail risks that may cause our future results to differ materially from these forward-looking statements. Our statements are as of today, October 29, 2025, and we have no obligation to update any forward-looking statements we may make. During the call, we will provide a business update along with an overview of our third quarter 2025 financial results, followed by a question-and-answer session. With that, I will turn today's call over to Mr. Mohammed Abu-Ghazaleh. Please go ahead. Mohammad Abu-Ghazaleh: Thank you, Christine, and thank you for joining us for our third quarter 2025 earnings call. We delivered another quarter of steady progress supported by strong execution across our portfolio. We saw continued gross margin expansion in our fresh and value-added product segment, and our pineapple program continues to perform well. Overall, our third quarter results affect our ongoing shift towards higher-margin value-added categories, a key driver of profitable growth. We also took important steps this quarter to enhance long-term productivity and strengthen our financial performance. Most notably, we entered into an agreement to divest the operations of Mann Packing, a business that has not met our profitability expectations. We believe this divestiture will strengthen our overall margin profile and enhance capital efficiency going forward. While these decisions are never easy, they underscore our disciplined approach to managing performance and ensuring that every part of our business contributes meaningfully to our bottom line. I would like to discuss a challenge facing the entire industry, the mounting pressure on global banana production, which I addressed last quarter and has since then only intensified. [Indiscernible] Tropical Race 4, which is known as TR4, was confirmed in Ecuador, one of the world's largest banana producers, making a serious escalation in Latin America after previous detections in Colombia, Peru and Venezuela. It is a highly contagious soil ball disease with no cure, and it's already destabilizing the region. In Peru, where TR4 was first detected in 2021, the impact is noticeable in the Pura region, the country's leading producer of organic bananas. A recent study found that 45% of farms are already infected and about 10% have been completely eradicated. Small growers are under mounting pressure as black sigatoka spreads and TR4 reaches new countries. With already thin margins across the sector, rising disease control costs are making survival increasingly difficult. At Fresh Del Monte, we have been preparing for these challenges for years. We are advancing work on TR4-resistant banana varieties, an essential step toward long-term resilience, but solutions of that scale take time. In the meantime, growers, large and small, are taking every possible measure to control these diseases. Each year, these efforts are becoming more demanding as the situation further deteriorates, placing new financial strains on growers across the industry. We are seeing the impact clearly in Costa Rica. As of August 25, production in the industry has declined 22% year-over-year, which is roughly 18 million boxes lost with most of that loss stemming directly from Black Sigatoka. For a country long recognized for its agricultural efficiency, that's a significant and concerning decline, one that inevitably drives costs higher across the industry. Demand for bananas remains strong. What's shifting is the balance between supply and demand and the underlying economics of the category. Understanding that shift is essential for everyone involved. Sustaining this category over the long term would require closer alignment across the value chain, ensuring that pressures in the fields are understood and shared throughout the supply chain. The farmer can no longer absorb these rising costs. It is easy to take the bananas for granted. Simple, familiar, always there. But behind that simplicity lies one of agriculture's most coordinated and collaborative supply chains. Protecting it is our shared responsibility. And if we don't act collectively to support growers and stabilize this supply chain, we risk seeing this fruit and the livelihoods behind it disappear before our eyes. That reality weighs heavily on me and drives much of our focus today. With that, I will turn it over to Monica Vicente, our CFO, to discuss our financial results. Monica Vicente: Thank you, Mr. Abu-Ghazaleh, and good morning to everyone, and thank you for joining us today. Before reviewing our quarterly financials, I'd like to highlight several strategic actions we took during the quarter to strengthen our portfolio and drive long-term value. We took important decisions to streamline operations and reallocate capital towards higher-performing areas, which resulted in an impairment charge totaling $56 million. $18 million relates to the planned divestiture of Mann Packing, which Mr. Abu-Ghazaleh already mentioned. This supports our strategy to simplify operations and prioritize higher growth, higher-margin categories. We acquired Mann Packing in 2018 and have now entered into an agreement to sell the business, including substantially all operating assets. The buyer, Church Brothers Farms, will acquire machinery and equipment and customer list for $19 million plus the value of inventory at closing. The transaction excludes certain real property, including our Gonzales, California facility, which we've agreed to lease for under a 5-year agreement with a renewal and purchase options. This divestiture is expected to close during the fourth quarter of 2025, subject to customary closing conditions. Mann Packing contributed $174 million in net sales during the first 9 months, but was a headwind to our strategic margin targets for the fresh and value-added products segment. We had previously pursued streamlining efforts. However, after further evaluation, we determined that a full divestiture better aligns with our long-term strategy. During the quarter, we also recorded $37 million in impairment and other charges related to underperforming banana farms in the Philippines, which served our Asia and Middle East markets. Despite efforts to improve yields and manage costs, the farms continue to underperform, impacting profitability. After reassessing performance, we made the decision to abandon operations at these farms. This move enables us to reallocate resources to more productive supply channels. Continuing with our broader efficiency efforts, we sold a break bulk shipping vessel from our fleet during the quarter and recently completed the sale of a second vessel. This reflects our continued shift away from legacy breakbulk vessels, and we remain committed to our vertically integrated logistics model and operate 6 modern vessels supporting our global supply chain. Let's now review our financial results for the third quarter of 2025, including adjusted results, which exclude the impact of the Mann Packing divestiture. As Christine mentioned, reconciliations are available in today's press release and earnings presentation in our website. Net sales were $1.02billion-- $1.022 billion. The increase reflects higher net sales in our Banana and Other Product Services segments, primarily driven by higher per unit selling prices in our Banana segment. Contributing factors included the impact of tariff-related price adjustments in North America and the favorable impact of fluctuations in exchange rates related to the euro. The increase was partially offset by lower sales volume in our fresh-cut vegetable product line due to operational reductions taken during the fourth quarter of 2024. Adjusted net sales were $960 million. Gross profit was $81 million. The decrease was primarily driven by higher per unit production and procurement costs in the banana segment, along with increased distribution costs. Gross margin decreased to 7.9%. Adjusted gross profit was $88 million and adjusted gross margin decreased to 9.2% -- despite margin compression, this quarter reflects the resilience of our core business strength and early progress from our shift toward higher-margin value-added categories. We expect margin recovery and improved efficiency ahead, supported by the Mann Packing divestiture and continued cost discipline. We reported an operating loss of $22 million, which reflects higher asset impairment and exit charges related to the underperforming banana farms in the Philippines and the impairment charges associated with divestiture of Mann Packing, along with lower gross profit in the current period. On an adjusted basis, operating income was $40 million. Net loss attributable to Fresh Del Monte was $29 million, while on an adjusted basis, net income attributed to Fresh Del Monte was $33 million. Our diluted earnings per share was a loss of $0.61 and adjusted diluted earnings per share was income of $0.69. Adjusted EBITDA was $58 million. We expect adjusted EBITDA margin to improve due to continued gross margin momentum in our fresh and value-added products segment and disciplined cost management. Let's take a closer look at the financial performance of our business segments, starting with our fresh and value-added products segment. Net sales were $611 million. The decrease was primarily due to lower per unit selling prices in our avocado product line, driven by increased industry supply and lower net sales in our fresh-cut vegetable product line following the operational reductions implemented during the fourth quarter of 2024 previously mentioned. Offsetting factors included higher sales volume and per unit selling prices in our fresh-cut fruit product line and increased per unit selling prices in our pineapple product line, along with tariff-related price adjustments in North America. Adjusted net sales were $548 million. Gross profit was $68 million. The increase was driven by higher per unit selling prices in the pineapple and fresh-cut fruit product lines. Gross margin increased to 11.2% and adjusted gross profit was $76 million with adjusted gross margin increased to 13.9%. We aim to sustain gross margins in the low to mid-teens for this segment, driven by continued improvements in our product mix within this segment. Now moving to the banana reporting segment. Net sales were $358 million. The increase was driven by higher per unit selling prices across all regions, including the favorable impact of fluctuations in exchange rates, combined with the tariff-related price adjustments in North America and higher sales volume in the Middle East. These gains were partially offset by lower sales volume in Asia and North America, reflecting softness in market demand during the quarter. Gross profit was $5 million, and the decrease was driven by higher per unit production and procurement costs due to adverse weather conditions in our growing regions in the first half of this year, increased distribution costs, along with an allowance recorded on our receivable from an independent grower in Asia. Gross margin decreased to 1.3%. Adjusted gross profit was $4 million, and adjusted gross margin decreased to 1.2%. Lastly, our Other Products and Services segment. Net sales were $53 million. The increase was a result of higher net sales in our third-party freight services business, partially offset by lower per unit selling prices in our poultry and meats business. Gross profit was $8 million. The decrease was due to lower net sales and higher production costs in our poultry and meats business. Gross margin decreased to 14.8%. Now moving to selected financial results for the third quarter of 2025. Our income tax provision was $4 million. The decrease was primarily driven by lower earnings in certain higher tax jurisdictions. Net cash provided by operating activities was $234 million for the first 9 months. The increase was primarily due to working capital fluctuations, mainly lower accounts receivable driven by timing of collections and reduced finished goods inventory. At the end of the third quarter of 2025, our long-term debt stood at $173 million. Our adjusted leverage ratio remains well below 1x EBITDA. Capital expenditures for the first 9 months of 2025 totaled $36 million. Investments during the quarter focused on enhancing our banana and pineapple operations in Central America, upgrading operations and production facilities in North America, along with improving our pineapple operation in Kenya. As announced in our press release, we declared a quarterly cash dividend of $0.30 per share payable on December 5, 2025, to shareholders of record as of November 12, 2025. On an annualized basis, this equates to $1.20 per share, representing a dividend yield of 3.4% based on our current share price. During the third quarter, we repurchased just over 200,000 shares of our common stock for $7 million at an average price of $35.55 per share. We still have $135 million available under our share repurchase program. Taken together, these actions reflect our commitment to delivering long-term value, supported by a strong sustainable dividend and a balanced capital allocation strategy that includes opportunistic share repurchases. With that, let's turn to the outlook for the remainder of the year and the strategic priorities. We continue to expect net sales growth of approximately 2% year-over-year, consistent with our prior guidance. As far as gross margins by business segment, in our fresh and value-added products segment, excluding the impact of the divestiture of Mann Packing, gross margin is expected to be in the 11% to 13% range, primarily driven by strong performance in our pineapple product line and favorable product mix. While the divestiture of Mann Packing is scheduled to close on December 15, we expect to begin realizing the benefits of the streamlined portfolio in the fourth quarter of 2025 with a more pronounced impact on profitability and margin performance in 2026. In our banana segment, gross margin is expected to compress below the historical 5% to 7% range, approaching 4% due to lower industry-wide supply and cost pressures from disease treatments as well as weather-related disruptions, which continue to cause shipping delays and port congestions. Both factors have significantly increased our costs. It's important to remember that with the banana segment, our focus remains on margin discipline over volume, and we continue to prioritize product quality and reliability for our customers even in the face of these extraordinary challenges. Bananas remain a foundational part of our product portfolio, essential for meeting customer expectations and supporting our broader commercial strategy, even if it's not a driver of growth. For our Products and Services segment, gross margin is expected to be in the range of 10% to 12%, slightly below prior expectations. This reflects lower selling prices in our poultry and meats business, which are pressuring margins. Selling, general and administrative expenses are expected to be in the range of $205 million to $207 million. Regarding CapEx, we now expect our full year spend to be in the range of $60 million to $70 million, down from $70 million to $80 million previously communicated. This reflects updated project time lines. Net cash provided by operating activities is expected to exceed the previously guided range of $180 million to $190 million, coming closer to $190 million to $200 million. In closing, we continue to actively manage external pressures, including elevated operating costs and macroeconomic uncertainty. The strategic actions we've taken this year, streamlining our portfolio, reallocating capital and enhancing supply chain resilience position us to navigate the rest of the year with agility and focus. These actions reflect our commitment to disciplined execution and long-term value creation. This concludes our financial review. We can now turn the call over to Q&A. Regina? Operator: [Operator Instructions] Our first question will come from the line of Mitch Pinheiro with Sturdivant & Company. Mitchell Pinheiro: So I want to start out with a look at the fresh and value-added segment. So the adjusted gross margin was kind of eye-opening at 13.9%. And I know you're sort of guiding 11% to 13% as sort of your gross margin expectation. But is -- I guess is 13% the new normal for this business? Monica Vicente: I think we're getting there, Mitch. I think we'll be getting very close to that margin consistently. So yes, you can see that the adjusted gross margin this quarter was very -- like you said, it's an eye-opening now that we've excluded mann. So we do expect to be very close to the 13%. We're still being cautious. We're doing the 11% to 13%, but we feel confident about this segment. Mitchell Pinheiro: And so I haven't seen the Q yet, but I'm curious Pineapples, obviously, the supply has been down right now, but you're getting some pricing. Are your costs up in pineapples as well? Like you talked about the bananas and more cost for -- on the -- at the farm level. But is there -- and actually at the port shipping, but are pineapple margins still going to be your strongest of your -- in that segment? Mohammad Abu-Ghazaleh: Yes, that's a fact. And when it comes to cost, cost, the pineapple, thanks God, doesn't have the same diseases or same kind of plagues that is happening to the bananas. So we don't see increases in terms of applications of certain chemicals to our farms in the pineapple business. So pineapple does not definitely, there is inflation adjusted cost increases, which is normal on the labor side or other services. But all in all, it's a normal kind of environment. So we don't expect significant cost increases on pineapples. And you are right, I mean, the pineapple category is -- volumes are more or less static. And the demand is, in general, outstripping supply. So as we speak today, we don't have enough to allocate to every customer that we have. So it's more selective today than being in the past. Mitchell Pinheiro: Yes, I've noticed you were obviously the leader in sort of innovation in pineapples and the marketing around it, but I'm also seeing some of your competitors start to -- like, I guess, do start to try to emulate some new product varieties. And I was wondering if it's essentially raising the value of the fruit with continued innovation and improved quality. Is that -- do you get the sense consumers notice that? Mohammad Abu-Ghazaleh: Well, yes, of course. I mean we yes, I mean the better -- the better fruit that you deliver to the market, the more ripe, the more higher sugar content, better sweetness or taste definitely have an influence on the consumption and the buyer kind of appetite to buy it. I mean there is no question that -- I think as Del Monte, we have been pioneer at the forefront of innovation and development. And I wish everybody else good luck with whatever they are doing. But I mean, Del Monte has a history of being the forefront into this. And I think that will remain in place. Mitchell Pinheiro: And you still see from a supply point of view, when -- what's your best estimate for when you start to see demand supply recover? Mohammad Abu-Ghazaleh: I don't think that supply is going to -- as we go forward years ahead, there is not too much land left. I mean, in Costa Rica, we cannot double production, for instance. It's impossible or let's say, 20% or 30% more than what is happening right now. And Costa Rica is the major producing country in all Latin America. So -- and it's not easy to grow pineapples anywhere you want. Land is restricted. Environment as well concerns are part of this restrictions on additional acreage or additional production. So I believe consumption on a global level is going to increase. And we see that actually not only in North America, but we see that in Europe. We see that in the Middle East. We see that in Asia. It's a growing, let's say, commodity. It's becoming more fashionable for people to eat more pineapples and especially because of the good quality of these pineapples today. So I can tell you, the Middle East, we are almost 100% -- almost 100% in the market. I mean -- and because of our proximity from Kenya into these markets, -- our Brazilian plantations are in progress right now. And what, 3 years from now, we will start having production out of Brazil, which will be the only company anywhere in the world that has production of ND2 gold pineapple in Brazil. So that will kick in. It may take some time, but I think that will be very significant for us going forward in the future. And we are looking at other areas of expanding pineapple as well as we speak. So I mean, in terms of our positioning in the pineapple, I'm very confident and comfortable actually with our pineapple business going forward in the future... Mitchell Pinheiro: Okay. And then just two more questions on the fresh and value-added. Avocados, I know supply is strong and pricing has been down. Do you see that kind of reversing here in the next 6 months as you see pricing firming, I should say? Mohammad Abu-Ghazaleh: It could happen because actually, with Peru increasing volumes, with Colombia increasing volumes and other countries, Chile and California and the Mexicans did not have that opportunity. I mean if you look at the prices year-over-year, I think that period, we were talking about $70, $60, $70, $80 a box of avocado. -- now it's selling for almost half of that. So you can see the impact on the revenue itself. I mean, as a seller ourselves, of course, that would impact our revenue, selling the same volume for 80 or 70 or 60 rather than selling at 30 or 35, that makes a huge difference. But there could be maybe a pickup during the next 2-3 months because Mexico will be more or less exclusive in one way in terms of supply to North America. But I think it will not be a long-term kind of escalation in prices. I think that prices will remain more or less in the region that we are seeing right now between maybe $30 and $50, but not more. Monica Vicente: And remember, Mitch, we buy the product from the grower. So we have the margin based on what we buy and sell. So even though the sale price is much lower, our cost is lower as well. So our margins have stayed pretty more or less even from last year. So unfortunately, it impacts our sales, but our margin is not impacted as much. Mitchell Pinheiro: Yes. And then -- so -- but with pricing coming down, shouldn't that -- would you expect to see stronger volumes consumption? Mohammad Abu-Ghazaleh: Well, I don't see the prices of the retail to be really reflecting that adjusted. Monica Vicente: Yes, I'm a big buyer of avocados, and I'm still paying the same... Mitchell Pinheiro: Okay. And just switching gears to -- I did want to ask about how your fresh-cut fruit business is doing. I didn't see any comments around that. Monica Vicente: They're doing -- yes, Freshcut is doing excellent as well. Like you know, we view that together with the pineapple as one of the primary products, and it performed very well during the quarter, and we expect to continue with a strong performance. Mohammad Abu-Ghazaleh: I don't remember if I mentioned earlier last year that we started fresh guacamole offering fresh guacamole in the market. And we started this new category, which is 100% fresh guacamole. And it was like -- we started from 0. And today, I think we will end at the end of this year with about $8 million in revenue on that category alone. So that tells you where our innovation is and where we are going. with reasonably good margins. Mitchell Pinheiro: Yes. I just want to move on to the banana business. So pretty -- you laid out the issues pretty well from a category. What I was curious about was why banana volume or consumption in North America. I'm not sure what it is in Europe, but why consumption is down. I've asked before, we really don't know, I guess, but I was wondering if you have any recent insights as to banana consumption. Mohammad Abu-Ghazaleh: Well, it's seasonal, I would believe, Mitch, during the summer with all the summer fruits availability and people usually during the summer would go for more, let's say, like watermelon and melons and grapes and -- so I think it's not a trend. I think it's a hiccup. -- bananas more or less consumption-wise will be stable. I don't believe that we will see a huge drop into banana consumption in terms of consumer appetite. But my -- the problem is that the costs are going up and the prices are not moving in the same direction. So -- and that is the dilemma here. I mean -- and the diseases are not going away. The disease is continuing and spreading and intensifying as a matter of fact. So if you remember a few years back, I said that we will see bananas at $20 a box. We are almost there. I mean, today, if you look at Ecuador, just the fruit alone is around $11 to $12 per box, just the fruit aside from all the other costs of packaging and services. So if you add up everything, you're talking about could be $16, $50, $60, $17 and even more per box. So we are talking about, I mean, substantial increases. And the most important thing, which people do not really focus on is the Sigatoka spread in Central America as well as, as I mentioned earlier, the TR for disease, which it's not if, it's when. It's just a matter of time when it's going to be spreading. And we saw that in the Philippines and the write-off that we took in the Philippines and we saw yesterday, it was because of that. I mean we became -- I mean, the disease has -- no matter what you do, it's like a losing battle against that disease. I mean you can replant and then 3 years later, 4 years later, you lose 3 again. So this is really -- people don't understand and realize how serious this issue is. And this is going to happen, be it tomorrow or after a year or 2 or 3 is going to happen. It's going to come. And I can assure you that, that disease does not stop spreads. It's just a matter of time. Monica Vicente: And Mitch, you see our margin for the banana suffered this quarter, and we're projecting closer to 4% for the year. The impact of the Sigatoka is very significant, not only because you have lower volume coming out of the ground, but the cost to protect the farms from Sigatoka is very high. So it's very obvious based on our results, the impact of these diseases. Mitchell Pinheiro: So one thing -- bananas are obviously, I guess, the largest category of fruit, I guess, in the United States and maybe apples -- but certainly hugely important. And with all these added costs and the margins have always been kind of thin, you'd expect pricing to rise, but there's always been some element of irrationality among all the major players and in pricing, maybe you excluded, but my question is, I noticed that the 4 largest banana producers formed a new organization, VANA, you, Dole, Fs and the other one, whatever it a -- and then -- does that -- is this level of cooperation maybe a sign down the road that there's going to be a little more rationality to the quarter in banana pricing relative to the increase in costs and lower supply? Mohammad Abu-Ghazaleh: I don't think that association or that kind of gathering by the 4 banana companies was mainly to streamline the business better and nothing to do with actually influencing volumes or pricing in the market. It's rather than to understand the business better and trying to find solutions in terms of hopefully, agricultural practices and other logistical issues. But the point here, Mitch, people don't understand and don't get it that all of a sudden, one day, everybody will wake up and all of a sudden, there is not enough bananas to -- and we see that in other countries in the world. I mean, I see that in the Philippines. I saw that in Africa. All of a sudden, over years, the banana production is totally lost and/or 50%, 60% down on the previous -- I mean, on the normal trend. And this is going to happen. I mean, we can see that actually as we speak right now in Ecuador. Ecuador is the largest producer of bananas in the world. And right now, you can see that the production is not picking up as it used to be. And that's an indication of what's going on in the industry. And people don't understand that. I've been all my life in this business. And I know and I can anticipate things. And I believe that there will come a time that there will be a huge drop in production. And as you can see, as a company ourselves, we are very careful. We are very stringent, and we are very -- we calculate our steps. I mean we're not here to lose money. I mean we are here to make money to our shareholders. And we will do whatever is necessary to streamline our business in the best way we can, be it on bananas or any other item. And I think for bananas, in particular, there will come a time that people realize that there is not enough bananas in the market and the prices will shoot up in a way that will be a shock to the market. And that's the reality that if people really take this into consideration, it's better to really improve conditions for the growing side of bananas and supply side in order to maintain stability and continuity. But it's a short term, in my opinion, short-term vision and short-term kind of strategy that is happening right now. It's just like Monica mentioned a few minutes ago, I mean, the chemical that we apply to Sigatoka, which is the black -- it turns the leaves into totally black and then we lose the bunches on the 3 the price of this product, the chemical, which is the only one in the world, you don't have a choice. You only have one product that you need to use. And that product has increased over the last 2 years by over 50%, 40%, 50% and still going up and you have no choice, either you spray and the problem that the disease is getting immunity. I mean, that disease, is becoming adapting to that chemical. So you need to apply more to try to prevent it or control it. It's a vicious circle. If you don't apply or if you don't apply enough, you will lose more fruit. But if you're going to apply more cycles into the field, that means more cost to you. So it's really -- I mean, if you look at our cost, it's about $1.30, $1.40 today per box just for this chemical alone applications. So I think that's the reality of the situation. Mitchell Pinheiro: So one of the questions is about the Black Sigatoka. -- is one other mitigation effort can be fewer trees, more -- less canopy, more sunlight. Mohammad Abu-Ghazaleh: That is exactly what I said earlier, 18 million boxes down in Costa Rica production on a national level. That's mainly because of Sigatoka. It's not because of anything else, mainly because of Sicatoga. So if this happens in Ecuador, if this happens in Guatemala, if this happens in Panama, it's the same story. Mitchell Pinheiro: Okay. And then just one other question in tariffs. across your entire portfolio, how much did tariffs add to the top line? Monica Vicente: We haven't given that number, Mitch, but we were able to pass on the tariffs in North America, but we haven't given the number. Mohammad Abu-Ghazaleh: It's really minimal. It's not much. It's minimal. Operator: [Operator Instructions] And that will conclude our question-and-answer session. I will now turn the call back over to Mr. Abu Ghazaleh for closing remarks. Mohammad Abu-Ghazaleh: Thank you, everyone. I appreciate joining us today and hope to talk to you in the next call. Have a good day. Operator: That will conclude today's call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I'd like to welcome you to Fibra UNO's Third Quarter 2025 Results Conference Call on the 29th of October 2025. [Operator Instructions] So without further ado, I'd like to pass the line to the CEO of Fibra UNO, Mr. Andre El-Mann. Please go ahead, sir. André Arazi: Thank you, Luis. Thank you, everybody. Good morning. We are very pleased to deliver the results of the third quarter 2025. And I would like to make a few comments about that before I pass the mic to Jorge to go in depth of the numbers. We are focusing on the year-on-year results. We expect and we projected last year to be in the double-digit area of growth in our top lines, our most important lines, which are, in our view, total revenue, NOI and effective payout per share. All of those, we think we will be in the double-digit area by the end of the year, comparing year-on-year. Although it's a very predictable business, ours, it has seasonality also and especially seasonality quarter-over-quarter. We have seen throughout the year that the fourth quarter is the strongest of them all, and we expect to close the year in the double-digit area in the top line that we -- that I referred earlier. As the year-end approaches, we also are looking at the projection that will be released by our company by year-end for 2026. And we expect more resilience, more stability, even brighter number for next year. The top line is important for us to have a little bit of context. In order to achieve double digit in the top line, as you have seen, we have been posting a very interesting leasing spread in all of our sectors. Let's say that we have achieved double digits overall in our portfolio. The double digits, it is only in the revisions of the contracts. And as you know, we revise only 1/4 of the contracts every year. So if we achieve, let's say, 10%, it only impacts on the whole portfolio 250 basis points. So for us, this 250 basis points plus the 400 points, let's say, of inflation will only bring us to 650 basis. And we are projecting as we projected last year, double digits. In order to get -- to fill that gap, we need to have a lot of efficiencies, cost efficiencies, cost of debt efficiencies that we are now in the verge of obtaining because of the decreasing of the rates, both in the U.S. and in Mexico. And -- but what I want to say is it's difficult for a company like this to achieve the double-digit area. We are committed, and we will project for the next year. You will see our projection by year-end. But I want to stress that it has to take all the effort of the team in order to get to that area of double-digit growth in the top line, the 3 main lines that I relayed earlier. For this year, I think we will -- I mean, for 2026, we will rely on this year's achievement, the positive impact on the internalization of the management, the execution of the joint investment with Fibra NEXT, which is due in the next coming months. To achieve these goals, we will need yet again all hands on board. Proudly, I can't stress enough that these results will never be possible without the help of each and every one of FUNO's collaborators. To all of them, my most sincere and deepest gratitude. In the ESG front, Again, we are setting the bar very high for the rest of the sector. We are absolute leaders in equality, which with our highest -- our higher than market goals and stronger and more aggressive than market, policies in our hiring staff, our staff hiring. In sustainability, I will relate to what I described earlier about stability in the economic because we need to have stability in our economic lines in order to have stability in the environmental lines of our business. More than ever, environmental policies that have placed our company in the outstanding place that we have as the best-in-class across the board. Finally, in governance. Governance is the line in which we have invested more economically and intellectually, starting with a long time awaited internalization of our management, but following with the outstanding job on reshuffling our Boards and the Board of FUNO and also the installment of the Board of our partner sister company, Fibra NEXT. All these decisions have placed our company in higher ground. And we absolutely lead the sector, and we champ the industry, which makes me personally very, very proud. In recap, I am very happy to have delivered yet again a very attractive third quarter and even more to have a clear view of the fantastic numbers ahead and with the transformational steps taken, that we will be having great times ahead for our company. Thank you for your trust. And again, the best is yet to come. I will now pass the mic to Jorge for the numbers in depth. Jorge Pigeon Solórzano: Thank you very much, Andre. Thanks, everybody, for joining us in our quarterly results call. I will now go into the quarterly MD&A, as usual, and then open up the floor for questions and answers. Starting with the revenue line. Total revenues increased by MXN 20 million quarter-over-quarter or 0.3% to reach MXN 7.5 billion. This is a 5.1% increment on a year-over-year basis, we consider that this against the third quarter of 2024. This change was mainly driven by inflation indexation in our active contracts. Rent increases on lease renewals, as Andre has mentioned, only a fraction of our contracts expire each year, and those are the ones in which you are seeing the leasing spreads that add basically about 100 or 200 basis points on top of inflation on a quarterly basis. And these were offset by the peso-dollar exchange rate appreciation that we saw during this quarter. And the effect it has on our U.S.-denominated rents as well as U.S.-denominated interest expense lines, which I'll discuss a little bit later. In terms of occupancy, the operating portfolio's occupancy stood at 95%, which, as you know, has been the long-term goal of the company to have a 95% occupancy stable compared to the previous quarter. Industrial portfolio recorded 97.4% occupancy, stable versus the second quarter of '25. We're happy to see that we are having a very high retention rate of our tenants and strong leasing spreads, as I will describe shortly. In the retail portfolio, we saw a 93.6% occupancy rate, basically 10 basis points below the previous quarter. The office portfolio recorded an 83% occupancy, 80 basis points above the previous quarter. The Others segment reported 99.3%, occupancy stable versus the second quarter of '25, and the In Service portfolio recorded an 84.4% occupancy or 400 basis points above the previous quarterly primarily due to improved occupancy in the retail segments of the Samara Satelite property, which is on its way to stabilization after we delivered the project a little bit earlier this year. Very happy with the performance of that asset. In terms of the operating expenses, property taxes and insurance, total operating expenses increased by MXN 36 million or 3.7% versus the second quarter of '25, mainly due to increases in the cost of some suppliers and services above inflation. As you know, this is something that we have been working on to contain over the course of a couple of the last couple of years, and we are making good progress in containing those expense growth. In terms of property taxes, they decreased by MXN 4.6 million, mainly due to updates that were reflected in the second quarter that did not happen during the third quarter of '25. Insurance expenses increased by MXN 7.9 million or 6.4% compared to the second quarter, mainly due to the biennial update of our insurance policies. In terms of net operating income, the effect of the above resulted in increase of MXN 2.9 million or 0.1%, basically flat versus the second quarter to reach MXN 5.58 billion. NOI margin calculated over rental revenues was 82.2% and 74.2% compared to total revenues. This compares to an NOI increase of MXN 167 million or 3.1% year-over-year. In terms of interest expense and interest income, net interest expense decreased by MXN 45.8 million or 1.5% compared to the second quarter of '25. This was mainly due to a combination of factors, which includes the interest rate reduction in pesos and its effect on a variable-rate of debt. The appreciation of the exchange rate, which went from MXN 18.89 to MXN 18.38 and its effect on interest payments in dollars during the quarter. This was offset by a decrease in interest capitalization and the impact of pricing of our derivative financial instruments as well. Compared to the third quarter of 2024, net interest expense decreased by MXN 150 million or minus 5.4% year-over-year. So we're starting to see that effect in our numbers. Funds from operation as a result of the above, controlled by FUNO increased by MXN 46.7 million or 2% compared to the second quarter, reaching MXN 2.4 billion. When compared to the third quarter of 2024, FFO increased by MXN 112 million or almost 5% year-over-year. Adjusted funds from operations increased by MXN 90.8 million or 3.9% compared to the second quarter of '25, reaching a total MXN 2.435 billion as a result of gains from the sale of a plot of land in Altamira, Tamaulipas for MXN 44 million. When compared to the third quarter of '24, the AFFO increased by MXN 156.5 million or almost 7% year-over-year. FFO and AFFO per CBFI. During the quarter of 2025, FUNO did not issue or repurchase CBFIs, closing the quarter with 3.805 billion CBFIs outstanding. The FFO and AFFO per average CBFI were MXN 0.6285 and MXN 0.64, respectively with variations of 2% and 3.9% compared to the second quarter of '25. When compared to the third quarter of '24, the average FFO and AFFO per CBFI increased 5.2% and 7.1%, respectively, on a year-over-year basis. Lastly, on the P&L, speaking about the distribution. The net distribution, which is one of the important lines that we focus on. The third quarter distribution amounted to MXN 2.305 billion or MXN 0.605 per CBFI, 100% attributable to fiscal result, which represents a 94.7% quarterly AFFO payout. After the end of the quarter, FUNO issued 5. 330 billion CBFIs related to the employee compensation plan leaving the final CBFI count at 3.810 billion CBFIs outstanding eligible for distribution going forward. Moving to the balance sheet in terms of accounts receivable. Accounts receivable for the quarter totaled MXN 2.309 billion (sic) [ MXN 2.390 ] billion a decrease of MXN 17.2 million or 0.7% compared to the previous quarter, basically normal course of business operation. In terms of investment property value -- the value of our properties, including financial assets and investments in associates increased by MXN 567.1 million or 0.2% versus the second quarter of 2025 as a result of CapEx invested in our portfolio as well as the fair value adjustment of our investment properties, including financial assets and investments in associates. In terms of debt, the total debt as of the third quarter of '25 stood at MXN 147.99 billion or MXN 148 billion compared to MXN 143 billion in the previous quarter. This variation was primarily due to the final disbursement of the Mitikah mortgage loan for MXN 2.3 billion. This is the last installment of the prepayments that we had for Mitikah. A net increase of MXN 393 million in bilateral lines of credit and the exchange rate effect of the peso, which appreciated from MXN 18.89, as I mentioned, to MXN 18.38 per U.S. dollar. The net effect of the above on our total equity meant an increase of MXN 2 billion or 1.1%, including the participation of controlling and non-controlling interest in the third quarter '25 compared to the previous quarter, was primarily due, as I mentioned, net income generated from the quarter, derivatives valuation, shareholders' distribution or CBFI distribution, sorry, and the executive compensation plan provision. Moving to the operating results. We are very pleased to see that leasing spreads continued to show a very solid performance with growth in peso terms for our Industrial segment of 16.8% or 1,680 basis points, 610 basis points or 6% for the Retail Segment, 530 basis points for the Others segment and 130 basis points for the office segment. So we're pleased to see that even in the office segment where we don't see a lot of pricing tension we have been able to increase rents a little bit. Leasing spreads in dollar terms for these renewals were 10.4% in dollar terms for the Industrial segment, almost 9% or 890 basis points in the retail segment, and we saw a slight decrease of 2.5% in the office segment. In terms of constant property performance, the rental per square meter in constant properties increased 5% compared to the annual weighted inflation of 3.75%. So we recorded a 1.2% increase in constant properties in real terms, mainly due to rent increases above inflation, the above-mentioned leasing spreads, rent renewals, the natural lag that we see in inflation indexation in our contracts, which were also partially offset by the appreciation of U.S. dollar-denominated rents. On a subsegment level, the portfolio's total annual rent per square foot went from $12.7 to $13 or a 2.2% increase compared to the previous quarter, mainly due to increases in both contracts as well as renewals offset by the peso appreciation and its effect on U.S. dollar-denominated rents. NOI at a property level for the quarter remained stable compared to the previous quarter. This is mainly due to the following: for the Industrial segments, Logistics decreased 1.4%; Light Manufacturing decreased 9.7%; Business Parks decreased 24.1%, latter mainly due to appreciation of a credit note to one specific tenant. The decrease in NOI in the segment was mainly driven by exchange rate appreciation, its effect on U.S. dollar-denominated rents. The office segment NOI decreased 4.5% on a quarterly basis, mainly due to exchange rate appreciation and the effect of U.S. dollar-denominated rents. In the retail segment, Fashion Mall subsegment increased 11.6%; Regional Center subsegment decreased 0.8%, almost flat; and the Stand-alone subsegment decreased 2.5%. The decrease (sic) [ increase ] in Fashion Mall segment was mainly due to the contribution of variable income. The Others segment's NOI increased by 11.3%, mainly due to hotel's variable income seasonality. And for more detail on this, we can move to Page 24. With this, I conclude the commentary on the MD&A for the quarter. And Luis, I would like to ask if you can poll for questions and open the mic for the Q&A session. Thank you very much. Operator: [Operator Instructions] Okay, our first question is from André Mazini from Citi. André Mazini: So 2 questions, and thanks for the color on the internalization. So the first one is when will Samara, Midtown Jalisco, Montes Urales stock contributing revenues to FUNO as they're going to be used for the internalization, if it's going to be January 1 or some other date? This is the first one. And the second one, the office occupancy has been increasing but at a slow pace, right, currently at 83%. So maybe looking further ahead at the end of 2026, say, what do you think it's fair occupancy for us to have in the models, say, 1 year, 2 years down the road for the office space? And what needs to happen for occupancy in office to increase more rapidly? Jorge Pigeon Solórzano: Thanks, André. On the internalization, January 1 is the date that we expect to have the transaction effectively hit our financials. So basically, we will stop paying the fees, and we will stop receiving the revenues from the 3 properties and have those properties outside of our balance sheet as of January 1, 2026. Regarding the office space, we expect to continue to see gains in our portfolio as well as the market in general. I don't know Gonzalo, if you want to comment a little bit further on more or less what targets -- occupancy you expect going forward. Gonzalo Pedro Robina Ibarra: Actually, as you may be aware, there are some core results that are already above 90% occupancy as Reforma, [Lerma], Torre Cuarzo are already above 90%. The ones that are struggling more are [Periférico Sur] [indiscernible] area. And I think that in order to bring the whole portfolio up to 90% occupancy will take us all 2026 and 2027. Operator: Our next question is from Jorel Guilloty from Goldman Sachs. Wilfredo Jorel Guilloty: I have a question about Mitikah. Just wanted to make sure. So one, is there no more payments going into Mitikah going forward? And two, what are next steps? Because if I remember correctly, there were supposed to be some divestments, some lease-ups in terms of apartment buildings there. So if you could just provide us an update on how that is going? Yes, that would be it. Jorge Pigeon Solórzano: As of Mitikah, yes, that was the last payment. We don't have anything pending with Mitikah. And the second part of your question, I didn't understand what divestments you were referring to, Jorel. Wilfredo Jorel Guilloty: No. I was just -- basically if there is anything else that we should be looking forward to happening in Mitikah. So in order -- in terms of lease-up, in terms of anything else that for -- related to the asset? Jorge Pigeon Solórzano: Just the good performance that the asset is having. We expect it to continue to perform very well. Our tenants are selling very well. We're starting to get some variable rent component on that. It's definitely on, I would say, on the stabilization and fully leased for Mitikah. For the time being, that's the expectation on that asset. Wilfredo Jorel Guilloty: And another question, if I may. So just thinking about your leverage, I mean, you did have to do a payment there and that had a bit of an impact on leverage. But how do you see your leverage trajectory going forward? Jorge Pigeon Solórzano: Definitely, this is a good question. Thanks, Jorel. This is a business that since everything is inflation indexed. And as Andre mentioned, we're seeing positive leasing spreads and occupancy gains, in particular, in the office sector. The expectation we have is to have double-digit growth on our top line, NOI, et cetera, which will lead to a deleveraging -- naturally deleveraging of the portfolio from 2 pieces of the equation, let me say. One is, obviously, as we generate more cash flow, the properties are worth more. So the value of the company goes up on the asset side and debt remains stable. So that means that we delever on an LTV basis. And since the cash flows grow with inflation and interest expense remains flat on the fixed component of our leverage and is going down on the variable rent on the variable expense portion of our debt. The leverage on a net debt-to-EBITDA basis is also going down. So we have both of those figures going down, let's say, on an accelerated basis going forward, given where we're standing today. Operator: Our next question is from Gordon Lee from BTG Pactual. Gordon Lee: Congratulations on the results. Just a quick question, Jorge, I guess it's a little bit more on the technical side. But with the FX where it is now, I would assume that you'll be booking FX gains. And as a result of that, find out yourself in a situation where you were in previous years where you have to maybe pay an extraordinary a dividend above AFFO. One, just to confirm whether that's the case? And two, if it is the case, can you -- would you pay for it in cash? Can you pay for it in CBFIs? And for the portion that would be related to the debt that's going to go with the industrial assets to NEXT, who would pay that extraordinary? Would it be FUNO or would it be NEXT? Jorge Pigeon Solórzano: Okay. On the overall FX situation, that's something obviously that we are monitoring closely. But we had a different scenario the last time that we saw this, which was a combination of appreciating FX and high inflation, which we don't have today. We have low inflation and an appreciating currency. So we don't anticipate at this point to having the same situation we have in previous years, in which the fiscal result was higher than the FFO and we had to pay extra. Our policy in the past was not to pay in CBFIs. As you may recall, we basically paid with a little bit of the money from the first quarter of the following year, given that the fiscal year-end deadline for payment of the fiscal result is [ March 31 ]. So we use some of the first quarter cash flows to pay that. And we are basically catching up to that. In the last couple of years, we have been catching up. So if we were in the scenario, which we don't anticipate, but if we were in the scenario where the fiscal result is higher than the FFO, we would expect to make that payment in cash and not with CBFIs and utilize the cash flows of the first quarter given that we have, again, the first quarter of the following year to catch up with that result. I don't know if I explained myself? Gordon Lee: Yes. It was clear. Fernando Toca: To answer the rest of your question, Gordon, this is Fernando. You have to calculate the FX gain for FUNO from the period where the properties were at FUNO. And then you will have to calculate the gain or loss in NEXT when the properties were contributed to NEXT. So if the FX moves significantly from the drop-down of the properties to the end of the year, then NEXT could have a significant FX gain or loss. But at least myself, I'm not expecting that. Operator: Our next question is from Pablo Ricalde from Itaú. Pablo Ricalde Martinez: I have one question on the contribution from Fibra UNO assets into NEXT. That has already been approved by you, and you're waiting for the antitrust authority to approve that. So I don't know if there's an update on that front or no? Jorge Pigeon Solórzano: Well, we are expecting that to happen imminently, meaning the approval from the antitrust authorities. Hopefully, as soon as today, we may get a publication of the items that are going to be discussed in the plenary session of the Antitrust Commission. We have a favorable technical recommendation going into the plenary session. So we don't anticipate any issues and expect that to occur imminently, literally between, let's say, today and hopefully, this Friday, we should have a resolution from the Antitrust Commission. And once we do that, obviously, the Antitrust Commission will make it public, and we will publish ourselves the information that, that has gone through. And as for the drop-down, obviously, that is something that we have been looking into carrying it out. And as you know, it has market transaction components associated to it. So we're looking at market conditions to determine what the best timing for that is to happen. And I would say that this is as soon as immediately and no later than next year, but we're monitoring the market closely. Operator: Our next question is from Adrian Huerta from JPMorgan. Adrian Huerta: I have just 2 follow-up questions on prior ones. The first one on the internalization. Is there anything pending that you guys need in order to go ahead with the internalization in January 1? Or is everything set and there's no risk of this taking place on January 1? That's my first question. The second one, it's regarding Mitikah. When -- I remember about the Phase 2, is there any plans to launch the Phase 2 of Mitikah anytime soon? Jorge Pigeon Solórzano: First question first, signed, sealed and delivered. There's nothing to wait other than for the time to happen, and it happens January 1, which is how the documents are set. January 1, 2026, is when you will see the swap of asset fees and everything. So -- nothing else to be done. That's basically a done deal. Gonzalo Pedro Robina Ibarra: Just to be clear, up to December 31, the assets will be on the balance of Fibra UNO. As of January 1, they won't be any more on the balance of Fibra UNO. Jorge Pigeon Solórzano: Correct. Exactly. And regarding Mitikah Phase 2, obviously, we do have a license available. We have space to work with it. We have several ideas. As you know, there's been a live project that has evolved. If you recall from the very early stages, we had the Condo Tower -- wasn't a Condo Tower, it had a hotel in there. And then we had a hotel somewhere else in the shopping mall. And now we have about -- I don't remember if it's 80,000 or 100,000 square meters of additional space available to be constructed there, but we have to wait and see a little bit market conditions to decide what we do. Shopping mall is working fantastically well. So we want to make sure that whatever we do adds to the success of what Mitikah is today, but we don't have any specific plans as of right now to execute on Phase 2. We do have the availability, but not right now. Operator: [Operator Instructions] Our next question is from David Soto from Scotiabank. Okay. It looks like David does not have a question anymore. We'll give a few more moments for any further questions to come in. Okay. It looks like we have no further questions. Prior to the closing remarks, a friendly reminder that the Fibra UNO will be hosting the FUNO Day on November 13 in New York. I will now pass it back to the Fibra UNO team for the closing remarks. André Arazi: Thank you, Luis. Thank you. As Luis just reminded you, we have our Investor Day on November 13. We are -- you are very welcome to join. And also, we are approaching March of 2026, which will be our 15th anniversary. We are very happy and very proud about that. Thank you for your attention to this call. And I hope I'll see -- you'll hear from us again with the full year or fourth quarter 2025 numbers shortly. Thank you very much. Operator: That concludes the call for today. Thank you, and have a nice day.
Operator: Ladies and gentlemen, welcome to the adidas AG Q3 2025 Conference Call and Live Webcast. I am Maura, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Sebastian Steffen, SVP IR and Corporate Communications. Please go ahead. Sebastian Steffen: Thanks very much, Maura, and good evening, good afternoon, good morning, everyone, wherever you're joining us today, and welcome to our Q3 2025 results conference call. With me here today is our CEO, Bjorn Gulden; and our CFO, Harm Ohlmeyer. Bjorn and Harm will take you through the highlights of the quarter, our financials, the outlook. And afterwards, we will open up the floor for your questions. As always, I would like to ask you to limit your initial questions to 2 in order to allow as many people as possible to ask their questions. And now before I hand over to Bjorn, we want to get everybody in the right adidas mood with this video. Let's go. [Presentation] Bjorn Gulden: Hello, everybody. I hope you enjoyed the live showings of what the brand has done over the last 3 to 6 months because we are actually very proud of what we have achieved. Also, very proud and happy what happened last night, where 2 of our teams, Germany and Spain, won each of the semifinals in the so-called Nations League. And we'll then need to play the final and it's always cool to have 2 teams wearing the 3 stripes play each other in the final, which happened pretty often, especially on the women's side. Also happy actually about what we did achieve in Q3. I think the momentum that we have seen globally even strengthened. And we feel that our teams in the different markets have been very active and has been a lot of positive feedback also when it gets to the activations we have for the future, for example, the workup that you see out there. What also very, very, what should I say, close to today happened was the Shanghai Fashion Week, where we showed up in China in a way that I think we've never done before. And last weekend with the ComplexCon, where we showcased both the jellyfish coming from our friend, Pharrell. And we had many, many versions of Superstar also with our partners from Hellstar. And I think all of you have followed the discussion about Bad Bunny and the Super Show, it happened to be at the same time where we had a Mercedes call up with him, which also did very well. So a lot of fashionable things happening, which is very, very positive for us. And also before we go into the numbers, important for us. We were again named the top employer for those working in the fashion from the TextilWirtschaft. And again, that's a research with ask the employees and the hearing that your employees are happy is always a great confirmation for us in management. And then the Forbes Research who looks at 400 of the biggest companies in the world when it gets to how it is to work for them when you share a woman, we also came up in the top. And again, a very positive story for us confirming that we are a good company to work for. The numbers, you've probably been through them many times. Last week, we reached EUR 6.63 billion in Q3, which is the highest quarter that we ever had, which, again, then for the adidas brand was a growth of 12% currency-neutral. Again, another very strong quarter when it gets to the margin at 51.8%, which was 50 basis points up. And then an EBIT of EUR 736 million, which then is an EBIT percentage of 11.1%, which, again, we are very, very happy with. If you then take Q3 to the 2 first quarters, you get to the EUR 18.7 billion in sales, 14% up for the adidas brand, a margin close to 52%, and then an operating profit of EUR 1.892 billion which is again about 10%. And so again, when we look back, we are very happy with these results. When you look at the regional growth, the North America grew only 8%, year-to-date 12%. I did say in the press call that if you take accessories out, you will see that both Apparel and Foot were up 14% and 11%, and that reason for the accessories being down is that we have a reset in the accessory business that will hit us this quarter. And it has to do with distribution. It also had to do with deliveries. But I don't think you should read too much into it. I think it was heavily exaggerated in some of the press. This is not something that is very crucial for our business. It is a short-term blip. And again, remember, accessories is 7% of our business, so you shouldn't worry too much about it. Look at Europe, the home market, we were skeptical last year that the growth will slow down because it was 9%, now it's back to 12%. We are 11%, what should I say, for the year, and a very strong development, again, both in our own stores and then especially on the performance side around different markets in Europe. Greater China. Again, you probably see a lot of, I would say, tough numbers from our competitors. We grew again double digit and are very happy with the development being up 12% for the year. And you probably know that the profitability also in China is improving. So we are very, very happy with the development that we currently have in China. Same with Japan and South Korea, up 11%, 14% for the year. Historically, 2 very strong markets for us where we had some issues, but very, very strong development now with new management in both of the markets, and feel we are in a very, very good way with very, very strong like-for-like numbers in our own retail in both those markets. Lat Am, still on fire. We are now a market leader in many of the LatAm markets, including Brazil. And as you can see, '21 and '24, extremely happy with that development. Emerging markets, of course, always a little bit mixed bags because it's a group of countries where you have quite some issues, but the team are our entrepreneurs and 13% and 17% confirms that. And that gives you then the Q3 number of plus 12% and plus 14% for the year, in a world, which I think you agree, is not the easiest to maneuver in. So very happy with where we are after 9 months. Wholesale growing at 10%, shows you the support from our partners. And again, happy with that. Own stores, up 13%, we are comping positive both in concept stores and in factory outlets. And we have added net around 85 stores in the last 12 months, and we will get back to that in a second. E-com, up 15% shows you that the digital side of the business is also working. And some of the pure players are actually doing better than the brick-and-mortar guys and so is also with us because we can showcase news quicker and wider than you can do in brick and mortar. That gives you the split of 63-37 and you see brick-and-mortar and e-comm than 22-15. I think we agree that, that's a globally a very healthy split. I talked about the stores. I think we have said to you now for a couple of quarter that what we are doing is that we're trying to open, I would say, impressive brand stores in bigger cities and in bigger trade communities. And instead of having 1 store buildup, we're trying to explore the possibilities in the different markets, as you can see here. And we are investing a lot in the creativity in the stores and I hope when you travel around the world that you get to see some of them extremely happy with the way we look. And they're also, of course, when we open a big store that looks like this, the numbers are also very impressive. As long as we fill it with the right product, which I think we have done lately. Footwear, again, you were skeptical. I think it was 9% in the last quarter. Now it's back again to double-digit, 11%. We have talked about the wish of growing Apparel at the back end of Footwear. So now we are doing that at plus 16%. And then the accessory issue, which, again, I explained that in the U.S., we have kind of a reset when it gets to both the sourcing because it was very China driven and the distribution and that caused that in this quarter, the numbers were negative, and that had an impact on the global accessory business. The performance accessories, meaning, for example, soccer balls is up. And I think I can promise you that you will see accessories very quickly coming back again. And I think I quoted I said we need to clean up something, but I think people, again, overdramatize that there's nothing that you should be concerned about that Accessory is only up 1%, knowing that, as you see here, Accessory is only 7% of the business. And I think we have said that when you have brand heat and you could focus on it, you should get more growth on Accessories going forward. So I think we have some reserve in our pocket, and you shouldn't look upon this negative. Footwear being 57%, Apparel 36%, again, as long as Footwear is above 50%, I think we are in good shape brand-wise. And then very, very important. Even if we have turned the company around on the lifestyle side and the heat, we have said that we have to celebrate sport. And I think when you see the activities from ultra marathon to marathon to running 100,000, basketball, soccer, cricket, whatever, I don't think we have ever been more visible in sports, and we're also producing a lot of content that is visible all over the world because that is what we want to do. That shows also up in the numbers. Our performance, meaning the Sports business is up 17%. Remember, we have told you that there are 4 categories that we need to win globally; football, running, training and basketball. I think you see in football that coming out of comp numbers from the euro last year, we are very, very strong now with our Footwear taking share, I might be arrested saying we are market leader, but that's my feeling on everything I can read. Very happy with the players and also very happy with the product. And then for those of you who follow soccer closely, the Liverpool launch was fantastic globally, although they haven't played very well lately, losing I think, 5 out of the 6 last games, the sales of Liverpool has been tremendous compared to what they used to sell. And again, I think we all know that Liverpool is a street culture city in the U.K., very relevant for the kids. We are extremely happy with that relationship and the way it was executed. Also very proud of the Ballon d'Or. You know that's where they give the prizes to the best players in the world. They give out 5 prizes. We won them all. We had the best male player with Dembélé. We had the best young player with our friend, Yamal. We had the best female player in Aitana Bonmatí. We had the best young female player in Lopez, and we actually also won the best goalie with Donnarumma also; 5 out of 5. I guess we will have to pay a heavy bonus to our sports marketing people because I don't think that's ever happened before. What shows you, why I'm proud and positive is that we were also able, the day after the Ballon d'Or to honor both Dembélé in Paris with both what should I say, outdoor marketing, as you see here and the store and the same in Barcelona with Bonmati. So again, the teams were then actually gambling on that they will win. They didn't have the insight. And we were able then to activate this overnight. So when people woke up, this was what you would see in those 2 cities. And I think this is the energy that we actually need as adidas then to win. And the same thing, we have launched the World Cup Ball. We used a lot of other celebrities and sports people to do that. I have never seen such a campaign ever done organic and I can also report to you that the sellout of the ball has been fantastic. And you have to remember, we have even started with the jerseys. The jerseys for World Cup will start to go on sale on November 6. So that's when you will start to see some impact of World Cup coming into the numbers, which will be very, very positive. Running, we have told you for the last 2 years that we are building our running portfolio up, changing both the collections and also, of course, going back again to running specialty to build credibility and the business. When you follow the marathons and the half marathons and other races you see we win half of them, very proud of what Sebastian Sawe did in Berlin. The weather was too warm; if not, he would have beaten the world record in sub 2 hours. He didn't because it was 27 degrees, but we will save that for next year. We also won the women's class with Rosemary. And again, I think it's not the weekend, where we don't win a major race somewhere because we have the best runners and the best product, that is also proven by this fact, we did set the world record on 100k. Sibusiso won in 5:59:20 and you can calculate the average pace, it's unbelievable. I think he runs 333 per kilometer. And again, with a shoe especially made for it. And again, this is part of our innovation pipeline to do extreme things that we can then feed into the more commercial line. And our Adizero line, which starts then with the Prime X and then down to the Adios Pro 4 is the best line today for racing shoes and speed shoes. And we are taking market share and we're growing this business very, very heavily. And again, this has been the strategy from the beginning that we start at the top and then we start to scale it into every day running and to comfort running. What you see here is new. This is what will go to market next year starting in February and then scaling up during the year. We have developed something called Hyper Boost, which is a new boost material, 40% percent lighter than the old Boost. Boost was the most successful midsole construction that we had, the most successful foam, but a little bit heavy. That's why we have been working for 3 years now to establish this. These are the sign directions, not necessarily the way the shoes will look, but it gives you some kind of feeling how we're going to attack the comfort training area. And then we will also use the foam as a platform into other areas in the performance side and also into Lifestyle. Don't forget that all the successful Lifestyle running shoes we had in the past, both those from Yeezy, but also NMD, for example, Ultra Boost was Boost shoes and that's why this is so crucial for us going forward. And we are very proud that we now have developed this. Training is a huge category that might be executed different from region to region, but what we are doing is that we're using our top athletes from different sports and then showcasing them in training in our products. We can tell that story everywhere. And what we also have done because training today consists of both running and strength, we have combined then the Adizero line with the Dropset line and then creating shoes that are both runnable and stable for strength, gym work, and that's then the Adizero Dropset, which you will see next year and which has received a lot of orders already from the retailers who love it, and we are very, very positive about that development. Maybe a surprise to you, we are then taking the originals into sport. We have seen, especially on the female side that we connect to that young consumer through our original line with the use of threefold and three stripes. And it was then a natural way then together with some of our retail partners then to develop a functional training line in functional fabrics and functional fit also with the design ethics of original. You see some of the samples here. And needless to say, the demand for this for next year is huge. And it's one way for us to differentiate ourselves in the training area where there's a lot of brands that have established themselves lately. But again, very, very positive feedback from the retailers around the world. Basketball, we all know we're a market leader, but we also know we have to invest in it. We have in the design and development of the product for a while now, had a very special language. And it's great to see that this language is now coming through also in sell-through. All our signature shoes are now doing well and the players that we're using are also extremely popular. And we have used them now not only in the U.S., but also in other markets. They've all been to China during the summer, and we see a lot of positive effect for them being active actually selling not only our performance product, but selling the brand as relevant in the culture. And then we have said it the way adidas did the brand, we want to be visible in all sports and also local sports that are relevant. That is why we are making products for more sports, and we also produce more content for those sports so that we get back again the credibility and authenticity that we used to have, and you see some examples of that here. In that trend is also track and field. For a while, we lost the visibility. We are now back again. And if you watch the World Championship on Tokyo, you saw we had more federation. There were more three stripes on the apparel and a lot more feet with our spikes and special shoes. That will continue because for us, track and field is the core of all sports also in the Olympics, and that's why you will actually see a wider investment for us going forward as more federations are actually able to change into our brand. Then finally, when it gets to sport, we have said to you many times, we need to be more American. We need to be a sports brand also in America. You can only do that by investing in the so-called American sports. That is, of course, starting with colleges. It is baseball, it is American football. It is also basketball. You see some of the people we have signed now over the last couple of months. We have also started to get feedback that we are attacking the clear market leader. That's not even the strategy to be visible and actually have personalities that perform. And I think that is also what we have achieved. The college sport in the U.S. is very, very special, very emotional and everybody who's gone to college is a big fan of their college and especially in American football, that is important. And you know that this college team draw attendances up to 100,000. You see that we are now starting to get a pretty impressive portfolio. And in that, what should I say, strategy of getting more visibility and getting more into the college merchandise business, we have then added both Tennessee and Penn State, which are 2 huge colleges when it gives both to the performance and also to the merchandising value. What we also have done is that we started to combine the American sports. So here, you see on the left side, Anthony Edwards and his basketball look. We have then made a clip. So Travis Hunter debuted in the NFL. He's the Heisman Trophy winner of last year. He is, I think, the only one who plays offense and defense, at least in his rookie season, and he's then playing in a clip that is designed the way Anthony Edwards basketball shoes. So a pretty cool thing, and it shows what we can do going forward in the U.S. Short about Formula 1. You know great success when it gets to the agreement with Mercedes, a lot higher sales than I think both we and the Mercedes thought, a lot of collapse, a lot of interesting stuff happening. And then on the left side, we announced that for next year, we will also do Audi. And again, we see a huge demand from wholesalers already in those 2 setups. And then, again, I'm repeating myself, but we are, of course, trying to take everything we do on the pitch in the stadium then to the street. And I think that's the magic of ours. We are using our athletes and our, what should I say, teams on both sides and are trying then to create the street culture out of not only basketball, but also other sports. We have talked about the need for doing this in football, and it's finally happening. We have never seen so high demand for soccer-related apparel as we do currently. And a lot of non-soccer fans are actually wearing retro jerseys or even the current jerseys or product that is coming out of the soccer world. And I think I've mentioned to it a couple of times that the Oasis collab, for example, are soccer pieces that have been batched up and the demand has been unbelievable for people that has not any connections to football. And then on the footwear side, EVO SL, our $150 Evo Adizero shoe without the carbon plate meant to be a running shoe, but gone widely on the lifestyle side, best-selling running shoes currently and the best named running shoes in many, many markets, a great development for us. So when do they get to lifestyle, you saw performance growing at 17%, Lifestyle now growing at 10%. Again, this was always the strategy that you build the heat through marketing and lifestyle, you sell shoes, then you hope that it will also go into performance and then you start to commercialize apparel that has actually happened. And two, the haters, who are the people who don't like it, Terrace is not over. We have grown Terrace every quarter. So Q3 was actually the highest quarter ever also of the Samba. I think the key to it is, of course, that you're not selling the white black and the black white more and more and more because you're actually putting, what should I say, a limit on it. But when you work on materials and you work on different, what should I say, Collabs and you keep the excitement in it, all Terrace shoes are doing extremely well. And especially in certain markets now, the Spezial is doing great. And as you probably know, Spezial has never been a lifestyle shoe before. So -- it's not over, and it's a huge business, and we will manage this business probably longer than many of you had expected. The Campus was more a freebie that came unplanned with the heat of the brand. We did then put a lot of shoes in the market. It worked perfectly. But we also said we will then start to limit the Campus because we were waiting for the Superstar to come. And let's face it, the Superstar is from a construction point of view and from a target consumer probably closer to the Campus than to anything else. We talked about Low Profile. Yes, it has been growing and growing. It's not as big as some people thought. But I think I can promise you that the same thing is here. You need to invest in SKUs, you need to invest in materials, then it will continue to grow also into the spring of '26. And then we have the Superstar, which we again told you we were delaying. But right now, we are pushing it for fall, especially now in Q4 and then into spring next year with global campaigns, a lot of activations. And again, although the language is global, the content is very local. And then may be new to you, you will start to see the Triple White coming back. There are clearly signs that Apparel is going more preppy and more college and then Triple White will be again coming back. And as you know, the Stan Smith is probably the typical shoe to go to when that is happening. So we have limited the pairs heavily. You won't find Stan Smith discounted anywhere, but we will start during next year then both with Collabs and loading up that shoe because we want to be ready when these things are going commercial. And then the final thing on the lifestyle that we talked a lot about, Lifestyle Running. Yes, we admit that all the brands have had a big trend, both on '90s and 2000 running and that we had many options starting with the retro thing all the way into 3D printed shoes. Many of these shoes are now starting to get volume. None of them are the winners right now, except for EVO SL. But when you look to the left, you see Adistar, where you will see the Jellyfish coming out of Pharrell. You will see takedowns of that hitting the market, and you will also start to see a lot of 2,000 retro running shoes from us with Open Mesh and Metallics, which are already selling very well, and we will start to scale them because we see that the demand is there. And then the final thing where people laugh a little bit is Lifestyle Football. We talked about it in Apparel. You will see soccer-inspired product going also fashion, where we put soccer uppers from the past or also present, and we put them on different constructions. Very different opinion if this is going to be commercial or not. We will have limited pairs in the beginning, and then we will scale it if we see the demand is there. But at least on her, it seems like there is demand there also to scale it. Then on Apparel, we have great success, especially with Her, especially very colorful, the use of 3 stripes, of course, a lot of them are not original. But I think where we have been even better than anybody else instilling innovation in materials. We have denim. We have a lot of knit constructions, and we have a lot of innovation that has not normally been in the sports industry. And this is especially where then people online has a huge success because they can showcase it very quickly, and we've been very quick to the market. Very, very proud of this. Grace Wales Bonner has helped us a lot. I think she had a huge impact on the success of the Samba, to be honest. She has now been made the head creative for Hermes Men, a great honor to her, but I'm also happy to report she will not leave us. She will continue to work with us because we have a fantastic relationship with her, and this will, of course, help us. In general, collabs, a lot of discussions. If there are too many, has it lost this interest? No, it hasn't. If you look at this page, you see some of the ones that we work with. Down left, Hellstar has been great for us in the last couple of months. I mean, Chavvaria has been great for a while. And in general, I think we all have to agree that you need Collabs. You just need to make sure that they fit the market where you're using them. and that you never do too many at the same time. Then at last, accessories. Again, I tried to explain that accessory and performance, great, including soccer balls. All markets actually done well. There is a small clash in the U.S. that we need to fix, and we will fix it. And I'm pretty sure that when we get to next quarter, you will see it fixed already. So don't read anything into it. That was not the intention. So with that background, I hand back to Harm, and then Harm will give you the more details about the numbers. Operator: This is the operator. We are not receiving audio from the speaker line. Harm Ohlmeyer: Can you hear me now? Operator: Yes, sir. Harm Ohlmeyer: Good. all right. Then I'll repeat it again. Thanks, Bjorn, for the update, and I would like to bring some more details to the financials now in the next couple of minutes. Apologies for the short technical issue here. So as always, we start with the net sales. And as Bjorn said already, record net sales from an absolute point of view in Q3 was EUR 6.6 billion. That has been a great achievement. And of course, the most important number there is 12% currency-neutral growth for the adidas brand. Of course, for the people on the call here, you always look at the 8% currency-neutral, which includes Yeezy in the prior year for the reported number, which is 3%. What we believe is relevant as well to show you the next chart, it's a lot of numbers on there, but sometimes we probably forget what percentages mean in absolute numbers. And I want to start on the upper left where we see 17% growth in Q1 for adidas brand and 12% and 12% in Q2 and Q3, so overall 14%. When we look at the absolute numbers in currency-neutral terms, we actually grew EUR 900 million in Q1, EUR 600 million in Q2, and another EUR 700 million in Q3. So we believe it's important summarize that for the first 9 months, what we actually have achieved with the adidas brand. So it's a EUR 2.2 billion in constant currencies in the first 9 months. And then, of course, you got to deduct then the EUR 600 million from Yeezy sales last year. And then you have an FX impact so many currencies, that is a negative EUR 600 million as well leading to only EUR 1 billion nominal growth that you see in the P&L being reported. We believe it's just right to show these numbers in absolute as well to actually showcase again what our brand and sales teams have achieved with great products and good execution on the sales. When it comes to the gross margin, of course, a great story as well is almost 52% or 51.8% in correct terms. It's 50 basis points above prior year. This is again a very, very good achievement. And if I go to the details and decompose it a little bit, a huge, huge credit to our sourcing organization, making sure that we get reasonable prices in strategic relations with our suppliers, still some positives on the freight side, even so some of the transportation lead times are complicated in today's world. The business mix is still positive. And also from a discounting point of view, we did a great job the last couple of years and now it's stabilizing and still very, very good sell-through of our products when it comes to the underlying drivers. Of course, you know that FX has still been negative. It's just directional when you look at the bars here, but we also talked a lot about the tariffs. Of course, they are negative in the U.S. And you see that is a new thing compared to Q2 call that we had some mitigating actions there as well. That led us still to the very, very good gross margins, 51.8%. So very good achievement, and you can imagine where it would have been without the tariffs in the U.S. When I go further down the P&L line, of course, as always, we say, we keep investing into marketing with almost EUR 800 million in Q3 and actually 10% up or 12% of net sales. Great, great campaigns, as Bjorn alluded to earlier, fantastic product launches and relentless opportunities with our partnerships, whether it's on the cultural side or on the performance side. So very, very well usage of our marketing. Also on the operating overheads, you see there's great leverage with minus 8% or 3.5 basis points. And you see for the first time since the third quarter '21 that we are below 30% when it comes to the operating overheads. Okay. Part of the truth, you might remember also that we had a release in our other operating income with the settlement of Yeezy of around EUR 100 million, and we did a donation of around EUR 100 million in the operating overhead line as well in the third quarter last year. But the real number now, forget about last year, is still below 30% on the operating overhead, which actually leads with a great gross margin to now 11.1% operating profit of EUR 736 million. If I decompose that again from a profitability point of view, similar to what I did on the net sales, great achievement in Q1 with almost 10% already in the second quarter, 9.2%, up from 5.9% and then a very, very good achievement in Q3 with a profitability of 11.1%. That is a great achievement again to the teams. And when you look at the first 9 months with 10.1%, we actually where we wanted to be in '26. That's a great achievement in the first 9 months. Of course, we all know given our guidance that will not be sustainable for this year, but that's where we wanted to be for next year we achieved in the first 9 months. Of course, there have been some questions below the line as well, and I want to spend some time on this one to explain that more clearer. When I start with the net financial results, you see the EUR 4 million plus last year. So during that quarter, we had some stabilized currencies, whether it's the Argentinian peso, the Turkish lira or the U.S. dollar was still stronger. So we had some positive effects from an FX point of view, but also from a hyperinflation point of view. And now the comparison to this year looks dramatic with the almost EUR 90 million. But also there is now a devaluation of the Argentinian peso of the Turkish lira. We all know where the U.S. dollar is right now. So these are the effects that we had in Q3. But it's also important that -- to note that this is normalizing in the fourth quarter again. And well, I wouldn't have imagined that I talk about the election in Argentina with Milei, but we had our Argentinian General Manager here yesterday as well to give an update. So these are also important events for us as a company. So that's why we believe that election and the outcome just want to stabilize again in Q4. Similar things on income taxes, was very low last year, but also this year, it's a pretty much normalized rate with some withholding taxes in there, but that will also stabilize in the fourth quarter. So 2 notes on this one. In the first 9 months, if you looked at the numbers that the operating profit was up 48% in the first 9 months, the net income was up 52%, and that is something you should expect as well more leverage in Q4 on the net financial results. It's normalizing. And you can definitely take away today that the tax rate for the full year will be around what you have seen in the first half. So anywhere between 24% to 25%, hopefully closer to the 24%, which would definitely drive the net income faster than the operating profit and respectively, the earnings per share as well. When it comes to the inventories, also that is a topic, 26% currency neutral up. And I would like to move to the next chart very quickly because also that is something that we are not concerned about. I said it on the last call already, we went probably too low in '24 with a lot of discipline because we came with a lot of inventories into Q4 -- into 2024. So this is where we have a low level last year. We actually made the strategic decision to bring products in earlier, especially World Cup related. So we wanted to make sure that anything around World Cup related, whether it's [indiscernible] or federations available to remain and continue to remain a reliable partner for our retailers that when the demand is there and of course, where we need to ship in for the launch date that the product is already here. And you know that the supply chains are volatile nowadays. So we didn't want to take any risk. So we took them early. What's most important for us internally is that this product is current and with either current this season or for future seasons already, which means spring/summer '26. So also there, you will see an update going forward as well in the next quarter where we definitely go in the right direction again. The same is on accounts receivables. That shows the success that we have with our retail partners. It's not just about D2C, so 22% up. That is not 1:1 the growth in the third quarter, but that's where we see that we have great relations with our retailers, and that also gives us confidence for the fourth quarter when it comes to the cash generation. But before I go there, most importantly, the operating working capital, I've been on this call many, many times. We said if we get below 20% of operating working capital over net sales, we are an excellent company; if we are anywhere between 21% to 22%, we are a pretty good company, and we are still in that range, and we will definitely make sure that we stay within that range and over time, get below the 20% again. That all led with the investment into working capital that the cash got reduced from EUR 1.8 billion to EUR 1 billion. I also said on a previous call that we expect to generate a lot of cash flow in the fourth quarter. And rest assured, we still believe there's probably around EUR 800 million to EUR 1 billion of cash flow being generated in the fourth quarter, which is linked to the inventory increase for the World Cup, which will be reduced and also the accounts receivables that we will cash in, in the fourth quarter. So that's what you should rely on here as well. When it comes to cash and cash equivalents, you see the development here, which led to the EUR 1 billion and also important adjusted net borrowings have been reduced from EUR 5 billion in the second quarter to EUR 4.8 billion. And just as a side note, some of you might remember that we're maturing a bond in November and probably stay tuned for that one. We believe we want to refinance that one in due course, which we believe is also a good message to the capital market because once in a while, the last one we had in '22, we also want to test the market and be a bond issuer in the market once in a while. So that's what you should not be surprised in the next couple of weeks that this could happen. Overall, when it comes to the leverage, we are very stable, which is important for our rating agencies as well. So also no surprise there regardless of what our cash position is. So overall, very, very confident when it comes to the P&L, when it comes to the balance sheet. And with that, Bjorn will finish up with the guidance. Bjorn Gulden: Great, Harm. As you see on this slide, you have seen that many times, we are now into the third quarter, if you will say, some out of 4. We did tell you at the beginning of '23 that we think that this should be a 10% EBIT business. We gave you the different components. And it's pretty cool to see that after 9 months in the third year, we basically hit it with the numbers that you see here and are currently showing you that this is a 10% EBIT business model even if we are not doing everything perfect and even if I would say the world is not that easy to maneuver in. What is very, very crucial, I think, in the business model going forward is this, I don't know what other brands or consumer companies are telling you. But to be a global brand with a local mindset, I think, is crucial, if you are consumer-focused and for us and also athlete focused, you need to be close to the consumer. And unfortunately, there is no global average consumer, the way many consultants and agencies are trying to sell you, the consumer in different parts of the world has their own, what should I say, taste and willingness and are also influenced by different things. And that's why it becomes more and more important to be more local, especially between Asia, with China driving it between America and Europe because there are big, big differences, not only in consumer taste and facing of sports and activities, but also now in supply chain, given all the political tension we have. So again, getting the best people in the market and giving them the authority to make decisions. And in many cases, even the authority to make products becomes important. And then, of course, the role of a headquarter then is, of course, to keep the brand together to provide innovation and concepts. And of course, also maybe the most important thing to make sure that we have the right people in the markets and in the right functions and of course, also provide the systems that we need. And when it gets to creating product, I think this slide is also important for you because we are now making products in all these centers. And these centers are then in addition to having a part of the global, what should I say, creation like LA has for basketball and U.S. sports, they also, of course, have the, what should I say, the clear goal of supplying the local consumer with the products that they need, and that goes for all these centers where you see there are now 5 of them in Asia. And again, the speed to market by actually producing in China or in India is, of course, much bigger for those local markets than there are for Europe and America, where you have very little production, and it's not easy to actually find a supply chain who can make footwear for you. So I think you need to be very, very, what should I say, conscious about this development because I think it's the key to be successful. And I think, for example, our success now in China is because of this setup. We have the ambition to be the #1 sports brand and all our, what should I say, leaders in the market should have the ambition of being #1 in their market. We are, of course, aware of that we will not be #1 in all the markets that will be naive. But if you are hired in Adidas to run a market, you should have the ambition and you should talk to us what you need when it gets to investment and infrastructure to be #1, and then we will together see where we can reach it or not. There is one exception, that is the U.S. The market leader there is so far ahead of us because they've done a fantastic job living the culture, and we have not done it over the time. But we have a clear ambition there to double our business. And we do think with the story of our brand, with the history of the brand and the resources we have that we can start to be a sports brand again in the U.S. with all the things I have explained to you and then also extend that into lifestyle and culture. And that is why we also have a management now sitting in both L.A. and in Portland who has all the tools to do that. And the way we do this globally is, of course, to have the best product. I mean our pipeline and products, I think, has improved a lot. We have talented and creative people, and we have a great supply chain. It is, of course, also the way we present ourselves in the stores. We have said that we're using a lot of creativity to actually build stores that are that also connect to the local culture and to the possibility of utilizing what is allowed or not because you see many of these stores would not be allowed to do here in Germany, but the creativity in other markets we need them to utilize. And then very, very important, the activations and the visibility around the world, not only global, but also in the local markets so that you connect with the consumer and you also let the consumer be part of your activation has become much, much, much more important and all the social media and all the platforms and also actually physical events have become tremendously important around the world. And that's where you, of course, need a lot of talented people with a lot of energy, and that's what we have. So back to the end of this, the outlook, you remember our initial guidance for March, double-digit growth for our brand, if you take Yeezy out. If you include everything, high single digit currency neutral and an operating profit between EUR 1.7 billion and EUR 1.8 billion. Where we are now is that we keep, of course, the brand being at double digit. We have narrowed the high single digit to be around 9%. And then we say that our operating profit will be around EUR 2 billion. Yes, we know that we are in a challenging world. I don't need to repeat that. And we also need again to remind ourselves, we have no Yeezy, neither revenues nor profit in these numbers. And then the other considerations that you need to have is that we think that the positive side is that we're better than we expected after 9 months. And the attitude in general from the consumer and from the retailer is actually more positive than we expected. I know somebody reacted to that there were no strong order book in there. But remember, there's only 2 months left of the order book. So that's why we took it out. There is not a lot to talk about when you only have November and December open for the order book. So that's why that's not removed. There's nothing other into that number. And then the negative thing, which, again, we have to address. I mean, I know you don't like us to talk about it. But of course, there is a direct impact on the tariffs. We told you that the gross impact, meaning how much more duty it would be on the products that we thought we would sell was more than EUR 200 million, and we have mitigated for I would say, almost half of that. So now the estimated negative impact on our P&L, meaning what would the profit be higher if we didn't have tariffs would be around EUR 120 million. This is not a scientific number because it's an estimate, right? So you need to be careful when you try to say is it's EUR 117 million or EUR 123 million because we don't know. And then what we don't know, and again, I think maybe we are too honest about this because you read a lot of criticism into it, is of course, that the indirect impact of the tariffs, no one knows. And prices increases, normally consumer buys less, and that is not only in our sector, but in all sector. And that's why we don't know and are flagging it. And I assume that everybody will flag it after a while. I think maybe we flagged it early and got criticized for it, but I do think that's better to be honest about it than actually trying to hide it. And then, yes, sitting in Europe, there are quite some negative FX impacts when you consolidate your numbers, both on your top line and also on your bottom line, and that's just the way it is. And I'm sure that you understand that. The good thing about ending '25 is that we're going into another great sports year. It starts with the Winter Olympics in Italy, which again is not huge commercially, but it's a great event that will be having interest also for the smaller sports and the winter sports. And then we have this fantastic World Cup that will come in the U.S., Mexico and Canada. I would like to say one comment about that, too. We have said that this is a EUR 1 billion business or more. And people say, of course, that's on top of everything. I mean you don't know that. I mean it's obvious that it is -- some of that is additional, but it's never been an event where everything that you sell for an event is on top of everything else. So you have to have that in your mind when you do your math. And then the last slide I will show you is this. When we met the first time at the beginning of '23, we had the situation over there where we did EUR 300 million. We told you that we had the 4 years plan to get to 10%. And I do think I'm allowed to say that we're pretty proud of the development that we have done. Not everything we have done is fantastic, and we are by far not perfect. But I do think you have to admit that we've done a decent job in a very difficult market. And yes, maybe the market will always be difficult. So I will continue to say that. But the need to change things, especially in the development of products and in the supply chain and also the way you go to market and change the attitude has been enormous. And I'm very, very grateful and proud of what our people have done. So with that, I hand over to you again, Seb. Operator: This is the operator. We are not receiving audio from the speaker's line. Sebastian Steffen: We're now ready to take questions. Operator: [Operator Instructions] First question comes from Ed Aubin from Morgan Stanley. Edouard Aubin: So I guess I've got 2 questions on Footwear, Bjorn. So the first one is on Classic and Terrace. So did I understand correctly that you said that Terrace was still growing year-over-year in Q3. And if we look ahead in 2026, if you look at the Classic segment, the slide that you showed us, can Classic expand if Terrace contracts and so how you see that? So that would be question number one. And then question number two, still on Footwear, I am sorry. On the opportunity with kind of Lifestyle Running, one of your distributor a few weeks ago, JD Sports, not to name it, showed a slide showing that for them, at least Lifestyle Running is substantially bigger than Classic. So I was just wondering to what extent how much an opportunity this category? Obviously, you're already making good inroads in Lifestyle Running. but if you can help us kind of size the opportunity, that would be very helpful. Bjorn Gulden: Two good questions, to be honest. Yes, I said and I confirm that the Terrace Group was actually bigger in Q3 this year than it was in Q3 last year. And that even the Samba from a selling point of view is actually bigger than it was a year ago and that we have continuously grown what you call Terrace, these 3 shoes. Again, I think many people are surprised by it and maybe some of our own people too. But the fact of the matter is that with the innovation that we've done on design and materials, we kept it hot. And we have gazillions of different SKUs around the market when it gets to different versions of it. And of course, some market have stagnated and we stopped supplying growth, but other markets are still on a growing trend. And that was also the reason why we were careful with Superstar. And to be honest, also careful with some of the low-profile side because we didn't see the need in, as you correctly say, in the classic range to oversupply too many franchises. We are now transferring the Campus volumes into the Superstar because that's more of the same consumer. And then as I said, when Triple White is coming on, the whole Classic area will get another boost and that is typically then that we will then load on the Stan Smith. I think it's also correct what JD showed you, although it's different from market to market, what they call Lifestyle Running is substantially bigger, especially on the male side than the Classic side. But again, many of the so-called Lifestyle Running shoes might from some of our competitors then not be running. But if you look at it now, we can be very honest. I mean, New Balance and my friends from ASICS have had a big run on shoes from the '90s and from the 2000. And even Hoka and On to be honest, have with their so-called performance shoes also had a run on the Lifestyle side, maybe for an older consumer depending on where you are in the world. So I agree with you, if you cume all that, the category is actually bigger. And that's why it's been so important for us then to put more effort into the Lifestyle Running side, and we have. I mean the EVO SL was meant to be a performance shoe, but it's then gone Lifestyle also. So that's a huge volume for us. The SL 72, which is the 70s running has been great for us. And then some of the other running models have been, I would call it, mixed. What you will see now is that you will, a, see that we are coming out with products around the Jellyfish, meaning the Adistar shoe that Pharrell did with different takedowns. And then we have a series of shoes from also the 2000 with Openmesh and metallics that is already starting to sell. So we will grow in Running Lifestyle in '26, no doubt about it. Will we be market leader in any other segments? I think that's too early to say. And then we have to admit that with the success we had in the Classic, you couldn't expect that we also have the same success in Running, right? There is always a sequential effort here. And then what I'm very, very positive about is, of course, the development of HyperBoost because that form, when we go from performance into lifestyle, you have to remember that all our lifestyle Boost shoes that were new, did well when coming with Boost. And you should not underestimate that comfort and cushioning, extreme cushioning has a lot to say in that segment. So we are very optimistic about that segment, and that's why we put so much effort in actually developing HyperBoost. And yes, it's taken 2.5 years, but that's why it's also a very good product. So I think that's my answer to your 2.5 questions. Operator: The next question comes from Jurgen Kolb from Kepler Cheuvreux. Jurgen Kolb: A quick one, just housekeeping for Harm. You guided for -- you expected EUR 2 billion of roundabout cash at the end of the year. I guess, with the guidance on free cash flow in the fourth quarter, this is still on and you're quite confident to achieve that, just to double check here. And maybe on prices, I think on Reuters, there were some comments on your reaction on the tariffs in the U.S. Maybe, Bjorn, you could double check and again, talk us through what you have done so far in terms of the prices in the U.S. and what we shall expect going into 2026 in order to mitigate the tariff impact. Bjorn Gulden: I can do it first, and Harm can fill in at the back. The mitigation that we have done, which is about EUR 100 million mitigation from where we started with the EUR 200 million plus down to the EUR 120 million. How many components? One is, of course, in the sourcing in the sense that we have worked with suppliers to get better prices of some of these products. It has then been increasing pricing on new products. You have to remember that the price of a product that hasn't hit the market that is not known. So of course, that's where you can increase it without getting a negative reaction that you're increasing. We have tried to keep all carryovers at the lower price points at the same price, so no increase for the consumer, but therefore, better sourcing or more efficient sourcing and then we have increased prices on some of the expensive models because we believe that the consumer and the higher end will be less sensitive to price increases. And then again, then lifted prices on new models that have never been priced before. So that's not going to be visible for anybody else than us. And of course, some of the retailers have been part of the development. That's basically what we've done. Now I have to tell you that the price increases you see in the market and that you can read about the question is, are these prices then going to stay for the consumer or are discounts going to go up? And I think when you look at the U.S. right now, it's pretty heavily discounted. There has been some big brands that have had a lot of inventory. And I think maybe independent of tariffs, there was a lot of discounted products out there and I think that's what the jury on what's going to happen when it gets to sales, meaning the value of the product. And then the margin on the product when it gets to discounting, I think the jury is still out on that because we need to take and counter at the end of the year and then especially at the end of Q1 where most of the products that are then being sold are actually with a higher tariff on the buying price. So I think that's all I can say to you because everything else is just 100 assumptions, right? We actually feel that we told you very early that the gross impact of this in the financial year of '25 will be EUR 200 million plus. We have reduced it to EUR 120 million, so we think we have done a good job. And remember, we were very, very early telling you that we have removed China sourcing almost completely from the U.S. So we're not exposed to this 100% duties that he has done as of November 1. So let's see what the other people say, and then we can compare notes. We feel we've done what we could do. And again, I actually feel pretty good about it. But how the consumer then in the end reacts on everything happening, I think it's too early to say. Harm Ohlmeyer: On your question on the cash on the balance sheet, the EUR 2 billion. I said to the last time, and I confirmed it earlier in the call, will it be exactly EUR 2 billion, depends a little bit on FX and a little bit on the timing. So I wouldn't have sleepless nights if it's EUR 1.9 billion or whatever, but the goal is still to collect on the receivables, and that's what we plan for. So whether it's EUR 1.9 billion or EUR 2 billion, you know, don't get sleepless nights over it, but we want to get close to the EUR 2 billion, that's correct. Operator: The next question comes from the line of Geoff Lowery from Rothschild & Co Redburn. Geoff Lowery: Just one question, please, on China. Could you talk a little bit more about what's powering the performance in terms of product and distribution? Obviously, you've done tremendous cleanup work there over the last couple of years, but the outperformance against the market is looking really very marked at this point. Bjorn Gulden: The strategy in China has been, of course, to compete both against the success of the local brands and, you know, to the Western brands. And we figured pretty quick out that to do that, you need to have more local initiatives and utilize that you have factories in the market so you can go to market quicker and you can actually work with less inventory. So we developed this creation center in Shanghai. We put together a team of Chinese management that also used to work for Adidas in the past and has then worked in other brands to learn how local brands do it and then come back again. And we have, you know, as we speak, between 50% and 60% of the product that we sell, especially on the apparel side, is designed and developed in China. So they are not the same product as you would then design and develop for America or Europe. On footwear, most of the model are franchises that comes out of the global range, but they might be tweaked when it gets to materials. And then there are certain pockets of product that are only for China, also in the lifestyle, even in originals, and especially in performance. We see that the local brands have brought a lot of quality into price points between [ EUR 80 and EUR 100 ], where we were not competitive. And we have then used the creatives and the developers and the factories to develop them competitive products against that. And we have in those, you call them third, fourth, fifth tier cities where the local brands are dominating, we have started opening stores then which focuses on, I call them this value products and have a special offer for them. I think our success when you look at double digit growth and also the margin that we have is because that we have changed that model to be local and that we give the authority to very, very good people. And I also have to say that the energy, I think the LatAm team and the Chinese team are probably the two teams that has, in a market, the highest energy when it gets to actually chasing business, when it gets to where the consumer is. So I would say that's the reason for the success. And I also think it's the only way in the future to get success. I don't think you can sit in neither in the U.S. nor in Europe and just design a collection and tell them to sell it. I don't think that works anymore. Operator: The next question comes from Wendy Liu from JPMorgan. M. Liu: I have two, please. One is on the World Cup. I think, Bjorn, you previously mentioned that it will be a EUR 1 billion opportunity. Would you mind sharing a bit more details about the drivers behind this EUR 1 billion, and how does this compare with previous World Cups? This is number one. Number two, I wanted to go back to the 10% EBIT margin target you had for next year. If I look at this by region, it looks to me like it was really like North America where you probably still have a bit of gap. And then I look at Q3 numbers, 12.4% EBIT margin in North America was actually better than previous couple quarters in last year, despite you have this tariff headwind and you no longer have [ EV ]. So I just wanted to ask what were the drivers and what are your expectations about North America EBIT margin into 2026? Bjorn Gulden: The EUR 1 billion, I think is the number that we have said that we assume that World Cup can bring when we look upon both what we're selling of replicas meaning connected to the teams and cultural relevant I would say products around World Cup. I think the discussion that some analysts have had is this then fully in addition and what I said is that you can never say it's fully in addition because you have to remember that the stores, when you put World Cup product in, you take something else out. So you can never say it's fully, what should I say, in addition. I wasn't at Adidas in the previous World Cup, so I'm not sure, but I would assume that this is 40% or something higher than what we had before, just to give you a ballpark number. And the number is not final. As I said, we launched the ball three weeks ago. It's been tremendously successful, so we might actually take more orders and produce even more than we planned. We are launching the replicas for the home jersey on the 6th of November, so we will see the reaction to that. I will not be surprised when I look at demand around the world that, that will also increase, so the business might even be higher. And we are pretty sure that we will do EUR 1 billion, and I would not be surprised if it is more. When it gets to the 10% EBIT target, I think we've talked about that from a global point of view, and it was the assumptions in '23 that we will keep basically the mix of the business when it gets to D2C and wholesale the same. And with, of course, the development in certain markets that are higher than they are today, You know that the U.S. market, to get really profitable in the U.S., you need scale, and you can clearly see that our profit margin in the U.S. historically has been lower than our major competitors, and that is just because of scale. The improvement that you have seen this year already compared to last year is, of course, that we are doing a better job. The local, what should I say, development, the investment in American sports, the performance in our own stores, have improved the EBIT margin in the U.S. Having said that, there is a huge upside to that if we get more scale. So it's clearly a target for us and also our American management, of course, to grow over proportionally in the U.S. and then put some of that into the leverage when it gets to getting a higher EBIT margin. I think that's my feedback. Operator: The next question comes from Warwick Okines from BNP Paribas Exane. Alexander Richard Okines: I've got one on gross margins, one on costs, please. On gross margins, discounting was a fairly neutral dynamic in Q3. Have you reached the limits of what you can do in full price? And then secondly, on operating costs, I wonder if you could just comment a little bit more about what's happening there. Have you been taking OpEx out of overheads, and if so, have you got any examples of that, or is the cost story more about leverage and the movements in currency? Bjorn Gulden: You know, the gross margin, that has different components because when it gets to the D2C business, we have been very strong on sellout on inline products. The only place where we've been a little bit more promotional has actually been on e-com. And that is because e-com in general has been, you know, I would say aggressive on discount. And we were probably too restrictive on it last year, mainly because we didn't have enough product. And this year, we've been better in supplying product, we have decided to follow certain events more aggressive. But it's not hugely different, though, because the full price sellout has been very strong. The other discount where you don't control, of course, is what are the retailers doing. And depending on how much inventory is in the market from other competitors, and I do assume you are aware of that big competitors have a lot of inventory that the retailers have discounted, And then, of course, that hurts your full price sale because if you are at full price on EUR 100 shoe and the competitor is on 50% on EUR 200 shoe, then, of course, you will sell less. That's just the math. And we hope, of course, that the inventory level in the trade will go down so that the discounting will be slower. But again, that's outside of your control. On lifestyle products and on the new performance product, I would say that our sell-through rate has been very good. But of course, in a very heavy discounted environment, you had sometimes a slower sell-through because of the discount level in general. But that is very different from market-to-market. But sell-through on full price for us has not been the problem, and I think you see that also in our margins, so we're actually very happy with that. When it gets to the cost, I'm looking at you, Harm. Harm Ohlmeyer: Yes, Warwick, good question. There's probably three things I would like to mention. First, I mean, we have been very, very disciplined in the organization around the world because we believe in the past there was a culture of you need to have more people in order to grow the business. And now we put it the other way around. If you do more with one account, whoever the account is, it doesn't mean you need to have more people, right? And even if you, you know, develop the products, you know, I mentioned earlier, the Oasis product is more a batched up, you know, you know, soccer products and you don't need more people in order to do an Oasis range, right? So we put a lot of discipline in, you know, what are the commercial opportunities without asking, you know, for more people. So that has been very disciplined. Secondly, as we said, we have simplified how we run the company overall. We have empowered the markets. It's a new operating model. And we, of course, there were some tasks that we used to be in headquarters that are now being taken over by the markets or there have been duplications, right? And you know that we had a volunteer relief program at the beginning of the year, so that is definitely something that is contributing to that as well. But it's first and foremost simplification of our processes, avoiding duplication. And of course, if you do that, we need fewer people, and that's what you see continuously in the P&L quarter by quarter. Yes, you have a good point. FX helps as well. I mean, that brought the absolute number down in that quarter. But at the end of the day, I want to highlight again, Q3 is a very clean quarter when you look at this here, and that shows you that we can be below, you know, 30% when we have the right top line, right? So that's why I believe regardless of any comparison or path or whatsoever, we show in, you know, with a good top line, we have a clean, you know, cost as well, and that brings us below 30%, and we are not done. Operator: Next question comes from Robert Krankowski from UBS. Robert Krankowski: I've got like two questions. Just first one on the top line, second one on margins. We are almost in 2026 and given your strong confidence around the World Cup, the running category, the lack of easy now in the base, anything that you can see and or any reason why you shouldn't grow double digit in 2026? And then second one on gross margin, like again, we are looking at the gross margin close to 52%, so upper end of your guidance. And next week, we are going to see all the benefits probably of the mix with upper strong growth, as well as some of the transaction effects coming. So how should we think about the gross margin range? Is it more now 52% to 53%, for example, in 2026? Any comment would be really appreciated. Bjorn Gulden: You should be a sales guy, right? I think when you look at '26, we're not guiding it yet. It's the same thing always. We are very conservative when we look into the future because we don't want to disappoint you. We want to bring Q4 behind us. We want to see what's going on in the world. When you look at the industry and you look at what we think we have in the pipeline, I think you're right. But the external factors is; a, how is retail reacting to the uncertainty? How is the consumer reacting? And what other political tensions are getting into the way? Who knows? And the reason why I showed you the slide at the end of the presentation, where we've gone from EUR 300 million EBIT to EUR 2 billion, is, of course, that we think we have; a, taken risk in the sense that we bought enough and marketed enough to actually get there, because growing double-digit three years in a row is, of course, a risk in an environment. And secondly, in the transition to the new business model, you have to remember we changed a lot. So I think it's about, again, how confident are we that we can continue to grow in an environment that they're uncertain? And how can we make sure that we have a base in our organization and the way we work that is aligning to this growth with a new business model? And I think that's the only risk factors. I'm 100% convinced that Adidas is a brand that can stabilize over years a double-digit EBIT. And that the growth to take market shares should be double-digit in most markets, depending, again, what else is happening. And I don't think I can say something else than that because you're going to arrest me, you know, first quarter if something goes wrong, right? When it gets to the margin, is it 52% to 53% again? That, of course, depends on where we are growing then. Are we growing in the e-com side ourselves and in the D2C because, you know, we can do that? Then you're probably right. Are we growing in the markets with high margin like China? Then you're right. The growth for us in the U.S. is, of course, the one with the lowest margin. That's the way it is. So it depends, again, on the mix going forward. But in principle, when we said 50% to 52%, we did not believe that we already would be at 52% now, right? So we have achieved this margin higher or quicker than we thought, and not because of the mix but because of the success in the growth and maybe also because all the brands then didn't have the success that we had. So, again, there's many factors. And, of course, you always want us to be very accurate, but it's very difficult because there's so many variables. We are taking shares, I think, in all markets currently. We have a pipeline of products that we believe in. But of course we do not know these external factors. And of course we don't know what the competitors are doing, especially when it gets to being aggressive on discounts and pricing. So I think that's all I can give you. And I'm looking around if someone wants to add anything. Operator: Next question comes from Aneesha Sherman from Bernstein Societe. Aneesha Sherman: I have two please. The first one's about your running business. It's been growing at strong double digits all year in contrast to the slowdown that we're seeing in some other big running brands. Can you remind us how big your running business is and are you seeing any pressure on order books for 2026 given how competitive this category is becoming? And then related to that, my second question is around marketing. So marketing, you've ramped it slightly through the year. You're still guiding for that 12% level, but we've now seen some big competitors ramping up marketing, trying to gain share. Do you still think 12% is the right level given the increase in competitive intensity, or is there a possibility you might push that up a little bit higher next year? Bjorn Gulden: I don't think Harm will give me more than 12%, to be honest. And I'm not even sure if increasing it will make you more efficient. I mean, marketing is a funny thing because the number itself doesn't necessarily mean that you're better. And I think even in our 12% is not like we will look back and say all the 12% we had were invested the best way. So I think there's room within the 12% to actually do it better. My marketing people will kill me now for saying it, but I think that's the case. So we don't have any plans or needs right now to go above 12%. The beauty would be if we could find ways of actually taking the percentage down, but we also don't have any plans about that because we have said that investment level, when it gets to having the assets, you know, we invest about half of the money in actually having relationship with federations, with teams, with athletes and celebrities and the rest to activate them. And so far, I think that that's been a decent number. If that is changing, I mean, you say people are ramping up, and we don't really see that because, yes, there are some brands who are ramping up, but there's also someone who's slowing down. So when it goes to the competitiveness by actually signing things, I feel it's pretty stable. The best athletes and the hottest celebrities are always getting more expensive. But when you look at the width of it, I don't really see any big differences. The running business, your question is, again, an interesting one. And to quantify exactly how big running is depends on what shoes do you put in there. But I would say it's around EUR 2.5 billion, which, again, when you put that into the context, you will see it is a pretty big running brand. But again, we have created that mostly on the higher end of the pyramid and on the speed thing. And if you look at competitors that have been very successful, they have been much more in the everyday running and especially in the comfort running. And I think we learned from that, and that's also why this hyperboosting is so important for us because we really, really believe that there are Adidas consumers that love a brand who didn't have the products available that they would like to buy from us. And all research that we have done shows that. And we believe that the sector of comfort running, because heavy cushioning, instep comfort, and all those things are also things that people are looking for in their non-performance, what should I say, shoes, meaning in the lifestyle and comfort area. So this hyperboosting is for us very important. We might be a little bit late to the game in your eyes, but we didn't have it ready yet, and that's why we waited. And again, since we were growing anyway and running on the high-end side, we also didn't see the necessity of it. And the third thing is you have to remember we went out of running specialty, meaning that we didn't have any, what should I say, activities and relationships with running specialty because previous management thought we could go D2C on it. To build that back again, a; to hire people to be in the running communities and also to get the specialty to buy into you again, is, of course, something that takes time. And in many, many markets, we were totally out, and the share we have in running specialty in many markets are still very low. And as we're building that with more innovative products and more visibility, of course, we see huge potential in the running category. So that is the category I think that has the biggest potential in performance side to grow in. Operator: The next question comes from Piral Dadhania from RBC. Piral Dadhania: My first question is on the top line, and my second question is on share buyback potential. So sorry to have to come back to this, but could you just help us understand perhaps for the first half of 2026 whether the wholesale order books, which make up like 60% of your revenue base, is showing double-digit revenue growth? I think when you took over, Bjorn, you talked about 10% revenue growth through cycle. So is there anything, aside from obviously the external macro, which is very uncertain, but I think that's true for not just your company but your competitors, is there anything beyond that within your control that would lend itself to a different outcome for '26? And then the second question is just on the buyback potential. I think it's fair to say that the Adidas share price and equity valuation doesn't appear to be fully reflecting all the strong execution and the performance that you're delivering, including relative to peers. I think, Harm, that the initial targets when you guys all took over was to reduce the leverage to 1x net debt to EBITDA to build up a gross cash balance to close to EUR 2 billion, which it looks like you'll achieve either by the end of this year or into the first part of next year. So do we think that a good use of growing free cash flow, especially as the working capital position starts to wind down, as you suggested in your prepared remarks, may be useful in sending a positive signal to the equity markets and to start buying back your stock at a discounted valuation? Bjorn Gulden: I mean, the simple answer to your first question is no. There's no reason why we shouldn't only internal-wise get to the double-digit growth. I think that's fair. And buyback is not my area of speciality, so I give it over to Harm. Harm Ohlmeyer: Piral, thanks for acknowledging that the capital market didn't get our story in full. And that's probably true. So we actually, we look at that when you look at the share price, right? But, first and foremost, we say we want to invest into the operational business. What we have done, you have seen that in the operating working capital. Secondly, you want to be a solid dividend payer, which is always on the 30% to 50% of the net income from continued operations. And then of course, you know, I have a good, good analogy. And what I said, I was one to have EUR 2 billion of cash on the balance sheet. We either, you know, achieve the year end or with some rounding, you know, getting there in Q1. Yes, there are always some cycles from a working capital point of view. But you're absolutely right. So, but that's definitely something we will look into next year when it comes to share buyback, not this year, unless we believe we want to be opportunistic here or there, and then we want to do something short-term, right? But right now, let's get to the EUR 2 billion first and then look at that for next year. That's probably the most logical answer. But we always, you know, look at that opportunistic as well. Operator: Next question comes from Thierry Cota from Bank of America. Thierry Cota: Actually, two questions on Q4 and H2 '25. You've said your implied guidance leads to 6% to 7% organic growth rate in the fourth quarter. So what do you think would be the factors of such a slowdown versus Q3, especially when the Yeezy headwind drops to about 1%. And the second question would be on the EBIT. The EBIT guidance, the new one for '25, implies about EUR 100 million EBIT in the fourth quarter. So what do you think would be the drivers of such a decline versus Q4 '24? So you're on your decline when you remove the one-offs that you saw last year. And I would like to ask, would that be linked to the DNA, which it seems was pretty low in Q3? So is there a catch-up that we could expect in the fourth quarter and impacting negatively the EBIT? Bjorn Gulden: Well, I think as always, Q4 is this quarter where people react to different things, and we are always careful guiding for Q4. It's always the same because we are dependent on that retailers take their order book. We are dependent on what happens when it gets to discounting on the digital side. That's why I think historically you always see me guide very, very conservatively on Q4. I think that's the only reason. And, you know, there might be in the way that we are trying to improve ourselves that we will also have some one-offs that we will do in Q4. So I think it's just a conservative outlook and the need not to say anything that we actually disappoint you because that's always in the way we talk. And then I think there was a question to you, Harm, wasn't there? Harm Ohlmeyer: Yes, there's nothing specific on the depreciation that you called out, and that is not the reason for the Q4, but I want to echo what Bjorn said. I mean, when you get ready for '26, we have achieved a lot in the first nine months, and there's nothing specific we look at last year as well, or even going back in history, what our Q4 was. There's some seasonality in this one, but there's nothing specific we want to call out. So as Bjorn said, I want to make sure that we achieve what we say and then get ready for the World Cup here. Thierry Cota: Sorry, just a follow-up. The DNA again was particularly in Q3. Was there any particular reason for that? And should we expect a rebound in fourth quarter? Harm Ohlmeyer: I'm not aware of any specific reason, quite honestly. Let me come back to you then, Thierry, but I could not say there was any specific in Q3 or anything special for Q4 relative to Q3, but -- and if you look into this one, I'm not have anything specific. Operator: The next question comes from the line of Andreas Riemann from ODDO BHF. Andreas Riemann: Two topics here. One is tariffs. In the past, you stated that the market for takedown versions of tariffs would be larger than the market for original versions of Samba or Gazelle. So today, you didn't mention that. So how relevant are those takedown versions at this stage? And then what markets is the penetration of the takedown versions already quite high? This will be the first topic. And the second one on the cash flow, Harm, you mentioned the EUR 800 million or EUR 1 billion to be generated in Q4, that operating cash flow, right? That's from my side. Bjorn Gulden: Yes. I think I quoted that because normally, when you have higher end price points, the market for the takedowns is bigger, I have to tell that the sell-through of the higher end, meaning the originals, has been so high. So still, the higher end is actually bigger than the takedowns. Having said that, if you look at the family channel, of course, they have followed all these trends. So you will find takedowns of all the [ Terrex ] shoes in the market. But it is true that in this case, and it might have to do that, you know, the original classics and [ Terrex ] are, you know, between EUR 100 and EUR 120. So it's not expensive, expensive, that the higher end of the market has actually been bigger than the takedowns. That might change as we are converting more of the takedowns also into the same materials as we do upstairs. But to be honest with you, because we've been so successful upstairs, we haven't pushed the takedowns as much as I thought that we had to. So this is more of a, what should I say, coincidence in the sense that it has worked so well in the distribution upstairs, also in our D2C, that the need for doing takedowns hasn't been there. So I think this is a very unique situation, to be honest. Harm Ohlmeyer: Yes. And to the second question, we indeed talked about operating cash flow, you're right. Sebastian Steffen: Maura, we have time for 2 more questions. Operator: Next question comes from Anne-Laure Bismuth from HSBC . Anne-Laure Jamain: Yes. My first question is regarding the FX. So can you tell us or help us to quantify what would be the tailwind from FX on margin in 2026? My second question is related to tariff. Actually, regarding the tariffs in Vietnam, a final trade agreement is expected soon. So is there any industry expectation on Vietnam tariff changes for the sportswear industry? And maybe your last one regarding the performance in the U.S. So you talk about the reset in accessories. So is it a one-off impact? So does that mean that all things being equal, you can return to a double-digit growth rate in Q4 -- thank you very much -- in the U.S.? Bjorn Gulden: Well, the tariff for the U.S. hasn't changed. They came out and said they keep it at 20% and then negotiate in categories that might be exempt. But there's nothing new on that. So all products currently is at 20%. And we are not assuming any reduction because that would be dangerous. But, of course, we hope with Vietnam and other markets that shoes and apparel would be exempt. But that's not the case. And I think that came out actually yesterday for many markets, if I'm right. And then when it gets to the US, the accessory business that is not performance-oriented has been, I would say, first of all, a lot China sourcing. So, of course, that had to change. And secondly, it's been in the distribution that you're trying to upgrade. So, It's not a one-off in the sense that there is something you do from today to tomorrow, but I think there's good, good chances that that will come up again to double-digit increases. There's nothing drama in this, to be honest, and maybe we didn't explain it well, but it did hit us in Q3 for those reasons, and then there are plans actually to improve that very quickly. There is also no inventory sitting anywhere to clean up. I think people under or overestimated the impact of this. So I think accessories being global is 7% of our business, and we have said all the time that it should grow quicker over time. It's kind of the last thing in the sequence of footwear apparel that accessories come. And we grew it 1% now, and I do think that in the future when we get to '26, we should see double-digit growth there. I think that's my only answer to it. And don't read too much into this because it is not a big, big thing, to be honest. Harm? Harm Ohlmeyer: Yes, When it comes to the FX for '26, I understand you all want to have a concrete percentage or number for your spreadsheets, but I can just promise you there will be tailwind, given where we're hedged. But there's more than just the U.S. dollar. There are other currencies as well, whether it's the Japanese yen. I talked about Argentinian peso, Mexican peso, the other currencies as well. We have sizable markets, meanwhile, not just in Latin America, but around the world. But also, assume it will be tailwind when it comes to Euro, U.S. dollar. We also are fully hedged already for spring-summer '26, but there are also some open hedges. We normally hedge only 80% of our exposure, so it also depends on where the spot rate is, and we always run a simulated hedge rate if you would close it today, but of course we are waiting. It will be more tailwind if the dollar goes to $1.25, then we probably struggle on the translation again. But overall, we are going very positively from an FX point of view into '26. That's all I can say. Operator: Today's last question comes from the line of Anna Andreeva from Piper Sandler. Anna Andreeva: Happy to have made it. A follow up on North America. Great to hear about the double digit strength in footwear and apparel during the quarter. Can you talk about how lifestyle is performing versus performance in the U.S.? Is Terrace still growing in the U.S.? And what are you seeing with sell-through in Run Specialty and other wholesale partners? And then separately on gross margin, improved very nicely sequentially in the region, despite the tariffs. Maybe talk about what drove that and sustainability of that as we get into the fourth quarter. Bjorn Gulden: I think it's fair to say that the growth in the U.S. has been more lifestyle-driven than performance. I do think it's fair to say that for us to be a real sports plan in the U.S. we need to continue to invest, to get better distribution of a market share in the sports trade is very low. And you're asking about the Running Specialty. We were almost out of it. So we expect actually over the next 18 months to see a pretty high growth when it gets to Running Specialty because you're coming from a low base. And we are a hundred percent sure that the investments that we're currently doing in American sports, connecting to both college and professional sport will help us to get much better distribution with the [indiscernible] of this world and the academies and also in the specialties. So I think it's fair to say that it's obviously been lifestyle-driven so far. Anna Andreeva: Terrific. And on gross margin as a follow-up. Bjorn Gulden: Yes. As I said, I do think that the gross margin in the U.S. is, of course, dependent on that you get good distribution and that you avoid discounting. I do think also that the margin in general in the U.S. has to do with scale. There is an upside on margin in the U.S., no doubt about it. You have seen improvement, and that has, of course, to do that we have had better sell-through, and we got more of the right product into the wholesale business and we have run especially our factory outlet much better than we used to do, but that has clear an upside. So we see optimistic. Okay. If you take the tariffs out, which, of course, is then the negative side of it. But everything being equal, we should be able to build gross margin and actually our operating margin in the U.S. over time because we have not run that market optimal, to be honest with you. Sebastian Steffen: Thanks very much, Anna. Thanks very much, Maura. And of course, thanks very much to Bjorn and Harm. And thanks very much to all of you for participating in our call today. . Before concluding today's call, I would like to highlight that we will be welcoming a group of investors here at the World of Sports next week. We talked quite a bit about our excitement about our product pipeline, be it Hyperboost, be it our new Original sports line, be it the Superstar, but also the material updates within tariff. So if you're interested in experiencing that, then please let us know, and we'll be happy to host you next week as well. If you have any more questions to ask, then please feel free to reach out to Adrian, Philip, myself or any other member of the IR team. And with that, thanks very much again for your participation. We wish you a good and golden autumn season and look forward to chatting with you soon. Bye-bye.
Operator: " Kyle Kelleher: " Jugal Vijayvargiya: " Shelly Chadwick: " Philip Gibbs: " KeyBanc Capital Markets Inc., Research Division Michael Harrison: " Seaport Research Partners Dan Moore: " CJS Securities, Inc. David Silver: " Freedom Capital Markets David Storms: " Stonegate Capital Partners, Inc., Research Division Operator: Greetings, and welcome to the Materion Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Kyle Kelleher, Director, Investor Relations and Corporate FP&A. Sir, the floor is yours. Kyle Kelleher: Good morning, and thank you for joining us on our third quarter 2025 earnings conference call. This is Kyle Kelleher, Director, Investor Relations and Corporate FP&A. Before we begin our remarks this morning, I would like to point out that we have posted materials on the company's website that we will reference as part of today's review of the quarterly results. You can also access the materials through the download feature under earnings call webcast link. With me today are Jugal Vijayvargiya, President and Chief Executive Officer, and Shelly Chadwick, Vice President and Chief Financial Officer. Our format for today's conference call is as follows: Jugal will provide opening comments on the quarter. Following Jugal, Shelly will review the detailed financial results for the quarter in addition to discussing expectations for the remainder of 2025. We will then open up the call for questions. Let me remind investors that any forward-looking statements made in the presentation, including those in the outlook section and during the question-and-answer portion, are based on current expectations. The company's actual performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. Those factors are listed in the earnings press release we issued this morning. Additionally, comments regarding earnings before interest, taxes, depreciation, depletion, and amortization, net income, and earnings per share reflect the adjusted GAAP numbers shown in Attachments 4 through 8 in this morning's press release. The adjustments are made in the prior year period for comparative purposes and remove special items, noncash charges, and certain discrete income tax adjustments. And now I'll turn over the call to Jugal for his comments. Jugal Vijayvargiya: Thanks, Kyle, and good morning, everyone. I'm pleased to be with you today to discuss our third quarter results and to provide an update on what we are seeing across our businesses and end markets. We achieved a couple of very important milestones in the quarter, including all-time high EBITDA margins of 27% in Electronic Materials. This reflects the power of our improved cost structure, strong operational performance, and new business initiatives as the semiconductor market continues to recover. In addition, the transformation of Precision Optics is tracking ahead of our expectations, and we saw a return to double-digit EBITDA margins with a significantly better cost structure and a nice step-up in sales. At the company level, our sales were up roughly 1%, with a strong Electronic Materials and Precision Optics results partially muted by some equipment downtime challenges that limited shipments in Performance Materials. These challenges are being addressed, and we anticipate more normalized production levels as we finish out the year. Despite the shortfall in Performance Materials, we delivered 21% EBITDA margins for only the second time in our company's history. Our team is making great progress towards our new midterm target margins of 23%. In addition to our strong financial performance in the quarter, we are also pleased with the step-up we're seeing in incoming order rates across the company. Overall, our order rates are up more than 10% sequentially, and with the key markets of semiconductor, defense, space, and energy up 20% year-to-date. These markets are seeing strong secular demand growth, and we are developing products and partnerships to supply the materials that are critical to their performance. Semiconductor has long been a leading market for us, where we have made strategic organic and inorganic investments to develop the right footprint and material set. We are starting to see a cyclical recovery taking shape, led by the proliferation of AI. Excluding China, our semi business is up 7% year-to-date, with sales into high-performance memory applications increasing more than 30%. In our ALD portfolio, we have developed molybdenum-based products that are in high demand given their performance in smaller node chips. We are seeing significant interest in this product set and are working with new and existing customers as our production ramps. Energy demands are increasing at a rapid pace, and this trend is closely related to the proliferation of AI. The number of data centers is expected to double in the next five years, with each center's energy usage also doubling. Combined with other drivers of energy usage, it is fair to say that energy is going to continue to be a great market for Materion. We continue to have a strong position in traditional energy, and we have exciting opportunities to grow with new energy that will bring about the higher volumes of energy required to supply tomorrow's demand. In the past year, there has been a step-up in the market's interest in nuclear solutions. Small modular reactors enable regional energy independence and efficient nuclear space propulsion as well as remote battlefield autonomy for defense applications. We work with a number of customers on these types of applications and expect to see continued growth. We are also partnering with companies that are aggressively developing breakthrough technologies to expand the total energy supply. Our partnership with Kairos Power to supply materials to produce FLiBe, a molten salt coolant critical to the performance of safe vision reactors, is progressing well. Additionally, we announced an exciting new supply agreement with Commonwealth Fusion Systems, the leading and largest commercial fusion energy company, to provide beryllium fluoride for their breakthrough fusion energy technology to be used in their ARC power plants. We will begin shipping product this year. Defense is another important area for our company, and our materials play a critical role in national security for the U.S. and its allies. The current U.S. administration has put a pronounced focus on defense spending and has outlined its priorities, including the Golden Dome, space, maritime, and nuclear microreactors for portable energy use. In addition, as geopolitical tensions persist, the U.S. is looking to replenish and expand its stockpiles and as a result, has increased budgetary spending to almost $1 trillion for next year. Outside the U.S., many allied countries are also increasing their defense budgets and have committed to certain spending in the U.S. as part of trade agreements. As a result, we are seeing record defense bookings this year, up roughly 40%, and we're currently working a total of about $150 million of RFQs that should result in meaningful new orders. The commercial space sector represents exciting opportunities for Materion as this market is influenced by a number of the macro trends impacting our other markets, including AI, connectivity and defense technologies. The number of satellite launches has increased exponentially with more than 260 launches last year. We have secured meaningful wins with space proposal applications and are winning new applications as well. We have a number of products being introduced at our large space customer, and we have relationships with the smaller players looking to grow in this market. Our sales in the space market have increased fivefold in just 3 years, and we see strong opportunities as we move forward. As we look to the balance of 2025, we expect to finish the year on a positive note, driven by our strong order book and improved operational performance. I would like to thank our global team for their relentless focus on satisfying our customers' needs and driving our company forward. Now let me turn the call over to Shelly to provide more details on the financials. Shelly Chadwick: Thanks, Jugal, and good morning, everyone. During my comments, I will reference the slides posted on our website this morning, starting on Slide 10. In the third quarter, value-added sales, which exclude the impact of pass-through precious metal costs, were $263.9 million, up 1% organically from prior year. Electronic Materials experienced 7% organic growth, led by strength in semiconductor and Precision Optics was up 21% with new business wins. This growth was partially offset by lower volume in Performance Materials, where we experienced some temporary equipment downtime at our largest facility, limiting sales by roughly $10 million in the quarter. When looking at earnings per share, we delivered quarterly adjusted earnings of $1.41, flat with prior year and up 3% sequentially. Moving to Slide 11. Adjusted EBITDA was $55.5 million, down 2% year-over-year. This decrease was driven primarily by lower volume related to the equipment downtime within Performance Materials, partially offset by higher volume and favorable price/mix in Electronic Materials, along with the improved performance in Precision Optics. Despite the muted shipments in PM, we achieved 21% EBITDA margins for the second time in the company's history, demonstrating good progress towards our new midterm target of 23%. Moving to Slide 12. Let me review third quarter performance by business segment. Starting with Performance Materials, value-added sales were $157.1 million in the quarter, down 4% year-over-year. This decrease was driven primarily by equipment downtime and shipment timing in Defense and Energy, partially offset by higher hydroxide shipments and growth in space. Adjusted EBITDA was $38 million or 24.2% of value-added sales, down 18% compared to the prior year. This decrease was driven primarily by lower volume and operational performance, partially offset by cost management. Looking out to the fourth quarter, we expect to see significant top line improvement with more normalized production volumes. We also expect strong sales into Defense and Energy as a result of both market seasonality and new business initiatives. With the higher volume and improved operational performance, we expect to see significant bottom line improvement from the third quarter results. Next, turning to Electronic Materials on Slide 13. Value-added sales were $79.7 million, up 2% from the prior year and up 7% organically. This increase was driven mainly by non-China semiconductor sales as power and data storage device demand continues to improve. EBITDA, excluding special items, was $21.6 million or a record 27.1% of value-added sales in the quarter, up 38% from the prior year with 700 basis points of margin expansion. This record margin and year-over-year increase was driven by higher volume, strong price/mix, improved operational performance and some favorable onetime operating-related items. As we look out to the fourth quarter, we expect top line improvement driven by the continued upturn in the semiconductor market as this market continues to recover and benefit from favorable macro trends led by AI and global connectivity. Turning to the Precision Optics segment on Slide 14. Value-added sales were $27.1 million, up 21% compared to the prior year and up 11% sequentially. This year-over-year increase was driven largely by new business wins, primarily in aerospace and defense. EBITDA, excluding special items, was $3.2 million or 11.8% of value-added sales in the quarter with almost 1,000 basis points of year-over-year margin expansion. The increase was driven by higher volume, favorable price/mix and the impact of the structural cost changes. This quarter marks the third consecutive quarter of improved bottom line results and a return to double-digit EBITDA margins. We expect this trend will continue as new business initiatives advance, and the transformation continues to unfold. Moving now to cash debt and liquidity on Slide 15. We ended the quarter with a net debt position of approximately $441 million and approximately $214 million of available capacity on the company's existing credit facility, with leverage slightly below the midpoint of our target range at 2x. While no share buyback activity occurred during the quarter, I'm pleased to share that the Board of Directors authorized a new $50 million stock repurchase program during the quarter. While organic initiatives remain our top capital allocation priority, it is important we have this tool available to us. As we look out to the remainder of the year, we remain on track to deliver free cash flow of roughly 70% of adjusted net income with strong cash generation year-to-date and fourth quarter cash initiatives on track. Lastly, let me transition to Slide 16 and address the full year 2025. With our strong performance year-to-date, increasing order rates and new business initiatives on track, we remain confident in our ability to deliver $5.30 to $5.70 per share and are affirming our prior full year guide. This concludes our prepared remarks. We will now open the line for questions. Operator: [Operator Instructions] Our first question is coming from Phil Gibbs with KeyBanc. Philip Gibbs: So with regard to the full year outlook, you've maintained the range. But just curious in terms of now having better visibility with a couple of months left and you've got 10 months effectively behind you. Maybe give us some flavor why you didn't narrow the range? It's pretty wide for the implied fourth quarter results. So just trying to hone in on that a little bit better. Shelly Chadwick: Yes, I'll start, Phil. Thanks for the question. So we're looking forward to a strong Q4. As you know, we always have kind of a nice end to the year with the strong defense orders, and we believe we're on track for that. When we think about why we didn't narrow the range, there's still some uncertainty for us around China. Hopefully, we will see that settle down in the coming days and weeks. But right now, that's not certain. And with the government shutdown, that could impact the timing of some of the orders that we're waiting on. And so when we thought about that, we said, why don't we leave the range where it is, but we are on track for the midpoint. Philip Gibbs: And then in terms of the new arrangement with Commonwealth, any thoughts you could provide us in terms of what that could mean you all financially and when some of these shipments step up more materially? Jugal Vijayvargiya: Yes. Phil, I mean, we're very, very excited to have this agreement. As you know, a number of years ago, I think it was in 2020, we had signed an agreement with Kairos Power as they were working on new energy initiatives. Now we are excited to announce this agreement with Commonwealth Fusion. We've been working with them actually for a number of years, but we were able to get that into -- an agreement here in the last couple of months. We are going to be supplying material to them starting this quarter in Q4 and then into next year. We expect it to be a few million this year, and then I would say more of an annualized run rate next year. So this is very exciting for us because now we've got Kairos Power on the vision side, CFS on the Fusion side. So we've got sort of both sides covered. And I think they're clearly the two leading companies in the world on this new energy initiatives. Shelly Chadwick: Yes, I think you also hit on what can we expect to see from that Phil. And as Jugal mentioned, we will start shipping on that this year, expect to say maybe a few million to contribute in Q4. And then as we look to next year, you can think about that sort of annualizing. So good sized impact on the next couple of years. As you can read in their release, they're still in development phases. So that could be a very large step-up as you get into kind of 2030 time frame. But right now, it's a nice win for us, and we look forward to working with them. Philip Gibbs: And then just one more follow-up, if I could. The onetime items that helped margins in EM in the quarter in terms of the timing, maybe just highlight the size of that impact so we can have a better bridge to what maybe more normalized margins there are. Shelly Chadwick: Sure. Sure, Phil. So we were really pleased with the EM performance in the quarter, and it was a strong mix. The volume was good. The cost structure is really contributing in terms of being where we wanted it to be. But yes, we did get a little bit of a bump up from some onetime items that are all operating related. So in our precious metals process, we refined some of the leftover material. And some of that we send out, some of it we do in-house. When we got that material back, it had a higher concentration of precious metals than we were estimating. And so there was a pickup, call it, $1 million or so around that number that we got to record in Q3 that helped, but really should be in our year-to-date results anyway. Jugal Vijayvargiya: Yes. But I think, Phil, just to add, I think, to what Shelly was talking about, I mean, this business has improved significantly throughout the year with all the improvements that it's driven in the cost structure over the last 18, 24 months. As you know, then [suddenly] market was down. So now for the last 2 quarters, it's been 20-plus percent EBITDA margins, so I mean, almost 24% in Q2 and now 27% in Q3 from the historical 20% or less margins that it used to deliver. So a really, really nice step-up for this business. And clearly, we have high expectations of this business as we go forward. Operator: Our next question is coming from Mike Harrison with Seaport Research Partners. Michael Harrison: I was hoping we could address a handful of questions I had around the equipment downtime that you mentioned in the Performance Materials segment. Can you give us a little bit of additional detail on the nature of the outage or what kind of product line it was affecting? And is the outage or downtime resolved now? Or if not, when do you expect to resolve it? Jugal Vijayvargiya: Yes. Mike, we had a couple of pieces of equipment in our largest plant where we process both beryllium and non-beryllium materials. The equipment downtime issues that we had are mainly resolved. We're back up and running. And so we expect to be able to catch up a majority of the sales into Q4 and perhaps a little bit into Q1. But for the most part, we're going to be able to do that here in the Q4 time frame. As you know, we've got a fully vertically integrated value chain all the way from the mine into the finished material. So any type of a hiccup that we have on 1 or 2 pieces of equipment ends up resulting in a fairly impactful delivery issue. And it was around $10 million in Q3. I mean, at a company level, it's about 4 points of growth. I mean, you can look at it that way, that I think that impacted. We are -- to your point, we are back up and running on both as we got that addressed. And like I said, we expect to be able to make up the sales mostly in Q4 and perhaps some in Q1. But it's something that the teams have been able to resolve. Michael Harrison: All right. And just to follow up on that. It seems like maybe this disruption was not as impactful as what you guys had happened in the first quarter of 2024. But this is the second time in a couple of years that you've had a disruption or an unplanned outage in your Performance Materials segment. So I'm curious, is this just part of doing business in kind of a mining and conversion type of market that you guys serve? Or are there actions that you think you can take that might help you improve operational reliability? Jugal Vijayvargiya: Yes. So, to your point, it is a lesser of an impact than the first quarter of '24. Like I mentioned, when we're vertically integrated, smaller equipment issues that we have end up impacting kind of our overall production schedule. So it is something that, because we're fully vertically integrated, I think it tends to impact this business maybe a little bit more than some of the other businesses that we have. At the same time, I can tell you that we are very, very focused on making sure that we're making the type of improvements that we can on the equipment. Some of the equipment is legacy equipment, so that we can minimize these or even eliminate them as we go forward. So it is a focus area for us, both on finding the right type of capital improvements that we can drive into the business, along with just general maintenance and upkeep of the equipment. But it does tend to be a little bit more in this business than clearly our EM business or our optics business. Michael Harrison: All right. Very helpful. And then I was hoping to also ask kind of a broader question about 2026 outlook. I know it's a little bit early, but when you talk about the order books that you have and some of the backlog in your key growth markets, presumably, we see some improvement in semiconductor, presumably, we see some improvement from the Precision Clad strip customer. And obviously, you've taken a lot of cost actions. It seems like there is really good earnings momentum into next year. And I was hoping you could just give us maybe some initial thoughts on how we should think about the top-line and bottom-line growth in 2026. Jugal Vijayvargiya: Mike, maybe I'll start a little bit, and then Shelly can jump in and talk more as well. We are very excited about some of the key markets, the high-growth markets that we're engaged in, and the portfolio that we have. We've included a slide this time that talks about our activities in semiconductor and energy and defense, and space, and how order rates for those key growth markets are up approximately 20% on a year-to-date basis. We've got the right type of portfolio across those four areas -- of portfolio that goes across all 3 of our businesses. We talked about the Commonwealth Fusion announcement, for example, that goes across energy. We've got over $150 million of open RFQs that we're engaged in on the defense side. You'll recall in the last earnings call, we mentioned it was $100 million. So that's actually increased from $100 million. And by the way, some of that we closed, new RFQs got added in. And now on top of that, we have another $50 million of RFQs that we've added. So we have more than $150 million of open RFQs in defense and so on and so on. So we're very excited about those high-growth markets, I think, as we enter into '26 and into '27, and we look at the sort of the midterm outlook in those areas. We certainly have challenges that we need to be addressing. China, as a market for us, is a challenge. We've highlighted that, I think, in the last couple of calls that we have. Our sales into China are down on a year-over-year basis, just based on all the geopolitical issues that are going on. We expect to continue to see pressure on our China business. But what our goal is, is to offset those pressures with these high-growth markets that we're focused on in the U.S. and the rest of the world. So I think in total, our business is moving forward. We've demonstrated that, I think, throughout this year. Our expectation is to move it forward again in Q4 and then continue to do that over the next 2, 3 years with the portfolio set that we put in place. So in general, I mean, I'm not going to address '26, of course, in particular, just because there will be a time when we do address '26. But I think when we look at the overall midterm time frame, we're very excited about where the business is. You mentioned Philip Morris. We're actively engaged with them on understanding what's going to happen next year. And as we get a better understanding of that this quarter, we'll be able to model that into our '26 and go forward. We are, of course, monitoring with them what the FDA approval is. So far, they have not announced the FDA approval. So we don't know if they have received it or have not received it yet, and we'll obviously have to wait and see what they say about that. But certainly, the later that goes, of course, it would impact the sales into '26 and perhaps push those out into '27. Of course, the sooner they're able to get that, then that could have a potential sales uptick in '26. So we'll have to see kind of where that -- the Philip Morris business settles out at. But I think in total, when you put everything together, we've got a lot of upside opportunities that can help address some of the challenges that we have, whether it's China or some other areas that are going on. So, I think we've got good momentum in the business this year that we've demonstrated, and I expect that momentum to continue into '26, '27 and into our midterm outlook of 23% EBITDA margins. Operator: Our next question is coming from Daniel Moore with CJS Securities. Dan Moore: Start with similar to Phil's question, but on Precision Optics. You're back to double-digit adjusted EBITDA margins, a big jump year-on-year. Can you just give a little more granularity on cost and operating improvements that have been made? And are double-digit margins sustainable as we look to '26 and beyond? Jugal Vijayvargiya: Yes. We are very pleased, I think, with the progress that, that team has made in a very short time. I would say our results are tracking sort of ahead of the expectations and sort of the time line that we had established for ourselves. So very pleased with that. We're seeing a good uptick in a number of different markets, the more traditional markets that this business operates in, such as aerospace and defense and industrial, life sciences, et cetera. But also, we've entered and are making a bigger progress, I think, in some markets that perhaps we weren't focused on in the past, such as semiconductor. We've made inroads into that market. And so, I think from a top line standpoint, we're making good progress. We've made really good progress from the cost structure side with a number of different actions that we've taken over the last 12 months. And I would say, still are looking at actions that we can be taking here in Q4 and into next year. We've made sequential progress this year, all 3 quarters. Our goal is to continue to make sequential progress in this business. So having double-digit EBITDA margin is a good start. And I think it's tracking ahead of expectations, but that is not where we just need this business to be. We need this business to contribute to our 23% midterm EBITDA margin target. And so, we're going to continue to focus on that, Dan, and continue to push forward. Dan Moore: Very helpful. Following up on Mike's question, obviously, great detail on the areas, semi, defense, others where you're seeing nice pickup in orders, nice strength, little uncertainty in China. Are there any pockets where you could see maybe detractors in terms of year-on-year growth being negative in terms of difficult comps or pieces of the business? Just trying to kind of conceptualize a lot of the arrows pointing toward anything that could be a drag on that growth as opposed to more neutral as we think about next year? Jugal Vijayvargiya: Yes. Well, I think the auto market, we've talked about this, I think, in the last call as well, right, continues to be a very challenging market for us. In general, I think it's a challenging market. I mean the EV rollout has slowed down quite a bit. I think the growth in China OEMs has been substantial. The Western OEMs have had a very challenging environment in the last 1 or 2 years. So, we continue to look at the auto market as perhaps a bit more challenging market for us as we move forward and a bit more opportunistic, I would say, as we put a lot more focus on these key high-growth markets. So, our portfolio adjustments are real time and our customer adjustments are real time. And so, we're going to do everything we can to make sure that we're capturing these high-growth markets. And in some cases, if we have to go and be a bit more opportunistic in other markets, then we'll do that accordingly. Dan Moore: Helpful. Appreciate the color on the Commonwealth acquisition. Just going back to Konasol, just talk a little bit about what you're seeing since it's been a few months since you closed that acquisition. And just remind us kind of the timeline in terms of what the incremental contribution could like either '26 or over the next 2 to 3 years? Jugal Vijayvargiya: Yes. No, that's been a very good pickup for us. Our teams have fully gotten involved, integrated the business into our Materion family. We are working with our customers and being able to talk to them about the capability that we bring forward. We have a number of different qualifications that we are involved in with the customers. Our expectation is to go through those qualifications here the rest of this year and into '26 with the objective of being able to start to see some sales in '26 and then into '27 and beyond. So we are, I would say, on track and in some cases, perhaps even a little bit ahead of track on that acquisition. Dan Moore: And then lastly would be just in terms of capital allocation, nice to see the authorization. Just how do we think about where buybacks potentially could fall in terms of rank ordering priorities? Growth has always been a key priority. Balance sheet is down to 2x and generating strong cash. So, you've got flexibility. But just help us think about how you're kind of rank ordering that as we look out to '26 and beyond? Shelly Chadwick: Yes. Thanks. I'll take that one. So, I think our priorities remain the same. We've been very focused on growth and organic growth. We continue to be very focused on organic growth. The areas that Jugal highlighted will continue to need some investment and provide, as you know, very, very good returns. When we think about the share buyback, it is a very opportunistic tool for us. We had not done share buyback in a number of years. But when we kind of looked at where the stock was in Q2, it was the right time to go ahead and buy a little bit back, and that proved to be a worthy use of our capital at that time. And we had run the current authorization down to a very small amount. So, it was just the right time to re-up with our Board of Directors. So, we have that tool in our tool belt, but it is not one that we are actively pursuing. Operator: Our next question is coming from David Silver with Freedom Capital Markets. David Silver: So I have a scatter of questions. I'll just warn you. But first, I'd like to hone in a little bit on your comment about sequential order growth of double digits or better, I believe, in all 3 of your segments. And I was just wondering from your perspective or would you characterize this sequential -- kind of across-the-board sequential growth. Would this be reflective of maybe some, I don't know, some deferred activity on the part of your customers, maybe over the last quarter or two in response to the tariff issues and some other things. Or would you characterize the bulk of the new orders as reflective of kind of pure organic growth? I mean, how do you think about the kind of broad-based trend of significant sequential pickup in your order book? Jugal Vijayvargiya: Yes. I think I would look at this as primarily, I think, good organic growth that our teams are driving, new business activities that our teams are driving as well as, I think, the overall market growth and market trends that are there. Certainly, there could be some, David, as you mentioned, of some orders that perhaps have been held back and that got released. But in general, we see continued uptick and improvement in our order rates in most of our markets, and in particularly in the high-growth markets that we've indicated. David Silver: Next question would be kind of your take on tariff impacts on your financial results. So if I recall correctly, I mean, you highlighted maybe a $0.10 to $0.15 per share negative impact in the second quarter and then up to $0.50 or more for the back half of the year. And I know that, that initial forecast has been tempered a bit, but we're kind of 6 months into it now. How do you assess the overall effect on your financial results or operations, however you look at it of the of the tariff issues to date? I mean, how much of that has flown through what might be remaining, what that might not be offset by price or other actions? And what should we think about, maybe heading into 2026 on a year-over-year basis? Shelly Chadwick: Yes, David, as you know, what we've been talking about the most has really been the impact to our China business. And so we think about that more commercially, and what is that doing both with customers reserving orders, but also maybe looking for suppliers that are outside the U.S., right? There's a bit of sort of a tone that, hey, we would rather have suppliers that are outside the U.S., given the volatility and the tone of how things are going in negotiations there. So right now, when we look at our China business, it's down about 20% year-on-year, year-to-date, and that's meaningful to us. The other side of that, of course, would be raw materials that we are incurring on material being brought in. That's a smaller number, call it, $3 million, $2 million, $3 million in that range. Some of that we're able to bill out through price. Others takes a little bit of time to settle in with customers and work through contracts. But the part that gets most of our attention is China and how that will shake out if some agreements are reached. David Silver: I would like to ask a question about the margin progression, in particular in Electronic Materials. So 27% is -- the high—not only is it, well, whatever -- it's the highest I have in my model going back as many years as it does. And I know that in general, Electronic Materials can often be a very high incremental margin business on incremental sales. But I don't know, I'm not thinking that, that's the case at least just yet. So, whether it's product mix or cost savings or whatever, but what went into this record margin performance this particular quarter? And should I assume that it can continue to go higher, maybe as sales growth continues to progress? Jugal Vijayvargiya: Yes. Maybe I can start on this, and then Shelly can jump in as needed. This business, as you know, has gone through a downturn for the whole semiconductor market over the last couple of years. The recovery has now started, particularly in the data center business, the high-performance computing memory business, high-performance logic business, et cetera, those have been recovering at a very good rate, and some of the other areas are starting to now catch up. We took the time over the last year, 1.5 years, 2 years to really make the adjustments to our cost structure and to the business so that as the recovery happens, we can make sure that the margins are improving. We've talked about making those adjustments. I think when the volumes were at a peak level, it was hard to get some of those adjustments done. But now, having done those adjustments, I think, has allowed us to deliver the type of margins that we're delivering. In addition to that, of course, our mix is much stronger than the mix that we've had in the past. Certainly, the power segment and the data storage segment gives us a lot more of what we call precious metals mix business, which is a great business for us. The fact that the China business is a little bit lower, I mean, certainly, those margins were not as good as some of the other businesses that we have. So, the mix is certainly a helpful item. But in total, I think we've really made the right type of changes for this business so that it can be a much stronger business going forward. If you take the 27% that we have here in the quarter that we delivered, I mean, even if you adjust for the sort of that $1 million or so that Shelly talked about earlier, I mean, you're looking at about a 25% type of EBITDA margin compared to the 24% EBITDA margins that this business delivered in Q2. So we think that it's the right type of margin profile. Our goal is going to continue to be able to deliver those types of margins as we move forward and to contribute positively to our midterm target of 23%. I believe we're well-positioned to deliver these good margins. David Silver: And then maybe just the last one, but you did mention your efforts in molybdenum very much kind of a leading-edge material for thin films and whatnot. I was just thinking, and I don't recall exactly your wording, so I apologize. But is this the type of product where maybe you've developed it in close collaboration with a single customer, and therefore, maybe that customer might have an exclusive access to your technology? Or is it more something that Materion has developed on their own or proprietary basis, and therefore, it could be ultimately available to a large number of your semiconductor-based customers. Just – if qualitatively, if you could just discuss the nature of that development, and I guess, by extension, the marketing potential down the road? Jugal Vijayvargiya: Yes. So in some cases, you're right. I mean, we develop our products with collaboration with the customer and perhaps have some sort of a arrangement with the customer. I think in this particular case, ALD in general is a product set that we started working on 7, 8 years ago. We started to do organic development of that. We have a number of different materials that we have developed in this area. Molybdenum is one of those materials. We've done that with our investments and, of course, in working with a number of different customers. So we are selling this product to our customers. We will be marketing it more so as we continue to go forward. We think this is an exciting, exciting product set as we move forward, as it replaces some of the tungsten use that's in the semiconductor market. So we're well-positioned, I think, to take advantage of this across a number of different customers and as we continue to get the pull and as we continue to, of course, push. Operator: Our next question is coming from Steve Storms with Stonegate. David Storms: Just want to start by maybe getting a little more commentary around the timing impacts on defense. With the quarter closing on 9/30, were any of these timing issues related to the government shutdown? And one way or another, how much more impact could we see here from the government shutdown? Jugal Vijayvargiya: Yes. So in our case, for the third quarter, we didn't have any, I would say, government shutdown related impacts for defense in the third quarter, but we certainly could have impacts of that here in the fourth quarter. We do have a number of contracts that we're working on with the government. We have a process where we actually work on projects well in advance of actually receiving the contracts. That's a normal process that we have in our defense market. And then, as we receive the contract, we make the shipment or we do some sort of recognition. In this case, we are waiting on a few of those agreements. And we will have to see how those things play out over the next couple of months. But no impact in Q3, could have impact in Q4. Again, from our operational side, we're fully ready. It's just a matter of being able to get those contracts and closing them out. David Storms: That's very helpful. Turning, maybe, to the impact of China. I know this may be hard to estimate, especially without a deal being reached. It was mentioned earlier that China may be impacted by 20% or so. Is there any sense of how much of that would be recoverable, given some resolution here that removes some of the uncertainty? Jugal Vijayvargiya: Yes. And like you said, I mean, it's hard to know, right, what the customers are thinking for the out years, '26, '27, midterm time frame. But I think in general, I mean, what we are hearing and seeing from our customers is that they want to make sure that they're able to purchase from locations where they have more reliability or more stability. And so if there are some temporary measures that are reached, I mean, we don't know if it's going to be permanent, temporary, some sort of pause. It's hard to know, right? And hard to know what the customers are going to do as a result of that. But I think in general, I would say our business in China has seen pressure this year. And we are planning as if the pressures will continue as customers look for ways to purchase outside of the U.S. Now we are actively involved in a number of ways that we can actually be that supplier, though outside the U.S. We announced this Konasol acquisition last quarter. And so we're looking at any and all ways that we can continue to supply these materials, just do it from outside the U.S. if that's what's necessary. David Storms: Understood. That's great commentary. One more for me, if I could. I would just love to hear your thoughts on maybe the volume of opportunities in the energy sector, similar to the Commonwealth agreement. Is this an opportunistic one-off that we'll continue to see once every couple of years? Or do you expect to see more opportunities like this come into the market? Jugal Vijayvargiya: Well, like we've indicated, we've got the agreement with Kairos Power. We've had that for a while. And now we have announced the agreement with CFS. We are working with a number of different partners in all types of new energy areas. So certainly, if there is additional announcements or additional agreements that we reach, we will certainly talk about that. But we're very excited about having agreements on both vision and fusion for new energy applications. Operator: Our next question is coming from Phil Gibbs with KeyBanc Capital. Philip Gibbs: You had mentioned in your prepared remarks about the government potentially looking to stockpile certain resources. Do you think beryllium will be one of those materials? I'm just trying to think of whether or not you expect any pickup in that dynamic. I know that's something that tends to happen to the company from my experience, maybe once a decade, but I know it does happen from certain cycle to certain cycle. So curious to hear your thoughts on that. Jugal Vijayvargiya: Well, I think when we look at the overall defense market with the U.S. defense spending approaching $1 trillion for next year, the NATO countries increasing their spending to 5% of their GDP by the end of the decade, and then Japan and Korea increasing on an annual basis. I think that drives, I would say, an increased usage of beryllium. I mean many of the defense applications are beryllium-based applications. And so we are actively involved in a number of discussions with various groups on making sure that we have the right level of beryllium and we can produce that and be able to provide that to them. Now, whether that's done in some sort of a stockpile form or whether that's done in actual materials that are used in various applications, like we indicated the different things that I think the defense department is involved in, we're prepared and ready to do that. So we do have a lot of active discussions, I would say, underway with different entities about how to support in the right way, all the defense needs, which, of course, a big part of that is beryllium-based materials. Operator: As we have no further questions on the lines at this time, I'd like to turn the call back over to Mr. Kelleher for any closing remarks. Kyle Kelleher: Thank you. This concludes our third quarter 2025 earnings call. Recorded playback of this call will be available on the company's website, materion.com. I'd like to thank you for participating in this call and for your interest in Materion. I will be available for any follow-up questions. My number is (216) 383-4931. Thank you again. Operator: Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Airbus' Nine-Months 2025 Earnings Release Conference Call. I am Sharon, the operator for this conference. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to your host, Guillaume Faury, Thomas Toepfer and Helene Le Gorgeu. Please go ahead. Helene Le Gorgeu: Thank you, Sharon, and good evening, ladies and gentlemen. This is the Airbus' Nine-Months 2025 Earnings Release Conference Call. Guillaume Faury, our CEO; and Thomas Toepfer, our CFO, will be presenting our results and answering your questions. This call is planned to last around an hour. This includes Q&A, which we will conduct after the presentation. This call is also webcast. It can be accessed via our home page by clicking on the dedicated banner. Playback of this call will be accessible on our website, but there is no dedicated phone replay service. The supporting information package was published on our website earlier today. It includes the slides, which we will now take you through as well as the financial statements. Throughout this call, we will be making forward-looking statements. I invite you to refer to our safe harbor statement that appears in the presentation slides, which applies to this call as well. Please read it carefully. And now over to you, Guillaume. Guillaume Faury: Thank you, Helene, and hello, ladies and gentlemen. Thank you for joining us today for our nine-month 2025 results call. We are here in Amsterdam with Thomas to run you through our results. Our operating environment remains complex and dynamic. Navigating strong demand combined with the specific supply chain tensions, and that have not changed, still requires continuous operational discipline and agility, in particular, in the environment of changing trade policies. We welcome the U.S.-EU trade agreement, which restores a stable and tariff-free environment for trade in aircraft and parts since the start of September. This is a crucial step that allows our global industry to move forward with the predictability it needs to invest and innovate. Yet the still unstable geopolitical situation remains an area of continuous vigilance. In that context, we are rolling out our plan to reach the A320 family production target of rate 75 per month by establishing 10 A321 capable final assembly lines across four global sites. The recent addition of a second line in the United States and the second line in China marks a critical milestone in our global industrial growth strategy, but also enhances our overall business resilience. We are scaling up our operations and expanding capacity as we move forward with the commercial aircraft ramp-up. We're also committed to contributing to European defense and remain focused on delivering more competitive and innovative products and services with our two divisions, and we see a growing momentum. When it comes to European strategic autonomy, we have made significant progress towards the consolidation of our space activities together with Leonardo and Thales aiming at establishing a leading European company, and I will come to this in a minute. In Q3, we delivered 201 commercial aircraft. And as the engine situation is showing signs of recovery, the number of gliders is now at 32 as of the end of September. This brings our year-to-date deliveries to 507 aircraft as compared to 497 last year. Deliveries continue to be back-end loaded as we navigate the engine situation. We have a strong year-end rally ahead of us, and our teams are in the sprint. Our EBIT adjusted stood at EUR 4.1 billion as of nine months 2025. This reflects the commercial aircraft deliveries and the solid performance at both Airbus Defense and Space and Airbus Helicopters. Our free cash flow before customer financing was minus EUR 0.9 billion. It notably reflects the inventory buildup that supports the Q4 deliveries and the ramp-up. On that basis, we maintain our 2025 guidance, which now includes the impact of currently applicable tariffs, and we'll come back to this later. Moving to space. We've made a major strategic step forward. We are very pleased with the recent announcement of signing a memorandum of understanding an MOU with Leonardo and Thales to form a new European space player in 2027. If you recall last year, I was clear we needed to focus on fixing our foundations and restore profitability. The turnaround plan is in full motion, and we are pleased with the first results. In parallel, we've been working on strategic options to create scale and increase competitiveness facing global players. The new company aims to unite and enhance capabilities in space by combining the three respective activities in satellite and space systems manufacturing and space services. The MOU is a collective industry commitment to strengthen the European space sector. The next steps include launching the social consultation process with our social partners, preparing to carve out the space businesses and addressing regulatory needs. We have a busy journey ahead, and we are fully committed to this major and exciting project. Let's now look at our commercial environment, starting with commercial aircraft. Passenger traffic continued its growth momentum, while air cargo demand remained resilient. During the nine months '25, we booked 610 gross orders, including 116 in Q3. On the A220, we booked 40 gross orders. And looking at the A320 family, we booked 371 gross orders. This brings our backlog to 7,105, out of which around 75% are for the A321. And the 7,105 is just for the A320 family, of course. Moving to the wide-bodies. On the A330, we booked 90 gross orders, confirming the high demand for this versatile product. Finally, on the A350, we booked 109 gross orders, underpinning the continued commercial momentum of what has become the reference in the market. Net orders amounted to 514 aircraft, including 96 cancellations, which were largely anticipated and already embedded in our backlog valuation as of December 2024. Our backlog, total backlog in units stood at 8,665 aircraft at the end of September. Looking at Helicopters. In the nine months '25, we booked 306 net orders compared to 308 in the nine months '24, so very similar, and this is well spread across the portfolio. We continue to see positive momentum, in particular on the military market, and we remain focused on securing new business opportunities in both our home countries and export markets. A new Airbus final assembly line will be established in India to build H125 helicopters in collaboration with Tata Advanced Systems, aiming at capturing the full potential of the civil, parapublic and military markets in South Asia. Let me conclude by highlighting that we have streamlined our small and medium tactical uncrewed aerial systems, UAS, the drones offering into a single comprehensive portfolio managed by the Airbus Helicopters division. This aims at delivering a focused market approach for defense and security customers and provides customers with cutting-edge capabilities for surveillance, intelligence and operational flexibility. Finally, in Defense and Space, order intake stands at EUR 6.8 billion for the nine months. On Air Power, this notably reflects an order from the Royal Thai Air Force for a next-generation Airbus A330 MRTT+. This advanced aircraft is an evolution of the combat proven A330 MRTT, introducing innovations from the A330neo as well as upgraded military capabilities. So, in particular, the new engine of the NEO that is now on the MRTT+. While on Air Power, let me highlight the recent contract with Germany for the acquisition of 20 Eurofighter aircraft to be produced at our final assembly line in Manching and to be delivered to the German Air Force starting from 2031. The order intake will be recorded once all contractual conditions are met. So the order intake is not yet recorded in the Q3. The momentum for the Eurofighter is also strong on the export market outside of the home countries of the Eurofighter, and that was also demonstrated by this week's commitment from Turkey, Turkey to acquire 20 units. The Eurodrone program is making progress as we successfully completed the CDR, the so-called critical design review earlier this month. This officially concludes the design phase and paves the way to prototype production and ground tests ahead of first flight. On FCAS, we remain convinced that Europe needs to have its Future Combat Air System in order to meet its security challenges and further develop its critical skills and know-how in this field. Given the level of effort and investment required, we are convinced -- I am convinced of the benefits of a collaborative approach, and we intend to play a leading role in making it happen in a way or the other. Overall, on what concerns the defense part of our Airbus Defense and Space and Helicopters businesses, we are observing a growing momentum, and we expect it will continue in the foreseeable future. And now Thomas will take you through our financials. Thomas? Thomas Toepfer: Thank you very much, Guillaume, and hello, ladies and gentlemen. I'm now on Page 7 of the presentation. And as Guillaume said, I will take you through our financial performance. So, as you can see on the chart, our nine months 2025 revenues increased to EUR 47.4 billion, which is up 7% year-on-year, and it mainly reflects the higher contribution from our divisions with stronger services volumes across our businesses and a higher level of deliveries, partially offset by the U.S. dollar depreciation. And as you can see on the right-hand side, our R&D expenses stood at EUR 2.1 billion for the first nine months of the year, lower compared to the nine months of 2024, and we continue to benefit from the prioritization of our activities, and we now expect that the R&D expenses will be slightly lower in 2025 than in 2024 when we talk about the full year. Now let's look at EBIT adjusted on Page 8. As you can see, our nine months 2025 EBIT adjusted increased to EUR 4.1 billion from EUR 2.8 billion in the nine months of 2024. And of course, let me remind you that in the nine months of last year, we recorded EUR 989 million of charges in our space business, which obviously did not repeat themselves. As of the nine months of this year, the higher commercial aircraft deliveries embed a less favorable mix, which is offset by a more favorable hedge rate and lower R&D expenses. And it also reflects a stronger performance in both divisions. So, let me just clarify the impact of the currently applicable tariffs at this point. We expect this to represent anything between EUR 100 million and EUR 200 million for the full year, of which, however, the vast majority will be recorded in Q4. And as you can see on the right-hand side of the page, the level of EBIT adjustments totaled a net negative EUR 0.8 billion, and I'll just walk you through the items. It has in a negative EUR 577 million impact from the dollar working capital mismatch and the balance sheet revaluation, mainly reflecting the mechanical impact coming from the difference between transaction date and delivery date, of which negative EUR 186 million occurred in Q3. Secondly, it has negative EUR 105 million related to the Airbus Defense and Space restructuring, which we recorded already in Q1, and it has negative EUR 88 million related to the stabilization of certain Spirit AeroSystems work packages, of which EUR 31 million recorded in Q3. And finally, negative EUR 11 million other, including compliance costs and also M&A. So this takes our nine months 2025 EBIT reported to positive EUR 3.4 billion, and the financial result was positive EUR 374 million, and it mainly reflects the revaluation of certain equity investments and the revaluation of financial instruments, partially offset by the evolution of the U.S. dollar. The tax rate on the core business continues to be at around 27%. However, the effective tax rate is 32.4%, including the tax effect on the revaluation of certain equity investments as well as a net deferred tax asset impairment. And we still expect the French surtax to result in an impact of around EUR 300 million in 2025, both for P&L and cash. And in the nine months of this year, we recorded the part that is related to the year 2024 as well as the part corresponding to the first nine months of this year. And so the resulting net income is EUR 2.6 billion with earnings per share reported of EUR 3.34, as you can see on the chart, and the nine months 2025 EPS adjusted stood at EUR 3.97 based on an average of 790 million shares. Now with this, let's turn the page to Page 9 and look at our U.S. dollar exposure coverage. Consistent with what we said during our business update, we began to implement a limited number of 0 cost collars, exactly EUR 2.1 billion in the quarter into our hedge portfolio. And the EUR 2.1 billion is dollars, not euros, obviously. Now this strategy aims at addressing the longer-term horizon with an acceptable level of volatility and to potentially capture the favorable evolution of the U.S. dollar, while at the same time being protected against a material weakening of the dollar. And let me just be clear, we do not aim at replacing our forward, but rather to complement our coverage with a limited amount of colors. And as indicated, the collars will, at this stage, remain at around a single-digit percentage of the overall coverage. Now with the integration of colors, the blended rate now includes the least favorable rate of our colors. And so hence, it provides you with a protected or conservative view. And with all that being said, as you can see on the page, in the nine months of 2025, USD 14.8 billion of forwards matured with the associated EBIT impact and euro conversions realized at a blended rate of $1.18 versus $1.21 in the nine months of 2024. And we also implemented USD 12.7 billion of new coverage at a blended rate of $1.18. And as a result, our total U.S. dollar coverage portfolio in U.S. dollar stands at $80.7 billion, with an average blended rate of $1.21 as compared to $82.8 billion at $1.21 at the end of 2024. So now let's look at our free cash flow on Page 10. Our free cash flow before customer financing was negative EUR 0.9 billion in the first nine months of the year. And as you can see on the chart, this outflow was mainly driven by the change in working capital, and it notably reflects the planned inventory buildup to support our ramp-up across our businesses, and it also includes a favorable phasing effect of cash receipts and payments. On the A400M, the aircraft slightly weighted negatively on our free cash flow in the nine months of 2025 as the deliveries of the aircraft are back-end loaded However, we continue to expect it to be broadly neutral from a free cash flow perspective in the full year 2025. As you can also see on the chart, the nine-month CapEx number was negative EUR 2.3 billion, and we continue to expect it to increase in 2025 to support our industrial ramp-up so that the free cash flow was negative EUR 0.8 billion, including customer financing of a positive EUR 0.1 billion. What we can say is that the aircraft financing environment remains strong and competitive, and we expect sufficient liquidity to finance our 2025 deliveries. So with that, our net cash position stood at EUR 7 billion as at the end of September, also reflecting the dividend payment as well as the weakening dollar environment, but I should stress that our liquidity remains very strong at around EUR 30 billion. And in September, as you might have noticed, Moody's upgraded our credit rating to A1 with a stable outlook, and we think this is underlining our consistent strong credit management and the strength of our balance sheet. And with that, I would like to hand it back to Guillaume. Guillaume Faury: Thank you, Thomas. Very clear. So now let's start with commercial aircraft. In the nine months 2025, we delivered 507 aircraft to 79 customers. Looking at the situation by aircraft family. On narrowbodies, we delivered 62 A220s and 392 A320s. And out of the 392 A320 family aircraft, 250 were A321s, representing 64% of the deliveries for the A320 family. We are very pleased that Air New Guinea has taken delivery of its first A220, becoming the 25th global operator of the aircraft, which is now flying with carriers on five continents. The A320 family reached a major milestone, becoming the most delivered aligner in history. There's a bit of pride here, as you can feel. And we continue to ramp up towards a rate of 75 A320 family aircraft per month in 2027. That's no change compared to previous assumptions. On the A220, the current balance between supply and demand has led to an adjustment of the ramp-up trajectory and the ramp-up ahead of us. We are now targeting to reach rate 12 in 2026, allowing time for the integration of the Spirit AeroSystems work packages, mostly the wings and the progressive introduction of engine durability improvements for our customers. This means more work to reach breakeven, and our team are actually on it. In the nine months, we delivered 53 widebodies, of which 20 A330s and 33 A350s. On the A330, we're currently stabilizing at a monthly production rate of four. As previously introduced, we are now targeting to reach rate five in 2029 to meet the customer demand for the A330. On the A350, there's no change. We continue to target the rate 12 in 2028. When it comes to the A350 freighter, I'm pleased to say that we started the assembly of the first flight test aircraft in Toulouse with the first flight planned next year. In a nutshell, we continue to produce in line with the plan. The challenges for the year have not changed, notably with cabin and for the A320, the persisting tensions on engines, resulting in 32 gliders at the end of September. The engine situation is showing signs of recovery, and we continue to work closely with the engine manufacturers to deliver on our 2025 commitments. Now let's look at the financials for our commercial aircraft business. Revenues increased 3% year-on-year, mainly reflecting the higher number of deliveries and growth in services. EBIT adjusted was at EUR 3.3 billion in the nine months, driven by favorable hedges rates and slightly lower R&D expenses, while the increase of deliveries embeds an unfavorable mix. Looking at helicopters. In the nine months, we delivered 218 helicopters, 28 more than at nine months of 2024. Revenues increased around 16% to EUR 5.7 billion, reflecting a solid performance from programs and Services growth. EBIT adjusted increased to EUR 495 million, reflecting growth in services as well as higher deliveries, as I mentioned earlier. And let's complete our review with Defense and Space. Revenues increased 17% year-on-year to EUR 8.9 billion, driven by higher volumes across all business lines. EBIT adjusted stood at EUR 420 million, supported by higher volumes and improved profitability, in line with the divisional midterm trajectory. On the A400M program, we engaged in positive and forward-looking discussions with the launch nations and OCCAR. This was notably marked by the agreement reached in June with OCCAR to advance seven deliveries for France and Spain and to further increase the visibility we have on the production for the program. In light of uncertainties regarding the level of aircraft orders, Airbus continues to assess the potential impact on the program's manufacturing activities. Risks on the qualification of technical capabilities and associated costs remain stable. And now on to our guidance, which, as you have seen, is maintained. On the basis of its 2025 guidance, the company assumes no additional disruptions to global trade or to the world economy, air traffic, the supply chain, the company's internal operations and its ability to deliver products and services. The guidance now includes the impact of currently applicable tariffs. The guidance also includes the impact of the integration of the certain Spirit AeroSystems work packages based on preliminary estimates and an assumed closing in the fourth quarter of 2025. On that basis, the company targets to achieve in 2025 around 820 commercial aircraft deliveries, an EBIT adjusted of around 700 -- sorry, of around EUR 7 billion. We're not yet there. And the free cash flow before customer financing of around EUR 4.5 billion. Just to clarify my statement on EBIT, it's -- we target an EBIT adjusted of around EUR 7 billion. The anticipated impact of the integration of certain Spirit AeroSystems work packages on the company's guidance remains broadly in line with previous estimates. But maybe, Thomas, you want to be more precise on some of those elements? Thomas Toepfer: Yes. Let me just add a couple of precisions and details to what you said, Guillaume. So, first of all, on tariffs, as I said earlier, we expect this to represent anything between EUR 100 million and EUR 200 million for the full year, but the vast majority of the total amount will be recorded in Q4. And secondly, on Spirit AeroSystems, when we say broadly in line, what do we mean is that the closing date is now expected before the end of the year, and all parties are putting all necessary efforts into the closing process, and this is on track for the operational readiness for day one. But of course, it is later than what we had anticipated at the beginning of this year when we put out the guidance. Now this shift of the closing into Q4 comes with a partial relief to free cash flow because we didn't own the business, and therefore, we did not record any negative operational result in our free cash flow. On the other hand, you have also seen in our financial statements that we, of course, provided credit lines to Spirit, which are recorded below the free cash flow line. So in total, this remains broadly neutral in terms of the net cash position for the company. But everything else being equal, you could take this slight free cash flow positive adjustment in the range of a low triple-digit number into your models, if you want. But obviously, the order of magnitude is not such that it led us to change the guidance. And with that, back to Guillaume. Guillaume Faury: Thank you, Thomas, for those precisions. And I'll conclude with our key priorities, and they have not changed. We are and we remain fully committed to executing the next steps of our commercial aircraft production ramp-up together with our suppliers. Our focus is twofold: addressing the remaining specific supply chain tensions, in particular, on narrow-body engines where durability remains a headwind as well as cabin while also preparing the integration of the key Spirit AeroSystems work packages. As we focus on our production goals, we're also maturing the critical technologies that will define the successor of the A320 family in line with our ambition to pioneer the next generation of commercial aircraft. When it comes to Airbus Defense and Space, we are progressing on our transformation and contributing to establishing a European space leader. On European defense, the industry is clearly in motion. We are embracing this challenge by leveraging the combined expertise of our Defense and Space and Helicopters divisions to drive scale and cooperation in Europe. And now let's turn to your questions in the Q&A. Helene Le Gorgeu: Thank you, Guillaume. Thank you, Thomas. We will now start our Q&A session. Please introduce yourself and your company when asking a question. Please limit yourself to two questions at a time, and this include sub questions. Also, as usual, please remember to speak clearly and slowly in order to have all participants, particularly ourselves, to understand your question. So, Sharon, please go ahead and explain the procedure for the participants. Operator: Thank you, Helene. We will now begin the question-and-answer session. [Operator Instructions] We will now go to our first question. And our first question today comes from the line of Benjamin Heelan from Bank of America. Guillaume Faury: Ben, we don't hear you. Benjamin Heelan: Can you hear me now? Guillaume Faury: Yes. Benjamin Heelan: Yes. Sorry about that. First question was on the margin. Margin, I think, in Q3 looks pretty positive. Could you just talk through some of the drivers? It looks to me though as a very positive mix in commercial, but any comments there would be helpful. Thomas Toepfer: Well, Ben, I think we're repeating ourselves a little bit when we say that the margin of a single quarter should not be overestimated or over interpreted, I would say. So the margin in commercial indeed was, let's say, positive. That does not necessarily come from the mix. The mix was actually not specifically helping us in Q3, but it was more driven by, let's say, cost discipline in terms of SG&A, R&D, where the LEAP program that we have started is now really showing its full effect. So we're pretty pleased with, I would say, the efficiency that the company has shown over the course of the year and specifically in Q3. So the things that we have done are not, let's say, of short-term nature, but we expect them that we can actually keep them in our trajectory. And secondly, I would say, in Defense and Space, all divisions are showing a good performance. There's two drivers for it. One, that our improvement program for space is actually showing good effects, and we're very pleased with the results that we see, not only in terms of measures that they take, but first outcome, which is rather better than what we had expected. And secondly, as Guillaume pointed out, a good momentum in defense in general, where we see not only good order intake, but also, let's say, good margins for the first nine months of the year. So, I would not specifically point to the mix, but rather some self-help measures and operational discipline that are helping. Benjamin Heelan: Okay. And then a follow-on. I know you won't give us a delivery number for 2026 today. But are there any building blocks that you can provide to point us broadly in the direction of where we should be headed for next year from a delivery perspective in commercial? Guillaume Faury: I would say not more today than what you know already in terms of ramp-up trajectory for the A320, the 330 and the 350. There's change, as you have seen on what we target for next year on the A220, where we target to reach rate 12 instead of rate 14. So nothing new on that horizon except this slight modification on the 220, and we'll be targeting rate five for the A330 a bit later. So that's basically a lot of stability in the ramp-up trajectory compared to what we had shared earlier in the year. Operator: Your next question comes from the line of David Perry from JPMorgan. David Perry: So, two quick ones from me. Just on this tariff impact, Thomas, if it all falls in Q4, do we annualize that impact going forward? And then on Space, can you just clarify exactly what you're putting in? Unless I'm mistaken, I think you're putting a little bit more than just the manufacturing business, but maybe I've misunderstood on that. And maybe any other comments you want to make in terms of like is this going to have a meaningful impact on the ADS margin going forward, this transaction? Are you making any equalization payments or receiving any? Thomas Toepfer: So, on the two questions, the tariff impact, let me repeat what I said. So the total full year impact will be between EUR 100 million and EUR 200 million. Why is the majority of that occurring in Q4? Because the material that we have shipped or that is necessary has already been shipped into the United States, but we hold it as work in progress so that we will only record the impact of the tariffs once the material is actually built into the aircraft and the aircraft is sold. So therefore, to your question, you should not annualize the Q4 effect. It's a specific, let's say, impact of this year where a lot of the pre-September 1 effects are currently captured in our WIP and will then only materialize when the aircraft is delivered. That is the mechanic behind it. And on your second question, if I understood correctly, you're referring to BROMO. So what are we bringing into that cooperation? Two businesses essentially, our Space Services business, which is currently mainly in CI and our Space Systems business, which is also a subdivision of Defense and Space. And obviously, what has nothing to do with it is the launcher business, which is completely separate. But we're bringing in both Services and Space Systems. David Perry: Okay. And does the transaction have a big impact on the sort of future margin of ADS? Thomas Toepfer: Well, I mean, we do expect that there will be mid-triple-digit synergies five years after the closing of the transaction. So I would say in the medium term, it should be clearly accretive to the margin, and we will then hold a 35% stake in something which is more efficient and more profitable than what we have today. But let's be honest, in the very short term, I would not put in a big impact in the model that you probably have. Operator: Your next question comes from the line of Ross Law from Morgan Stanley. Ross Law: So the first one on your full year delivery guidance. So given that the engine suppliers have essentially said that they're getting you the engines that you need, what are the main challenges or bottlenecks outstanding from here into year-end? And then looking ahead to 2026, obviously, engines seemingly becoming less of an issue compared to '24 and '25, supply chain overall performing better. Is there any reason why you won't be able to deliver a double-digit increase in deliveries in '26, which is the growth rate you previously referred to? Guillaume Faury: Maybe I'll take the questions. When it comes to 2025 and the full year around 820 aircraft, the main challenge is the volume of aircraft that remains to be delivered in the fourth quarter. And what we will have to deliver in the last month is indeed quite unprecedented. We are not yet at the point where we will have all what we need to secure all deliveries. We are still expecting engines in the weeks to come that will support some 2025 deliveries. But the main challenge is indeed volume, backloading of the year and making sure that there's no mishap or no challenge ahead of us that would postpone aircraft and cross the line of the end of '25. So a lot of work the supply chain and the engine situation looks like we're going to make it. But again, still a lot on our plate. About the engine tensions, they will persist. There is indeed a bigger backdrop of airlines needing more engines for their in-service aircraft on the Pratt & Whitney side, but as well on the CFM side. And the engine makers need to continue to ramp up the production of parts and engines to serve both the manufacturers, the aircraft manufacturers and their airline and lessor customers. So we are not out of the woods when it comes to tension on engine availability. We think we have -- we will have what we need for the trajectory we have sketched out for 2026. But again, we are not at the point of guiding for 2026. But I confirm and I maintain what I said earlier, we are consistent with the ramp-up trajectory that we have given previously this year and next year, namely the reaching the rate 75 on the A320 in 2027, the rate 12 on the A350 in 2028 and the rate on the A330 in 2029 as far as I remember. On change A220, slightly lower rate for next year. We are in the steep ramp-up on the 220, and we now target to reach the rate 12 for next year, which is still a very steep ramp-up. But we believe this is the best balance between the different constraints we have next year and a lot of work actually on the A220 to get there by next year, including the integration of the wings and other work packages that will come from the integration of Spirit. Operator: Your next question comes from the line of Chloe Lemarie from Jefferies. Chloe Lemarie: The first one would be on the maintained guide. It looks fairly conservative for Q4 given the expected delivery growth. So I understand tariffs are a headwind, but any other moving parts you'd like to share to help us understand the building blocks for the Q4 year-on-year? And the second one, I think, Guillaume, you commented on the press call about gliders being half of what they were. Could you just clarify whether this is at end Q3 or more recently? And maybe compare and contrast the situation between the LEAP and GTF-powered aircraft, please? Thomas Toepfer: So maybe I'll start with the guidance and the remain to do. So starting from the EUR 4.1 billion as of the nine months. Let's start by saying last year, we did EUR 2.6 billion in Q4 of last year. I would say there's clearly a positive effect from the volume. You can attach roughly EUR 0.5 billion to it if all the deliveries materialize. But yes, then I would say there's at least two headwinds. One is the tariffs. And secondly, R&D, we're expecting that R&D will be slightly lower than last year, but that still could mean that in Q4, R&D would be higher than last year. So that is a headwind that you should have on your list. On the other hand, yes, I do believe that the two divisions, Helicopters and ADS could be performing positively, and that would be then a positive. So if you take those together, that would bring me then to the around seven. It all hinges on the deliveries. And as Guillaume said, it's a very, very steep ramp-up. The teams are on it. And if we make the deliveries, obviously, then I think the financial numbers should clearly be in sync with that. Guillaume Faury: Thank you, Thomas. When it comes to the question on gliders, we stood at 60 gliders by end of Q2, and we stood at 32 gliders by end of Q3, so by end of September, roughly a month ago. The situation obviously is dynamic as we are targeting to be with zero gliders by the end of the year. And as I said earlier, we still need to receive engines in the weeks to come to be fully sure that we will have what we need. But engine manufacturers have confirmed that they will deliver what we need to reach that objective of zero glider and reaching our guidance. And when it comes to the situation LEAP versus GTF, actually, it's both. And as we speak, it's shared between the engine manufacturers, and I can't be precise enough, but it's not far from balanced between the two, not far from 50-50 between LEAP and GTF. But again, it's a dynamic situation almost by the day as we deliver a lot of aircraft those weeks. So I can't be more precise than this at this very moment. Operator: We will now take the next question. And the question comes from the line of Sam Burgess from Goldman Sachs. Samuel Burgess: A couple from me. Thomas, can we just circle back on R&D. From memory, your initial expectation was R&D would be a bit above 2024 levels. I might have missed it, but what specifically is driving this trimming of R&D versus your initial expectations? And is that kind of sustainable going forward? Or do we get some catch-up in FY '26? And the second question, I know you don't want to dwell too much on individual quarters. But in your press release, you do explicitly mention a less favorable mix on deliveries year-to-date. Do you expect that mix to become more favorable in Q4? Thomas Toepfer: So, on R&D, we are roughly EUR 200 million below the 2024 numbers for the first nine months of the year, if I'm not mistaken. that is mainly a function of our lead improvement program where we're focusing on the things that really matter, but have the courage to also terminate some projects where we think they're simply not yielding the results that we feel they should. And that means less external consultants, that means less spending on all kinds of things. So it's not trimming R&D, as you said it, with a lawnmower approach, but it's really very specific and focused with a program where we think let's focus on the things that matter most to the company. That was pretty successful in our view. And so therefore, while admittedly, we said at the beginning of the year that we would expect R&D to slightly increase, we're now of the view that with the successes that we have, which we think are sustainable, we should be slightly below previous year for the full year, but that still means that in Q4, as I said in my previous answer, there might be a slight increase in R&D. Now going forward, what is unchanged is that we do expect R&D to increase in line with revenue. So as a percentage of revenue, I think you should keep it constant in your model, but of course, starting from a somewhat lower base in 2025. And then on the mix, it's simply a function that we have delivered more A220s, and you know that they have a lower margin than the rest. So it's just a function of all the ramp-ups and the numbers that we have given you. Operator: Your next question today comes from the line of Ian Douglas-Pennant from UBS. Ian Douglas-Pennant: The first is another on the supply chain. Aside from engines and the acquisition of Spirit being delayed, are there any other pain points that you'd like to call out in the supply chain that are causing the changes to the schedules that you've talked about today or elsewhere? Secondly, we've seen a number of A320neos being retired this year. I wonder, do you have any comments on why that might be happening? How sustainable you think whether they are edge cases or how we should interpret some very young aircraft being retired? Guillaume Faury: On the supply chain, of course, the main area of attention and concern are engines, as we mentioned earlier. The rest of the supply chain is actually doing much better than in 2024 and previous years. I mean, significantly better. The number of missing parts and the depth of delays is significantly better than it was before. We continue to have issues and delays on cabin equipment, interiors, seats, and that's probably more of a midterm issue than a short-term one, given the fact that this part of the industry has been since COVID or since the recovery after COVID, sort of overwhelmed by the combination of demand for new aircraft and retrofits and extension of the life of products. When it comes to your question on the retirement of A320neo, I'm a bit surprised. That's not what I have in mind. Maybe there's a confusion with aircraft being on the ground because of missing engines, in particular, on the Pratt side, but that's not something that is consistent with what I have in mind. It's not retirement of aircraft as much as I know. But we look at your question. Operator: We will now go to the next question. And the next question comes from the line of Douglas Harned from Bernstein. Douglas Harned: The first question is, if you could update us on the A350. It looks like deliveries may be a little bit better in October, but this has been very slow. And maybe you could update us on progress with Spirit with interiors related to the A350 and getting those rates up. And then second question is, we've heard some cautious comments from CFM on getting out to 75 a month, particularly most recently from Safran. Where do you stand now in working with the engine providers on ensuring that you can get to that 75 a month at some point, hopefully by the end of 2027. Guillaume Faury: So, on the A350, we continue to believe we will be consistent with what we have indicated so far, meaning that the ramp-up has been sort of -- the start of the ramp-up on the A350 have been sort of delayed by a year given the challenges and the difficulties we had with the Section 15 of Spirit. So we don't expect an increase compared to 2024 in 2025, but there is indeed a phasing and a quite significant level of backloading in deliveries in 2025. The ramp-up then comes later, and we think we'll catch up in the sense of maintaining reaching the rate 12 by 2028. We are mostly challenged by difficulties and delays on interiors, on laboratories, on seats. That's mainly what we're suffering from on the A350. And it's not different compared to previous quarters and even compared to 2024, unfortunately. When it comes to the ramp-up of the A320, actually, CFM is in line with us has confirmed regularly that they are in line with us on the need for rate 75 on the ramp-up trajectory. So I'm slightly surprised with the remark because the level of alignment with CFM is very strong. They had significant issues this year that has led to a lot of gliders and delays in delivering their engines, but they're catching up. And again, I'm comfortable that they will be back to where they have to be by end of this year to then deliver on the ramp-up trajectory to support us in '26, '27 until we reach the rate 75. I'm not suggesting they don't have their challenges. So I don't know what was the nature of the comment precisely. They have their challenges, obviously, but we are moving hand-in-hand when it comes to ramping up the A320 with the CFM engine, at least that's my current perception, and that's consistent with the last weeks and months meetings and interactions with CFM. Operator: Your next question comes from the line of Ken Herbert from RBC. Kenneth Herbert: I wanted to pivot and ask about the A220, if I could. The lower guidance for deliveries still seems relatively ambitious considering sort of where you are today on that program. Can you talk more about challenges with that ramp and what gives you incremental confidence still at the 12 a month in '26? And then as a second part, there continues to be speculation about maybe a third variant of that program. How do you view the investments in that and the potential return on that program considering what seems to be a more challenging ramp and some incremental comments about some demand pressure. Guillaume Faury: Yes. Thank you for the question. So, indeed, we are in a steep ramp-up for the A220. The team has a lot on the plate, and now they have on top to integrate the wings and other work packages of the A220. So that's indeed a lot of work to get to where we want to be. So we think the rate 12 for next year is the good balance between the different challenges and the demand and supply situation and the quantity of work to be delivered. Indeed, it's still a significant ramp-up, but what we learned from this year is that a rate 12 for next year reaching 12 next year actually is something we believe is well in the cards. So, basically, that's all about the quantity of work, all what needs to be achieved, the ramp-up in both Mirabel and Mobile. We have two files, the number of variants with different configurations that we have to deliver and industrial optimization to be able to accelerate the pace of production to that level. When it comes to the third variant, which is also nicknamed the dash 500, the first two variants being the dash 100 and the dash 300. That's something we believe the program will need and benefit from. We have demand from airlines and from the airline customers for these variants that on paper looks really as a very competitive product. We have said that the dash 500 is not a question of if, but it's a question of when. And we're still with the same type of statement. But again, we are giving priority to the short-term work and the short-term challenges that we have to perform the ramp-up to move forward to breakeven with the program to digest the Spirit work package that will be now under our responsibility. So that's a bit the way we're looking at the year and the years ahead of us. Operator: We will now take our final question for today. And the final question comes from the line of Olivier Brochet from Rothschild & Co Redburn. Olivier Brochet: The first one is very simple on tariffs. You mentioned a number. Should we think of the impact on cash to be similar for '25 and '26, please? And second, on Space, on accounting and the deconsolidation that you might be doing. Should we think of a deconsolidation, sorry, for that? And will it lead to some separation costs, please? Guillaume Faury: So, the second question is too difficult and the first one as well. So, I hand over to Thomas. Thomas Toepfer: So, the first one, obviously, is easy for me. The answer is yes. I mean, roughly the EBIT and the cash impact is the same. So you can put that into your model. On the space consolidation, so obviously, what we have to do is go from an MOU to signing and then from signing to closing. Closing means in order to be ready for that, we have to carve out the business. And currently, the business is spread over many legal entities and countries. So to your question, yes, we do have the task as Airbus to create an operationally and legally stand-alone separate business until 2027, which can be then put into the new legal entity. That will come with not insignificant, let's say, separation costs. And we said, however, in the statement on BROMO that they would be in line with industry standards. So I think you can plug in a normal number into your models, but it's not insignificant given the size of it. For 2025, that will not have an impact on our financial results. Helene Le Gorgeu: Thank you, Guillaume. Thank you, Thomas. This now closes our conference call for today. If you have any further questions, please send an e-mail to Olivier, Victoria or myself, and we will get back to you as soon as possible. Guillaume Faury: And Helene, I'd like to announce to the audience that you will actually move to new challenges still in the financial director of Airbus under the leadership of Thomas in the commercial aircraft team. And you will have Jean-Christophe Henoux as a successor. Jean-Christophe is joining from the strategic team and will take over on the 1st of December. So very soon, we will have JC, nicknamed JC with us. And with this, Helene, I would like to thank you very warmly for the pleasure working with you for the quality and the precision of all you've been doing with us for your constant voice on the call and for your very good availability with all our investors and analysts and all the financial community. So I wish you -- we wish you with Thomas, all the best moving forward to your new job, and I'm sure there will be opportunities for you to answer questions on what it is and what you will be doing next. So, again, thank you, Helene, and welcome, JC. And bye-bye, everyone. Thank you. Operator: Thank you. Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant evening. Goodbye.
Operator: Good morning, and welcome to Southern Copper Corporation's Third Quarter and 9 Months 2025. With us this morning, we have Southern Copper Corporation, Mr. Raul Jacob, Vice President, Finance, Treasurer and CFO, who will discuss the results of the company for the third quarter and 9 months 2025 as well as answer any questions that you may have. The information discussed on today's call may include forward-looking statements regarding the company's results and prospects, which are subject to risks and uncertainties. Actual results may differ materially from the company cautions not to place undue reliance on these forward-looking statements. Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All results are expressed in full U.S. GAAP. Now I will pass the call to Mr. Raul Jacob. Raul Jacob: Thank you very much, Carmen. Good morning, everyone, and welcome to Southern Copper's Third Quarter 2025 Results Conference Call. At today's conference, I'm accompanied by Mr. Oscar Gonzalez Rocha, CEO of Southern Copper and Board member as well as Mr. Leonardo Contreras, who is also a Board member. In today's call, we will begin with an update on our view of the copper market and then review Southern Copper's key results related to production, sales, operating costs, financial results, expansion projects and ESG. After this, we will open the session for questions. Our performance in the third quarter delivered new company records for net sales, adjusted EBITDA and net income. These milestones are a testament to the strength of our strategy, execution and commitment to sustainable growth. This strong performance was primarily driven by a rise in byproduct production and improved metal prices across all our products. Zinc production rose 46%, mainly on the back of significant production at our Buenavista zinc concentrator. Silver and molybdenum output grew 16% and 8%, respectively. The combination of higher production volumes and better copper and by-product prices enabled us to achieve a cash cost of $0.42 per pound of copper in the third quarter of this year, one of the industry's lowest. We remain firmly committed to enhancing productivity and cost efficiency driven by a strategy anchored in discipline and focus on achieving our long-term goal to produce 1.6 million tons of copper at the lowest possible, most competitive cost per pound. Looking into the copper market, the LME copper price increased 7% from an average of $4.17 per pound in the first quarter of 2024, up to $4.44 this past quarter. For the COMEX market, we saw a 14% increase. Based on current supply and demand dynamics, which include the negative production effects that we're seeing in Indonesia and Chile, we're currently estimating a copper market deficit of almost 400,000 tons. Copper inventories worldwide, which is the sum of the London Metal Exchange, COMEX and Shanghai warehouses as well as other bonded warehouses, copper, this inventory -- the sum of these different inventory at the end of September were 609,000 tons. We estimate that this inventory currently covers approximately 8 days of global demand. The recent U.S. tariff policy changes have thus far had a limited impact on our results. As such, we're confident now that the long-term fundamentals of prices for copper and other metals will remain very positive. Now let's look at Southern Copper's production for the past quarter. Copper represented 73% of our sales in the third quarter of this year. Copper production registered a decrease of 7% compared to the third quarter of 2024 and stood at 234,892 tons this past quarter. Our quarterly result reflects a 7% drop in production in Peru, which was triggered by a decrease in production at our Toquepala and Cuajone mines. Production at our Mexican operations fell 7% quarter-on-quarter, driven by a decrease in production in our Buenavista mine due to lower ore grades and by the fact that the new Buenavista concentrator was fully dedicated to maximizing zinc and silver production to leverage the favorable ore grades identified in an important segment of the mine. On a year-to-date basis, copper production fell 3% in 2025 to stand at 714,098 tons, mainly driven by a decrease in production at our Mexican and Peruvian operations due to lower ore grades. For this year 2025, we expect to produce 960,000 tons of copper. This is slightly lower, less than 1% than the plan and a decrease of 2% over 2024's finance plan. Molybdenum represented 13% of the company sales value in the third quarter of 2025 and is currently our first by-product. Molybdenum prices averaged $24.30 per pound in the quarter compared to $21.68 per pound in the third quarter of 2024. This represents an increase of 12%. Molybdenum production registered an increase of 8% in the third quarter of this year compared to the same period of 2024. This was mainly driven by higher production at our La Caridad and Toquepala mines, which were partially offset by lower production at our Buenavista and Cuajone operations. In 2025, we expect to produce 30,000 tons of molybdenum, which represents an increase of 4% over our 2024 production level. For silver, it represented 7% of our sales value in the third quarter of 2025 with an average price of $39.56 per ounce for the quarter. This reflected an increase of 34%. Silver is currently our second by-product. Mine silver production increased 16% in the third quarter of 2025 vis-a-vis the next -- the same quarter of 2024 after production growth in our Mexican operations, and this was partially offset by lower production in the Peruvian mine. Refined silver production increased 2% quarter-over-quarter. This evolution was mainly driven by higher production in our Ilo refinery, which was partially offset by a drop in production in La Caridad refinery. In 2025, we expect to produce 23 million ounces of silver, an increase of 10% compared to last year. Zinc represented 4% of our sales value in the third quarter of 2025 with an average price of $1.28 per pound in the quarter. This represents a 2% increase compared to the third quarter of 2024. Zinc is currently our third by-product. Mine zinc production increased 46% quarter-on-quarter and totaled 45,482 tons. This was mainly driven by an increase in production at the Buenavista zinc of 108%. This Buenavista zinc concentrator has been processing high ore grade material that we found in a segment of the Buenavista mine that -- well, it was reviewed and decided on the base of the value that this additional production is contributing to this year's results. For the year 2025, we expect to produce 174,700 tons of zinc, which represents an increase of 34% over our 2024 production level. This growth will be driven by the production of our Buenavista zinc concentrator, which I already mentioned is operating at full capacity dedicated to zinc production. For the third quarter of this year, sales were $3.4 billion. This figure was $446 million or 15% above the third quarter of 2024 trend. The copper sales value increased [indiscernible] volume dropped 4% in a scenario of better prices. The London Metal Exchange price increased 7% and the COMEX price increased 14%. Regarding our main by-products, we registered an increase in sales of molybdenum by 46% due to growth in volume, volume of molybdenum sales increased 8% and better prices. Zinc sales increased 12% due to an uptick in volume of 7% and better prices for this material zinc. Finally, silver sales increased 65% due to higher volume, 22% and better prices for lubricant. Our total operating costs and expenses were up to $128 million or 9% compared to third quarter of 2024. The main cost increments were in purchased copper concentrate, workers participation, labor, operations contractors and services, energy and sales. These cost increments were partially offset by a drop in inventory consumption and other factors. The third quarter of 2025 EBITDA -- adjusted EBITDA was $1,975 million. This represented an increase of 17% with regard to the 1,685 million registered in the third quarter of 2024. The adjusted EBITDA margin in the third quarter of this year stood at 59% versus 58% in the third quarter of 2024. Adjusted EBITDA year-to-date was $5,512 million. This is 13% than the mark for the 9 months of 2024. The adjusted EBITDA margin in the 9 months of this year stood at 58% versus 57% in the 9 months of 2024. Operating cash cost per pound of copper before by-product credits was $2.23 per pound in the third quarter of 2025. This is $0.12 higher than the value for the second quarter of 2025, which was $2.11. This 5% increase in operating cash cost is a result of higher cost per pound from production cost, administrative expenses and lower premium and was offset by lower treatment and refining costs. Southern Copper's operating cash cost, including the benefit of by-product credits, was $0.42 per pound this past quarter. This cash cost was $0.21 lower or 34% lower than the cash cost of $0.63 that we had in the second quarter of 2025. Regarding byproducts, we had a total credit of $895 million or $1.81 per pound in the third quarter of 2025. These figures represent a 22% increase in byproduct credits when we compare them to a credit of $756 million or $1.48 per pound in the second quarter of this year 2025. Total credits have increased for molybdenum in 23%, for silver 29%, and decreased a little bit for zinc 1%, and sulfuric acid, where we have lower volumes due to major maintenances at our smelter. For net income, in the third quarter of this year, net income was $1,108 million, which represented a 23% increase over the $897 million registered in the third quarter of 2024. The net income margin in the third quarter of this year stood at 33% versus 31% in the same quarter of last year. These improvements were mainly driven by an increase in sales and cost containment activities. On a year-to-date basis, net income was 17% higher than in 2024 due to growth in net sales. The net income margin year-to-date stood at 32% versus 30% for the 9 months of last year. Cash from operations or -- cash flow from operating activities in the third quarter was $1,560 million, 8.4% above the figure in the third quarter of 2024. For the 9 months of 2025, cash flow from operating activities stood at $3,258 million, which represented an increase of 6% over the $3,061 million posted in the 9 months of 2024. Capital investments. For the Peruvian projects, our investments in Peruvian projects that are being built or for which basic or detailed engineering is being conducted could surpass $10.3 billion in the next decade. Given that there is a description of our main capital projects in Southern Copper's press release, I'm going to focus on updating new developments for each of them. In the case of the Tia Maria project in the Arequipa region in Peru, as of September 30 of this year, progress at Tia Maria stood at 23% and 2,109 new jobs have been generated. 809 of these jobs were filled with local advocates. To the fullest extent possible, we intend to fill the 3,500 jobs estimated to be required during the Tia Maria construction phase with workers from Islay province. In 2027, when we start operations of Tia Maria, the project will generate 764 direct jobs and 5,900 indirect jobs. In the early construction phase, progress on access roads and platforms stands at 90%. We will advance this effort alongside work to set up a temporary camp, engaging in massive air work and roll out mine opening activities. Recently, on October 14 of this year, the company received authorization from the Ministry of Energy and Mine to begin exploitation activities on the Tia Maria project. This authorization is based on considerations outlined in the supporting technical report and the environmental certification approved for the project. Consequently, we will soon initiate pre-stripping activities in La Tabara and begin building main project components. For the Los Chancas project in the Apurímac region of Peru, as of September 30 of this year, social and environmental management programs are underway in the communities directly influenced by the project, in accordance with the Framework Agreement signed between the Tiaparo Peasant Community and the Los Chancas Mining Project. Necessary actions are being undertaken to regain control of the project in response to the presence of illegal miner. This control is essential to us for continuing advancing the development of our r Los Chancas project. In the case of the Michiquillay project in the Cajamarca region of Peru, the geological information obtained from drilling programs has been used to develop the models required to estimate the deposit mineral resources. These models are currently being audited by a third party under the SEC's mining disclosure standards, S-K 1300. A conceptual study is underway to determine the best location for our conventional or filtered tailings storage facility. Hydrogeological and geotechnical studies are also being conducted. SEC has several projects in its Mexican pipeline that may boost organic growth if they are found to be of value for both stakeholders and the communities in which we operate. These projects are Angangueo, Chalchihuites, and the Empalme Smelter, which could bolster our position as a fully integrated copper producer. We're conducting talks with the current administration to continue rolling out SCC's Mexican investments for $10.2 billion. We have in Mexico also the El Arco in the Baja California state project. In this case, we have -- we're not reporting additional progress in these projects for now. Regarding environmental, social and corporate governance or ESG practices, our sustainability ratings are improving. In the Corporate Sustainability Assessment 2025, S&P Global increased SCC rating by 4 points over last year's print. This result positions the company among the leaders in the mining sector's performance ranking with a rating that is more than twice the industry's average. Some of SCC's disaggregated ratings were the highest reported for the sector. That is the case for transparency and reporting, environmental management, biodiversity, cybersecurity, labor practices, human rights and community relations. Regarding greenhouse gas emissions at our operations, the electricity that our underground mines have received from the Fenicias wind farm has enabled us to curb greenhouse gas emissions by 180,000 tons of carbon thus far in 2025. This is equivalent to electricity supply needed to sustain 40,000 households in Mexico. We're recovering ecosystems in Mexico and Peru. So far in 2025, we have conducted advanced work to restore 67 hectares at our Buenavista recovery installations in Sonora, and about 10 hectares in the Ite wetlands in Peru. These efforts entail incorporating areas of the landscape that were previously impacted by our operations and providing important environmental services. Additionally, we're preparing stocks and services and are installing assisted irrigation systems on approximately 200 hectares in Sonora, which will be reforested in 2025. In the case of the Tia Maria project, through the work for taxes mechanism, we're financing modernization and upgrades at an emblematic secondary school in the district of Cocachacra, which will serve 400 students and also using this work for taxes mechanism, we're working on the construction of the Biomedical Sciences Laboratory at the University of San Agustín in Arequipa, which will be used by about a little bit more than 3,000 students and researchers. During its tour of Sonora in 2025, Dr. Vagón Health train sponsored by Grupo México imparted more than 20,000 free consultations in 8 municipalities, marking an all-time high in Dr. Vagón's history. Over its 9 previous visits to the region, more than 59,000 medical consultations and 70,000 prescriptions were provided at no cost. With these results, Dr. Vagón has become one of the most important traveling health projects in Sonora, Mexico. Regarding dividends, as you know, it is the company policy to review our cash position, expected cash flow generation from operations, capital investment plans and other financial needs at each Board meeting to determine the appropriate quarterly dividend. Accordingly, on October 23 of this year, Southern Copper Corporation announced a quarterly cash dividend of $0.90 per share of common stock and a stock dividend of 0.0085 shares of common stock per share. This is payable -- this will be payable on November 28, 2025, to shareholders of record at the close of business on November 12 of this year. Ladies and gentlemen, with these comments, we end our presentation today. Thank you very much for joining us. Now we would like to open the forum for questions. Operator: And thank you so much. [Operator Instructions] It comes from Carlos De Alba with Morgan Stanley. Carlos de Alba: What is the expectations in terms of cash cost before byproducts in the fourth quarter and maybe in 2026? Raul Jacob: For the fourth quarter, Carlos, we will very likely decrease our cash cost because we will be having a partial recovery of production, particularly at the Peruvian operations, we believe that production will improve in the fourth quarter. So we are operating at about $2.23, if I recall it well. And we're expecting to have in the range of $2.15 to $2.20 in the fourth quarter. Carlos de Alba: Okay. And how much of -- how much purchases of third-party concentrate or cathodes did the company do in the third quarter? And if you could comment on any expectations for the fourth quarter? Raul Jacob: Yes. These acquisitions were for the Mexican operations. It was to fill up some of our facilities at the IMMSA mines. We don't -- we will very likely maintain buying some copper -- some materials from third parties in Mexico because of the way that they blend with our own materials. So that was the main driver of these acquisitions. Carlos de Alba: But you're buying concentrate, you didn't buy cathodes even if the Ilo smelter was down. Raul Jacob: No, no. We just -- we sold more copper concentrate for the Peruvian operations because of the maintenance that the Ilo smelter and refinery had. We didn't acquire any copper cathodes, Carlos. Carlos de Alba: Okay. Good. And if I may, just one more. We regularly see headlines in Mexico about the government engaging with Southern Copper on discussions to try to remediate what they believe or some people believe are still pending actions by the company after the spill in Sonora. Can you maybe give us some comments as to what is the company's perspective on these negotiations and what impact -- initiatives and the potential financial impact those may have in the company? Raul Jacob: Well, we have -- we are having these conversations now, and we are basically -- well, for us, this is a matter that was solved already. However, there are always good possibility of making progress in government talks for other objectives that the company may have. So there's not much to report at this point, Carlos, on this. Operator: Our next question is from Timna Tanners with Wells Fargo. Timna Tanners: I wanted to ask with regard to silver, I realize you don't move your volumes on a dime, but the guidance seems to imply a quarter-over-quarter drop into Q4, and I wanted to make sure I understood that. But given the strong price of silver, is there anything you can do to try to produce a bit more in the next medium term? Raul Jacob: Thank you for your question, Timna. This is what we have been doing through 2025. We have the new concentrator in Buenavista, which is a concentrator that has the capacity of producing copper and zinc. In other years, last year, for instance, 2024, we did bundles of copper production as well as zinc production. But looking at the areas that we were getting into in 2025 and the zinc content, the zinc ore that we were finding in this part of the Buenavista mine, we decided to not produce copper with this new concentrator of Buenavista in this year, but zinc. And the reason for that is that the zinc content is much higher. That's why we are producing a significant much important amount of zinc than last year. And obviously, the copper that we produced with this facility last year that was in the north of 12,000 tons was not produced in the same facility in 2025. So that explains why we are not producing as much copper as in 2024. Now as I mentioned before, we're very close to less than 1% of getting all the copper that we did -- that we forecasted in our plan now. We're hopefully making the plan and the plan when we announced it last year, had a reduction in copper production of about 2%. Obviously, if we see opportunities to improve this, we will certainly try to do it. But that's so far what we're considering for this year, Timna. Timna Tanners: Okay. My question was more about silver just because of the strength of that market. But if you could comment on silver. And then my second question was more about any updated thoughts on M&A given some additional M&A in the space? Are you still preferring your organic projects? Or given some delays there, would you start to look at maybe buy versus build? Raul Jacob: Okay. On the silver, Timna, we're producing more silver this year, not less than last year. And we made -- we already update our silver production forecast. This is a 23 million ounces, which will be 10% more than last year than 2024. Coming to your question on M&A. Well, no, we're basically focusing on organic growth. These projects that we're undertaking are excellent projects. The economics of them are much more better than what we see outside the company. Obviously, if there is a good opportunity, we will certainly review it and make a recommendation to our Board. But so far, this is what we're considering now. Operator: Our next question is from the line of Alejandro Demichelis with Jefferies. Alejandro Anibal Demichelis: A couple of questions, if I may. Raul, could you give us some kind of indications of how you're seeing 2026 in terms of volumes, CapEx and so on? That's the first question. And then the second question is, obviously, we have seen the change in government recently in Peru. We have seen some protests and the state of emergency. So have you seen any kind of impact on the areas in which you are producing or in the ports in the South where you're kind of exporting from? Raul Jacob: Okay. Let me go to your last question first. We are seeing no political -- no impact on our operations coming from the political situation in Peru. I'd just like to mention that the current President has an approval of 45% regarding the last poll. And I think that the protests that you mentioned has -- I believe there are diminishing as we have seen and particularly at the southern part of the country where we have our operations, where our projects are in the center of Peru in Apurimac, they are okay. We have a legal mining issue over there that we have -- that we're working with the authorities to fix. And the northern part, we will have Michiquillay where with no issues regarding social unrest. And in the Tia Maria project, we are moving forward with the construction, as I reported before. Looking into 2026, we are still looking into what we expect for next year. We, at this point, have a forecast that is under review to produce about 911,000 tons of copper next year. We expect to review this and hopefully improve it a little bit more. But that's our current forecast for copper next year. Cash costs, well, obviously, depending on contingent of the byproduct prices, it's hard to say. But let's say that it's in the range of where we are now in terms of the year-to-date cash cost or better if prices hold as they has been the case in the past quarter. On CapEx, we have -- we do have -- we're getting into the construction of Tia Maria next year. This would require -- Tia Maria alone would require about $866 million of CapEx. And consequently, we have -- we are expecting a much higher CapEx in the range of $2 billion for next year. Operator: Our next question is from Myles Allsop with UBS. Myles Allsop: Maybe with Tia Maria, could you just give us a sense, you've got the authorization to start exploitation now. Do you have all the permits that you need to push ahead with the project? And when do you think we'll get to completion of the project and the ramp-up phase? Raul Jacob: Sure. The straight answer to your question is yes. There are some -- for initiating the construction and developing mining activities, we have all the permits. Once you are finishing the construction, you need to get a final permit from the authorities to begin operations, but that's kind of more routine type of a permit. Now we are expecting to have the ramping up of the project through 2027. Hopefully, it will be at the half of 2027 when we will be able to initiate the initial testing of the equipment and the ramping up. We do operate very similar plants than the one that we want to build in Tia Maria in some other locations in both Mexico and Peru. So hopefully, we will do a good ramping up in terms of time line for it. But that's something that we will be reporting as we move on with the project. Myles Allsop: Okay. And in terms of the financing, I know in the past, you've done bonds to link to the kind of project, kind of CapEx. Is it still the intention that you'd finance it along those routes? Raul Jacob: It's something that we look as we move on. Obviously, as interest rates are decreasing, we are seeing this as a more positive thing, but we're still evaluating if we want to follow that route for issuing one bond, et cetera, or doing some other using our own CapEx -- our own cash position. But I think it's going to be more likely than not that we will go to the debt market at a certain point in time to finance our Tia Maria project. Myles Allsop: Okay. And then maybe just as it's more of an organic kind of growth pathway that you're looking at. When we look at the next projects, Los Chancas and El Arco's, which one do you think will be ready to FID first? And what needs to happen with each of them to get there? Or is it a different project that we should -- as it comes forward next after Tia Maria. Raul Jacob: Well, the time line that we have is that Los Chancas should be the next project in terms of execution. Michiquillay is also in line for that. The results of Michiquillay has been very, very interesting, very good, actually. We have -- we are quite encouraged to move on with it, but we still need to do some work that has been already done for Los Chancas. In the case of El Arco, it's also scheduled to move on entering in the next decade. And hopefully, we will be able to do that as well. Myles Allsop: So assuming that the Los Chancas is the next project, how [indiscernible] the illegal miners of the land would you be in a position to actually FID a project. Is it still 2 years after getting the illegal miners? Or can that be brought forward? Raul Jacob: It could be speed up a little bit. In this, we have to talk with the Peruvian authorities to see when are they taking some actions on regarding the legal mining activities that we're seeing there. We're working with the communities because we believe that this could be also be solved with -- if the communities look into the matter and talk with the authorities on this issue as well. Operator: Our next question comes from the line of Alfonso Salazar with Scotiabank. Alfonso Salazar: I have 2 questions. And first of all, sorry to put you on the spot, but a moment ago, you said that you are focusing on organic growth, but we see that on the capital allocation front that you already are increasing -- you have been increasing your cash position quite fast. It's now at $4.5 billion. And if you continue with the hybrid dividends and given the cash generation that you are having today, this will continue to pile up. So I just want to understand how to reconcile these 2 things, especially what is the rationale behind having so much cash and increasing your cash position at this time? The second question is regarding Tia Maria. And it's great to see that the project is moving ahead, but I think it's about to start a critical moment with elections in Peru and potential protest and noise against Tia Maria once again. So just wondering what is the action plan? What are you doing to deal with such situation in case it comes? Raul Jacob: Okay. Regarding your comment on the company's cash position, well, we are not having at this point, the debt that was required to finance, say, Tia Maria, and that is why we are having a slightly higher than the usual cash, plus the fact that prices are really contributing to that. But that's mainly what we're -- currently, we're having a comfortable cash position for keep paying the dividends that the Board has approved as well as taking care of the projects that we have. Now regarding potential social or political impact in the Tia Maria area, well, yes, that is always a possibility. But so far, we're not seeing anything like that. So we do have some plans. We are -- we have been working with both the people in the area as well as the authorities, particularly the majors of the Islay province where Tia Maria is located. And so far, what we're seeing is a calm environment that is very favorable for the project. Now obviously, we are continuously monitoring the social circumstances. And -- but at this point, we don't see any -- we don't have a concern regarding the impact of the political campaign in the area. Operator: We have a question from the line of Tingshuai Feng from CICC. Tingshuai Feng: This is David. Congratulations on the strong results. My first question is about LPR. We know that on your slides, LPR is still expected to start production in 2028. While the project is not mentioned in the latest quarterly press release. So I'm just wondering, can we have any updates on the project development progress at LPR? I'll come back with my second one. Raul Jacob: Okay. Thank you for your question, David. No, we have not much to report on it. We are looking into the recovery that leaching part of the project has. And so far, we have no major progress on this at this point. So that's why we haven't mentioned it in our press release. Tingshuai Feng: Understood. And my second question is just a follow-up on Los Chancas. We noticed that recently there is some discussion about extending the reinforce scheme by 5 more years. So just want from your perspective, any further extension of the scheme will have any impact on your development plan at Los Chancas, especially when you're dealing with the illegal miners. Raul Jacob: Well, at this point, we have no people with this specific permit that you mentioned inside the premises of the project. So for us, it's a nonissue at this point. What you just said regarding this rainfall permit is something that has to be reviewed by Congress. We believe that Congress are realizing what we're seeing, which is that most of the population in Peru does not like to have illegal mining activities in general. That has been strongly shown in polls and different other -- different -- by some other different ways. So our view is that there should not be any extension of this type of permits. Operator: Our next question comes from the line of Matheus Moreira with Bradesco BBI. Raul Jacob: Matheus, do you have a question? Okay. Let's move on. he may connect later. Operator: Our next question is from Jon Brandt with HSBC. Jonathan Brandt: Just 2 quick ones for me. I know this is a Board decision. But on the dividend, can you -- has the Board given you any rationale for why they're continuing the stock dividend? I mean the cash dividend is at $0.90, is pretty good. So I guess I just don't see the rationale for stock dividend. So I'm hoping you can sort of help me understand that. And then the second question is just on hedging. If you've given any thought to potentially hedging, even if not copper, maybe some of the byproducts like silver and molybdenum, which have done well, particularly as you're going into a CapEx phase next year with Tia Maria and then even after that, I would suspect if you're going to start on Los Chancas, et cetera, that the CapEx will remain quite high. So I guess I'm wondering if there's any discussion about maybe locking in some of these higher metal prices. Raul Jacob: Okay. Let me focus on your last question first. We have not had any specific discussions on hedging, copper hedgings or byproduct hedging at this point. In the past, when we did the Toquepala expansion, we did hedge using a zero cost collar. That was, I believe, a good idea because allow us to protect the copper -- the revenues from copper at that time when we were undertaking a major project. On the rationale for the stock dividend, as you well mentioned, it's a Board decision. Well, we couldn't -- we wouldn't be able to pay the dividends that we have been paying without using a portion of the shares. So $0.90 in cash is what the company can pay out. But if we want to provide the stockholders with more liquidity, it has to be using the shares that were acquired in -- before 2016 at a much, much lower price. So that's what we -- what the Board has been considering and deciding. Jonathan Brandt: Okay. Is it -- can you tell us how many shares are left? And should we assume that the stock dividend will continue until those shares are depleted? Raul Jacob: We have about 65 million at this point, before paying the dividend, it's 72 million shares that we have in treasury. Operator: Our next question comes from the line of Grant Sporre with Bloomberg Intelligence. Grant Sporre: The question is really around about your sort of medium-term copper guidance. And I'm looking at your -- the chart that you put out after the second quarter results, which has 2027 going up by about 50,000 tons and then '28, by another 70,000 tons. Can you -- I know those are constantly under review, but if we assume that that's roughly in line with what you're still expecting, can you sort of guide us through the dynamics on how that works? Is it -- are you assuming a ramp-up for Tia Maria and then El Pilar and that offset some of the grade decline in your existing operations? Or how do we go about thinking about that? Raul Jacob: Yes, Grant. Whole in effect is -- we have -- we're assuming for 2027, the ramping up of Tia Maria -- Okay, our production will increase as we get in operation, our major projects. In the case of Tia Maria, it will kick in with production in 2027. Later on in time, but it will be more in the 1930s (sic) [ 2030s ] , we will have Los Chancas and Michiquillay. But in the meantime, we're expecting to have El Pilar getting in 2028, and El Arco in 2029 -- '28, '29. Now having said that, on the existing operations, we have for the long term, some ore decay that -- and we're considering some actions to contain the impact -- the full impact of that. Basically, in the case of Cuajone, we have -- we're expecting a reduction in ore grades starting next year. And for that, we will take some action as such expanding our Cuajone concentrator once again in order to fill up that material. That has not been approved by the Board, but it is something that we're looking as a possibility. We also have some other actions regarding different operations, and that's how we should comply or maintain our production level and increase it as we go towards 2030. Grant Sporre: Okay. So if I can just sort of clarify. So if we take your existing operations in a sort of a do nothing scenario where you don't try and mitigate the impact of ore degradation or ore grade decline, your existing operations would probably decline sort of about 2%, 3% and you're hoping to offset that through various actions. And then the rest of your projects are all growth on top of that. That would be, I'm guessing your ideal scenario. Is that the... Raul Jacob: That is current. What we're considering is basically on the existing operations, taking actions in order to maintain the production level or reduce as much as we can the decay due to ore reduction. I mentioned the Cuajone situation as an example. And besides this, we have new projects kicking in, which will provide new production and help us to maintain our production level and increase it up to 1.6 million tons by, say, mid-2030s. Operator: And we have a question from the line of Marcio Farid with Goldman Sachs. Marcio Farid Filho: A quick follow-up on the 2 projects that you mentioned. Tia Maria, you're talking about potentially ramping up in the first half of '27. And a follow-up to the earlier question as well. It seems like in order for you to recover part of the loss in '27, you would need some significant volumes from Tia Maria, right, which I think is embedded in the guidance today. Can you remind us how confident you are -- you can get to Tia Maria at nearly 100,000 tons production by '27, considering the current schedule? And then secondly, Cuajone, I think it's -- I think we've talked about it before potentially adding another concentrator at Cuajone as well. What's the sort of time line? When can you expect that decision to be discussed? Or being made by the Board, that would be great. And lastly, sorry, how does -- if there is any change to potential '26, '27 or '28 guidance, how should we think about costs in the context of lower fixed cost dilution as well? Raul Jacob: Okay. Thank you for your question, Marcio. In the case of Tia Maria, we are expecting to initiate production in 2027. As a general comment, we're still looking in our plans for the next few years. I mentioned already that we are expecting to have more production over 911,000 tons for next year. Hopefully, we will improve that when we do our report in January. And same thing applies to our guidance for the next few years. I think that we will provide a more detailed and clear situation in our January report. Coming to your other questions, the Cuajone expansion, we're still working on what to do. It is not a new concentrator. It's going to be a new line in the existing concentrator that may have a much lower cost than a new concentrator. Just to give you an idea, we're thinking about of something between $600 million and $700 million for that project, and it will provide about 40,000 tons of copper. But as I said, this is not Board approved. So we're still working on having a solid case to present to the Board. When could be this approved? Well, let's say that we finish the work and present some guidance to the Board next year, then we could have an initial approval. And when we have all the permits and everything, then we could be able to go for a final and kind of construction approval to the Board. For -- I think I already answered your questions unless you have some other comment, Marcio. Operator: Thank you so much. And this concludes our Q&A session for today. Thank you, everyone, and I will pass it back to Raul Jacob for any final comments. Raul Jacob: Thank you very much, Carmen. With this, we conclude our conference call for Southern Copper's first quarter of 2025. We certainly appreciate your participation and hope to have you back with us when we report the fourth quarter and full 2025 results. This will be in January -- in our January call. Thank you very much for being with us today, and have a nice day. Operator: Thank you so much. And this concludes our conference for today. You may now disconnect. Everyone, have a great day. Raul Jacob: You too.
Roger White: Well, good morning, ladies and gentlemen, and welcome to the C&C Group FY '26 Half Year Results. My name is Roger White, and I'm joined today by Andrew Andrea, CFO. I'm sure you will all know that in due course, Andrew will be swapping barley apples and wheat for tomatoes and pepperoni as he moves from drinks to food and from a wholesaler to operator moving into Domino's Pizza CFO. There will be plenty of time to wish Andrew Bon Voyage in due course. In the meantime, we have plenty to do in the period he's still with us. And I know that Andrew is fully focused on C&C Group across the whole of that period. Today, we will start with the highlights of the last 6 months before I hand over to Andrew, who will give you a detailed review of the financial performance in the first half of '26. I will then update on our current thinking regarding strategy, followed by a brief operational review of the first half, a closing summary and outlook before we move on to some Q&A in the room. Now moving directly on to Slide 4 in your packs. We've delivered a solid performance across the first half of FY '26. From a market context perspective, it's been a mixed period. The well-publicized challenges for the hospitality sector have accelerated across the past 6 months. Increased operating costs and mixed demand has impacted most operators. However, some decent summer weather certainly lifted the mood across the sector at certain times across the summer. However, as welcome as the good weather was, it did not lead to positive volume performance across the total market. At C&C, we focused on improving our efficiency, driving out costs and delivering great service to our customers. This has underpinned our performance in the period, leading to a 4% increase in our operating profit. Both our reporting segments, brands and distribution improved margins, and we continue to deliver strong free cash flow, which in turn has supported our capital allocation choices with further returns to shareholders via increased dividends and further execution of our share buyback plans. Revenue in the period appears subdued, but reflects in the main, the transition of contracted Budweiser Brewing Group volume out of the group alongside some thinning out of some lower-margin contract and customer volumes, something which is likely to continue as we look forward and focus our efforts on improving margins, in particular, in the wholesale part of the business. It's been a busy 6 months for the teams inside the business where we have worked hard on business improvement across control, simplification and business process redesign, alongside team development and our initial actions on brand development and innovation. Improvement in C&C is underway, but there is much to do, and it will take time to feed through to our performance. I would like to take this opportunity to thank all 2,850 colleagues at C&C Group who continue to work hard to serve and support all our customers and consumers at the same time as we seek to improve the business. Now I'm going to hand over to Andrew, who will take you through the detailed financial review for the first half. Andrew? Andrew Andrea: Thanks, Roger. So moving on to the next slide and starting with the headline financials. As Roger just alluded to and as we reported back in September, revenues were 4% behind last year, and I'll come back to that in a moment. However, we've made operating margin improvements in both our Branded and Distribution segments. That's helped drive group margins up 40 basis points and consequentially, that's driven positive momentum in each of the key profit metrics, most notably operating profit up 4% and double-digit growth in both PBT and earnings per share. From a cash perspective, we continue to be strongly cash generative. There have been a couple of one-off items, which I will expand on later, but the underlying cash flow of the business continues to be strong and leverage is in line with last year at 1.1x. So a business continuing to generate strong cash flows underpinned by earnings progression. Turning now to revenues on Slide 7. But as you can see from the chart, the majority of the revenue decline was anticipated and relates to the loss of the BBG distribution in Ireland. Just to remind you, this will annualize in January. So there's a little bit more of this to come through in the next 3 months or so. In our underlying distribution business, as widely reported in the market, national customers are reporting like-for-like absolute sales growth, but volume decline in drink, and that's reflected in our own distribution performance. And we are seeing some rationalization in the estates of many of our big customers. In the U.K. on-trade, cider has underperformed. Magners and Orchard Pig have seen lower sales this year. Roger will touch on off-trade progression, but on-trade is harder to land, and that's reflected in the sales performance. But encouragingly, we've seen an improvement in revenues in both Bulmers and Tennent's, our 2 core brands overall. So moving on to earnings. On the next slide, please. Thank you. We've seen operating margin percentage improvement in both Branded and Distribution. And this is driven by 2 key areas of focus in our business across both segments. The first of those is a focus on efficiency through our Simply Better Growth program, driving costs lower through the organization. But secondly, a much more disciplined approach to trading. So what we mean by that is, we want to run a business with sustainable earnings at an appropriate level of margin. We will actively exit things that don't earn us money. It's the classic failed is vanity, profit sanity equation. But by applying that, as you can see, that margin growth has driven absolute operating profit growth in both of our trading segments. Turning now to costs on Slide 9. By way of reaffirmation, our FY '26 costs are in line with our expectations. Modest inflation is the underlying theme for this year. And for FY '27, we are starting to hedge some positions. But as things currently stand, we're anticipating another year of modest inflation overall. There's nothing at this stage that is not in line with our expectations. So moving now on to cash flow and balance sheet. From a cash perspective, as I mentioned earlier, we've seen strong cash generation in the period. But as you can see, we've got a couple of one-off items bolstering that cash flow overall. First of all, from a CapEx perspective, our program this year is second half weighted. We're still guiding full-year CapEx of around EUR 18 million to EUR 20 million, and we've had a GBP 10 million benefit on working capital. I'd expect that to level out in the second half year. So GBP 15 million of that GBP 20 million uplift should flow back in H2. We have closed out some cash positions with the revenue that has given us an income tax benefit in the period. But overall, our aspiration is for free cash flow to be at a similar level to that which we generated in FY '25. Moving on now to debt and leverage. Our borrowings have increased slightly in the period. I'd expect that again to level off in the second half year. We've closed out a couple of lease negotiations on a couple of our bigger depots. So our IFRS 16 obligations have increased in the period. But our leverage, and just to remind you, our focus is on borrowings to EBITDA on a pre-IFRS basis is at 1.1x, in line with last year. And by way of reminder, our financing is long dated with headroom. So we have an RCF and term loan extending out to January 2030, and a couple of private placement notes maturing in 2030 and 2032. So we've got a prudent level of leverage, headroom against our facilities and no short-term refinancing requirements, which gives us cash and capital flexibility. So what does this all mean, then wrapping this up for capital allocation. Well, our primary driver of increased cash generation is growing our earnings in the medium term through growing EBITDA. But importantly, our underlying cash flows outside that are quite predictable. So working capital is pretty stable. There are opportunities, most notably rationalization of our SKU base. Our CapEx is modest in nature. We're forecasting somewhere in the region of EUR 15 million to EUR 20 million of CapEx year in and year out. And because of the finance facilities we've got, our finance costs are stable, and we have a stable effective tax rate overall. What that means, therefore, is we retain and maintain our aspiration of a business generating at least EUR 75 million of free cash flow in the medium term. And that capital allocation priority is to honor our commitment to return EUR 150 million back to shareholders in the 3 years to FY '27. And that will be driven through a combination of growing our base dividend. We've announced a 4% increase in our interim dividend and the option of either share buybacks or special dividends. Clearly, our preference is for the former, and we completed the latest EUR 15 million tranche of share buybacks in September of this year. So including the interim dividend, we've announced just over GBP 90 million of returns to date. So we've got around GBP 60 million to go. If we add in our dividend expectations, that means over the next 18 months, we've got around GBP 30-or-so million of buybacks to achieve in that 18-month period. And in generating that cash flow, coupled with our financing flexibility, we do have the ability to invest in strategic growth opportunities should they arise. And clearly, that will be done on a case-by-case basis and returns driven. Underpinning all of that is a target leverage of 1x earnings overall in the medium term. But what this demonstrates is that we have a business that's generating predictable cash flow. We've got very clear capital allocation methodologies underpinned by a low level of leverage overall. That's everything from me. I'll now hand back to Roger. Roger White: Thank you, Andrew. I'd now like to take a few minutes of your time to update on strategy before I talk through a brief operational review of the first half. So turning to Slide 14 in your packs. It's now around 9 months since my first day at the C&C Group, that time has certainly flown by. I've spent most of my time during the last 9 months just building my understanding of the business and the markets we operate in. It's true to say that we certainly have some complexities as a business, but we also have a range of opportunities and balanced with challenges. Let me update you on where we are thinking regarding the direction of travel of the C&C Group strategy. And if I can start by looking backwards to just set some context. C&C Group has been built over time via acquisition of multiple businesses to create a scale business across multiple markets and multiple geographies. However, integration has not been prioritized in this business build. So systems, policy, procedure and even cultures have in many ways not been harmonized. We, therefore, operate in multiple business models within a group structure, which at times has been unclear in its strategy. In addition, we struggle to realize the benefits associated to our scale. In recent years, to address this, the stated objective has been to create an integrated one C&C approach, attempting to push our group into one operating model. However, this has not been fully delivered due to the complexities of the businesses and the lack of historic integration that I mentioned a moment ago. So we currently operate in a slightly uncomfortable middle ground, neither as an integrated group nor as discrete business units. This reflects in our cost base, it reflects in our controls and it reflects in our focus as a business. We do, however, believe that scale alongside our brands and wholesale model can bring significant benefits in the markets we operate in and thus supports the principle that the C&C Group has a rational role to play in the creation of value across the beverage markets we operate in. Moving on to Slide 15. As we look forward, our immediate priority is to evolve how we operate as a group, simplifying and focusing on execution as we aim to create value from our scale and expertise, both centrally and locally. Our view is definitely that the beverage sector is a great part of the consumer goods market. It has deep consumer penetration across multiple occasions and has products and brands for everyone, whether locally or globally and whether consumed in a hospitality venue at home or even on the go. We can develop our position in this market as a highly credible brand owner and developer, supported by our position as an experienced and sizable wholesale operator. By leveraging our enviable scale alongside our market-leading reach, range and service, supported by our industry-leading category expertise, specifically associated to the hospitality sector. We need to develop further the winning consumer and customer propositions that will drive our business forward successfully. In the meantime, our operating segments will remain Branded and Distribution. We have many things to occupy us as a business in the coming period, but I would boil them down to these 3 simple objectives: simplifying our core central operations, processes and reducing our costs, growing volume in our branded segment and improving margin in our distribution segment. To achieve this, there are multiple actions required, some of which are already underway, others we will develop in the coming months. This will lead to an updated set of performance outcomes and longer-term performance targets, all of which we will set out in May 2026. I believe this evolutionary approach will yield the best outcome for shareholders in the short and medium and long-term and lead to the delivery of our longer-term strategy from a much more solid starting point. Now turning to Page 16. As we look forward and plan how we'll shape and grow the business, one thing underpins all of our ambition, and that is the building of a winning culture where performance and people go hand in hand. To support our evolving strategy, we aim to create an agile, inclusive and performance-driven culture that supports our local hero challenger status, providing our consumers and customers with a great experience, whether that be associated to our brands, our supply or even corporately. As you can all see from the slide, there are a number of work streams across the organization, talent, leadership, communication and capability, all of which tie into our cultural development and all of which are necessary to meet our ambition. However, in the very immediate term, we are still very much fixing the basics across our business to ensure that we are building from the most solid foundations. These foundations will support our operating structures and our growth ambitions as we progress the strategy development of our business. Now turning to Slide 17. Moving on to review the last 6 months, let me briefly update on markets brands, operations and our responsibility agenda. Firstly, turning to consumers and markets on Page 19. Consumer behaviors remain significantly influenced by economic factors. Confidence remains fragile. And as costs in hospitality have risen and consumers have had to shoulder the burden for this, it has led to some volume issues as consumers simply cannot afford to enjoy hospitality occasions as frequently as they historically have. In addition, when they do go out, value for money takes on even more importance. The drive for value has also impacted choices, not only where to visit, but what to consume while you're there. This is manifested in the higher proportion of sales in long alcoholic drinks products, somewhat to the detriment of wine and spirits. This picture speaks to the complexity that exists in our markets and reinforces the importance of our portfolio breadth and market coverage as a business. Now our branded portfolio is performing well in these challenging market conditions, supported by our strong regional routes to market. Our core brands have a unique long-standing importance to consumers within the markets they operate, and we are only just starting to tap into the possibilities of developing our brands further, whether it's in our well-known core or in areas where we currently have a smaller, more niche presence. As I mentioned earlier, we are confident in the potential of the wider beverage market to sustain long-term growth, and we believe there is potential for C&C to grow within that context. Now turning to Slide 20 and specifically to talk about some of our core brands. 2025 marks a major milestone for the Tennent's lagger as we celebrate 140 years of brewing Scotland's favorite beer. Despite market headwinds, Tennent's has shown remarkable resilience, broadly maintaining its market share across Scotland. In the off-trade, we have widened the gap to the 2 nearest competitors, while in the on-trade, our rate of sale is 2.5x that of our nearest competitor. Such as the strength of the brand performance, Tennent's is now a top 10 lagger brand by value across GB as a whole, outperforming a number of leading global brands. Tennent's does play a unique role in Scottish culture, and we have continued to be at the heart of what matters to our consumers from rewarding Scotts for the best and worst Scottish summer weather being part of the conversation and the experience at the Oasis concerts as the tour of the year arrived at Murrayfield. In fact, across the summer set of concerts in Scotland's 2 national stadia over 365,000 pints of Tennent's were enjoyed. Our last financial year-end review, I said we would bring innovation back to the brand. And I'm delighted to say that we've just launched Tennent's Bavarian Pilsner [indiscernible]. And this is a 4.7 ABV limited edition beer with a distinctive Bavarian flavor coming to the market this month. This is the first of a number of planned launches for the Tennent's brand built through our new innovation team and process. In addition, we brought a significantly improved reformulated Tennent's Zero to market alongside an expanded pack range for Tennent's Light, critical to the growing number of adults and GB saying they are moderating. Tennent's is an amazing brand with so much more potential still to be unlocked. Moving on to Slide 20 to talk about Bulmers. Bulmers has delivered a strong first half with total revenue up more than 6%, driven by focused brand investment and a revitalized brand communication strategy. In the on-trade, Bulmers original growth accelerated across the reporting period, up over 10% in the 3 months to July, benefiting from the undoubted spell of decent summer weather, while in the off-trade, it outperformed the cider category with growth of 10% and a 1.8% share gain. Power brand, as measured by Kantar, is up 9.5% year-on-year, reflecting the impact of the above the line and digital campaigns with its our time advertising returning for a second year backed by a 33% increase in media spend, helping Bulmers become the most salient long alcoholic drink brand in Ireland. We backed Bulmers Zero with Tonight's Zero, Tomorrow's Hero campaign, reaching almost 3 million consumers with both strong growth and share growth in the nonalcoholic cider category. Bulmers Light continues to grow with volume up, meeting the growing demand for lower calorie options. Like Tennent's 2025 was also a milestone year for Bulmers as the brand turned 90. We celebrated, as you would imagine, in both the trade and with consumers and employees. So in its 90th year, Bulmers is in good health, growing, innovating and connecting with consumers. Now moving on to Magners on Slide 22. I told you earlier in the year that we were at the beginning of a journey with Magners, and I'm pleased to say that we are on our way, seeing some positive initial impacts from our efforts. However, this is a journey that will take time and commitment. In the period, we have made our largest brand investment in over a decade, which has seen the magnetism campaign begin a renewed energy to the brand and consumers. It's already driving some strong brand health improvements in awareness and consideration and the social engagement scores are moving in the right direction. This marks a real shift in momentum after some very challenging years. Magners remains the #1 package cider in GB on-trade, selling over GBP 90 million in the last 6 months. So we do have scale, but we now need to drive momentum as we improve consumer awareness and drive brand reappraisal. We have new packaging that has now been rolled out and is driving increased consumer perceptions of quality and our focus on pack mix is beginning to bear fruit. Recovery journey for Magners is only just underway. Slide 22 highlights a number of consumer actions made to build brand momentum, including a number of PR-led activities, whether that's in concerts such as Belsonic in Northern Ireland, where we reached an audience of over 200,000 people with the Magners brand. Magners reach continues to grow globally, exported to 45 countries and including the U.S.A, I couldn't resist the picture of a Victoria's Shane Lowry enjoying Magners after clinching the rider cup for Team Europe. Magners is therefore, regaining its edge with renewed brand energy, improved consumer perception and a clear plan to drive value and growth into FY '27. Now moving to Slide 23. Our premium portfolio continues to grow, driven by Menebrea's strong performance in H1. On-trade volume sales are up 8%, with significant growth, particularly in Scotland. For Menebrea, we focused on building awareness and specifically food credentials, particularly through a strategic partnership, including with the well-known celebrity chef, James Martin. This has helped us drive our awareness now at 13% in GB, but a significant awareness in Scotland of over 28%, cementing a key point of difference, which is based on the insight that 73% of [at-home] beer serves are now accompanying food. We've launched new pack formats supported by our biggest off-trade investment to date, and we've delivered the strong growth that I mentioned. We've anticipated across multiple channels from [indiscernible] and digital screens in stores through to a traditional Italian beer window in London, which has brought a touch of Florence to the streets of London and driven national media coverage. Meanwhile, our exciting modern new cider brand Outsider is gaining momentum. It's now the #2 cider brand in Northern Ireland behind -- in the on-trade behind Magners, and it's expanded into Scotland with nearly 300 listings. In the off-trade, our new 4 packs and 10 packs have been listed in over 700 stores in H1, building on the strong digital-first marketing and consumer engagement position. So Menebrea and Outsider are proving the case that our premium and challenger brands, can drive growth, relevance and value across the portfolio. Now turning to the distribution business on Slide 24. Our distribution business, specifically Matthew Clark Bibendum operates a full-service composite supply model across the U.K. hospitality industry from 11 warehouses, it services 12,000 customer delivery points with a range of over 8,000 SKUs. I talked when we last met about a Road to Recovery for MCB. And I am delighted to confirm that if the measurement of recovery relates to customer service, choice and value, then we are in a much improved position. The tangible measure of service performance is now fully recovered, and we are now firmly into the phase of improvement in our operating efficiency from a strong base level of service. Whilst we have seen our product sales mix move in the period in line with market trends, we are starting to see the benefits associated to our technology investment in this area, such as our sales force efficiency and our ability to improve our customer performance, which is beginning to take shape. This is likely to see some short-term attrition to our customer numbers as we move out of less commercially attractive business and seek mutually beneficial longer-term commercial supply partnerships with our customers. This remains a highly competitive sector, but we're working to ensure we are increasingly capable of providing winning customer propositions at the same time as we provide our branded partners with unrivaled on-trade access. Turning to Slide 26. Let me give you a short update on our sustainability and responsibility performance. We see our sustainability agenda as a core part of our business operations and simply just part of daily life at C&C. We continue to make good progress in our decarbonization journey across the group with the latest major initiative being the anticipated investment in an e-boiler at our Wellpark Brewery next year to replace our current usage of gas at Wellpark with sustainably generated electricity. This initiative will be a major contributor to our decarbonization plan, but obviously, alongside the multitude of smaller but important actions we take every day. Across the group, our commitment to safety is absolute. In the period, we launched our health and safety Center of Excellence at our Birmingham site, where we train and develop our safety activities for rollout across the wider group. This initiative underpins our improvement plans, ensuring our development of safe working practices are successfully trained across the whole business. As a group, we continue to invest in technology and assets that meet our responsibility agenda, including the important enabling investment in dealcoholization technology to support our innovation drive into low and no. This exciting investment will be made at Wellpark and is expected to be operational during the course of next financial year. It will give us a technical edge in the production and delivery in this critical product area. So in the broadest sense, we continue to prioritize our responsibility agenda, not only with words, but also with tangible actions. So moving on to the final slide. In summary, H1 FY '26, we delivered a solid financial and operating performance. We delivered sustained improvement in service to customers and continued to generate strong amounts of cash. Our brand performance was resilient and gives me confidence in our longer-term potential. Distribution has recovered its service, which is critical to us moving to the next phase of margin improvement. I said in May, there is much to do at C&C. I would reiterate that comment once again today. Market conditions are without doubt challenging, but we now have a clear view of our next steps and where to prioritize our efforts as we deliver the balance of the current year and plan for the next. Thank you for listening today, and we are now going to open up to questions from the room, if we have any. And we have a microphone. So if you'd be good enough, if you have a question, just announce yourself who you represent and then ask the question. Harold Jack: Douglas Jack with Peel Hunt. Just a quick one on the distribution. How far along the road do you think you are towards removing unprofitable business within that division? I mean what's -- how many years should we look to you seeing that process complete? And what kind of benefit? Roger White: I think it's a long-term journey. It's not a short-term position. We provide a wide range, as I said, to 9,000 or so SKUs. Within that 9,000 SKUs, there's work to be done to both improve the range and also streamline the range, and that's to be done with the customer and consumer in mind, but will require a reasonable amount of effort to do it. So I think I would look at this as a -- this isn't going to happen overnight. It's going to take time. Some of the volume will be contracted. Some of it will require replacement activity behind it, but it's the motivation to work with our customers -- all our customers to give them a better outcome, but also to give us a better commercial outcome. Laurence Whyatt: Laurence Whyatt here with Barclays. I've got a couple, if that's okay. When you talk about this sort of new integration that you're putting the C&C Group back together, are there any KPIs that you are particularly targeting that we should focus on? Is it simply growth in the branded business, margin in the distribution business? Or are there any other indicators that you think are particularly important? Maybe we start with that. Roger White: I think there will be lots of KPIs that we will need to pull together and as I say, in May next year, come back to you with a set of hopefully -- properly worked through plans, initiatives and actions and a set of numbers that will go with that and a set of monitoring KPIs. I think today was really just about setting the stall out in what the higher level focus would be and that simplification at the center, margin improvement in distribution and growth in brands are, the areas we're working on the initiatives behind those. As I said, some are started. We've got a team of people on innovation. We've got a new process design. We've got the first signs of new things coming to market. So we've got growth in mind. We've got a more growth mindset in the service on the distribution business is going well, but we've got a lot of commercial work to be done to get a ranging right and our pricing right. So I think there will be much more to come. Laurence Whyatt: You mean pricing -- it's a clear focus in the industry at the moment. One of your competitors last week was talking around a lot of price being taken during the pandemic period and perhaps a lot more price than inflation. And then for their plan going forward to 2030, they're looking to take price below inflation, albeit ahead of the cost inflation. I was wondering if you have any similar thoughts on the consumer price environment within the U.K. and where do you think your pricing will be able to be? Roger White: Look, I -- there are in essence, 2 fundamental bits to our business. There's a branded business and there's a distribution business. And in the branded business, for us, it's about -- as I said, it's about growth, and we want to support our customers. If there is inflation there, we'll look to offset that as much as we can with efficiency and cost. And if we need to pass some on it, we'll be as modest as possible in support of the sector. The distribution business is a fundamentally lower margin business. It's about moving cost through, but being efficient, and we're going to do both of those things. So I can foresee -- as we sit at the minute, as Andrew said on his slide around materials, we don't see anything from a cost point of view that looks shocking at the minute. We will wait and see how the next few weeks goes. We are hedging for next year, and we can see a very similar sort of low single-digit amount of inflation coming. Fintan Ryan: Fintan Ryan here from Goodbody. Just a few questions from me, please. Firstly, maybe following on from that last question in terms of margins. Within the 60 basis points branded margin increase in H1, can you break down what was maybe the COGS gross margin? What was -- how much A&P stepped up by? And then what other sort of operational leverage you got? Andrew Andrea: An equal measure. So I wouldn't focus on one thing. With the margin improvement in branded, we're pulling lots of levers, as Roger has alluded to. So I don't think there's any one dominance in all of those 3, Fintan. Fintan Ryan: And in terms of A&P spend for the second half? Andrew Andrea: We're seeing a slight increase year-on-year. So a continuation of that going through to H2, including the continued investment in Magners that we've commenced in H1. Fintan Ryan: Okay. And maybe just following on from that point. Clearly, I know as a consumer see Menebrea everywhere and like good listing, particularly in Tesco. Maybe it's probably a longer-term question, but do you see any positive synergies in terms of reigniting the Magners brand, reflecting some of the wins that you've got from Menebrea and maybe even bringing Tennent's out of the border? Roger White: Look, I think momentum is everything in brands. And to get momentum moving, you need multiple sets of activity. It needs to be a combination of building awareness, growing distribution, bringing something new to market, having great products, convincing people through competitive pricing. There's -- so it's a range of activity. I'm delighted to hear that you're seeing Menebrea everywhere. I don't think we are nearly everywhere, but I'm glad that you're seeing it. I think there is a halo impact. If you are showing momentum, then whether it's consumers or customers or partners all see the positive benefit of that. So we do want to get into that positive momentum with all our brands. Fintan Ryan: One final question. I think you said to get to the GBP 150 million total cash return, you need to do 30 million buybacks over the next 18 months. Any thoughts of when we should expect that buyback? And basically given the shares have come off a bit recently, why not now? Andrew Andrea: Well, I think we sort of hold code when we pay dividends and there was an expectation of what the residual dividend will be. We've always said that we will do GBP 15 million or so tranches. So crudely speaking, we've got 2 tranches to go over an 18-month period. And we'll just align that to match to our cash flows, which was always the intention. But it's well within reach is the key point. Damian McNeela: Damian McNeela from Deutsche Numis. First question on Magners, Roger. I mean I appreciate that we're at the start of the journey on Magners, but it was a particularly good summer, and we saw the evidence of that in Ireland. What are the challenges that Magners brand really faces in the U.K.? And what work do you need to do to remedy that? Roger White: So look, I think the Magners brand is -- has been a great brand in the past, can be a great brand in the future. It's been heavily skewed in recent years to quite high volume, low-value price activity, in particular, in the take-home market. It's lost a lot of its momentum in the on-trade and building that distribution through the draft side of things, it's going to take time to do. So the starting point is consumer reappraisal, and we started that with the work we're doing and the early results on that look encouraging, but that doesn't feed through immediately into brand performance. We are starting to see trade reappraisal, our customer base appreciate the scale, breadth and positioning of the brand and they seem to positively want to support us. We need to get the distribution moving. We need to rebuild it. We need to move away from the lower value, high-volume price promotional work that's characterized it in retail, and we need to get the distribution in the on-trade moving. That is just going to take us a bit of time. But if we can have the consumer reappraisal successfully set up, then the off-trade will follow quickly and then the on-trade will take a little bit longer. So I think it is the longest journey. Andrew Andrea: Yes. I mean most national operators on draft have multiyear arrangements. So you're having to participate as the cycle arises. That will not arise all in a single year. Damian McNeela: And then just the second one, I think you mentioned on the distribution business, you were looking for potential customer attrition over the next -- well, can you qualify and quantify exactly the level that we should expect to see and whether that feeds through to revenue and margin? Roger White: No, I can't quantify. I think I'm just raising the potential as we look at our portfolio, as we look at our customer proposition, then we need to be adding value to our customers. We need to be creating value for our branded partners, absolutely. But we need to make some margin in doing that. And for me, as a relative newcomer here, I can see some areas where we are not making a suitable return, and that will require us to make some changes. I have got, I guess, I hope that we can find suitable ways of doing that, that doesn't lead to customer attrition, but it would be unrealistic of me to not suggest that there is a risk of that as we try and improve it. Now I'd like to think that we can grow the business. But we're -- as we said, we're going to focus on improving the margin and some of that might come at the expense in the short term of some turnover if it's not adding value to what we do. Damian McNeela: Okay. And then one last one for me. Christmas is just around the corner. What's the trade saying about bookings? And how are you feeling specifically about trading into Christmas? Andrew Andrea: The sentiment on bookings is positive at the moment. Christmas will happen fairly enough, 25th of December. It's midweek Christmas. So for the trade, that should be good. In Scotland, there's an old firm game in the middle. And a lot of our plans are making sure we land all of that right. So you've got a backdrop of positivity. But I've been in the pub game for a very long time. And what I do know is no matter what your bookings are, the majority of Christmas is impulse. And so no matter what [Hubco] say about bookings. It's what happens in that 2 weeks of Christmas that is mission-critical. So we'll let you know about Christmas on 6th of January. Roger White: The focus on the controllables for us, we are well set up internally to ensure that we give our customers the best possible service regardless of the challenges of which days fall, what. How the supply process is going to work, we are well setup to do that. And so as Andrew said, we will wait and see what the absolute demand is. But our most important thing we can control is making sure that we are ready and working with our trade customers to make sure that they have absolutely everything that they need. So when the consumers do walk through the doors that the pubs are well served. Clive Black: Clive Black from Shore Capital. Always interesting to have results from Scottish company when Celtics manager resigns. Three questions. Hopefully, one is fairly straightforward. I'll ask that first. Just in terms of your assortment, and you mentioned SKU rationalization, a, how happy are you with your assortment? And b, where are you on your rationalization journey? Roger White: We are just at the start of the rationalization -- first of all, we are just at the start of the rationalization piece. I think it's basic stuff first. We've got some very deep and very complex ranging in the business. Some of it is fully justified. Some of it is less justified. The aim would be to cut out wasteful areas which are not adding value to our customers rather than just have a target number that we are trying to get down to. How happy are we with our range? I mean, pretty happy. I mean it's -- we supply such a variety of outlets. It is important that we have that variety of range. It's just, as I said, looking through for the obvious areas where we can make improvements. And there will be some areas of our assortment, I think, that will grow, but equally, there will be other areas that we have over-ranged. So yes, just at the start. Clive Black: Okay. And then I guess you're going to get this asked repeatedly, particularly after next spring, but of the simplification efficiency program, is it sensible to suggest a fair amount of that has to go back in the business? Or should we be becoming excited about where the operating margin can go in C&C? Roger White: I think that's something we can talk about next May rather than today. What's important for us to do is to have deliverable plans and make good choices for the long-term benefit of the value creation that we can do with C&C. I can see, as I said, there are challenges that we can all see, but there are opportunities as well. And I think it's a balanced scorecard that we need to work out which ones we can unlock, how fast can we get to them and how certain can we be of them. So I'll try and answer that when we've got bankable plans. Clive Black: Okay. Good luck on that. And then lastly, and this, I think, is the most difficult one for any business. You mentioned culture. What is it about C&C's culture you have to change? And how long will that take? Roger White: That's a good question. It's not an easy one to answer. I think I would answer it by saying the business has been grown through, as I've said, through acquisition and bringing together businesses. We want to not -- we want to positively embrace our differences. We want to find consistent ways of building efficiency, driving the benefits associated with scale, but we want to unleash our ability to serve customers and build brands and embrace our differences where it's important and where it supports us. If you travel around our organization, as I have done, and I'm sure many of you have done and you go to the various operating parts of it and you ask people who they work for, they generally work for Bulmers, Matthew Clark, Bibendum, Tennent's Caledonia Breweries. They don't generally work for C&C Group first and foremost, and we need to embrace that rather than try and break it. So I see it more as trying to reestablish what's important for us and trying to get benefit from we have -- what we have -- we have 2,800 and almost 50 colleagues, and they are passionate about the business, and it's just about harnessing that. So I think you don't change culture quickly, but there is a little bit of back to the future about it rather than trying to do something that's alien. Great. Thank you all very much for your attendance, either in person or online. And we will draw proceedings to a close. So thank you all very much. Nice to see you all.
Operator: Good afternoon, and welcome to the MGM Resorts International Third Quarter 2025 Earnings Conference Call. Joining the call from the company today are Mr. Bill Hornbuckle, Chief Executive Officer and President; Corey Sanders, Chief Operating Officer; Jonathan Halkyard, Chief Financial Officer and Treasurer; Gary Fritz, President of MGM Interactive; Kenneth Feng, Executive Director and President of MGM China Holdings Hubert Wang, COO and President of MGM China Holdings; and Howard Wang, Vice President, Investor Relations. [Operator Instructions] Please note, this call is being recorded. Now I would like to turn the call over to Mr. Howard Wang. Please go ahead. Howard Wang: Thanks. Welcome to the MGM Resorts International Third Quarter 2025 Earnings Call. This call is being broadcast live on the Internet at investors.mgmresorts.com, and we've also furnished our press release on Form 8-K to the SEC. On this call, we will make forward-looking statements under the safe harbor provisions of the federal securities laws. Actual results may differ materially from those contemplated in these statements. Additional information concerning factors that could cause actual results to differ from these forward-looking statements is contained in today's press release and in our periodic filings with the SEC. Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise. During the call, we will also discuss non-GAAP financial measures when talking about our performance. You can find the reconciliation to GAAP financial measures in our press release and investor presentation, which are available on our website. Finally, this presentation is being recorded. I will now turn it over to Bill Hornbuckle. William Hornbuckle: Thank you, Howard, and good afternoon, everyone. Our industry is constantly changing, and MGM is always moving forward, proactively navigating with agility and allocating capital with discipline to best position our company for future success. One example of our capital discipline was a challenging decision to withdraw our application for commercial license in Yonkers, New York. We dedicated significant time and resource over the last several years to this project adjusted along the way with our best efforts to make the project work for all parties involved. We have been and continue to be a proud partner of the city of Yonkers and the State of New York. We remain committed to operating the property in its current format and believe it will continue to enjoy success serving customers in the Yonkers and surrounding communities. Also, we have been consistent in our focus on premium best-in-class market-leading integrated resort operations and have held true to our message that we will optimize our portfolio when the right value opportunities are presented. This was the case for Northfield Park, which we are selling for $546 million in cash. You may recall, we acquired the operations in 2019 for $275 million. We have grown the business and create significant value over the last 6 years. And importantly, the sale of multiple of 6.6x represents a significant premium to MGM's current share price which values the opco business at less than 3x. This company's diversity is also a true benefit, and then all the headlines or concerns about Las Vegas and the general consumer MGM's consolidated net revenues grew this quarter, thanks to the geographic and channel diversity of our business. I've spoken in the past about the evolution of Las Vegas and that over the last 30 years, the market has grown at a CAGR of over 4%. Of course, that growth ebbs and flows over shorter measurements of time. And this summer, we heard from some of our guests around value in Las Vegas, and we responded by making adjustments to ensure a rationalized premium value experience across all of our properties. We also partnered with the destination on a fabulous 5-day sale during which we sold over 300,000 room nights, nearly double our typical pace, reflecting the strong demand that exists for our experiences. There are additional factors presuming the current visitation dynamic, including international visitation, particularly from Canada, Southern California drive traffic and the recent Spirit Airlines bankruptcy, resulting in several canceled routes. We are still expecting to receive over 40 million visitors to Las Vegas in 2025. While we don't expect the dynamic to be changed overnight, we are proactively working to create initiatives and draw incremental visitation. Despite these headwinds, several of our luxury properties generated record 3Q slot win. As we look to the fourth quarter, we see signs of stabilization as the luxury market segment continues exhibiting strength, Groups and conventions are returning and all MGM guest rooms will be upgraded and back online and F1 ticketing presales, particularly for the Bellagio Fountain Club are pacing higher versus the prior year. All of which puts us on a solid footing as we approach 2026. Over 90% of our target groups and conventions are contracted for next year, and the first quarter starts off strong with Conag continuing into the year with other citywides. We also built off the 900,000 room nights we are facing the book through our Marriott partnership this year. And I'd note, October is shaping up to be the strongest room night month ever for forward bookings originating from the Marriott channel. We'll have a full year in 2026 to benefit from the group and convention initiatives launched in the second quarter this year that will allow us -- that will allow meeting planners and attendees to earn Marriott Bonvoy loyalty perks. In the meantime, we continue maintaining an oversized share room nights and rate relative to our Las Vegas competition. As visitation ramps up in Las Vegas, we fully expect our advantage will be maximized by the outside efforts of our employees who achieved our highest-ever 3Q gold plus NPS scores despite continuing disruption from the MGM throughout the quarter, which, again, now has ended. Our teams in the regional markets drove another quarter of solid results. Several regional properties achieved record 3Q total revenue and EBITDAR and the regional operations as a whole generated all-time record slot win this quarter. The targeted capital to create and elevate VIP experiences at Borgata but a notable role again as a casino GGR growth outpaced the market during the quarter, and the Borgata posted all-time high table games drop and slot win. In Macau, even a brief closure caused by typhoon wasn't enough to stop the positive momentum as MGM China achieved record 3Q EBITDAR. Our contributions are leading Macau's evolution in the entertainment destination including the Macau 2049 Residency Show at MGM Cotai and the POLY MGM Museum at MGM Macau, all while staying focused on understanding our customers, particularly our focus on premium mass. The high end continues to drive market growth and quarter-to-date, we've seen a great response to the Alpha Gaming Club at MGM Macau, which officially opened in late September. Similar to the elevated experience provided by MGM Cotai's Matching 1, MGG Macau's 3,500 square meter Alpha Gaming Club includes nearly 30 tables, dedicated restaurant, cigar lounge and located just below the newly designed alpha villas. With more nongaming and entertainment events taking place in Macau, customers now have more reasons to visit and continue to drive growth into the market. The later 2 drove accelerated revenue growth for this segment, which in aggregate, grew top line by 23% this quarter and saw a priority market collectivity growing in line with TAM or higher. Our European BetMGM reached a new all-time revenue high in 3Q, with improved profitability driven by customers' growth and market share gains. Even though the success has been offset by increased investment in Brazil, we are seeing quarter-over-quarter growth with healthy player fundamentals. Notably, growth has been driven around the key metrics of retention, which is exceeding even some of our healthy mature markets. We have a great relationship with our local media partner, Grupo Globo, and are taking a disciplined investment approach for long-term brand positioning and profitability. We expect that to gain market share and reduce our gross spend in the future and MGM Digital has an opportunity for $1 billion in revenue with a significant margin, driving double-digit returns on those investments. Progress in Japan continues for 2030 opening, and we remain confident in our ability to generate a high-teens return at the time of opening, particularly as the only integrated resort in Japan, a country of over 120 million people. As of early this month, all elements of this project were under construction and at one time, there are 60 to 80 cranes and other pieces of heavy equipment on site. We also recently entered a USD 300 million equivalent yen-denominated credit facility at very attractive rates to support our funding commitment to MGM Osaka. And then Dubai also continues to make progress with an expected opening date in the second half of 2028. With that, I will now hand it over to Jonathan to provide additional detail on our performance this quarter. Jonathan Halkyard: Thanks, Bill. And I'd like to echo my appreciation to all of our employees throughout our operations globally for their hard work and dedication. The effort does not go unnoticed and truly is the driver behind everything MGM achieves. This quarter, the Las Vegas segment reported $601 million in EBITDAR, down $130 million year-over-year. The bridge to that shortfall includes 3 main parts: there was $27 million in decreased business interruption proceeds together with an increase in insurance expense due to increased reserves; $25 million in disruption from the MGM Grand Room renovation; and $78 million from the impact on operations, primarily related to occupancy and ADRs. Roughly half of that operations impact can be attributed to Luxor and Excalibur and $6 million more can be attributed to lower hold year-over-year. The balance is attributed to softer ADRs and a decrease in occupancy, which affected volumes in food and beverage in some of our properties. This operating environment has provided an opportunity for us to focus on our cost containment efforts, and we've been able to reduce certain costs alongside top line fluctuations. Net revenue in Las Vegas declined 7%, but we managed expenses down accordingly where possible, including FTEs that also decreased by 7%. As we look into the fourth quarter, we're seeing improving room rates. We also have the benefit of all MGM Grand Rooms online and newly upgraded in time for the group and convention season. and we're seeing strong group demand in November and December, driving stabilization in our business. As we look to next year, the 2026 group and convention channel has the ability to drive growth. Currently, future bookings are pacing up in all outer years, while attrition and cancellations are in line with historical averages. Regional operations had another steady quarter as we grew net revenues modestly. EBITDAR was down $4 million related to a decrease in business interruption proceeds of $6 million year-over-year. Beyond that impact, the results were very solid. MGM China continued its impressive run with record third quarter EBITDAR despite an estimated $12 million typhoon-related impact in September. We also ended the quarter with a record market share of 15.5%. We continue to benefit from MGM China's strong cash flows with an $85 million dividend paid to MGM Resorts in September. As we look to fourth quarter in Macau, we experienced year-over-year growth across segments during the Golden Week holiday period with visitation up 11% and total win up 20%. For the month of October, we're pacing to a 16.5% market share and well over $100 million in EBITDA. Our BetMGM North American venture reported outstanding results and also announced that prior to the end of the calendar year, it will begin distributing cash back to MGM Resorts with the expectation of doing so on a quarterly basis going forward. We expect to receive at least $100 million in the fourth quarter from our $630 million total investment with more to come. The business model is proving out as within just the last 12 months, we've witnessed the evolution from positive EBITDA inflection, then to solid growth trajectory, and now to a business generating ample cash capable of funding growth and cash distributions. MGM Digital reported revenue growth of 23% during the quarter, while segment EBITDA was a loss of $23 million. For the full year, we now expect MGM Digital to have EBITDA losses that could approach $100 million, given our increased investment in Brazil. Though keep in mind, the actual contribution is consistent with our stake in the Brazil venture, which is roughly 50%. The venture has seen encouraging growth quarter-over-quarter throughout the year in active players, deposits and GGR. In our fourth quarter initiatives, including launching our in-house Sportsbook and continuing to increase the scale of the business, focusing on efficient returns. In Japan, construction continues making progress. We've recently raised a yen denominated Term Loan A at the MGM Resorts level equivalent to USD 300 million at a borrowing cost of approximately 2.5% as of this month. This facility also has the ability to upsize to $450 million and we're already receiving incremental interest. We'll use the proceeds from this issuance to cover our equity contributions for MGM Osaka at least through next summer. Finally, we continue to see significant value in our share price. In this quarter, we were able to provide yet another transaction precedent to further evidence the attractive valuation, when you strip out the value of MGM China at market value and assign a consensus value to the BetMGM North America venture, which we still view as very conservative given the current trajectory, you end up with an implied multiple of under 3x trailing 12-month asset EBITDA to say nothing of the value of MGM Digital, a business that's capable of $1 billion in run rate top line with double-digit EBITDA margins and this compares to the 6.6x announced sale multiple for Northfield Park's operations in Ohio, which, if applied across the board to our brick-and-mortar business, inclusive of Vegas, which arguably deserves a higher multiple than the regionals that would imply a share price of approximately $60. I'll open it back to Bill. William Hornbuckle: Thanks, Jonathan. Fairly, I thumbed over a page, which I would like to spend a second on commenting about our digital business. before we take your questions. I know a few weeks ago, you all heard BetMGM's venture reported strong 3 quarter results and raised our full year guidance for the second time this year, increased 2025 EBITDA guidance to approximately $200 million represents an EBITDA increase of roughly $450 million in just 1 year without any new jurisdictions. Importantly, BetMGM will start returning capital to MGM Resorts with an expected initial cash distribution of at least $100 million in the fourth quarter. I also want to follow up on BetMGM's recent comments about prediction markets. For decades, the gaming industry has been a highly regulated at state level. This intense scrutiny has been essential to ensuring the integrity of the gaming industry and in the case of sports betting, helped to identify potentially irregular activity. This is not the time to back away from these high standards. Gaming historically has been and should continue to be a highly regulated industry with safeguards in place to protect consumers and promote integrity. I also want to take a moment and thank our Chief Operating Officer, Corey Sanders, who will be retiring at the end of the year, making this his last earnings call. I'm sure many of you on this call spoke to Corey frequently throughout his tenure. It's impossible to overstate what Corey has meant to this company over the last 30-plus years. As a person, as a leader, Corey understands the importance of caring for employees and treating people with respect. We all want to thank you, Corey, for your dedication, your service and your leadership and let you know that you will be deeply missed. In closing, I want to stress that MGM is the only global operator across physical and digital channels, converging gaming and hospitality with entertainment and sports delivering diversified growth at scale. We have proven to be disciplined allocators of capital, and we'll look at any opportunities with attractive returns, including share buybacks. And in Las Vegas, it's worth repeating, we are focused on what we can control and are well positioned to adapt given the range and diversity of our luxury offerings. We stabilized -- we see stabilization in the fourth quarter and growth in 2026 and beyond. And over the long run, we see a measured supply outlook, a growing local population, expanding entertainment infrastructure, rising demand for live entertainment and for luxury, and we remain very bullish on Las Vegas. And now operator, if we could open it up for questions. Thank you. Operator: [Operator Instructions] And our first question will come from John DeCree with CBRE. John DeCree: I'm sure we'll talk quite a bit about Las Vegas, but maybe to start with your decision to exit New York. Obviously, it was such a focus of your for a while. Bill, I know you gave some prepared remarks, but curious if you could elaborate. Was it just investment sizing, you put out a press release, but anything else you could kind of tell us there? And then my follow-up with the swing in liquidity. How should we think about MGM's kind of return hurdles for investment going forward with New York didn't quite pencil out? William Hornbuckle: Sure. look, there wasn't originally a concern with -- and I think most of you know this, between ourselves and resorts, we basically had a guarantee to -- whether we did the tax or not, we had to make whole on the education fund, we had to make whole for the horseman. And ultimately, we struck a deal with the city of Yonkers, which meant we would have had a minimum tax of about $400 million. So that was our first hurdle. We knew that, but that remained a large hurdle. As we then began to understand the landscape that particularly as it's looked more and more where the competitive set would land, it put further pressure on the deal further pressure on the numbers. And I think the thing that concerned us probably the most was at the end when we thought we were buying for a 30-year license and were told it was 15 and it was done after we've made an original submission that was concerning because if not for that, then what else. And so while we initially liked the return, it got tighter and tighter so much so that given overall market conditions, we think it's capital best spent some other location and some other opportunity. Jonathan Halkyard: And John, it's Jonathan. On your second question in terms of our return thresholds. I mean, given present circumstances with our share price, our return thresholds are pretty darn high. I mean we can capture free cash yield, just in repurchasing our own shares. I don't have the math in front of me, but it's probably 25% or 30%. One investment we're very excited about is our project in Japan. And despite Sarah's great efforts in securing this yen-denominated facility, which will get us through next summer, we'll be investing in that project in late '26, '27 and '28. But this is a project that we think probably has the most favorable supply-demand dynamics of any integrated resort. So we're very excited about that project. Otherwise, we're being -- we scrutinize our capital investments very closely, the growth capital investments that we have opening shortly in Las Vegas, like Carbone Riviera, Gymkhana, and the rest, we think are going to drive very nice returns for us. But we have a high return threshold right now as compared to simply buying our own shares. John DeCree: And Corey, congratulations on your retirement. It's been great working with you over the years. Congratulations. Operator: Your next question will come from Shaun Kelley with Bank of America. Shaun Kelley: Also I'd like to offer my congrats to Corey, and we enjoyed working with you Corey, so thanks for that. So if I could just build on the last question a little bit around -- sort of the high ROI threshold, Jonathan, that you mentioned. I think the question we get over and over again is, obviously, I think we know the trajectory of land-based gaming in the U.S. we think a lot more about the growth in digital that you're experiencing. Does the turnaround -- and so there's going to need to be a balance at some point between value today and a lower cost of capital but -- or a higher cost of capital, but growth that you could achieve looking to a digital future. So just trying to kind of get your current sense on how you -- how you kind of prioritize or balance that? And just sort of your thoughts on doubling down on digital given, I think, the stability we've seen from the BetMGM team, obviously, lending itself to being able to return some capital to you. Jonathan Halkyard: Yes. Thanks, Shaun. The interesting thing is right now, our digital investments are cash generative as opposed to cash consuming. We're in a very much a growth mode in MGM digital as it relates to our BetMGM brand expansions over in Europe and in Brazil. But the kind of the core LEO Vegas business together with, of course, BetMGM and North America are both generating now pretty substantial cash flow for us. So it's not requiring a digital investment. And as it relates to other additional investments in digital, we're really just focused on growing the existing businesses we have right now as opposed to doing any kind of inorganic growth. Shaun Kelley: And then just as my follow-up, obviously, throughout the prepared remarks, you guys weathered pretty challenging Q3 environment. A lot of talk about Q4 stabilization as the group calendar comes back. F1 sounds encouraging. So just can you help us kind of put it on a spectrum of what -- like we hear stabilization? Is that getting better sequentially? Is that potentially flat in the 4Q? How much better could it be? Or do you really need like a bigger group calendar like we expect to see in Q1 to potentially see some growth in the Vegas segments just given some of the calendar issues that you're up against in Q4? William Hornbuckle: Shaun, I'll kick it off, and obviously, my colleagues will pile on here. It has been sequential. Obviously, July for everyone in the community was a rough month. The summer was rough, but it sequentially got better. I will say the same about October. Knock on wood, we may even beat October of last year. And recognizing the fourth quarter last year was like an all-time fourth quarter. So all that being said, F1 does feel good. Leisure activity is there, we obviously can generate through value. We saw it with a fabulous sale. We literally doubled the bookings in that particular week. So we feel better about it. There's a lot out in front of us. The FAA in its considerations with the government shutdown may or may not have an impact. It has not, to date, thankfully. But there's no precursor to what that will mean for the next 6 weeks or so. But I think overall, we feel positive. There's a couple of weeks in December with leisure that is a hole that we need to -- we want to continue to push on to see how we fill. But sequentially, we feel better. And we use the word stabilization not lightly. We think we can get there. Operator: Next question will come from Brandt Montour with Barclays. Brandt Montour: Just starting off in Macau, the stats you gave for October were really impressive, obviously, implies share gains, and you gave the share number. But some of your peers have been more aggressive recently and they've been sort of public about that. And I know the EBITDA is there for you, you gave that for the month of October as well. But have you had to change your strategy at all? And is that sort of imputed in the share numbers that you have here? William Hornbuckle: Kenny, why don't you take that? Xiaofeng Feng: Yes. Okay. This is Kenny. Thank you for your question. Actually, competition is not new to us at all. We see rational competition in the market that operates like a folks -- operators are focusing on like offering quality products and bringing in excellent services for Macau visitors. For MGM China, we -- as we always said, we are focusing on understanding our customers like conducting CapEx project and improving our services to refresh and fine-tune experiences for our premier customers. For example, we have fully launched our Alpha Villas and Alpha Clubs clubs and the Fantasy Parks at MGM side. There is no such competitive products in the Macau peninsula market. These products, the key that these products truly reflect our understanding of our customers, they are well received. Like Macau market in January looks pretty optimistic for October. But for MGM China, we believe we anticipate we will deliver one of the strongest months in terms of GGR and the EBITDA performance at our company's history. So currently, what we are focusing on is we are focusing on the effective projects. Like on Cotai side, we are trying -- we are doing like we are converting 160 rooms to 63. Majority of them are 2-bedroom suites. So construction has started. We targeted to complete in the first half of next year. We believe these 60 suites will cater to the evolving taste of our customers And we are also developing some other high-end gaming place. places at MGM Cotai side as well. We hope we can utilize this our advantage, which is our deep concerning our customers. We are acting quickly and to maintain our market share in the mid-teens in Macau. Brandt Montour: Okay. That's great color. And then back domestically, you guys had a saving programs of about $150 million. Some of that was taking price in certain areas. And I was hoping you could give a refresh on that program and sort of if you've had to sort of change things around, given some of the consumer awareness of prices in Las Vegas and if that was something that had to be adjusted and how you're faring there? Jonathan Halkyard: Yes. We are kind of deep into that program now. In fact, most of the actions, the vast majority, let's say, over 90% of the actions that we set out really about this time last year are complete. And I would say -- and I don't want to speak for Corey or Bill, but in my opinion, there's really nothing we would have done differently on the -- kind of on the customer value side than what we did. In fact, many of the things that we did were in response to what we were hearing from our customers and the kinds of things that they were and were not willing to pay for. A lot of our activities also were in just the daily blocking and tackling of labor management and procurement and those types of things as well. I certainly wouldn't undo any of that because I don't think they in the end really had a customer impact. William Hornbuckle: And just maybe a more global view on the whole value. Look, we lost control of the narrative over the summer. I think we would all agree to that in hindsight. When we look at the $150 million, we think about resort fees and park fees and some of the other things that were fee-based inside that number, those have remained as and in place. When we think about pricing and things that got everyone's attention, whether it's the infamous bottle of water, where a Starbucks Coffee Excalibur cost $12, shame on us. We should have been more sensitive to the overall experience at a place like Excalibur to those customers. You can't have a $29 room and a $12 coffee. And so we've gone through the organization. We think we hope we believe and we price corrected. I think the sale that the community did and we participated in a meaningful way, demonstrated we understand value, we understand Las Vegas and we'll always be that. We'll always need to be that. And so I think we've positioned ourselves for that, and we'll continue to do so going forward. Operator: Next question will come from Dan Politzer with JPMorgan. Daniel Politzer: I was wondering if we could talk a little bit about Las Vegas through the lens of the high end and low end. Bill, you mentioned luxury properties, record slot handle there, and then kind of juxtapose that with Excalibur and Luxor. Have you seen maybe a widening in the performance between these segments of your portfolio? And if so, kind of what are the adjustments or levers you can make going forward to kind of keep everything on the growth path? William Hornbuckle: I think the core answer is yes. I don't think that's unique to us or our industry for that matter. But yes, look at Bellagio, ARIA, Cosmopolitan have continued to maintain rates, continue to maintain ADRs, generally speaking, in a tough environment. When you lose 400,000 seats in a marketplace over the summer, principally around Spirit and Spirits of value or airline that speaks to a marketplace that we potentially lost. When you think about what's going on in the country and you think about Southern California market, heavily Hispanic, I think our drive -- I don't think I know our drive traffic was down in the summer. And so that had presented and continues to present somewhat of a challenge. You think about international visitation in Canada. And while we're all trying to do things to make that better, I don't think that's going to go away anytime soon. And obviously, that's really across all of our marketplaces, the international piece, but it also impacts, I think, to a degree, for sure, Luxor, Excalibur, which is the 2 properties that we struggled here in Las Vegas the most. I don't know, Corey, if you have some more color. Corey Sanders: Look, I think you look at the Bellagio, it seems to be -- you wouldn't know anything was wrong with it. We're able to fill the hotel rooms. The gaming volumes are high-end players is where it has been in the past. Weekends for everywhere, we were able to get occupancy. Rates sometimes a little more challenged than it was last year, but still we're able to fill the hotels. And this midweek when the convention base is not here, it's really Luxor and Excalibur, that probably have the biggest challenges of occupying rooms. Daniel Politzer: Got it. And then this is a higher level one for Bill or Jonathan, whoever wants to take it. Obviously, there's been a few deals on the M&A front lately that you guys have been involved in, but I guess can you just talk about the appetite for a more diversified cash flow stream as you think about the things that you're seeing in your portfolio now? And obviously, the balance sheet is in good shape right now, but if something did come across your plate, what are kind of the thresholds we should think about that you guys would kind of go to kind of take advantage of that? William Hornbuckle: Well, I'll talk about 40,000 feet, and Jon I can think about the actual threshold. Diversification, we've been saying it all along is key. We think we have the opportunity, given our scale, scope, breadth and knowledge to participate in many pieces of this marketplace. We think we do best when we're creating things that are at the highest end. And I think a lot of the recent things we've done in Macau proved that to be the case. I think ultimately, what you'll see in Japan will prove that out to be the case. We are obviously in the digital business in a big way, the combined businesses next year will probably do $3.5 billion top line. And as we've said, time to tell bottom. All that said, diversification is key. We have a large Las Vegas concentration which we understand and we manage to and -- but we will continue to look. I mean, obviously, right now, the value of our stock, you just -- I mean, when we're trading under 3x for our core business, not to continue to buy back our own stock. It doesn't make -- it makes all the sense in the world to us for today, but I'm sure the market because it always has, will readjust itself and other opportunities may come up. Jonathan Halkyard: I think, our -- one of the pretty things about the performance of MGM China, for example, and BetMGM, and we expect MGM Digital as our company is becoming more diversified rather than less as those relatively smaller businesses grow at very high rates. With respect to M&A activity in the regional markets, between Goldstrike and Tunica, over $100 million EBITDA business, Northfield Park over $130 million EBITDA business. These are big businesses, but yet they are ones that we don't think have the growth to represent the scale of the regional portfolio that we aspire to have. So it's a pretty high bar for us to look at any additional regional properties. They have to be, of course, of the quality consistent with our brand, but also of a scale, and they're just in any market that we're not in. So it's a pretty high bar for regional M&A, I would say. Operator: Next question will come from Steve Wieczynski with Stifel. Steven Wieczynski: So what ask is the strip leisure recovery question maybe a little bit differently. So if we think about the next couple of months and fully aware, the booking window is a little bit tighter right now. But are you seeing a major difference in the booking patterns for that FIT visitor between your different properties. You talked -- you touched on this a little bit, Bill. But meaning is demand at Bellagio, Cosmo, ARIA, whatever you want to think about it, all really strong and you aren't seeing the same thing at the other properties like New York, New York, Luxer, et cetera? Or moving forward, are the booking patterns starting to become a little bit more similar across all your assets there? Corey Sanders: I think the luxury booking patterns are similar to what they've been in the past. The core is -- and the legacy properties are booking a little bit differently. So where we used to book a ton of that in 30 days, we're seeing some of that book out a little further. Steven Wieczynski: Okay. Got you. And then, Jonathan, to your last kind of remark there. If we think about the rest of your regional portfolio now after the Northfield sale. Just wondering how you view the rest of your regional assets at this point, meaning would any of the remainders be for sale? Are they all for sale at the right price? Just any high-level thoughts there about kind of rightsizing the rest of that regional portfolio would be helpful. Jonathan Halkyard: That's a top question with my CEO sitting right next to... Unknown Executive: I mean, sure, I guess, at some price, all properties are for sale. But I would say that our regional portfolio right now, they represent pretty much in every case, market-leading properties with very nice importation into Las Vegas. Most of them very important BetMGM omnichannel locations as well. So we like that regional portfolio a lot. William Hornbuckle: Yes. And of the 7, 5 of them, our market leaders that they dominate anywhere from 25% to 47% of market mix in those particular -- the markets that they serve. And so we think of them, whether it's Borgata or the Bow in Mississippi as highly representing our brand well, market leaders independent of anything else we do, they stand on their own and they do quite well. Obviously, to Jonathan's comment on digital, it's important in most -- all of those states. A couple of them are not. Obviously, we've talked about New York. And so how to think about that long, long term, time to tell. But one day at a time, we've just come off of the -- we're not going to push forward for today in New York. Operator: Your next question will come from Stephen Grambling with Morgan Stanley. Stephen Grambling: Just want to follow up on Dan's question, but perhaps from the opposite angle. You talked about the undervalued nature of the stock. So what do you view as the primary levers or path that you could pursue to unlock value from here? And I know you referenced diversification, but is there also a path of simplification to consider? And if there are, what do you think is the kind of the lowest hanging fruit as we look across China, BetMGM, digital or otherwise? William Hornbuckle: Let me kick it off and then Jonathan be -- obviously, digital and the unlock over time of BetMGM is something that we'd contemplate and that's not a surprise to anybody on the call. And so we're constantly talking to our partner about how we can all get the best value of what has been created there, which is a tremendous business. I think that's very real. Look, we enjoy our position in Macau. We particularly as of late. I think the team has done an amazing job there. You all know we own 56.7% of it. And so we've had a 20-year relationship with Pansy Ho, and so I don't see that changing anytime in the near future. If we can diversify and continue to grow our digital business and obviously, when Japan steps in, it's going to outweigh this, but if we could continue to grow our digital business, it will become more and more of a performer and more and more of what's important to us. But that's probably the place that we most think about diversification. Jonathan Halkyard: Yes. And I think it's generating cash flow through our dividend stream from MGM China, now dividends from BetMGM. And then the other thing I'd say is we've, of course, talked a lot about the last quarter in Las Vegas, but we still think Las Vegas is a fantastic market, and we love our position here. We have a better cost structure than we've ever had in Las Vegas. And so with the dynamism in this market, I think that that's an unlock also for the stock. Stephen Grambling: That's helpful. Maybe one quick follow-up since you flagged digital unlock with BetMGM first. Are there any organizational changes or bylaws to consider that need to be thought through as we think about the timing or path? William Hornbuckle: No, not really. Look, we have a great relationship and partnership with our folks and friends and Entain. We constantly think about ways to improve that business. But no, there's nothing in that context that we need to unlock it. Operator: Your next question will come from Barry Jonas with Truist Securities. Barry Jonas: First off, congrats, Corey. It's been a real pleasure working with you over the years. I wanted to start on a strip question on the 2026 group outlook. I know the homebuilders conference is not in town for just next year. But that definitely doesn't seem to dampen the enthusiasm we're hearing for growth. So CON/AGG obviously, returns. But are there other specific large conference call outs you could share so we better understand what's driving the growth outlook? Corey Sanders: Yes. Barry, we'd have to look and get back to you on the large conference call outs that I could tell you, our mix is going to be better next year. We're going to have more room nights. First half of the year is going to be extremely strong. First quarter and second quarter will be north of 20% convention mix, which allows us really, not only to fill all of our rooms, but even potentially yield up our rates. Stephen Grambling: Understood. Okay. And then just as a follow-up. There have been some talk about increasing promotions in the regional markets. Curious to get your take on what you're seeing there, just in the regions and at the strip, you're seeing anything there as well? William Hornbuckle: Look in the regional markets -- well, I guess I go back to Kenny's answer, there's always competition. Maryland continues to be more and more competitive as does New Jersey. Look in New Jersey, we've recreated a real differentiator with our product. We've gone in there. We've done all the rooms now what's called the MGM Tower, with the old Water club. We've gone through and redone and have an amazing baccarat area of VIP, domestic VIP. We have a new noodle shop. We have a new BBar, which is a center bar. And so you go in there, it's refreshed. It feels like a new property, and it's really focused on the high end. We've repositioned an aircraft there. So we are doing personalization when it comes to our highest level customers in that market. And so while we're aggressive, we're aggressive, not necessarily in what shows up in your mailbox, but what shows up with your host. And so we're pushing that high-end VIP extensively there. The other markets continue to be aggressive, and we continue to do what we do. I think the margin in this quarter was 30.1% for regional. So I think it's indicative of our activity case is measured and appropriate. And I think we'll continue to do that. Corey Sanders: And we monitor all of our competitors and all of our markets also. And our reinvestment is where we thought it would be and it's fairly close to what it was last year. Operator: Last question for today will come from Chad Beynon with Macquarie. Chad Beynon: Corey, congrats from us as well on your retirement. I wanted to ask about, I guess, capital in Vegas. So maybe a 2-parter on this. First on MGM Grand. I think the disruption that you outlined today on last quarter's call, ended up being exactly what you had thought. So first question on that, given that, that project is done, should we start to see the ADR increases and some of the returns come in? Or do you maybe have to ease into this a little bit just because of the market softness? And then the second question that I have on capital projects in Vegas. Bill, I think you teased us before on ARIA potentially being a project in '26. I believe that wouldn't start until maybe after some of the big conventions, but if you could update us on that as well. William Hornbuckle: Sure, Chad. I'll kick it off. Well, I think we were down for the quarter, 8% in room nights and 5% in AAC. So I think the first real challenge for all of us given the market conditions is to refill those rooms, and we've begun to do that, frankly, occupancy fairly easily and not easily, but I mean, we're in good shape there. Yes, over time, it will build because the actual product itself is spectacular. I think it exceeded not only our expectations, but the customers who have stayed there. And so I think as that gets out and use of what that product actually is, I think we'll see both AAC and ADR lift over the long haul. We are going to take pretty much the balance of '26 off in terms of room remodel. And what may be MGM so impactful was we were redoing the bathrooms and plumbing. So we were taking 2 more floors out than normal. So there was always 5 to 8 floors out in any given moment. Normal remodel centers around 3. But we're not going to start the ARIA until November of next year and then really push it into '27 and have the principal work being done over the summer of '27 so we can come out of that seasonality rate to roll and go to the next one, which is -- it's like Golden Gate Bridge in 2028. Jonathan Halkyard: Chad, it's Jonathan. We will be, as Bill said, starting that in November, we will incur CapEx right at the end of '26 in the ARIA room renovation, but even so, we expect CapEx to be -- in '26 to be below in 2025. And during our fourth quarter call, we'll give specifics on CapEx guidance for the year. Operator: Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bill Hornbuckle for any closing remarks. Please go ahead. William Hornbuckle: Thank you, operator. And again, I appreciate everyone's recognition of Corey. So Corey congrats and you're making me just. And look, Vegas is fine fundamentally. We feel good about the fourth quarter and particularly going into '26. Macau continues to outperform, and we're excited by that. And we're even more excited by what the digital business has been able to do year-over-year and ultimately where we think this goes. So hopefully, you share some of that excitement, and I appreciate everyone's time today. I know it's late back East. So thank you all. Operator: This concludes our conference call for today. Thank you for your participation. You may now disconnect.
Matt Glover: Good afternoon, and welcome to Aware's Third Quarter 2025 Conference Call. Joining us today are the company's CEO and President, Ajay Amlani; CFO, David Traverse; and CRO, Brian Krause. [Operator Instructions] Before we begin today's call, I'd like to remind everyone that the presentation today contains forward-looking statements that are based on the current expectations of Aware's management and involve inherent risks and uncertainties that could cause actual results to differ materially from those described. Listeners should please note the of the safe harbor paragraph that is included at the end of today's press release. This paragraph emphasizes the major uncertainties and risks inherent in forward-looking statements that management will be making today. Aware wish to caution you that there are factors that could cause actual results to differ materially from those results indicated by such statements. These risks and uncertainties are also outlined in the company's SEC filings, including its annual report Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statements should be considered in light of these factors. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time to time, Aware undertakes no commitment to update or revise the forward-looking statements whether as result of new information, future events or otherwise, except as required by applicable securities laws. Additionally, this call contains certain non-GAAP financial measures as the term is defined by the SEC and Regulation G. Non-GAAP financial measures should be considered in isolation from or a substitute for financial information presented in compliance with GAAP. Accordingly, Aware has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in the company's earnings release issued today. I would like to remind everyone that this presentation recorded available for replay via link available in the Investor Relations section of the company's website. Now I'd like to turn the call over to Aware's CEO and President, Ajay Amlani. Ajay? Ajay Amlani: Thank you, Matt, and good afternoon, everyone. Q3 reflects disciplined execution and continued progress in a Aware's transformation strategy. This quarter, we delivered 33% year-over-year revenue growth while improving our bottom line. We recognize there's still important work ahead to build consistency and scale, and we expect near-term quarterly results may vary based on timing of customer decisions and license mix. These results reinforce our 3-pronged transformation, which centers on first: advancing core biometric technology with a focus on Liveness and the Awareness Platform; second, strengthening our science forward customer-obsessed go-to-market model; and third, deepening strategic relationships and partnerships and certifications that build trust and scale. Before diving into Q3 highlights, let me set some market context. As I shared at the Gateway Conference in September, customer perceptions around biometrics have fundamentally shifted, everyday use of face ID and biometric travel checkpoints has made biometrics both familiar and expected. In the age of AI, it's not only getting harder to prove identity. Individuals must also prove they're human in real-time against increasingly sophisticated stooping attempts. This elevates Liveness Detection from a nice-to-have into a critical control for fraud prevention and trust. Against this backdrop, our strategy is to meet customers where risk is rising most, delivering adaptive liveness, interoperable matching and a platform architecture that allows enterprises and agencies interoperable orchestration without vendor lock-in. Aware isn't just selling technology, we're delivering solutions that help customers maintain uptime while solving their most pressing trust and safety challenges. Aware is a U.S.-based company with 3 decades of biometric innovation and a blue-chip customer base across government and enterprise. That foundation of trust matters as buyers raise the bar on security, privacy and interoperability. And as governments increasingly emphasize domestic providers for critical identity infrastructure. On the government side, we see tailwinds from broader funding for biometric modernization within DHS agencies coupled with a strong Buy American orientation, having helped launch some of the earliest biometric programs at DHS, I've seen firsthand how federal adoption sets global standards and Aware is uniquely positioned to lead as a U.S.-based science-led provider. On the commercial side, enterprises are moving to anchor digital identity on a biometric backbone with strong privacy controls, replacing fragile combinations of passwords and device trust with biometric proof of presence and proof of person. Our platform is designed for choice, speed to value and standards alignment, a differentiator that customers and partners increasing value. Our Awareness platform integrates matching engines, adaptive liveness and anti-spoofing and interoperability layers to deliver flexibility at scale. Earlier this year, our Passive Liveness achieved best-in-class performance in the Department of Homeland Security remote identity validation benchmark, providing clear third-party validation that we're solving real-world identity fraud with less friction. In October, our face verification stack, combining advanced liveness with facial matching, earned FIDO Alliance Certification. This is 1 of the most rigorous global benchmarks in biometric security. It not only validates our approach but also reduces compliance friction in enterprise procurements and accelerates integrations with major partners and identity ecosystems. It also complements our road map to build additional certifications that customers expect. Over the past several quarters, we've upgraded leadership across revenue, marketing and product, aligning the organization to scale with discipline. We are focused on prioritizing large durable opportunities in federal and the enterprise market that can translate into multiyear recurring revenue and product leverage. With this team in place, we are executing across 2 core markets. First, government, building a direct presence with agencies, aligning to Buy American requirements and modernization initiatives across the Department of Homeland Security, the Department of War and many other related programs in departments where liveness and interoperability are central. Growing demand for mobile identity and modernization of legacy systems plays directly to our ABIS and mobile capture strengths. Second, commercial enterprises, companies are adopting biometric-anchored journeys for both workforce and customer use cases, emphasizing privacy, standards and interoperability all well aligned with our Awareness Platform and AwareSDK. Our strategy is translating into both top line momentum and better operating discipline. I'll now hand it over to David to review our third quarter financial performance in more detail. Over to you, David. David Traverse: Thank you, Ajay. I'll now walk through our third quarter financial results. Revenue in the third quarter was $5.1 million, an increase of 33% year-over-year. The increase was primarily driven by a $1 million perpetual license expansion sale with an existing customer and a $600,000 new term license contract, partially offset by typical fluctuations in perpetual license and lower services and other revenue. Operating expenses for the quarter were $6.4 million compared to $5.4 million in the prior year quarter. The increase reflects targeted investments in sales, marketing and product development as we execute our go-to-market strategy. Looking ahead, we do expect an increase in our operating expenses in the fourth quarter, reflecting the full quarter impact of the investments made during the third quarter to support our growth strategy. Net loss for the quarter was $1.1 million or $0.05 per diluted share, an improvement compared to a net loss of $1.2 million or $0.06 per diluted share in the prior year quarter. Adjusted EBITDA loss was $800,000, an improvement compared to a loss of $1.1 million in the prior year quarter. Turning to our results for the first 9 months of 2025. Revenue was $12.6 million, similar to last year. Net loss was $4.4 million or $0.21 per diluted share compared to a net loss of $3.2 million or $0.15 per diluted share in the same period last year. Adjusted EBITDA loss year-to-date was $3.8 million compared to an adjusted EBITDA loss of $3 million in the prior year period. We ended the quarter with $22.5 million in cash, cash equivalents and marketable securities and no debt. The change primarily reflects the operating loss for the period as well as normal fluctuations in working capital, including the timing of accounts receivable collections. Our balance sheet provides us with flexibility to continue investing in growth while maintaining a disciplined approach to expenses. Our Q3 results reflect progress towards sustainable growth. We are executing with discipline, scaling revenue and positioning the company for operating leverage as our top line continues to expand. With that, I'll hand it over to Brian to provide more color on our product, customers and go-to-market progress. Brian Krause: Thank you, David. Building on the strong financial results, I'd like to provide more details on the customer and go-to-market side. We continue to see diverse demand for biometric solutions across both government and enterprise sectors. Organizations are under pressure to not only authenticate identities but also to ensure that users are live and present without adding friction. That combination, security plus usability is where Aware has the opportunity to win. We are also seeing growing demand in the local government sector with focus on modernizing biometric systems for civil and criminal investigations. In the third quarter, we expanded our work with a major U.S. federal agency by adding our Intelligent Liveness to a previously successful program. This builds on days of trust Aware has established in government and underscores our ability to bring new technology into mission-critical programs. Overall, federal demand continues to grow as a result of the new priorities at the federal level that have created both new and expansion opportunities for biometric solutions within these programs. However, the federal shutdown has slowed these actual appropriations which means that some of these programs will likely see delays until that is resolved. On the commercial side, we secured new enterprise contracts and financial services and workforce management sectors where customers are looking to reduce fraud and streamline onboarding. These deployments highlight the flexibility of our platform to integrate into existing identity ecosystems, support multiple modalities and deliver high-performance biometric capabilities. These contracts also represent solid progress in our land-and-expand approach. Over the past 6 months, we've continued to make progress in strengthening our pipeline and partner ecosystem as well. Our direct federal team is engaged across multiple U.S. and international government programs, and our partner strategy is helping us scale without an overinvestment in a direct sales force. These investments in expanding and establishing relationships with system integrators and technology partners not only validates our tech but also extends our reach into larger enterprise and government track vehicles are key buying criteria. We continue to see strong customer retention and growth opportunities and expect this to continue for the rest of this year. Looking forward, our go-to-market priorities are clear. Within the U.S. federal government deepen our direct engagement across all agencies, while aligning with the Buy American requirements. On the commercial side, expand in fraud-prone verticals in areas where biometric adoption is growing such as financial services and travel. On the partner side, broaden our ecosystem of system integrators, identity platforms and device partners to accelerate adoption and scale across the globe, aligned tightly with our customers. Most importantly, continue to deliver great products as they grow their use of biometrics to protect and automate their businesses. Our customers and partners consistently tell us that Aware stands out for combining science-driven innovation with enterprise-grade delivery. That's a differentiator that is working effectively and one we intend to continue building on. With that, I hand it back to Ajay for closing remarks and the outlook before Q&A. Ajay? Ajay Amlani: Thanks, Brian. As you've heard today, Aware is executing on a clear strategy, delivering trusted biometric solutions that combine adaptive liveness, best-in-class interoperability and enterprise-grade performance. These capabilities are not just differentiators. They are becoming requirements in a world where fraud is accelerating and digital identity is central to every interaction. Looking forward, we are focused on prioritizing large durable opportunities in federal and enterprise that can translate into multiyear recurring revenue and product leverage. That means driving deeper adoption within DHS and other federal agencies, sometimes directly and sometimes through value partners as biometric modernization accelerates. Expanding in enterprise verticals, where identity, fraud and compliance costs are highest, financial services, travel, workforce management. And finally, continuing to build the certifications, integrations and partnerships that reduce adoption friction and extend our reach. We believe this strategy positions Aware to deliver not just growth but sustainable value creation. As we scale, you should expect to see increasing operating leverage, stronger recurring revenue contributions and a disciplined balance between innovation and profitability. I'm proud of the progress our team is making and the validation we're seeing from customers, partners and industry benchmarks. With 3 decades of biometric leadership, a strong foundation of trust and a clear strategy, we believe Aware is positioned to lead in this next era of digital identity. That concludes our prepared remarks. We'll now open the call for questions. Matt, please provide the instructions. David Traverse: Good afternoon, everybody. Before we move to Q&A, I just want to note that Ajay is traveling back from the Money20/20 Conference. His return flight was delayed and there may be some airport noise in the background as we answer questions. Matt Glover: Thanks, David. [Operator Instructions] Our first question is for David. Q3 revenue grew 33% year-over-year, but was flat year-to-date. Can you elaborate on the drivers of that variance and how investors should think about the sustainability of that top line growth in 2026? David Traverse: Yes. Thanks, Matt. So we're striving to build a more sustainable revenue model, but we still have a meaningful license component business that the timing can create some variability. The strong year-over-year growth in Q3 shows that demand is there, but the flat year-to-date trend reflects the timing dynamic. With the management changes that we made this year, we really are sharpening our focus on driving more recurring and predictable revenue. So over time, you can expect smoother results and a more consistent growth. Matt Glover: Thanks David, another 1 for you. You mentioned that quarterly results may fluctuate based on the timing of customer decisions and license mix. Can you give more color to the pipeline conversion patterns? How much visibility you have in the near-term deals and recurring revenue contribution? David Traverse: Yes. Thanks again, Matt. It's kind of similar to the other question. With the new management team, we really put a stronger emphasis on building a disciplined go-to-market engine and improving how we are able to forecast and manage the pipeline. What we're really seeing is healthy engagement and good visibility into opportunities, though the timing of customer decisions can still affect the quarterly results. As our process matures and the team gains traction, we do expect to be able to see more consistency and better conversion across the pipeline over time. Matt Glover: Thanks, David. Next question is for Ajay. Ajay you called out the federal budget delays and shutdown impacts on appropriations. How significant has that been the near-term bookings? And are those revenues expected to shift into FY '26? Ajay Amlani: Yes. The government shutdown has impacted businesses across the board. And most -- I feel most sorry for obviously, the people that are furloughed. Those individuals are going through a very difficult time now trying to sustain their livelihoods and pay the rent, pay for their families daily expenses. For us, there is an impact to near-term bookings. However, most of the conversations are still occurring. And we would expect to see all of that money still flow and a higher urgency to be able to deploy that budget coming through in the near term. So we anticipate significant volume of deal flow and conversations once the shutdown is over. The total amount of budget allocated is still going to remain the same and the urgency to deploy the capital, to improve the systems, the antiquated systems of the federal government on the identity system is still going to have a very high sense of urgency. Matt Glover: Great. Thanks, Ajay. Another 1 for you. As enterprises move towards biometric anchored digital identity, who do you view as your primary competitors in the space? What differentiates Aware's Awareness platform technically and commercially? Ajay Amlani: Sure. From a competitive set, on the Awareness platform in particular, I'll [ think ] of the platform first. This is very much a buy versus build competitive set. So with regards to existing large enterprises looking to try to deploy biometrics at scale, our largest competition is actually internal development and a desire to be able to add and own your own platform and continue to increase and modernize its capabilities. What we see is significant overlap between all of these different companies that are looking to try to build these types of platforms and that they would turn to a model where economies of scale will help them to save money and increase capacity and capability much faster through an outside vendor such as Aware. With regards to the individual components and the products that we actually serve and develop internally, there are other competitors in the market that develop different styles of biometric capabilities with different strengths. Those partners are -- those companies are, in fact, partners for us in the Awareness platform. while we still have an element of competition when it comes to proving who's best at which component of the technology overall. What's most important for us is that customers get the best [indiscernible] in the market to serve their individual needs and their use cases so that they have [ plausible ] experiences for their consumers, for their customers and secure experiences. And that could be different in a physical environment, as you can imagine, in an airport environment, in a border environments, those styles of biometrics and types of biometric technologies that you would deploy in those environments will be very different than the style of technology that you would deploy over people's mobile devices to be able to onboard into a financial services product remotely, which will be very different than the style of product that you want to use on a desktop computer, allowing a workforce application to protect, let's say, new hires or password resets to secure your enterprise against the largest vulnerability today in cybersecurity attacks, which is password compromises. So the different components of biometric technology. We go into it at Aware knowing we can't be the best at everything. So we select the specific components that we believe we'd like to be the best in, that are the most important and also that we have the capability of being the best in. And we look to partner with others who we feel in certain use cases are the best technology for our customer base. Matt Glover: Thanks, Ajay. Another 1 for you. How do you prioritize new certifications like ISO or FedRAMP in your road map? And are there any gating factors for certain federal or enterprise contracts? Ajay Amlani: ISO FedRAMP and other certifications, such as the FIDO Certification that we most recently announced are incredibly important certifications for customers to pay attention to, to require in their RFP processes when they're looking for vendors, to request vendors to adhere to and to continue to push the envelope with the certification organizations to protect their enterprises against the most modern threats that are in the market. And there are quite modern threats in the market. Cybersecurity attackers continue to get better. They continue to collaborate using commercial tools and a worldwide attack vector. Nation state actors are continuously trying to penetrate the most critical assets of our country. And as a nation and as a globe, we need to come together to have a unified set of standards to hold vendors accountable to continue to be able to communicate the importance of protecting them against things like liveness or generative AI deepfake attacks that basically can impersonate other people online through video calls, through voice calls with very minimal sophisticated tools. You can imagine with sophisticated tools in the hands of attackers, what they can do is quite dangerous. So pushing the envelope and staying ahead of the attackers with certifications that can push the vendors beyond what they have today to better protect our customer systems is what we actually here at Aware advocate for daily. We're talking to all the different testing organizations globally. We're pushing them to address better standards to understand how to protect against digital injection attacks and other extremely important vectors of attack that need to be secured, but doing so in a standardized fashion so customers know that if a vendor comes to you saying that they're the best in the market at something, they have proof to back it up. So we will continue to invest in these different standards. We'll continue to advocate to customers and to the actual certification organizations to push the envelope to become better because we at Aware, view ourselves as a premium provider of biometric systems, the best in the market with the best depth of technology and expertise to protect against these next generative -- next-generation generative AI attacks where the only way to determine if somebody is a human and the right human in a digital environment is through the utilization of biometrics. Matt Glover: Thanks, Ajay. Our next question is for David. David, operating expenses rose due to investments in sales, marketing and products. How should we go about expense levels and operating leverage in FY '26 as revenue scales? David Traverse: Yes. Thanks, Matt. So yes, so operating expenses as expected and as we kind of mentioned last quarter, did increase as we invested in the sales and marketing and go-to-market and product positioning for the company growth. And we will continue to invest there when we see a clear line of driving top line revenue expansion. When the opportunity is there, we'll lean in and invest and accelerate growth so -- while also keeping a disciplined focus on efficiency. Matt Glover: Ajay, can you share any color on the national ID contract? Ajay Amlani: Sorry. But at this point in time, we're not in a position to be able to share any color on the national ID contract other than what was already shared. We are still in a position where we want to be able to pursue global business through partners in such a way that we can make sure that we can cover the globe and the needs of all countries with our identity needs, but focus our resources specifically towards direct conversations that we have here in the Americas. So we're spending the majority of our resources here on the Americas, North America in particular, given our domestic focus, given our large base of U.S. citizen biometric scientists and given the desires and the demands here in the market, along with the larger scale here in the market. But we believe that national ID program not to be ignored, but rather addressed. So we're constantly looking for the best partners in the market. And I would encourage any partners globally looking to work with countries to advance their national ID programs to better secure the needs of their citizens and residents to be able to increase their access the federal government benefit systems, whether it's United States or globally to reach out to our partnership team here at Aware and be able to encourage them to choose best-in-class technology with a partner they can trust that will have their backs in the global fight against nation state actors that are doing bad things. Matt Glover: Thanks, Ajay. We received another question for you. Has Aware considered enabling interactions with smaller platforms? Ajay Amlani: That's a great question. I would love to have a little bit more color and a little bit more follow-up with [ them ] after to specifically address which smaller platforms that they're requesting and talking about. But as we've went through the years, smaller platforms can grow very quickly in this economy. And we've seen if you have the right team, the right investor base and the right customer relationships and the right product, pretty expansive scale. So while most companies are only choosing to be able to work with the largest partners in the market, the ones that have raised the $200 million to $400 million to deploy identity systems and identity verification capabilities, we are also paying attention to the smaller vendors in the market and the smaller partners in the market. But we are prioritizing the ones that we believe have the most opportunity for scale based on the management team, based on the customer contacts, based on the products that they have and the capabilities for scale because we can't serve and be everything to everyone. So a prioritization process and the vetting process ahead of time is extremely important for us so that we can align resources effectively and better serve our partners and enable them for the kind of growth that they deserve. Matt Glover: Thank you, Ajay, David. At this time, this concludes our question-and-answer session. If your question wasn't answered, please e-mail Aware's IR team at awre@gateway-grp.com. Before we conclude, I'd like to remind everyone that a replay of today's call will be available via link in the Investor Relations section of Aware's website. Thank you for joining us for Aware's Third Quarter 2025 Conference Call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Q3 2025 BXP Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Helen Han, Vice President, Investor Relations. Please go ahead. Helen Han: Good morning, and welcome to the BXP Third Quarter 2025 Earnings Conference Call. The press release and supplemental package were distributed last night and furnished on Form 8-K. In the supplemental package, BXP has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G. If you did not receive a copy, these documents are available in the Investors section of our website at investors.bxp.com. A webcast of this call will be available for 12 months. At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Although BXP believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in yesterday's press release and from time to time in BXP's filings with the SEC. BXP does not undertake a duty to update any forward-looking statements. I'd like to welcome Owen Thomas, Chairman and Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. During the Q&A portion of our call, Ray Ritchey, Senior Executive Vice President, and our regional management teams will be available to address any questions. [Operator Instructions] I would now like to turn the call over to Owen Thomas for his formal remarks. Owen Thomas: Thank you, Helen, and good morning to all of you. Our financial results for the third quarter demonstrate a continuation of BXP's positive momentum. FFO per share was $0.04 above our forecast and $0.02 above market consensus, and we raised the midpoint of our earnings guidance for the full year 2025 by $0.03. This past quarter, BXP also completed a very well attended and successful Investor Day, during which we provided a detailed execution plan on how we intend to increase FFO per share, fund development costs and deleverage over the next 2.5 years. This morning, I will provide a reminder of the action steps in our plan as well as an early update on our progress. Our first goal is to lease space and grow occupancy given the modest rollover exposure BXP faces over the next 9 quarters. In the third quarter, we completed over 1.5 million square feet of leasing, 39% greater than the third quarter of 2024, and 130% of our last 5-year average leasing for the third quarter. Year-to-date, we've leased 3.8 million square feet, which is 14% greater than the first 3 quarters of 2024. As we have explained on prior calls, leasing activity is tied to both our clients' growth and the use of their space. As a proxy for BXP's client base, over 87% of the S&P 500 companies that have reported earnings this quarter as of last Friday are beating estimates. S&P 500 earnings have been growing for 9 straight quarters and for 2025 are projected to grow around 11% to 12%, up from single-digit estimates last quarter. Return to office mandates continue to grow and take effect, though the West Coast lags the East Coast on this measure. Placer.ai just released their office utilization data showing a material uptick in office utilization from a year ago. In September 2024, office utilization was 34.8% below 2019 levels, and last month's utilization was 26.3% lower indicating a 13% increase in office utilization over the last year. This data captures a large set of office assets across the U.S. and though premier workplace utilization in gateway cities is higher, the overall trend is relevant. Our second goal is to raise capital and optimize our portfolio through asset sales. During our Investor Day, we communicated an objective to sell 27 land, residential and nonstrategic office assets for approximately $1.9 billion in net aggregate sale proceeds by year-end 2027. We are off to a strong start. So far, we've closed the sale of 4 land assets for total net proceeds of $57 million, have under contract 9 assets for total net proceeds of approximately $400 million and are in the market with 10 additional properties for estimated total net proceeds of $750 million to $800 million. In total, we have 23 transactions closed or underway with estimated net proceeds of roughly $1.25 billion. Dispositions completed for 2025 could aggregate approximately $500 million to $700 million in net proceeds. Office transaction volume in the private market continues to improve as more equity investors get constructive on the sector and financing becomes more available at scale, particularly in the CMBS market with tightening credit spreads. In the third quarter, significant office sales were $12.9 billion, up 6% from the second quarter of '25 and up 55% from the third quarter last year. Relevant transaction activity that took place in the third quarter is as follows: in New York City, Park Avenue Tower, a nearly fully leased 620,000 foot office building located at 55th Street is under agreement to sell for $730 million or approximately a 6% cap rate and nearly $1,200 a square foot. Another 5% interest in One Vanderbilt located adjacent to Grand Central Station in New York City sold for over $2,800 a square foot and presumably a very low cap rate. In Boston, 399 Boylston Street, a 245,000 square foot office asset that is 90% leased with relatively short weighted average lease term is under agreement to sell for $124 million or just over $500 a foot and an 8.3% cap rate. In Beverly Hills, Maple Plaza, a 290,000 square-foot office asset that is 75% leased sold for $205 million or $713 a foot and a 6.5% cap rate. And lastly, in Redmond, Washington, One Esterra, a 250,000 square foot office building fully leased to Microsoft on a long-term basis sold for $225 million or a 6.5% cap rate and over $900 a square foot. Our third goal is to increase our portfolio concentration of premier workplace assets in CBD locations in our core gateway markets. As a backdrop, the premier workplace segment, defined as roughly the top 14% of space and 7% of buildings in the 5 CBD markets where BXP competes continues to materially outperform the broader office market. Direct vacancy for premier workplaces in these 5 markets is 11.7%, 5.7 percentage points or 22% lower than the broader market and asking rents for premier workplaces climbed to a 55% premium over the broader market. Over the last 3 years, net absorption for premier workplaces has been a positive 10.3 million square feet versus a negative 9.2 million square feet for the balance of the market, nearly a 20 million square foot difference. For BXP, we continue to reallocate capital to premier workplace assets in CBD locations. We recently launched new developments at 343 Madison Avenue in New York City and 725 12th Street in Washington, D.C., and most of the office and land assets we are selling are in suburban locations. There are an increasing number of higher quality office assets in our core markets available for acquisition, some on an off-market basis. We evaluate everything, pursue deals selectively, but are being disciplined about quality, pricing and the resultant leverage and earnings dilution impact. The fourth goal is to grow FFO through new development more selectively with office given market conditions and more actively for multifamily, which we'll do with a financial partner. For office, we are allocating capital more to developments and acquisitions because we are finding very high-quality development opportunities with pre-leasing that we believe will generate over 8% cash yield upon delivery, which are roughly 150 to 200 basis points higher than cap rates for debatably equivalent quality asset acquisitions. An additional advantage is new buildings generally have longer weighted average lease term and limited near- and medium-term CapEx requirements. The trade-off is timing as developments obviously take several years to deliver. For multifamily, we are selling 4 properties totaling over 1,300 units, have 3 projects with over 1,400 units under construction and are in various stages of entitlement and/or design for 11 projects totaling over 5,000 units, 2 of which could commence in 2026. We expect to capitalize new development starts with financial partners owning the majority of the equity. We continue to advance our development pipeline. This quarter, we delivered 3 office projects: 1050 Winter Street, Reston Next Office Phase II. The office component of both these assets are fully leased and 360 Park Avenue South, currently 38% leased and experiencing accelerating leasing activity. We have 8 office life science, residential and retail projects underway, comprising 3.5 million square feet and $3.7 billion of BXP investment. We expect these projects will deliver strong external growth, both in the near term with the delivery of 290 Binney Street midway through next year and over the longer term. Our Washington, D.C. team is also working on another premier workplace build-to-suit opportunity. A final goal is to introduce a financial partner into our 343 Madison development project, which is under construction. As we have described, 343 Madison is a leading premier workplace new development project in New York City given its location with direct access to Grand Central Terminal and state-of-the-art amenities and design. We are finalizing a lease commitment with a financial services client for 30% of the space in the middle bank of the building. We are also in discussions with several other large users for the balance of the space in the project. Our financial goal is to introduce an equity partner for a 30% to 50% interest in the property. While we are in very preliminary discussions with a small number of investors who have expressed interest, we believe the value of the asset will appreciate given our leasing progress and the accelerating market rent growth in the Midtown office market and do not expect to finalize an investment until sometime in 2026. In conclusion, our clients, in general, are growing, healthy and more intensively using their space, creating increasingly positive leasing market conditions concentrated in the premier workplace segment of the market. New construction for office has virtually halted leading to higher occupancy and rent growth in many submarkets where BXP operates. Debt and equity investors are becoming constructive on the office sector, resulting in more availability of capital at better pricing. BXP is very much on track executing our business plan as outlined last month, which we believe will deliver both FFO growth and deleveraging in the years ahead. Let me turn it over to Doug. Douglas Linde: Thanks, Owen. Good morning, everybody. So it's been 6.5 weeks since we made our presentations at our Investor Day, and I'm going to begin my comments this morning by affirming our expectations relative to our same-store leasing, occupancy growth and bottom line contribution to future earnings. As you probably noticed, our beat this quarter came directly from better operating portfolio performance. We have entered a 30-month period of very light lease expirations, 60% of the historical annual average over the last 10 years, and we've now reduced our '26 and '27 expirations by another 8% from 6/30/25. So the total expiring square footage on our 49 million square foot portfolio is 3.8 million square feet. During 29 of the last 39 quarters, we executed leases in excess of 1 million square feet with this quarter's 1.5 million square foot performance added. We will surpass our goal of 4 million square feet for 2025. Mike says to say confidently. As I described in my remarks in September, leasing vacant space improves occupancy and delivers the highest contribution to revenue growth. During the first half of '25, we leased 810,000 square feet of vacant space. And this quarter, we leased an additional 490,000 square feet of vacancies, making this the seventh consecutive quarter of between 400,000 and 500,000 square feet of vacancy leasing. Post 10/25, so at the beginning of the fourth quarter, we had 1.8 million square feet of leases in negotiation, which is where we began the beginning of the second quarter. So we have continued to replenish the pipeline. The space under lease negotiations includes 650,000 square feet of currently vacant space, 71,000 square feet of known '25 expirations and 450,000 square feet of '26, '27 expirations. In addition, we have active dialogue on other space that's not yet in lease negotiation totaling about 1.1 million square feet, and that includes more than 125,000 square feet on buildings that we delivered into the portfolio this quarter, aka 360 Park Avenue South. Last quarter, on our call, we called out the delivery of the 3 development properties in our portfolio that would occur this quarter and result in an estimated 70 basis point reduction in our occupancy from the portfolio additions. I'm happy to report that the in-service occupancy as of 9/30/25 decreased by only 40 basis points to 86%. BXP's totaled sequential same-store portfolio occupancy, excluding the portfolio additions. So looking back to where we were at the end of the second quarter, actually increased by 20 basis points and ended the year -- the quarter at 86.6%. The largest lease starts and expirations this quarter all came in the Urban Edge portfolio of Boston. We had 160,000 square feet expiration at 1000 Winter Street, which, by the way, is a building that we are considering for a potential conversion to residential. We executed and delivered 104,000 square feet at 153 Second Avenue and the full building lease at 1050 Winter Street for 162,000 square feet commenced this quarter. We placed 350 Park Avenue South, Reston Next Phase II into service, and we added 130,000 square feet of occupied space and 405,000 square feet of vacant space, of which 120,000 is leased but not yet occupied. BXP's total portfolio percentage leased for the quarter was 88.8%, a decline of 30 basis points. Excluding the impact of placing the 3 development properties in service. So again, going back to 6/30, the lease percentage increased by 10 basis points to 89.2%. The difference between the leased and occupied square footage has grown again this quarter and now sits at 1.4 million square feet. 300,000 square feet is expected to become occupied in '25, about 1 million square feet that's going to commence in the back half of '26 and another 100,000 square feet in '27. Owen described the magnitude of the operating assets being actively marketed for sale. As we dispose of assets, we will disclose the incremental impact of occupancy from the changes in the portfolio. Looking forward, we project that the current in-service portfolio, which includes the recent development deliveries to end '25 at approximately 86.2% occupied and '26 at 88.3% occupied, a 210 basis point increase with most of the improvement in the second half of '26. We are reaffirming our guidance from the Investor Day, adjusted for the 70 basis points of impact from the Q3 new deliveries, which we also disclosed at that time. The overall mark-to-market on leases signed this quarter on a cash basis was up almost 7% with a 12% increase in Boston, a 7% increase in New York, flat results in D.C. and a 4% decrease on the West Coast. This quarter, we executed a number of larger leases, including 5 that were each over 75,000 square feet. 60% of the square footage involved renewals or extensions and 40% was either new clients or expansions from existing clients. Existing client expansions encompass 84,000 square feet of the activity. The second-generation rents in the leasing statistics this quarter represent about 523,000 square feet and are down on a gross basis about 4%. The L.A. statistics had a whopping 1,300 square foot lease and San Francisco included 117,000 square feet with 74,000 square feet, so about 2/3 coming from our Mountain View properties. I want to pivot my remarks now to the market conditions and the activity we're capturing. Our leasing this quarter came from 79 transactions, 398,000 square feet in Boston; 795,000 square feet in New York; 191,000 square feet on the West Coast; and 140,000 square feet in D.C. In the BXP portfolio, Midtown, New York City; the Back Bay of Boston and Reston, Virginia continue to have the tightest supply and, therefore, the most landlord favorable conditions. What this means is that net effective rents are increasing due to either higher rental rates or flat or decrease in concessions or both. The big accomplishments in Boston this quarter took place in our Urban Edge portfolio, where we completed over 200,000 square feet of leasing to life science clients. This included 104,000 square foot lease with a drug development and medical device research services company and 5 -- counted 5 additional pure office leases with life science organizations. Our remaining first-generation life science availability in the Urban Edge is now limited to 70,000 square feet at 180 CityPoint and 112,000 square feet at 103 CityPoint. So that's a total of 180,000 square feet. That's our life science first-generation exposure. Demand for wet lab space continues to be tepid. There are a few lab users actively touring but the requirements from very early stage clients continues to be limited. In the Boston CBD, we continue to complete renewals in the Back Bay portfolio. This quarter, we completed about 140,000 square feet. And as you can see from our property occupancy tables, availability is very limited, net effective rents are improving. In New York, our executed leasing activity was focused on the Midtown East portfolio. The underpinning of this demand is the growth of clients in a variety of asset management strategies. I described a series of client-initiated early extensions under negotiation last quarter, while 500,000 square feet were executed this quarter, with the largest being at 399 Park Avenue. There have been many unconfirmed press reports about our lead tenant for 343 Madison. If that client were to come from one of our Midtown assets, there would be strong demand for the space at either 601 Lexington Avenue, 599 Lexington or 399 Park Avenue. The average in-place fully escalated rent is under $110 a square foot, which is significantly below market. This quarter, while our executed leases were primarily in Midtown, the new client inquiry story was focused on 360 Park Avenue South, where we have our largest availability in Manhattan. Activity at the building has grown substantially, and we executed 2 leases during the quarter. There are a few AI companies in the mix, but much of the activity is being driven by financial service and asset management organizations, the heart of New York City. We have 56,000 square feet of leases in negotiation and letters of intent discussions on more than 125,000 square feet. All of these leases would commence in '26. With the tightening of availability in the Park Avenue and now the 6th Avenue submarket, we're also seeing stronger activity at Times Square Tower where we are in lease negotiations with over 100,000 square feet of new client demand. And down in Princeton, we completed over 160,000 square feet of leasing with 8 clients totaling -- including a 134,000 square feet renewal with a life science client, again with no lab infrastructure. In San Francisco, the demand from organizations that describe themselves as AI business continues to accelerate. The bulk of this demand is concentrated south of Mission Street. The majority of these requirements are looking for inexpensive, fully built and furnished space with short-term commitments. To date, these criteria have been available in either sublease situations or with landlords that have direct space that was vacated by tech companies over the past 3 years. These opportunities in medium-sized blocks, 25,000 to 100,000 square feet are quickly shrinking. The result has been a dramatic pickup of activity at our 680 Folsom, 50 Hawthorne assets, which are south of Mission between Foundry Square and Mission Bay. We have had multiple tours every week and are exchanging proposals with tenants ranging from a single floor to over 200,000 square feet. During the first 6 months of the year, we had 11 unique tours at the property. In the month of July, we had 7; in August, 9; in September, 10; and so far in October, 14. That AI demand has not translated into a commensurate pickup in ancillary professional services growth in the high-rise assets in San Francisco. While San Francisco is unequivocally the financial capital of the West, the organizations that are growing assets under management in San Francisco are not expanding at the same levels we are experiencing in our New York and Boston portfolios. There's clearly been a pickup in activity, and the premier buildings are gaining market share, but it's just nothing like the client growth from the AI companies south of Mission where CBR reports that there are 36 AI active tenants with aggregate growth of 1.5 million square feet in the market right now. In our towers, we completed about 100,000 square feet of transactions this quarter. The rest of the West Coast activity came from Mountain View, where we signed 30,000 square feet and Seattle, where we completed the 54,000 square feet of vacant space leasing. Activity in D.C. continues to be concentrated in Reston Town Center. This quarter, we executed a 51,000 square foot lease on space that was vacated by Meta in June of this year as well as a handful of smaller office and retail leases. The government shutdown has had minimal impact on government contract or leasing activities. The private sector clients that have space needs are all still active in the market. Before I conclude my remarks, I want to update our construction activities, particularly because we are in the process of establishing our GMP for 343 Madison. Subcontractors are actively bidding the job after taking into consideration the tariffs associated with nondomestic suppliers and the most recent country agreements. We expect to purchase our steel from U.S. manufacturers, and we are within our expected budgets with all include anticipated savings relative to our last GC estimate. Given the overall slowdown in construction activity in our markets, there is enough subcontractor interest to provide savings in spite of all the tariff increases. Remember, construction is a composition of labor cost, material cost and profit. And let me hand the call over to Mike. Michael LaBelle: Great. Thanks, Doug. Good morning. Today, I'm going to cover some of our activity in the capital markets as well as our third quarter earnings results, an update to our full year guidance and some updates on our expectations for 2026 since our Investor Day in early September. The debt markets have been steadily improving throughout 2025, and this quarter, we opportunistically and successfully accessed both the secured and unsecured markets. In late September, we closed on $1 billion of 5-year unsecured exchangeable notes at a 2% coupon. If you include closing costs, the interest costs we will record for GAAP is 2.5%. This will refinance $1 billion bond issue that expires in February of next year and carries a GAAP yield of 3.77%. The notes include a conversion premium at a stock price of $92.44 per share. So if our stock trades above the conversion premium during the term, our diluted share count will increase. We also acquired a capped call to increase the conversion premium to 40% or $105.64 per share, to reduce the dilution from the increase in our share price. The capped call has no impact on our P&L or our diluted share count during the term. It settled at maturity. The market demand for our deal was exceptionally strong, and we were 5x oversubscribed. That allowed us to price the security in the low end of our expected pricing range and upsized the deal from the $600 million initially offered to $1 billion. We also closed a $465 million mortgage refinancing on our Hub on Causeway office and retail complex that we own in a joint venture where our share is 50%. This loan was executed as a single asset securitization in the CMBS market, and it priced at a 5.73% fixed rate for a 5.5-year term. This is approximately 50 basis points lower than the floating rate on the prior loan. The pricing equated to about a 200 basis point credit spread for a premier quality secured mortgage with a 55% loan-to-value ratio. There have been about a dozen single asset securitizations completed on office buildings in the past 6 months, and that demonstrates the CMBS market is supportive of financing high-quality large office assets on competitive terms, and credit spreads have been consistently improving. We expect this will help lead to a healthier sales market, as Owen described. Overall, we continue to have very strong access to all the capital markets to finance our business. This includes the debt markets as well as the asset sales environment where we expect to be increasingly active. Now I would like to turn to our earnings for the quarter. Last night, we reported funds from operations for the third quarter of $1.74 per share, which is $0.04 per share above the midpoint of the FFO guidance range we provided in July. All of the outperformance came from better-than-projected same-property portfolio NOI due to a combination of the straight-line rent impact of completing early renewals at higher rents and lower net operating expenses in the portfolio. Our occupancy came right in line with our expectations. As Doug described, occupancy in the same property pool increased by 20 basis points from last quarter. We grew occupancy sequentially in Boston, New York City, Reston and Princeton. The improvement showed up in our top line lease revenues that increased $4 million this quarter. In our leasing activity this quarter, we executed 4 early renewals totaling 500,000 square feet at 399 Park and 200 Clarendon Street with future starting rents nearly 15% higher than our in-place rents. We are locking in future rental rate increases and a portion is straight-lined into the current period and improving 2025 revenues. Our portfolio revenues exceeded our guidance for the quarter by approximately $0.02 per share. On the expense side, we experienced lower-than-anticipated repair and maintenance expenses this quarter, and that contributed $0.02 per share to our outperformance. I anticipate that we will give some of this performance back in the fourth quarter as our teams complete R&M projects that were budgeted for Q3, but not completed in the quarter. We also recorded $212 million of impairments this quarter related to assets that are part of our strategic sales program we announced on our Investor Day. The accounting guidance requires that we recognize impairments to fair value when we shorten our whole period and prior to an asset sale actually closing. On the flip side, gains on sale are not recorded until the sale closes. So if you look at our sales program as a whole, we anticipate that the aggregate gains less impairments will total nearly $300 million. We expect gains will be recorded in future quarters as we execute our sales strategy. Looking at the rest of 2025, we've increased our guidance range by $0.03 per share at the midpoint, and we expect full year 2025 FFO of $6.89 to $6.92 per share. Our increased guidance includes a $0.07 increase in the low end of our range, reflecting outperformance from the third quarter, some of which was incorporated into our guidance range we provided last quarter. Sequentially, we expect Q4 funds from operations to be higher than our Q3 actual FFO from higher portfolio NOI and lower net interest expense. With respect to changes in our guidance, the outperformance in our same-property portfolio is expected to add an incremental $4 million to our full year NOI assumption. That equates to about $0.02 per share of improvement. We've reduced our net interest expense projections for the full year 2025 by approximately $6 million or $0.03 per share. The improvement is from our new $1 billion exchangeable notes offering, where we're recording interest expense at 2.5%, and we're actually earning over 4% on the proceeds until we repay our expiring bonds on February 1 next year. And we also improved the interest rate with our Hub on Causeway refinancing, and we're projecting several asset sales to occur in the fourth quarter that will reduce our debt. These increases to our FFO are anticipated to be partially offset from the reduction of about $0.02 per share of NOI from asset sales that we expect will close in the fourth quarter. If you include the associated changes in interest expense, our fourth quarter asset sales are projected to be dilutive by $0.01 per share. So to summarize, we've increased our guidance range for 2025 FFO by $0.03 per share at the midpoint, $0.02 of higher same-property NOI, $0.03 of lower net interest expense offset by $0.02 of lower NOI from asset sales. At our investor conference last month, we provided some insights into our expectations for FFO growth in 2026. Doug described our active leasing pipeline that we expect will lead to higher occupancy primarily in the back half of next year. We are off to a strong start on our refinancing plan with our exchangeable notes deal pricing with a GAAP yield that is 75 basis points better than we anticipated. The impact is about $0.04 per share of lower interest expense in 2026 than we described at our Investor Day. We still have $1 billion bond issue expiring October 1 next year that has a 3.5% yield. We currently project that we will refinance it with a 10-year unsecured bond where we could issue today at approximately 5.5%. The other factor that is fluid and will have an impact on our 2026 results is the timing of our asset sales. As we stated at our Investor Day, we expect the program to be slightly dilutive in 2026. We are seeing good response to date, which could accelerate some of our sales. We will continue to update you every quarter on the success of the program as it evolves. That completes our formal remarks. Operator, can you open the lines for questions? Operator: [Operator Instructions] And I show our first question comes from the line of Steve Sakwa from Evercore ISI. Steve Sakwa: Owen, I guess I wanted to go back to maybe some of the comments you made about reallocating capital into the premier locations. And as you're looking at deals, how are you thinking about some of your smaller markets like a Seattle and L.A. where you haven't had the success in scaling those markets? And a, are you seeing the opportunities to buy high-quality assets in the submarkets that you want to be in? Are you finding development opportunities? And like, I guess, how do you think about those markets long term if you aren't able to scale? Owen Thomas: So you're asking about L.A. and Seattle, where they are smaller markets for us now. We have a toehold, a couple of assets in each. They're on the West Coast. So they -- those markets from a leasing standpoint are weaker in general than our East Coast markets. I don't think there are development opportunities in L.A. or Seattle at the moment. I don't think there are any in San Francisco either because those markets are weaker. The leasing is not as strong. The vacancy is higher. So I certainly don't see any near-term development opportunities. And if an acquisition opportunity presents itself in those markets, we would certainly look at it. But acknowledge that those markets are smaller at this juncture. Operator: And I show our next question comes from the line of Anthony Paolone from JPMorgan. Anthony Paolone: On a call yesterday, one of the other office names talked about just having done enough leasing in '26 at this point that what's remaining just may have a lower retention rate. And so just wondering how you're thinking about what's left for you all in '26 given you've done so much this year and just any risk around or confidence level around a couple of hundred basis points of pickup in occupancy you've outlined? Douglas Linde: Tony, this is Doug. We are working as quickly and as thoughtfully as we can to renew as many of our clients that as we would have in the portfolio if we can accommodate their growth and if they're able to continue to want to be in business. I would tell you that our available set of tenants with expirations has dramatically decreased. So there's not a lot there in sort of the aggregate, right? I said 3.8 million square feet of space over 2 years, and we're a 48 million to 49 million square foot portfolio. So that's about 7%. Do I expect we're going to renew 50% of that? Yes. Do I expect that we're going to renew 60% of that? No. We are leasing about 1 million square feet per quarter if we're able to maintain that velocity, which I don't see any reason why we shouldn't. We will be able to meet or exceed the expectations that we outlined when I sat in front of you all in September, which is about a 200-plus basis point increase in occupancy by the end of 2026 and another 200 basis points of increase in occupancy at the end of 2027. Those are our projections. We're confident in them today, and that's what we're sort of sticking with. Operator: And I show our next question comes from the line of John Kim from BMO Capital Markets. John Kim: I wanted to ask about the recovery in San Francisco. It sounds like, Doug, from your commentary that your high-rise product is not where AI demand is currently, and I'm wondering if that's something you plan to address. And also I wanted to see if you had any early thoughts on Salesforce's $15 billion commitment into the city and what that could mean for job growth and office demand? Douglas Linde: Sure. So let me start, and then I'll ask Rod Diehl to make some comments. The AI demand is not a tower business right now. Although companies like Salesforce, I guess, are calling themselves AI companies now, so maybe that's slightly different. But the AI growth relative to infrastructure companies or VC-backed companies is really a low-rise south of Mission Street demand pool, obviously, with AI and anthropic sort of headquartered in either Mission Bay or in Foundry Square, right? That's kind of the world where I'd say the nucleus of that is. And it's unlikely that you're going to see an AI company taking a 25,000 square foot piece of space at one of the buildings in Embarcadero Center or at 535 Mission Street or at Salesforce Tower if there was availability, as opposed to going into, as I described, what they would like to go into today, which is shorter-term, cheaper, less expensive furnished space, right, which is really in what I refer to some of the buildings that were occupied by technology companies from call it, 2015 to 2019 during that sort of booming period of time. I don't think there's much we can do to position our properties differently. The demand for Embarcadero Center in particular, is really professional services, administrative services. That's not to say that there aren't a couple of small start-ups that have a couple of thousand square feet in a suite here or there, but it's hard for us to imagine a large growth component there, very different at 680 Folsom Street. 680 Folsom Street is a mid-rise building with 35,000 square foot floors, with 16-foot clear glass with availability today and more availability coming in as the macys.com lease expires, it's a perfect setup for an AI company from a growth perspective. And Rod, maybe you can comment on the Salesforce initiative relative to their contributions into the city. Rodney Diehl: Yes. Thanks, Doug. On Salesforce, I mean it was great to hear that news. And that was a fantastic bit right in front of their Dreamforce event, which happened last week, and it was very well attended, which is great for the city. So we haven't heard more specifics on what exactly that investment is going to look like. But I think being the largest private employer in San Francisco, making a commitment like that is pretty meaningful. And -- so we're eager to see where it leads. And as Doug said, I mean, the other activity in the buildings that's kind of driven by this AI push, we're seeing it as 680 Folsom. We're very encouraged by that activity. And just the overall just optimism that a lot of that brings to our city. So it's positive. Douglas Linde: Yes, I just want to make one other comment on that, which is there have been a lot of articles and news reports about the reduction in jobs, white-collar jobs over the past, call it, 3 or 4 days in particular. And San Francisco is sort of the opposite of that, right? We are seeing growth from these companies in terms of the amount of space they are looking to lease and obviously, the number of people they are hiring. And you sort of see these tongue-in-cheek articles as well about the intensity of which people are working and the fact that they are working in premises all of the time. I mean that is sort of what we are experiencing from the technology companies in San Francisco as we sit here today in 2025. Operator: And I show our next question in the queue comes from the line of Richard Anderson from Cantor Fitzgerald. Richard Anderson: Can you talk about the percentage of the portfolio of -- let me say it this way, that leases that were signed pre-pandemic that have yet to have been addressed at this point? And just how with the passage of time your experience has been with tenants in terms of their willingness to take more or less space, space per worker, square feet per worker? How are those dynamics changed? And sort of what's left pre-pandemic that is still sort of -- has to be addressed by you guys? Douglas Linde: So Rich, it's a really, really hard question to answer in a specific way. So let me try and answer it in a more general fashion. BXP traditionally has been leasing space on a long-term basis with an average lease length today of about 8 years, but all of our new leases that we generally do are between 15 and 20 years. So there's a lot of "pre-pandemic leasing" in our portfolio, right? It's just -- that's just matter of how we compose the portfolio. The fundamental important fact, however, is that if you look at who our clients are and we go through all kinds of disclosure in terms of who our top clients are, all of the growth that we are seeing is coming from clients who were pre-pandemic occupants taking additional space as the world has changed post-pandemic. And quite frankly, because so much of our clients are in the financial services, professional services, administrative services business, what is going on relative to those industries is much more important relative to the sort of composition of our portfolio and the growth than what is going on with companies that may or may not have taken additional space during the dot-com growth in 2000 or in the post-GFC or in the years leading up to the pandemic because that's just not what our portfolio is comprised of because we're -- again, we are -- that's not who we are. And as Owen has said, and you'll see it as we move forward over the next couple of years, we're reducing our exposure to what I would refer to as less of those types of buildings and those types of customers and clients in terms of the kinds of things that we are going to be disposing of. So I don't think it's an issue of any significance relative to how much "growth" there was during the pandemic relative to the Amazons of the world that was described in a couple of those articles in the last few days relative to sort of their pickup in the number of people that they had hired because we didn't experience that within our portfolio. Michael LaBelle: Doug, the other thing I would add is just -- and we've mentioned it, we just don't have a lot of rollover, and the rollover we have is very granular, right? There's no really large tenants. I mean there's no tenant over 150,000 square feet that expires in the next 2.5 years. So we just aren't exposed to some big vacancy coming. And the other thing I would note that Doug described in his comments is -- and this has been the case for the last few quarters, more of our tenants are expanding than contracting when they renew. So this quarter, Doug mentioned, we had 85,000 square feet of net expansion by clients that we did deals with where they stayed in our portfolio. Operator: And I show our next question comes from the line of Nicholas Yulico from Scotiabank. Nicholas Yulico: So I know, Doug, you gave a lot of detail on leases in the third quarter and even some leasing in the works to address vacancy. But as we think about that occupancy build that you had at the Investor Day and the component there that is leases that address vacancy, given that the build-out could take some time, is it right to think that like by next quarter, you guys should be in a position to sort of maybe declare victory on the vacant space piece of that equation that gets the occupancy benefit by year-end next year? Douglas Linde: I guess I don't think about this on a quarter-by-quarter basis. Our projections were done on an annual basis. We -- again, we have 1 million square feet of current leases that are signed that are going to be starting in 2026. And so clearly, that will -- that's the driver of a lot of our confidence relative to 2026. I also said that the activity that our team and I'll let Hilary describe it at 350 Park Avenue is above our expectations. Again, I think that -- all that activity will lead to leasing in '26 and occupancy in 2026. So 200 basis points is a pretty meaningful increase, right? And another 200 basis points is another meaningful increase. So we're comfortable and confident that we will be able to achieve those numbers based upon the conditions that we're seeing now in the economy and in our marketplaces. And Hilary, maybe you can sort of describe what's going on at 360? Hilary Spann: Sure. So at the moment, we have 6 floors leased, and in discussions with proposals out, we have covered every other floor except 1. So to the extent that we were able to secure all of the tenants that we're currently in negotiations with, we would have 1 floor available at 360 Park Avenue South. So the tour activity has increased really dramatically. And as Doug noted earlier, the clients that are coming to see the building and asking us for these lease proposals are not just tech and media, but also more traditional asset managers and financial services firms that are just looking for great space and due to the tightness in the market are seeking out Midtown South, perhaps from Midtown or seeking to upgrade their space from existing locations in Midtown South. Unknown Executive: One quick note for Boston in terms of the speed of delivery of recent leases, there is a portion, and Doug and Mike could probably respond to this afterwards, but a portion of the activity that Doug mentioned in the Urban Edge is in existing products, and they are spaces that don't need as much build-out. So we would anticipate at least 150,000, 200,000 square feet that could be delivered in that zone next year. Operator: And I show our next question in the queue comes from the line of Seth Bergey from Citi. Seth Bergey: I think kind of at the Investor Day, you had outlined $0.09 to $0.04 of kind of dilution from asset sales. It sounds like pricing and the debt market is coming a little bit and ahead of your expectations. How should we think about kind of that impact? And I think you also mentioned potentially bringing some more assets to market. So just kind of what are the puts and takes there? Michael LaBelle: I think -- as I mentioned in my notes, I think this one is harder to judge because it's based upon the timing. So we estimated timing for the transactions that we have under our asset plan at our Investor Day. And now we have started to execute on that timing, right? So we now have more assets under contract than we had at that time. And we have more assets in the market than we had at that time. And we do feel like we're getting pretty good demand from people, pretty good response from people on this. So I think we're going to be successful in that. And so the timing of when these things sell will impact the range that we provided. And if it was significantly earlier than that, could it be slightly more diluted? Yes, it could be slightly more dilutive. But it's hard to provide a better answer than that at this moment in time. I think as we go through the next quarter or 2, we will have more and more information, and we'll provide it to you. Operator: And I show our next question comes from the line of Alexander Goldfarb from Piper Sandler. Alexander Goldfarb: Just a question on -- as you guys have tightened up the strategy since the Investor Day, just want to understand better on the investment side, how much of that -- when you guys think about the investment pool or more likely when the regional people come to you to submit proposals, how much the criteria have tightened up, meaning have yields been raised that, hey, all deals now need to be 100 basis points higher or some degree higher? Just trying to understand how it's gotten -- how you guys have tightened up again, just thinking about some of the legacy deals like a Platform 16, et cetera, [ that obviously I don't ] want to repeat, but you have the 343. So just trying to understand how the investment criteria has tightened up and how many deals got kicked out of discussion because of the new higher thresholds. Owen Thomas: We've talked about this on prior calls. Our threshold deal that we're looking at for developments as we've repeated over and over again, has been about 8% or higher. And really before interest rates went up and of course, some of the diminution in demand that we saw from COVID, we were developing, depending on the market and the asset between 6% and 7%. So the yield requirement for office development has gone up 100 to 200 basis points. You combine that with the elevation in construction costs, it takes significantly higher rents to support development. And as we said on Investor Day, what does that mean? That means we're going to be a more selective office developer. But we are developing. We've launched $2.5 billion, a little bit under that, $1 billion of new development projects in office just in the last 6 months. So that's the increase that you saw. And then as I just said in my remarks, we are looking at acquisitions. There hasn't really been much to look at up until the last 3 to 6 months. There's a little bit more today. And the issue has been, we feel like we can get higher yields developing, albeit -- and we'll have a new building and it will have lower CapEx and longer WAULT and all those things, but it takes several years to deliver the development, that's the trade-off. So again, we're going to continue to look at acquisitions. And as I said in my remarks, we're going to continue to be disciplined, and I think cap rates are probably 150 to 200 basis points right now in the market below our development yield threshold. Douglas Linde: Yes. And I just add one thing just to sort of give you a reference point. The development at 343 is, call it, $2 billion development. The development at 725, 12th Street is a $300 million development. Knock on wood, Jake and Pete are working really hard at lining up a client who desperately needs a new building with a potential purchase of a piece of ground or an existing building to build another building. Let's assume that's another, call it, $300-plus million. So we're talking about having $2.6 billion of developments that the company is going to be executing on. That's a pretty significant amount of external growth. And so I would say that the appetite for buying a building at a 6% NOI yield where the cash flow yield is probably 150 basis points lower than that, and there is rollover in 3 to 4 years, it's just not as enticing as those other opportunities are today. And so that's, I'd say, the frame of reference that we're sort of looking at as we think about "acquiring" new assets. Now if a fabulous building at an 8% cash return came up "off-market" and we thought it had great upside, of course, we would be really thinking about doing something like that. But these broker-initiated investments for "core assets" and CBD locations are -- they're interesting, and we're going to study them, but it's going to be hard for us to rationalize utilizing our dry powder for that. Operator: And I show our next question comes from the line of Michael Goldsmith from UBS. Michael Goldsmith: In the press release, you called out 89% of BXP's rents come from the CBD portfolio. Given the outlined dispositions are focused in the suburban markets, what percentage does that take CBD in the near term? And then long term, is the goal to just to be 100% or completely CBD? Michael LaBelle: I can't give you an exact percentage. I would agree that we want it to grow. There are certain suburban markets that I think we will maintain exposure to where we feel like we have a good sense of place where we can build an amenity-filled environment and where we think that it's got a mature and dense demand profile. So there are suburban markets that I believe we will stay in. I do believe though it's not going to go to 100%, but it's definitely going to grow because our -- both our asset sales focus, which is suburban, but also our new investment focus is more urban. So we're going to be adding assets that are CBD and detracting assets that are suburban. Operator: And I show our next question comes from the line of Jana Galan from Bank of America Securities. Jana Galan: Congrats on the progress you've already made on the priorities laid out at the Investor Day. On the dispositions, can you talk to the pricing you're seeing on land, residential and office relative to kind of initial expectations? Owen Thomas: I'd say that we're achieving pricing that is in line, if not a little bit better than our expectations. I mean it's very hard to say pricing for land because it depends on what the new user is doing. I think the real opportunity that we've had with land is that we have -- our regional teams have done a great job very successfully re-entitling many of these land parcels that were previously set up for office into residential. And as we all know, there's a housing shortage in this nation and many communities that were against housing in the past are for it today and that has allowed us to create a lot of value. The 17 Hartwell investment that I described last quarter is a great example of that. So it's a little bit hard to talk about "pricing for land." I think on the residential assets, we are seeing cap rates below 5%, which we think is very attractive. And on the office, it all depends on the location and the quality. Operator: And I show our next question comes from the line of Floris Van Dijkum from Ladenburg Thalmann. Floris Gerbrand Van Dijkum: Clearly, it looks like your office markets -- your core office markets are inflecting. Office underlying growth was positive. It was down though in the hotel and residential. I think -- maybe remind us, there was a big occupancy decline apparently in D.C. in the residential side. Could you maybe talk about that? Douglas Linde: I'm going to -- Mike is going to quickly look through the supplemental. The only thing I can imagine is that we brought 100% of Signature is in service, and then we brought Skymark into service. And Skymark is probably not 98% leased yet, although my guess is that we're going to be stabilized, which I think is, call it, in the 93% to 94% this quarter, which is extraordinary given the amount of units that we had delivered there. So I'm guessing that's sort of what happened. But I wouldn't -- I would not take that as anything other than a change in portfolio composition, not activity in our actual assets. Michael LaBelle: Yes, that's what it is, because this is a year-over-year concept. It's not a sequential concept. So in September of '24, the Skymark building was under development, right? And now it's leasing up, and it's actually leasing up quite well. It's, I think, around 90%, and it's leased up better than we expected. The occupancy in the stabilized portfolio that has been in service for a while has been very strong and stable and rents have continued to go up. Again, our residential portfolio is located in pretty tight markets. And so places like the urban Boston market and Reston, we've seen good fundamentals with our residential. Douglas Linde: And it's going to get smaller in 2026 before it gets bigger again. Operator: And I show next question comes from the line of Ronald Kamdem from Morgan Stanley. Ronald Kamdem: Just on same-store NOI. I think you talked about sort of the occupancy inflection point, obviously improving '26, '27. Just can you tie that back to what the expectations are as you think about same-store NOI? Should we expect sort of similar 100, 200 basis point sort of acceleration? And what are the puts and takes there? Michael LaBelle: So we're not going to provide guidance for 2026 or 2027 today. I think that most of our growth is going to come from occupancy, and we've talked about that. I think the mark-to-market in the portfolio is improving because we're seeing rents go up in many of our marketplaces. So I think that situation will -- is improving and will continue to improve. And I think we will see positive same-store NOI growth as the occupancy climb. So yes, we will -- it will follow. It makes sense to follow and should. Operator: And I show our next question comes from the line of Upal Rana from KeyBanc Capital Markets. Upal Rana: Could you provide some color on the current state of what you're seeing in terms of demand for life science leasing and supply across your markets, given some softer commentary from another one of your peers. You mentioned a few things related to Boston and Urban Edge, but maybe you can broaden that out a little bit and maybe what your outlook is for that industry? Douglas Linde: So our life science exposure at BXP is comprised of 2 places. It's the Urban Edge of Boston, which I described. And again, we have 180,000 square feet of first-generation space available. And then it's our joint venture with another public RIET ARE in South San Francisco, where we have a large building that was developed a few years ago that is available for lease where, again, I think I described the demand for wet lab space being pretty tepid. Not much has changed on a relative basis there. We are seeing "some inquiry," but we're not, what I would describe as, close to any major transactions at that building at this time. Operator: And I show our next question comes from the line of Dylan Burzinski from Green Street. Dylan Burzinski: Owen, I think you mentioned seeking or going out to market and seeking a capital partner for 343 Madison sometime in 2026. But I guess just given the tight availability that you're seeing in New York, especially in the submarket, the 343 Madison is in and likely continued net effective rent growth. Why not sort of put the brakes on reaching out and getting the capital partner given that sort of backdrop? Owen Thomas: Yes, it's a good question. I think as I tried to describe in my remarks, we're just being patient. We've had some inbound inquiry. We know of some investors that are interested in the project. We're having preliminary conversations. As I mentioned in my remarks, we're not in a hurry. This asset is appreciating. We're having leasing success. Markets are improving, as you suggested. And I think this will happen sometime in 2026. We do want to match to some degree, a commitment of capital to raising the capital. And so far, the development draws and spend on the project have been reasonably modest, but they do start to accelerate next year. So I do think 2026 will be an appropriate time. Douglas Linde: And Dylan, just remember, as Owen said at the outset, we have 3 objectives, right? Our objectives that we outlined at our Investor Day were we want to grow our earnings and that's mostly through occupancy and deliveries of developments that are currently underway, we want to fund 343 Madison and we want to reduce our leverage. And so I think that our objectives in finding a partner sort of meet all of those requirements. Operator: And I show our last question in the queue comes from the line of Blaine Heck from Wells Fargo. Blaine Heck: Owen or Doug, I was hoping to get your latest thoughts on the New York mayoral race and any sort of impact you've seen, any commentary you've heard from tenants and just your general thoughts on whether it could or will have a notable impact on the New York office market. Owen Thomas: I would suggest that the significant negative rhetoric that's in the press and the media about the impact of the administration of Mayor Mamdani, I think it's just overblown. I'm not suggesting that there are impacts that we need to be conscious of and aware of. As we've described before, there are controls and guardrails that exist for the mayor in New York. The state has a lot of approval powers over things like public transit and increasing taxes. And the state has indicated so far, there's not a lot of appetite for increasing taxes in New York. So that's something that we are concerned about. And again, our success as a company in any city is capped at the city's success. And so we want to do what we can to work cooperatively with the city and ensure that there are -- that it's a constructive environment for business, there is safety and security for the citizens. And those are the kinds of things that we're very focused on. The potential Mayor Mamdani has indicated that he wants to hire Jessica Tisch, who's the current head of the New York City Police Department. I don't know that she's agreed to do that yet, but we all think that's a great step because I think she received high accolades for her performance and success to date. So again, something that we're monitoring. But we are, I think, a little bit more constructive than what the media has been outlining on this change. Operator: And I do show we have one question in the queue from Brendan Lynch from Barclays. Brendan Lynch: I'm just interested in your view on the new office tower above South Station in Boston and how that might impact leasing dynamics in the market? Douglas Linde: So I'll give you a couple of comments, and I'll let Bryan give you his perspective. So the building that is currently open and has been available for the last number of months is a gleaming tower, and it's, I'm sure, going to be successful from an occupancy perspective at some point. There is a conversation, as I understand it going on with a large financial institution to relocate there, not necessarily grow, but relocate there. The building hit the market at the absolute wrong time, and there's a bunch of availability in the financial district that it had to compete with. And so the economics of the investment are different than what I would tell you, the success will be from an occupancy perspective because of just the nature of what's going on. I think it's unlikely that another building in the financial district will be started for quite some time. So if the market is able to continue to sort of absorb space, I think the [ financial ] market downtown will continue to recover. We have an opportunity to build a building at 171 Dartmouth Street, which is in the Back Bay, and there are obviously significant opportunities from a tenancy perspective because we have very, very, very tight supply in the Back Bay. So I think there's a higher -- much higher probability of something going on there. We would obviously not start that building unless we had a major commitment from a lead anchor tenant, as Owen sort of described earlier in terms of -- and he said what our development yields were. So I think that's sort of what I'd say my general views are on that development. Bryan? Bryan Koop: Yes. So I'd comment on what's the impact to BXP portfolio. And as Doug mentioned, as you look at the Back Bay as the submarket, there's very little transfer of tenants that leave this market, and it's highly desirable. We look at our competitive set of the buildings we compete against daily, and it's a 3% vacancy. So it's extremely tight, as Doug mentioned. And in fact, we're actively asking tenants if they'd like to give back space because we've got growth in those sectors that Doug mentioned earlier. And then when you look at the downtown market, our buildings are leased up and tucked away for quite a few years now with limited, limited space at 100 Federal and the same is true at Atlantic Wharf and also Hub on Causeway. Operator: That concludes the Q&A session. At this time, I would like to turn the call back to Owen Thomas, Chairman and Chief Executive Officer, for closing remarks. Owen Thomas: No further remarks from us. Thank you all for your interest and your time and your interest in BXP. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Waystar Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Sue Dooley, Vice President of Investor Relations. Please go ahead. Sue Dooley: Thank you, operator. Good afternoon, everyone, and thank you for joining Waystar Third Quarter 2025 earnings call. Joining me today are Matt Hawkins, Waystar's Chief Executive Officer; and Steve Oreskovich, Waystar's Chief Financial Officer. This afternoon, we issued a press release announcing our financial results and published an accompanying presentation deck. You can find these materials at investors.waystar.com. Before we begin, I'd like to remind you that this call contains forward-looking statements, which are predictions or beliefs about future events or performance. Examples of these statements include expectations of future financial results, growth and margins. These statements involve a number of risks and uncertainties that may cause actual results to differ materially from those expressed in these statements. For a full discussion of the risks and other factors that may impact these forward-looking statements, please refer to this afternoon's press release and the reports we file with the SEC, all of which are available on the IR page of our website. Any forward-looking statements made on this call are only as of today and will not be updated unless required by law. We will also discuss certain non-GAAP financial measures. These measures are intended to provide additional insight into our performance and should not be considered in isolation or as a substitute for financial information prepared in accordance with GAAP. We have provided reconciliations of the non-GAAP financial measures included in our remarks to the most directly comparable GAAP measures, together with explanations of these measures in the appendix of the presentation slide deck and our earnings release. With that, I would like to turn the call over to Matt. Matthew Hawkins: Thank you, Sue, and good afternoon, everyone. In Q3, Waystar continued its strong momentum, achieving solid revenue growth and profitability. This performance was anchored by healthy client retention and expansion, reflecting our leading position in modernizing the health care payment process. Our cloud-based AI-powered software creates compelling value that drives meaningful ROI, strengthens client financial outcomes and improves transparency in the cost of patient care. Let's review a few key highlights. Reflecting strong execution, Waystar delivered another quarter of double-digit revenue growth and strong margins, outpacing our guidance on both measures. Revenue grew to $269 million, representing 12% year-over-year growth with an adjusted EBITDA margin of 42%. On October 1, Waystar completed the acquisition of Iodine Software, expanding our reach to more providers uniting clinical, administrative and financial data, increasing the total addressable market and unlocking new opportunities to drive profitable growth. We announced innovations across our AI-powered platform and engaged hundreds of health care's top technology and industry leaders at Waystar True North, our annual client conference, to foster connection, celebrate success and ensure our product road map continues to meet providers' needs today and in the future. At Waystar, the mission is clear, to simplify health care payments. The health care financial system is complex, fragmented and administratively heavy and Waystar is modernizing it through a cloud-based platform that streamlines the entire process. Our technology helps providers get paid faster, more accurately and with less administrative burden so they can focus on what matters most, delivering quality patient care. Purpose-built for health care, our platform integrates with more than 500 electronic health records and practice management systems. This extensive integration enables us to serve over 1 million providers nationwide of all types and sizes. And we believe Waystar's impact is unmatched. Waystar leads the market in advanced automation and intelligence, leveraging AI-powered workflows, unrivaled data assets and meaningful innovation. Our powerful software fuels industry-leading client satisfaction and is transforming the financial and administrative engine of health care. As the industry seeks greater efficiency, transparency and value, we believe Waystar is positioned to capture a vast and durable growth opportunity for years to come. Turning to the completion of the Iodine Software acquisition. Waystar has taken a major step forward in our mission. The addition of Iodine expands our total addressable market by more than 15%, accelerates innovation and strengthens our ability to drive durable, profitable growth. We've also welcomed nearly 150 health systems, representing more than 1,000 hospitals to our client base. Iodine brings proven AI-powered mid-cycle capabilities, including clinical documentation integrity, utilization management and prebill anomaly detection. With Iodine now part of Waystar, we're uniting clinical, financial, administrative and payer data in a single intelligent platform. By infusing these capabilities and data into our software, we're extending and compounding the value Waystar provides before, during and after care. Our platform and access to this tremendous data spans every stage of the revenue cycle, powering AI insights, automation and accuracy that enable complete compliant and defensible claims, accelerating reimbursement and strengthening provider financial performance. We estimate that Iodine accelerates portions of our product road map by nearly 2 years as we deliver the next generation of clinically informed AI-powered capabilities. We are pleased to have Iodine Founder, William Chan, now serving as Waystar's Chief AI and Product Officer. In this role, William is shaping the future of the Waystar platform and advancing our innovation agenda. He is joined by several senior leaders and domain experts from Iodine who bring deep clinical and technical expertise to accelerate our progress. To give you a sense of what's ahead, we envision a future where AI continuously scans data, identifying anomalies across patients, providers and payers, automating tasks, validating documentation accuracy and predicting and delivering financial outcomes. This is the path toward true autonomous AI in health care revenue management. And ultimately, we believe these innovations will power the future of the health care system. Waystar recently hosted its sold-out client conference, Waystar True North, convening more than 500 revenue cycle leaders, one of the largest gatherings of decision-makers in the industry. At the conference, we highlighted client results that generated meaningful ROI and strong performance. A few examples of client impact include reduced prior authorization submission time by 70% within weeks of implementation at a large regional health system, achieved a 4x ROI for a major nonprofit health system through lower denials and higher revenue capture and increased point-of-service cash collections while redeploying the equivalent of 10 full-time employees to higher-valued work and a large Midwestern health system. These outcomes reinforce the scalability and financial impact of the Waystar platform and our ability to deliver sustainable, profitable growth. Also at Waystar True North, we convened the Waystar Advisory Board, senior executive decision-makers and early adopters of Waystar software from leading provider organizations who provide invaluable insights that fuel our innovation and help shape our strategy. Our discussions reflected the realities provider face today, rising utilization accelerating denial rates and ongoing workforce shortages that continue to pressure margins. Many are turning to AI, seeking technology to drive greater efficiency, reduce administrative waste and deliver the financial transparency that builds trust across all stakeholders. Despite this progress, key barriers remain, most notably data fragmentation. Much of the health care data is siloed or locked in unstructured formats, such as clinical charts and notes, PDFs, lab reports and images, limiting the effectiveness of AI. An MIT study found that nearly 95% of AI initiatives rely on incomplete or inconsistent data. The results, without high-quality data, AI doesn't create efficiency, it creates more work. The second challenge is integration. Providers need technology that operates seamlessly within their current systems and workflows. Without interoperability, the value of AI remains unrealized. And finally, cybersecurity remains critical as AI becomes more deeply embedded in clinical and financial processes. Secure, compliant data management at every point of contact is essential. These challenges underscore the need for a unified, intelligent and trusted platform and this is where Waystar is uniquely positioned to lead. An independent market study ranked Waystar the #1 trusted vendor among top competitors, recognizing a sustained commitment to data protection, client experience and innovation. Insights from the Waystar Advisory Board and independent studies reinforce our differentiated position and confirm the growing demand for a unified, intelligent and trusted platform. We continue to build client confidence and deepen relationships that drive expansion, accelerate adoption and power the next generation of innovation across the platform. At the heart of Waystar's differentiation is innovation. Our platform advances continuously with hundreds of new capabilities launched each quarter to improve automation, accuracy and ease of use. Twice each year, new product capabilities are unveiled through the innovation showcase, highlighting how the platform is advancing to meet providers' needs. Launched at Waystar True North, our fall innovation showcase introduced new AI-powered capabilities that address some of the most pressing challenges in health care, including denial prevention and recovery and patient financial care, driving better outcomes for providers and the patients they serve. The important advancements we announced include denial prevention. Waystar AltitudeAI targets the 60% of denials that are preventable, reducing time related to critical prevention work by 95% for a midsized health system and building on our industry-leading 98.5% plus first pass clean claim rate across our client base, accelerating reimbursement and improving cash flow. In denial recovery, Waystar is addressing the $20 billion annual denial problem. Waystar AltitudeAI enables providers to create hundreds of appeal packages simultaneously, more than 90% faster than before, driving double-digit increases in overturn rates for early adopters and improving reimbursement speed and accuracy and patient financial engagement. To address the $17 billion uncompensated care gap related to patient collections, Waystar's cost estimation capability is seamlessly integrated within our patient digital experience to increase pre-service patient payments, accelerate cash flow and reduce uncompensated care. Client feedback on these innovations has been very positive, validating our road map and reinforcing the growing demand for AI-powered automation. This innovation continues to build client confidence and deepen long-term relationships that drive adoption, expansion and sustained growth across the Waystar platform. Trust remains central to our success. Following Waystar True North, attendees reported a 93% confidence level in Waystar as a trusted partner. That confidence is reflected in our performance with strong Net Promoter Scores and a net revenue retention rate of 113%. The number of clients generating more than $100,000 in trailing 12-month revenue grew to 1,306 in Q3, an increase of 11% year-over-year. And the market is taking note of our progress. We were proud to receive 2 prestigious awards during the third quarter, powerful validation for Waystar. Fast Company named Waystar one of the Best Workplaces for Innovators in North America and the 2025 Stevie Awards named Waystar Healthcare Company of the Year and honored us as the top-ranked payments solution. In closing, sustainable transformation in health care requires a strong foundation. We believe Waystar's industry-leading AI-powered platform is that foundation, the essential differentiated choice for providers seeking to simplify health care payments and achieve better outcomes. Waystar's momentum is strong and accelerating as we advance our mission and capture a large expanding market opportunity. We are operating with discipline and delivering results, building a rule of 50-plus software business with the ability to compound revenue and profitable growth. With that, I'll turn it over to Steve to walk through the financial details from the quarter. Steven Oreskovich: Thanks, Matt. Please note that my comments regarding third quarter and year-to-date results reflect Waystar's performance only, while full year guidance and implied Q4 guidance include a full quarter of contribution from Iodine. Revenue increased 12% year-over-year in the third quarter to $269 million, driven by healthy client retention and expansion, highlighting our durable, predictable model of low double-digit revenue growth annually on a normalized basis. We also expanded our client base, generating more than $100,000 of LTM revenue by 38 clients in the third quarter to 1,306 at quarter end, an increase of 11% year-over-year. Our net retention rate, or NRR, was 113% for the last 12 months compared to 15% year-over-year revenue growth over the same period. As we've discussed over the past several quarters, NRR benefited from the rapid time to revenue from clients impacted by a competitor's cyber event in early 2024 and elevated patient utilization of the health care system since early 2024. Subscription revenue of $134 million increased 14% year-over-year and 3% sequentially. Going forward, we expect Iodine to further enrich our subscription revenue mix. Volume-based revenue of $132 million increased 10% year-over-year and decreased 4% sequentially, in line with our seasonality expectations associated with revenue from patient payment solutions. Also, we saw overall patient utilization in the third quarter begin to revert back to historical growth rates. Adjusted EBITDA of $113 million for the third quarter increased 17% year-over-year. Our adjusted EBITDA margin was 42%, above our long-term target of approximately 40%. The adjusted EBITDA outperformance was driven by a revenue shift to higher-margin solutions, along with ongoing operational cost initiatives, outpacing reinvestments in areas such as innovation, cybersecurity and client experience. Please note that none of the $15 million of expected cost synergies from the Iodine acquisition are reflected in our third quarter results. We have already notified and acted on approximately 70% of annualized cost synergies. We expect these action synergies to be realized and beginning to positively impact results over the next few quarters. We are confident in our ability to achieve the full cost synergies within the previously communicated period of 18 to 24 months post close. We further believe our track record and M&A will demonstrate with time and integration that Iodine's clinical expertise, robust data and AI capabilities add to our long-term profitable growth profile. Turning to cash flow and the balance sheet. We ended the quarter with $421 million in cash and equivalents and $1.2 billion in gross debt. As a reminder, in conjunction with the Iodine acquisition, we issued $250 million of debt and drew on $30 million of our revolving credit facility. We also lowered the interest rate on both facilities by 25 basis points to SOFR plus 200 for the entire debt and SOFR plus 1.75 for the revolver. Unlevered free cash flow was $96 million in the third quarter of 2025 with an unlevered free cash flow to adjusted EBITDA conversion ratio of 85% for the third quarter and 86% year-to-date, which are both well ahead of our 70% long-term target. The trend of high cash flow conversion, coupled with the expansion of our trailing 12-month adjusted EBITDA, generated a 1.9x leverage ratio at September 30, which is down almost a full turn since the beginning of the year, ahead of our previously stated goal of reducing our leverage ratio by approximately 1 turn annually. If we carry this calculation forward to October 1, 2025, to account for the Iodine acquisition, the leverage ratio would be 3.4x. We are confident in our ability to delever approximately 1 turn annually. Regarding 2025 full year guidance, please note that the following includes a full quarter of contribution from Iodine. We are raising revenue guidance for 2025 to a range of $1.085 billion to $1.093 billion, with the midpoint of $1.089 billion, representing a 15% year-over-year growth rate. This is an increase of $53 million or 5% versus the prior guidance midpoint. The increase represents a 12% year-over-year growth rate for stand-alone Waystar and an expectation of approximately $30 million of revenue from Iodine in the fourth quarter. Our expectation for Iodine revenue for the full year 2025 is approximately $120 million, which includes alignment with Waystar accounting policies and is in line with prior expectations. Further, given our approach to rapidly uniting all aspects of Iodine and the significant progress we have made towards organizational alignment, including product development, go-to-market and cross-selling, we don't expect to separately break out Iodine going forward. We are also raising adjusted EBITDA guidance to a range of $451 million to $455 million with a midpoint of $453 million, increasing by $31 million or 7% versus the prior guidance midpoint. We now expect an adjusted EBITDA margin of approximately 42% for 2025, driven in part by the outperformance through the first 3 quarters of the year. This guidance assumes $12 million of contribution from Iodine in the fourth quarter at its historic adjusted EBITDA margin of approximately 40%. We look forward to providing 2026 guidance on our next earnings call. This concludes our opening remarks. With that, we are ready for your questions. Operator, please open the call. Operator: [Operator Instructions] Our first question comes from the line of Ryan Daniels from William Blair. Ryan Daniels: Congrats on the strong performance. Matt, maybe one for you. Interesting that True North took place right around the Iodine transaction close. And I'm curious if you had the opportunity to introduce clients to that and see new Iodine clients? And just overall, kind of what areas were key focus and what the overall feedback on Iodine and Waystar from the Iodine clients were? Matthew Hawkins: Thanks, Ryan. It was a perfectly timed client conference for us. Waystar True North was fabulous. As we indicated, it was sold out and we were able to highlight -- we hosted an innovation lab where we allowed clients to get hands on with our technology advancements and see AI at work. We also had the opportunity to showcase how Iodine, which, again, is this middle revenue cycle, tremendous software set of solutions, how Iodine can really connect Waystar's front-end and back-end solutions effectively together. And the client sentiment was 100% positive. We heard feedback from our Advisory Board meeting that we hosted just on the front end of the Waystar True North Client Conference. And I noted a couple of particular quotes. One said, we're so thrilled about this announcement. This will be awesome for us and for health care. And another one said, "I'm actually an Iodine user too." So I'm very excited about this acquisition, and it feels like a perfect fit for you. And so as we think about the opportunity now to combine these 2 special companies, we feel like it's a perfect strategic fit and it's helping us toward our ultimate goal of creating that perfect undeniable insurance claim. Thank you for the question. Operator: Our next question comes from the line of Brian Peterson from Raymond James. Brian Peterson: I'll echo my congrats on a strong quarter. Matt, maybe a high-level one for you, especially as you think about the platform with Iodine in the fold, how do you think about the cadence of the legacy or replacement of legacy processes in RCM? I know some of these sales cycles for hospital health systems can be long. But I'm curious in kind of an AI-enabled and Agentic world, will we start to see customers maybe move faster to tackle this opportunity? Matthew Hawkins: Thanks, Brian. Let me start with maybe just a bit of 1 more background or 2 comment on Iodine and then how we're leaning into being able to sell the full Waystar platform. So just as a quick reminder, Iodine sits in the mid-revenue cycle. It is really a powerful software that does clinical documentation, integrity, utilization management and prebill anomaly detection. And these capabilities bring structure to unstructured clinical information. They detect missing codes or incorrect codes before a bill is complete. And they keep a human in the loop, so to speak, as they deploy over 160 different leading AI models within Iodine Software that allow the human to validate what the AI has identified as an accurate code. So what that's doing is that's leading to a 70% reduction in the likelihood of a set of codes needing to be rereviewed before a claim is submitted. So that fits perfectly into Waystar's next-generation cloud platform, and we really feel like this will allow us to continue to demonstrate market leadership and establish us as the next-generation revenue cycle solution of choice. We've cross-trained our sales teams. We noted at the announcement that there was this tremendous cross-sell and upsell opportunity with -- when you do the overlap or the Venn diagram of the portion of clients that are both Iodine and Waystar's -- gosh, there's only somewhere between 35% and 40% of clients that are using both. So not only we cross-trained our sales teams, we've introduced Iodine now to Waystar clients, and we're beginning to tell that story and promote some of the incredible capabilities that we'll be able to do together. And conversely, we've been able to introduce Waystar to Iodine clients. So there's certainly cross-sell opportunities where we'll replace legacy and incumbent software that may have been in place for years. There's also the opportunity for us to increasingly promote the whole platform. And when you think about the clinical data access that Iodine brings to Waystar's software solutions. Iodine process is more than 160 million patient encounters annually and about 34% of all patient discharges in the United States annually. So there's a tremendous amount of clinical information that we're already figuring out how to integrate and unite and place into the large language models that we're using to automate prior authorizations, for example, or to strengthen our claims processing capability or to further automate the appeal management process where some clinical information is super helpful. Overall, we're headed toward more platform sales opportunities, and we're very excited by it. So thank you for asking the question, Brian. Operator: Our next question comes from the line of Adam Hotchkiss from Goldman Sachs. Adam Hotchkiss: I think, Steve, you mentioned that patient utilization has started to move back to historical levels. Could you maybe just expand a little bit on that? And I know that the volume-based business declined 4% sequentially. I think it's a little bit more than we've seen in the last couple of years. So could you maybe just expand on what the right way for us to think about seasonality in a more normalized environment going forward looks like? Steven Oreskovich: Yes. Certainly, Adam. So I can share a few thoughts here. So maybe a couple of level-setting thoughts and then I can specifically address your questions. Recall that our solutions help providers become more efficient and effective, so they have the ability to capture utilization upside of the health care system as we've seen in the past several quarters. Also, our mix of revenue is generally 50% from subscription based and 50% volume-based with the volume base coming from both provider solutions, those solutions that help providers interact with and obtain payments from commercial payments and governmental entities as well as you mentioned, Adam, patient payments, those that help them interact with and collect from patients. So my prepared comment is based on what we're seeing, particularly within patient payments, which, as you noted, has a natural first half, second half seasonality aspect to it based on the timing of patients with high deductible plans. And notably, what I was looking at qualifying is we started to see the timing of patients reaching deductibles occur earlier in the third quarter than we had last year. It's an early indication though versus a long term or a trended expectation. So we've kind of taken that into context in how our approach is to guidance, which we believe is prudent. So as we set guidance, particularly for the remainder of 2025 and implied fourth quarter, we've taken that into account. What I mean there, Adam, is if our volume-based outcomes and the patient utilization continue on sort of that same trended rate we've seen for the first 3 quarters of the year, we would expect to come in at the high side of guidance. If we see that those patients that are reaching those deductibles within those high deductible plans continue as we started to see them here in the third quarter and that sequential change versus the third quarter and second quarter, we could be at closer to the midpoint of guidance versus potentially even on the lower end of guidance. So hopefully, that's helpful context. Operator: Our next question comes from the line of Allen Lutz, Allen from Bank of America. Allen Lutz: At one of your innovation showcases several weeks ago, you talked about shipping patients from mail payments to mobile. Can you talk a little bit about discussions with your customers around making that change and how long that would take? And then how should we think about the relative gross margin delta between those 2 products? Matthew Hawkins: So thank you, Allen. And thank you for tuning into our innovation showcase, by the way. It's available to anybody on our website. We do it once in the spring and once in the fall. And in the fall, we did it in conjunction with the Waystar True North Client Conference. It felt like we were at a rock concert. It was really well received. And with respect to the digitization of the patient statement and the integration of the patient payment with a well-informed digital statement, it certainly has a different margin profile. We think it has a different impact. One of our -- one of the things that we foresee overall across the health care marketplace and what we're pursuing is a tremendous opportunity to move from analog to digital in several areas. And we believe that Waystar could be a market leader in that. One of the pain points that has persisted on the analog side of things is a tremendous amount of paper that continues to be used in health care, some in faxes, in back offices, some inpatient statements where it's a fact that there's a portion of the population that still wants their patient statement in paper form so that they can review it. Waystar is working to make that as intuitive and as easy as possible and to integrate the patient payment capabilities to create transparency, ease of understanding and facilitate accurate and timely payments to providers. We're doing all that now and making it available in a digital format. And providers are beginning to opt in to that strategy. They're beginning to embrace it. They're asking patients that they would like to opt in. And we're thinking through the time line. We don't see it dramatically shifting in 1 quarter or 2 quarters. This is a long tail of transformation and opportunity as we help providers connect with patients, but we know that Waystar to be a market leader there and that the experience for the patient can be meaningful because it will -- we're introducing patient statements that oftentimes do -- is like educating for the patient is anything, which is really great way to think about that. But it's also meaningful for the provider. When you look at Waystar's patient financial care suite of solutions, one of the things that we measure is patient NPS scores, not just provider NPS scores, but patient NPS scores. And what we find is that when a patient understands their financial responsibility at the point of care that the Net Promoter Score goes up because they appreciate the transparency, they can make appropriate plans for how they'll make payment. In fact, Waystar's software helps the provider arrange for payment plans within this integrated software solution, within our patient financial care suite. So we know that digitization is on the way and we're a facilitator and a driver of that to help both providers and patients. Operator: The next question comes from Vikram Kesavabhotla from Baird. Vikram Kesavabhotla: I wanted to ask about the Iodine acquisition as well. And I think in your prepared remarks, you said that this could accelerate parts of your product road map by nearly 2 years. And I'm just wondering if you can elaborate on that comment a little more. What are some of the best examples of how this is adding to your innovation process? And how should we think about the time line to seeing some of those combined capabilities start to emerge in the product portfolio? Matthew Hawkins: Terrific. Thank you, Vikram. Let me give you some tangible examples of why we're so excited and why we think it will accelerate the road map by nearly 2 years as we've indicated. Let's take a couple of product examples. So one is a Waystar product called prior authorizations. As you know, and as we've stated and showcased in our innovation lab and in our innovation showcase, we're automating 90% of the prior authorization experience for provider organizations. But sometimes, that prior authorization when a provider is committing an authorization to perform a service for a patient, they submit that authorization request to a payer. Sometimes the payer come back -- comes back and asks for clinical information. They'll ask for, is this medically necessary. And that is a medical necessity-based prior authorization. So if Waystar were to go and gather that clinical information itself, we would go out to all of our hospitals that we work with, build appropriate APIs ourselves and then gather that clinical information. Getting access to Iodine's incredibly powerful clinical data set, uniting it with Waystar not only creates one of the most comprehensive administrative and clinical data sets, to our knowledge, in the United States of America, but we'll be able to use that clinical data set to do things like medical necessity-based prior authorizations where clinical information is required by the payer before they're fully authorized in treatment or a service provider to perform for a patient. One other example, when a claim gets denied, and we know that denials are on the minds of all provider decision-makers. When a claim does get denied and providers are working to contest or appeal that denied claim, 450 million claims we get denied annually. So this is a real problem. When they go through the process of appealing the denied claim, oftentimes, it's helpful to supplement the appeal letter with clinical information that can be used to help a test for the reasons for why that denied claim should be overturned and successfully adjudicated and payment remitted to the provider. So those are solutions that Waystar has in place. Those are generative AI solutions, prior authorization and appeal management letters where we're generating learners very rapidly. We're keeping a human in the loop, and now as we infuse clinical information into that appeal letter where we believe that, that will drive successful overturn rates and supplement and accelerate an already great product with clinical information. Those are 2 examples. But we're very excited about the acceleration of -- and bolstering of Waystar software with this clinical information. And conversely, I would say, as we learn more about the Iodine suite of software capabilities, there are -- as you know, Waystar processes 6 billion insurance transactions annually. And we have a tremendous amount of administrative data that we can use to then also support and strengthen Iodine software solutions in clinical documentation improvement. We're processing billions of claims. We understand code combinations and we understand what gets successfully adjudicated and reimbursed. We can use that to train Iodine's AI models. Likewise, with prebill anomaly detection, we'll use administrative data there to further supplement Iodine's already strong and tremendously capable solution. So hopefully, those examples are helpful, Vikram. Operator: Our next question comes from Elizabeth Anderson from Evercore ISI. Elizabeth Anderson: Congrats on the quarter. Obviously, you've given us a tremendous amount of detail about how Iodine fits into the portfolio and sort of your view for the fourth quarter. I was wondering as we have used hospitals who are seeing some margin pressure on the horizon or currently, have you guys noticed a -- and you have a broad suite of solutions to address all sorts of things. But have you noticed any shift in terms of the types of modules people are -- hospitals are interested in? Are they going for sort of more things versus other things? Just any additional color you can provide on that front would be helpful in just kind of understanding the broader landscape. Matthew Hawkins: Thank you, Elizabeth. Speaking of the hospital demand environment, let me start with a high-level idea or 2 and then speak to solutions that we see being very attractive to decision-makers. We know that decision-makers want efficiency. They want entity. They want to work with entities or partners that can help them get paid faster, accurately and efficiently in our side of the world, so to speak. They want cybersecure solutions. There's also, as I mentioned just a moment ago, a greater focus on denial rates and what is actually driving them. And these are all areas that completely align with Waystar's value proposition. Our solutions are mission-critical. They help drive efficient cash flows, and we get prioritized amongst decision-makers. So in this demand environment, we've been saying this now for a few quarters, but we tend to get prioritized because we are mission-critical. And we see strong demand for our -- increasing demand for our platform, but it's interesting provider decision-makers are now starting to understand the relationship, the compounding benefit of using more than 1 or 2 of Waystar software modules. For example, if they're using Waystar's claims management suite, which already has a tremendously high first pass claim acceptance rate that is greater than 98.5% across our entire network. But denial prevention and denial reduction is on their mind, then we're able to have a conversation with them about eligibility and eligibility automation and insurance coverage detection, which we know statistically reduces the likelihood that a claim gets denied. We are then often talking to provider decision-makers about prior authorization automation, another sticky point. When a provider doesn't get authorized to perform a health service, that's a reason why claims get denied. So we have seen demand across our platform. But we see a note that there is interest in reducing denials. And we see -- we're able to articulate as we go through the discovery process with these clients and prospects and decision-makers. We were able to understand their current activity rates or metrics and then compare that with what we could do prospectively when they begin to use more of our solutions. And so eligibility, automation, coverage detection, prior authorization are seemingly hot areas of product. On the other side of that, denial and appeal management software where Waystar solutions shine because of the autonomous generative AI work that we're doing there is also something of interest to providers. Operator: Our next question comes from Daniel Grosslight from Citi. Daniel Grosslight: Congrats on the quarter and closing Iodine. I was at a conference recently and the most striking thing to me was just the number of vendors that have popped up with AI-powered RCM capabilities. Given what seems to be increasing competitive intensity, can you talk a little bit about how your go-to-market strategy has changed or will change and how bringing William on as your Chief AI and Product Officer may impact this? Matthew Hawkins: Sure. Yes. Thank you, Daniel, for that question. So let me speak to our approach and then the competition and growth opportunities as we see them. We have a strong pipeline of opportunities with a very healthy mix of new and cross-sell opportunities. It's interesting to note that we've seen new products that we've launched, so think about some of the AltitudeAI solutions that we've launched now beginning to make a meaningful contribution to our pipeline and our year-to-date results. This is very important. And our go-to-market team, I think it's a fabulous team. This is a fabulous group of leaders. They care a tremendous amount about not just proving results, but actually transforming health care, and it's a privilege for me to work alongside such a fantastic group of go-to-market people and team members. With respect to our approach, it's -- we feel like we have a market-leading approach. We're not going to tell the world our secret sauce on this call. But we do some things to train and make our team members productive and enrich a discovery process that enables us to understand what's going on at our client sites that then enable us to have an ROI-based discussion and really promote and drive our solutions. What I'd say with respect to competition, we are at the street level. We see what's going on. And we think that imitation may be the nicest form of admiration or flattery, and we appreciate that. There does seem to be plenty of noise in the market with splashy announcements being made. But we're focused on executing our business plan. And what we see is continued momentum and success in our platform approach. Again, we're driving real ROI conversations. We're moving from AI hype to drive to kind of ROI reality. We believe that we're the best platform in the market. We're a platform. We're not a point solution. We're a platform from end to end. We have the lowest total cost of ownership and the highest ROI. And our win rates are consistently high, and they've increased modestly since we last published them in our S-1. So we feel very good about the strong pipeline of opportunity, the continued elevated participation rates in RFPs and sales activities. And we know that there's a lot of curiosity and interest in the RCM, revenue cycle management category. And we believe that our competitive advantage or edge is the fact that we're cloud native. We have a data rich and robust rules engine that governs our network. We are AI-enabled and driving automation, and we delight clients with high client satisfaction. Operator: Our next question comes from the line of Saket Kalia. Saket Kalia: Matt, maybe for you, actually, I want to pick up on that thread a little bit. It sounds like there's been a ton of innovation through AltitudeAI, and you just talked about how it's starting to contribute to Waystar. I was just curious how you kind of think about monetization. Some software companies create separately billable SKUs, right, that sort of add an AI layer on top. Some are able to sort of deliver or charge additional value. How do you kind of think about that monetization strategy for Waystar? Matthew Hawkins: Thank you, Saket. So for us, monetization comes in multiple forms. We're beginning to monetize it now. But it starts with retention and a long enduring relationship with clients as they use our software and they get the benefit of that, and it shows up in real returns to that. The second is we have an annual price uplift program that has been in place for several years. And we price to value, and we're beginning to price to value where we see incremental benefits as we've begun to introduce autonomous or generative AI capabilities within the various software modules. So we're starting to price those to value without disclosing things further. And the third is the opportunity to introduce actual new SKUs, so to speak, or new software modules. And we've begun to do that in a couple of areas, and we're excited about that without necessarily publicly commenting on what those are. We are absolutely focused on introducing those to our clients. And those are the 3 that come to mind. I might just add that Waystar, as you know, Saket, and this is more of a general comment, but Waystar has been a long-time deployer of AI on our platform. And I think it's very important in this world where AI may be the biggest opportunity in our lifetime, especially in health care, where the technology might be a little bit ahead of where the human factor is. And we see that in health care provider organizations who are very interested in beginning to consume and get the benefit of AI. For us at Waystar, we're working to set the standard in how we use AI. We want AI to be deployed responsibly and ethically. And we want people to be able to trust us. We believe that there's an opportunity for us to use AI for moral good and to advocate for providers and patients to improve access to care and transparency and fairness and empathy and reduce waste and burden. So those are things that excite us. One of the last comments I'll make is as we monetize AI, one of the things that we hear from providers is they want to use it, but they don't know quite how it fits into their workflow. And so what Waystar has now been doing for a long time on our platform, please recall that our platform is a workflow platform. So we're deploying AI across the platform today. It's intuitive. It's easy for end users. It delights them. And what we're doing is we're conditioning end users to consume AI as they use our platform. We're bringing the right AI to the right use case, often with a human in the loop, where appropriate to validate that the results are accurate. But we're making -- the AI that we're deploying is making the end users that use Waystar software, making their lives easier. And they may not even know or fully realize that they're consuming AI because AI is automating tasks in the background or AI is prioritizing work for them. we're driving insights to them to make their day easier. And so that AI hype to ROI realities are mantra, and we'll continue to monetize it, but we're very encouraged by the products that we have launched, pricing that we are achieving and their long-term enduring relationships that we're creating with our clients. Operator: Our next question comes from the line of Charles Rhyee from TD Cowen. Charles Rhyee: Matt, I just wanted to -- obviously, in the last couple of months, you've also seen some big announcements from the big EHR vendors. I think Epic at their annual event as well as Oracle talking about Cerner. They're starting to build more AI into the EHR itself as well as talking about solutions for rev cycle management using agents. Can you talk about sort of how you see that developing, maybe talk about how the Waystar platform can work with the HR systems as well and maybe points of difference in maybe doing different things? Or maybe if you could just talk a little bit more about how these will all coexist together. Matthew Hawkins: Thank you. So it's interesting because in health care -- we have well over 1,000 hospitals today, and the majority of those are on Epic, that are clients of ours. So they're using Waystar today. We have many Cerner clients today. We have many Meditech and other practice management and EHR clients today that are delighted to be using Waystar software. You said a phrase that I'd like to just highlight. And that is these organizations are "talking" about RCM. Waystar is doing RCM. That's all we do. And we have a team of people completely focused on simplifying health care payments, using modern AI capabilities. We are using every modern LLM that you can envision in the market to do work. But we think that the value is actually in access to data to train these large language models. These should really be called large object models because they can do a lot more than just consume language. They're consuming lab charts, they're consuming objects that are in PDF forms and images. And Waystar is doing that today. So we think we can be a fabulous partner. We could be a linchpin technology for these EHR systems, where they become the large monolith and they're focused on so many different things. We've proven that our interoperability and integration to their systems actually delight their clients and we welcome the chance to partner with these systems. And while I'm on this point, this theme of interoperability and connectivity, I would just say from a regulatory perspective, the Waystar is an advocate for modern connectivity via APIs to all the payers. We promote that. We're connected to the vast majority of payers in the United States. We also connect to more than 500 different instances of electronic health record, practice management and hospital information system vendors. So we think there -- we can be a great partner and we're demonstrating that as we help them and their clients grow and achieve great results as they use our software. Operator: Our final question comes from Jailendra Singh from Truist Securities. Jailendra Singh: Congrats on a very strong quarter. I wanted to ask about EBITDA margin trends. I know you guys have talked about 40% as being the reasonable long-term target. But what are your views on the sustainability of some of these margin efficiencies and gains you've seen recently? You shared several examples around the ways you're using AI to create value for your clients. But given your expertise, is it fair to assume you're using AI to drive some internal operational efficiencies? And what kind of opportunities do you see in that area? Matthew Hawkins: Well, thank you, Jailendra. I appreciate your question. It's a very important one for us as well. We appreciate all these questions actually. What I would say is, just to start by grounding us in fact, we talk about our business model being an enduring long-term normalized low double-digit revenue growth business. You've also heard us talk about our long-term target of adjusted EBITDA margins of 40%. And those are targets for us. And we're very mindful of -- we know we could run the business at greater than 40% EBITDA margins, for example. But we feel like the right range to run it in today is while we invest in innovation, invest in cybersecurity, invest in go-to-market capabilities in this unique period of time in health care, it's the right kind of way to run the business at that 40% or so level. We're certainly pleased with the recent quarter's results and being slightly higher than that. But I suspect we'll continue to find areas to invest, and we'll be very conscious about that long-term target. With respect to some of the internal initiatives around AI, let me just highlight a couple of things. One, we do have William acting as a Chief AI and Product Officer. We're very excited about that because he complements an incredibly talented team of other leaders who are very passionate about driving to our long-term targets. We also have established an internal AI team, it's we call it our Kaizen AI team. And this is a team that works within Waystar cross-functionally across all the businesses, all the functional teams to identify use cases where AI could be used to create market-leading experiences, but at a higher -- or maybe create more operating leverage by deploying AI instead of people for certain tasks. One of the things that we emphasize internally is that we believe that AI is more of a productivity augmentation tool that will allow us to scale future from here as we make our team members even more and more productive in their jobs. This is an awesome group of people. And what we've done is we've given every single team member at Waystar, a Copilot license. We've taken them through certification and training on how to responsibly and ethically -- and from a business perspective, the Waystar way of how we like them to deploy Copilot. We have contest internally where we celebrate individuals and teams who have created novel use cases using Copilot through some prompting or some engineering capabilities to improve or automate certain tasks that have been done manually previously to make our team members even more productive and to help them delight clients as they do to help them write source code and have it be reviewed. Our development teams, for example, are using GitHub and Copilot and we're starting to see some increased efficiency and as they deploy AI and they're using it to review code and do integrity testing and other types of testing in our software. We're really excited about the opportunity there. And I suspect that we'll find future opportunities to advance and drive operating leverage in the business as we find those operating leverage basis points or percentage point, so to speak. We may not convert that all to adjusted EBITDA, because we may choose at this point in our journey as a company to reinvest operating leverage that we find back into the business to drive innovation and drive go-to-market success, drive cybersecurity and drive a market-leading client experience. And so that's how we're thinking about the internal use of AI. We've got well over 100 use cases that are actively being explored and pilot tested within Waystar today on the internal side. So we're very excited about that. Operator: Thank you. This concludes the question-and-answer session. Now I will turn the call over to Matt Hawkins, CEO, for closing remarks. Matthew Hawkins: Yes. So let me just close here. We thank everybody for participating today and for your thoughtful questions. I hope you'll sense that we're pleased with the performance of the business we -- it's -- there's a sense of momentum. We are raising our full year guidance on that basis. We're thrilled to have closed the Iodine acquisition, and we're well underway and excited to work together as one team to really do some transformational work in health care. What I'd say is it's all due to our team. I'm so grateful to work alongside such a talented and dedicated group of people. This is a team that really cares about our mission to simplify health care payments, and it's an honor for me to work alongside them. What we're building is a market-leading platform. We're beginning to get data and network effects as we process more transactions and we get richer data, drive to smarter automation. That creates higher client value and deeper stickiness and retention with our clients. So we're excited about the work that we're doing, and we look forward to continuing to execute on our business plan. Thank you very much for the time today. Operator: Thank you, everyone, for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bio-Rad Third Quarter 2025 Results Conference Call and webcast. [Operator Instructions] I would now like to turn the conference over to Edward Chung, Head of Investor Relations. You may begin. Yong Chung: Good afternoon, everyone, and thank you for joining us. Today, we will review the third quarter 2025 financial results and provide an update on key business trends for Bio-Rad. With me on the call today are Norman Schwartz, our Chief Executive Officer; Jon DiVincenzo, President and Chief Operating Officer; and Roop Lakkaraju, Executive Vice President and Chief Financial Officer. Before we begin our review, I would like to remind everyone that we'll be making forward-looking statements about management's goals, plans and expectations, our future financial performance and other matters. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Our actual results may differ materially from these plans, goals and expectations. You should not place undue reliance on these forward-looking statements, and I encourage you to review our filings with the SEC, where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today. Finally, our remarks today will include references to non-GAAP financials, including net income and diluted earnings per share, which are financial measures that are not defined under generally accepted accounting principles. In addition to excluding certain atypical and nonreoccurring items, our non-GAAP financial measures exclude changes in the equity value of our stake in Sartorius AG in order to provide investors with a better understanding of Bio-Rad's underlying operational performance. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. We have also posted a supplemental earnings presentation in the Investor Relations section of our website for your reference. With that, I'll now turn the call over to our Chief Operating Officer, Jon DiVincenzo. Jonathan DiVincenzo: Thank you, Ed, and good afternoon, everyone. Thank you for joining us today. We are pleased to share Bio-Rad's third quarter 2025 results, which reflects solid execution across our business. Revenue was consistent with our outlook and operating margin exceeded consensus, a testament to the discipline and agility of our teams in what continues to be a challenging and evolving macro environment. Our Clinical Diagnostics segment remains stable across our product areas, aside from the reimbursement rate headwind in China, which we expect to annualize in the fourth quarter. In our Life Science segment, process chromatography delivered a strong performance, helping offset the continued softness we're seeing in academic research and biotech funding. Many research customers continue to face uncertainty and are cautious with their budgets. This sentiment was reflected through continued weak instrument demand and some softness in consumables. However, through disciplined cost management and tight control of our discretionary spending, we achieved margin outperformance for the quarter. We also made meaningful progress advancing our Droplet Digital PCR strategy. During the quarter, we completed global sales training on our new QX platforms, and our teams are actively engaging customers. While it's still early, we are encouraged by the customer receptivity to the new products, particularly in the entry-level segment. Our sales funnel for these new systems is building nicely, but we recognize that selling cycles remain extended given the broader funding climate. We also continue to expand our ddPCR-based diagnostic strategy through 2 key partnerships, Gencurix and Biodesix. Gencurix made Bio-Rad the exclusive distributor of their Droplex oncology testing kits across Europe. This partnership leverages our strong commercial footprint in the region and helps accelerate the adoption of ddPCR-based cancer tests. We also expanded our partnership with Biodesix to provide greater access to critical biomarker testing for advanced breast cancer. Biodesix is validating our ESR1 assay in its CLIA-accredited labs, and offering testing services for its customers. Operationally, our teams continue to execute well, advancing our lean initiatives and maintaining cost discipline. In summary, we're pleased with the progress we're making, balancing near-term execution with continued investment in innovation and long-term growth. And with that, I'll turn the call over to Roop, who will take you through our financial results in more detail. Roop Lakkaraju: Thank you, Jon, and good afternoon. I'd like to start with a review of the third quarter 2025 results. Net sales for the third quarter of 2025 were approximately $653 million, which represents a 0.5% increase on a reported basis versus $650 million in Q3 of 2024. On a currency-neutral basis, this represents a 1.7% year-over-year decrease and was driven by both our Life Science and Clinical Diagnostics segments. Sales of the Life Science segment in the third quarter of 2025 were $262 million compared to $261 million in Q3 of 2024, essentially flat on a reported basis and a 1.5% decrease on a currency-neutral basis, driven by the constrained academic research and biotech funding environment. Currency-neutral sales decreased in the Americas, partially offset by increased sales in Asia Pacific and EMEA. Within the Life Science segment, our process chromatography business experienced strong double-digit growth on a year-over-year basis due to the timing of customer orders within the quarter. As a result, we expect fourth quarter process chromatography revenue to be lower sequentially and on a year-over-year basis. For the full year 2025, we expect high teens growth for this product area versus our prior low double-digit growth outlook. Excluding process chromatography sales, our core Life Science segment revenue decreased 6% year-over-year and 7.8% on a currency-neutral basis. The softer Q3 performance reflects ongoing softness in the academic research in biotech end markets as well as the tough compare due to large onetime orders in the year ago period. Sales of the Clinical Diagnostics segment in the third quarter of 2025 were approximately $391 million compared to $389 million in Q3 of 2024, an increase of 0.6% on a reported basis and a decrease of 1.8% on a currency-neutral basis. The decrease is primarily because of the previously discussed lower reimbursement rates for diabetes testing in China. On a geographic basis, currency-neutral sales decreased in Asia Pacific, partially offset by increased sales in the Americas and EMEA. Q3 reported GAAP gross margin was 52.6% as compared to 54.8% in the third quarter of 2024. On a non-GAAP basis, third quarter gross margin was 53.5% versus 55.6% in the year ago period. The decrease in gross margin was due to higher material costs and reduced fixed manufacturing absorption. SG&A expense for the third quarter of 2025 was $207 million or 31.7% of sales compared to $200 million or 30.8% in Q3 of 2024. Third quarter non-GAAP SG&A spend was $202 million versus $197 million in the year ago period. The year-over-year increase in SG&A expense was due to higher employee-related costs. Research and development expense in the third quarter of 2025 was $71 million or 10.9% of sales compared to $91 million or 14% of sales in Q3 of 2024. Third quarter non-GAAP R&D spend was $70 million versus $91 million in the year ago period. The lower year-over-year R&D was primarily due to higher in-process R&D charges associated with an acquisition in the third quarter of 2024. Q3 operating income of approximately $65 million or 10% of sales was flat versus Q3 of 2024 on both a dollar and percentage basis. On a non-GAAP basis, third quarter operating margin was 11.8% compared to 11.3% in Q3 of 2024, reflecting proactive cost actions we've taken in managing the business and net reductions in IP R&D expense. The change in fair market value of equity security holdings and loan receivables primarily related to the ownership of Sartorius AG shares contributed $398 million to our reported net loss of $342 million or $12.70 per diluted share. Non-GAAP net income, which excludes the impact of the change in equity value of the Sartorius shares was $61 million or $2.26 diluted earnings per share for the third quarter of 2025 versus $56 million or $2.02 diluted earnings per share for Q3 of 2024. Moving to cash flow. For the third quarter of 2025, net cash generated from operating activities was $121 million compared to $164 million for Q3 of 2024. Net capital expenditures for the third quarter were $32 million and depreciation and amortization for the third quarter of 2024 was $44 million. Free cash flow for the third quarter was $89 million, which compares to $123 million in Q3 of 2024. For the first 9 months of 2025, we generated free cash flow of $256 million, resulting in a year-to-date free cash flow to non-GAAP net income conversion ratio of 126%. We remain on track to deliver full year free cash flow of approximately $310 million to $330 million for 2025. During the third quarter, we purchased 212,578 shares of our stock for a total cost of $53 million or an average purchase price of approximately $249 per share. Year-to-date, we have retired 1.2 million shares through our buyback program, at a total cost of approximately $296 million. We will continue to be opportunistic with share repurchases and still have approximately $285 million available for additional buybacks under the current Board authorized program. Moving on to the non-GAAP guidance for 2025. We are maintaining our 2025 full year outlook with total currency-neutral revenue growth to be in the range of flat to 1%. Our full year 2025 non-GAAP gross and operating margin outlook also remains unchanged at 53.5% to 54.5% and 12% to 13%, respectively. While we don't provide quarterly guidance, we are offering some commentary to help frame what we're seeing in the current operating environment. On the Life Science side of our business, we continue to anticipate a modest revenue improvement in the fourth quarter. We do not expect any budget flush as research customers remain cautious with spending due to the uncertainties surrounding the final NIH budget and the U.S. government shutdown. While it's encouraging to potentially have a relatively flat NIH budget for next year, we remain cautious on the pace of recovery for the academic segment heading into 2026. We continue to believe it will take some time for researchers to regain confidence in the longer-term funding outlook. Additionally, we continue to anticipate a gradual improvement with biotech customers. With respect to our Diagnostics segment, we expect to return to growth in the fourth quarter with the China reimbursement headwind annualizing as well as the expected timing of revenue from our quality controls portfolio. While we aren't currently anticipating additional reimbursement challenges in China heading into 2026, we continue to see a soft macro environment in that region, which could dampen demand for our clinical Diagnostics products. On margins, we continue to anticipate a slight step-up in the fourth quarter gross margin, primarily driven by mix of revenue. Combined with our continued focus on effective cost management, we expect operating margins to improve sequentially by at least 80 basis points. That concludes our prepared remarks. We will now open the line to take your questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Patrick Donnelly with Citigroup. Patrick Donnelly: Maybe one for you, just given those last comments there. Can you talk about the expectations for 4Q? Obviously, you have the government shutdown, as you touched on. You have some of the process chrome pull forward or bolus of strength there in the last couple of quarters. Maybe just talk about the ramp into 4Q, the assumptions there would be helpful. Roop Lakkaraju: Yes, absolutely. So I think from both Life Sciences and Diagnostics have a slight uptick on both sides of the business. So that's nice to see. I think from a Life Science standpoint, obviously, as we talked about, we got process chromatography gives us a little bit of a headwind in the fourth quarter. With that taken into account, obviously, we've got some strength in ddPCR that we're expecting in that fourth quarter. So that helps lift that a little bit. In the diagnostics side, it really is about the quality controls area that we've spoken about in past quarters. We still expect to see that jump up based on those lot leases, and we're still driving towards that. So that's kind of the trajectory and how we see the fourth quarter unfolding. Jonathan DiVincenzo: And maybe I can just add, this is Jon DiVincenzo. We're almost done here with October, and it seems like our demand was on plan. So we feel pretty good about that. It's something we're monitoring very closely. There is a little bit of ramp here. But between Clinical Diagnostics and Life Sciences, they're off to a pretty good start this quarter. Patrick Donnelly: Yes. Understood. Okay. And then I know it's preliminary, but obviously, everyone's kind of framing up '26 to a degree. Any initial thoughts there, guys, as you look into year-end, maybe even if it's just higher level moving pieces. You talked about China diagnostics, academic government, how are you thinking about the market in '26 and any moving pieces we should be thinking about on the revenue side? Roop Lakkaraju: Yes. I think that's why I tried to frame a little bit of those comments towards the end of the guidance section of my prepared comments, Patrick. I think academic here in the U.S., AG is still cautious. And so it's TBD a little bit with how NIH budget comes out and kind of the ramp into '26 and how researchers really spend money into '26. I think the good thing is instruments are the ones that have been most greatly affected. Consumables have still been kind of chugging along. I think throughout the rest of the globe, China continues to be an open question. From our standpoint, we've talked about no VBP historically. DRG is something we've mentioned previously, which is a little bit of an impact, but not a significant impact. And then when we think about biotech, we kind of look at biotech as something that slowly, gradually improves as we get into '26. And then process chromatography, obviously, we've had a very strong year this year in '25. Part of that, quite honestly, is an easy compare to '24. Part of it is getting back to a little bit more normalization, I think. As we think about it longer term, I think we've said this to all of you in the past, we expect that to be kind of a high single-digit sort of growth rate, and we still think that, that's reasonable for '26 based on what we see. But again, we're still going through our planning cycle. We will give obviously specific 2026 guide in our February call. But at least that's some framing comments for you all. Patrick Donnelly: That's really helpful, Roop. I appreciate that. And maybe last one, just the ddPCR side, it sounds like, again, process chrome you're feeling better about. Maybe just talk about digital PCR, what the market looks like and just thoughts going forward into next year on that piece. Jonathan DiVincenzo: Yes, this is Jon DiVincenzo again. We feel very good. Our commercial team is very, very excited. We expanded the commercial effort we have on that side. We have good reception overall of the new products, and we're expanding our assays. And as we move forward with these partnerships, we expect a little upside there on the diagnostics portion of the marketplace. So very positive overall feeling from our teams and from customers. Roop Lakkaraju: I think with all the positive sentiment, to build on Jon's comment, I think it'd be great to get some of the instruments flowing through from a broader market standpoint and not being as soft as it's been. And so we're excited about all of the pipeline development and everything else. And so... Operator: Our next question comes from the line of Dan Leonard with UBS. Daniel Leonard: Follow-up on fourth quarter. I just want to check my math. I think the total year guidance implies a range of 1% to 5% organic growth assumed for Q4. I want to make sure that's right. And if it is, if you could talk about the magnitude of the range, what's embedded at the high end versus the low end? And how have you tried to embed a government shutdown assumption into that figure? Roop Lakkaraju: Yes. So Dan, I guess from the standpoint of -- I'll start with maybe the government shutdown. We obviously have seen that evolve here in October. And so our fourth quarter kind of contemplates that within our overall guide. I think with the moving pieces we have overall, we still felt good, obviously, in holding the guide for the full year, recognizing some of the comments I made around Life Sciences and Diagnostics sequentially getting better from Q3 to Q4. I think from a range perspective, I guess I'll kind of reiterate the guide overall as we think about it, right? We came into the quarter. I think folks were concerned about what that fourth quarter ramp could look like for us. Q3 came out fairly on target, if you will, for us, which gave us confidence in the fourth quarter, and that's why we felt comfortable holding that guide of 0% to 1% from a full year top line standpoint. And then keeping the margins, both gross and operating margin in line with the operating margin still at between that 12% to 13%. So you can see based on that last part, we're expecting sequential improvement in the operating margin from Q3 into Q4. Daniel Leonard: Okay. And Roop, I wanted to revisit your framing comments for process chromatography for 2026. So the comment that, that ought to be a high single-digit grower, does that reflect your view that market has fully returned to normalization at this point? And just love to hear your thoughts on that given the historical volatility of process chrome. Roop Lakkaraju: Yes. I mean, I think the volatility is still there in terms of -- and we saw it this year in terms of moving between quarters, right, customers wanting to pull forward. I think that just speaks to the market demand of their therapeutics and how they want to profile and bleed in those therapeutics into their marketplace. So it is still volatile. With that said, we don't have an easy compare any longer for '25 and from '25 to '26. And as such, I think that normalization back to the high single digits is kind of where we're pointing to and what we want to execute to. Daniel Leonard: And final cleanup. Could you quantify the diabetes pricing headwind in China on the quarter, just so I could better understand when that goes away and lapse, what the incremental benefit would be? Patrick Donnelly: Yes. I mean I think the simplistic way to think about it is -- and remember, last fourth quarter, we had 2 components to our headwind. One is the cutting of the price because China cut it in early and they did it in the middle of the quarter. So that was kind of mid-single-digit sort of number about. But then we also had some channel kind of cutting that we needed to do, which is another kind of low to mid-single-digit type of number. So that's how to think about it within what was there last year. Operator: Next question comes from the line of Brandon Couillard with Wells Fargo. Brandon Couillard: Roop or Jon, I'd like to come back to ddPCR. Any color you can share on just instruments versus consumables in the third quarter? Do you still expect that franchise to be flat for the year? And was the integration at all disruptive to revenues in the period as you kind of retrained the sales force? Jonathan DiVincenzo: Yes. I think the last part, i don't think integration was disruptive. I think there was excitement about the expanded portfolio and the demand for demos extended some of the activity in the field. But the pipeline is growing nicely. I think it's a matter of a little bit extended sales cycles and the anticipation of those products coming to the market and customers just want to see it and kind of compare some data of our legacy products and the new products in the marketplace. So I don't think there was a disruption. We still believe we're going to be on plan for the full year for the portfolio. Consumables were a little slow in the third quarter. We expect that to come back in the fourth quarter, and we certainly see a rebound of the instrumentation now Q4 and into 2026. Brandon Couillard: Okay. And Roop, I appreciate the kind of top line commentary around some moving parts in '26. I'm curious like if growth remains, let's say, the low single-digit range, can you expand margins next year on that type of revenue growth? And what are some of the moving parts we should think about in the P&L? I mean, on one hand, the incentive comp won't be as significant of a headwind, maybe still accretion gets a little better, tariff headwinds maybe come down. What are some of the pieces to think about for next year? Roop Lakkaraju: Yes, of course. Thanks, Brandon. Yes, I mean, listen, we've kind of said we'd like to be in that low -- kind of to that, let's call it, 3% to 5% growth on an annual basis. That would be ideal getting to 3% kind of allows us for getting more effective absorption and margin expansion from that standpoint. I think with all that said, we do have opportunities for margin expansion in '26 beyond where we were in '25, and that's quite honestly what we're working on. As you think about the components of it, I think part of it is -- really comes into some of the initiatives we have from our operational standpoint, the lean initiatives and the progress we're making from our overall productivity within our factories. I think other parts, we've got longer-term logistics improvements that we continue to drive and execute. One thing that I think is largely untapped. We've gotten some benefits out of this, but there's further work our supply chain organization is doing on buying power leverage, and that's an opportunity for us next year. And then of course, from an OpEx standpoint, driving higher levels of productivity, whether that's in the R&D side or other functional areas within OpEx. And so we're really looking to drive that. And so we would be seeking to drive margin expansion for next year. Obviously, we'll talk a little bit more about that at the year-end call. Operator: Next question comes from the line of Tycho Peterson with Jefferies. Tycho Peterson: I want to stress test your kind of assumptions around China in '26. We have heard from others, Danaher and Roche, that VBP will spill over. Can you maybe just talk about why you don't think you're going to have China diagnostic headwinds next year? Roop Lakkaraju: Yes, Tycho. So first of all, others have spoken about VBP. I think we've been pretty clear. VBP hasn't been necessarily an effect for us this year. I think there are some things from a headwind standpoint, just the macro market within there is something to call out. I think part of our strength in China lies in our quality controls, and we expect to see that continue to be strong next year. And that's probably the strongest component of the offset to some of those headwinds from a broader. And the other part is, from a macro standpoint, if China macro improves, I think all boats rise at that point for not just us, but possibly others, and that's the other piece. Tycho Peterson: Okay. And then looking at Life Science, backing out process chrome kind of down high single digit. Can you maybe -- was this all kind of just the funding backdrop or how did it play out, I guess, relative to your own expectations? Norman Schwartz: Yes. I think it did meet our expectations. But one of the things you have to think about when you're comparing this year to last year, kind of neutralizing, you need to neutralize for some one-timers that we had last year. So kind of if you neutralize for that, we're actually a couple of percent growth for the quarter. [indiscernible] process. Jonathan DiVincenzo: Right. And really, the pressure is in North America. EMEA is actually holding strong for us overall. So that's a good balance overall in our portfolio of market share outside of China, Korea remains strong. So really, we see the pressure in the U.S. as most folks in our industry. Tycho Peterson: Great. And then last one, Jon, I know you had a number of questions on digital PCR. Are you able to talk about to what degree you're getting written into budgets, which presumably is a good leading indicator to orders here? I mean, I guess, post the launch, what's your visibility in terms of kind of what's being baked into budgets? Jonathan DiVincenzo: Yes. It's hard to say exactly what baked the budgets or what's already there. But I would just refer back to the pipeline, which is growing quite strongly. We have huge demand for us to perform demos, as I said previously. So all of those are good indicators. I don't have in front of me kind of -- these typically aren't big tenders or so large of investments that have to be planned a year or so out. So we feel pretty good about just overall the demand, Tycho. Operator: Next question comes from the line of Jack Meehan with Nephron Research. Jack Meehan: I wanted to follow up on where you just left off on digital PCR. I was wondering if you could talk about both QX Continuum and Stilla, just in terms of the demo activity, how is the funnel building for 2026? And sorry if I missed this, but any change in your revenue contribution assumption for the second half? Roop Lakkaraju: So Jack, I guess, from a revenue contribution standpoint, we're still driving towards kind of these single millions that we talked about before. Obviously, we'd love for the broader market to cooperate a little bit more, but that's still what we're driving towards and funnel development, we feel good about. In terms of Continuum and QX, both have gotten very strong feedback from customers and interest, that's been actually incredibly encouraging for us. Obviously, from a QX standpoint, as you know, we've got 3 flavors of it. Probably the ones that is getting most interest, not surprisingly because of the macro backdrop is on the lower end where the feedback we've gotten is it's incredibly competitive to maybe others out in the marketplace, and that's encouraging for us and also for our customers. Jack Meehan: And then I just wanted to dig into the -- what you're seeing in the Americas and Life Sciences a little bit more. It sounded like things got like a little progressively worse sequentially. What do you think that is? Is it kind of like the delayed impact of some of the ramp pressure from earlier in the year? Do you think it could have been some pull forward earlier in the year? I would love just like what you're hearing from customers in terms of buying patterns. Jonathan DiVincenzo: Yes, Jack, I think it's just an overall slowdown and many of the larger academic institutions really kind of tightened down their budgets, whether that's refilling head count that they had or other factors. Just people are in a bit of a malaise. It's also, obviously, the summer period there doesn't always help. But I just think it was a wait and see for a lot of the customers. We spent quite a bit of time getting this voice of customer sentiment, and that seemed to be the indication across several institutions in North America. Jack Meehan: And then I think I heard you mention there might have been like a tough comp, some large orders in the prior year in the base Life Science business. Is it possible to quantify like what the magnitude of that? And the reason I ask is I'm trying to think going from 3Q to 4Q, Life Science overall is going to grow, process chrome takes a step down. So like it seems to embed kind of a reacceleration and everything else, just line of sight into that. Roop Lakkaraju: Probably the way to -- I'm just trying to think about how best to answer your question, Jack. It's probably in the low double digits kind of number overall. Millions, yes. Norman Schwartz: Gets you to low single digits growth. It's a way to think about it. Operator: [Operator Instructions] There are no further questions at this time. I would like to turn the call back over to Edward Chung for closing remarks. Yong Chung: Thank you for joining today's call. As always, we appreciate your interest, and we look forward to connecting soon. All right. Take care. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Ladies and gentlemen, welcome to the Q3 2025 Analyst Conference Call. I'm Moritz, your Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Ioana Patriniche, Head of Investor Relations. Please go ahead. Ioana Patriniche: Thank you for joining us for our third quarter 2025 results call. As usual, our Chief Executive Officer, Christian Sewing, will speak first; followed by our Chief Financial Officer, James von Moltke. The presentation, as always, is available to download in the Investor Relations section of our website, db.com. Before we get started, let me just remind you that the presentation contains forward-looking statements, which may not develop as we currently expect. We, therefore, ask you to take notice of the precautionary warning at the end of our materials. With that, let me hand over to Christian. Christian Sewing: Thank you, Ioana, and good morning from me. As you will have seen, we delivered record profitability in the first 9 months of 2025. We are tracking in line with our full year 2025 goals on all dimensions. 9 months revenues at EUR 24.4 billion are fully in line with our full year goal of around EUR 32 billion before FX effects. Adjusted costs at EUR 15.2 billion are consistent with our guidance. Post-tax return on tangible equity is 10.9%, meeting our full year target of above 10%. And our cost/income ratio at 63% is also consistent with our target of below 65%. Profitability is significantly stronger than in the same period of 2024, even if adjusting for the Postbank litigation provision, which impacted last year's result. Through organic capital generation, our CET1 ratio rose to 14.5% in the quarter. This reflects our latest share buyback program, which we completed this month and a significant proportion of next year's distributions. Asset quality remains solid. Provisions were in line with expectations, and we had no exposure to recent high-profile cases. In short, we are fully focused on delivering on our 2025 targets. Let me now turn to the operating leverage, which drove our profit growth on Slide 3. Pre-provision profit was EUR 9 billion in the first 9 months of 2025, up nearly 50% year-on-year or nearly 30% if adjusted for the Postbank litigation impacts in both periods. Similarly, adjusted for the Postbank litigation impact, operating leverage was 9% and profit before tax was up 36%. We saw continued revenue growth of 7% with momentum across the businesses. Net commission and fee income was up 5% year-on-year, while NII across key banking book segments and other funding was essentially stable. 74% of revenues came from more predictable revenue streams, the Corporate Bank, Private Bank, Asset Management and the financing business in FIC. Cost discipline remains strong. Noninterest expenses were down 8% year-on-year with significantly lower nonoperating costs, largely due to the nonrepeat of Postbank litigation provisions, while adjusted costs were flat. Let me now turn to our progress on the pillars of strategy execution on Slide 4. We are on track to meet or exceed all our 2025 strategic goals. Compound annual revenue growth since 2021 was 6%, in the middle of our range of between 5.5% and 6.5%. In a changing environment, we are benefiting from a well-diversified earnings mix. Operational efficiencies stood at EUR 2.4 billion, either delivered or expected from measures completed. In other words, 95% of our EUR 2.5 billion goal. Capital efficiencies have already reached EUR 30 billion in RWA reductions, the high end of our target range, and we see scope for further efficiency through year-end. During the quarter, we launched our second share buyback program of 2025 with a value of EUR 250 million, which we completed last week. This takes total share buybacks in 2025 to EUR 1 billion. So together with our 2024 dividend paid in May this year, total capital distributions in 2025 reached EUR 2.3 billion, up around 50% over 2024. This brings cumulative distributions since 2022 to EUR 5.6 billion. Finally, a word on our business on Slide 5. We are delivering strength and strategic execution across all 4 businesses in our Global Hausbank in 2025. All 4 businesses have delivered double-digit profit growth and double-digit RoTE in the first 9 months. Corporate Bank continues to scale further the Global Hausbank model and delivered strong fee growth of 5% in the first 9 months, while recognized as the best trade finance bank. Our Investment Bank has been there for clients through challenging times this year and has seen an increase in activity across the whole client spectrum, institutional, corporate and priority groups. Private Bank has made tremendous progress with its transformation so far this year, with 9 months profits up 71%. Our growth strategy in Wealth Management is paying off. Assets under management have grown by EUR 40 billion year-to-date with net inflows of EUR 25 billion. And in Asset Management, the combination of fee-based expansion with operational efficiency drives sustainable returns of 25%. We are benefiting from our strength in European ETFs and expanding our offering in that area. To sum up our performance in 2025 to date, we have delivered record profitability due to continued revenue momentum and cost discipline. Our 9 months performance is in line with our full year financial goals on all dimensions. We are on track to reach or exceed our strategy execution targets. We have demonstrated strength across all 4 of our businesses. Our capital position is strong and supports our aim of distributions to shareholders in excess of EUR 8 billion payable between 2022 and 2026. Before I hand over to James, I want to briefly address our future. We have built very strong foundations for the next phase of our strategic agenda. And with our positioning in the strongest European economy, we stand to benefit from powerful tailwinds coming from German fiscal stimulus, structural reforms and renewed client confidence. We look forward to discussing this with you at our Investor Deep Dive in London in November. James Von Moltke: Thank you, Christian, and good morning. As you can see on Slide 7, we saw continued strong delivery this quarter against all the broader objectives and targets we set ourselves for 2025. Our revenue growth, cost/income ratio and return on tangible equity are all developing in line with our full year objectives. Our capital position is strong, and our liquidity metrics are sound. The liquidity coverage ratio finished the quarter at 140%, and the net stable funding ratio was 119%. With that, let me now turn to the third quarter highlights on Slide 8. Our diversified and complementary business mix resulted in reported revenue growth of 7% year-on-year or 10% if adjusted for foreign exchange translation impacts. Due to the nonrecurrence of a provision release related to the Postbank takeover litigation matter from which we benefited last year, third quarter nonoperating costs and noninterest expenses were both higher year-on-year. The tax rate of 26% in the third quarter benefited from the reduction of deferred tax liabilities due to the change in the German corporate tax rate, which will start to decline after 2027. We continue to expect the 2025 full year tax rate to range between 28% and 29%. In the third quarter, diluted earnings per share was EUR 0.89 and tangible book value per share increased 3% year-on-year to EUR 30.17. Before I go on, a few remarks on Corporate and Other with further information in the appendix on Slide 36. C&O generated a pretax loss of EUR 110 million in the quarter, mainly driven by shareholder expenses and other centrally held items, partially offset by positive revenues and valuation and timing differences. Let me now turn to some of the drivers of these results, starting with net interest income on Slide 9. NII across key banking book segments and other funding was EUR 3.3 billion. Private Bank continued to deliver steady NII growth, supported by the ongoing rollover of our structural hedge portfolio and deposit inflows. Corporate Bank NII was slightly down quarter-on-quarter, reflecting lower one-offs, while it continues to be supported by underlying portfolio growth as well as hedge rollover. With respect to the full year, we continue to benefit from the long-term hedge portfolio rollover detailed on Slide 24 of the appendix and are on track to meet our plans on a currency-adjusted basis. Turning to Slide 10. Adjusted costs were EUR 5 billion for the quarter. Cost discipline across the franchise remains strong. Compensation costs were up on a year-on-year basis, primarily reflecting the higher performance-related accruals, higher deferred equity compensation and the impact of increasing Deutsche Bank and DWS share prices. With that, let me turn to provision for credit losses on Slide 11. Stage 3 provision for credit losses increased in the quarter to EUR 357 million as provisions for commercial real estate continued to be elevated, while the prior quarter included model-related benefits. Stage 1 and 2 provisions reduced to EUR 60 million and were driven by further model updates, which, as in the prior quarter, mainly impacted CRE-related provisions. Wider portfolio performance and asset quality remain resilient. While the macroeconomic and geopolitical environment continues to create uncertainty, we continue to expect lower provisioning levels in the second half of the year relative to the first half year, primarily due to the expected absence of additional notable model effects impacting Stage 1 and 2. We are actively monitoring and managing risks from private credit, which, as outlined on Slide 28, accounts for about 5% of our loan book. Our private credit exposure predominantly reflects lender finance facilities extended to high-quality financial sponsors backed by diversified pools of loans. These facilities are overwhelmingly investment-grade rated internally and are underwritten and maintained with conservative LTVs. We apply conservative underwriting standards, including our assessment of sponsor and investor quality, loan sizes and structural features. We are comfortable with our portfolio. And as Christian said, we had no exposure to recent high-profile cases. As you might expect, we remain vigilant and have undertaken additional portfolio reviews in light of these events. With that, let me turn to capital on Slide 12. Strong third quarter earnings, net of AT1 coupon and dividend deductions led to an increase in the CET1 ratio to 14.5%, up 26 basis points sequentially. RWA were flat during the quarter. As we head into the fourth quarter, let me remind you of the 27 basis point CET1 benefit we still have from the adoption of the Article 468 CRR transitional rule for unrealized gains and losses, which will expire at the end of the year. Also, following revised EBA guidance from June 2025 regarding the calculation of operational risk RWA under the new standardized approach, we must now perform the annual update of operational risk RWA already by the end of 2025, which is expected to lead to a 19 basis point drawdown in CET1 ratio terms. All else equal, therefore, these 2 items applied to the third quarter would lead to a pro forma CET1 ratio of approximately 14%, which is also roughly where we currently expect to finish the year. Our third quarter leverage ratio was 4.6%, down 11 basis points, principally from higher loans and commitments alongside increased settlement activity at quarter end. Tier 1 capital was essentially flat in the quarter as the derecognition of the USD 1.25 billion AT1 instrument that we called in September materially offset the quarter-on-quarter increase in CET1 capital. Let us now turn to performance in our businesses, starting with the Corporate Bank on Slide 14. In the third quarter, Corporate Bank achieved a strong post-tax return on tangible equity of 16.2% and a cost/income ratio of 63%, maintaining its high profitability. Both metrics showed a year-on-year improvement for the quarter as well as for the first 9 months of 2025. As anticipated in the previous quarter, Corporate Bank revenues remained essentially flat compared to the prior year quarter, demonstrating resilience in a [indiscernible] challenging environment. Margin normalization and FX headwinds were offset by interest hedging, higher average deposits and 4% growth in net commission and fee income, driven by continued expansion in corporate treasury services. On a sequential basis, revenues were slightly lower as the prior quarter benefited from one-off interest hedging gains and seasonally stronger net commission and fee income. Loans and deposits remained essentially flat on a reported basis. Adjusted for foreign exchange movements, loan volumes increased by EUR 5 billion year-on-year, driven by growth in the trade finance business and by EUR 1 billion sequentially. Deposit volumes remained strong with underlying growth both year-on-year and sequentially, offsetting the runoff of concentrated client balances. Noninterest expenses and adjusted costs were essentially flat as effective cost management mitigated the impact of inflation and investments in client service. A release of provision for credit losses, reflecting a release of Stage 1 and 2 and a low level of Stage 3 provisions demonstrates the continued resilience of the loan book. I'll now turn to the Investment Bank on Slide 15. Revenues for the third quarter increased 18% year-on-year with continued strength in FIC supported by a material improvement in O&A. FIC revenues increased 19%, driven by strong performance across businesses. Macro products and credit trading demonstrated material year-on-year improvements following strong market activity through the quarter, while financing continued its momentum with revenues again higher than the prior year period, driven by an increased carry profile, reflecting targeted balance sheet deployment. Moving to O&A. Revenues were significantly higher both year-on-year and sequentially, increasing 27% and 22%, respectively. Debt origination was the biggest driver as both leveraged and investment-grade debt grew revenues year-on-year with the leveraged finance market particularly active, having recovered well since the second quarter. Equity origination revenues increased 57%, driven by strong issuance activity, including an improved IPO market. Advisory revenues were essentially flat year-on-year as the industry fee pool moved away from our areas of strength. However, pipeline for the fourth quarter is encouraging. Noninterest expenses were higher year-on-year, primarily driven by the impact of higher deferred compensation and increased litigation charges. Provision for credit losses was EUR 308 million, significantly higher year-on-year, with Stage 1 and 2 provisions materially impacted by further model updates during the quarter and Stage 3 impairments. Let me now turn to Private Bank on Slide 16. The Private Bank continued its disciplined strategy execution and delivered a strong quarterly performance. Profit before tax doubled, reflecting 13% operating leverage in the quarter. Return on tangible equity rose to 12.6%, showing robust growth both sequentially and year-on-year. Revenues increased driven by a 9% rise in net interest income from deposits and lending, while net commission and fee income was essentially flat year-on-year. Growth in discretionary portfolio mandates, specifically in Germany, was partially offset by lower net commission and fee income from cards, payments and postal services this quarter. Growth in Personal Banking was mainly driven by higher investment and deposit revenues. Lending revenues were up slightly, helped by the absence of an episodic item in the prior year. The continued expansion in Wealth Management and Private Banking was supported by solid momentum in discretionary portfolio mandates. Sustained cost efficiency underpinned by transformation benefits led to a 9 percentage point improvement in the cost/income ratio to 68%. Personal Banking continued its transformation with 24 additional branch closures in the quarter, bringing the total to 109 this year. These actions contributed to workforce reductions of 1,000 in the first 9 months, demonstrating continued strategy execution. Business momentum remains strong with significant net inflows of EUR 13 billion, supported by successful deposit campaigns. Underlying credit trends showed improvements with provision for credit losses benefiting from model updates. Turning to Slide 17. My usual reminder, the Asset Management segment includes certain items that are not part of the DWS stand-alone financials. Profit before tax improved significantly by 42% from the prior year period, driven by higher revenues and resulting in an increase in return on tangible equity of 9 percentage points to 28% for this quarter. Revenues increased by 11% versus the prior year. Growth in average assets under management, both from markets and net inflows resulted in higher management fees of EUR 655 million. In addition, performance fees saw a significant increase from the prior year period, primarily due to the recognition of fees from an infrastructure fund. Noninterest expenses and adjusted costs were essentially flat, resulting in a decline in the cost/income ratio to below 60% for the quarter. Quarterly net inflows totaled EUR 12 billion with EUR 10 billion into passive products, including Xtrackers, which also recorded its best day ever this quarter in terms of net new assets. SQI, advisory services and cash contributed a further EUR 3 billion of net inflows, which more than offset EUR 2 billion in net outflows from multi-asset and active equity products. Assets under management increased to EUR 1.05 trillion in the quarter, driven by positive market impact and the aforementioned net inflows. During the quarter, DWS received the necessary licenses to open a new office in Abu Dhabi, strengthening its regional presence and client engagement in the Middle East, reinforcing its position as the preferred gateway to Europe for global investors. For further details, please have a look at DWS’s disclosure on their Investor Relations website. Turning to the outlook on Slide 18. We are on track to meet our full year 2025 targets and remain confident in our trajectory to deliver a return on tangible equity of above 10% and a cost/income ratio of below 65%. Our year-to-date performance supports our revenue and expense objectives. Our asset quality remains solid. And despite uncertainty from developments around CRE as well as the macroeconomic environment, we continue to anticipate lower provisioning levels in the second half. Our strong capital position and third quarter profit growth provide a solid foundation as we head into 2026. We also completed our second buyback, taking total buybacks in 2025 to EUR 1 billion, and we reiterate our commitment to outperforming our EUR 8 billion distribution target. And we look forward to providing you with an update on our forward-looking strategy and financial trajectory at our next Investor Deep Dive on November 17. With that, let me hand back to Ioana, and we look forward to your questions. Ioana Patriniche: Thank you, James. Operator, we're now ready to take questions. Operator: [Operator Instructions] And the first question comes from Tarik El Mejjad from Bank of America. Tarik El Mejjad: Two from my side, please. First, I mean, you printed a strong Q3 results, which put you well on track to deliver on your '25 targets being revenues, cost, RoTE or capital. Can you run us through your thoughts on achieving your '25 targets and whether more importantly, Q4 would see similar or better trend than Q3 or on the flip side, we should expect some -- or could be some negative surprises. I'm always asking this because it's very important and it sets the tone for the trajectory and credibility of your medium-term targets to be released in 3 weeks' time. The second question, longer term, can you please discuss how a bank like yours would benefit from the German fiscal stimulus? I mean, how important is it as a lever, sorry, to your medium-term profitability? And maybe you can take an opportunity to update us on how the implementation of fiscal stimulus is going and the merits of it. Christian Sewing: Thank you for your question. Let me start on both questions. First of all, we agree with you. It's unbelievably important that we achieve our targets for 2025 to further build up the credibility. But to be honest, we are highly confident in doing so. First of all, let me reiterate again also what James said at the end of his comments. A, we are really happy with the first 9 months performance. I think it really shows our strength. And it also actually shows the continuous improvement, the momentum, the validity of the strategy and in particular, in the times where we are with these geopolitical uncertainties, this concept of the Global Hausbank is actually gathering more and more momentum and clients want our advice, be it private clients, corporate clients, institutional clients. And therefore, to be honest, I'm really confident that we see this momentum also going into Q4. On the revenue side, look, we had a robust, actually, I would say, a very good start in October on the investment banking side. We have a good visibility when it comes to the pipeline on the O&A side for Q4. And the predictable or more predictable businesses are looking very solid for the fourth quarter, in particular, Private Bank and Asset Management. On the Asset Management side, it's not yet over the year, but I can -- actually, I would expect higher performance fees even coming in. So there is even some upside to the already quite positive outlook. So from a revenue point of view, while Q4 is always seasonally a bit weaker than the others, but it's actually in line with our plan, even potentially higher than the plan, and that makes me absolutely confident that we can achieve the EUR 32 billion. I think we know how to manage costs. We have shown that quarter-by-quarter. The same discipline will be applied to the cost line in Q4. And therefore, I think simply from an operating performance, I'm confident that we show another good quarter. From a risk point of view, look, we are there what we told you at the end of Q2 that the second half of 2025 will show lower provisions than the first half. We have started to see that in Q3. And from a credit portfolio point of view, I'm confident. I feel comfortable. We haven't been involved in those cases, which were quite heavy in the media, shows actually the underwriting criteria we have, the discipline we have. And therefore, I'm confident there. And that shows me overall, while there is always obviously some seasonal issues, but looking actually at Q4, it all adds to my high confidence that we will meet and potentially even exceed our targets when it comes to return on equity, when it comes to the cost/income ratio. And also as important actually to our target to shareholder distributions well above EUR 8 billion. And therefore, I think we also have actually a very, very good capital story, and I'm sure James will talk about that. With regards to Germany and how we build this into our plan, now I don't want to be defensive when I refer to our IDD in 2.5 weeks' time because obviously, we will talk about that far more in detail. But also, again, for -- or as an answer to your question, look, first of all, I have not changed my view on Germany and the stimulus program and what Germany will do, so to say, over the next 2 to 3 years. The government is clearly reiterating that growth and competitiveness is at the core of their agenda. And while there is noise about the speed of implementation, which I understand, we all wish even for a speedier implementation, we should also actually think about what has been done next to the, so to say, adjustment of the dead break. And actually, there are very concrete discussions between the government and other institutions, including ours, how to deploy now the EUR 500 billion, be it on infrastructure or be it on defense. But we have seen other reforms on the tax side, the investment booster, initial changes to social and pension reforms. And look, when we discuss with the government, there is clearly more to come. And therefore, we are very optimistic that Germany is able to grow by 1.5% in 2026. I can also see actually that, again, while the private corporates are calling for even speedier implementation, actually, on Monday, it came out that the ifo Business Climate Index was at the highest level since 2022. Now this is also much needed, but you can see that it's going into the right direction. You know about this Made for Germany initiative since the start end of July, when I reported here for the first time, we have almost doubled the number of companies which are participating. We are now at a committed number of more than EUR 730 billion of revenues -- of investments -- I'm sorry, not revenues of investments committed for the next 3 years. So of course, we need to keep the pressure on the government, and that is obviously needed. But I'm actually very optimistic that Germany will leave this flat growth scenario, which we have seen for too long and is coming back to growth. And that obviously helps us and more details on the IDD. Operator: And the next question comes from Joseph Dickerson from Jefferies. Joseph Dickerson: I've got a question first on private credit in a couple of areas. So I've seen your disclosure on Slide 28. And it seems to me that people tend to conflate private credit with other aspects of asset-backed finance and sponsor lending. So I guess, could you just give us your perspective on private credit and the outlook? What are the areas of risk you're looking at? And what are the areas of opportunity that you are also assessing because it seems like only months ago, this was a big area of opportunity for banks. So it would be interesting to have your opinion on the opportunity. And then just on nonbank financial institutions because I know the disclosure in the U.S. is different from Europe, where I don't think there's a precise definition, but how do you assess NBFIs and counterparties in that regard? So that's, I guess, the first question around private credit. And then secondly, on the CET1 ratio with the OCI filter and the op risk, which I think was pulled forward in the Q4. Can you confirm that going forward, you'll distribute capital down to the 14% threshold sustainably? Because I think that's an important point for investors. James Von Moltke: Thanks, Joseph, for your questions. It's James. I'll -- let me start with the capital item you mentioned. So the short answer is yes. And we feel -- we wanted to indicate with the pro forma we gave even greater confidence about our distribution path from here. And let me just make sure that our comments were understood. The 2 items that we called out in the commentary are ones that we've talked about before. But we think we're in a position now through the EBA guidance and our own actions to bring both into the year-end ratio. You may recall that we talked about some volatility potentially in the ratio, so a high step off, which would not have given you a clean view of our position going into '26. We think we can now do that. And hence, the guidance of 14%, we think is really encouraging because it puts us in the position to generate excess capital from the start of the year essentially and then potentially distribute that. Now I'd also make the point that with the interim profit recognition that we have, as we sit here today, EUR 2.4 billion of capital is disregarded in the ratio. So the 14.5% excludes EUR 2.4 billion of distributions that are earmarked for distribution next year. And of course, 50% of net income in the fourth quarter would also be ready for distribution based on that 50% payout ratio. And then we would be in a position to exceed that based on earnings above that 14% starting point. So we wanted to send a strong message that we're starting at the top of our range. And that gives us greater confidence even than when we spoke a quarter ago. Just going essentially in reverse order, the NBFI disclosure really isn't very helpful because it captures all sorts of things that investors aren't looking for like clearing houses and insurance exposures and the like. And hence, the additional disclosure that we provided of approximately 5% of the loan book being to private credit. We talked a little bit about the nature of that lending. You asked about the opportunity. Look, we've been in this market for a very long time. So the FIC financing business is not new for us. We've been in structured credit lending for many, many years. And as a consequence, we think we have real capabilities to innovate and take advantage of opportunities in the market as they develop from here. We also have a good track record in terms of underwriting and discipline against our risk appetite. And so while we do see spread compression in the business that's coming from the additional capital going into private credit, whether that's from banks or from private credit industry players, we also see opportunities to innovate and grow the book. We've been very disciplined, as I say, in that business, but it is one that we've successfully and I think, profitably grown in the past. And we think that's continuing notwithstanding the spread compression point I made earlier. Joseph Dickerson: Great. So just to conclude on the Q4 capital position, it sounds like you're creating a position of strength for next year. James Von Moltke: Position of strength, absolutely. We talked about the OCI filter starting in the third quarter of last year. It was a feature of CRR3 that we and other banks availed ourselves of. So a temporary protection of about EUR 800 million in unrealized losses on essentially sovereign debt. And then we've also talked about the fact that in the old regulatory guidance, we would only recognize op risk RWA increases in the standardized approach that refer to the prior year's revenues. Based on new EBA guidance, that's expected to be recognized already in the year. And those are the 2 items we're calling out. And the good news for investors is it will take the volatility out of our disclosure, but the guidance of a 14% endpoint, we think, is encouraging. Operator: And the next question comes from Giulia Miotto from Morgan Stanley. Giulia Miotto: I want to first follow up on the capital distribution point. Is it fair to expect 2 buybacks next year? So one with Q4, of course, and then the second one, I don't know, perhaps towards midyear results given that you start already from 14%, you build excess capital from there and you intend to distribute everything down to 14%. And then -- and to be clear, I'm trying to confirm that there are no potential downgrades to the at least EUR 1.5 billion of buybacks expected in '26 from consensus. And then secondly, thank you for the additional disclosure on private credit. That's helpful. I think you stated that these are exposures to high-quality lenders, investment grade with conservative LTV. Do you disclose the average LTV and also concentration? How big is the largest exposure? Would you be able to give these numbers, which I think could reassure investors even further? James Von Moltke: Sure, Giulia, thank you. So again, going to the distribution piece, yes is the short answer. We're all kind of reacting to the rules as they have evolved in Europe as to how to craft the distribution policies and go through the approval hurdles. But in our case, I think investors should expect that in the, call it, the first half, maybe 7, 8 months of the year, we would be in a position to distribute what is accrued, if you like, on the basis of that 50%. And then assuming there is in our capital plan, excess capital, then it would take a second application and second approval process to do that, actually similar to what we ultimately did this year. But obviously, as net income rises and the forward view comes into focus, those numbers essentially increase with earnings. The other thing just to point out is that we talked about last quarter the sort of sustainably above concept. And what I want to make clear is that it means that in our capital plan, that amount of capital above 14% isn't just a flash in the pan goes away. But it also means that opportunities that we see in the capital plan as they materialize also can produce excess capital. To give you an example, FRTB is still in our capital plan and were that to be pushed out or amended that then our capital plan would potentially show additional excess capital. Equally, good news or in the sense of slower demand for capital in the businesses can also create excess capital. So I want to be clear that, that's how it works. But -- and therefore, Giulia, in your framing of it, that's what the second application would then take into account with the passage of time. On private credit, we do disclose on Page 28, the LTV associated with the -- with that 75% block that we refer to as lender finance. So that's the diversified pools of credit that have back leverage against them, and that is below 60% with an LTV maintenance covenant in, I think, most or all of the facilities. And that's actually reasonably typical of the type of lending here. In fact, when you go into other types of private capital lending, say, subscription finance or NAV financing, you find LTVs even lower in the case of NAV financing, significantly lower than that 60%. So we take it to be -- except in the case of fraud and fraud only really hurts you when you're in a single lender facility or single asset facility. And we have a very small exposure to that type of nonrecourse single asset as a percentage, again, of that 5% of the loan book. So hopefully, that gives you some color for what the exposures look like. Giulia Miotto: This was super clear. Just if I can follow-up, can you quantify the exposure to this single lender facility that you just mentioned? James Von Moltke: I think it's less than 5% of the 5% by memory. So it's a very small exposure. And actually, I would add to that, Giulia, that in those cases, given that it's single asset, the oversight that we put and the LTVs we're willing to lend at are even more conservative than when it's a pool. So we -- again, no one is ever going to be perfect in lending, but we feel that these portfolios are very robust in terms of their protection attachment points and oversight. Giulia Miotto: Great. And the last follow-up. The 60% LTV is on 75% of this private credit exposure. On the remaining 25%, what sort of LTVs do you have? James Von Moltke: Average would be lower than the given the composition that I mentioned of what is otherwise there. Operator: Then the next question comes from Flora Bocahut from Barclays. Flora Benhakoun Bocahut: I wanted to ask you a first question on the op risk comment you made regarding the annual update that is coming at year-end. I just want to understand how much of a one-off this is because you mentioned annual event when you comment on it. So is this something that's going to hit again every year? And if so, do you have an idea of the magnitude? So just to assess how recurring an event this could be? And the second question is on the Corporate Bank revenues. The fee growth is clearly positive, but has been slowing a bit this quarter. The NII declined slightly sequentially, which you commented on. For you to make the guidance for the full year, it would imply a boost suddenly sequentially in that revenues for Q4. So anything you can give us on how confident you are that there is going to be a rebound Q-on-Q in the Corporate Bank revenues in Q4? James Von Moltke: Thanks, Flora. Yes, the op risk item is now a permanent feature in the standardized approach to operational risk RWA. It also, by the way, removes the volatility intra-year. So we will record a number in December, and that will be flat through the balance of the year. I think it runs off a 3-year average. So each year, you have to update for that year's new revenue number in the 3-year. On CB, I do think we're looking at a, what I'll call a trough in revenues. Now I think we want to be a little bit cautious about that prediction. But to us, NII should be passing through a trough, a sort of a mild increase going into Q4. But beyond that fee and commission income, there's always -- remember, a little bit of sequential seasonality. Q2 tends to be the highest quarter of the year because of dividend season and what happens in the trust and agency business. So Q3 is always a little bit softer. But this steady build of the fee and commission income streams in the Corporate Bank, we expect to continue in the years ahead. Obviously, we'll talk more about that on November 17. But it has a -- so I would expect to see Q4 continue to show momentum, perhaps accelerating momentum against where we've been very recently. And again, it's a business where you compete for business with RFPs and put on the business. So you have some visibility into, if you like, a pipeline of new activity coming through in Corporate Bank. Christian Sewing: Let me just add to the last point. I think this is a really good point James is making. Just take, for instance, the example of Miles & More in Lufthansa, where for the last 2 years, actually, we have invested in the transition now to the Corporate Bank. And that we actually can see on various fronts, in particular, on the payment platforms with supplying new technology. So I would -- as James is saying, I would expect a slightly increasing number in Q4 in the Corporate Bank. But in particular, the investments we are doing for the fee and commission business are building up and building up. So it's actually quite a nice story. Now even more important is that if you -- despite the Q3 number, which was slightly lower than the consensus was, look at the profitability of the Corporate Bank. It again increased, and that also shows that more and more we apply technology, and that means that our process is getting more efficient and cost/income ratio is going into the right direction. So overall, despite potentially a non-beat on the consensus of revenues, the overall development in the Corporate Bank makes me actually very confident. James Von Moltke: Actually, probably one thing just to add. I think, Flora, you may have asked for the op risk, the RWA number that we're assuming in Q4, it's about EUR 4.5 billion that would, we think, mechanically come into the denominator for the ratio, just to close that gap. Operator: And the next question comes from Andrew Coombs from Citi. Andrew Coombs: If I could ask one on the Investment Bank and then one on the Private Bank. So on the Investment Bank, if you take the provisions, you talked about model effects driving higher Stage 1 and 2. But perhaps you could elaborate on that and confirm that that's a one-off model change, you wouldn't expect it to repeat. And then secondly, on the Private Bank, very, very good broad-based strength across both personal and wealth management. It looks like the margin trends you're seeing there, particularly around the deposit book are very different to the corporate bank. So perhaps you could touch upon that. And also the operating leverage in that business. You've managed to grow revenues and still strip out costs at the same time. So where do you think the operating leverage could move to? James Von Moltke: So Andrew, I'll briefly take the first item. The -- so look, it was about EUR 100 million of it was in total in Stages 1 and 2. And that was almost entirely driven, I think, by model changes. And it was a probability of default model that we changed this quarter. Last quarter was an LGD model. And Look, we've been updating the models to reflect where we are today in the interest rate cycle, new data that's come in. But to your question, that we're done for the year. The model adjustments that lie ahead are negligible. And actually, over the full year full firm, the model impact will be -- will also be relatively immaterial. So that's what it is in there. So EUR 100 million of the EUR 300 million was model items, EUR 100 million or thereabouts was CRE. Christian Sewing: And Andrew, on the second question. Look, if you compare the Private Bank and the Corporate Bank, we have to be fair because the starting point for the Private Bank, obviously, from a cost/income ratio profitability is a completely different one than the Corporate Bank, and we had to expect these improvements. Now the good thing is that Claudio is really running a very, very clear strategy in doing 2 things. On the one hand, continuous growth on the top line, in particular, when it comes to asset gathering. If you look at the assets under management in Wealth Management, but also in the Private Bank with the deposit campaign and strategy, it's really looking well. And I told you in my initial remarks to the first question that I expect actually that the private bankers will also show a very solid Q4. And on the other hand, all the investments we have done over the last years are actually finally paying off in terms of cost saves. And that makes me most confident that next to the nice continuous top line growth, we will see a continued flow of cost reduction because we are going more and more into straight-through processes, in particular, in Personal Banking. You have seen, so to say, month-by-month new items when it comes to digital technologies, whether it's a new mobile app. And you can see that these investments are paying off and that costs are coming down. We are continuously reducing our branches and move into more digital setup. So that momentum, which you see is obviously forecasted and expected to hold also into the next years. But when you compare to the Corporate Bank, we need to be fair. It was a different starting point. Operator: Then the next question comes from Stefan Stalmann from Autonomous. Stefan-Michael Stalmann: I would like to follow up on the point that you made, Christian, regarding the Lufthansa credit card portfolio. I think that's now coming basically on board. Could you maybe remind us roughly of what kind of revenue impact we should expect there? And the second question relates to your very helpful disclosure of the daily trading P&L, Slide 26. You have now had a couple of quarters where you have very strong trading days very much at the end of the quarter or maybe one of the last 1 or 2 days of the quarter, around EUR 100 million often. Can you provide any color of what exactly is causing this kind of spike towards quarter end? Or is it a pure random walk? Christian Sewing: Stefan, thank you. So I won't give you the detailed numbers because it's a one-to-one relationship, and we shouldn't do this. But a, we are in the middle of the transition from an IT point of view, I think this is very important because we talk about a large transition from one bank to the other. It's going actually very, very smoothly. We started with the pilot at the end of Q2. We have increased the volume then over Q3, and now we are in the middle of moving all clients actually to our offering and very, very encouraging start in October. And overall, it is clearly a revenue increment to the Corporate Bank, which is well in the double digits per year. And in my view, with more upside. And the more upside is actually the cross-selling, which we are able to do in our Global Hausbank from corporate to private clients. I mean this is the strength of Deutsche Bank that we can now actually apply that to 19 million private clients, and that's what we are going to do. Secondly, this is a signal to other operators with similar loyal cards and similar systems that Deutsche Bank can handle that, and that makes this business so attractive you think also when you think about other corporate clients. So on the individual clients, clearly value enhancing and good revenues, but I expect far more actually from cross-selling and with other corporates. James Von Moltke: And Stefan, it's a good observation that the markets revenues will often have a strong sort of quarter close. It depends on the quarters. But very often, it is essentially as we evaluate reserves, so day 1 P&L and illiquidity reserves and the like in the business that those determinations are made towards the end of a month or a quarter. That is kind of one of the reasons why guidance in the business isn't always perfect to do. But there's also events during those last, say, 10 trading dates that can influence the result that are part of the, as you say, the actual ebb and flow of the markets. And then there are also some quarters in which we have specific transactions that are taking place and through our systems. that are, if you like, just happening to take place or designed to take place at the quarter end. This is a quarter where, in fact, we had all 3 of those things. So it was a very strong finish. But to your question, it's not entirely accidental that the quarter can finish strong, especially with the reserve releases. And some of this is difficult to predict precisely. Operator: And the next question comes from Nicolas Payen from Kepler Cheuvreux. Nicolas Payen: I have 2 questions, please. The first one will be on your structural hedging actually. Could you tell us how you think about your structural hedge supporting your NII trajectory for the next few years? Because at the end of the day, it's supposed to become a strengthening tailwind. So if you just could discuss how you think about it and also maybe with your strong deposit performance, especially in PB, could we see further notional increase supporting further your NII trajectory? And the second one would be on your loan development, especially on the investment bank has actually been very strong. And just wondering what drove that strong increase sequentially. James Von Moltke: Nicolas, thank you. So yes, and I would point you to the disclosure on Page 24 of the deck, where we show you the hedge amount and the future benefits we expect from the hedge. The answer is we are relatively programmatic about our Caterpillar. So the assessed duration of the deposit books and rolling over the hedges of that. And you can see in the disclosure. And of course, that increases as the deposit books grow and particularly as the Private Bank deposit book grow because it's longer -- it's deemed to be longer tenured or modeled as longer tenured, and it is more euro-based than the corporate bank book. So that -- what we're showing you is essentially what that -- just the model or the hedge revenues will be in the future, and they do benefit from growth. Think of it as a static portfolio here, but growth in deposits will increase that going forward further. I want to make one other point here. I think we asked -- we've talked to this in one of the previous calls, but we also take positions to anticipate deposit growth or protect ourselves from specific market environments that we see. So it is a little bit more dynamic than simply this one 10-year Caterpillar. But in essence, it produces the revenues that you see here. What's driven the loan growth in the Investment Bank? Over the course of the year, it's principally been in the private credit portfolio that we talked about. So we have seen good opportunities to deploy the balance sheet there. But also O&A has seen some growth essentially as the business grows and we see more activity, you've also seen some deployment there. Operator: And the next question comes from Tom Hallett from KBW. Thomas Hallett: So firstly, I'm just wondering if there are any underperforming assets on your books, which may be deemed noncore? Because I can see some articles on the DWS data center sale in the pipes. There's previously been talked about India and possibly Poland. And then secondly, maybe thinking a little bit ahead and possibly to the Investor Day, but will you look to run the business on a cost/income basis or an operating leverage basis or absolute basis? And what are the hurdle rates for allocating capital out to the businesses? And I kind of say that because I see the allocations continue to increase towards the Investment Bank. James Von Moltke: So Tom, I'll take that, and Christian may want to add. Let me just, first of all, say that I don't want to speak to specific actions or events in terms of things we might exit until we're done with that. And -- but certainly, we're looking at the businesses, and we've talked about this since Q4 with this SVA shareholder value-add lens with a real focus on driving more of the balance sheet to being above hurdle and showing real discipline there. Now, there are a number of ways to do that. It can be pricing. It can be, again, reallocation of capital internally. But we do have that discipline, and we'll talk more about that on November 17 when we come together for the Investor Deep Dive. Christian Sewing: I think you said it all. And the only thing is, Tom, I think we already started to implement that step by step. You have seen some action already in the German mortgage book where Claudio decided to exit sub businesses exactly for that reason. I think we are now in the position to do this, whether it's on the pricing side, whether it's on the more consequent capital allocation. So as James is saying, you will hear far more on that in November 17, but I can also tell you that we started to do that, and it shows the first very positive impacts like you see in the Private Bank. Operator: The next question comes from Anke Reingen from RBC. Anke Reingen: The first is just coming back on private credit. I mean, I guess you gave quite a lot of detail on the credit side. But can you sort of like give us an indication on how much the business has sort of like contributed to the top line business of private credit and driven the growth just in terms of is there could potentially be a risk if that area is becoming under more scrutiny? And then secondly, I know we have your Investor Day coming up in November, but just looking backwards and acknowledging 2025 isn't quite completed. But if you look back on the 2022, 2025 plan, what are sort of like the lessons learned in terms of good and bad when you embark on your new plan? James Von Moltke: Goodness. The second is a long open-ended question that I might give to Christian, but we'll both have, I think, lessons learned to share from the last several years. Look, I would simply point to the financing, the FIC financing revenues you see on Page 15. And obviously, it's not all private credit. There are other activities than private credit in there, including incidentally commission and fee income that typically is earned from distribution of assets. So whether it's asset-backed facilities or warehousing of, say, CMBS before issuance. So there's a bunch of things going on. To your point about risk, look, it's a banking book business, which we think is attractive in terms of its stability in the revenues, its predictability in terms of the spread that we can earn and its risk profile. I mean we've been -- as we're preparing for today, we've been racking our brains as to whether we have had a risk event, sort of a loss event, at least in the portfolios we've been talking about today. And I said earlier that we think we've got some really good intellectual property. So is there a risk to the business in terms of a difficulty in the cycle potentially. But to be honest, given the nature of the business, we don't really see that or our own appetite, acknowledging that our appetite has been disciplined and consistent over the years as we've been in the business. So the short version is we like the business. We think we can continue to grow, but we'll grow in a measured and sort of risk-appropriate way. Christian Sewing: Look, Anke, really good question. And I actually need to think a little bit longer about that. But let me start with 2 or 3 lessons learned from a good point of view, from a good side, and then I'll give you also one where I think we could have done better. Number one, remember when we did this, that was 10 days after Russia invaded Ukraine. And a lot of people told us, don't go for an IDD, and we did it. And that shows our underlying confidence in this bank, the strength of this bank, that the Global Hausbank is exactly the right strategy and that we continue with that IDD. And to be honest, I'm really proud of this organization, what they have delivered in those years, which were full of uncertainties, but they kept to the plan. The team worked very, very hard. And I think it was at the end of the day, exactly the right decision to go out. And that was the first thing that if you are convinced with something, you should also be courageous, and we did this, and it was the right thing. Number two, lesson learned whenever you do an IDD, you need to take your team on a journey. And it's not only, so to say, for the market and for you, but it's also something where you need to motivate 90,000 people. And I think we did this. Can we do even that in a better way? Yes. And we learned some lessons, and you will see it then on November 17 when we talk about how we carry that out internally because it's a story not only for the market, but for our people because our people are driving this bank. Number three, I think the Global Hausbank strategy in itself, huge success. And as I said, we can see that it's developing better and better from quarter-to-quarter because people want to have their anchor in times of uncertainty, and that's actually we are that European answer to that. Number four, with certain, so to say, portfolio decisions, we could have been more consequential, I would say. And that is certainly a lesson which we have learned. And you know what, there is now time to correct that. And therefore, I'm looking forward to the next IDD. Operator: And the next question comes from Chris Hallam from Goldman Sachs. Chris Hallam: So 2 for me. And the first one, once again, on capital. So 14.5% headline CET1, 14% pro forma for Article 468 and the op risk headwinds that you flagged. So you should see around 20 or 25 basis points of cap gen via retained earnings in Q4. So I guess, finishing the year 14.2%, 14.3%. You've mentioned you want to finish around 14% -- so I guess just anything else to flag in Q4, maybe on the RWA side or on an accrual rate above 50%? And then anything you can already see coming early next year? I'm just trying to think about what sort of position you're going to be in by the time we get to Q4 numbers in the AGM. And then the second, which is a slight follow-up to the points you made earlier, Christian. In the Private Bank, you've kind of had this story so far this year of growing deposits but declining loans. And so what's your best sense of how that evolves in the coming few quarters or through the balance of next year because rates are coming down, borrowing is becoming more affordable. The economy is doing a bit better. You've been investing in the digital setup, as you mentioned. But then against that, you've got this capital discipline focus. So I'm just trying to get the balance of perspective there. James Von Moltke: Thanks, Chris. It's James. I'll take the first, and I think Christian will do the second. Look, the only thing that is at this point now seasonal, given the adjustments we walked you through is really the share repurchases we do for equity comp delivery in the first quarter. Now the first quarter tends to be seasonally from an earnings perspective, also among the strongest. But otherwise, it is simply the math of organic or net income less the 50% payout assumption and then offset by growth or demand in the businesses. Now sometimes we overestimate demand. And that can, as I said earlier, produce excess capital, but we, of course, wish to support the businesses, support clients with the capital deployment. So we want to be reasonably conservative in our capital planning to ensure that we have that room to grow. You have had lots of changes in rules and methodology and so on over the years. I would see that slowing down now that we're in CRR. That should become more-rare. Now, I want to be careful about a forward-looking statement given how much is built into this. But internal capital generation, all of that considered in a range of about 25 to 30 basis points has been -- if you peel through it all, kind of a norm. And the question is going to be where all of the ingredients fall out going forward. But short version is we do feel we're in a strong position to generate excess capital and do so kind of on an accelerating basis in the years ahead. Christian Sewing: Look, Chris, on the Private Bank, we clearly have our plans to continue to grow deposits and use that kind of attractive funding to replace more expensive sources. On the business overall, I would say we expect a flattish loan growth in Private Bank overall. Now clearly, some growth to see in Wealth Management. I think it's an attractive area where we can actually grow, and we have plans to do so. In other areas in the Private Bank when it comes to mortgages, I would say it's rather flattish because, again, we are absolutely measuring that portfolio via SVA. And if it's not value accretive, we won't grow that. And overall, in the Private Bank, like I said before, Chris, if you look out longer for the next 3, 4, 5 years, the real big upside in the Private Bank is on the asset gathering business and on the investment business. And not only with our market position in wealth management, but in particular, when it comes to retail and personal banking. And that's all tied to the plans of the German government because you will see that next to the state pension, there is a necessity that on the private side, people need to do more, and this is where we are looking into. There, we are working on a digital offer. There, we are working on offers for retail clients to grow that business. And if you think about our Postbank clients, which are the majority of the retail clients and their access to those products, it's actually, for the time being, not very much used, and that shows the opportunities we have in that business. So our focus when it comes to the Private Bank is clearly on the asset gathering side. Operator: And the next question comes from Jeremy Sigee from BNP Paribas Exane. Jeremy Sigee: Just a couple of follow-ups, please, on the Private Bank and the Corporate Bank. On the Private Bank, you talked about further cost savings. Are there any step change cost saves still to come through in the Private Bank, particularly from integration-related or system takeout? Any step change? Or is it just incremental process efficiency kind of bit by bit from here? And then second question on the Corporate Bank. You mentioned growth in trade finance year-on-year. And I just wondered what areas that was coming from? Is it Germany, Rest of World, any particular industry sectors? Christian Sewing: Jeremy, on the Private Bank, to be honest, let's also wait for the IDD because you get a quite good outlook for the next 3 years, what we are doing there. But it's a continuous improvement. Continuous improvement from actions which we have started to implement. If you think about the plan how to reduce branches and make that business more digital for our clients, then this is something which you plan in '23, '24. And we now see the effects. And therefore, I'm so happy actually with the quarter-over-quarter cost takeout Claudio can do in particular in the personal bank, but that is going to continue because we know already now how many branches we close in '26 and later on. Secondly, we are working constantly on straight-through processing, and that is with regard to payments, that is with regard to the lending process, that is with regard to the investment process. And that is the reason why we have changed the bank initiatives and investments, and you will see that as obviously then cost efficiencies going forward. So I would expect a continuous improvement on that side, but more details in the IDD. James Von Moltke: And Jeremy, I'm not aware on the trade finance question, I'm not aware of any particular sort of trend or concentration that we're seeing in terms of where the growth is coming from. You'll recall that we've been sort of waiting for the growth from the balances. We kind of were stuck at that kind of 115 level. We do now begin to see some growth. And the place where our emphasis is in structured trade finance. And so that's really the business that we're seeking to grow. Operator: And the next question comes from Mate Nimtz from UBS. Julius Nimtz: Yes. Just 3 shorter questions, please. The first one would be on the IB. In the cost base, G&A expenses show about a EUR 100 million increase quarter-on-quarter. I'm aware that some of that is some pickup in nonoperating items, litigation. But any further explanation on that step-up? And how should we think about the year-end from this perspective? Then the second question is still mainly staying with the IB commercial real estate. Could you give us an update on that asset class on that part of the book? Provisions are still at a high level, particularly Stage 3. I think in the commentary, you called out on the slides, West Coast defaulted assets still. Any thoughts you can share on the outlook in Q4 and next year would be helpful. And just the last one on the Private Bank, and I'm cognizant this is something you'll talk about, hopefully, in 2.5 weeks. But we are seeing a return on tangible equity now firmly above 10% for the second quarter in a row, 12.6% in Q3, impressive step-up from a mid-single-digit level in the previous couple of quarters, and that's without much movement, obviously, on lending. Is this the bare minimum level we should be having in mind as a base going into 2026? And any further improvement on the cost side or coming from investment products will offer the upside. Is that the right way to think about it? Christian Sewing: Thank you for your question. I take the last one. Look, we clearly expect further operating leverage in the Private Bank, and we will talk about that in 2.5 weeks' time. But very happy that we are above 10%. That's what we promised you. That's what we delivered. And from here, the way is up. James Von Moltke: And then, Mate, on the 2 items you said on IB cost base, nothing noteworthy there. There was a bank levy that we booked in Q3 that gets mostly allocated to IB and then some odds and ends in terms of professional services, market data going up and the like, but nothing that I would call out. On CRE, we talked about this going on, I think, 2 years plus. And there's obviously been a cycle and that cycle has taken us close to the severe stress that we initially called out on a -- for the stress tested portfolio. I do -- while I'm cautious about calling an end to this, and I don't think we're there. There's still going to be some provisions, we think that will come in time. But as I've said before, they tend to be valuation adjustments on existing defaulted positions. And in a sense, they're becoming more and more concentrated, as we called out last quarter in the West Coast of the United States in the office portfolio. So as that sort of bleeds out and comes to a steadier level, I would expect to see this begin to fall off in the next several quarters. And you've seen, again, some signs of strength as cautious as I'd like to be on East Coast, I think office has significantly recovered and other aspects of commercial real estate outside of office have been strong. So we're looking at it as we think in a healing process. Operator: And the next question comes from Kian Abouhossein from JPMorgan. Kian Abouhossein: Just coming back to CRE. On Page 29, if I look at the Stage 3 loans in the IB, I guess that's where the -- some of the CRE issues rose. And just trying to understand if you can give a little bit more detail, is the several loans? Is this 1 or 2 loans where you had default issues? And coming back to the outlook question, I mean, if I look at the comment on Page 30, advanced stages on the down cycle reached, but U.S. office headwinds remain, considering most of your book is actually office related. I'm just wondering what gives you the confidence on your previous statement, the last question that actually we're going to see an improvement here considering your low coverage levels? And then the second question is on... James Von Moltke: I'm sorry go ahead. Kian Abouhossein: Apologies. Risk-weighted asset outlook. How should we think about the risk-weighted asset outlook? Should we think about it's going to remain flattish going forward? Or should we think about growth, but then you potentially have further optimizations to do, which leads to the flattish number, i.e., growth with this net is what I'm trying to get to. James Von Moltke: Yes. So Kian, thanks for the follow-up. Look, it's a handful of loans. And I'd say concentrated in this quarter, say, less than 10. So there was a concentration of events that -- where we saw valuation changes. And one thing I've been tracking now for several quarters is the number of loans that is coming up for refinancing or extensions where we see either events or new appraisals coming down the pike. And Kian, the answer to your question is those things are beginning to slow down, what I'd call perhaps the forward-looking indicators on these things. So again, I want to be cautious now having thought we'd found the bottom and discovered false dawns, but it does feel like it's very late cycle at this point on this down cycle in commercial real estate. On RWA, to be honest, we'd like to see healthy growth just of the businesses and client demand. And as I said earlier, we think our capital plans absolutely accommodate that growth. But to your point, we will continue to work on efficiency and also sort of portfolio collect -- sort of concentration, if you like, or optimization as time goes on. And we think that, that can contribute to even further improving revenue to RWA profiles and more efficient capital usage. And that would be an offset to the simple, if you like, unweighted growth in the balance sheet and business. Kian Abouhossein: And just on -- when you say you're coming to the kind of end of the cycle of these kind of readjustments on the loans, the duration must be quite long in the CRE book, more than 2 years at least. So I'm just wondering why we would think about having reached the peak or maturity of the cycle of making adjustments at this point? James Von Moltke: Typically, Kian, 5 year -- the structures typically are 5 years. They tend to be extendable. And so -- and the point to your question is we haven't done a great deal of new lending. So this is a portfolio that's now quite seasoned in terms of either having been extended and refinanced or having gone into default and through sort of a restructuring or into real estate owned. So it's really a question of seasoning of the existing portfolio and a forward look on to loans, as I say, that are coming up to events. But those that are still open are robust properties. And that's other than a handful, and that's really what's giving us a forward view. Operator: So it looks like there are no more questions at this time. And I would like to turn the conference back over to Ioana Patriniche for any closing remarks. Ioana Patriniche: Thank you for joining us and for your questions. For any follow-ups, please come through to the Investor Relations team, and we look forward to speaking to you at our fourth quarter call. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.