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Operator: Greetings, and welcome to the Mirion Technologies Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Linn, Treasurer and Head of Investor Relations. Thank you. You may begin. Eric Linn: Thank you. Good morning, and welcome to Mirion's Third Quarter 2025 Earnings Conference Call. Joining me this morning are Mirion's Founder, Chairman and CEO, Tom Logan; and Mirion's CFO and Medical Group President, Brian Schopfer. Before we begin today's prepared remarks, allow me to remind you that comments made during this call will include forward-looking statements, and actual results may differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ are discussed in our annual reports on Form 10-K, quarterly reports on Form 10-Q and in Mirion's other SEC filings under the caption Risk Factors. Quarterly references within today's discussion are related to the third quarter ended September 30, 2025, unless otherwise noted. The comments made during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the appendix of the presentation accompanying today's call. All earnings materials can be found in the Investor Relations section of our website at www.mirion.com. With that, let me now turn the call over to Tom, who will begin on Slide 3. Thomas Logan: Eric, thank you, and good morning to those joining us today. As always, we appreciate your interest in Mirion. This morning, I'll focus my prepared remarks on 3 topics. First, I'll highlight the strong third quarter results and reassert that we remain on track for our 2025 guidance. Next, I'll provide context to the double-digit growth we are seeing year-to-date from the nuclear power end market. And finally, I'll detail progress in 2025 to broaden our nuclear power portfolio through M&A. As mentioned, we are pleased with our third quarter numbers. The business performed well, led again by our nuclear power end market. Not only did this market support a strong quarter, it was also the main driver for order growth. There's been a lot of press recently about the exuberance of some emerging nuclear energy stocks, particularly the non-revenue-generating ones. Mirion runs counter to this narrative. Approximately 80% of our nuclear revenue comes from the installed base, meaning reactors that are operating today. More broadly, approximately 45% of Mirion's enterprise revenue will be generated from this end market with the addition of Paragon Energy Solutions. Recall, we announced this acquisition last month and expect the deal to close by year-end. Momentum continues to build for the nuclear renaissance, and Mirion is extremely well positioned to benefit from it, no matter which form it takes. Now let's get into the details of the quarter on Panel 4. Third quarter revenue totaled $223 million, a nearly 8% increase from last year's third quarter. On an organic basis, revenue grew 4.7%, reflecting mid-single-digit organic growth from both segments. The nuclear power end market organic revenue grew 9% in the quarter and 11% year-to-date. Adjusted EBITDA in the quarter was $52.4 million, up 14.7% versus third quarter last year. Both the Nuclear and Safety and Medical segments contributed to the increase in both dollars and margin expansion. I'd also like to highlight our year-end 2025 expected blended cost of debt of 2.8%. This reflects a 460 basis point improvement over the past year as we took action to diversify our capital structure and reduce interest expense. The 2.8% blended cost of debt is expected to continue into 2026. Third quarter adjusted free cash flow was $18 million, contributing to an impressive $53 million of year-to-date adjusted free cash flow. Strong year-to-date performance gives us the confidence to raise the low end of adjusted free cash flow guidance. We are now expecting 2025 adjusted free cash flow to be between $100 million and $115 million and conversion between 45% and 49% of adjusted EBITDA, a significant improvement versus 2024's conversion of 32% and well on our way to our 2028 target of 60%. Lastly, on the panel, Q3 adjusted orders increased 2.4%. We led with adjusted orders this quarter because it's important to note that this excludes the impact of the Turkey debooking in last year's third quarter. Importantly, nuclear power end markets orders grew double digits in the quarter. Additionally, favorable trends we mentioned last quarter, like accelerating SMR orders continued into the third quarter as well. I'd also note that we've seen meaningful SMR order flow early in Q4. Notably, we also booked our first modest EPR newbuild order under the auspices of the EDF strategic agreement we announced last year. All of this is before we booked a large quantum of the onetime orders we've been foreshadowing for several quarters. We remain optimistic on the rest of this opportunity pipeline. The dominant thread throughout our quarterly results is nuclear power. Panel 5 illustrates several key performance indicators that demonstrate the vibrance of this end market. For example, third quarter nuclear power adjusted orders grew 21% or 16% excluding foreign exchange tailwinds, reflecting growth across each key vertical, new builds, SMRs and today's installed base. Third quarter orders include $17 million of SMR-related orders. Year-to-date SMR orders totaled $26 million, a marked acceleration versus the $17 million of orders in prior years. Lastly, nuclear power-related organic revenue grew 9% in the quarter compared to the 4.4% for the Collective Nuclear and Safety segment. Year-to-date, nuclear power organic revenue is on track for the double-digit organic revenue growth we've guided for 2025. We continue to believe that we're still in the early innings of a nuclear super cycle. Panel 6 showcases just a few of the recent headlines that support this belief. Take, for instance, the recent World Nuclear Association headline stating that nuclear reactors set a new record for electricity generation in 2024, and this is for the first time in nearly 2 decades. The average capacity factor was 83% globally in 2024, up from 82% in 2023. And just to note here that the U.S. fleet ran at 92%. So there's plenty of upside for the global fleet. Growth expectations for the overall global nuclear fleet continue to increase. The IAEA recently increased its nuclear capacity forecast, expecting almost 1 terawatt of nuclear capacity by 2050 versus 377 gigawatts today, and this is net of significant expected decommissioning activity over this 25-year time frame. As I've been predicting, we have also seen a spate of recent headlines around potential restarts in the U.S. On Monday, it was announced that Google and NextEra Energy will be partnering to restart the Duane Arnold facility in Iowa to help fuel Google's AI growth. Separately, Santee Cooper is in negotiations with Brookfield Asset Management regarding the potential completion of the 2 previously abandoned AP1000 reactor projects at the VC Summer site in South Carolina. New builds have also gained considerable support from the Trump administration's $80 billion deal announced this Monday to support 8 new Westinghouse AP1000s plus SMRs through financing guarantees and regulatory support. Lastly, global support for nuclear power was recently on display in South Africa, where the first ever G20 high-level meeting on nuclear energy was held. Turning to Panel 7. In all, we're broadening our nuclear power portfolio. In the case of the Certrec acquisition, we're enhancing Mirion's software solution suite by incorporating mission-critical regulatory compliance solutions into our overall offerings. These applications are critical to customers as they seek approval for life extensions for existing facilities and submit applications for new builds and SMRs. In the case of Paragon, we will broaden Mirion's U.S. presence with additional products, software and services, notably including safety-related critical radiation protection systems. Like Mirion's nuclear power end market, 94% of Paragon's revenue stems from the currently installed large-scale reactor base. In both cases, these will be attractive additions to our portfolio, adding energetic business models with built-in customer bases and room for substantial growth. We look forward to closing the Paragon deal and welcoming both Certrec and Paragon's world-class talent to the Mirion family. Before I hand it over to Brian to walk through the details of the quarter, let me spend a minute on Panel 8 sharing a Medical segment update. We're strategically aligned with the cancer care revolution underway today. Recall, 75% of our Medical segment revenue stems from this market. We continue to make steady progress on key strategic elements outlined at our 2024 Investor Day. These include growing our software and service offerings through SunCHECK within our RTQA segment and EC2 within Nuclear Medicine. This important lever has helped expand Medical segment margins year-to-date. Conversely, the current U.S. health care environment is pressuring our U.S. RTQA business. We expect this to be a delay instead of a decline in customer activity due to the safety critical nature of our solution set; however, timing and magnitude of a rebound remain clouded due to government shutdown headwinds. Meanwhile, we're pleased with the continued adoption of our InstadoseVUE digital dosimeters. As a reminder, we introduced our latest digital offering to the market in late 2023. We're making great progress converting existing customers and attracting new customers as well. In fact, third quarter organic revenue from our dosimetry services end market grew 7% with our digital offering leading from the front. With that, I'll turn it over to Brian. Brian? Brian Schopfer: Tom, thank you, and good morning, everyone. Let's continue to Slide 9, detailing our orders performance. As Tom noted earlier, the nuclear power end market continues to be a bright spot for us. Third quarter orders grew 2.4% versus an adjusted base. This normalizes for the $21 million Turkey-related debooking disclosed in last year's third quarter and Certrec orders added as part of the acquisition in late July. On a reported basis, the order book grew 14.5%. The Nuclear and Safety segment order book grew $9.5 million on an adjusted basis, reflecting 21% growth from the nuclear power end market alone. Importantly, this incorporates growth across all 3 verticals. Interestingly, within the U.S. nuclear power end market, year-to-date orders are up 44% most of which is related to the SMR activity. We see the U.S. market as the bellwether with the European and Asian markets as lagging followers. We also experienced healthy order uptick in our defense and diversified end market from a nonnuclear decommissioning order as well as a European-based military safety equipment order. This continues our long track record of serving the NATO armed forces. This was partially offset by our labs and research end market. As mentioned previously, demand from the U.S. Department of Energy has been muted since the launch of DOGE and the government shutdown. We also commented on the September investor call, order flow coming from China for laboratory instruments has slowed. We see this as a transitory dynamic and are optimistic about the equilibriation of demand due to the safety critical nature of our products. Through October, we continue to see orders from the labs, but we are seeing signs of funding strain in this market as we discussed a few weeks back. Within our Medical segment, adjusted orders declined $4.7 million. The RTQA end markets performance more than offset continued growth in our nuclear medicine end market. The dosimetry services business was relatively flat in the quarter. Digging into RTQA orders, it is a bit of a mixed bag. In the U.S., particularly and to a lesser extent, in China and Japan, RTQA hardware orders were down in the quarter; however, on a year-to-date basis, orders are closer to flat. This again stems from changing funding and trade dynamics, which are expected to normalize in the year ahead. Meanwhile, rest of World RTQA continues to see steady growth and be a bright spot. RTQA software and services remains a bright spot and a contributing factor to margin performance year-to-date. Taking a step back, what's particularly impressive about the third quarter order book is that it only includes approximately $10 million of large orders. A diverse composition of flow orders continues to drive the business. We expect a good Q4 as it comes to bookings, particularly in the nuclear power end market. Slide 10 contributes an update on the large opportunity pipeline. Through October, we've been awarded $65 million from this pipeline. As mentioned, $10 million is reflected in our third quarter order book, while the other $55 million was awarded in October and will be reflected in our fourth quarter order book. As we approach year-end, $285 million of the opportunity pipeline is still to be awarded. $175 million of the $285 million should be awarded by year-end, while the other $110 million is now likely to be awarded in 2026. A large portion of the projects pushed to 2026 are U.S. government related and are being impacted by the shutdown. Encouragingly, we continue to see new potential large projects materialize that are not included in the snapshot. To be clear, we have consistently communicated that we do not expect to be awarded every order, but maintain our strong conviction that we have a right to win on all of these opportunities. Now let's pivot to the P&L slide on Slide 11. Consolidated revenue for the company totaled $223.1 million, up 7.9% or $16.3 million over last year's third quarter. Nearly $12 million of the approximately $16 million increase came from our Nuclear and Safety segment. Adjusted EBITDA grew 14.7% or $6.7 million to $52.4 million, with both segments meaningfully contributing to the increase. Approximately $3 million of the adjusted EBITDA increase is related to greater volumes, followed by approximately $2 million of net price inflation, meaning we got $2 million more price than cost and approximately $2 million of procurement initiatives. As you can tell, we're making strong progress on consolidating our supplier base, and it's beginning to improve margin performance. As you will see on the coming slides, both segments contributed to the approximately 140 basis points of margin expansion. Lastly, adjusted EPS totaled $0.12 per share, a 50% increase versus the third quarter of last year. If you keep the share count constant to last year's third quarter, our adjusted EPS would have been $0.15 per share or nearly double last year's adjusted EPS. Our adjusted EPS performance is a culmination of our progress across all parts of the business from growing EBITDA to the tax projects we have discussed to lower net interest costs. Recall, our third quarter 2025 diluted share count reflects vested founder shares and the potential impact of our convertible notes. As a reminder, we put cap calls in place that limit the impact of both converts until a fairly material appreciation in the stock price. We have tables in the appendix that demonstrates this. The equity issuance we did in September to fund the expected Paragon acquisition is an immaterial impact in the third quarter since we didn't transact until late in September. We've included a detailed table in the appendix of our earnings call slides to bridge the differences and lay out all the movements that have taken place between 2024 and 2025. Slide 12 illustrates our Nuclear and Safety segment financial performance. Revenue for this segment grew 9% or $11.9 million to $144.6 million. Organic growth for the segment was 4.4% and reflects nuclear power end market growth of 9% and defense and diversified end market growth of 7% partially offset by our Labs and Research business. As we indicated a few weeks back when we announced Paragon, we now expect the Nuclear Safety segment's organic revenue growth to be mid-single digits, driven by double-digit nuclear power end market growth. Adjusted EBITDA was $40.6 million or a 16.3% or $5.7 million increase over last year's third quarter. Adjusted EBITDA margins totaled 28.1% or 180 basis points higher than last year. This is a result of operational leverage, procurement initiatives and lower incentive compensation. Year-to-date, Nuclear Safety segment margins have expanded approximately 80 basis points. Moving on to Slide 13. Medical segment revenue totaled $78.5 million, up 5.9% or $4.4 million versus last year. Organic revenue grew mid-single digits at 5.2%, in line with the guidance shared on our July earnings call. We remain on track for full year organic growth of mid-single digits for the entire Medical segment. Adjusted EBITDA was $28.2 million or nearly 10% better than last year. Margins also improved, up 120 basis points to 35.9%. This reflects healthy operating leverage and favorable mix, particularly from our dosimetry services end market. Year-to-date, our medical margins have expanded approximately 240 basis points. We do expect fourth quarter margin expansion in this business, but not at these levels. Adjusted free cash flow, shown on Slide 14, totaled $18 million in the third quarter and $53 million year-to-date. This equates to a 35% year-to-date conversion of adjusted EBITDA. This was driven by adjusted EBITDA growth, lower interest expense and lower CapEx, partially offset by a use of cash from net working capital. We are materially ahead of where we were at this time last year, which gives us good confidence on our year-end targets. Before we move to Q&A, let me touch on our full year guidance on Slide 15. The one item we've updated is our adjusted free cash flow guidance. We increased the low end from $95 million to $100 million and now expect adjusted free cash flow to be between $100 million and $115 million, equating to a conversion of adjusted EBITDA between 45% and 49%. With that, operator, please queue the line for questions. Operator: The first question is from Andy Kaplowitz from Citigroup. Andrew Kaplowitz: So there's obviously been a flurry of news announcements around commercial nuclear lately, as you mentioned, Tom. So with the understanding that nuclear is obviously very long lead, you haven't yet added to your $350 million large project opportunity funnel that you gave out quite some time ago. But Brian, you talked about Mirion booking projects that are not part of the funnel. So should we really just be focused on your commercial nuclear backlog? And Tom, would you expect a material acceleration in that backlog given the uptick in activity you mentioned? Thomas Logan: Yes. What I would say, Andy, is our view that is that when you look at the core dynamics of the market right now, I think there are 3 important drivers. One is the installed base. As we've talked about previously, the desire to run these reactors hotter and at greater capacity factors, meaning greater capacity utilization correlates strongly with CapEx. So as that quest continues, noting that I put out there the World Nuclear Association report that the global fleet ran at about 83%, 90% is considered to be good. The U.S. fleet runs at 92%. I think there is a reasonable likelihood that we're going to see a continued uptrend in capacity factors across the global fleet. And that augurs well for our flow business in support of that fleet overall. Secondly, you have new utility scale builds. And as we've seen in this flurry of news reports, and obviously, we see it on the ground day in and day out, there clearly is an acceleration in the planning and execution of more global utility scale projects. We expect that, that will build over time. Obviously, again, as we've been stated emphatically historically, the timing can be very, very difficult to predict as to when a new project commences. But the good news is that in this country as well as in others, there is an unprecedented level of government support to streamline the regulatory time line and burden and to provide additional financial support and essentially risk mitigation for sponsors of these plants. So we do expect that trend to continue. And then finally, you have the SMR projects, which given the enormous focus on AI-driven data center build-out is increasingly becoming a more viable market. And in general, again, while timing is very difficult to predict, we do see that moving to the left. So as we look ahead, it is a reasonable supposition that over time, we will see the nuclear power-related backlog beginning to grow. We will be conservative about how we disclose that over time, but I think that will be an important tell in terms of how this market will evolve over time. Finally, Andy, I would say that the flow business that does not necessarily become visible in backlog because it tends to transact quickly, has been a very important driver of the overall nuclear power dynamic. We expect that, again, as that correlates with capacity factors, that will continue to swell. Brian Schopfer: Maybe just 2 things to add to Tom's comments. Just one on the installed base. Paragon is definitely additive to that narrative, right? They're very strong in the U.S. installed base, 94% of their revenue in '25 will come from that. And I think we indicated on the call that, that their business has definitely grown double digits over the last couple of years. And then maybe on the new builds, just a reminder, there are no U.S. new builds in any of the numbers we've put out there. So just that's something that, again, very hard to predict. That will take time to come through but that is not in any of our planning assumptions through '28. Andrew Kaplowitz: Helpful color. And then, Tom or Brian, how do we -- how are you thinking about your medical business in the current environment? You said pressure in RTQA, but you still delivered over 5% organic revenue growth in medical in Q3. So is that how we should think about the near and medium-term growth in medical, while there's still some uncertainty out there? I know, Brian, you said you expect spend to normalize, but is there any visibility to that normalization? Thomas Logan: Yes, Andy, so if you look at the medical business writ large, we continue to love this business overall. The dominant demand drivers that we've talked about ad nauseam, including an aging of the population demographic in the developed West, greater incidence rate of cancers of all forms and the push to create a higher standard of care in the lesser developed markets are all themes that are robust and continue to be in place. What we've seen in RTQA is strength coming out of international single-payer systems that have not been exposed to the kind of budgetary and DOGE-related dynamics that we've seen in the U.S. market. As I noted, as Brian noted, we do expect those factors to equilibrate. The demand hasn't changed. The need for the solutions that we offer here has not changed. And so our view is a constructive one that we will find an equilibrium sooner rather than later. And as we achieve that, we would expect the RTQA business to be back on trend. In terms of nuclear medicine, again, the core dynamics there continue to be very favorable. The activity, the excitement, the tangibility of the growth of the radioligand market continues. Again, we have a superb positioning in this market overall. And we're confident that over time, the numbers will be trending in a direction that's consistent with what we've guided historically. Lastly, on our medical dosimetry business, as noted, strong revenue growth in the quarter, 7%. The digital product line is coming off the peg. We feel good about the dynamic there. So to be clear, even though we spent most of our commentary on nuclear power, we still love the medical business. We'll see it as an important contributor to the story overall. Brian Schopfer: I would just say in the very short term, and I think we talked a little bit about this last time. I mean, if you think about the Q4 kind of revenue number, it's probably flattish for us on a pretty big comp. We had a very big -- I think we were up 14% last Q4 in dosimetry, which is a very tough comp on product sales. So Tom's comments are all exactly what we're seeing and talking about in the medical side over probably the next 12 to 18 months. But as you think about the next quarter, I think we do expect flattish, and that should not be a surprise because that's what we talked about last quarter. Operator: The next question is from Joe Ritchie from Goldman Sachs. Joseph Ritchie: So just a few quick ones. The first one is just like, look, really interesting to see the $55 million award come through in the third quarter. It's interesting that with just 2 months left in the year, you still have that $175 million pipeline. I guess just, Tom, maybe what kind of -- what degree of confidence do you have that the $175 million will be awarded, fully recognizing that you'll have some share of that if it does get awarded? Thomas Logan: Yes. To be clear, firstly, Joe, just a minor correction, the $55 million traded or was booked in Q4 was booked in October. But as we look at the pipeline, clearly, we've parsed between stuff that is largely impacted by government funding dynamics that we think spills into 2026 versus what we think trades in 2024. And from a confidence standpoint, again, with the caveat that on these large opportunities, the timing is always unpredictable. I would tell you that our conviction improves. As Brian noted, we feel like we have a strong right to win on this opportunity set overall. So we feel pretty good about. Joseph Ritchie: Got it. Great. Yes. And thanks for the clarification. I did mean 4Q. So I'm going to ask you the same question I asked you last quarter, given the flow of projects has been coming in around $200 million, you booked $55 million already in the fourth quarter. You've got this pipeline out there. Why can't we have a quarter that's above $300 million? Brian Schopfer: I think you can. I mean, look, I think we will see -- I think we could see strong double-digit order growth in the fourth quarter for sure. Joseph Ritchie: Okay. Great. And then lastly, I just want to understand this SMR opportunity a little further. So you mentioned that you booked the $10 million project in 3Q. I just had another company talk about 30-plus SMRs potentially being constructed in the next 5 years. When I think about like the $10 million that you booked, is it like simplistically, is this like maybe think about it as like a 250 type megawatt SMR? Is it for the full project? Is it for a portion of the project? I'm just trying to understand how to think about the related opportunity for you going forward. Thomas Logan: Yes. So the overall opportunity set is expanding, Joe. Firstly, the -- noting that right now, what you're seeing, I think there are over 120 discrete SMR projects in various forms of development around the world. Some of them merely kind of PowerPoint presentations, others fairly mature in terms of the design evolution. So what we're seeing now and what we're going to continue to see for the next probably few years will be the development of the first-of-a-kind instances that are really going to prove the viability of the fleet. We do expect that there will be a consolidation, a shakeout, if you will, in this space. And that from that, there will be clearly identified strong leaders that emerge and really begin to gain scale economies and momentum overall. Our focus right now is that we want to be part of the overall solution set with all of them. And here, I would note that with the incipient Paragon acquisition, coupled with the Certrec addition and some of the other moves that we've made to augment our portfolio, we are extremely well positioned within this community in a broad fashion. It's not only our traditional book of business in and around things like radiation monitoring systems and Neutron Flux measurement systems and health physics products, et cetera. But now it's expanded to more comprehensive physical and cybersecurity, a much broader position in instrumentation and control with a far more compelling cogent and coherent ecosystem of solutions in that arena. We are a critical partner to a strong plurality of these players as it relates to the regulatory support through Certrec. And so we expect the ecosystem to continue to build. We expect that the foot race will continue, recognizing that I think many of these players, maybe most of these players view this as analogous to the commercial space market, and they all want to be SpaceX. And so we like where we sit, again, we're going to be conservative about how we call the ball in terms of how this market evolves. But to be clear, as it, in general, becomes more tangible and as we continue to augment our relevance, our solution set into the space, we think it will be an important addition to growth in the long term. Brian Schopfer: Maybe just to make sure we put a fine point on a couple of things you asked. One, no, this is not our full suite of products with that player. And I think we talked about seeing even momentum here in Q4. It's actually with different players than the $10 million that we booked. And I think we continue to definitely be exciting. But yes, this is -- the portfolio definitely comes in pieces in the order book, and this is just a piece of the portfolio that got awarded this quarter. Operator: The next question is from Rob Mason from Baird. Robert Mason: When we entered this year, this fiscal year, there was commentary just around your backlog and what that represented in terms of next 12 months conversion revenue coverage. As you think about exiting '25, how do you think that metric looks on a relative basis to how we entered the year? And I'm just curious if the $175 million of bolus of large orders that awards that are still out there, does that really influence that metric for the next 12 months? Brian Schopfer: Yes. So a couple of things. I mean, this comment really pertains to the kind of the current business, right? Obviously, we'll add Paragon on top of this, and that will have its own dynamics. I would say that Q4 is always a large order booking month quarter for us, and so goes Q4, so goes kind of that metric. We've always said somewhere between 45% and 50% is the next 12 months coverage number. And we'll continue to assess that as we go through the quarter. As you think about the $175 million, look, there's definitely revenue in '26 for some of that. But all of those contracts will trade over multiple years. So these are not kind of one year, we're going to take that type of revenue. We tend to see kind of a smaller portion of the revenue in year 1, that kind of ramps in 2, 3, maybe it comes down a little bit in 4 or 5 depending on the time period. So that's kind of high level how we're thinking about it. And I think, look, we'll talk about our coverage dynamic once we report our Q4 numbers. Robert Mason: Sure, sure. Just as a follow-up, regarding some of the news flow of late, the Westinghouse name has been prominent in some of these, and you had that strategic partnership that you announced earlier in the year. At the time, that seemed to be more around the installed base opportunity. But I'm just curious if you could inform us on how does that relationship work on the new build side? And if you could fold Paragon's potential relationship there as well into the commentary. I'm just curious what their history would be with that player also. Thomas Logan: Yes. What I would say, Rob, is that historically, Westinghouse has been a critically important customer to Mirion, and we've worked hard to continue to improve our relevance and augment our solution set to them overall. We're quite happy with the NFMS agreement that we talked about in the past. And with Paragon, we think, again, the relevance and attractiveness of the potential solution set that we can bring to bear, not only for Westinghouse, but truly all of the NFMS, all of the -- strike that [indiscernible] or nuclear reactor designers globally will continue to swell. So we're working hard to really represent our capabilities in a fulsome way. And as it relates to the future of both system upgrades as we look at life extensions and upgrades is favorable, but we also expect that our positioning for new build activity will become more favorable as well. Operator: The next question is from Tomo Sano from JPMorgan. Tomohiko Sano: I'd like to ask SMR as well. Could you talk about the pipeline for SMR projects within $285 million and beyond? And if -- it would be great if you could touch on what factors could accelerate or delay these awards, please? Brian Schopfer: Yes. Maybe taking a step -- I mean, as you think about the $285 million, I mean, there's lots of factors that can delay awards. I mean some of it's making sure we cut a deal that we're happy with. We're less interested in cutting a deal just to hit a quarter than we are making sure we have a contract and a relationship that we can live with going forward. So I think that's kind of how we think about this, and we're fairly disciplined on margin rates and cash profiles, et cetera. So there's approvals on their side, those negotiations take time. It is the holiday season. I mean those are all things that can impact it. But again, I mean, to I think Joe's point, I mean, we're sitting 2 months out. And we continue to kind of work very, very hard. As you noticed, we had a team in Asia yesterday that -- or actually last week that signed the deal. So there's lots of activity going on, and we'll continue to press hard to get everything we can closed kind of by year-end and worst case before kind of mid-February. On the SMR question, I don't think there's any more SMR. There actually aren't any more SMR orders in those larger that $10 million to $15 million kind of size pipeline that we've talked about. But there's tons of stuff we're working on more broadly than that. Thomas Logan: Tom, I'd tag on a couple of things. Firstly, not to Scoop Brian, but to Scoop Brian, we booked another SMR-related order yesterday for about $5.5 million. So the momentum continues to swell there. And I'd also note that the government support here is very, very important. The deal that was announced Monday for this $80 billion package of financing guarantees and regulatory support is inclusive of SMRs. Beyond that, the funding that's flowed from not only the Department of Energy in the U.S., but also the Department of War, formerly the Department of Defense is very, very meaningful as it relates to the evolution and the rapidity within which this market evolves. So again, as Brian noted, in that big opportunity set, because our threshold bar is set high, that tends to exclude the majority of SMR opportunities. And we're happy overall with the way this market is evolving. Brian Schopfer: Tomo, I mean, just it's worth pointing out, we booked $26 million of SMR orders to date in the prior 2 years -- year-to-date. In the prior 2 years, I think that number was only $17 million combined. And that doesn't include the $5.5 million that Tom just mentioned. So I mean, clearly, there is lots going on, and I think we're super proud of everything the team is doing. Tomohiko Sano: Very helpful. And just one follow-up on the talent and supply chain resilience. So to capture large pipeline, what steps are you taking to secure critical talent, including recent M&A and then strength your supply chains, including some of the specialized components like [indiscernible], please? Thomas Logan: Yes. So on that front, Tomo, firstly, as we noted, one of the most important strategic elements of the recent M&A activity and here I would highlight both Certrec and Paragon is the talent acquisition. In each instance, we have just world-class teams that are going to meaningfully augment our corporate gene pool and give us capabilities that heretofore have been lacking in some dimension or another. This is a great place to work. We're pleased with our historical retention dynamic. As you might imagine, we're very focused on continuing that track record as we move ahead. But to be clear, we feel happy and confident with the talent that we have in the barn today that that's more than adequate to drive our future growth, our future aspirations. In terms of the physical supply chain, here, we're -- again, we tend to be very conservative. And so as an example, when looking at precious metals or critical commodities relating to orders that are likely to trade longer term, we tend to defease that risk upfront by acquiring all or a significant quantum of the exposure there and do that with cash-funded customer advances overall. So in terms of our exposure to precious metals like rhodium, other elements like germanium, et cetera, we, over time, have developed pretty decent heuristics for managing and mitigating that supply risk. Brian Schopfer: Yes. I think part of what we're doing on all the supply chain work we've basically been doing for the last 18 months is not just about cost out, right? It's about shoring up the supply base, bringing together to find larger suppliers. It's about finding a second and third supplier in some cases, and it's about payment terms. So we're tackling many things on top of just the cost structure as we've gone through that process. Operator: The next question is from Chris Moore from CJS Securities. Unknown Analyst: This is Will on for Chris. Can you just talk broadly about how your pricing power is holding up? And is it trending differently in nuclear safety versus medical? Brian Schopfer: Look, I mean, I made a comment on third quarter, right? Price/cost this quarter was $2 million positive to us. So I think we feel good about what we're doing internally pricing. We've invested quite a bit in our pricing heuristic methodologies, et cetera. And I would say that we're probably a bit less aggressive right now on the medical, specifically the U.S. side than we are on the other side of the house. But we like the dynamic, and we like our portfolio and the moats that have been created around that product portfolio over the last 22 years. Operator: The next question is from Yuan Zhi from B. Riley. Yuan Zhi: Congrats on a good quarter. Can you expand on the U.S. health care environment? Is it due to the government grants or Medicare, Medicaid reimbursement delaying patients seeking treatment there? Thomas Logan: Yes. I mean, overall, it is driven more than anything else, Yuan, by the aggregate noise. The cuts in Medicaid have been the most pronounced, the most defined. And that has had a modest impact, recognizing that the majority of cancer treatment is actually funded out of Medicare versus Medicaid overall. But to be clear, if you look at the profitability of the U.S. health care system, overall operating margins, and just, again, kind of the noise and kind of strategic haze around the space. All of those factors tend to put any entity on a more defensive CapEx footing. And I think that's what we're seeing. Again, we noted that when we look at the demand dynamics out of single-payer end markets, those have continued to be strong and in normalized ranges. Again, noting that the demand dynamics have not changed in the U.S. market. We do expect to achieve a level of equilibrium and at that point, get back on trend here. Yuan Zhi: Got it. It's great to see the U.S. government putting real money to invest into the Westinghouse nuclear reactors. Can you maybe talk about the economic contribution to your side? Let's say, if we build a nuclear reactor for $10 billion, what the percentage will go to, let's say, your NIS systems or go to your Paragon services, et cetera? Thomas Logan: Yes. So the dynamic here continues to change, particularly with the more recent acquisitions. Again, Paragon, Certrec, but also the Collins Aerospace cyber and physical security business that we acquired as well. Historically, and I guess, most recently dating back to our 2024 Investor Day, we've talked about the front-end opportunity for a new nuclear reactor that -- and given the specific example of the Hinkley Point C deal in our plant being built in the U.K., where on the front end of that, we booked somewhere between $80 million and $90 million of backlog, and that's for a 2-reactor project. Our -- with the incremental capabilities, I would say that, that dynamic is improving. And if anything, we would expect the quantum of the front-end opportunity to increase. And so I'm going to reserve on giving you a specific number as it relates to new builds in Westinghouse. But I would tell you that it's attractive or an attractive opportunity. And obviously, we're going to work hard to do everything we can to secure the trust, confidence and ultimately, the commitment from Westinghouse as they move down this pathway. Operator: The next question is from Jeff Grampp from Northland Capital Markets. Jeffrey Grampp: Just to kind of -- just to put a finer point on that last topic, Tom, I'm curious relative to the Analyst Day metrics you guys put out on kind of $1 per megawatt of a revenue opportunity, given the data you guys have gathered since then as well as potentially any benefits from Certrec or Paragon that might help be additive to that number. Is that still a decent proxy as best you guys can tell? Or any better update that we should keep in mind as we look forward would be helpful. Thomas Logan: Yes. Again, Jeff, we're going to reserve on that for the time being. Firstly, we want to get the Paragon acquisition closed. And our mode of operation is that whenever we acquire a new company, our first and most important rule is the hippocratic first, do no harm. And so we're going to spend a lot of time learning from them, and they'll learn from us, and we're going to work jointly to figure out best integration pathway and ultimately, how that informs the relevant product categories, the way we position those in the marketplace and the way that we commercially prosecute growth. Having said all of that, and again, recognizing this is not just Paragon, but it Certrec, it's SIS. But beyond that, it's also expanded organic capabilities that we've developed internally. I think that the numbers move up over time. I would tell you that I also continue to believe strongly that the premium in terms of dollars per megawatt will be -- of output will be higher in the SMR market. Historically, we've talked about that being 60% or so higher than it is for utility scale. I think those numbers continue to hold for the time being. But what I'd like to do is to come back early in the new year when we're talking about Q4 results and maybe do an update at that time or the subsequent quarter. Jeffrey Grampp: Understood. I appreciate those details. And for my follow-up, with respect to these larger onetime orders, are you seeing or do you expect any material difference from a margin profile to the extent these become a larger piece of the revenue pie looking ahead? Brian Schopfer: Look, I think we're very focused on our 30% EBITDA margin target. That is something we are internally continue to be committed to. Look, we've always said, to the extent any of that stuff is new builds, that does come with lower margin than kind of the installed base work. But we're not moving off of our 30% EBITDA commitment at this time. Operator: There are no further questions at this time. I would like to turn the floor back over to Thomas Logan for closing comments. Thomas Logan: Thank you, operator, and thanks to everyone for your continued interest in Mirion and listening to the call today. We're progressing quarter-by-quarter on our journey towards becoming a great compounder. Mirion increasingly is a destination investment for revenue-generating exposure to global nuclear power tailwinds. And with our acquisition of Paragon, we will be a top-tier supplier to the global nuclear power industry while remaining true to our core mission of harnessing our knowledge of ionizing radiation for the greater good of humanity. We'll look forward to sharing another update in the business on our fourth quarter earnings call in February. And until then, we appreciate you joining us today, and I hope you have a great day. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the Monro Inc.'s Earnings Conference Call for the Second Quarter of Fiscal 2026. [Operator Instructions]. And as a reminder, this conference call is being recorded and may not be reproduced in whole or in part without permission from the company. I would now like to introduce Felix Veksler, Vice President of Investor Relations at Monro. Please go ahead. Felix Veksler: Thank you. Hello, everyone, and thank you for joining us on this morning's call. Before we get started, please note that as part of this call, we will be referencing a presentation that is available on the Investors section of our website at corporate.monro.com/investors. If I could draw your attention to the safe harbor statement on Slide 2, I'd like to remind participants that our presentation includes some forward-looking statements about Monro's future performance. Actual results may differ materially from those suggested by our comments today. The most significant factors that could affect future results are outlined in Monro's filings with the SEC and in our earnings release. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, on today's call, management's statements include a discussion of certain non-GAAP financial measures, which are intended to supplement and not be substitutes for comparable GAAP measures. Reconciliations of such supplemental information to the comparable GAAP measures are included as part of today's presentation and in our earnings release. With that, I'd like to turn the call over to Monro's President and Chief Executive Officer, Peter Fitzsimmons. Peter Fitzsimmons: Thank you, Felix, and thanks to everyone for joining us. Great to be here with you today. This morning, I'd like to update you on the continued progress we are making at Monro. As we have on our prior quarterly calls, I will focus on the 4 key areas identified as opportunities for performance improvement, which are shown on Slide 3 of our presentation materials. These include driving profitable customer acquisition and activation, improving our store-based customer experience and selling effectiveness, increasing merchandising productivity, which includes mitigating tariff risk and continuing to work on real estate disposition related to the previous closure of 145 underperforming stores. After that, I'll briefly touch upon our fiscal second quarter results, which serve as a solid foundation to build upon as we continue to implement our performance improvement plan to enhance Monro's operations, drive profitability and increase adjusted operating income and total shareholder returns. Let's start with driving customer acquisition and activation. As previously discussed during our last 2 earnings calls, we've identified Monro's highest value customers. As a reminder, these customers deliver significantly more profit per customer than the lowest tier of customers. They are repeat purchasers that visit us over a number of years, and they choose us because we provide both the tires they want and the auto aftermarket services that meet their vehicle needs. During the second quarter, we continued to advance our acquisition marketing efforts through the deployment of a wide range of digital marketing tools to reach our target audience. We have increasingly activated our customer relationship management marketing to speak to our existing customers. Integrated into our marketing activities is the completion of a customer segmentation analysis that is helping to augment our marketing efforts with further granularity on higher-value existing customers and potential customers. Those who are expected to generate significantly more revenue and gross margin dollars than the average Monro guest. We have now ramped our refined targeting to almost 600 stores, and we are encouraged to see that these stores are outperforming the balance of our store chain on several key metrics such as call volumes, store traffic, sales and gross profit dollar generation. And while we won't necessarily expand our marketing efforts to all stores, we do plan to ramp up and scale these efforts by the end of December. In early September, we were pleased to strengthen our marketing team with the hiring of a new leader, Tim Ferrell, as our Vice President of Marketing. Tim has extensive experience driving growth for multi-location businesses, including Valvoline and Sun Auto Tire & Service, with a focus on media strategy and targeting, brand positioning and messaging, digital marketing, lead generation and conversion rate optimization. In 2 months, Tim has made meaningful enhancements to our marketing strategy and execution. Now let's discuss the things we are doing to improve the customer experience and selling effectiveness in the stores. During the second quarter, we further emphasized our digital courtesy inspection tool, ConfiDrive, to more effectively present pictures of needed vehicle maintenance and repairs to our guests during their visit to the stores. As part of improving our store operations, we've also built a periodic review process of key data coming out of ConfiDrive at the local level. As a reminder, we have a centralized call center that our customers call to schedule an appointment with us. This allows our store managers to focus more of their time on in-store activities without having the burden of answering each and every call that comes in. In the more than 700 stores where our customer call center has already been implemented, we are encouraged to see that these stores are outperforming the balance of our store chain on key metrics such as sales and gross profit dollar generation. We plan to expand the rollout of our customer call center to all of our stores by early November. During the quarter, we also completed a field realignment to rightsize and streamline our field management following the closure of the 145 underperforming stores. While this resulted in an overall reduction of district managers, it has also resulted in an overall increase in the quality of district managers across our chain. Finally, and importantly, we've also introduced a new district manager toolkit, which we believe will allow our district managers to better understand the input metrics and levers that drive store-level sales, attachments and gross margins. Now let's turn to merchandising, including mitigating tariff risk. We continue to work closely with our tire vendors to align on go-forward assortment opportunities to drive incremental sales for both parties, and we are now in the process of developing an updated tire assortment strategy that will resonate with our guests and position both Monro and our strategic supplier partners for growth. We are encouraged by the level of vendor support we are receiving on all tire tiers as well as with the enthusiasm of our suppliers to work with us. One area in which we have received additional support from vendors is with our fall promotions, which have helped us accelerate the sellout of tire inventory. We are also implementing new analytical tools for demand and inventory forecasting as well as for pricing. These tools will enable us to run a more dynamic sales and operations planning process and ensure our price positioning is appropriately competitive while maximizing margins. As a complement to these tools, during the second quarter, we augmented the capabilities of our existing merchandising team with the addition of 2 new colleagues who are helping to lead tire acquisition and product and service pricing. We continue to carefully manage the impact of tariffs on our overall product acquisition cost and on our market pricing. We are also actively monitoring the impact of tariffs and other market conditions on actual and potential changes in tire mix as well as potential customer vehicle maintenance deferrals. Generally, we have been able to balance cost and price adjustments to enable us to maintain solid margins. And finally, just to provide an update on closed store real estate disposition. After having successfully completed the closure of 145 underperforming stores and repositioning our inventory in the first quarter, we started a process to exit the real estate at these locations, which includes 40 stores that we own. During the second quarter, we exited 21 leases and sold 3 owned locations, which resulted in proceeds of $5.5 million. As a reminder, this process is expected to generate positive cash flow and be largely completed during the next few quarters. Importantly, and as discussed previously, this enables us to focus on improving performance in our continuing locations for the remainder of fiscal 2026. Now let me briefly touch upon several key highlights of our fiscal second quarter results, which Brian will cover in more specific detail in just a few moments. Turning to Slide 4 of our presentation materials. The Monro team drove comparable store sales growth again in the quarter, which has enabled us to report 3 consecutive quarters of positive comps for the first time in a couple of years. Further, our business generated $0.21 of adjusted diluted earnings per share, which exceeded $0.17 of adjusted diluted EPS in the prior year second quarter. We achieved this through solid gross margin performance with a gross margin rate that expanded 40 basis points to 35.7% and prudent operating cost control as reflected in lower store direct costs and good corporate expense control. Further, for the second quarter in a row, we reduced inventory levels across the system this time by approximately $11 million, which reflects improved inventory management. And while we have seen some recent softness in consumer demand, which is reflected in preliminary October comps that are down 2%, we expect to deliver positive comp store sales in fiscal 2026 and we have a variety of levers to pull that we believe will enable us to achieve meaningfully higher year-over-year adjusted operating income. To summarize, we continue to be pleased with the progress we've made implementing our 4 key areas of focus, which we believe will allow us to accelerate the pace of the company's performance improvement as well as better capitalize on positive industry trends to unlock Monro's full potential. Our fiscal second quarter results serve as an indication of continued progress toward building enhanced profitability in fiscal 2026. Before I hand the call over to Brian, I would like again to thank our teammates for their dedication to achieving our business goals as well as their commitment to serving our customers. And with that, I'll now turn it over to Brian, who will provide an overview of Monro's second quarter performance, strong financial position and additional color regarding the remainder of fiscal 2026. Brian? Brian D'Ambrosia: Thank you, Peter, and good morning, everyone. Turning to Slide 5. Sales decreased 4.1% to $288.9 million in the second quarter. This was primarily driven by a reduction in sales from the closure of 145 underperforming stores in the first quarter of fiscal 2026, partially offset by a 1.1% increase in comparable store sales from continuing store locations. For reference, comp sales were up 2% in July, up 3% in August, and we exited the quarter down 2% in September. And while tire units were down mid-single digits, we believe we outperformed the industry in the quarter. Gross margin increased 40 basis points compared to the prior year. This primarily resulted from lower occupancy costs and lower material costs as a percentage of sales. These were partially offset by higher technician labor costs as a percentage of sales, mostly due to wage inflation. Total operating expenses were $90.4 million or 31.3% of sales as compared to $93.2 million or 30.9% of sales in the prior year period. Importantly, the increase as a percentage of sales was affected by $8.3 million of costs incurred in connection with consultants related to our operational improvement plan, partially offset by $7.6 million of net gains from closed store real estate dispositions. The second quarter of the prior year also included $2.8 million of net gain on the sale of our corporate headquarters. Operating income for the second quarter was $12.8 million or 4.4% of sales. This is compared to operating income of $13.2 million or 4.4% of sales in the prior year period. Adjusted operating income, a non-GAAP measure, for the second quarter was $14 million or 4.8% of sales as compared to $12.6 million or 4.2% of sales in the prior year period. Net interest expense decreased to $4.4 million as compared to $5.1 million in the same period last year. This was principally due to a decrease in weighted average debt. Income tax expense was $2.8 million or an effective tax rate of 32.9%, which is compared to income tax expense of [ $2.5 ] million or an effective tax rate of 30.9% in the prior year period. The year-over-year difference in effective tax rate is primarily related to the discrete tax impact related to share-based awards and other adjustments, none of which are significant. Net income was $5.7 million as compared to net income of $5.6 million in the same period last year. Diluted earnings per share was $0.18. This is compared to diluted earnings per share of $0.18 for the same period last year. Adjusted diluted earnings per share, a non-GAAP measure, was $0.21. This is compared to adjusted diluted earnings per share of $0.17 in the second quarter of fiscal 2025. Please refer to our reconciliation of adjusted operating income, adjusted net income and adjusted diluted EPS in this morning's earnings press release and on Slides 9, 10 and 11 in the appendix to our earnings presentation for further details regarding excluded items in the second quarter of both fiscal years. As highlighted on Slide 6, we continue to maintain a strong financial position. We generated $30 million of cash from operations during the first half of fiscal 2026. Our AP to inventory ratio was 186% at the end of the second quarter versus 177% at the end of fiscal 2025. We received $7 million from the disposal of property and equipment and $3 million in divestiture proceeds, invested $13 million in capital expenditures, spent $19 million in principal payments for financing leases and distributed $17 million in dividends. At the end of the second quarter, we had net bank debt of $50 million, availability under our credit facility of approximately $410 million and cash and equivalents of approximately $10 million. Now turning to our expectations for the full year of fiscal 2026 on Slide 7. We continue to expect to deliver year-over-year comparable store sales growth in fiscal 2026, primarily driven by our improvement plan as well as any tariff-related price adjustments to our customers. We continue to expect that the results of our store optimization plan will reduce total sales by approximately $45 million in fiscal 2026. Given baseline cost inflation as well as our exposure to tariff-related cost increases, we expect that our gross margin for the full year of fiscal 2026 will be consistent with fiscal 2025. We continue to expect to partially offset some of this baseline cost inflation as well as some of the tariff-related cost increases with benefits from our store closures and operational improvements from our improvement plan. We believe this will allow us to deliver a year-over-year improvement in our adjusted diluted earnings per share in fiscal 2026. We continue to expect to generate sufficient operating cash flow that will allow us to maintain a strong financial position and to fund all of our capital allocation priorities, including our dividend during fiscal 2026. Regarding our capital expenditures, we continue to expect to spend $25 million to $35 million. And with that, I will now turn the call back over to Peter for some closing remarks. Peter Fitzsimmons: Thanks, Brian. As previously indicated, through our national retail network, economies of scale and durable business model, we believe we can both provide our customers with the services they need and generate meaningful value for our shareholders in any economic environment. We have a compelling set of consumer offerings and more than 6,000 talented teammates. Our balance sheet is strong, and our business generates healthy cash flow. We remain encouraged by the progress we've made, and we are keenly focused on executing our plan to improve operations, drive incremental profit and enhance total shareholder returns in fiscal 2026. With that, I will now turn it over to the operator for questions. Operator: [Operator Instructions] Our first question comes from Bret Jordan from Jefferies. Bret Jordan: Could you talk about within the comp, the price contribution versus car counts? And I guess, what are you expecting for price in the second half of the fiscal year, just given a lot of noise around tariffs? Peter Fitzsimmons: Why doesn't Brian take the comp and then why don't I expand a little bit on our thoughts there? Brian D'Ambrosia: Yes, Bret, in the quarter, we were down mid-single digits in traffic, up mid-single digits in ticket, netting out to the up 1% overall comp. Peter Fitzsimmons: So just a couple of comments from me on the comps. Remember that in the second quarter, we were up 1.1%. So it's the third consecutive quarter of positive comps. And I think we did see some consumer demand softness in September and October. But I would say from experience in performance improvement assignments, working with aftermarket and retail companies, you usually expect some unevenness in comp store sales. And the things that we've been doing in the last 4 months to implement digital marketing in half our stores now, which ramped up steadily through the second quarter and still hasn't touched more than half of our stores makes us think that in the next couple of quarters, we're going to see some real benefits from our marketing efforts. And I would say same for the efforts in improving performance in the stores. So we remain pretty comfortable that we're going to see positive comps for the fiscal year. Bret Jordan: Okay. And a question on working capital. Obviously, you benefit from the payables program, and there's been a lot of noise around that recently. Have you seen any changes as far as the risk spread that is being expected by the banks participating in your working capital program? Peter Fitzsimmons: Nothing related to the risk spread. We did have a pricing adjustment back when we did our amendment to the credit facility for this period of time over the next 5 quarters. Our current spread is 225 basis points over SOFR. That's reflected in our supply chain finance facility, but no changes outside of that change. Bret Jordan: Okay. So nothing recently with all the noise around a particular event? Peter Fitzsimmons: No, not at all. Operator: Our next question comes from Thomas Wendler from Stephens. Tom Wendler: We saw some nice improvement in gross margins this quarter, expectations kind of flat gross margins year-over-year now. Just digging into the 50 bps improvement from material costs, can you maybe speak to the drivers there? What kind of wins are you seeing with vendors? How is this kind of being impacted by changing product assortment? Brian D'Ambrosia: Yes. I will -- I'll take the overall gross margin question and let Peter answer any color that he wants to add on the vendor question. As you said, gross margins increased 40 basis points in the quarter. That was driven a 70 basis point improvement with higher comp sales and benefit from store closures that improved our occupancy costs as a percent of sales. Material cost was 50 basis points improvement as a percent of sales, and that is primarily due to better service category margins that we saw in the quarter. And then partially offsetting those was an 80 bps increase in tech pay as it relates to wage inflation year-over-year. As we look out for the rest of the year regarding gross margin expectations, we expect gross margin for the full year, as you said, to be consistent with 2025. And importantly, this means that we expect higher gross margins in the second half of '26 compared to the prior year period. All of this is dependent on comp sales levels, of course, and our ability to continue to manage price adjustments with our cost increases, both for material and labor. And we continue to expect to see a benefit from our store closures in the second half as it affects gross margin. Peter Fitzsimmons: And Tom, maybe a couple of comments on vendors. One of the great things about our particular business is we have 8 to 12 vendors that matter, and we have good relationships with all of them, tires and parts. The vendors are happy about the things that they've heard from us, and they really like the things that we're doing with our marketing program. So in the second quarter, together with the strengthening of our merchandising department with the joining of Katy Chang, we've gotten more marketing support from more vendors for the things that we're putting into place. So I think we're going to continue to feel pretty good about the marketing support we get from all of our vendors. Tom Wendler: And then you mentioned some softness in the consumer you were seeing. Is there any kind of distinct consumer that's having some more troubles than others? Are you guys seeing any more trade down? Are you still drawing the line at Tier 3 tires? Peter Fitzsimmons: I think that the lower income consumer is probably feeling a fair amount of pressure right now. I think it's reflected in what you read in the papers and see elsewhere. But I want to remind everybody that what we offer is a service that's nondiscretionary and that everybody needs. We have customers at all economic levels, and we have products for everyone that wants to shop at our stores. So I think that over time, the services that we're providing are going to enable us to capture good market share and comp store growth, as we've said before, in any economy. Operator: Our next question comes from David Lantz from Wells Fargo. David Lantz: I guess tire units declined mid-single digits in the quarter. So curious how you're thinking about the overall tire backdrop as we enter peak selling season here over the next couple of months. Brian D'Ambrosia: Yes. I think as we're looking at tire units, we're encouraged by what we believe is relative outperformance to the industry. A lot of the dynamics that have been in place regarding tires are still in place, being a high-ticket category. It is an area of sensitivity for our consumers and customers' wallets. As we look forward, we believe, as Peter just said, that even in a tough backdrop, which we clearly think that we're in relative to the consumer, we're doing a lot of things that are going to move the needle for us in terms of units and overall tire sales, which is obviously 50% of our overall sales. And that's really driven by the marketing, merchandising and in-store execution that Peter talked about in his prepared remarks. So we feel that we've got a lot of momentum as we're scaling those initiatives into the back half of this year and think that, that helps to support our business against that soft macro backdrop. Peter Fitzsimmons: We recommend another question. I think Brian answered it well. David Lantz: Perfect. Yes. So I guess the next one would be just expectations on SG&A for the second half, considering softer comps in September and October. And if there's been any change to the expectation that, that should be flat on a dollar basis? Brian D'Ambrosia: Yes. Great question. So as we talked about in our remarks, we demonstrated good cost control in the quarter. SG&A was $2.8 million lower than the prior year quarter. And if you adjust for nonoperating items such as our net store closing costs or impairment charges, consulting costs related to the operational improvement plan, we were actually $4.7 million lower than the prior year in Q2. And the decrease largely being driven by the reduction in SG&A for the store closures. So regarding our expectations for all of 2026, we continue to control expenses, but we do expect to further invest in our marketing initiatives, which will partially offset the savings that we did see in Q2 from the store closures. So as such, we expect G&A in Q3 and Q4, excluding any of the nonoperating items, to be running above where we were in Q2 and closer to that flat compared to prior year, not necessarily running consistent with what we just saw in this past quarter. Peter Fitzsimmons: David, I want to go back to your question about tires for just a second as I reflect on that. One of the things that we did in September was promote on the website and in the drop-downs that we have tires for everyone. And as I mentioned just a few minutes ago, we've had excellent support from all of our tire vendors. I think as we move into, to your good point, the selling season as the weather turns cold in the north, we've got the right tires for everybody. And I think having the right Tier 1, Tier 2, Tier 3 and Tier 4 tire is going to matter in increasing our ability to sell units in the next couple of quarters. So we feel good about where our tire positioning is, and we emphasize that we have tires for everyone in the promotions in the fall. Operator: Our next question comes from Brian Nagel. Brian Nagel: First question I want to ask, and I apologize, it's repetitive, but just looking at the trajectory in comps. So here, you stayed positive in the current -- in the quarter which just reported, but it's moderated from basically mid-single-digit type gains a couple of quarters ago. As you mentioned, I mean, there's pressures on the consumer that's well documented. But I mean is there a better way to explain what's happening here? I mean how much of that comp deceleration is a tougher environment versus maybe something more internal at Monro? Peter Fitzsimmons: I think it's a pause in the market, to be honest with you. And I think that the value that we're going to get from the incremental marketing and the store performance initiatives is going to show up in this quarter. Time will tell, but I don't think that there's anything in any of the data that we've seen as we've implemented more digital marketing in more stores that suggests we're not going to get positive growth going forward. For example, in every single tranche of stores that we've added, and we started adding stores to digital marketing in July and increased it 100 to 150 stores a month. We've seen positive calls compared to the rest of the chain, positive comp store sales across the board, every time we've added more stores to the mix and positive gross margin dollars. So for every dollar of advertising investment, we're getting more than that back in gross margin dollars. One of the reasons that you're seeing pretty positive results in our gross margin rate. And if you think about where we are at the moment, in the second quarter, we were probably 1/4 to 1/3 in terms of marketing support. That's going to change further in the next couple of months. As we said early on, we're going to add more stores to digital marketing effort. Final thing I would mention that encourages us about our ability to generate incremental comp store sales positive is we have focused our efforts on the digital marketing in the second quarter, and now we're adding another 350 stores to our call center. So we will have more stores in the call center in another week, and we'll have more stores that are supported with digital marketing. All of the data dating back to the summer says, as you do these things, comp store sales increase. Brian Nagel: That's very helpful. Then I guess my follow-up is somewhat related. So you started your prepared comments just talking about, I think what you referred to as kind of the high-value customers. And then I think you referred to better performing stores within the Monro network. So the question I have is, do you -- is there a way to quantify to the extent that those customers, those stores or some type of road map for the total company, can you quantify the outperformance of the comp -- the sales or comp outperformance of those cohorts versus the chain? Peter Fitzsimmons: So I don't want to say too much about this for competitive reasons, but one of the things that we've done in the last 3 months is a customer segmentation that's very revealing. It further supports our view that a minority of our current customers are really, really good customers. And they're customers that I would describe as value-oriented. They're looking for a bundle of services, not just tires, not just oil changes, but a number of things. And so one of the things we're doing with our content in marketing is reaching out to those customers and potential customers. So now not only in customer acquisition, but also in CRM to reach back to our good customers from the past. And we are offering those bundles of services that we think all the data says they're interested in. Another important segment is a wealthier newer vehicle owner. And those folks want good service. And so in the content that we're providing there online, we're appealing as a trusted adviser to that type of customer. And so the customer segmentation now enables us to share different types of messages with the customers depending on what their needs are. Again, I don't want to go on too much about this. We're still developing the customer segmentation, but our advertising is now reflecting what we've learned. Operator: Our next question comes from John Healy from Northcoast Research. John Healy: I just want to ask to put your consulting hat on a little bit here. Maybe help us understand how you get to the conclusion that things are slowing down kind of across the industry. I mean there's a lot of mixed data points. We don't see kind of negative same-store sales of the parts and service side on the franchise dealers. And I get that the mix and the repair work is different. But would love to see how you benchmark Monro, what you benchmark it to and maybe any sort of data series or just opinions on kind of how you would look at it from a consulting lens to kind of evaluate the comp performance kind of year-to-date? Peter Fitzsimmons: Sure. Well, one of the things I love about Monro is it's a service business. It provides tires and it provides parts and the parts have to be attached in all of our locations. And so the skill of our technicians really is part of the value that the customer sees. Again and again, when we talk to customers and our own labor, we hear that. So I would compare us less to the part sellers and more to other service providers. And there aren't a whole lot of public comps that match up exactly with us. That's one thing that's frustrated me a little bit when people look at the market and say, oh, you compare well to this particular set. We're a little bit different. We're just more of a service business than we are a retailer, but it's the combination of those things that really drives what we can deliver to the customer. And another thing I just want to emphasize is we have scale across the country with 1,116 stores that enables us to provide services on a local level that are needed. So think of us more as a service business than a parts seller. It's a real difference. Brian D'Ambrosia: The only thing I would add there, John, is we -- on the tire side, we have syndicated data that we subscribe to, a couple of different sources for us and some publicly available, some more proprietary. But our comparisons on the tire side are against that data set. On the service side, as Peter said, there's very -- a lot less transparency there for us to be able to compare against. But highlighting the fact that we did have significant outperformance in a couple of our large service categories, including brakes and front-end shocks in the quarter, we feel pretty good. And we talked earlier in the margin commentary that those also drove some of the margin outperformance in the quarter as well. John Healy: And then just one question on cash flow and kind of capital allocation. Any thoughts on just kind of the -- any perspective you could provide on just the safety of the dividend here? I think you guys paid out what, $17 million kind of year-to-date, but not sure we're tracking there on a kind of an earnings basis to this point this year. So just your ability and willingness to keep the dividend maybe ahead of what potentially could be just the underlying earnings of the company. Peter Fitzsimmons: Yes. When we look at the dividend, we're looking at our ability to fund the dividend as well as all of our capital allocation priorities, including our scheduled debt repayments on finance leases, our CapEx program, investing in our business and of course, maintaining a conservative balance sheet in this operating environment. And our cash flows support all of our capital allocation priorities, and we believe that to be true for the balance of FY '26 and beyond that. So we don't view it as much on a net payout ratio against income because we generate a lot of cash flow relative to our net income. So that payout ratio still makes sense to us. Operator: We currently have no further questions. So I'll hand back to Peter for any closing remarks. Peter Fitzsimmons: Thanks, Claire, and thanks again, everyone, for joining us today. I'm optimistic about the opportunities in front of us, and I believe Monro is well positioned to capitalize on positive industry trends as we focus on driving profitable growth. Having said this, we still have a lot of work to do. But with our recent progress, we now have a stronger foundation to create long-term value for all shareholders. I look forward to keeping you updated on progress in the quarters to come. Have a great day. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Good morning. My name is Carly, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter PPG Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to our host, Alex Lopez, Director of Investor Relations. Please go ahead, sir. Alejandro Lopez: Thank you, Carly, and good morning, everyone. This is Alex Lopez. We appreciate your continued interest in PPG and welcome you to our third quarter 2025 earnings conference call. Joining me today from PPG are Tim Knavish, Chairman and Chief Executive Officer; and Vince Morales, Senior Vice President and Chief Financial Officer. Our comments relate to the financial information released after U.S. equity markets closed on Tuesday, October 28, 2025. We have posted detailed commentary and the accompanying presentation slides on the Investor Center of our website, ppg.com. Following management's perspective on the company's results, we will move to the Q&A session. Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on PPG's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. The presentation also contains certain non-GAAP financial measures. The company has provided in the appendix of the presentation materials, which are available on our website. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information, please refer to PPG's filings with the SEC. Now let me introduce PPG Chairman and CEO, Tim Knavish. Timothy Knavish: Thank you, Alex, and good morning, everybody. I'll start by providing a few highlights on Q3 2025 and then move to our outlook. I'm very proud of the PPG team's performance for the quarter. In Q3 in a very challenging world, the team delivered organic growth, which included both volume growth and price growth and delivered a record high Q3 EPS. Our results for the quarter reflect the accelerating momentum in PPG's organic sales growth with an increase of 2%, including our third consecutive quarter of sales volume growth despite a challenging macro environment. These results reflect the benefits of PPG's global breadth and our strong commercial execution, which is driving share gains in many of our businesses. In addition, sales volumes in our Industrial Coatings segments once again outpaced industry demand, reflecting benefits from share gains in both packaging coatings and automotive OEM coatings. Several of our businesses in the Performance Coatings segment delivered outstanding results, including double-digit organic sales growth in both aerospace and protective and marine coatings. Although this was offset by lower sales volumes in automotive refinish as our volumes were heavily weighted to the first half of 2025 due to distributor order patterns. From a regional perspective, the macro environment was choppy. Despite this, PPG organic sales grew a low single-digit percentage in the U.S. and Canada, representing the third consecutive quarter of year-over-year increases in this region. Organic sales also increased in Latin America and Asia Pacific and were flat in Europe. Solid sales improvement, combined with our aggressive cost management and consistent cash deployment drove an adjusted earnings per share increase of 5% year-over-year, establishing a third quarter record of $2.13. Looking at each of our segments. In the Global Architectural Coatings segment, positive selling prices in both regions and volume growth in Latin America were offset by lower volumes in Europe and the impact of divestitures. In Architectural Coatings EMEA, organic sales growth in Eastern Europe was more than offset by lower demand in Western Europe. While volumes remained lower in the quarter, this business has now delivered price growth consistently every quarter over the last 9 years, demonstrating the value the customers place on our leading brands and products that we provide. In Architectural Coatings Latin America and Asia Pacific, we delivered mid-single-digit organic sales growth in Mexico, aided by solid retail sales. Project-related spending remained lower year-over-year, but improved sequentially versus the second quarter. We expect sales growth to strengthen in Mexico in the fourth quarter, including stronger year-over-year consumer sales and modest improvement in project-related work. Segment EBITDA margin increased as strong pricing and operational excellence, including our cost control actions outpaced the impact of lower sales volumes and business divestitures. The Performance Coatings segment delivered record net sales with a 2% increase in organic sales. Within the segment, Aerospace delivered double-digit percentage organic sales growth with record quarter sales and earnings. Customer order backlogs increased to $310 million, even as growth-related investments improved manufacturing output during the quarter. In automotive refinish, organic sales decreased by a double-digit percentage versus the prior year, driven by lower sales volumes in the U.S. As we communicated on our second quarter earnings call, our distributor order patterns were heavily weighted to the first half of the year. On a year-to-date basis, PPG's automotive refinish coatings organic sales are outperforming industry demand, which has declined due to lower U.S. industry collision claims. In the third quarter, the company grew the number of refinish LINQ subscriptions as well as MoonWalk hardware installations, which now total more than 3,000, further supporting customer productivity and related share gains. We continue to add tools to our portfolio in order to expand our industry-leading productivity offering and to further strengthen our differentiation and market position. One such product is our newest clear coat, which is DELTRON Premium Glamour Speed Clearcoat. With this product, we have broken a paradigm as it is the first of its kind to be fully designed with AI technology using proprietary PPG data, results in a refinish product and application that combines high-quality appearance with increasing speed of application. This also redefines our innovation process and then applying AI to the design phase allows us to bring market-leading solutions to our customers faster. Protective and marine coatings delivered the 10th consecutive quarter of year-over-year volume growth with double-digit percentage organic growth in the quarter. Given this strong and consistent performance and further opportunities in various end markets, including marine aftermarket and certain energy markets, we are channeling additional growth-related investments into this business. Traffic solutions delivered mid-single-digit percentage organic growth in the quarter, driven by share gains given the strength of our industry-leading value proposition. Segment EBITDA margin decreased, driven by lower automotive refinish coatings sales volumes and the higher growth-related investment spending in aerospace coatings and protective and marine coatings, partially offset by higher selling prices. Our Performance Coatings segment is an important growth engine for the company, and I want to take a moment to talk about the increasing scale and strength of our aerospace business in this segment. Aerospace has grown at a mid-single-digit CAGR over the past 10 years and now represents 1/3 of the segment and a significant part of the overall PPG portfolio. Based on the momentum in the industry and the demand for our highly specialized and qualified products, we expect sales growth CAGR of a mid- to high single-digit percentage over the next 3 years. For PPG, this is a business that is equally weighted to OEM and aftermarket with margins that are accretive to the overall reporting segment. We've experienced significant OEM growth and customers have recently increased their build forecast for the next several years. Based on the nature of this industry, this OEM growth will then translate into additional aftermarket growth in the succeeding years. And given the significant growth dynamics we're experiencing today and expecting in the future, we are increasing our investments in this business. This includes near-term OpEx investments in '25 and into '26 to further debottleneck our facilities. We also announced an investment in new manufacturing facility, which will be commissioned in 2027, and we will likely have additional investments in the future. These investments represent more than $0.5 billion and are being completed in order to capitalize on the significant multiyear growth opportunity we have in this business. All of these investments will deliver very strong financial returns for our company. We have a strong and unique growing position across commercial, general aviation and military, and we are excited that this will accelerate profitable growth for PPG and our shareholders for the foreseeable future. Now moving to the Industrial Coatings segment. Third quarter sales volumes increased 4%, outpacing industry demand as we realized the run rate benefit of share gains with strength in automotive OEM coatings and packaging coatings. From a business unit perspective, our automotive OEM business delivered an 8% increase in net sales with growth above market in all regions. The global light vehicle industry production growth was 4%, which we clearly outpaced. We expect to outgrow the market again in the fourth quarter and throughout 2026. Industrial Coatings sales volumes declined a low single-digit percentage as growth in Asia Pacific and share gains were offset by lower demand in the U.S. and Europe. Packaging coatings organic sales increased by a double-digit percentage year-over-year, growing significantly above industry rates. These results again reflect the positive momentum and share gain in all regions. Segment EBITDA was up 12% year-over-year, reflecting the leverage from organic sales growth, along with our manufacturing productivity and strong cost control actions. Now let me talk about our balance sheet and cash. During the quarter, we completed approximately $150 million in share repurchases and paid $160 million in dividends, which combined totals $1.2 billion delivered to shareholders year-to-date. Our balance sheet is strong, which continues to provide us with financial flexibility, and we remain committed to driving shareholder value. Looking ahead, we're committed to driving consistent organic sales and earnings growth even in this highly dynamic macroeconomic environment. As a result of the tariffs enacted, we are expecting low single-digit inflation for the year, and we are actively working with our suppliers to balance volume and price with most suppliers favoring volume. When looking at our guidance, let me quickly recap some of the elements that we expect in the fourth quarter. We see structural strength in our Performance Coatings segment, driven by our technology advantaged products in aerospace and protective and marine coatings, which will be offset by lower automotive refinish sales based on customer order patterns. We expect a year-over-year decline in organic sales similar to that in the third quarter as distributors have been managing their inventories heading into year-end. In our Architectural Coatings segment, while European volume trends are anticipated to remain tepid in the upcoming quarter, we expect strong retail sales and modest recovery of project-related spending in Mexico. In the Industrial Coatings segment, the share gains in automotive OEM packaging and industrial coatings are yielding benefits, and we expect to outperform the market again in the fourth quarter. Finally, during the fourth quarter, we expect growing benefits from operational excellence programs, including reducing our costs. This, combined with the leverage from the acceleration in volume growth is expected to drive earnings and margin expansion in our Global Architectural Coatings and Industrial Coatings segments. This will be offset by lower earnings in our Performance Coatings segment due to the business mix. Altogether, we have updated our full year guidance of adjusted earnings per diluted share to a range of $7.60 to $7.70. In closing, I'm excited about the increasing momentum we have demonstrated in organic growth. In a macro environment where industry demand remains subdued, we are benefiting from our sharpened portfolio with technology differentiated products and customer productivity solutions, which is delivering positive sales price and volumes in 2025 and above industry levels. Additionally, the focus we have put on operational excellence, investing in innovation and driving share gains, combined with our disciplined capital allocation and strong balance sheet supports our strategy to deliver sustainable top line and bottom line growth in the midterm. Thank you to our PPG team around the world who make it happen and deliver on our purpose every day. We appreciate your continued confidence in PPG, and this concludes our prepared remarks. And now would you please open the line for questions. Operator: [Operator Instructions] Our first question comes from John McNulty from BMO. John McNulty: Tim, you posted some pretty solid growth across the bulk of the platforms. I mean I think 6 of the 9 businesses were mid-single digits or better. So I guess one does stand out, which is the refinish business, which really seemed to be a trouble spot. It seemed like it was kind of mid- to high teens decline. So I guess, can you speak to why that hit is maybe quite as hard as it was, how you're thinking about the potential for that business to recover and the timing for that? Timothy Knavish: Yes. Sure, John. Look, let me talk about refinish, right? First of all, I'm confident in our best-in-class productivity solution that will continue to drive share gain. And that becomes important as I explain kind of what's happening here. And we do have market share momentum in this business as we continue to introduce new productivity tools for our customers. Look, this is and will be a marquee business for PPG despite a transitory slump in collision claims. And the other thing I'll add is this kind of challenging environment in refinish for the next whatever number of quarters, which I'll talk about in a few minutes, plays to the strength of the stronger players, plays to the strength of those that bring the best productivity solutions because it's not just the coatings manufacturers that are seeing a slump in demand, it's the body shops and the body shops need productivity to survive the journey. So we have a bit of a slump right now. I'll also remind you, on a full year basis, our performance is outperforming the industry because of those productivity solutions that I just mentioned. So direct to your question, here's what happened. We highlighted in July that we expected some destocking. The industry, not just PPG, the industry expected normalization of claims as we moved through the year. And the normalization of claims did not happen as early as expected. And so that's driven destocking further than what we expected as we move through the rest of the year. So what's happening out there? Miles driven are still climbing. Actually, accident rates are okay. It's translating those accident rates into collision claims that has been depressed for some number of quarters now. And that's largely driven by the insurance dynamic, affordability, availability of insurance that has kept some people from submitting claims for fear of losing their insurance or dramatic rate increases. If you look at the insurance rates from like 2022 to 2024, they were growing at about a 16% CAGR per year, right, 16% per year average. Now we have started to see that moderate in 2025 to about a 3% growth CAGR, which is normal, normal to be expected with inflation. So we're expecting that normalization of the insurance situation to drive normalization of collision claims going forward. Now we'll have a couple -- we're expecting a couple more quarters of this normalization through the whole supply chain and collision network to flow through. From an industry standpoint, we're expecting that normalization to be seen in the middle of 2026. Now for us, we also have some destocking that will occur because of how our inventory -- or I'm sorry, how our distributors bought last year. But that's our expectation is normalization of the industry in the middle of 2026. Now normalization, I'll remind everybody, normalization is collision claims down low single digits. And that's been the case for more than a decade. And in normal situation, even with collision claims down low single digits, our refinish business delivers record year after record year after record year of sales growth and earnings growth. So again, that plays to our productivity value proposition as we normalize. And right now, we're having a lot of discussions with several large potential customers that find our productivity value proposition even more attractive in these difficult times because it resonates. It resonates with what they need to be successful in these challenging times, but also as the market normalizes. So tough market conditions play to our strength. Industry normalization happens in the middle of 2026. We are well positioned for that. And once industry normalization happens, we'll return to sales and earnings growth. Operator: Our next question comes from Chris Parkinson from Wolfe Research. Christopher Parkinson: When I take a step back and look at your business, I mean, the strategy is ultimately paying off. But at the same time, I mean, suffice to say, we're still in a very challenging macro. As the sell and the buy side kind of look out until 2026 and I look at your 3 new segments, what are the 1 or 2 things you think we should be all focusing on in terms of volume growth, subsegment market outperformance in terms of your end markets, new products, margin opportunities? Just how do you see the PPG story evolving if and when the macro, I'd say, eventually gets better over the next, hopefully, 12 to 24 months? Timothy Knavish: Yes. Chris, good to hear from you. Thanks. So I'll make -- '26, as you know, we normally give our guide in January, and we'll give numbers in January. But I'll make some high-level just comments on how we're thinking about it right now to try and answer your question. And if I miss anything, I'm sure Vince will fill it in. 2026, as always, there will be a lot of puts and takes. But I'll compare how we're viewing it today versus how we viewed it 3 to 6 months ago, some key factors. The macro, we're frankly not expecting much improvement in the macro with an exception, I'll talk about that in a minute. So the macro remains choppy, and it certainly has not recovered or gotten momentum that we or anyone else had expected to see at this point. It includes continued uncertainty with global trade, tempering somewhat how businesses spend their money. And of course, as you know, we're tied closely to how our customers invest and spend on growth. Now specific to PPG, we see signs of several markets stabilizing in the middle of next year later than what we previously thought. You already heard me talk about refinish. So we do expect some carryover refinish volume challenges through the first half as that normalization doesn't -- in the industry doesn't really happen until the middle of '26. And in addition, I'll remind everybody that we had a very strong first half of refinish sales in the first half of '25 as our distributor order patterns were very favorable as they were stocking up on inventory. So we do have that double effect of industry normalization happening in the middle of the year, plus the comp issue related to 2025 patterns. So look, a pretty muted industrial environment is our outlook for 2026 right now, Chris, with first half in particular, being difficult. Now we're partly offsetting these headwinds with, you mentioned, our increasing momentum in several of our businesses regarding organic growth, continuing our self-help cost reductions, aggressive discretionary cost management. We do expect the raw material supply chain to continue to be very long, supportive of coatings companies as we move through 2026 because of the benign macro that I just described. And of course, we'll continue to have cash deployment. So I guess if I were to summarize, we've got several of our end markets that are in challenging market conditions. They're transitory, but they look worse and more extended than we thought as recently as a few months ago. And on the bright side, we continue to control everything we can control. And to your point earlier, we're winning. We have momentum. We're organically growing. We're taking share. We're getting cost out. But all in, 2006 (sic) [ 2026 ] looks softer in the first half than what we envisioned earlier this year. Operator: Our next question comes from Dave Begleiter from Deutsche Bank. David Begleiter: Tim, just on '25, can you talk to what drove the change in your full year guidance and resulted in implied Q4 guidance coming in below consensus expectations? Timothy Knavish: Sure. Dave, Frankly, it's all refinish. We did -- as I just described, I think it was in John's question, we were expecting industry normalization earlier. And then we had the double whammy of destocking as our distributors were also expecting industry normalization earlier. When that didn't happen, now they're focused on running their inventories down for year-end. So a little bit of a double whammy from refinish is really what caused us to lower our Q4 guide. Vincent Morales: Yes, Dave, this is Vincent. And if you look more externally and we look at the claims data, which we get each month from the insurance industry. Claims in the beginning of the year were down high single digits, in some cases, low double digits. Our latest claims data was down mid-single digits. So we do see that starting to improve, but still negative. Operator: Our next question comes from Michael Sison from Wells Fargo. Michael Sison: Nice quarter. Just curious, maybe I'll pick at one of the other red arrows, architectural EME. What do you think needs to happen for that business to sort of turn around maybe sometime next year? Maybe remind us the regions that is most important for you and how that business gets back to growth? Timothy Knavish: Yes. Mike, thanks for the question. I thought you're going to ask me about the Brown Steelers this year, but we'll defer that for another day. But look, ACMA, first of all, I'll answer the last part of your question first. Our biggest markets are France, the Netherlands, U.K. and Poland, okay? Now beyond those kind of big 4, we're #1 in a total of like 12 to 15 countries over there, okay? But those are the ones that would move the needle the most. So what's happening, we continue to see soft demand. I just got back from Europe, and it's consumer confidence driven. It's inflation, it's interest rates. It's the wars. There's just a lot of things. It's the energy situation in Europe. So there's a lot of things holding back consumer confidence from construction and remodel standpoint. We've got great brands. We've got great products. We're getting price. You heard my quote earlier, 9 straight years, 36 straight quarters of increased pricing. So we're doing everything we can to control the controllables. We're not waiting for things to recover over there. We are taking aggressive structural cost actions with the anticipation that flat, which we're getting close, we're very close to being flat year-over-year now. Flat demand will be a really good situation for our business because of all the cost out and all the price in. So we'll get really, really good leverage as that thing -- I'm not going to say recovers, as that thing stabilizes, and we are beginning to see those signs of stabilization. Flat will be great. and we're not waiting. Now we are seeing more recovery in the East right now. And again, on that side of the continent, we're #1 in Poland. We're #1 in Hungary. We're #1 in Romania. We're #1 in all of the Baltics. We're #1 across Scandinavia. So we're well positioned there as those start to recover. As soon as we see some stabilization in France, U.K., Netherlands, then you'll start to see that great leverage that we're expecting. Operator: [Operator Instructions] Our next question comes from John Roberts from Mizuho. John Roberts: Tim, I think BYD recently had its first down sales month in 2 years. How are you viewing the overall Chinese OEM vehicle outlook? And do you think anti-involution actions there are going to have any impact on the coatings industry? Timothy Knavish: John, yes, BYD did put up a quarter that for them was a bit disappointing. But the overall auto growth in China has been pretty strong all year, and we expect that to continue. And we're growing in China auto despite the challenges there. I do think -- I don't have insight into BYD's books, obviously, but I do think it is extremely competitive over there. And so perhaps that's driven a lot of their recent challenge, but they continue to be the biggest winner. We are working with and frankly, selling to a lot of the other Chinese domestics. And it's win with the winners, as Alisha, who runs that business for us always says, picking the winners and making sure we're spread out nicely across a number of winners in the marketplace. So we don't expect the double-digit kind of growth rates of China auto that we saw in the past. But we do expect low to mid-single-digit growth there pretty consistently for the industry and for us. Vincent Morales: Yes, John, this is Vince. I'll just add on -- just -- Tim mentioned this in the opening comments that we outgrew the industry in China, but we outgrew the industry in every other region as well. Regarding anti-involution, we don't see that as an issue. Certainly in the short term or midterm, we think the chemical industry there remains long, and we think they'll continue to provide significant output to our industry even as other industries slow down. Operator: Our next question comes from Kevin McCarthy from VRP. Kevin McCarthy: Tim, if I look at your Performance Coatings results, your sales actually grew year-over-year, notwithstanding the refinish pressure that you articulated. And yet the operating income declined on a year-over-year basis, notwithstanding looks like a 4% contribution from price. So can you talk through that? Is that all to do with mix issues related to refinish? Or are there other items that you might call out that would explain that dynamic? Timothy Knavish: Kevin, thanks hope you're well. It's definitely part of it is mix. refinish is an above segment let's say, a nicely above segment average business. So when we take a pause in refinish earnings growth and go to earnings reduction, that drives some deleveraging from an EBITDA standpoint for the segment. But we are spending well above normal from both OpEx and CapEx in 2 businesses in that segment, aerospace and protective and marine because those 2 businesses have been consistently growing at double digit, and we see a long runway for consistent growth capture. And so while that may hurt us in the short term, Kevin, I'm confident that it helps the company and our shareholders for the long term as we invest more to capture that growth. Operator: Our next question comes from Duffy Fischer from Goldman Sachs. Patrick Fischer: Can I just follow up on that? So when you look at aerospace and protective and marine, you're trying to grow that business. What are their margins like today? Obviously, they're lower than the segment because refinish is so high. But relative to, let's say, the company average, aerospace and protective and marine, where do their margins sit? What do their incremental margins look like, let's say, over the next 2 to 3 years? And how much longer do you need to have kind of this plus up spending before you get to kind of a cruising altitude? Timothy Knavish: Duffy, so let me try to -- as you know, we don't give specific business margins, but let me frame it for you. So first of all, Performance Coatings segment, clearly our highest margin segment. That's public. We share that with you every quarter. Within that segment, I've already said refinish is nicely above segment average. And I've already said aerospace is nicely above segment average. And so that leaves 2 other businesses, which must be below segment average with one of them being PMC, okay? So that answers part of your question. I'll answer some more, and then I'm sure Vince captured a few things. And how much longer do we need to spend more there? I think, honestly, aerospace, it's a couple of years more, because there's just such tremendous profitable growth to be captured there. Where I'd say PMC probably a little shorter. We're -- the investments are more incremental in PMC. The larger investments are in aerospace. Vincent Morales: Yes, Duffy, Vince. I want to just accentuate one of the things Tim said that this growth for our shareholders is important. Both of these businesses are mid- to long-cycle businesses. So we do feel these investments, which are on the front end of this growth curve will provide us benefits certainly in '26 and '27. Some of the investments in aerospace, as Tim articulated earlier, are capital. Some of them are OpEx. The OpEx, we're going to continue to spend into '26. The capital will be longer, as Tim just mentioned. But we're trying to make sure we are well positioned on the front end of this growth curve that will benefit us for multiple years given the nature of these industries. Timothy Knavish: And every one of these investments, I can assure you, has IRRs significantly above our risk-adjusted WACC. So good investments for our long-term future and shareholders. Operator: [Operator Instructions] Our next question comes from Ghansham Panjabi from Baird. Ghansham Panjabi: Tim, can you just give us a bit more color on the operating environment in Mexico? I know for you, it's been sort of bifurcated between the retail component versus project activity. I'm just curious as to how you think about how that will evolve as we cycle into 2026. Timothy Knavish: Yes. Ghansham, good to hear from you. So yes, Mexico, really important country, as you know. We're very pleased that we are seeing recovery there. Going by memory here a bit, but that's been a consistent growth engine for us since we -- for 10 years, 11 years. And we took, I think, a dip. We were negative in Q2 -- or Q1, I mean, because even though Liberation Day wasn't until the beginning of Q2, the Mexico Canada tariffs were actually announced in February. And literally overnight, we saw a dramatic reduction in spending by consumers and project. So we were negative in Q1 in organic growth, which almost never happens for us in Mexico. We returned to positivity in Q2, low single digits. Q3 medium and mid-single digits, and we feel good about Q4 as we see continued sequential recovery. So retail, in particular, has already come back and come back strong. And now on top of that, we're beginning to see some sequential improvement in the project spending because remember, a lot of these projects were already in flight, and so they've got to be completed. And if you believe that a deal will be reached with Mexico, then that's a huge accelerator to that project spending. So we do feel good that we're seeing recovery. And based on all of our networking in Mexico, we feel good that, that will return to what we all expect -- have come to expect from PPG Comex. Operator: Our next question comes from Jeff Zekauskas from JPMorgan. Jeffrey Zekauskas: When I look at your aerospace capital expenditures going up more than $500 million, is the conclusion that should be drawn is that your annual capital expenditures are going to stay around $700 million or $650 million over the next couple of years. And I know you don't forecast yet, but just order of magnitude. And for Vince, it's a little hard to read some of the working capital changes that you've had, but it looks like cash flows from operations are around $1.6 billion this year. Should they step up to closer to $2 billion in the out years because there isn't the same working capital drag? Or should it just move with the change in your EBITDA? Timothy Knavish: Yes, Jeff, good to hear from you. So aerospace CapEx, it will, let's say, peak this year, '26 and '27. But overall CapEx, our mission is to get back to 3% of sales. I think this year will be the peak of our CapEx spending in 2025. We'll go down a bit in 2026, a bit further in 2027 on a glide path to get back to that 3%. So this is really a temporary spike. And one of the -- honestly, Jeff, it's one of the reasons I called it out is because previous to that, you were just seeing our total CapEx number and everybody is like, why are you spending more? We're spending more because one of our most profitable business has a tremendous multiyear, possibly decade growth trajectory that I believe it's in our company's best interest to invest and capture that growth. So I called that out, so you see it, but it doesn't change our long-term objective of about 3% of sales. And we do believe this is the peak and we will start to trend down towards that. On working capital, I know that's Vince's favorite subject, so I'll let him cover it. But one piece of it is we did -- with all the tariff uncertainty at first, we did pre-buy a bunch of raw materials to capture it at a good price. That bought us time to work through other tariff mitigation actions so that we can control our inflation to that LSD number as we move through the year. We fully expect that, that inventory piece of it will normalize by year-end. And Vince, you can answer that. Vincent Morales: Yes, Jeff, good to hear from you. Again, just to echo what Tim said, we've had a step-up year-over-year this year in working capital as we look at that as a percent of sales or DIO or whatever metric you want to use. That's a transitory step-up. We would expect in the out years to get more leverage as most companies would on inventory. Inventory would be fairly stationary if our volumes grow. We don't need to have excess inventory storage at our plants as our volumes as we return to growth here. So I would expect our operating cash flow to grow at a faster clip than EBITDA in future years. Operator: Our next question comes from Aziza Gazieva from Fermium Research. Aziza Gazieva: You recently highlighted that epoxy resins had been inflating slightly. I was wondering if you could provide any outlook on that and maybe some of the puts and takes for the expectations for low single-digit inflation on raws? Timothy Knavish: Yes. Aziza, I was going to ask Frank about how he's feeling about the fields for Rodgers swap that led to the Jets success. But maybe you can pass that question on for me. So epoxies were actually impacted prior to Trump, right? Last year, there were some antidumping and some tariffs put on under the Biden administration. And so we already had that built into our contributors to the low single-digit inflation. In fact, that's a differentiator between us and maybe companies that are more weighted towards architectural coatings because architectural coatings don't use epoxy, but things like automotive, packaging, PMC, industrial do use epoxy. So it's actually one of the key contributors. It's not a huge impact for us. And it's -- again, it's all built into our low single-digit guide for the year. And even as we look to next year, the supply-demand calculus is still very much in favor of us. And our purchasing team is finding that our upstream suppliers in many spaces, including epoxy, are looking to do volume deals more than price increases. Vincent Morales: Yes, Aziza, I'll just add on here, working with our procurement team. One of the angles that we're working is if you recall during the supply chain crisis, most companies, including PPG, we expanded our supplier base to make sure we had assure supply of many raw materials. Now that the supply chain crisis has passed, we are now in the process of contracting our supply base back to our prior weightings. So we're able to share more volume with fewer suppliers, which we also think will contribute next year to the raw material environment we're seeing today. Operator: Our next question comes from James Hooper from Bernstein Societe Generale. James Hooper: My question is about kind of a bigger picture question. It seems that a lot of the coatings players and your peers are all seeming calling out share gains, and this seems to be an increasingly competitive volume environment. So for example, if we take refinish, your competitor reported yesterday said they gained share and grew mid-single digit. Are you seeing a more competitive volume environment? Or are you expecting more pressure across your businesses going forward in 2026? Timothy Knavish: Yes. James, I don't see any, what I would call, fundamental changes in the competitive structure within our businesses with one caveat, and that's China. China has more competitors. That's not a change. And so it's a more competitive environment. But specific to your point about refinish, I've said many times, there are 2 companies that kind of lead the pack with productivity solutions, and we fight each other every day. And we win and sometimes lose to each other every day. But the bigger picture is that the companies that don't have as much of those productivity solutions are the net losers over time. That becomes even more accentuated when the industry times are tough because, again, the body shops really need those industry players that have the productivity solutions. So am I surprised that one particular competitor gained share -- announced gain share? Absolutely not. We are absolutely gaining share as well and quite confident. And we just introduced a couple of new -- we've been supplying digital as well as chemistry productivity solutions to our portfolio over finish to win even more share. We just announced a couple of new ones this quarter. So as we continue to boost that value proposition, I'm confident that we'll continue to gain share. And as I mentioned in my remarks, I think it maybe was to John's question, the first one, we're actively getting interest from some potential customers now that are fairly sizable and that we weren't previously because of the challenges in the industry and the value of our productivity solutions. So fundamentally, are we seeing some fundamental change in the competitive dynamic out there? Not really, but we are seeing increased pull for our value proposition. Vincent Morales: James, this is Vince. Let me just add a comment there. I think we always measure the litmus test of the value proposition is you're gaining share, i.e., higher volume, plus you have positive price. That shows you have a true value proposition. And I think when you look at our results, you'll see that across many of our businesses. Timothy Knavish: Plus we get paid for those digital solutions in addition to the coatings that we sell. Operator: Our next question comes from Patrick Cunningham from Citigroup. Patrick Cunningham: Maybe a related question on share gains. So you've previously quantified some of the industrial share gains at $100 million. I guess, first, is that still tracking to plan? And how would you characterize your ability to price and the margin profile of some of this new auto OEM business or some of this new packaging business? Or is that not relevant? Vincent Morales: Yes, Patrick, let me start here. I think what we've been talking about, and I know we've talked over the last couple of years is volume plus volume leverage. And you can see that clearly in our Industrial segment results where we've had some volume growth, but significant leverage on the bottom line. And so our biggest earnings lever off that volume is that leverage we're getting on our fixed cost base. Timothy Knavish: Yes. And to your question on the $100 million, I think we quoted that $100 million a year ago. And all of that $100 million is starting to flow through now because most of those were launched or are being launched here in the second half of the year. None of that went away. But in addition to that, Patrick, we've been winning business throughout the year. And on these longer launch businesses, that's typically the case in the Industrial segment in packaging and automotive and industrial, you'll see more and more of those wins above and beyond the $100 million start to flow through. Again, it won't -- unfortunately, in particularly in the first half of 2026, it won't be enough to offset some of those macro things I talked about earlier. It won't be enough to offset that refinish comp issue on distributor buying patterns. but those are transitory items. So as the transitory pressure starts to come off, then we'll be better positioned as we go forward for the midterm. Operator: Our next question comes from Vincent Andrews from Morgan Stanley. Vincent Andrews: Tim, wondering if you could speak a little bit about the M&A environment, both large and small. One of your competitors has made a big exit to private equity, another on their conference call was talking of sort of potential for further consolidation in the industry overall, but not clear what it was going to be. So just curious how you're thinking about things. You referenced your balance sheet and the flexibility earlier in the call. You've been acquisitive and good at it in the past. So what are you thinking going to '26, both large and small? Timothy Knavish: Yes. Thanks, Vincent. I've said many times since I took over and been pretty consistent that the tip of the spear for PPG is to build an organic growth and margin machine. And we've been doing that, working hard on it. We're starting to see the fruits of our labor. We're winning. We have momentum that organic growth and margin machine is working. Now consistent with that from day 1, I've also said we're not going to exclude M&A. It's part of the algorithm for growth for us long term, but it's not the tip of the spear like maybe it was a decade or so ago. But we will look at anything that comes across our desk. I've talked earlier about a couple that we did take a close look at with the Brazil architectural, with the recent auto refinish and pretreatment opportunity. I think it's in our best interest, our shareholders' best interest to look at every opportunity that comes along. There are some bolt-ons out there that we look at and are looking at. I've also said it has to be the right asset at the right price and at the right time relative to that organic growth and margin machine. And that hasn't changed and doesn't change now. And we'll continue to execute on building that organic growth and margin machine. We will look at M&A opportunities that come along, and we'll decide is that the best use of cash for our shareholders. If not, we'll move on and keep using that cash like we've been for the last 8 quarters and executing on our organic growth and margin machine. Operator: Our next question comes from Aleksey Yefremov from Key Group. Ryan Weis: This is Ryan on for Aleksey. I know there's been a lot of questions on refinish this morning, so I figured I'd tack a couple more on. Can you maybe just help us understand the differences in what's going on in the U.S. market versus maybe what's going on in Europe right now? And then just on share gains, I understand you and peers are talking about them in the refinish market. Can you maybe help us understand maybe which regions or segments of the market where you guys feel like you're kind of gaining share? Vincent Morales: Ryan, this is Vince. Let me start and then Tim will add some color here. Specific to your first question on U.S. versus non-U.S. markets, I think it dovetails exactly what we're talking about, which is insurance premiums in the U.S. are up significantly. We're not seeing that dynamic outside the U.S., and we're seeing claims rates outside the U.S. more closely parallel accident rates. So if we look at Europe, claims are down maybe mid-single digits, not double digits that we saw year-to-date in the U.S., same in other parts of the world. So again, that, I think, provides additional color around the insurance premiums being a causation factor in the U.S. Timothy Knavish: Yes. And on the share gains, we're gaining share. Most of the wins that we've been seeing have been across both the U.S. and Europe. And in the U.S. the competitor that -- the #1 and #2 are net-net winning. Sometimes a 3 or a 4 or a 5 will talk about share gain that's driven by maybe one shift of a customer, but not the broad multi-hundreds per quarter net shop wins that us, and I suspect that, that other #1 or #2 delivers. So it really comes down to -- we're beyond just as an industry, providing solutions of chemistry inside the can of paint. And we are proud of the solutions that we now provide outside of the can of paint that drive productivity. And net-net, that is driving share gain across the United States and Europe for the most part. Of course, in the other smaller regions, there's also share shift, but that's what's moving the needle. Vincent Morales: Yes. And again, I know there's a lot of discussion about the refinish pie, if you will. And as Tim mentioned earlier, that typically would shrink a low percentage every year. What we've done, which is unique to PPG is we're re-expanding that revenue pie for us because we do have PPG-specific revenue streams with the pulls Tim mentioned earlier. These are subscription -- typically subscription-based, somewhat volume agnostic and they're providing productivity. So the customers are willing to pay incrementally for them. So again, for PPG, in particular, we're able to re-expand that pie from a revenue perspective. Timothy Knavish: Yes. So again, refinish is getting a lot of airtime today, and that's, by the way, no surprise. So if you think about what I've talked about and Vince talked about and now being forward to when we get through this transitory slump and get to normalization, you'll have a PPG that has more body shops using our products. You have a PPG that has more body shops using our digital products, and you'll have a PPG that has more shops using our allied products, which are nondigital, non-paint complementary products that are used and consumed by the body shops. So we're really working hard and making great strides in positioning PPG for real strength in the refinish market as it normalizes in the middle of next year. Operator: Our next question comes from Mike Harrison from Seaport Research Partners. Michael Harrison: You mentioned, Tim, the new clear coat product that was developed by AI or with the help of AI. I was hoping that you could give us a little bit more detail on the role that AI is playing on the innovation front. Timothy Knavish: Yes. Mike, I hope you're doing well. Yes, we're really excited about this. We've been -- just -- and again, I'm not an AI expert, right? But fortunately, I have many of them working for us that do the hard work. Essentially, think of it this way. We've got 100-plus years of PPG proprietary formulation expertise around our laboratories around the world. And what we've done is we've developed tools, working with some partners that really go out and scrape that history of formulation to optimize much quicker than humans can optimize the best performing product at the most competitive price point and with the best speed of launch to market. And this is just the first product to do that, and it's not only refinish. We're expanding that across our other businesses. And by the end of this year, we expect about 50 products to be commercialized that have used what we call formulation AI. Some of those products are new, but some of them are just optimization of existing formulas using this technique across our 100-plus years of PPG confidential proprietary data. And boy, I'd love to talk to you about all the other ways that we're using AI to drive both internal productivity, but also customer-facing speed and optimization, but that will be a discussion for another day. But we called this out because it's really a milestone moment for us with the launch of this first of many products. Vincent Morales: And Mike, just a clarification when Tim says at the best price point, -- what that means for us is the best composition of raw materials at the lowest price for us, agnostic of vendor specific vendors. So we're able to put together the best raw material stack pricing and get the best outcome for our customers in terms of color performance, et cetera. Operator: Our next question comes from Arun Viswanathan from RBC. Arun Viswanathan: I guess I just wanted to ask about the portfolio overall. It seems like we still get impacted by -- you're still being impacted by several headwinds across many of your industrial-oriented businesses. Are there further actions you can take there maybe to redeploy some of that capital into aerospace and other areas that are growing and maybe deprioritize some of the more cyclical businesses? I know you've already taken some actions there with the silicas and architectural divestitures. And along those lines, are there any businesses where you're potentially a #3 or #4 competitor? Or has that also been addressed? Vincent Morales: Arun, just -- I'll let Tim add all the color here. But I do -- you did mention our 2 divestitures this year, which is architectural Russia and silicas. And we did have about a $0.05 decrement year-over-year due to that, those divestitures in terms of segment earnings. So on a like-for-like basis, our numbers are actually up with our current business portfolio more than the straight headline number. Timothy Knavish: Yes. Look, Arun, we have been -- I'd say -- look, I've been here 38 years. I think you know that. I'd say we've been more active in portfolio management in the last couple of years than we were the big pivot from glass coatings, chemicals to coatings. So 1.5 decades or 2 decades. We're very active on the portfolio management. Architectural U.S., silicas, Russia, Traffic Solutions, exiting Africa countries that were holding us back and a number of other pruning around the corner. One thing, if you look at the EBITDA, the segment EBITDA of our company before we did this portfolio pruning, we were typically -- if you look at '18, '19, '22, I ignore the 2 the main COVID years, but '18, '19, '22, we're consistently like a 15% EBITDA company. We're consistently like a 20% EBITDA company now. So we're very pleased with the work that we've done to date from a kind of cleanup and optimization standpoint. We will continue to prune. I would tell you there's nothing that we're working on right now to exit that would move the needle. It's more pruning around the edges. But I hope that with what we've done over the last couple of years, I hope that, that's given us some credibility that we are constantly looking at our portfolio. It's one of my main jobs as the CEO, and I will continue to do that going forward. Operator: [Operator Instructions] Our next question comes from Josh Spector from UBS. Joshua Spector: Just a quick one relating to capital allocation again. is just if I look at buybacks, you're buying back less in the second half this year than you were last year. Your stock is lower. You guys have obviously, some view of a delayed improvement in the second half, but all the comments around organic investments seem as positive as they've been. So the quick question here is, why aren't you buying back more stock now? What's holding you back? Timothy Knavish: Yes. Josh, we didn't squeeze you in. We love to have you in. So please keep the good questions coming. Good to hear from you. I hope if nothing else that you guys will recognize that I've been consistent since I took over. And I said I will not let cash grow on the balance sheet. And 11 straight quarters, I've been saying that. 3 of those quarters, we had to pay down some high-cost debt after Tikkurila and the other 8, we have been buying back shares 8 quarters in a row. So for the 12th quarter, I'll continue to say I will not let cash grow on the balance sheet. I will deploy it in a way that maximizes shareholder value. Unlike some others, we do pay a nice dividend. We will -- we have this extra investment for a transitory period to capture future growth. We will continue to look at M&A on an opportunistic basis. And if we see a great deal that maximizes shareholder value, we'll jump on it. And -- but for all of those, you should expect the behavior that we've done in the last 8 quarters. Now remember, some of what we did fourth quarter last year, first quarter of this year, we got proceeds from the sales of some businesses. So we deployed those and bought more shares back. And look, to your point on stock price, yes, it's absolutely undervalued right now. And so that's a pretty good use of the cash that we have. And so you should expect me to continue to behave and operate in that way. Vincent Morales: Yes. And just a point of clarification. We do have a little bit of a grossed up cash balance now, but we have a grossed up short term. We have some debt coming due in the fourth quarter that we're going to pay off here in a couple of weeks. So that cash balance at the end of the quarter reflects that debt payment coming due here. Operator: Our next question comes from Laurence Alexander from Jefferies. Laurence Alexander: Just very quickly on aerospace. If memory serves your content per plane over time should grow about 1% or 2% faster than inflation. Is that roughly right? And as you think about adjacencies or innovation platforms, is there -- what can you do to accelerate that? Timothy Knavish: Matt, thank you for that question, Laurence. That's my favorite one. By the way, we are growing much more than 1% or 2% per year in content. We capture price because of the great value that we add, and we also grow our physical content significantly in this business. And how do we do that? Well, the biggest piece of this business is our sealant business, right? And that we have a very strong technology differentiation, and we're constantly growing content per build across the sealant space. And it's tremendous value-add content because we don't just supply the bulk sealant. We supply it in specialty packaging or actually in frozen end cap format to really help our customers not only with the performance of the sealant itself, but with productivity and applying it. And we continue to innovate new ways of applying that value-add sealant, including 3D printing. We 3D print some sealants for military aircraft. So it's the chemistry plus those outside of the camp productivity tools that grow our content. Our second biggest piece of that business is our transparency business, where we're providing canopies and windshields for just about every aircraft type in the world, military, general aviation and commercial. With each new design of an aircraft, the content per canopy gets higher. right? There's all kinds of additional coatings and some military attributes that I can't talk about that grow content as new and improved aircraft come out. Then we also have the traditional coatings, right? And that, I think, is a space that we're all pretty familiar with. And then we also do a bunch of other value-add services as the fourth key component to our aerospace portfolio. And that's why, honestly, you'll hear me and you may have heard in my opening remarks, I don't call it aerospace coatings, I call it aerospace because we do so much more than just the coatings. And I think going forward, we'll try to provide more and more visibility into that outstanding business as it has become a large part of our company portfolio, and we'll continue to grow at a higher rate than the rest of our portfolio, so we become more and more of an aerospace solutions provider. Operator: We currently have no further questions. So I'd just like to hand back to Alex Lopez for any further remarks. Alejandro Lopez: Thank you, Carly. We appreciate your interest and confidence in PPG. This concludes our third quarter earnings call. Operator: As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.
Operator: Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to Avantor's Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] I will now turn the call over to Allison Hosak, Senior Vice President of Global Communications. Ms. Hosak, you may begin the conference. Allison Hosak: Good morning, and thank you for joining us. Our speakers today are Emmanuel Ligner, President and Chief Executive Officer; and Brent Jones, Executive Vice President and Chief Financial Officer. The press release and a presentation accompanying this call are available on our Investor Relations website at ir.avantorsciences.com. A replay of this webcast will also be made available on our website after the call. Following our prepared remarks, we will open the line for questions. During this call, we will be making forward-looking statements within the meaning of the U.S. federal securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made. We do not assume any obligation to update these forward-looking statements as a result of new information, future events or other developments. This call will include a discussion of non-GAAP measures. A reconciliation of the non-GAAP measures can be found in the press release and in the supplemental disclosure package on our Investor Relations website. With that, I will now turn the call over to Emmanuel. Emmanuel Ligner: Thank you, Ali, and good morning, everyone. I appreciate you joining us today. As you know, I joined Avantor a little more than 2 months ago. I came on board because I believe this company has a tremendous potential. I have spent my entire career in pharma and life science industries, spending meaningful time on 3 different continents. I was fortunate to spend 2 decades at GE Life Sciences and Danaher, where I build out the Cytiva business significantly accelerated the growth trajectory of the platform and led its integration with Pall Life Sciences. During that time, I had a front-row seat to Avantor trajectories as a customer and supplier. I believe this experience enabled me to step into this role 10 weeks ago with a unique perspective on the company's strength and area for improvement. Throughout my career, the primary lessons I've learned is that there is no substitute for going to Gemba. This concept literally means visiting the place where work is done and value is created to learn and determine how to best improve our organization. And for the past 2 months, this is exactly what I have been doing. I have dedicated my time towards visiting our sites, meeting our people, speaking with dozen of our customers and suppliers across Asia, Europe and North America. This not only sharpened my initial instincts but also provided invaluable insights as we map out our strategy moving forward. I want to personally thank all the stakeholders for the warm welcome, open dialogue and trust that demonstrated for my first day in the role. Here are some of the important learnings. First, this is a great industry with strong secular tailwinds. Scientific collaboration is more important than ever. If you talk to any pharma or biotech company right now, you will hear about the multitude of ways in which they are harnessing the power of technology and AI to accelerate the next breakthrough discovery. That gives us a tremendous amount of confidence in the long-term trajectory of the end markets we serve and reinforces the importance of our positioning within the industry. Our recent announcement with BlueWhale Bio is a perfect demonstration of how Avantor is advancing innovation through collaboration, and we are committed to continue to do our part to facilitate the research, development, manufacturing and delivery of next-generation therapies. Second, Avantor has a solid portfolio, a committed global team and an incredible customer reach, serving more than 300,000 customers locations across approximately 180 countries. As someone that has spent considerable time in recent years working to scale life science businesses, those attributes will be the envy of most companies. We have significant untapped potential and numerous opportunity in front of us, and we need to capitalize on those opportunities. Third and most importantly, there are many things we can and should do better, and we are taking immediate action to turn the business around and hold ourselves accountable for rewarding the trust our investors place in Avantor. Starting from a commercial perspective, I believe our business is overly complex with unnecessary centralization, which inhibits frontline staff from most effectively meeting our customers and supplier needs and expectations. Customers buy from Avantor because of the quality and service heritage of our incredible brands, VWR, J.T.Baker, Masterflex, NuSil. Those are some of the best-known names in the industry, and our commercial team are not being sufficiently empowered to leverage the equity of those brands. On the operation and supply chain side, I believe we need to make some investment and process enhancement to improve our ability to consistently serve our customers. Overall, I believe those challenges are generally self-inflicted. And the good news is that they are fixable with determination, focus and time. At the conclusion of this call, I will share my preliminary thoughts on our plan for doing just that, which we are calling Avantor revival. With those initial finding in mind, we strongly believe that our current share price does not reflect the long-term value of our platform. To demonstrate our long-term conviction in the prospect of this business, our Board of Directors has authorized a $500 million share repurchase program with immediate effect, which we will pursue opportunistically moving forward, while also delivering on our commitment to decrease net leverage. Now I would like to turn over to Brent for a more detailed overview of our third quarter financial results and our updated full year guidance. Brent? R. Jones: Thank you, Emmanuel, and good morning, everyone. I'm starting with Slide 4. For the quarter, reported revenue was $1.62 billion, which was down 5% year-over-year on an organic basis. This reflects weaker-than-expected top line performance, primarily in lab. Adjusted EBITDA margin was 16.5% and adjusted EPS for the quarter was $0.22. Free cash flow was $172 million with adjusted conversion at 124%. Turning to Slide 5. Adjusted gross profit for the quarter was $527 million, representing a 32.4% adjusted gross margin. This is a decline of 100 basis points year-over-year, driven mainly by price actions in lab to protect and grow market share. We had another quarter of solid cost control with adjusted SG&A expense better than planned and prior year. Our results also benefit from reductions in incentive compensation accruals. We remain on track with our cost transformation program and continue to expect $400 million in run rate savings by the end of 2027. Adjusted EBITDA was $268 million in the quarter, representing a 16.5% margin, better than our expectations. Adjusted operating income was $237 million at a 14.6% margin. Interest and tax expense were in line with our expectations. As a result, adjusted earnings per share were $0.22 for the quarter, a $0.04 year-over-year decline. Our adjusted EPS performance in the quarter reflects the flow-through of our adjusted EBITDA results. Our cash generation was particularly strong with $172 million in free cash flow in the quarter. When adjusted for transformation-related payments, our free cash flow conversion was 124% of adjusted net income for the quarter. In terms of our GAAP results, we took a $785 million impairment to the goodwill associated with our lab distribution business. This noncash charge was necessitated in large part by the continued weakness in our share price as well as the margin headwinds this business is facing. Our adjusted net leverage ended the quarter at 3.1x adjusted EBITDA, down 0.1x from Q2 as our strong cash generation enabled us to reduce net debt. Finally, we recently affected a very attractive refinancing of our near-term maturities and upsized our revolving credit facility to $1.4 billion and extended its maturity to 2030. Other than modest required term loan amortization, we now do not have any debt maturities before 2028 and all of our debt is either prepayable at par or at very modest call premium. Our debt is approximately 75% fixed rate and our current weighted average cost of debt is just over 4%. Let's now take a closer look at each of our segments on Slide 6. In Laboratory Solutions, revenue was $1.1 billion. On an organic basis, we declined 5% versus prior year, below our expectations of negative 2% to negative 4%. The market backdrop in lab is largely stable, and Corey Walker and his team have done a great job defending and expanding business at our largest accounts. The share losses we mentioned on our Q1 call have been phasing in over the past several quarters. The good news is that since Corey joined us in late March, we haven't lost any key customer accounts. And in fact, we have won about $100 million in business at 2 top 15 global pharma customers, which will start phasing in, in 2026. With that said, customer activity continues to be at lower levels than our original expectations for the year, driven by ongoing end market uncertainty related to basic research funding. Each of our lab businesses faced similar mid-single-digit headwinds on a year-over-year basis. Our distribution channel, which accounts for approximately 2/3 of segment revenue was primarily impacted by weakness in consumables and equipment and instrumentation, while our chemicals and reagents were essentially flat. Our services business, approximately 20% of segment revenue saw greater-than-expected headwinds due to the aforementioned share loss. And our proprietary business, the balance of labs revenue was significantly impacted by our science education business. However, our attractive proprietary lab chemicals grew mid-single digits in the quarter and similarly year-to-date. The primary drivers of our miss to expectations were headwinds in services and higher education and K-12. While market softness is a key factor in the quarter's performance, we also continue to navigate competitive pressures. These need to be better mitigated by improved commercial and operational execution, which, as Emmanuel noted at the outset, is one of our key priorities as part of Avantor revival. Adjusted operating income for Lab Solutions was $124 million for the quarter with an 11.3% margin. The softer demand environment has pressured our ability to get price, which has meaningfully impacted margins year-over-year. On a sequential basis, the primary driver of the margin decline was lower volumes and related absorption. Turning to Bioscience Production. Revenue was $527 million in Q3, down 4% organically on a year-over-year basis and at the low end of expectations. Bioprocessing was down low single digits year-over-year versus our expectation of flat. Within bioprocessing, process chemicals was up low single digits but was lower than expectations. The planned maintenance downtime that impacted Q2 was remedied during the quarter. But as Emmanuel mentioned, we continue to face other operational headwinds that are impacting our throughput, including raw material availability and equipment uptime. As an example, downtime at several of our plants prevented us from shipping several orders that were due for delivery in Q3. Absent these issues, we would have delivered our bioprocessing guide for the quarter. Single-use largely performed as expected and CEC was somewhat weaker than expected, down mid-single digits due to commercial execution and competitive dynamics. Year-to-date and in Q3, our book-to-bill is 1.0 for bioprocessing with particularly strong performance in process chemicals, where order rates were up high single digits in Q3 and year-to-date, while billings are only up low single digits, indicating a solid trend. Our bioprocessing order backlog reduced modestly from Q2 to Q3, but still is too high. The team is working hard to reduce this as much as possible by the end of the year. For the balance of the segment, silicones performed as expected and Applied Solutions had a stronger-than-expected quarter, up low single digits on significant strength in electronic materials that we expect to continue in Q4. Adjusted operating income for Bioscience Production was $128 million for the quarter, representing a 24.2% margin. Margin was down year-over-year, largely due to lower volumes and related under-absorption as well as higher expense related to our operational challenges. On a sequential basis, volume was the primary headwind, only partially offset by price and lower operating expense. Slide 7 shows our full year 2025 guidance. This has been updated to reflect Q3 performance as well as our best assessment of the current environment. We now expect full year organic revenue growth of negative 3.5% to negative 2.5%. Based on current FX rates, we expect a modest tailwind from FX of approximately 1.5%. Along with the 2% headwind from the Clinical Services divestiture, this leads to reported revenue growth of negative 4% to negative 3%. On a segment basis, we expect Laboratory Solutions full year revenue growth to be minus mid-single digits to minus low single digits organically, down modestly from previous expectations of minus low single digits. This implies Q4 organic performance of down mid-single digits. This change is due to the impact of Q3 performance as well as expectations for continued softness in consumables and in our lab services business. We also expect additional headwinds due to the impact of the U.S. federal government shutdown. We expect Bioscience Production's full year revenue growth to be minus low single digits organically, down from previous expectations of approximately flat. This implies Q4 organic performance of down mid-single digits to down high single digits. This change is largely due to reductions in our outlook for bioprocessing as well as customer pushouts in our silicones business. Bioprocessing is expected to be down low single digits for the year organically, down from previous expectations of flat to plus low single digits. This implies Q4 organic performance of down high single digits to low double digits. Recognizing this is a meaningful change, I want to break down our expectations across bioprocessing in a bit more detail. We believe process chemicals in Q4 will be flat sequentially versus Q3 and down double digits year-over-year despite solid year-to-date order book performance. We previously expected a mid-single-digit contraction in Q4 for process chemicals. This change is largely due to higher-than-expected backlogs as a result of the ongoing challenges previously discussed. Q4 is also a particularly tough comparable as process chemicals grew meaningfully in the double digits in Q4 last year. We anticipate single-use to be up low single digits, both sequentially and year-over-year in the fourth quarter. We previously anticipated high single-digit growth in Q4 for single-use. Controlled environment consumables are expected to be flat sequentially and down low single digits year-over-year. We previously anticipated this business to grow modestly in Q4. This business is being impacted by the competitive pressures and the general demand weakness we are seeing in consumables. Moving to profitability. We expect our strong cost controls and favorable compensation accrual impact to continue into Q4. As such, we expect full year adjusted EBITDA margins in the mid-16s. We have reduced our adjusted EPS guidance range to between $0.88 and $0.92. We still expect free cash flow performance of $550 million to $600 million before any onetime cash expenses associated with our cost savings initiative. The reduction in earnings from our previous guidance should be offset with strong working capital performance, and we now expect about half of the prebate payments anticipated for the fourth quarter to push into fiscal year '26. I also want to address near-term capital allocation. Much of our debt complex is prepayable at par, and we will continue to reduce outstanding debt as we generate cash. At the same time, with our new share repurchase authorization, we intend to buy shares opportunistically without increasing leverage. We ended the quarter at 3.1x adjusted net leverage, and we'll continue to move towards our leverage target of sustainably below 3x. With that, I will turn the call back to Emmanuel. Emmanuel Ligner: Thank you, Brent. Clearly, we are disappointed with those results, and I am not here to make excuses of our underperformance. My focus is on addressing the root cause of those persisting challenges and implementing appropriate cost correction quickly. At the beginning of this call, I introduced the concept of Avantor Revival. Our Board and management team are fully aligned with this effort, which will initially focus on 5 key pillars. First, our go-to-market strategy. We need to evolve our approach to ensure customers and suppliers clearly understand our value proposition and complete product and servicing offering. As I mentioned in my opening remarks, we have an incredible roster of brands. Embracing VWR heritage as a leading distributor and a company heritage as a leading provider of fine chemicals and specialty materials, for example, is essential to drive growth. So we are carefully evaluating our brand architecture, and we are going to give more prominence to key product and channel brands moving forward. We also intend to refocus attention to our distribution business and our value proposition to supplier and customers. We also have work underway to analyze our and evolve our customer service and commercial organization. This work is really focused on empowering our sales representative to better serve our customers, however and wherever they want to be served. This includes enhancing our e-commerce platform. Second, we need to invest strategically in our manufacturing and supply chain organization. Brent noted the operational issue we are having. In bioprocessing chemicals, the demand is there, and we need to be better positioned to meet that demand at all times. The current state of our manufacturing and supply chain organization varies with some facility that are world-class, while others are in need of investment. Third, we will be carefully scrutinizing our portfolio to ensure a focus on our core business. We are going to hold each of our businesses accountable for delivering clear growth, profitability and return on investment targets. We are approaching this process with an open mind, but if any of those businesses are not capable of delivering those targets in a reasonable time frame, we are going to scrutinize whether we are the right owner for them. Fourth, we need to drive net cost savings and simplify processes across the organization. We are committed to being a business that generates strong operating leverage even as we invest in accelerating growth. And our ongoing EUR 400 million cost transformation program is an important step in that direction. However, we recognize that those savings today are not adequately falling through to the bottom line. Part of this is because we are still operating with far too much complexity today. We need to simplify our operating processes to remove barriers that prevent us from executing efficiently. Gaps in certain operating processes are contributed to inventory and forecasting challenges, preventing us from serving our customers at the on-time rates they expect. To address this, we are focused on improving leadership accountability across the businesses. We are establishing new operating norms and cadence that will ensure the leaders across our organization are aligned and focused on top business priorities. Finally, to help to do this, we must strengthen our talent and improve accountability in a few key areas. Very encouragingly, most of the associates I've met are deeply engaged and passionate about the work they do each day. They want the company to succeed. They are prepared to work hard and be part of the solution. They are looking for leadership and guidance on how to do that. To support those efforts and accelerate improvement, we will be bringing on new talent in a few key areas. A new Chief Operating Officer, a critical role that will report to me and help reinforce consistent manufacturing, supply chain excellence and lean operations across the organization. A new executive leadership position dedicated to the quality and regulatory function reporting directly to me, a strategic move, reflecting the critical role quality and regulatory play in safeguarding patient safety, ensuring regulatory compliance and driving operational integrity across our global business. We are also hiring a new Chief Digital Officer to help strengthen digital commerce capabilities with our Laboratory Solutions segment. Avantor revival will initially be targeted towards addressing each of those focus areas. Those important actions will help us drive meaningful changes and improvement across our organization over the next several quarters, but we are not stopping here. It is important to stress that those initial steps are based on my observation following about 2 months in the role. I'm committed to continue to meet with and learn from all our stakeholders. And as I do, rest reassured those plans will continue to evolve with a renewed focus on getting our performance back on track and creating value for our shareholders. Clearly, turning business performance around will take some time, but we are confident the actions we are taking will have an impact that will continue to grow over time. It's about driving simplification, process improvement and accountability across the organization. As I noted a moment ago, our Board and management team are 100% behind this effort. The recently announced addition of Greg Lucier to our Board and the elevation of Greg Summe as our next Board Chairman are demonstrative of our Board active oversight and engagement in this project. I know we must rebuild our credibility with the investment community and accountability will be my North Star. You can expect regular updates on our progress against those objectives. With that, I will now turn the call over to the operator to begin the Q&A session. Operator: [Operator Instructions] Our first question today comes from Vijay Kumar with Evercore ISI. Vijay Kumar: Emmanuel, welcome to your inaugural earnings call. Maybe high level, as you've reviewed the business, right, and you come with bioprocessing background, when you look at these declines, right, what is your confidence that these are fixable, solvable issues? And I'm curious on how the quarter played out, right, relative to your prior expectations was the quarter -- did progress in line? And did things worsen in September, October? I'm curious when did these issues crop up? Emmanuel Ligner: Thanks, Vijay. Thanks for the kind welcoming word. Look, first of all, I'm confident that it's fixable. Over the last 2 months, I really spent a lot of time on the field with the people, with our customers, dozen of customers and suppliers. And I think the first thing which I was really, really super pleased about is the conviction by the people that they have the passion about the brand. They have the passion about the product, they have the passion about the customers. What the team needs is really leadership. And I think on the quarter, look, it is a very disappointed numbers. There's absolutely no doubt about this. And there's no excuses about the fact that we just dropped the ball on a couple of areas. And again, I think I shared that around the S&OP it's really about a better communication. It's about visibility. It's about execution. It's about accountability. And that's why Brent and myself are putting new norms, new cadence to make sure that the team is really working together. I think, again, it is fixable. Those are just the 5 pillars that I just identified in my first 8 weeks. Then of course, we'll continue to learn. We'll continue to speak with the key shareholder, and we -- this plan will evolve without any doubt. Vijay Kumar: Understood. And then, Brent, maybe one for you on -- when you look at '26, some of your peers have given outlooks right in the low single-digit range. Is -- can the business grow in 2026? You mentioned $100 million of lab contribution. On paper, it looks like lab should grow in bioprocessing, it feels like some of these were unique customer situations that was largely tied to fiscal '25, and it should grow. But can the business grow at a high level in '26? Emmanuel Ligner: Vijay, Emmanuel again. Look, I'm taking a fresh look at all the numbers, right, because I want accuracy. And so let me look at those numbers again, and then we'll come back to you when we have a good understanding of 2026. Operator: Our next question comes from Michael Ryskin with Bank of America. Michael Ryskin: I appreciate all the candid color during the prepared remarks. You touched on share losses and competitive dynamics briefly in the prepared remarks, but just talking about 1Q, 2Q dynamics. Can you talk about that a little bit deeper? I mean, I think it's pretty evident based on the results over the last couple of years, especially in the Lab Solutions segment, but also in Bioscience, there's been pretty deep share losses to your competitors. I appreciate all your color on operational steps to fix that. But given the portfolio and given the markets you play in, how do you plan to stem that tide of share loss? And just -- could you just give us some confidence in visibility to correct that because that seems to be sort of the biggest structural challenge you're facing. Emmanuel Ligner: Yes, Michael. Look, it's my understanding, I think we've lost some share without any doubt in the lab services business. Here's why I'm super encouraged is we have Corey that took the lead of this business 6, 7 months ago. And what is -- what him and the team is doing is really having, I will say, a fighting spirit back. And what we have observed over the last 6 to 7 months is that we have not lost any new renewal of any large key account contracts. And I think this is really important for us. And on the contrary, we have the opportunity to grow our share of wallet in those accounts. Now we have some barrier that we need to fix and some challenges. I mean, e-commerce is one of them, and this is why we're taking really a quick action to recruit Digital Officer to help us to really get this e-commerce platform to engage with our customers in a much more leaner way to provide not only product but really workflow, which is so important for the customers. On bioprocessing, my view is the following. Really, our key product line in the bioprocessing is our bioprocessing chemicals. And when we look at our order intake year-to-date, our order intake is on a high single-digit level. So we're there. I met customers that clearly said to us, we want to work with you. We want to do better. We can give you more businesses. We need to fix a couple of things like our service level, in particular, our on-time delivery. And this is why it's so important to work on the S&OP to look on the different plants that need upgrade, and that's what we're doing, and we are doing as fast as possible on this. Michael Ryskin: Okay. And if I can have a follow-up. On the Avantor revival dynamic, I mean, I think that's certainly resonates. You called out a couple of times that you believe the business is overly complex, unnecessary centralization. We've heard that from a number of our channel checks as well. What are the steps to fixing that, right? I mean it's a huge organization. There's a lot of levels. It seems like there's going to be some deep changes there. But from an operational perspective, that seems to be the easiest 6. But could you talk us through the process to get there and how long that could take? Emmanuel Ligner: It's really early days for me. I remember. So look, we are going to start to really work on the go-to-market, really understand how we can decentralize more of the decision-making closer to the customers. And as you know, there's different regions with different dynamics. And so we really need to empower the local team to really drive the decision. I think the other thing is, look, we have 2 really important business. One is our lab services. It's VWR. It's a distribution business. We have a very strong brand there. And then the other one is about science business with brands like J.T.Baker. I think we need to make sure that those brands are more, I would say, front at the customer's level to make sure that we engage with the customers with the brand they want to work with. The observation that I have, Michael, is many customers told me, we love VWR. We want to continue to work with VWR. Some even say, well, we didn't know that VWR was part of Avantor. And that's why I'm talking about brand revival and really making sure that we are improving our engagement with the customers. Service level is very, very important, okay? And this is why we are looking at what do we need to do in the plant which are need of investment to make sure that we raise our service level on the bioprocessing. Again, as we said earlier, the demand is there. It's for us to really make sure we operate better. Operator: Our next question comes from Dan Brennan with TD Cowen. Daniel Brennan: Maybe just to start on the lab side of the business. Could you just describe -- I know you discussed pricing in the opening remarks. Just give us a sense in 3Q and kind of 4Q, how we think about that price volume mix, if you will? And then kind of any thoughts? I know you're not ready to talk about '26, but is the assumption that price gets better? Just any visibility on that? And then maybe the second part would just be more strategically, as you've looked at -- since you've been on board, you've looked at the lab market. Obviously, you've talked about share loss, but you studied that now recently. Any way to characterize in that context, like how much share you think VWR has lost over the last 2 or 3 years? Just to give us a framework for if you're able to kind of regain that sort of stabilize it, what the opportunity might be? R. Jones: Okay. So on the price volume dynamic, I mean, certainly, in connection with the comments and share on that, there is some down volume. We are getting price, not exactly the levels we'd like to see, but we're certainly seeing price coming through. And we expect a similar dynamic in Q4 on that. So -- and when you look at Q3 performance sequentially to Q4, the main dynamic in lab is a modest increase really related to number of days and seasonality in Europe there. So what you're really hearing from us is stability through Q4, and that dynamic will continue on the pricing side as well. Emmanuel Ligner: On the market share, look, I think we've lost a couple of large accounts, and we know them, and that's something which is tracking. And I think what is important to understand is when you lose a key account contract -- the time that it takes to lose this account as there is many, many different sites around the world, it takes time. And the same way when you renew a contract and then you have an opportunity to grow your share of wallet, it also takes time to ramp up. This is where the commercial effectiveness is very important because you go at every single lab, convert the customers. So either from a loss standpoint or from a gain standpoint, the dynamic drag on several quarters. And I think that's where we are. So this is sometimes where it's difficult to really evaluate the amount of market share that we've lost. But we know the contract that we've lost in the past. Daniel Brennan: And then maybe just on bioprocess, Emmanuel, since you've got such significant domain experience there. Just kind of how would you characterize the Avantor portfolio today? I mean, when you think about this market recovering, consumables, I think, have been growing double digits, equipment is still under pressure from a market basis. How do you think Avantor is positioned with their current portfolio as we look ahead into, say, the next 12 to 24 months? Can they get back to market growth above or below? Just what are the key variables there? Emmanuel Ligner: It's a great question. Look, I'm super excited about the portfolio we have, in particular, around the chemicals, acid base, we have adjuvants. So we have also viral inactivation products, which are proprietary. So we have really good portfolio, and I think we have a good commercial team. And again, as I said, our order intake year-to-date is high single digits. So basically, it gives me the confidence that the demand is there. It's for us to make sure that we serve the customers better and all the customers that I've met are super satisfied with that part of the portfolio. So I'm confident that the portfolio is good. And also the recent announcement we've made like BlueWhale is very encouraging about the fact that we will continue to collaborate with strategic innovation that will give us a differentiated portfolio in the future. So quite exciting about the bioprocessing portfolio. Operator: Our next question comes from Luke Sergott with Barclays. Luke Sergott: I appreciate all the updates and everything you're thinking about. But as you think about when you're looking at '26 and the overall market rate, just relation to how you guys are going to grow, what's your outlook for the market, I guess, given that the underlying demand that you've seen, especially across what your peers have said, too. Emmanuel Ligner: I think on the peers comment, we need to look at apples-to-apples. And again, I think what is important for me is to make sure that I remind everybody that our portfolio on bioprocessing is really primarily around chemicals, okay? So it's a unique differentiated portfolio, especially from the company that I'm coming from. And so I think it's very important that we think that it -- as of today, year-to-day, the direction is order intake, high single digits. What I need to do is I really need to take a fresh look at the 2026 numbers, the market, what we think we can do, what's going to be the impact of the 5 pillar of revival plan, how fast we can get some impact on this. Some will have an impact quickly. Some will take more time, and I'll come back to you as soon as I have a better view. Luke Sergott: Okay. I was just trying to figure out what your overall outlook for the -- for your particular market looks like. And then we can kind of make the assumption there on what you guys can do from a growth perspective -- that's fine. I guess just from a follow-up here, you talked about the bioprocessing plant, the downtime there. Is this -- what is this due to? Is this just like a planned regular maintenance downtime that you guys had? And do you need -- you talked a little bit about kind of building some redundancy. Is this what you're kind of referring to so that you don't like miss out on the quality and the reliability that, that market completely relies on is number one. Emmanuel Ligner: Look, I visited several of our chemicals plants. We have really world-class plant. super modern, very well run with a very, I would say, dedicated team. Some are just in need of upgrade, okay? And so some of the tools are a bit old, and so therefore, they break down. So they give us a bit an unreliability of on-time delivery. So service level for some plants are excellent. Some are not where we should be. And this is what I'm talking about strategic investment. There is some investments that are needed. We need to be very surgical about this. And that's just, I will say, on the plant themselves. The second thing is about the processes. It's about how do we give visibility to the plant of what's going to be the demand, having a good understanding that the plant are putting in place, the planning to make sure that the product will be delivered as the customers requested and then, of course, at the quality, which is requested. So it's really around the processes that today are not as simple as they should be, not as smooth as they should be and with a bit also of lack of accountability. So strategic investment on one side. And I think it's also about talent. One of my remarks was about the fact that the team is super passionate and want to do well and they want to fix the issue and they want to do better, they need direction. They need someone which is going to help them to focus and they need leadership. And this is also why we are far advanced into a recruit of a Chief Operating Officer, someone which have a global experience, a long-term experience of leading different type of plants, including chemistry plant, someone which is a black belt, someone that have a lean mindset, a productivity mindset. And we are in the final stage of that recruitment. That will really help as well the team to drive and improve plant performance. Operator: Our next question comes from Tycho Peterson with Jefferies. Tycho Peterson: I want to go back to the pricing question earlier because I think it's an important point. I think the message coming out of last quarter and admittedly, Emmanuel, was before you started was that Avantor was willing to trade price to hold share. That's not what we heard from Brent a minute ago. So I guess, are you committing to actually taking price in the lab market next year? And can you maybe quantify what you're expecting there? Because I think that was a very different message than we heard coming out of 2Q. R. Jones: Yes, Tycho, just to be clear, I mean, we -- I mean, there are raw materials and there are -- there's inflation in the channel. We are getting priced against that. The margin pressure you're seeing is the differential from the price to the COGS. I mean there -- so when we've talked about also giving price to drive share in that, it's relative to the inflation against the products we're selling. So it actually is the same message, but I take your point on the nuance. And look, it's -- in the lab, we've continued to say that we're about accreting operating income there. And we absolutely are doing the actions to drive volume, to drive share in that connection, the new contracts, which, as Emmanuel made the comments, we're seeing the impact of the contract losses on share there. It will take time, both on the defense and the new contract wins to see those come in there. But we absolutely are looking to accrete operating income and then obviously, over time, margin. Tycho Peterson: Okay. And then a capital deployment question. I mean, given everything going on and it's still early days, Emmanuel, why is this the right time to be buying back stock? That's a little bit confusing given that you're just kind of stepping in here. There's a lot of moving pieces. It's still a volatile backdrop. Maybe talk through the rationale of the buyback right now. Emmanuel Ligner: Well, look, Tycho, we believe our current share price really does not reflect the long-term value of the company, especially in the turnaround. So the program is just basically to make sure that we demonstrate our commitment to the long-term value of the company, okay? And with our confidence to the business, confidence about the fact that we can turn around the performance with revival plan. We -- look, in terms of capital allocation, M&A is always an opportunity. But when you bring M&A, you need to make sure that you're going to bring the company into a company which is operating really, really well, all right? Integration of an acquisition needs to be done with the team which have simple processes, which have really great talent in that are going to be able to execute the acquisitions and the integration super well. And so I think right now, it's just a conviction that the business is going to do better, that we are going to turn it around. And I think it was the right message and the right things to do. Tycho Peterson: Okay. And then last one on Bioscience. You quoted a number of kind of shipping timing issues. Are you assuming those come back in the fourth quarter? It was a little bit unclear what's actually baked in the guidance from a kind of timing and recapture perspective. Emmanuel Ligner: Yes. I think the team has already started to do some good job in Q3, but not enough, and we'll continue to do so. So yes, we're going to see some improvement in Q4. But as I said as well, some of the plants need some equipment investment, and those things sometimes take some time. So we're working as fast as possible. You have my commitment to really focus on executing the demand as much as possible and as fast as possible. Operator: Our next question comes from Patrick Donnelly with Citi. Patrick Donnelly: Brent, maybe a follow-up on the pricing side. You certainly understand some of the cadence there. Can you just talk about, I guess, the moving pieces on margins, just high level as we get into next year in terms of what pricing rolls through next year and has to annualize and pressures margins versus some of the offsets? What levers do you guys have to pull? Obviously, you've done some cost-out initiatives over the last couple of years. How much more room is there on that front versus some of the pricing pressures? Maybe just the high-level moving pieces on margins would be helpful. R. Jones: Well, we'll -- important question, Patrick. And per our other comments here, probably won't make a significant comment into '26. But when you think about our margin dynamics broadly here, gross margin down year-over-year, largely driven and following on the Tycho question, we are getting modest price against it, but we're absorbing more inflation. So that's been the primary driver of the lab pricing into the gross margin. Now on a sequential basis, you saw pressure in gross margin. That was more just mix of the relative businesses because we didn't have the same level of growth in Bioscience as well as -- look, primarily there on the business basis and continuing on that. Look, Emmanuel made the comments that we need to continue to drive at cost broadly and get that cost out rather than offset inflation and offset FX. And the -- but when you think about key drivers here, obviously, getting price and getting price against COGS are really important in the business. The differential segment mix is really, really important. And that hurt us in Q3. And then finally, productivity, which to project revive to -- Avantor revival, Chief Operating Officer, driving better productivity at plants. Those will be key parts of it. And when we come with the views on '26, that will certainly be wrapped in our commentary. Emmanuel Ligner: Can I just add something, Patrick? Yes, go ahead. I'm absolutely committed to really improve not only the top line but also the bottom line, right? We need to be an operation which is leveraged. And so this is what we're going to do. So part of the revival of course, we talked about simplification processes. It also means productivity gain. That is going to be very, very important. And I think that we will make sure that the entire leadership is really focused behind this. Luke Sergott: Understood. And maybe just a quick one on the academic government side. You touched a little bit on it in the prepared remarks. What are the expectations there? Obviously, you have the government shutdown. You guys have some exposure there. Maybe just talk about what you're seeing on that front and what the expectations are going forward for that market, a lot of noise there. I appreciate it. R. Jones: Yes, Patrick, you saw we were down in academic and government in Q1. We had a nice up mid-single digits in Q2 and then down double digits in Q3. And I think, frankly, we saw some of the pent-up concerns come through in Q3. Significant impact was K-12 before the school season started there as well as other softness that we saw through consumables in the form of higher ed there. We -- the U.S. government shutdown is certainly going to exacerbate that. That is really a key driver of the reduction of the lab guidance for Q4 and for the year down to the mid-single digits, that differential as well as the headwinds to consumables. But we're certainly forecasting that to continue to be somewhat challenged. Operator: Our next question comes from Doug Schenkel with Wolfe Research. Douglas Schenkel: A few questions. Emmanuel, it's only been 8 weeks. There's a lot going on here. Is it reasonable to expect you to outline your full assessment and strategic framework by early Q1? Or is that too aggressive? So that's my first question. My second is really for Brent. Emmanuel talked a lot about new hires and investments. Revenue growth is likely to remain challenging for the next several quarters. Margin comparisons are notably tough in the first half of next year. So when I just look at that fact pattern, my words not yours, given you don't want to talk too much about 2026, but it just seems hard to see a scenario where we would get meaningful EBITDA expansion in 2026, maybe no expansion at all given those 3 observations. Is there anything you think I'm missing? And then really, the last one is for both of you. Recognizing it's been a tough period for tools in terms of downward estimate revisions. I think the challenges, to be fair, have lingered a bit more for Avantor than for most of the group. Clearly, visibility and forecasting has been a challenge for you guys in the past few quarters. Do you think this is systems and requires more investment? Or is this more a function of just competitive dynamics maybe evolving in a way that you didn't anticipate? Emmanuel Ligner: Doug, thanks for your question. Look, I think in terms of timing, when I came, I spoke with the Board, I spoke with the team and I say I needed 100 days to really learn the business, meet everybody that I could, all the stakeholders, our people, the customers and a few main investors. And look, after 60 days, I already need to be in action because, first of all, there are some few things which are absolutely obvious, some challenges that we need to fix, and that's what I shared with you. And indeed, in Q1, I'll come back with you with further thoughts and with further strategic vision, absolutely. I'll let Brent answer the question, then we'll come back to the other part. R. Jones: Yes. Look, you're -- I mean, you're absolutely there on the facts, and those are the harder comparators if you look at the trend of this year. I would just go back to one -- we don't want to signal a lot about '26 now because there's more work to do there. But again, it's about driving revival and not just how it impacts operations, but also purely on the cost to serve and getting to the top line and the conversion. And beyond that, we'll update you when we talk about '26. Emmanuel Ligner: And Doug, on the market, my sense is the following. I think production is solid. I think in the R&D aspect from an academy standpoint and even from a pharma, there is some uncertainty and uncertainty is never good. But so I would say it's a mixed market dynamic. Operator: Our next question comes from Dan Leonard with UBS. Daniel Leonard: My first question is on the revival program. Emmanuel, can you frame the cost impacts of that program? It seems like there's a lot of extra money to be spent on e-commerce, on investment needs in manufacturing, on new hires. And I'm just trying to think about how to balance that with margin objectives. Emmanuel Ligner: Dan, thanks for your question. Look, I think it's early days for me to really put a number to it. We are really pushing the program as soon as possible and making sure we make our plan. I don't want also to rush on giving you a number, which is not accurate. Look, I really want to gain accuracy about numbers, any numbers that we're going to put in front of you. So let us put the plan together, let's say, review the plant let's make sure that the plan will have an impact. And I think it's back to a further question earlier, I really want to give you answers about how much, when, what we will see by when. It will take several quarters without any doubt, but it's early days for me. So let me come back to you when we have a precise plan and accurate number. Daniel Leonard: Understood. And then a follow-up. You referenced a couple of large clients you lost from a share loss perspective. How would you characterize the risk of further big share loss? I can't imagine you have large contracts that turn over every year. Are we in a period of stability now for some time? Or are there further just big opportunities ahead in either direction? Emmanuel Ligner: That's a great question, Dan. Look, what I've discussed with Corey and what we've discussed with the team is that most of our very large key account contract has been renewed. We've kept them. And on the contrary, we have opportunity to gain share of wallet in those accounts. So I think we are in a much more stable position right now. However, as I explained earlier, the loss that we've seen in the past, they're still having an impact on us, okay? It takes time for those large contracts to switch over the same way that it takes time for us to ramp up the share of wallet gain. So I think we are in a much more stable area. I think Corey is a very good leader that is bringing a lot of rigor in the business. And from that standpoint, I'm confident about the future of the lab business. Operator: Those are all the questions we have time for today. And so I'll now turn the call back over to Emmanuel for closing remarks. Emmanuel Ligner: Thank you, Emily, and thank you, everybody, for joining us. Today, we just outlined the beginning of our, I will say, next chapter called Avantor Revival. I want you guys to remember and to know that we are moving with urgency to improve our performance. I want to regain your trust. I want to be accurate. I want us to be accurate, and I'm looking forward to give you further updates on our progress in the next quarter. Be well, everybody. Thank you. Operator: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.
Operator: Good morning, and welcome to the Fulcrum Therapeutics Third Quarter 2025 Financial Results and Business Update Conference Call [Operator Instructions] This call is being webcast live and can be accessed on the Investors section of Fulcrum's website at www.fulcrumtx.com and is being recorded. Please be reminded that remarks during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 may include statements about the company's future expectations and plans, clinical development time lines and financial projections. While these forward-looking statements represent Fulcrum's views as of today, this should not be relied upon as representing the company's views in the future. Fulcrum may update these statements in the future, but is not taking on any obligation to do so. Please refer to Fulcrum's most recent filings with the Securities and Exchange Commission for discussions of certain risks and uncertainties associated with the company's business. Leading the call today will be Alex Sapir, CEO and President of Fulcrum. Joining Alex on the call are Alan Musso, Chief Financial Officer; and Dr. Iain Fraser, Senior Vice President, Clinical Development. After providing updates on the company's key programs, there will be a brief Q&A in which the Fulcrum management team will be available for questions. With that, it's my pleasure to turn the call over to Alex. Alexander Sapir: That's great. Thanks, Shannon, and good morning, everybody, and thank you all for joining us today. The past several months have certainly been a busy, but more importantly, a very exciting time for Fulcrum marked by significant progress with our lead program, pociredir, for the treatment of sickle cell disease, which is an inherited blood disorder with a high unmet need, afflicting approximately 100,000 people in the U.S. and approximately 7.7 million people worldwide. There is an ever-increasing need for better treatment options for sickle cell disease patients who face not only an impaired quality of life due to chronic pain, fatigue and acute complications like vaso-occlusive crises, but also very high rates of mortality. Patients with sickle cell disease face a greater than 20-year reduction in life expectancy with a mortality rate that is 9x higher than the general population. And so as we continue on our journey to find better treatment options for these patients, we were very encouraged with the data presented this past July from the 12-milligram dose cohort of the Phase Ib PIONEER trial, which demonstrated a potential for pociredir to meaningfully improve outcomes for people with sickle cell disease. Now digging into that data a little bit more at a high level, pociredir demonstrated a dose-dependent and clinically meaningful increase in fetal hemoglobin, near pancellular induction of that fetal hemoglobin or HbF, improvement in key biomarkers of hemolysis, resulting in a subsequent increase in total hemoglobin and finally, encouraging reduction in vaso-occlusive crises or VOCs. Equally as important, pociredir continued to be well tolerated with all treatment AEs being grade 1 in severity and all resolving during the treatment period without any disruption in study drug. These encouraging results achieved our target product profile criteria and position pociredir as a potentially best-in-class once-daily oral therapy for sickle cell disease. In August of this year, we submitted a protocol to the FDA to initiate an open-label extension or OLE trial, which will allow patients to continue receiving pociredir after completing the PIONEER trial, enabling thus longer-term evaluation of safety and durability of response. We're also pleased to share today that we have completed enrollment in the 20-milligram dose cohort with a total of 12 evaluable patients, and we will present data from this cohort at the American Society of Hematology or ASH conference in early December. The over-enrollment seen in the 12- and 20-milligram cohorts is a testament to the enthusiasm from the physicians involved in the study. Now with a number of these 12 patients starting drug in September, we expect approximately half of the 12 patients will have completed their day 84 visit and all patients will have completed their day 42 visit at the time of our data cutoff for the ASH meeting. Approximately 60% of the patients enrolled in this 20-milligram cohort have come from the U.S. with the remainder coming primarily from sites in Nigeria, which are newer sites that were not yet activated at the -- in time to participate in the 12-milligram cohort. The mean and median HbF levels at the start of the study for this cohort were 7.1% and 7.3%, respectively. We're also pleased to see patients remaining in the study with a greater than 90% adherence to the once-daily oral drug regimen. We continue to believe that inducing fetal hemoglobin is the optimal strategy for treating sickle cell disease. Evidence for this approach continues to grow as highlighted in our recent presentation earlier this month at the Annual Conference for the Academy for sickle cell and thalassemia or ASCAT, for short, where we demonstrated a quantitative correlation between increased fetal hemoglobin levels and reduced vaso-occlusive crises in sickle cell disease. This data, together with the 12-milligram cohort data that we shared in July, gives us confidence that pociredir has the potential to provide a differentiated therapeutic option for people living with sickle cell disease. We look forward to sharing additional results from the PIONEER trial at the upcoming ASH conference in December, and we plan to engage with the FDA for an end of Phase I meeting in Q1 of 2026 to align on the next stage of our clinical development for pociredir. Now outside of pociredir, we continue to advance our program for the potential treatment of bone marrow failure syndromes such as Diamond Blackfan anemia, 5q deletion syndrome, Shwachman-Diamond syndrome and Fanconi anemia, and we plan to submit an IND for these benign hematological conditions in the fourth quarter of 2025. Additionally, we recently presented preclinical data at ESMO this month for FTX-6274, an oral EED inhibitor, which demonstrated robust efficacy in castration-resistant prostate cancer models. We are encouraged by these findings, which highlight the potential of EED inhibition beyond our current hematology programs. And so with that overview, let me now turn it over to Alan Musso, our Chief Financial Officer, to run through the numbers for the quarter. Alan, over to you. Alan Musso: Thank you, Alex. I'll now go over our results for the third quarter ended September 30, 2025. Our research and development expenses were $14.3 million for the third quarter of 2025 compared to $14.6 million for the third quarter of 2024. The decrease of $0.3 million was primarily due to decreased employee compensation costs as a result of the workforce reduction we implemented in September of last year as well as a decrease in costs associated with our discontinued losmapimod program, partially offset by increased costs relating to advancing our pociredir program. The general and administrative expenses were $7.6 million for the third quarter of 2025 compared to $8.4 million for the third quarter of 2024. The decrease of $0.8 million was primarily associated with decreased professional services costs. The net loss was $19.6 million for the third quarter of 2025 compared to a net loss of $21.7 million in the third quarter of 2024. Now turning to the balance sheet. We ended the third quarter of 2025 with cash, cash equivalents and marketable securities of $200.6 million compared to $241 million as of December 31, 2024. The decrease of $40.4 million is primarily due to the cash used to fund our operating activities. And finally, turning to cash guidance. Based on our current operating plans, we expect our existing cash, cash equivalents and marketable securities will be sufficient to fund our current operating requirements into 2028, providing sufficient runway to substantially progress the clinical development of pociredir. And with that, Alex, let me turn the call back over to you. Alexander Sapir: Great. Thanks so much, Alan. So before opening it up to Q&A with all of you, let me just conclude with just a couple of final comments. Fulcrum has achieved meaningful milestones in the first 3 quarters of this year with 1 of 2 planned data readouts for our lead program, pociredir, yielding very encouraging results in sickle cell disease. We are excited about the upcoming data readout at ASH and the opportunities ahead. We are fortunate to have a committed and talented team, coupled with a strong balance sheet, which positions us well to achieve our goal of delivering transformative therapies. And with the opening remarks concluded, Shannon, let's go ahead and open up the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Kristen Kluska with Cantor Fitzgerald. Kristen Kluska: So I appreciate you disclosing the baseline characteristics for this cohort, and it looks pretty similar to what we saw for Cohort 3. So I'm wondering now that we know the baseline characteristics are relatively similar, now that we know the inclusion/exclusion criteria is more appropriate to compare apples-to-apples to these. How are you internally thinking about what is a win here and whether -- ways to measure if there's a dose response? Alexander Sapir: Yes. Kristen, it's a great question. We're going to handle that in 2 parts. I'll start, and then I'll turn it over to Iain because I do think there is a nuance for the approximately 50% of the patients for which we have full day 84 data. But -- in terms of, I guess, your question about what is a win, I would argue that we've already won. If you go back and you look at the 12-milligram cohort, we essentially achieved that target product profile that we felt like we needed to achieve. We saw robust and rapid increases in fetal hemoglobin. We saw we were nearing levels of pancellularity. We were seeing all of the markers of hemolysis going down as we would have expected and a subsequent increase in total hemoglobin nearing 1 gram per deciliter at the end of that 12 weeks. We saw a trend toward a reduction in VOCs, which obviously we need to confirm in a registrational study. And the drug was extremely well tolerated with all of the treatment-emergent AEs being grade 1 in severity. So I would argue that I think we have one with the 12-milligram cohort. Now do we expect to see an increase in efficacy for the 20 relative to the 12? I think to answer that question, we really have to look at the healthy volunteer data in which -- we did show a dose response, again, in healthy volunteers at day 14 when measuring the fold induction of not the protein, not fetal hemoglobin, but the HBG mRNA. So I think based on that healthy volunteer data alone, we would expect 20 to outperform the 12, but we will obviously know that in just a matter of weeks when we present this data at ASH. Iain, I do think it is probably important to talk a little bit about what we've seen with the -- basically the first half of patients that started on the study and what we plan to present at ASH coming up in December. Iain Fraser: Yes, absolutely, Alex. Happy to address that question from Kristen. So based on when the last patients enrolled in the study, which was really towards the end of September, we expect that about half of the cohort will have completed the day 84 treatment visit at the time of the data cutoff that will serve the ASH meeting data presentation. And we expect that we should have 42-day visit available for all the patients, all 12 patients in that 20-milligram cohort. Interestingly, for those patients that have completed the full 84-day treatment period, and these were the earliest patients enrolled in the cohort, their baseline HbF have tended to skew on the lower end of the range. And so when we present that data, once we have the exact number of patients for that cutoff, I think it will be very important to accommodate the baseline for those 50% or so of the patients. And then obviously, when we release the full day 84 data, once everybody has completed the full treatment period, that will reflect the 7.1%. So I did just want to highlight that piece for the partial cohort data that we'll be sharing later this year. Kristen Kluska: Okay. And then the OLE study, I know in the past, you've noted it was something you're looking into, but I think this is the first time you've officially announced plans to start that. So I'm curious if there was interest from the patients that were in the trial, the physicians that have been investigators in the study and also how this study may also help with some of your future FDA discussions. Alexander Sapir: Yes. Great question, Kristen. And you're absolutely right. I think that the timing of starting the OLE study was quite frankly, it was really borne out of discussions that I had with several of the investigators in which they were expressing to me some of their patients' anxiety as those patients were getting closer and closer to day 84 and that we really didn't have anything at the time to offer them once the 12 weeks of dosing was up. And so in light of that, we really decided to kick off this OLE study earlier than we had initially planned in order to allow some of those patients in the PIONEER trial to come off of -- once they come off of drug to be able to roll into an open-label extension. So I will tell you that in the conversations that I've had with the investigators, they were quite happy that their voice was heard. And as a result of their voice being heard, we reacted accordingly. In terms of how this -- Iain, maybe in terms of how this data may help inform future discussions with the agency, do you want to comment a little bit on that? Iain Fraser: Yes. Happy to do that, Alex. So that study is now being operationalized at the moment. And I think one of the key aspects of that allowing us to continue treatment in those patients who previously were restricted to the 3 months contained within the PIONEER study allows us to generate additional safety data in that patient population, which I think overall for the program is going to be an important piece. Operator: Our next question comes from the line of Joseph P. Schwartz with Leerink Partners. Joseph Schwartz: Congrats on the progress. I was wondering if you can give us any insight into the baseline level of HbF for the patients in the first half of the 20-milligram cohort that will get data on first and how it compares to the second half of patients who were enrolled? Alexander Sapir: Yes. Great question, Joe. I think to answer that, let me turn that one over to Iain. He's obviously been very, very close to each of these patients and very close to the study as well. Iain Fraser: Yes. As we said, Joe, the initial patients enrolled have trended lower than that 7.1% mean that reflects the entire 12 patients in the cohort. Because we don't know exactly where the cut is going to be with the 50%, depending on which samples get to the lab in times of the data cutoff, we haven't given the precise number there. We will obviously have that when we have those exact data, and we'll reveal that at the time of the data disclosure. But I think it is important just thinking ahead that overall, the trend there was just by chance, the initial patients enrolled in the cohort who are on average lower than the 7.1% mean. Alexander Sapir: Yes. And maybe just to sort of add a little bit on what Kristen said earlier. Now we can look at sort of apples-to-apples. And the fact that we now have a lower baseline for the roughly 50% of patients that will have completed day 84 by the time of ASH, we're looking really more like apples to oranges. And the way to account for differences in baselines is to really look at that fold induction curve. So that's one of the slides that we've included in our investor presentation comparing the 6 milligram to the 12 milligram. So I encourage everybody to look at that because the fact that these patients -- the first half of patients had tended to be on the lower end of that average, we'll certainly look at that sort of full deduction because that is one way to essentially sort of normalize for differences in the baseline. But I think suffice it to say, Joe, clearly, the first half of the patients had a lower baseline. And then obviously, the second half of those patients tended to be a bit higher than the 7.1% and the 7.3% that we mentioned in our opening remarks. Joseph Schwartz: Okay. Great. And then how are you currently thinking about the addressable market following Oxbryta withdrawal? And can you give us some insight into your assumptions that go into your current estimate? Alexander Sapir: Yes, it's a great question. So we really have sort of evaluated the market based on the data that exists out there in terms of what percent of patients have what number of VOCs in the course of a given year. And our belief is that about 25% of patients have either 4 VOCs during a 12-month period of time or 2 VOCs during a 6-month period of time. But obviously, because our drug at present cannot be concomitantly used with hydroxyurea, some of those patients are currently on hydroxyurea. And so we've taken a bit of a haircut. So what we estimate right now is that roughly about 20% of the 100,000 patients in the U.S. currently meet the inclusion/exclusion criteria as defined in the PIONEER trial. Now obviously, when we get to those conversations with the agency, certainly, one of the questions that we will be asking them is the potential to expand to a broader set of patients. But I will say, overarchingly, our overarching goal with this program is to get this drug to the market as quickly as possible because as you mentioned, patients don't have the treatment options that they did several years ago with the withdrawal of Oxbryta, the cell and gene therapy is really not being too terribly successful commercially because of the costs and risks and the complexities of that therapy. So our overarching goal and something that I continue to stress to this team is we have to make sure that we get this drug to the market as quickly as possible to help as many patients as we possibly can, not just in the U.S. but globally for the 7.7 million patients who have sickle cell disease outside of the U.S. Operator: Our next question comes from the line of Corinne Johnson with Goldman Sachs. Corinne Jenkins: Maybe 2 from us. As you think about kind of the 20 mg dose cohort and maybe think about the full data set that you get later, what do you need to see from that for that to be the go-forward Phase III dose considering your point earlier that you've kind of already won with 12 mg? And then what's included in the cash runway guidance with respect to the scope of the Phase III program? Maybe you could speak about duration and endpoints that would be included in that guidance? Alexander Sapir: Yes. Two great questions, Corinne. Maybe I'll turn it over to Iain for the first half of that question and then turn it over to Alan for your second question. Iain Fraser: Yes. Thanks, Corinne. So I think importantly, we'll be looking across the totality of the data in the 20-milligram cohort. And we obviously would be delighted to see that the efficacy endpoints in the study are indicating improvement with an ongoing favorable tolerability and safety profile and ongoing good adherence to the study drug. We'll obviously be paying close attention to the HbF levels with a particular emphasis, as we've alluded to in some of the comments that we've made this morning on the dose response as measured by a fold induction of HbF. Based on the induction of HBG mRNA that we observed at 14 days in the prior healthy volunteer study, we do expect that the 20-milligram dose cohort could well outperform that, which we observed at the 12-milligram cohort. And I think one of the key learnings from the 12-milligram data readout as we compare there the 12-milligram to the previous 6-milligram readout, I think it really was very important to look at that as a fold induction because the baselines across those cohorts were different, and that plays a big role. We'll also be looking to ensure that we are seeing a response in HbF across all patients. We're focused on the extent to which we achieve pancellularity. We're looking at improvements of markers on hemolysis improvements in anemia and trends of improvements in VOCs, while obviously, the study isn't powered specifically around the VOCs. And then overall, we expect and we'll be looking for continued safety and tolerability as we've observed across both the healthy volunteers and the patients that we've treated to date. Alan Musso: Yes. And Corinne, on your question on cash runway and guidance, that is a full success sort of forecast for the organic program. So we basically anticipate moving forward with pociredir to the next trial. We've talked to a number of CROs who have mapped out what we think that could look like and feel very good that, that is fully accounted for as we move forward with the cash guidance. We also anticipate moving forward with the program for DBA and some of those other bone marrow failure syndromes as well as continued progression of work that's in the preclinical phase. So it's sort of an all-in full success of what we have going on in the pipeline at this time. Operator: Our next question comes from the line of Edward Tenthoff with Piper Sandler. Edward Tenthoff: Thanks for all the detail that you provided. Really excited to see the results down in Orlando in just a couple of weeks. My first question really has to do with what do you think is actually going to be published in the ASH abstract release? And it probably won't be the full data set, but I just want to get a sense for what you think might actually be in the abstract versus what you sort of laid out in terms of what you'll be presenting at ASH. And do you think that will be a poster or an oral presentation? Alexander Sapir: Yes. Two great questions, Ted. Yes. So the abstract that will be made public by ASH next Monday, November 3, does not include any of the data from the 12 -- sorry, from the 20-milligram cohort. It does include data from the 12-milligram cohort, but there's no data in the 20-milligram cohort. It was really a placeholder to ensure that we could get a spot at the ASH conference. And then in terms of whether it's a poster or an oral, that will get released by ASH on Monday. So we think it's just to respect the process that ASH has, we feel like it's probably most appropriate and prudent to really let ASH share all of the abstracts in sickle cell and hematology that have been accepted and then which of those have been accepted for poster and which of those have been accepted for an oral presentation. So stay tuned. We'll know a lot more on Monday. Edward Tenthoff: Great. And then one quick follow-up, if I may. And I appreciate sort of the extra color with respect to the early patients maybe being on the lower baseline side, and we saw that the higher the baseline, the more HbF, the more response. When you look at sort of all of these factors, what really is most important both to KOLs, regulators and yourself in terms of really defining the activity of pociredir? Is it the percent HbF? Is it the percentage of patients above 20? Is it the total HBG? What is really the most important? Or is it the totality of all of that data? Alexander Sapir: Yes, it's a great question. And I'll start, but Iain will probably have a better answer than I will. In the -- and I've had a lot of conversations with a lot of investigators, not only in the U.S. but outside of the U.S. since the data we released in July around the 12 milligram. And when I sort of pressure tested your very -- your question with them, which is if you look across these 5 parameters, right, increasing levels of fetal hemoglobin, the pancellularity, the decrease in markers of hemolysis, the subsequent increase, number 4, the subsequent increase in total hemoglobin and then a trend toward a reduction in VOCs and doing that all with a once-daily oral that obviously has shown to be very well tolerated. I've asked that question, which of those sort of 5 criteria are most important to you? And they essentially have all come back to me and said it's really the totality. You can't really pinpoint one versus another. We know fetal hemoglobin will reduce VOCs. We know that increasing total hemoglobin will reduce fatigue that patients feel, which is very important for them. And we know that the increase in fetal hemoglobin it's imperative that, that happens at a pancellular level, right? That's one of the sort of knocks on hydroxyurea is that they're not able to get to sort of 70% of all the red blood cells having the presence of that. So I really think it's each one of those criteria that we shared in July that they're -- that they find impressed with the overall sort of profile of the product. Iain, anything to add? Edward Tenthoff: Yes. Sorry, go ahead, go ahead, please. Iain Fraser: No, the only thing I would add is that getting patients into that 20% plus range is obviously associated with really very dramatic benefits in the outcomes of the disease. And I think that's important. And what we showed at the 12-milligram dose where about half of the patients were able to achieve that, I think, is particularly encouraging. But I do want to also recognize, and we've heard this as well is that there are some patients who really have very low baseline HbFs in the 2%, 3%, 4% range, often associated with very severe disease. And for those patients to get right up into the 20s is a much bigger climb, but providing them with a threefold induction an increase over their baseline really is considered to be associated with significant benefit for those patients. So I think there are both aspects are operational here that we will be able to get some of the patients into that really transformative range. And for those starting out really low, you can make a dramatic impact on their disease even though you may not quite get them up to that fully transformative range. Edward Tenthoff: And then lastly, when would we get the final PIONEER data set? Do you think that would be all the way at EHA next year? Alexander Sapir: Yes. It's a great question, Ted. Based on from what I can remember, most patients should be wrapped up with their dosing sometime by the -- very much to the very end of this year. And so we would expect to have the full data set to share with everybody sometime in the first quarter of next year. Operator: Our next question comes from the line of Matthew Biegler with OPCO. Matthew Biegler: I had a follow-up on the demographics. I know we've talked about it a bit, but it sounds like if I'm reading between the lines from Iain's comments earlier that the Nigerian patients might be a bit sicker? Or would you say overall, the 2 cohorts are largely similar in terms of baseline severity and like maybe the heterogeneity in baseline hemoglobin is just random variation. Alexander Sapir: Yes, it's a great question. Iain Fraser: Yes, Matt, thanks. Yes, I wouldn't take away from this the assumption that it's the Nigerian patients specifically that are more severe. It's really just the way in which patients came into this cohort. I think it's by chance that, that's the case, that some -- the patients enrolling earlier just happened to have those lower baseline. I don't think it's a geographic aspect related to that you may want to mention... Matthew Biegler: Okay. Got you. Maybe a bigger picture question for me is then assuming 20 mg looks good or maybe marginally better than 12, do you keep dose escalating? Or do you think that 20 is your recommended Phase II dose? Alexander Sapir: Yes. Iain, do you want to take that? Iain Fraser: Yes. And I think what we've indicated previously is that the current version of the protocol does allow us to dose escalate up to 30 milligram. But based on what we saw at the healthy volunteer level, looking at the HBG mRNA, we didn't see much of an increment at the 14-day mark when we escalated there from 20 milligram to 30 milligram. So based on that, along with the promising data that we've already seen at the 12-milligram cohort, in our expectations around the 20-milligram cohort. We're not planning to proceed with that 30-milligram dose. Operator: Our next question comes from the line of Andres Maldonado with H.C. Wainwright. Andres Maldonado: Congrats on the progress. One quick one for me. So I guess when you have the 20-milligram data in hand, the question becomes, how do you feel how generalizable procedure's efficacy will be in the less severe patients? And can you maybe walk us through the mechanistic argument for why that will be? Alexander Sapir: Yes, it's a great question, Andres. Iain, do you want to take that? Iain Fraser: Yes. And I think -- thanks, Andres. I think we do have some data from the early part of the study in a less severe patient population or at least in a patient population that didn't have the same severity criteria that the 12 and the 20-milligram cohorts have had. So that early part of the study was an all-comers sickle cell disease patient population, including some patients who were on concomitant HU at the time. And we observed, albeit at the lower end of the dosing scale, so 6 milligrams and 2 milligrams and a few at 12 in that cohort that we saw very robust effects on HbF induction. So we don't expect that there would be a difference in the ability of pociredir to induce HbF based on the patient's disease severity. And we have that. And then in addition, we have preclinical data, CD34 cells differentiated in vitro and so on, showing robust induction of HbF across a range of different donors. We also see induction, obviously, in healthy volunteers who don't have sickle cell disease, and we see induction in individuals with sickle trait. So they heterozygous for the sickle mutation and seeing robust induction there. So we're not expecting that the disease severity per se is going to impact the ability of pociredir to induce HbF. Operator: [Operator Instructions] Our next question comes from the line of Luca Issi with RBC. Luca Issi: Congrats on all the progress. Maybe Iain, a quick one actually on safety. Obviously, we appreciate that it's really, really hard to prove a negative here. But what is the FDA telling you about how many patients and maybe how long of a follow-up are they hoping to see in order to feel comfortable about safety here? Again, any context there, much appreciated. And then maybe just a quick one on the plan going forward here. Can you just talk about the clinical plan beyond this Phase Ib? Like should we assume that you start directly a registrational trial after this? Or is it still possible that you will need to run intermediate Phase II before you go into registrational trial? Again, any color there, much appreciated. Alexander Sapir: That's great. Yes, Luca, 2 great questions. Great to have you on the call as well. Iain, maybe I'll turn that one over to you. Iain Fraser: Yes. Thanks, Luca. And as we've indicated previously in our discussions with the agency, there's obviously a context of risk and benefit. And in our discussions with them, the plan was to complete the PIONEER study as we're coming towards the end of that now and to bring those data as well as all the data from our Phase I program back to the agency to discuss next steps with them. There was no specific numerical criteria provided around that. Obviously, we expect that the ongoing favorable safety and tolerability profile is going to be important, but that also needs to be contextualized with the potential benefit that the therapy is bringing. So no specific criteria outlined there, but certainly the plan to bring that back to the agency for that discussion. The design of the next study is obviously going to be based on our discussions with the regulators and will be influenced very much by the data emerging from the PIONEER study, along with our other Phase I studies. We do believe that there is the potential for the next study to be a registrational study in the context of what's previously being used in the setting of an agent that induces HbF. We would expect that a clinical endpoint such as VOC reduction would likely be the primary clinical endpoint in that study. But there's also the potential, as we've discussed previously about the association between increasing HbF levels and the association between that and beneficial clinical outcomes. So a potential there for an earlier look at the study and interim look potentially where HbF could be evaluated as a surrogate endpoint for a potential accelerated approval in sickle cell disease. But of course, all of this is something that we'll be discussing with the regulators with the context of the full PIONEER data set and prior to initiating the next study. Operator: Our next question comes from the line of Tazeen Ahmad with Bank of America. Tazeen Ahmad: I have a couple. Just in terms of the rules regarding embargo for ASH, when the abstracts do get released on Monday, is there a requirement that you would not be allowed to talk about the additional data that would be shown at the meeting itself? Would you be in a position to potentially release the new data before the actual presentation though, whether it be a poster or an oral at the meeting? And then just to clarify a couple of points from earlier. What additional data from prior cohorts are you expecting to show, if any, at your presentation at ASH? Basically, I just want to get a sense of what metrics to expect beyond what we saw for Cohort 3. Alexander Sapir: Yes. Two great questions, Tazeen. I'll start and then I'll turn it over to Iain for maybe additional color. Yes. So as I mentioned in the question that Ted asked, the abstracts when they get released by ASH on -- or specifically the PIONEER pociredir abstract that gets released on Monday will not have any of the 20-milligram data. And we will not be sharing any of that data until such time as that data gets obviously either presented in the poster session or in the oral session that you mentioned. And we'll find out on Monday, whether that data has been accepted for an oral presentation or a poster. So there won't be any data that we'll share until such time. However, there may be an opportunity for us to do a call maybe after that data gets presented either over the weekend or at some point in the not-too-distant future, so we can provide a little bit more sort of color on that information. So stay tuned for that. I think in terms of additional data, I'll have Iain answer that question, but I do just want to say that the data that we would plan to share either in that oral or poster followed by what may be a more sort of type of like a video call or a conference call, we would try to be as forthcoming and transparent with the 20-milligram data as we were with the 12 milligram. So we'll share with you all the data that we have up until that ASH cut point. If it's only approximately half of the patients, we'll share that. If it's all the patients, we'll share that. So we'll be very, very specific in terms of what data we have at the different time points for the 20 milligram. In terms of additional data that we'll share in the 12 milligram, Iain, do you want to take that one? Iain Fraser: Yes, sure. Happy to do that. Thanks, Tazeen. So as you will recall, for the 16 patients in the 12-milligram cohort we previously presented in the end -- at the end of July, the data for the full day 84 treatment period, we did not have the follow-up data. So there's a 4-week safety follow-up where those patients are no longer on drug. And that -- those data were not all available at that time. So that will be presented at the time of the ASH presentation. And in addition, we will provide the full safety data set. We did provide all of the safety data that was available at the time of our previous data release, including some AEs that occurred during that safety follow-up period, but we'll round that out to make that a more complete data set around the 12-milligram cohort. Alexander Sapir: Shannon, are there any more questions in the queue? Operator: I'm currently showing no further questions at this time. This does conclude today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Greetings. Welcome to the Meritage Homes Third Quarter 2025 Analyst Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Emily Tadano, VP of Investor Relations and External Communications. Thank you. You may begin. Emily Tadano: Thank you, operator. Good morning, and welcome to our analyst call to discuss our third quarter 2025 results. We issued the press release yesterday after the market closed. You can find it along with the slides we'll refer to during this call on our website at investors.meritagehomes.com or by selecting the Investor's Relations link at the bottom of our homepage. Please refer to Slide 2, cautioning you that our statements during this call as well as in the earnings release and accompanying slides contain forward-looking statements. Those and any other projections represent the current opinions of management, which are subject to change at any time, and we assume no obligation to update them. Any forward-looking statements are inherently uncertain. Our actual results may be materially different than our expectations due to a wide variety of risk factors, which we have identified and listed on this slide as well as in our earnings release and most recent filings with the Securities and Exchange Commission, specifically our 2024 annual report on Form 10-K and Form 10-Q for subsequent quarters. We have also provided a reconciliation of certain non-GAAP financial measures referred to in our earnings release as compared to their closest related GAAP measures. Share and per share amounts have been retroactively restated to reflect our January 2, 2025, stock split for all prior periods. With us today to discuss our results are Steve Hilton, Executive Chairman; Phillippe Lord, CEO; and Hilla Sferruzza, Executive Vice President and CFO of Meritage Homes. We expect today's call to last about an hour. A replay will be available on our website later today. I'll now turn it over to Mr. Hilton. Steve? Steven Hilton: Thank you, Emily. Welcome to everyone listening in on our call. Today, I'll start by highlighting our third quarter results and current market trends. Phillippe will cover how our strategy is creating a differentiation for us in the context of the evolving market conditions, will also cover our quarterly performance. Hilla will provide a financial overview of the quarter and forward-looking guidance. Market conditions were softer than initially expected in Q3 as consumer confidence continued to decline amid a tough economic backdrop and ongoing affordability concerns. Even with these headwinds, we grew our orders 4% year-over-year to 3,636 units on a greater community count and achieved an average absorption pace of 3.8. We leaned in on our strategy focused on affordable move-in ready homes and a 60-day closing-ready guarantee to provide homebuyers certainty in the changing environment. Our quick sale to close process contributed to another quarter with exceptional backlog conversions with more than 60% of our orders in Q3 closing this quarter, generating a 211% backlog conversion rate this quarter on 3,685 home deliveries and home closing revenue of $1.4 billion. Excluding $14.5 million in combined real estate inventory impairments and terminated land deal charges, our adjusted gross margin and adjusted diluted EPS in the third quarter were in line with our guidance at 20.1% and $1.55, respectively. We also increased our book value per share 8% year-over-year. Q3 was the fifth consecutive quarter where we achieved year-over-year community count growth. We are starting to see the benefit of the high volume of land acquisition and development spend over the last few years, ending the quarter with 334 communities, which was a 20% increase year-over-year. We continue to focus on balancing volume, profitability and a solid balance sheet, and we are satisfied with our results this quarter, considering the current economic environment. And with that, I'll now turn it over to Phillippe. Phillippe Lord: Thank you, Steve. Starting at the macro level, we were encouraged by the Fed's rate cut in Q3. However, the recent trend in lower mortgage rates has not translated to a notable improvement in demand or a reduction in the use of incentives thus far due to the lack of consumer confidence. Throughout the quarter, our customers were feeling less optimistic about the economy, the cost of living and employment, which increased hesitancy around a home purchase decision. We believe the biggest impediment to an improved housing market relates to buyer psychology. So this quarter, we continue to lean into our full range of possible incentives on a customer-by-customer basis. Even though we anticipate the incentive burden to continue running far north of where we typically are as an industry for the near future, we do expect the cost and utilization rate of incentives to begin to taper off as market conditions stabilize. We remain optimistic about the long-term outlook for the housing market, given favorable demographic trends in home buying and a long-standing undersupply of affordable homes in our price range. As we analyze our performance this period, we believe that our strategy differentiates us from our peers in a few ways. First, our spec strategy, combined with a 60-day closing-ready guarantee, move-in ready homes and a focus on external realtor engagement enabled us to both compete for customers in a different way by providing them certainty and secure incremental sales orders and closings. Second, our 100% spec strategy and the significant improvements we have made in our cycle times over the past 6 quarters gives us the flexibility to ramp up or slow down our starts pace based on real-time local demand. In the third quarter, we intentionally slowed our starts by 19% year-over-year to remain within our target range of 4 to 6 months' supply of specs on the ground while not impacting our sales velocity. Additionally, our scale and land pipeline enables us to reassess our land spend routinely based on market conditions while still maintaining our targeted level of lot supply. Through our ability to control land, we constantly review our controlled lots to determine if there are any future lots that we should renegotiate or walk away from. As such, we reduced the number of lots we acquired this quarter by about 5,800 lots or 70% year-over-year without sacrificing near-term community count growth. With the current economic backdrop, we are evaluating these constant real-time adjustments as we look to maximize our assets by choosing a balanced pace and price. In an effort to optimize our portfolio community-by-community, we determine where we'll keep pushing for our 4 net sales per month pace, which is where we operate the most efficiently and where we choose to temporarily moderate the sales pace due to the inelasticity of demand. While we are primarily focused on pace as an entry-level spec builder, we are not willing to sell our homes at any clearing price just to chase incremental sales where we know it's compromising the integrity of our land values. Said another way, we are not going to compromise the quality land book we have worked so hard to acquire just to hit an enterprise order number. For us, it is about optimizing every community in our land book. By pulling these levers, we are intently focused on optimizing our returns. At the end of the third quarter, we have yet again achieved our highest community count in company history at 334. The team also found ways to improve our cycle times even further to approximately 105 calendar days from about 110 calendar days in Q2. By slowing land spend, we maintained a strong balance sheet with a focus on liquidity and returned $85 million to shareholders in the third quarter. Now turning to Slide 4. Third quarter 2025 orders were 4% higher year-over-year due to a 14% increase in average community count that was partially offset by a 7% decrease in average absorption pace. Cancellation rate of 11% this quarter remained lower than historical average, reflecting the limited time between a sale and closing with our 60-day closing-ready commitment. Our third quarter 2025 ending community count of 334 was up 20% year-over-year compared to 278 at September 30, 2024, and also up 7% sequentially compared to 312 at June 30, 2025. During the quarter, we brought over 45 new communities online throughout all of our regions. To date, this year, we have nearly -- we have opened nearly 130 community openings. With today's efficient supply chain and available labor capacity, we were even able to pull forward some of our openings that were slated for October. So now we anticipate holding our community count fairly steady from Q3 to Q4 to end the year with a mid-double-digit year-over-year growth. Based on our current land pipeline, we expect another additional double-digit year-over-year growth for 2026 year-end community count. ASPs on order this quarter of $389,000, was down 4% from prior year due to increased use of incentives and discounts. We offered a wide range of possible incentives and tailored a solution to each customer's need. As we are in the final days of October, I wanted to provide some high-level commentary on what we are seeing so far in Q4. Demand this month feels very similar to September, taking into account some additional seasonality. Lower mortgage interest rates have not sparked outsized demand, but we believe we can achieve our internal sales order targets through our incentive offerings and by leaning into our broker relationships. Now moving on to the regional level trends on Slide 5. The local demand environment in each of our regions continue to vary market-by-market in Q3. Some of our most favorable markets, Dallas, Houston, Southern California as well as North and South Carolinas achieved a strong absorption pace as market conditions continue to hold steady in those geographies. Conversely, our teams continue to work through challenges in Austin, San Antonio, certain parts of Florida, Northern California amid softer market conditions this quarter. And Colorado remained tough given the impact of stressed affordability. These headwinds were primarily an affordability concern and a lack of buyer urgency and not directly impacted by the increase in existing home inventory, especially when considering Florida and Texas as most of the resale inventory is not directly comparable to our entry-level product nor does it offer our incentives. Regardless of the geography, we saw an uptick in the use of incentives in all of our markets as consumer sentiment and affordability concerns remain challenged. Now turning to Slide 6. In Q3, we moderated starts, which totaled approximately 3,000 homes in the third quarter of 2025, 19% less than last year's Q3 to align with softer demand environment and expected Q4 seasonality. The 60-day closing-ready guarantee element of our strategy enables us to quickly convert sales to closing. With a 211% backlog conversion rate, our ending backlog declined from approximately 2,300 units as of September 30, 2024, to 1,700 units as of September 30, 2025. A higher backlog conversion and shorter cycle times allows us to turn our home inventory about 3x per year. With 3 consecutive quarters of backlog conversion rate above 200%, we now believe our long-term backlog conversion will be between 175% and 200%. Since 50% or more of our deliveries have been generated from inter-quarter sales for several quarters now, the aggregate of total specs and backlog is our preferred metric to analyze the right inventory levels at each of our communities. We had approximately 8,000 specs and backlog units as of September 30, 2025, as compared to about 9,100 units as of September 30, 2024. We had approximately 6,400 spec homes in inventory as of September 30, 2025, down 6% from approximately 6,800 specs as of September 30, 2024, and down 8% sequentially from Q2. The 19 specs per store this quarter translated to 5 months' supply compared to 24 specs per store and 6 months in last year's third quarter. Our completed specs comprised 47% of our total count as of September 30, 2025. Although this is slightly higher than our target of about 1/3 complete specs, we were comfortable holding on to some of our specs to preserve margins and plan to work down this inventory by year-end. With that, I will now turn it over to Hilla to walk through our financial results. Hilla? Hilla Sferruzza: Thank you, Phillippe. Let's turn to Slide 7 and cover our Q3 results in more detail. Third quarter 2025 home closing revenue of $1.4 billion was 12% lower than prior year as a result of both 7% lower home closing volume and a 5% decrease in ASP on closings to $380,000 per home. The decline in ASP is primarily due to the increased use of incentives and discounting as well as some geographic mix to a lesser extent. Home closing gross margin of 19.1% in the third quarter of 2025 was down 570 bps from 24.8% in the third quarter of 2024, reflecting the increased use of incentives, inventory-related impairment and walkaway charges, higher lot costs and reduced leverage of fixed costs on lower home closing revenue, all of which were partially offset by improved direct costs and shorter cycle times. Our Q3 2025 margins included $8.7 million of real estate inventory impairments and $5.8 million of walkaway charges for land deals we are no longer pursuing. This compared to no impairments and $2 million in terminated land walkaway charges in the prior year. Excluding these inventory-related charges, adjusted margins were 20.1% and 24.9% in the third quarters of 2025 and 2024, respectively. As a result of the elevated land development costs that began in 2022 and the typical 18- to 24-month time line required to bring on a new community, our current land basis is fully comprised of this higher cost land and is a greater percentage of our revenue than both historical levels and prior year. However, incremental green shoots related to the current price of land and development costs are encouraging. As many builders have terminated some of their option land, we believe there are opportunities to upgrade our pipeline and find cheaper or better positioned lots. We are also actively rebidding land development spend wherever possible. We expect the stabilizing land acquisition and development conditions we are now experiencing will be beneficial to our gross margin in late 2027 and into 2028. During the quarter, our procurement team's persistent hunt for cost savings led to a 3% year-over-year reduction in our direct cost per square foot. We continue to find available labor in our markets, potentially stemming from slower multifamily construction and reduced starts in the industry, which was a factor in our improved cycle times that Phillippe mentioned earlier. As we look at our margins this quarter, the lower revenue due to the timing of closings under our new strategy also resulted in about 50 bps in lost gross margin leverage compared to the prior quarter. Our long-term gross margin target remains at 22.5% to 23.5%. For this target to occur, we believe economic conditions need to stabilize, which will allow us to pull back on the incentive burden, and we can again begin to benefit from the scale and efficiency of our spec strategy and streamlined operations. SG&A as a percentage of home closing revenue in the third quarter of 2025 was 10.8% compared to 9.9% for the third quarter of 2024, primarily as a result of higher commission rates and technology costs as well as loss leverage on lower home closing revenue, all of which were partially offset by lower compensation costs. Q3 external commission rates were higher year-over-year as they helped to secure volume in a tougher selling environment. Our co-broke percentage was in the low 90s and remained similar to the first half of this year. Our newer divisions continued to temporarily negatively impact our overall SG&A as they ramp up to be able to contribute a mature division's revenue profile while they are already incurring a full overhead expense structure. We continue to assess all aspects of SG&A to find ways to reduce overhead dollars and leverage and explore ways to lean in with technology to improve back-office efficiencies. We maintain our long-term SG&A target of 9.5% once we achieve higher closing volumes. The third quarter's effective income tax rate was 22.6% this year compared to 21.6% for the third quarter of 2024. The higher tax rate in '25 reflects fewer homes qualifying for energy tax credits under the Inflation Reduction Act, given the new higher construction threshold required to earn the tax credits this year. Overall, lower home closing revenue and gross profit as well as higher SG&A and tax rates led to a 48% year-over-year decrease in third quarter 2025 diluted EPS to $1.39 from $2.67 in 2024. Excluding the $14.5 million in combined real estate inventory impairments and terminated land charges, our adjusted diluted EPS for the third quarter of 2025 was $1.55. To highlight a few of the results for the first 9 months of 2025, on a year-over-year basis, orders were up 1%, closings were down 3% and our home closing revenue decreased 8% to $4.4 billion. Excluding $20.1 million in combined real estate inventory impairments and terminated land charges this year as compared to $3.9 million in 2024, our year-to-date adjusted gross margin of 21.2% was 440 bps lower than adjusted gross margin of 25.6% last year. SG&A as a percentage of home closing revenue was 90 bps higher at 10.7% and net earnings decreased 40% to $369 million. Excluding the inventory-related charges, adjusted diluted EPS for the first 9 months of 2025 was $5.35 compared to $8.40 in 2024. Before we move on to the balance sheet, I wanted to share our customers' third quarter credit metrics. As expected, FICO scores, DTIs and LTVs remained relatively consistent with our historical averages. While most of our customers can qualify for a mortgage without financing incentives, many are nonetheless asking for them to help address their affordability concerns. On to Slide 8. Our balance sheet remains healthy at September 30, 2025, with cash of $729 million, nothing drawn on our credit facility and a net debt to cap of 17.2%. As a reminder, our net debt-to-cap ceiling remains in the mid-20% range. Given current economic conditions, we intentionally reduced land spend by 14% year-over-year and redeployed some of that excess cash by returning capital to shareholders. Our spend on land acquisition and development, net of reimbursements totaled $528 million for the third quarter of 2025. The decision to slow land spend isn't expected to have a material impact on our near or midterm growth plans. Our full year 2025 land spend target remains around $2 billion. To maximize shareholder value creation, we returned $85 million of cash to shareholders this quarter compared to $57 million in the third quarter of 2024. We recognize the current undervaluation of our stock, so we bought back over 772,000 shares for $55 million this quarter. This spend was 83% more than prior year and 22% greater sequentially. To date, in 2025, we have spent $145 million on share repurchases, reducing our 2024 year-end outstanding share count by almost 3%. During the third quarter, our Board approved an additional $500 million in authorized share repurchases. And as of September 30, 2025, $664 million remain available under the program. Although we do not anticipate buying back the entire $500 million in a very short period of time, we do anticipate accelerating our quarterly repurchases notably and incrementally, we can and will also repurchase shares opportunistically based on market conditions. We increased our quarterly cash dividend 15% year-over-year to $0.43 per share in 2025 from $0.375 per share in 2024. Our cash dividends totaled $30 million in the third quarter of 2025 and $92 million year-to-date. For the first 9 months of the year, we returned a total of $237 million of capital to shareholders or 64% of our total earnings so far this year. Slide 9. In the third quarter of 2025, we secured nearly 2,000 net new lots under control, which included the impact of 400 terminated lots. These terminations were in connection with our routine quarterly reviews where we identify certain land deals that no longer meet our underwriting standards or are in locations where we think there are better opportunities to upgrade our existing pipeline. In the third quarter of 2024, we put nearly 7,800 net new lots under control. As of September 30, 2025, we owned or controlled a total of about 80,800 lots, equating to 5.3-year supply of lots of the last 12 months of closings. We also had nearly 21,000 lots that were undergoing diligence at the end of the quarter. When it comes to financing land purchases, we remain focused on utilizing more off-balance sheet financing opportunities, and we analyze every deal for land banking consideration as we look to balance margin and IRR. About 69% of our total lot inventory at September 30, 2025, was owned and 31% optioned compared to prior year, where we had a 64% owned inventory and a 34% (sic) [ 36% ] optioned lot position. Finally, I'll direct you to Slide 10 for our guidance. For Q4 2025, we are projecting total home closings between 3,800 and 4,000 units, home closing revenue of $1.46 billion to $1.54 billion, home closing gross margin of 19% to 20%, an effective tax rate of about 24.5% and diluted EPS in the range of $1.51 to $1.70. The expected home closing gross margin decline from Q3 to the midpoint of Q4 guidance is a function of the anticipated higher incentive environment that historically coincides with most builder's year-end and the closing of some of our completed specs that do not reflect all of the cost savings we've achieved in the last quarter or so. With that, I'll turn it back over to Phillippe. Phillippe Lord: Thank you, Hilla. In closing, please turn to Slide 11. Q3 was characterized by softer home buying demand, which we navigated by continuing to offer affordability and certainty to our customers. We also focused on maximizing each asset by purchasing certain -- by pushing certain communities and geographies to a higher sales pace and pulling back on other communities in weaker markets where we slowed our pace to preserve gross margin. We also intentionally reduced our starts pace and land spend to align with current market conditions while we improve cycle times and increase our community count to set us up for near-term future growth. We believe our flexible strategy is our competitive advantage and allows us to maximize our financial performance and redeploy capital to return to shareholders, all while maintaining a healthy liquidity position. With that, I will now turn the call over to the operator for instructions on the Q&A. Operator? Operator: [Operator Instructions] Our first questions come from the line of Alan Ratner with Zelman. Alan Ratner: Thanks for all the info so far, much appreciated. So my question relates to kind of the strategy pivot that you guys have been embarking on and kind of the impact that, that's had on your overall return profile. And I know there's a lot of moving pieces here. And a lot of the ROE compression we've seen is just a function of the market and the margin compression, which is kind of independent of that. But if I look at your inventory turnover right now over the last 12 months, you're down to about 0.7x and before the pivot, that was north of 1. And I know you mentioned the kind of accumulation of completed specs and that number trending higher than kind of your long-term plans there. I'm just curious, should we think about this as like a trough and as you move towards recalibrating that completed spec number, is there an opportunity to see more meaningful cash generation and improvement on that turns? Or is this something that you would say is still kind of in the early innings and might take a little bit longer to materialize? Phillippe Lord: Thanks, Alan. Yes, I would say, I don't know about the early innings, but we're still optimizing everything within our current strategy. You highlighted the specs as our cycle times have been reduced and we've put a finer point on the move-in ready strategy and the closing ready guarantee when we can actually release homes for sale to fit inside the window. I think there's an opportunity to optimize our spec strategy. I think when things are working really well and everything is fully optimized, we can get closer to a 4-month supply of specs versus the current 5 to 6. So as we look into 2026, we think there's a real opportunity to do that. So that would be number one. The other thing I would say is, obviously, we've been in significant growth mode. And so we've been building up our land pipeline. It's taken quite a bit longer than it used to, to bring lots to the market due to the regulatory environment. But I think we're getting better at that as well. The environment is getting better. And I think there's some opportunity for us to get more efficient with our land book as well in our existing strategy. Now that we know exactly what type of deals we're looking for, for our new strategy, I think the deal sizes can get smaller and more efficient as well. So between those 2 things, we feel like those are the biggest opportunities for us to drive a higher ROE and generate more free cash flow. Hilla Sferruzza: I think also this quarter, Alan, was a unique opportunity. This is the first quarter that we've ticked kind of above our target of the third of completed specs, and that was intentional, right? Part of it was an accelerated cycle time, but part of it was intentional. We weren't willing to sell inventory below a certain margin. So you're seeing that reset. Phillippe mentioned the reduction in spec starts. So you're seeing that reset start this quarter. And as we sell those specs into Q1, you should see a more efficient with balance for us going forward. Alan Ratner: Got it. Okay. That's helpful. And second question, just on the community count growth outlook in '26. It sounds like it's going to be another very strong year there. How should we think about the interplay there with margin? And I guess what I mean by that is this year, you guys have posted double-digit community count growth. We know the market is not up double digits in terms of demand, which is partly why your margins are lower and your absorptions are lower. If we kind of just assume demand stays where it is, does that necessarily mean that your margins are going to take another step lower as you try to push through more supply? Or are there kind of puts and takes that we need to consider independent of that? Phillippe Lord: Yes, I think there's puts and takes. I don't think the new communities that we're opening up as we look at what we opened up this year and then what we are opening up next year are going to be a tailwind to margins. I also don't think they're going to be a headwind. Even though we're bringing them on at a higher land basis, they were underwritten at a higher land basis at a different revenue and absorption profile. So as we underwrite those new deals and look at those new deals, I think they're coming on at margins similar to where we're at today. I wish I could tell you that they were coming on at our long-term target, but given the current incentive load that we're experiencing in the market, I think they're coming on more in line with where we are today than where our long-term goals are as a company. Hilla Sferruzza: Yes, sticks and bricks and land are aligned, although I think we've mentioned this repeatedly on the last couple of years of calls, the higher volume that we'll be getting from the incremental communities should help leverage the fixed components better. So while the margin profile before overhead is the same, that extra volume should really help us leverage the entire structure. Phillippe Lord: And I would just tell you that as we think about next year, although we're not prepared to give out anything, we're not expecting currently the market to get better, but the significant and meaningful community count growth that we're going to start the year out with and then the additional communities that we'll bring on through the year, if the market were to stay where it is today, that will provide the growth that we need as a company. Operator: Our next questions come from the line of Trevor Allinson with Wolfe Research. Trevor Allinson: I wanted to follow up on the spec commentary. Your total specs, your spec per communities are the lowest they've been in a while. You're talking about potentially over time moving back down the lower end of your 4- to 6-month range. Is that something you expect to achieve here more near term? And then how should we think about over the next couple of quarters, your starts relative to your sales? Phillippe Lord: Yes. So the answer is yes. I think as we look at our current cycle times, and we look at sort of fine-tuning our strategy and the amount of finished inventory we need to meet the closing-ready guarantee and provide the realtors with the inventory they're looking for, we see an opportunity to bring our spec count on a per store basis further down. It's about 19. I would love to see that closer to 16 based on current market conditions. So we'll work to accomplish that throughout next year. But as far as starts, the starts are going to align with our sales pace, but you should see an increase in starts because of our community count growth. So as we roll through Q4 and work through some of the older inventory we have and then we start to start more homes at the lower cost that we're seeing in our sticks and then we ramp up our community count from where we are today, you'll see an increase in starts for those reasons. But we're going to align our starts cadence with our sales goals for next year, which we will provide in Q1. Trevor Allinson: Okay. Makes a lot of sense. And then a question on your expectation for orders in 4Q. I know you don't guide directly to that, but just given so many of your closings are intra-quarter sales, it seems like you're perhaps expecting orders to be higher in 4Q than 3Q. I guess one, is that the case? And then two, if so, is that a decision to lean into volumes here again to work down inventory that's driving what seems to be a little bit better than normal seasonal expectation on orders. Phillippe Lord: Yes, I don't think we're expecting Q4 absorptions per store to be greater than kind of what Q3 was. We have a lot of new communities. So certainly, that's providing some tailwind to our closing guidance. Really, you just look at our closing guidance and assume a 200% backlog conversion, you can kind of back into our sales pace. As far as your question about leaning into volume, I would say no. Other than trying to clear out some older specs at some older direct costs that we want to get rid of so we can redeploy that capital and start new homes at much lower cost. We're going to be really focused on optimizing the profitability of each community. And as we said in our prepared comments, we feel like chasing incremental volume right now is not in the best interest of our business. That doesn't mean we feel like we're going to get much lower than where we are today, but I'm not sure we're going to try to push absorptions per store much harder than we're pushing today. Operator: Our next questions come from the line of Stephen Kim with Evercore ISI. Stephen Kim: Just had a couple of just clarifying questions here. First, I guess, when you talk about margins from new communities coming on at levels that are pretty similar to today, margins typically rise as you progress through a community, kind of opens up with conservative pricing, et cetera, and then you sort of grow into a higher margin. So when you mean these communities are coming on at a similar margin, do you mean over the life of the community? Or do you actually mean that even when they first open up, they're going to come on at margins that are very similar to your company average right now? Phillippe Lord: Yes, I mean, I think to your point, in a normal market environment, we typically open up our communities, really try to find the market and then we build up our backlog and grow our margins through the life stage of a community. But we're not in a typical market right now. And unfortunately, with discounts and incentives and the competitive environment and affordability, I'm not sure we currently feel like there's a ton of upside through the life span of a community right now. So as we're modeling our future projections, the new communities are coming on similar to the margin profile we have today, and we're not necessarily predicting them to get better. Now obviously, if incentives moderate, affordability gets stronger, people start feeling more confident, the opportunity across our entire land book to improve margins exists not only in the new communities that we're bringing on. Stephen Kim: Yes. Okay. That's encouraging. It sounds like you're being pretty conservative there, which is good. I wanted to follow up on the incentives. You've used the phrase quite a few times about how you had to increase incentives and obviously, we understand why. But I wanted to clarify how much of the increase in incentives that we've seen over the last couple of quarters is due to greater spend on forward purchase commitments versus other incentives? Hilla Sferruzza: So I think a couple of our peers, Stephen, have mentioned it's about 1/3, 2/3 of the total composition of the incentive pool, 1/3 being financing related and 2/3 being not financing related. We're maybe closer to 40-60, but kind of very, very, very similar. I think all incentives have increased a bit. There's -- the cost of incentives -- the financing incentives is obviously lower, but we're seeing a higher participation pool of folks that are looking for that financing incentive, but just incentives overall have increased by kind of a proportional amount. There's just a belief that in today's environment, the customer has a negotiating power, which they may or may not have. But looking at the competitive landscape, they're trying to negotiate every deal and the desirability for the affordability push, both through financing incentives and just general discounting is consistent in the pace as compared to the last couple of years. Stephen Kim: And that's 40% -- how much of that is forward purchase commitments specifically, though? Hilla Sferruzza: It's primarily forward purchase commitments. There's some additional layering of maybe like 3-2-1s or 2-1, there's some early signs that ARMs are gaining some traction, but it's a low percentage of the total volume. Operator: Our next questions come from the line of Michael Rehaut with JPMorgan. Michael Rehaut: First question on -- also just wanted more of a clarification on incentives. When we think about the decline that you had in 3Q sequentially, it was solidly higher than a lot of your peers that have reported so far. By contrast, your outlook for 4Q being flat to up 100 is a little better. And I'm just wondering if that's mostly a function of more of the real-time elements of how you sell and close intra-quarter. I'm also thinking, and I think you referred to the fact that you've had this more intense perhaps focus on reducing some of the finished spec. And I don't know if that just had an outsized impact on 3Q that will not repeat in 4Q? Just trying to get my ARMs around some of those dynamics of having a stronger decline in 3Q and so far flat to up in 4Q. Phillippe Lord: Thanks for the question. And I'll let Hilla jump in here. But -- and I want to make sure I'm getting your question right because we're not guiding to better margins in Q4. I think what you're looking at is prior to impairments. So when you back out our impairments and walkaways from this quarter, we're actually guiding to a sequential decline in margins, although modest. We're guiding to something closer to 19.5% versus the 20% that we said we were going to get in Q3. And the reason we're not guiding to flat or up margins in Q4 after you back out impairments and walkaways is we believe that we actually have some older specs that we're going to be clearing in Q4, which will modestly bring our margin profile down. So I just want to make sure you agree with what I just said there, Michael, and we're answering your question, but we're not guiding to better margins in Q4. Michael Rehaut: Yes. No, I think that's right. Yes, go ahead Hilla. Hilla Sferruzza: No, perfect. I think I was just going to agree with everything that Phillippe just said. So our margins last quarter without impairments were 21.4%. Our margins this quarter without impairments were 20.1%. So there was a pullback. Now we said about 50 bps of lost leverage. The rest is just market conditions. So there was a decline from Q2 to Q3, although maybe not as material as it seems if you're taking it inclusive of the impairments. And then kind of that incremental tick down into the Q4 guidance is both a function of clearing some of that older spec inventory that has a different cost basis. And then again, just echoing our peers, Q4 seems to be a period of time where folks try to hit certain targets and maybe the incentive environment runs a little frothier than it typically does in our sector. So we're actually modeling some increased incentives just in acknowledgment of that trend. If we can come in better than that, obviously, we're going to try to get it. But we know that the last couple of months of the year tend to be a little bit higher in incentive usage in our sector as a whole. Michael Rehaut: Yes, no, no. I was looking at the wrong line in the model. So that was my fault, but I appreciate the clarification there. I guess secondly, I just wanted to shift to share repurchase, your comments around, I believe, just kind of directionally saying perhaps you're looking at a higher level going forward. And I think starting out the year or earlier this year, you talked about maybe a $15 million per quarter cadence, if I remember that right, and you've exceeded that somewhat regularly since then. Should we be thinking more of, I don't know, something in a $50 million to $100 million ZIP code going forward? I'm just trying to get my ARMs around kind of how you're thinking about share repurchase currently relative to maybe what you laid out earlier in the year. Hilla Sferruzza: Yes. So I think we definitely think $15 million is too low. We think that our current cadence is probably the floor, right? So I think what we've done this quarter is probably a fair number to model. Opportunistically, we're definitely comfortable going deeper than that. But I think that our current cadence is a fair amount to kind of consider on a go-forward basis for us. Operator: Our next questions come from the line of John Lovallo with UBS. John Lovallo: The first one is certainly recognizing that soft consumer confidence has held back demand despite the drop in rates so far. I mean it sounds to us like the desire to own is still very strong. Traffic is reasonably good and rates as early as today could start tweaking down even lower. I mean I guess the question is, how quickly, in your opinion, could the sales environment change with improved consumer confidence? And along those same lines, how quickly can you guys react to that change? Phillippe Lord: Yes. Thanks, John. Very quickly. I think if you look back over time and you look at consumer confidence, it really works both ways. When it goes bad, like it has here in the last 2 quarters, it moves really quickly through your business. You can see how much incentives are part of the game. Every customer is coming in, looking for a deal to give them confidence that they're buying at the right time. Right now, buyers don't feel like they're buying at the right time. So we have to offer incentives to get them over the fence. That can change very quickly as people get more optimistic about their prospects, about their employment opportunities, about their wage growth opportunities, about just general the cost of living and the overall economy. Psychology can change much quicker than affordability can change. And so if that happens, we're -- we think we're in a very good position to capture that with our move-in ready inventory. We have plentiful specs. We have a lot of lots that we can build on. So if the buyer psychology changes, I think we can capture market share really, really quickly. And frankly, I think we can pull back on incentives pretty quickly as well as long as the industry works in concert there. So it can move really quickly, John, and we'll see how the spring springs because that's the opportunity. Hilla Sferruzza: That's the beauty of our strategy, right? Having the specs in the ground allows you to capitalize on that improvement today, with about 60% of our closings happening in the same period as our sales, we can see results same quarter versus having a 2-, 3-quarter lag between when there's a sale and the closing. And conversely, our rate locks are also short term, right? They're in sync with our cycle. So there's a very, very quick opportunity to reset all of the components. Phillippe Lord: And as we stated, we have the highest community count we've had in the history of the company. We feel like we have another solid double-digit growth projected for next year that we feel very good about those positions, those markets, the land, so we can really increase our market share in a better macro backdrop. John Lovallo: Okay. No, that's helpful. And then kind of working off of that question, let's talk about the 22.5% to 23.5% sort of longer-term target margin. I mean in our view, maybe for lack of a better term, it seems like the building blocks are there. I mean you guys have size, you have the leverage with suppliers, your streamlined portfolio, the amortization expense is lower. And it really feels like the only missing piece is the incentive level. And so to the extent that, that consumer confidence improves and incentives are able to come back, I mean, it would appear to us that getting to those 22.5% to 23.5% margins could happen sooner than later. I mean would you agree? Or where would you push back on that? Phillippe Lord: No, we would agree. I think the building blocks are exactly what you stated. We have the scale, so we can leverage our cost structure. If we can get back to a solid 4 to 4.5 net sales per month, we'll get the leverage. If we can pull back on incentives just a little bit and get to a more normal incentive environment, I mean, we're a long ways from a normal incentive environment. So with the combination of lower rates and better consumer psychology, if we can just pull back on our incentives modestly, there's a clear path to get back to our long-term target. And that's really what we're focused on. I think we can continue to control -- we can control with our cycle times and our direct costs and try to continue to open up these communities that we believe in to give us the market share opportunity. But we just need the incentive environment to moderate a little bit, and I think we can get back to where our long-term goals are. Operator: Our next questions will come from the line of Susan Maklari with Goldman Sachs. Susan Maklari: My first question is around the current psychology that buyers have relative to your strategy. With the ability to close within 60 days, do you think that they are leaning more into your homes, your products? Do you think you're essentially gaining share with this strategy in this kind of an environment? And if so, who do you think you're taking that from? How do you think about it relative to your peers on the new home side relative to existing home sales? Phillippe Lord: Yes. Thanks, Susan. I mean I think 3.8 net sales per month in Q3 is a pretty strong number especially since a lot of the new communities we opened, we didn't open until late in the quarter. So we actually sorted it better than that if you really look at -- kind of adjust for that. So I think that's a pretty strong number when I look across the industry and what others are accomplishing. And I think we're absolutely taking that market share from the existing home market. I think as resale has remained sort of bottled up because of the lock-in effect and realtors are driving more customers to the new home space, I think they're driving more homes to our product more than anybody else is because we offer that certainty, we offer that closing-ready guarantee. The buyer can lock in their rate. They know they're going to close their home, and they're getting a great affordable product that's really well built. So I think we're taking market share from the existing home market. I would say that as you look at the overall industry this year based on what other people are projecting, it's going to shrink. And in my mind, based on what we're guiding, we're not shrinking as much as the overall sector. And I think we're taking that market share from other affordable builders, and we're taking that market share from the existing home market. Susan Maklari: Yes. Okay. And then turning to the cost structure. You've done a nice job of working with your suppliers to find improvements in there and savings. In this kind of an environment and with the growth that you have already seen in the business over the last couple of years, can you talk about your ability to recognize further savings and what that could mean in the coming quarters? Phillippe Lord: I mean, I would -- well, first, I would say, I think we've done a really nice job pulling back our costs. You look at the savings our teams have accomplished over the last 4 quarters, frankly, it's pretty remarkable. And it's actually put us -- it hasn't completely kept us -- allowed us to overcome the incentive environment, but it's kept us a lot closer than we would have been if we didn't do it. And as you look at our new starts that are going out, they're at meaningfully lower cost than what our starts were going out a year ago. Same thing with our cycle times, our ability to build homes as quickly as we are, allows us to pull back on the amount of specs we're building and really helps us optimize our strategy. So those have been incredible efforts that have set us up to really accomplish the results that we are accomplishing right now. As I look out into the future, you have some things that I think could benefit us and continue to allow us to extract some costs and cycle times, but you also have things out there that are a little concerning. So I'm not sure I'm ready to say that I think there's opportunity. Obviously, there's a lot of capacity in the market right now with people pulling back on starts and multifamily slowing down, labor seems available. And I think with us continuing to lean into our 100% spec strategy, we're capturing that labor. They want to build our homes. They want to be on our sites. We're offering them production. So there may be some opportunity there given our strategy. And then given the fact that we're very streamlined on the purchasing side, if there are tariffs that come through, our main suppliers have ways to pull through other product lines into our portfolio that can help us mitigate anything that's happening on the tariff side. But there also are some indications that tariffs are going to impact cost in 2026. So those could go the other way. And then obviously, you have immigration issues that are happening throughout the United States that could affect labor. So it's hard, honestly, to say whether it's going to get better or worse where I sit today. But I'm really proud of what the team has accomplished, and I think we can absolutely hold the line where we are right now. Hilla Sferruzza: I think as we mentioned in our remarks, we're always going to push for more because we want more. But the real opportunities are going to manifest themselves once the newer land vintage comes through as we're working to negotiate land development contracts or renegotiate land development contracts and maybe see some slight savings in the land market. So it's going to be a little bit of a longer time line until those become visible in the P&L. But I think that the kind of more material round of opportunities really lay on the land, land development side, although we are still going to push on the purchasing side, we're at a pretty low cost right now. So not sure there's something very, very material on that front. Operator: Our next questions come from the line of Rafe Jadrosich with Bank of America. Rafe Jadrosich: Can you talk about the lot inflation that you're seeing today? And if there's any like visibility going forward, how that should trend? I know you're saying that the costs start to come down as we go in the out years, but just like relative to where it is today, what's the expectation for '26? Hilla Sferruzza: Yes. We're not providing that level of guidance on lot cost inflation or the land inflation, especially because we're not providing any 2026 guidance just quite yet. I don't think that we're any different than our peers. I think everyone said that what you're seeing is going to continue or maybe get even a little bit worse as you tip into 2026. And then hopefully, we'll all start seeing the improvement in the lot cost starting in '27 and then more meaningfully into '28. Obviously, a huge piece of that is a function of the incentive environment, right, a lot as a percentage of total revenue, even though obviously, it has an absolute cost on its own, but we're not prepared to provide any specific guidance on lot cost, but I would say we're not an outlier from what our peers are experiencing. Rafe Jadrosich: Okay. And then I think the midpoint of the revenue guidance implies that delivery ASP is up sequentially from what you did this quarter and then like the orders are basically sort of more flattish. Can you just talk about, one, like where the delivery ASP has been coming in the last couple of quarters, it's been a little bit below guidance. Is that just incentive and discounting environment? And then what's driving that improvement as we go into the fourth quarter? Phillippe Lord: Yes. So what's -- where revenue and ASPs have missed the midpoint of our guidance over the last few quarters has absolutely 100% been incentives. So just incremental incentives that we had to offer throughout the quarter to achieve the absorptions we were targeting. And then as we look into Q4, the higher delivery number is just built off of our community count growth. So that's really what's driving that. And any change in ASP is driven by the mix of the communities that we're opening up and closing homes in versus our prior mix. But we're not assuming much more incentive load a little bit more because of what Hilla said, year-end, lot of builders are pretty aggressive during the nonseasonal time of home buying. So there's a little bit of that. But most of it is just driven by the mix and the incremental volume you should get from our community count growth. Operator: Our next questions come from the line of Jade Rahmani with KBW. Jade Rahmani: Can you comment on how existing home inventory is trending in your markets and if you're experiencing any increased competition? And if the 60-day guarantee is helping to offset if you're getting uptake from that? Phillippe Lord: Yes. I think consistent with what others have said, certainly, there's more inventory in the market than there was a year ago. I think there are specific markets out there where we would say it's more relevant than others. But then I would also say, as I said in my prepared remarks, really when we see the existing home inventory increase in our markets, it's not very competitive. It's older homes. It's not as affordable. It's not in our price range. They're not offering the incentives that we are from a rate buydown perspective. So we don't really feel like it's extremely competitive. And then, yes, our strategy is 100% built on competing when that inventory comes back. We are offering a new home exactly the way you can buy a used home, but you don't have to make the compromise. So we do believe that, that inventory comes back. We're going to be leaning even harder into our strategy around the move-in ready home, the closing-ready guarantee and our realtor strategy to make sure we're competing with that existing home inventory head on. Jade Rahmani: In terms of the market commentary you provided, I don't think I heard Phoenix. Could you give an update on that market, please? Phillippe Lord: Yes. We're hanging in there in Arizona. The economy is doing really well here. There's a lot of jobs being created here. And there's a real diverse set of jobs that are coming into the market. Obviously, the Semiconductor business is growing really fast here. So the economy is strong. Quality life is strong. It's very competitive. Affordability is really critical here. We're seeing one of the more competitive environments from our other peers as it relates to competing. So although there's strong demand environment and I think supply is manageable, the margin compression is significant in Phoenix due to the incentives and the affordability that we're trying to solve. Operator: Our next questions come from the line of Jay McCanless with Wedbush Securities. James McCanless: Just a quick one for me. Thinking ahead to '26 and when you guys lined up the new strategy, you talked about how it would have a little abnormal seasonality. Is that what you're still expecting for next year and just to let the community count drive the volume growth? Is that how we should think about it and not really worry about what normal seasonality used to be for your business? Phillippe Lord: Yes. I think what you're referring to is we were talking a little bit about the cadence of our business. So traditionally, when you're a move-up builder and you have longer cycle times, Q1 is traditionally a lower leverage quarter. Q2 is slightly better and then Q3 and Q4 are when you really close all the homes that you sell in the spring. Since we're selling homes real time, we really feel like Q3 is our lowest leverage quarter. And then Q1 and Q2 are actually much stronger with Q4 being in the middle. So I would expect to see that a similar pattern. But that all being said, we have significant community count growth and more coming for next year, which will sort of mute some of that because of the increased store count that we have that's going to increase our volume as long as the market stays consistent. So that's what you should look for. Again, I think Q1 and Q2 are going to be a higher margin quarters for us as long as the spring selling season is there with Q2 and Q3 being modestly lower. Hilla Sferruzza: So just to clarify, Jay, nothing has really changed on -- I mean we don't change market dynamics. So the net sales per store don't change from where they've always been. It's just how quickly do we get those closings into the financial statement. So that's really the cadence. And I think that that's what you were referencing, but I just wanted to clarify. James McCanless: Yes, absolutely. And then could you talk about when the community count is expected to hit next year? Is it going to be front half loaded? Or what have you offset about that? Phillippe Lord: We're not guiding to 2026 yet. In Q1, we'll give you some more visibility. I think we want another quarter to make sure that the cities do what they are -- said they're going to do and the development is happening the way it's happening. But as we said, we're very confident that we're going to have another double-digit year of growth in community count next year in the aggregate of what we accomplished this year. Thank you, operator. I'd like to thank everyone who joined the call today for their continued interest in Meritage Homes. We hope you have a great rest of the day and a great rest of the week. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. We appreciate your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Third Quarter 2025 Acadia Realty Trust Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Gabriella Vitiello, Junior Lease Admin Analyst, please go ahead. Gabriella Vitiello: Good afternoon, and thank you for joining us for the Third Quarter 2025 Acadia Realty Trust Earnings Conference Call. My name is Gabriella Vitiello, and I'm a Junior Lease Administration Analyst in our Lease Administration department. Before we begin, please be aware that the statements made during the call that are not historical may be deemed forward-looking statements within the meaning of the Securities and Exchange Act of 1934, and actual results may differ materially from those indicated by such forward-looking statements. Due to a variety of risks and uncertainties, including those disclosed in the company's most recent Form 10-K and other periodic filings with the SEC, forward-looking statements speak only as of the date of this call, October 29, 2025, and the company undertakes no duty to update them. During this call, management may refer to certain non-GAAP financial measures, including funds from operations and net operating income. Please see Acadia's earnings press release posted on its website for reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures. [Operator Instructions] Now it's my pleasure to turn the call over to Ken Bernstein, President and Chief Executive Officer, who will begin today's management remarks. Kenneth Bernstein: Thank you, Gabriella, great job. Welcome, everyone. Last quarter, I commented that in the ongoing tug of war between economic uncertainty and resilience, resilience seems to be winning. Well, looking at our third quarter results, this continues to be the case. Notwithstanding, continued noise and uncertainty around the broader economy, tenant performance and tenant demand at our properties, especially the street retail component, is continuing, and if anything, this positive momentum is accelerating. In fact, we are probably at an inflection point for our portfolio's operating performance. As John Gottfried will explain, as we look at our forecast for 2026, we see both total NOI growth and same-store growth accelerating, keeping us well above our long-term goal of 5% growth. And we remain focused on making sure that this top line growth hits the bottom line with respect to our earnings. As A.J. Levine will discuss, we see enough internal growth opportunities beginning to take shape to enable us to maintain this 5% plus annual growth well into the foreseeable future. A.J. will walk through in detail our continued progress in the third quarter. But in short, we were busy both harvesting current opportunities as well as planting seeds for longer-term internal growth. This includes realizing a 45% lease spread in SoHo, a 70% mark-to-market on Bleecker Street while successfully opening new stores, representing nearly $7 million from our SNO Pipeline and then positioning us for future growth. We also added nearly $4 million in new leases into our SNO Pipeline. I discussed in detail on previous calls, the tailwinds for open-air retail demand. They're still continuing and remain encouraging, both for our suburban and our street retail portfolio, but the tailwinds for our street retail portfolio seem to have even more momentum for a few reasons. First, is the longer-term secular trend of retailers recognizing the critical need to establish their own network of stores, what we refer to as or DTC or direct-to-consumer stores. This trend is increasing the demand from mission-critical locations, especially in the key markets where we are most active. Second, is the continued resilience and increasing importance of the affluent consumer who are the majority of the shoppers at our street locations. And then third and perhaps most encouraging is the noticeable resurgence of foot traffic and energy on these streets. This energy and excitement was on full display earlier this month at Kith's grand opening at our Walton Street property in the Gold Coast of Chicago. Hundreds of eager customers waited online for hours to shop this exciting 10,000 square foot flagship store. If you've recently shopped at Gold Coast of Chicago and were impressed by what you saw, you're not alone. Our team consistently hears from investors after touring [indiscernible] a given city, how they did not appreciate the vibrancy that is occurring until they saw firsthand. And if you've not toured some of these markets, and are simply relying on your new speed, especially depending on what cable channel you watch, you are missing out on the power of these retail markets. Thankfully, our retailers get this. This is why Melrose Place in L.A. or Green Street in SoHo are experiencing the continued tailwinds well in excess of our expectations. And it is expanding beyond a few major markets and in ways that might surprise you. For instance, in Georgetown in D.C. Notwithstanding all of the attention and concern around Washington, D.C. and surrounding markets due to DOGE or government shutdowns for the majority of our retailers on M Street, foot traffic and sales are up year-over-year and tenant demand has not been this strong in a decade. New York experienced this rebound earlier than most markets. But now we are seeing this play out across all of our urban markets. San Francisco is the most recent example of this momentum, driven by the growth in artificial intelligence, accelerating a return to office and a new mayor, who is making important progress on quality of life issues, that had burdened the city coming out of COVID. And what we are seeing on the ground is that the live, work, play vibrancy that San Francisco has historically enjoyed is coming back and so are our retailers. That resurgence is coming at the right time for our 2 significant San Francisco redevelopment projects. At City Center, we have our new T&T supermarkets slated to open in late 2026, and at our 555 9th Street redevelopment, we recently expanded our Trader Joe's and have a new lease with LA Fitness' high-end club studio, slated to open next year. On a combined basis, these 2 projects have close to 100,000 square feet of additional space for us to lease and are slated to add roughly 5% to our REIT NOI. And if the positive momentum continues, we'll have even more growth. Along with continuing to drive our internal growth, a key additional driver of our business is adding accretive and complementary external growth, both on balance sheet and then through our investment management platform. While we saw a bit of a pause in investment activity around Liberation Day concerns, based on the current status of our pipeline, we are now confident that our 2025 investment activity will match the strength of 2024, which was also a great year for us in terms of external growth. Reggie will walk through our transactions closed last quarter and the opportunities we see going forward, but to reiterate our goals and outlook, given our size, we see our acquisition activity continuing to enable us to move the needle. And while our cost of capital increased some last quarter, we are confident that we can still invest accretively and we will. For our on-balance sheet street retail investments, this confidence is due to a few factors. First, Acadia is in somewhat of a unique position of being a buyer of choice. There are certainly private market participants that are active competitors, but we have carved out a niche and a reputation that gives us a competitive advantage in the street retail space, an advantage that does not exist in other segments of open-air retail where there are too many well-capitalized private participants for any one public or a private player to have a unique advantage. Second, along with being a buyer of choice, many retailers view us as a landlord of choice, and they are steering acquisition opportunities our way as well. And then finally, as we discussed on the last call, the scale that we continue to build, both in terms of ownership concentration in a given corridor as well as tenant relationships nationwide, is giving us increased visibility into the accretion potential we can achieve in any given investment and providing us a competitive advantage over other bidders. All of this makes us uniquely well positioned to continue to attractively add street retail to our portfolio, and it provides further support for why we are focused on building Acadia into the premier owner operator of street retail in the U.S. Then for our Investment Management platform. The volatility in the REIT market is less of an issue. Perhaps, it's even a tailwind, since we rely on our institutional partners for the majority of the capital and are generally recycling our equity in this complementary and profitable by fixed sell arm of our business. So in conclusion, as we look forward, our peer-leading internal growth looks like it has several years of tailwinds behind it. Coupled with continued strong external growth and a balance sheet with multiple avenues of access to capital, we are well positioned to absorb any speed bumps and more importantly, capitalize on the exciting opportunities in front of us. I'd like to thank the team for their continued hard work. And with that, I will hand the call over to A.J. Levine. Alexander Levine: Thanks, Ken. Hi, everybody. Good afternoon. So jumping right in, I'm happy to report another successful and productive quarter of leasing, with the team executing on another $3.7 million in ABR and bringing total signed leases year-to-date to $11.4 million, keeping us well ahead of last year's record-setting pace. To put that into some context, for every $1.4 million of new revenue we add, that equates to about $0.01 of FFO. And overall GAAP spreads for new and renewal leases on our streets were 32%. Looking forward, we've seen no signs of a slowdown in tenant demand. And in addition to the leases we signed during the quarter, we've increased the size of our lease negotiation pipeline to $8 million, which is $1 million ahead of where we were at the end of Q2. In short, that translates to an increase in leasing velocity, fueled by pending new leases on North 6th Street in Williamsburg, Newbury Street in Boston and on Melrose Place in Los Angeles, all markets where we will see the highest level of contractual growth at 3% per annum. The pipeline also includes another impactful deal in San Francisco, where so far this year, we've executed on over 90,000 square feet, including new leases with T&T Supermarkets, LA Fitness Club Studio and a long-term renewal and expansion of Trader Joe's. John will get into the details of our SNO pipeline, but in Q3, we converted approximately $7 million of ABR from SNO to open and paying tenants. Impactful openings from the quarter included the Richemont brand Watchfinder, John Varvatos and Alex Moss, all in SoHo; Kith on the Gold Coast of Chicago; Moscot on Armitage Avenue; and J.Crew on M Street in D.C. But this is not just leasing and delivering space. In addition to filling vacancies, we are prying loose and profitably backfilling space while improving the curation and merchandising along our high-growth streets. In the third quarter, we pried loose and replaced 4 tenants in high-growth markets, including M Street, Williamsburg, Bleecker Street and SoHo at an average GAAP spread of 36%. Each of those leases is subject to 3% contractual increases and the opportunity to once again mark-to-market in the relative near term through FMV resets. During the quarter, we added, expanded or renewed some highly coveted brands, including Veronica Beard, Faherty, Theory and Frame Denim, again, all in SoHo. Sezane on M Street, Doen on Bleecker Street, Tecovas on Henderson and Practice Room in Williamsburg, just to name a few. I'm also happy to report that momentum on Henderson Avenue in Dallas continues to build, and the redevelopment is ahead of pro forma. Over 60% of the retail is spoken for with some of today's most recognizable and coveted brands, several of which you will find elsewhere in our portfolio on Armitage Avenue, the Gold Coast of Chicago, in SoHo and on Melrose Place. Which become clear over the last several quarters is that our strategy of building scale in must-have street markets means that our team is getting the first call, the early call and the urgent calls. Our recent lease with Sezane in M Street is a perfect example of our first call advantage. Like many recent negotiations, this one started with the simple question, where can you put me? As the largest owner of retail on M Street, Sezane knew that we were the right landlord to help them find a long-term home in Georgetown. And true to form, we were able to pry loose an under-market tenant, increase the rent by double digits and upgrade the overall curation of the street. Historically, tight supply means that tenant calls are coming in early, sometimes 12 to 15 months before a space will become available. We are currently in active negotiations with tenants on Melrose, in SoHo and on North 6th Street for space with expirations that are all more than 12 months out. And finally, the strong sales performance we continue to see on our streets is creating a sense of urgency amongst our tenants. There is a very real fear among tenants of missing out on the incredible sales growth that our highest earning consumers are continuing to drive on our streets. From reporting tenants on our streets, year-to-date comparable soft goods and apparel sales continue to outperform. In SoHO, sales are up 15%; on Bleecker Street, north of 30%; and on the Gold Coast of Chicago, driven largely by an accelerated recovery on North Michigan Avenue, sales are up over 40%. Even on State Street in Downtown Chicago, which has certainly felt the effects of hybrid work over the last several years, we are seeing the early signs of a strong recovery with sales in our portfolio up over 10% year-to-date with one flagship tenant in particular, up over 20%. And on M Street, despite all of the headlines in D.C. this year, sales are up 16% year-over-year and show no signs of slowing. To be fair, we are seeing positive sales growth in our suburbs as well, but nothing resembling the double-digit growth on our streets. So when we consider the overall landscape, accelerating sales growth on our streets, strong tenant demand and the scale we've built to capture that demand, it's full steam ahead. With that, I'll echo Ken on thanking and congratulating the team for their hard work this quarter, and I will turn things over to Reggie. Reginald Livingston: Thanks, A.J. Good afternoon, everyone. As noted in our earnings release, our Q3 activity brings our year-to-date acquisition volume to over $480 million. And based on our current pipeline, we're looking to double that amount by year-end. It's important to note for a company of our size, that's extraordinary growth unmatched within our sector, but it's not simply growth for growth's sake. These deals are poised to deliver the earnings and NAV accretion consistent with our goals, not to mention strong CAGR to complement our internal growth. Our year-to-date activity and our pipeline are being driven by a few factors we're noticing. As Ken said, while street retail opportunities slowed down midyear, caused in part by Liberation Day hangover, we're starting to see more of those sellers come off the sidelines. And just as A.J.'s leasing team gets that first call from tenants, we're getting that first call from sellers of street retail as our reputation as a group that knows how to underwrite and close these transactions is well known throughout our target markets. Recall, the vast majority of our street retail transactions this year have been off market, and we expect that competitive advantage to continue. It's also worth noting the improved debt environment is causing sellers to test the sales market more in open-air retail across the board. And as that environment continues, we're confident we'll get more than our fair share. Turning to specific activity in Q3. Within our investment management platform, we acquired Avenue at West Cobb for $63 million. This asset is a 250,000 square foot lifestyle center in an affluent Atlanta suburb, where we will deliver value-add returns through a combination of significant lease-up, upgrading tenancy and harvesting mark-to-market opportunities. As we've done previously for assets slated for the investment management platform, we closed the asset on balance sheet and we'll recapitalize with an institutional investor. And speaking of that capability, we're close to selecting a top-tier investor to recapitalize Pinewood Square, the Florida Power Center we purchased back in Q2, and we expect that transaction to close in due course. So to summarize, through 3 quarters, we've acquired approximately $0.5 billion of assets, and we're looking to double that amount in the fourth quarter. And with respect to our metrics, that nearly $1 billion in deals will yield an attractive going-in GAAP yield in the mid-6s and 5-year CAGR in excess of 5%. And most importantly, these deals will deliver accretion consistent with our $0.01 per $200 million target, a target we could achieve, frankly, with either our balance sheet transactions or our investment management deals. Bottom line, we're achieving our growth goals, and we're excited about a Q4 pipeline that will be keeping our team very busy across street acquisitions in our target corridors and value-add deals for our IMP. I want to thank the team for their hard work this quarter. And with that, I'll turn it over to John. John Gottfried: Thanks, Reggie, and good afternoon. I'm going to dive straight into the quarter, and my remarks today will focus on 3 key themes. First, our differentiated street retail business hit an inflection point this quarter, delivering same-store growth of 13%, and we expect to have this above-trend growth continuing into 2026 and beyond. Secondly, as you just heard from our team, we are on offense, and we have the balance sheet flexibility and liquidity to fund it with our debt-to-EBITDA at 5x and over $800 million available under our revolver and forward equity contracts. And lastly, simplification. We recognize that our guidance methodology of including investment management gains and other items is unduly complicated and results in a level of volatility that is not at all indicative of our underlying NOI growth. And as discussed on our last call, we will be refining our 2026 FFO definition to provide investors with a single metric that directly links to the growth of our real estate business to bottom line earnings, driven by our highly differentiated street retail portfolio. Now diving into our results. The third quarter was an inflection point for us, and I want to discuss a few key data points that's driving our confidence of above-average NOI and earnings growth for the next several years. Starting with NOI. Same-store NOI came in ahead of our expectations at 8.2% with our street retail portfolio delivering 13% growth during the quarter. And with expected same-store growth of 6% to 7% in Q4, we are on track to come in at the upper end of our 5% to 6% projection for the year. And now for those modeling on the call, here come some numbers. Our growth was driven by approximately 5% of our ABR comprised of $6.7 million in pro rata rents commencing during the third quarter, with virtually all of it representing leases in the same-store pool. In terms of the earnings impact, approximately $1 million was recognized in Q3 earnings. The full $1.7 million impact will show up in Q4, leaving us with an incremental $4 million in 2026. Additionally, the $6.7 million of commencing rents increased our occupancy by 140 basis points this quarter, keeping us on track to achieve 94% to 95% by year-end. It's also worth highlighting that our street and urban occupancy sequentially increased 280 basis points this quarter, with several hundred basis points of future growth in front of us with just 89.5% of our street and urban portfolio occupied as of September 30. And our leasing team continues to set us up for future growth. We signed $3.7 million in new leases or approximately 2% of ABR during the third quarter, resulting in an $11.9 million signed not yet open pipeline as of September 30. Over 80% of the $11.9 million pipeline resides in our street and urban portfolio and is comprised of $4.4 million in our REIT operating portfolio, which, as a reminder, means our same-store pool, $6.5 million from our REIT redevelopment projects and $1 million from our share from the investment management platform. And in terms of the estimated timing and earnings impact of the $11.9 million signed not yet open pipeline, approximately $5.5 million of ABRs are projected to commence in Q4 with the remaining $6.4 million in 2026. And when factoring in the expected rent commencement dates, this results in anticipated earnings of approximately $700,000 in Q4 2025, of which roughly $200,000 is same-store, $7.4 million in 2026 with about $3.5 million of it being in same-store, leaving us with $3.8 million in 2027. Additionally, consistent with our discussion last quarter, approximately $9 million of the $11 million will hit our bottom line earnings after adjusting for interest and other carry costs that we are capitalizing, primarily for REIT assets and redevelopment, with the vast majority of these capital costs attributable to our City Center redevelopment project in San Francisco and our new grocer TNT, which we are targeting a late 2026 rent commencement date. I recognize that I just dropped a lot of numbers on you. But when stepping back, it's these data points that are driving our confidence in Q3 being an inflection point and setting us up for outsized growth in 2026 and beyond. And more specifically, our increased conviction of achieving the 10% REIT portfolio NOI growth target in 2026 that we discussed on the second quarter call. Based on our current model, we are projecting total same-store growth inclusive of redevelopments between 8% to 12% and between 5% to 9% same-store growth, excluding redevelopments, with our street and urban portfolio projected to contribute growth in excess of 10%. In terms of dollars, the projected 8% to 12% NOI growth approximates $12 million to $14 million of incremental NOI over our 2025 projected results or roughly $0.09 a share of FFO at our current share count. And while we're still finalizing our budgets and have some more leases to sign, we are well on our way of hitting our targets. Now moving on to earnings. The NOI growth from our street retail portfolio is dropping to the bottom line and the simplified method of reporting FFO that we discussed on our last call will provide even greater visibility. Driven by the 8.2% same-store NOI growth, we sequentially increased our quarterly FFO by $0.01, to $0.29 as compared to the $0.28 we reported last quarter after adjusting for the gains from our investment management business. And this growth was achieved despite the short-term dilution from the partial conversion of the City Point Loan. In terms of City Point, as mentioned on the last call and disclosed in the second quarter Form 10-Q, about half of our partners converted their interest during the third quarter. As a reminder, had all the loans converted at the beginning of the year, it would have been approximately $0.06 dilutive on an annualized basis against 2025 FFO. So as we've previously discussed, while the loss of interest income will be short-term dilutive for the balance of 2025 and into 2026, this sets us up for meaningful future NOI and earnings growth over the next several years as we continue to stabilize the asset. Moving on to guidance. As highlighted in our release, even with the dilution from City Point, we maintained our FFO prior to the realized gains we earned from our investment management business. Additionally, we have revised and tightened FFO inclusive of gains of our investment management business, driven primarily by the decline in share price of Albertsons. In terms of 2026 guidance, as we discussed last call, we will be moving to a simplified reporting metric. Our new metric will be FFO as adjusted and will exclude the gains from our investment management business, along with material noncomparable items that we believe are not reflective of our core operating results. Please take a look at our investor deck on our website, which further discusses the reporting change and what this revised metric would have looked like for our 2025 earnings. And for those on the sell side that have not yet done so, please update your 2026 earnings estimates based upon our revised definition. Additionally, while an important and highly profitable part of what we do, we are no longer going to include investment management gains and promotes in any of our earnings guidance metrics going forward. So we would ask that you please also exclude these from your metrics to avoid any inconsistencies amongst the analyst community. Thus, NAREIT FFO and our new metric, FFO as adjusted, should be identical when we provide our 2026 guidance in February. And when we earn a promote in any given quarter, it will be included in NAREIT FFO and excluded from FFO as adjusted. And please keep in mind, while we won't be including investment management gains and promotes as part of our guidance, this profitable part of our strategy will continue to be an important part of our business with approximately $30 million of near-term gains anticipated. And finally, I'll close with an update on our balance sheet. With our pro rata debt EBITDA at 5x and meaningful liquidity, our balance sheet has a dry powder to play offense. We raised approximately $212 million of equity at the quarter at just under $20 a share to accretively fund our acquisition pipeline and the Henderson Redevelopment project in Dallas. As A.J. mentioned, Henderson is on track, and we are in advanced stages of lease negotiations on a significant portion of the project, giving us increased confidence of achieving our targeted 8% to 10% development yield and $0.02 to $0.04 of projected incremental FFO growth commencing in 2027 and into 2028. I also want to point out that over the past few quarters, we have acquired 5 additional properties on Henderson Avenue, which we've set aside for future development. And combined with our existing holdings, this brings our ownership to well over 50% of this premier retail corridor. So in summary, with strong embedded internal growth and meaningful dry powder on hand to accretively fuel our large and growing pipeline of external opportunities, we are incredibly excited as we look forward over the next several years. And with that, I will turn the call over to the operator for questions. Operator: [Operator Instructions] And our first question will come from Floris Van Dijkum with Ladenburg. Floris Gerbrand Van Dijkum: Obviously, underlying results appear to be really solid here and you did raise some equity. Maybe my first question is, can you lift the veil a little bit on your -- the pipeline of acquisitions you're looking at? You did talk -- I think, Reggie, you indicated that about a chunk of the doubling of investments or ballpark figure, $500 million of investments is Henderson, which I believe the total cost is around $190 million, $200 million. Maybe talk about some of the other potential investments you're looking at and maybe talk about the difference between cash yields versus GAAP yields. John Gottfried: Before I turn it over to Reggie, just to clarify, the acquisitions Reggie is mentioning are separate and beyond what we're talking about for Henderson. So those are incremental to Henderson. So Reggie, do you want to take the... Reginald Livingston: Yes. Let me start with the bottom of GAAP yield and cash yield. As I said before, we feel really confident that we're finding the right opportunities in street retail that may take a 5% cash yield into the mid-6s, which is our target for GAAP yield. So trying to find those deals with the right attributes of lease duration and mark-to-market. We found those. We're continuing to find those in the pipeline as well. So we feel good about not only getting deals done, but getting deals done at our metrics. What was the first part, Floris? Floris Gerbrand Van Dijkum: Are they in existing markets in particular? I'm curious what percentage would you say is New York versus other areas? Reginald Livingston: They are in existing markets. We still like New York and still doing a lot of activity there. But they go kind of up and down the East Coast, but I would say most of it is focused on New York, just looking at our pipeline today. Kenneth Bernstein: Floris, again expect our geographies, though, to expand, and it's a fluid situation. So we'll be in other spots as well. Floris Gerbrand Van Dijkum: Great. And then maybe the momentum in the street appears to be really strong. You guys are seeing no signs of slowing down in terms of tenant demand? And are retailers focused on their occupancy cost, i.e., are they able to generate the sales to be able to pay the rents to be in your street locations? Kenneth Bernstein: Yes. I think a few things are at work in terms of that. Some of the economic recovery that we're going through that some refer to as a K recovery. Certainly, the affluent consumer is driving more of this recovery, more of the spending than was historically the case, and that seems to be continuing. Couple that with the fact that the affluent consumer is who drives street retail and from our retailers' perspective, the shift from wholesale to stores, the shift to DTC, as I touched in my remarks, means that these retailers in order to capture that customer have to be on these key streets, means that they need these stores. And to your point, the sales are showing up, the profitability is showing up. The other thing, as I reflected on the last 6 months, we, as investors, perhaps were fighting the last war. And so immediately, when Liberation Day hit, we were all focused on, oh my gosh, the consumer is going to focus only on necessity items. Well, for some segments of the consumer, that may have been the case, those living paycheck to paycheck. But in general, the affluent consumer has continued full speed ahead and thus, our retailers has followed. And I guess my takeaway was we thought with Liberation Day, it was what you are selling, i.e., necessities versus discretionary. And it's really more about who are you selling to and how are you selling? Who, meaning to the customers who are shopping on our streets and then how our retailers recognize that the physical channel in an omnichannel world is by far the most profitable. All of that's leading to this much longer-term trend, what I refer to as a secular trend of the street locations being must-have for a wider and wider variety of important retailers, and that's why you're seeing the kind of results that A.J. discussed. Operator: And our next question will come from Linda Tsai with Jefferies. Linda Yu Tsai: A question for John. The 5% to 9% same-store growth ex redevs in '26 is impressive considering the tough comp in '25. But could you go into some of the considerations of what would make you hit the 5% versus the 9% since it's a wide range? John Gottfried: Yes. Linda why don't we first start with -- and I know I throw a lot of numbers out there. When you look at the transcript, you could digest them. But a couple of data points that gives us confidence in doing that. If you look at the commencements, this quarter alone, right, with the $6.7 million that commenced, our incremental pickup from that is $4 million plus of what we have in our SNO that will commence. So this is all same-store, another $3.5 million. So when you apply both of those numbers together, you're above 5% already in that number. You then have contractual growth that's going to go on top of that. And not to accept there's going to be move-outs as there's always in that portfolio. But in terms of our level of conviction, we feel really good about the 5%. And to get us to the 9%, it's -- as I mentioned, we have some leasing in the normal course to do. So it's how quickly do we get some of those spaces leased and open, gets us to the 9%. But that factors in as we sit here today, rollover credit, et cetera. But we'll update that as we get closer, but feel pretty confident of that range for sure. Linda Yu Tsai: And I have a follow-up for Ken. If you could snap your fingers and vastly increase your street retail concentration in 1 or 2 specific markets, which would they be? Kenneth Bernstein: Oh, no. Thank goodness. I don't get to snap my fingers. So of our existing markets, there are some that are up and coming and intriguing. San Francisco certainly would fall into that category. Their new mayor is doing a fantastic job, and we're enjoying the tailwinds in our 2 redevelopments. I'd be happy to see more there. Dallas, certainly of one of our existing markets, strong demographic trends, and we're capturing the right retailers at the right time. So those will be 2 that would add good balance, good diversity overall. But open order from, frankly, most of our markets. M Street, there's no reason we shouldn't continue to add there. New York selectively, no reason we shouldn't add there as well. Operator: And our next question will come from Craig Mailman with Citi. Craig Mailman: Just to go back to the acquisitions, just to clarify. So Reggie, should we take away from it that there could be up to $500 million of potential deals in 4Q? And is that like a gross number and maybe your net would be lower as you partner with people? Can you just kind of put some goalposts around it? Reginald Livingston: Yes, that's a gross number. And just to be clear, when I talk about this pipeline, this is the product of exclusive negotiations, right? So it's not just, "Oh, there's an OM on the street and I'm just included in the pipeline." These are specific conversations we're having, but that is a gross number that we could achieve in the fourth quarter. Kenneth Bernstein: And keep in mind, Craig, somewhat coincidentally, but conveniently, the earnings accretion, whether it's on the investment management platform side or on the street retail from an earnings perspective only, they're both about equally accretive on a gross-to-gross basis and our effective input. So from an earnings perspective, the same. That being said, we certainly appreciate the importance of us adding the street retail piece, the long-term permanent ownership. Craig Mailman: Right. And so it could be $0.025 accretive on an annual basis is what you're saying, given the magnitude in your historic $200 million or $0.01 for every $200 million. Kenneth Bernstein: Exactly. And that's still playing out at... Craig Mailman: Okay. Then... Kenneth Bernstein: Go ahead. Craig Mailman: Okay. So I was just going to say from the financing perspective, right, you guys have -- you did the forward equity. You potentially have some capital coming back in from the recap of the 2Q acquisition. And then you guys have -- clearly, the debt market is wide open here. So from a -- as we think about kind of sources to fund this and maybe timing with taking down some of that forward ATM and some dispo proceeds, like how should we think about that whole mix given maybe what you guys have in the fourth quarter plus Henderson Ave financing to continue, right? And that's a higher return, so maybe you earmark more equity for that versus more debt for acquisitions? I mean could you just talk about the puts and takes on how you guys are thinking about that to maximize accretion? John Gottfried: Yes. Why don't I start and then, Ken, if you want to jump in. But I think, Craig, the way we want to -- the way that we're going to manage the balance sheet is that we're going to stay on a pro rata basis debt-to-EBITDA, inclusive of whatever share we do in Investment management, sub-6 and sub-5 where we just look at rebalance sheet debt to EBITDA. So that's just sort of our goalpost as to where we're looking for. And we look at -- you mentioned the liquidity in the debt market, and it is outstanding in terms of both primarily on the secured side, we're seeing incredible tightening of spreads and availability of capital. But on the unsecured side, we are borrowing at 120 over. So we look at on a 5-year swap that we borrow on an unsecured basis, we'll be able to do in the mid-4s. So when we look at the mix of what we do -- so think of those goalposts as to where we're going to keep our debt-to-EBITDA targets. We have plenty of liquidity available. Our revolver is virtually completely untapped. And you mentioned we have the proceeds coming back from the recap of the asset we did during the second quarter. So plenty of liquidity that are going to be able to manage the acquisition pipeline that's coming on, and we're going to do that in the most efficient way possible. Kenneth Bernstein: Yes. And just to clarify or just so that there's no doubt, we are in a position now to fully fund all of those opportunities as well as play offense going forward. And what John is articulating is the wide variety of choices we have in terms of how we fund this, both in the secured debt market for our investment management platform and then the unsecured market. Operator: And our next question comes from Andrew Reale with Bank of America. Andrew Reale: I guess first on the investment management platform. First, on West Cobb, Reggie, I think you said you're close to closing with an institutional partner there. So I'd just be curious to kind of hear how the level of demand from potential partners was after you closed on that asset? And maybe just more broadly, are you seeing increased partnership interest from institutional capital? And how might that be shaping your investment management strategy overall? Reginald Livingston: Yes. We're seeing broad demand. There's a lot of institutional investor demand. All of the fundamentals that A.J. and Ken have discussed are not a secret anymore. I feel like they were a secret for some time with institutional investors. But now the note is out, everyone gets it and everyone is looking to do retail. What they're finding at the same time is retail can be very idiosyncratic. And so you have to have best-in-class operators in order to do it. So we're certainly on inbounds of a lot of groups saying, "Hey, we want retail, but we need a best-in-class operator to do it." So whether it be Pinewood or Cobb, we have no shortage of opportunities to recap those 2. And as far as on a go-forward basis, we feel really good that we'll be able to do all the deals that we want to do from the investment management platform and find the capital as needed. Andrew Reale: Okay. And maybe one for A.J. Specifically at the core properties you've acquired this year, I'd just be curious what proportion of that mark-to-market and pry loose opportunity kind of has already been addressed or is going to be addressed by year-end versus how much is still left to be realized in '26 and beyond? Alexander Levine: Yes. Well, we're not going to get into specific numbers, but I'll tell you a few things, right? I mean we look to number one, the incredible growth we've seen in these markets, right? 15% sales growth in SoHo, 30% Bleecker, 40% in Chicago. We look at tenant health, right, which is stable and only improving as those sales outpace contractual growth, demand at the highest level it's been in a decade. And then, of course, the scale that we've built in these markets to capture that. Couple that with what we've already accomplished this year through our pry loose strategy, right, taking back 9 spaces, re-leasing them at an average spread of about 32%. That should give you an indication of where our markets stand and the opportunity that we think is ahead of us in each one of those markets. Operator: And our next question will come from Todd Thomas with KeyBanc. Todd Thomas: First, I wanted to follow up on the funding questions around investments. Any sense what the split might look like on that $500 million pipeline between core and investment management deals? I'm trying to just get a sense what the net number might sort of look like as you're looking at that today? And then, John, it doesn't sound like the accretion math changes right now for the current pipeline with the capital that's been raised. But does the current stock price and your current cost of equity capital change how you would think about funding future investments or the returns that you might require going forward? John Gottfried: Yes. Let me start with that and then kind of Reggie can take the second piece. So Todd, at the current, and we highlighted where we raised the equity just under $20 a share, which is lower than we had done previously in the past year or so. But what has counterbalanced that where we look at our funded cost of capital is the debt market. So if we do and what we're going to do is on a leverage-neutral basis. So with the mix between the debt portion and the equity portion, we're in the mid-5s when we look at the -- when we put in -- using the FFO yield on the equity raising at the price that we did it at, plus the mid-4s on the debt piece. So that's where our all-in funding cost, and I'll let Reggie and Ken talk about where we can deploy that and grow accretively at that $0.01 per 200. But that's how we're looking to fund it, and we can do it accretively and it's stuff we want to buy with the current capital markets. Kenneth Bernstein: Let me take a stab then at the first part of the question where Todd asked, how much is the breakout between the investment management platform or on balance sheet. Let me take a stab at not answering that, Todd. And I apologize, but I've always struggled with providing too much information about deals that are in our pipeline because I don't think it creates shareholder value. I think it actually hurts to provide too much information and sellers hear about it and this or that. We have a robust pipeline. Otherwise, we wouldn't mention it. It is earnings equivalent either way. And as John just said, we are in a current position where we can fund all of it if it were all street retail or all investment management platform. So no one should have any funding concerns. And then I will be that, and we're going to be that vague until we see which ones get done by year-end, how much of those then fall into the next quarter. But I'm confident that there are investment management platform deals that are going to be very accretive, very exciting, very profitable. And I'm even more confident over the next quarter, but more importantly, over the next year or 2 that we're going to continue to grow that street retail accretively, notwithstanding a volatile REIT market, accretively and profitably as we continue to drive Acadia to be the premier owner-operator of street retail in the U.S. Quarter-to-quarter, I just don't want Reggie to answer that question, even though he knows the answer. Todd Thomas: Okay. Understood. My other question, A.J., you mentioned that the suburban portfolio is performing well, but noted the growing delta in growth rates between the street and suburban portfolios, which we've seen now for quite some time. The company sold one asset in Dayton from that suburban portfolio. Can you just comment on pricing for that disposition and whether or not you'd consider selling more suburban strips to improve portfolio growth and sort of further reshape the complexion of the portfolio overall or accelerate that? Alexander Levine: I'm happy to take a guess, but I'll pass it off to Reggie. I think he's probably better equipped to answer that one. Reginald Livingston: Yes. Look, if we can accretively dispose of assets that are no longer core, Dayton, that's a legacy Acadia asset. If they're no longer core and the business plan is finished, and we can sell those assets and accretively redeploy, we'll always look at those opportunities to do so. Kenneth Bernstein: Todd, the devil's in the details of transaction costs, friction costs, tax issues and all of that. So it's not as easy as snapping my fingers as someone said earlier. But you should expect the majority -- vast majority of our growth to be street and urban and over time, whether we cycle assets into our investment management platform, which you have seen us do or just outright sell them, that's how we will be dealing with the suburban side. That being said, and it's important to note, suburban retail has real tailwinds as well. There's nothing about us focusing our long-term REIT ownership on street retail that in any way negates us being opportunistic on acquiring shopping centers in our investment management platform. That's where they belong, utilizing more leverage and being leveraging off of our institutional equity partners as well. Operator: And the next question will come from Michael Mueller with JPMorgan. Michael Mueller: First, I guess, what was the ballpark range of rents that you achieved on the 300 to 400 basis points of street openings that occurred during the quarter? John Gottfried: Yes. So A.J., maybe give some color on the biggest markets where of the openings were in Chicago and D.C. So maybe just talk about those 2 markets that -- on Walton and M Street. So maybe to see what -- just talk through the range on that. Alexander Levine: Yes. Specific to the properties that we rolled online. I mean those are -- especially in those markets, those are multilevel space. There's a lot of nuance within those markets. So it's really hard to peg a per foot number. I can talk to you about growth in each of those markets... John Gottfried: [ Footage ] on the ground. What would you say the ground would be on... Alexander Levine: Armitage. Yes. Ground on Armitage is, let's call it, between $120 to $130 a square foot. And Wisconsin Avenue seeing real increase in rents there. I mean, rents are up to the $150 a foot range. John Gottfried: And then on Walton Street. Alexander Levine: On Walton Street, ground floor space at this point is leasing for, call it, $350 to $400 a square foot, which again is pretty remarkable when we look at where we were even just a few years ago. Michael Mueller: Got it. Okay. So if we think of those numbers and try to do some blending, that's probably representative of the blended rent for the 360 basis points that came on? John Gottfried: Probably is, Mike. And then here's the challenge that I know you and I have had multiple conversations on. A, just a wide range that A.J. gave would give one challenge. Secondly, if you just look at square feet, and if you look at the one building that came on in Chicago, it's 2 floors, right? So it's 2 floors. So the second floor is going to get a different attribute. So I would -- as we've talked about in the past, I would love to just say you could just use a single dollar mark, $137.5 per square foot, but it really, really depends on the building that's going in because it really can move the needle dramatically. Michael Mueller: Got it. Okay. And then the second question, for the City Point conversions, are there any more expected over the near term? John Gottfried: I would say at this point, we don't have new information as to -- we now own 80%, so there's another 20%. Look, I would say that -- and we're not putting out guidance, but I was putting out -- if I was forced to put out guidance at this point, I would assume that, that comes out in '26, Mike. But we don't have new information. But I think for modeling, you should assume that, that does come out in '26. Operator: And our next question will come from Paulina Rojas with Green Street. Paulina Rojas-Schmidt: I only have one question. The strong underground fundamentals you have described extensively in this call, I don't think they have been reflected in the year-to-date performance of the stock. So what do you see as the main drivers behind that share pullback? And what would be your contra arguments to the market's reaction? Kenneth Bernstein: I wish I could control our stock performance, I can't. We are doing as good a job as we can is providing additional clarity, and I think this will be important of top line growth hitting the bottom line. But what we have seen, and I've been through more than a few cycles, is if we take care of our day-to-day business, meaning leasing and acquisitions, sooner or later, the market follows. I always prefer if it's sooner. And I'd say over the last 6 months, it's been a little frustrating that it's taking longer for us than I think is deserved. But Liberation Day was very disconcerting for a lot of different folks. And the immediate conclusion that discretionary retail was going to somehow be significantly impacted and high rent street retail even more so turned out to be dead wrong. Our retailers have done a fantastic job of navigating around supply chain and the consumer has hung in there. Now whether it takes us 3 months, 6 months or 9 months, sooner or later, what we have found is shareholders get it. And when we're posting the kind of results that we are at the real estate level, well, I'm going to rely on you, Paulina, to get the story out of what you saw in Chicago, what is going on in San Francisco, what is happening certainly in M Street and things like that because when people see it with their own eyes, then sooner or later, it shows up. And if we continue to deliver at the property levels, both in terms of internal growth, external growth, we've seen time and again the stock recovers, not fast enough for my impatience, but overall, it tends to work. And so I believe it will. That being said, I'd rather it be sooner than later. Paulina Rojas-Schmidt: Okay. Hopefully, you're right and things go your way. Kenneth Bernstein: We're counting on Green Street to help us. Did you have a follow-up? Operator: My apologies. Kenneth Bernstein: No, I'm going to add one other thing to help Green Street and everyone else, and John maybe chime in. One area that continues to frustrate me is leasing spreads. We have said in the past, not all spreads are created equal. John, why don't you chime in just quickly because we have a minute or 2. John Gottfried: Yes. And I think where we look at that calculation, there's lots of metrics out there. I think the one that Ken mentioned, not created equal, and we have a -- anyone interested, we have a page in our deck, but the simplest form that if we look at, and we have both of them, a suburban lease and a street retail lease that we would need to accomplish the same growth rate that from the time the lease started to the time we get to mark that to market, we would need probably more than double the spread that we get from suburban than we would on the street because of the 3% contractual growth as part of the street piece. So that's one metric that I think that we want to keep reminding folks that we have the 3% contractual growth. And when you look at a spread, that sort of ignores what you have done historically. Kenneth Bernstein: So Paulina, you can add that to your thoughtful pieces. And operator, I think that concludes all of the questions. So I'd like to thank everybody for taking the time to meet with us. Thank you to the team for producing some extraordinary results. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Greetings, and welcome to the Third Quarter 2025 IDEX Corporation Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jim Giannakouros. Thank you. You may begin. James Giannakouros: Good morning, everyone, and welcome to IDEX's Third Quarter 2025 Earnings Conference Call. We released our third quarter financial results earlier this morning, and you can find both our press release and earnings call slide presentation in the Investor Relations section of our website, idexcorp.com. On the call with me today are Eric Ashleman, President and Chief Executive Officer of IDEX; and Akhil Mahendra, our Interim Chief Financial Officer and Vice President of Corporate Development. Today's call will begin with Eric providing highlights of our third quarter results and a discussion of our current business outlook and strategies. Then Akhil will discuss additional financial details and our updated outlook. Following our prepared remarks, we will open the line for questions. But before we begin, please refer to Slide 2 of our presentation, where we note that comments today will include forward-looking statements based on current expectations. Actual results could differ materially from these statements due to a number of risks and uncertainties, which are discussed in our press release and SEC filings. As IDEX provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website. With that, I will turn the call over to Eric. Eric Ashleman: Thanks, Jim. Good morning, everyone, and thank you for joining us today. The IDEX teams across the globe collectively delivered better-than-expected results in the third quarter of 2025 and I'm proud of our team's hard work and steadfast commitment to execution, particularly given today's challenging economic conditions. I'm on Slide 3. Regardless of the business environment, our business model and 8020 philosophy, along with our strong balance sheet and continued robust cash generation position us to quickly address challenges and pursue opportunities as they arise. We do this while remaining focused on driving long-term sustainable growth and value for all of our stakeholders. As we'll discuss further today, our team is laser-focused on the things we can control, thoughtfully executing our strategy amid a dynamic economic environment. Before I provide an overview into our results, I'd like to step back and highlight where we are in IDEX's evolution and frame our priorities in the months and quarters ahead. When IDEX was founded almost 40 years ago, it was effectively a holding company with a portfolio of disparate but attractive industrial businesses. These were strong brands operating independently without a clear governing framework. In Phase II, we introduced a common IDEX culture and business approach, powered by an operating model with 8020 as its heartbeat, not only enhance the efficiency of our operations, but also served as a decision-making framework and growth accelerator, guiding our focus, resource allocation and portfolio optimization. In our current Phase III, we've made a number of foundational acquisitions accompanied by complementary bolt-ons to expand our capabilities in targeted advantaged end markets. These additions helped us establish higher growth platforms leverage to 21st century secular trends. Today, we are intensively deploying 8020 in these areas to enhance efficiencies and productivity and unlock integrated growth potential. We followed this playbook over the previous decade to build our IDEX Health & Science platform. Now we want to repeat the work at a faster pace with more power as we integrate new businesses and technologies into IDEX. I'd like to take a moment and shine a light on the 3 pillars of 8020 driven higher growth, so you can best understand our strategy to unlock sustainable value for shareholders. Please turn to Slide 4. The first pillar involves targeting high-growth advantaged markets as we allocate capital within our portfolio. We acquired 11 outstanding companies over the past 5 years. Each business brings one or more critical technologies to IDEX alongside a series of attractive market access points. Examples of the critical solution set that's expanded for us include support for data centers, space and defense, advanced semiconductor manufacturing and water. Each acquired company links and integrates in some way with other pieces of IDEX, providing scale and efficiency while reducing enterprise complexity. In parallel to this work, we divested 4 businesses with less attractive market exposures and lower potential to scale. Our collective growth entitlement has moved to the right of traditional industrial indexes. We now have 5 thematic growth platforms that cover half of our revenue, and we believe they will disproportionately fuel organic growth for IDEX as we move forward. In prior earnings calls, we talked about our build-out of the intelligent water platform, expanded in the last few years with the acquisitions of Nexsight and Subterra. These businesses were a strong contributor of organic growth for IDEX in Q3. In September, we were proud to host a number of analysts and investors at the largest Water Industry Trade Show in North America. They were impressed by what we've built. We've also publicly referenced some great work at Airtech within our performance pneumatics group. The team continues to win as they support power gen applications for data centers. They were a top driver of orders and sales growth for HST this quarter, making great businesses work together is the second pillar of Phase III growth outperformance. Please turn to Slide 5. Here, we integrate technologies and market access points within growth platforms. As an active example, I'd like to take you through our integration progress within our material science solutions platform. The teams there have done excellent work. They also were strong contributors to HST's growth in Q3. All of the companies within MSS map close to one of three critical jobs to do for customers. One, we form critical material properties. Two, we shape materials to create and control surfaces. And three, we had functionality by applying coatings. The platform brings these capabilities together for power. Our teams like to say, if we hit one of these attributes, we can bid on a project. If we hit 2, we're highly likely to get the order, if we hit all 3, we can set specifications in the space and drive transformative growth. Within MSS, I'd like to highlight how the team at Muon is doing a great job effectively offsetting pressures within semicon lithography to drive performance. With 8020 at the heart of the work, Muon is improving productivity, rationalizing its cost structure, focusing on higher quality revenue and redeploying resources towards higher-value commercial opportunities. An example of tuning towards advantage markets is the development work Muon is actively pursuing now within data center cooling applications after recently winning business in the optical switching space, which we mentioned last quarter. We are excited about the results our 8020 actions are driving, which notably improved Muon's profitability in the third quarter to above HST segment average. The MSS platform is well positioned to drive profitable growth going forward. Please turn to Slide 6. The third key component of Phase II of IDEX' evolution is balanced capital allocation. Akhil will get into more details here, but after the last few years of accelerating larger M&A to build our growth platforms, our current focus is on optimizing our business portfolio, tuning our capabilities in an ever-evolving marketplace, augmenting those efforts with strategic bolt-on acquisitions and returning capital to shareholders. I hope you found this overview of the evolution of IDEX helpful and engaging. We are confident in the strategic plans to drive sustainable profitable growth for shareholders in the years ahead. Now I'd like to move to our third quarter 2025 results, which demonstrate traction on these collective efforts and position us well to deliver within the guidance we set for the second half of 2025. I'm on Slide 7. IDEX delivered better-than-expected third quarter results despite continued macro uncertainty. Our Health & Science Technologies segment, or HST, is building momentum as our teams continue to identify integrated growth opportunities. Overall, organic orders and sales increased 5% and 10%, respectively, year-over-year, on the back of growth in pharma and data centers. Our most recent acquisition, Micro-Lam is off to a great start, enhancing our capabilities and optics given their proprietary material shaping technology. As discussed earlier, we saw strength from our businesses within MSS, notably within our Optics businesses and Muon. HST also drove strong margin improvement due to volume leverage and full run rate of their platform optimization efforts. We see a path for continued margin expansion going forward. While HST continues to successfully turn its capabilities towards advantage markets, the segment's more fragmented industrial market exposures are netting to flattish, and we see little evidence of near-term improvements. And Fluid & Metering Technologies, or FMT, third quarter sales and profitability exceeded expectations, driven by strong execution and pricing. Our water businesses facing municipal markets were standouts in terms of orders and revenue growth. FMT's general industrial exposure points remain stable without signs of positive inflection. Finally, in our Fire & Safety Diversified Products segment, or FSDP disruptions in the funding environment and sluggish replenishment spend impacted our third quarter results and temper our expectations for near to midterm demand. So overall, we see a dynamic macro environment with an uncertainty overhang that we expect will continue into 2026. It's not clear how and when broad external catalysts will line up to support more predictable and positive conditions. But at IDEX, we plan to continue to make our own luck through 8020, tuning our resources and technologies towards those opportunities with higher growth velocities and work together as a team to integrate our growth platforms, providing more solutions power for key customers. We're on track to deliver the second half of the year and look forward to continuing our momentum into 2026. With that, I'll pass it over to Akhil to discuss our financials and our updated outlook in greater detail. Akhil Mahendra: Thanks, Eric, and good morning, everyone. All the comparisons I will discuss will be against the prior year period, unless stated otherwise. As Eric mentioned, in the third quarter of 2025, IDEX delivered strong financial performance. Organic revenue growth of 5% was better than we expected with momentum in HST driving the outperformance. And adjusted EBITDA margin and adjusted EPS came in higher than our forecast for the company overall. Orders grew 7% organically in the quarter. Our HST segment reached a record high at $390 million, and both FMT and FSDP posted high single-digit order growth in the quarter. While order activity was strong on a year-over-year basis, much was received and shipped within the quarter, leaving overall backlog levels relatively flat sequentially, and as a reminder, given the nature of IDEX's rapid fulfillment business model, we typically enter a quarter approximately 50% booked, which limits our overall visibility. Touching on some of the more meaningful business demand trends in the quarter, we saw strong order activity within municipal water, data centers, semiconductor MRO, Pharma and Space and Defense. Semiconductor lithography remained below prior year levels. In Life Sciences, where IDEX provides niche components for analytical instruments, we continue to see low single-digit growth. Finally, while we posted order growth in FSDP, this increase was largely due to timing of orders last year. FSDP order activity was subdued in the third quarter, specifically in Dispensing and Fire & Safety outside of the U.S. Organic sales in the third quarter grew 5% with both positive price and higher volumes contributing versus last year's third quarter. Strong price execution across segments was a primary driver, while volumes increased in both our HST and FMT segments, but declined in FSDP. IDEX adjusted gross margin contracted slightly or 10 basis points versus last year given unfavorable mix. These headwinds were largely offset by productivity gains across our businesses. Adjusted EBITDA margin expanded 40 basis points versus last year, reflecting productivity gains, favorable price cost and volume leverage. These more than offset unfavorable mix. Our platform optimization and cost containment efforts yielded $17 million in savings in the third quarter. These initiatives remain on track to deliver over $60 million in full year savings. Free cash flow of $189 million decreased 2% versus last year on higher working capital. Free cash flow conversion was 123% of adjusted net income. And we remain on pace to achieve our target of at least 100% free cash flow conversion for 2025. We ended the third quarter with strong liquidity of approximately $1.1 billion. And finally, we deployed another $75 million to repurchase IDEX shares in the quarter, taking our total to $175 million for the first 3 quarters of 2025, continuing our acceleration of returning cash to shareholders as Eric noted earlier. Now quickly, some color on our results by segment. I'm on Slide 9. In HST, organic orders grew 5% and revenue grew 10%. Volumes increased on strength in life sciences, space and defense, semiconductor consumables, pharma and data centers. These areas more than offset year-over-year declines in semiconductor lithography and industrial businesses. HST adjusted EBITDA margin expanded 120 basis points year-over-year given strong volume leverage, platform optimization savings, cost containment actions and favorable price cost. These more than offset the dilutive impact of unfavorable mix. Turning to Slide 10. In FMT, organic orders increased 8% and organic sales increased 4%. Orders growth was supported by our intelligent water platform, which delivered strong performance this quarter, with project timing and favorable prior year comps driving results otherwise. Looking at our leading indicator industrial order rates, they appear to be range bound and notably without any strong indication for sustainable inflection in the near term. We also are seeing continued hesitation on larger orders from customers across most of our industrial end markets. FMT achieved adjusted EBITDA margin improvement of 90 basis points driven by favorable price cost and execution of platform optimization and cost containment actions. Please turn to Slide 11. FSDP organic orders increased 7%, but organic sales declined by 5%. Orders benefited from continued growth within North America Fire OEM and growth in BAND-IT. Within dispensing, orders increased, but this was largely driven by timing. Organic sales declined in the quarter, primarily due to soft volumes across Fire OEM, rescue tools and dispensing. While short-term headwinds impacted sales in Fire and Rescue, the broader outlook for these businesses remains steady, albeit with limited catalysts for near-term acceleration as macroeconomic and geopolitical factors weigh on order activity. Dispensing volumes were also pressured, reflecting the natural progression of the business' refresh cycle. As customers increasingly shift towards refurbishing existing equipment, rather than investing in new machinery, we anticipate continued softness in this area. FSDP experienced adjusted EBITDA margin contraction of 200 basis points, mainly due to volume deleverage. This headwind was partially offset by platform optimization and cost containment actions and favorable price cost. I'm on Slide 12. Let us turn to capital allocation for the quarter. As Eric mentioned, free cash flow generation remains strong, allowing us to continue to allocate resources towards the areas we think will generate the highest returns. We drove $189 million of free cash flow after investments for organic growth, including CapEx spend of $15 million in the quarter. And IDEX has generated 97% free cash flow conversion year-to-date. We ended the quarter with strong liquidity of $1.1 billion including cash levels of about $600 million and revolver capacity of about $500 million. Our current gross leverage position sits at approximately 2.1x. And while we feel comfortable with our current leverage and liquidity position, we attend for our leverage to migrate lower and get to our typical target range of under 2 in the next several quarters. Our balance sheet provides financial flexibility to meet capital allocation priorities. As mentioned earlier, we accelerated our pace of share repurchases. We're purchasing $75 million shares in the quarter and $175 million year-to-date. And in September, we increased our share repurchase authorization to $1 billion. We paid approximately $54 million in dividends in the third quarter and continue to target 30% to 35% of adjusted net income in dividends paid. Regarding M&A, we do not expect to pursue large acquisition opportunities in the near term after investing in the establishment of our growth platforms over the last couple of years. Instead, we will be focused on bolt-ons and portfolio optimization in the coming quarters. Please turn to Slide 13. We are narrowing our full year guidance range to $7.86 to $7.91, which remains within our previously communicated outlook of $7.85 to $7.95. This reflects continued strength in HST, particularly within our advantaged markets. Data centers, space and defense, semiconductor MRO and pharma which are helping offset pressure in our FSDP business stemming from funding disruptions and sluggish equipment replenishment spending. FMT continues to perform in line with expectations, contributing to overall portfolio stability. Both our organic growth expectation of 1% for the fiscal year '25 and adjusted EBITDA margin expectation of between 26.5% to 27.5% remain unchanged. Our updated guidance reflects more of a level load of sales between the third and fourth quarters, reflective of the typical historical seasonal cadence at items. Our strong third quarter results have positioned us well to deliver on the second half expectations we set this summer. With that, I'll turn the call back over to Eric. Eric Ashleman: Thanks, Akhil. I'm on Slide 14, where we highlight the key drivers of IDEX's shareholder value creation. As I mentioned earlier, we are squarely in the midst of driving Phase III of our evolution. We are applying 8020 to drive integration, operational improvement and enhanced growth prospects across our high-margin growth platforms. We intend to remain very selective around bolt-on acquisitions to augment our organic efforts taking a balanced long-term approach to capital allocation, supported by near-term intentionality. And as Akhil said, our current focus here is smaller bolt-ons and returning capital to shareholders. In the past couple of years, we identified acquisition opportunities and pulled forward activity to more quickly establish attractive value-creating growth platforms. We are now acutely focused on applying 8020 to maximize their potential. We believe all of this will drive meaningful EPS growth over the longer term, driven by organic growth we can leverage and capital deployment that amplifies IDEX's value creation potential for all stakeholders. We have outstanding and passionate teams and talent, a portfolio of highly critical and adaptable technologies in advantaged markets and a culture of operational excellence and the heartbeat of 8020, which powers it all, supported by a robust balance sheet that we leverage via a balanced and effective capital deployment philosophy. We believe we are in a position of strength to deliver as a premier growth compounder as we close out the decade and head towards our next phase of evolution. That concludes our prepared remarks. And with that, I'll turn it over to the operator to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Deane Dray with RBC Capital Markets. Deane Dray: I really appreciate that Slide 3 on the evolution. And also just kind of giving us the near-term clarity on capital allocation, portfolio optimization. And so that was a big help. Eric Ashleman: Sure. Deane Dray: This seems always appropriate, especially given the macro uncertainty, Eric, have you give us your insight into the tone of business? You mentioned some order hesitation. But just the metrics that you typically use, the day rates, order size, some of the bellwether businesses? And can you also weave in whether there have been any blanket orders that's also a good indicator for us. Eric Ashleman: Sure, sure. Well, really, look, I think there's kind of 2 realities out there. There's -- those areas that we focus that are really contributing to our growth, and those are dynamic and aggressive and exciting data centers and the things we're doing in water space, I know you know well. So those kind of have their own rhythm of positive energy. And then you have kind of the broad economy next to it. And this is, for us, is a lot more fragmented. I'd say it's certainly stable. I don't -- it's not really inflecting one way or the other. The way that we kind of pulse that, as you know, as we line up at 6 or 7 businesses. We look at what we call the sort of day rates, a lot of it comes through fragmented distribution. We watch them together. And if they ever move in the same cadence, it generally tells us we're approaching some inflection point, either positive or negative. And so as we've been monitoring those throughout the year, I'll actually take you through it. I'd say in kind of Q1 leading up to the events of the spring around policy, those were stable, but they were a little higher than they are now. Then of course, we went through the spring and summer periods of tariff announcements and policy stuff, and we had a lot of things swinging back and forth. That kind of resolved itself in July as we talked through on the last call. And now it's stable again. It's just a slightly lower level than it was in the first quarter, and it kind of makes sense. There's an extra dimension of uncertainty hanging over everyone's heads here related to where policy direction might take us. So I think we're still looking for things to turn there. We monitor them every week, but as of now, very, very stable without inflection. On the large order side, which is not as big a part of the order flow for us, but does tell us things these would be discrete items where we actually know the end customer and how many they require and what they're actually building out. We just see the same kind of hesitancy. We don't see things being canceled. We see the decision process being elongated. We'll typically kind of see the funnel move a little bit to the right in terms of timing of outcomes. And largely, we're capturing the orders we would expect. It's just taking longer, and so not really an inflection positive there either. But again, just that's kind of one world. It's sit next to another world that almost operates with an entirely different cadence because it's being driven by other macro forces that are not as affected by these things. Deane Dray: That's all really helpful. And just as a follow-up, and then I'll hand it off. Just can you reference any of the bellwether businesses, in particular, and also the impact of government shutdown on the fire business, in particular. Eric Ashleman: Yes, yes. So the kind of bellwether businesses, a lot of them for us are in FMT. There's much more fragmented user base through indirect distribution. So you can think of places like Gast, Warren Rupp, Viking. Over on the HST side, a business like BAND-IT, which does clamps, there's a portion of that business that's pretty fragmented as well through kind of industrial applications. There's a few others, but that's generally the nature of what we're looking at. And the reason it's meaningful for us is, I mean, it's really, really rapid fulfillment, as you mentioned. So we can get an order on a Monday, make it on a Wednesday and it's in service on a Friday. So it gives you a really good indication of what consumption actually looks like on the outside. And when those are constant, it generally tells us the system is working, people are fixing things, maintaining, replacing, like-for-like. When it starts to move, they're doing more work. They're running extra shifts. They might even be expanding the facilities. So that's kind of how we use it as a filter. And sorry, the government funding question. Really, that's doesn't have the effect you might think. The North American fire and rescue markets are actually really good. They've been good for a while now. As you know, we do -- we've got kind of an enhanced automation offering there as well that's kind of helping us grow above baseline entitlements. So what we're really seeing when we reference government support, it's more of a European and Far East issue for us, that's China markets and some broader Southeast Asia. Typically, at kind of this point back half of the year, they start to move up a bit as you get closer to the end of a budget cycle. And this particular year in both geographies, we didn't see that. In fact, thought it kind of turn the other way. If you think about it, in Europe, a lot of the funding over there is being used for other purposes, you can think of like the European equivalent for FEMA and sort of preparedness, so there's not as much to go around in our line of work. And I just think in China, it's the continuation of a theme there. It's a desire to support more local industries, if you will, and be really, really careful on decision-making around higher government spend at a time where the economy is just not as strong, but not as affected on the U.S. side, it's not that direct a relationship. Operator: Our next question comes from the line of Mike Halloran with Baird. Michael Halloran: So no, I agree with Deane. I like those 4 slides you put at the front that kind of laid things out. One question on it. Can you frame what this means from a growth perspective for the portfolio relative to history? I know that the 2010, the growth was pressured by the 8020 piece, but it was kind of that 3%, 4% kind of range, all else equal on a reported organic basis. What does that look like on a forward basis in a normal environment? Or however you want to frame the growth algorithm today versus the previous decade before you embarked on Phase III. Eric Ashleman: Well, sure. I think like if you kind of track IDEX historically, especially in that period or before, you'll see that we kind of track right along with industrial production or the ISM index, I mean almost one for one. It's very high correlation in those years. And so by doing this work on the integrated side, bringing in, frankly, higher levels of vitality in the technologies that we've acquired. A lot of it in HST, some of it in the water space, certainly captive within our growth platforms. What we're trying to do is move that fulcrum to the right. And we're starting to break from it now just because of the collective weight, a lot of it being delivered in the HST segment. And so if you think of that as historically something that's been kind of the lower side of low single digits is an entitlement, the industrial piece, we see that moving up and ultimately would like to get it sitting closer to mid-single digits for the company. It's kind of GDP plus and really being just driven on the backs of 2 things, really, the portfolio itself, the composition of just higher tech assets that are more in line with, as I said on the call -- the prepared remarks, 21st century secular trends. But at the same time, and I think this is important, a source code that we're writing in terms of how these technologies actually work together in a company like IDEX with tunable technology. And you really, really see that taking shape in the Material Science Solutions platform that I outlined. And its impact on a single business like Muon. We're actually you're seeing faster results because of the collaboration across the dimensions that we've outlined here. So it's those 2 things. It's assets coming on board and the way we work those assets together, but then moves us off of kind of an industrial fulcrum to something closer to mid-single digits. Michael Halloran: That's helpful. Appreciate that. And then maybe the answer here is obvious with some of the stuff you said in the earlier remarks, but you look back over the last 7 or so quarters, orders have been positive. They've kind of trended if I take a really lose average in that 3%, 4% kind of range from an organic growth perspective. How do you think about when the revenue levels can start more consistently normalizing towards that range? We've had a lot of moving pieces quarter-to-quarter for a while now. But just when do you think there's going to be more of a consistent relationship between those things emerging? Eric Ashleman: Well, I think 2 things got to happen there. I mean we -- obviously, we're getting a lot of price, too. So as you referenced those numbers, what we're looking at is not just the organic rates, especially on the industrial businesses, but we're actually looking for the volume step up underneath it. And so I do think it's been a while now since that sort of base level in industrial world started to move or inflect. So at some point, when it does, I mean we're going to be really, really well positioned to move on top of it. That's still an important part of the business, and it covers a lot of IDEX. I think back to this theme of controlling what we can control and having more pieces available at our disposal to do it, that's the part that's more impactful and where we're spending all our time and energy. So stories like you see in the Material Science Solutions platform, the work that I've referenced long ago about kind of how data centers are coming together in our pneumatic space, that's kind of leading the way for growth for us right now. Water, which on the municipal facing side, that was a high single-digit grower for us here in this quarter. And so having more of those cases and points put down and then ultimately Mott being part of that as well as we continue the exact same work there. I think it's those 2 components. It's an entitlement shift that I think is overdue. On the industrial side and then us just doing the work that I'm describing here on top of it. Operator: Our next question comes from the line of Joe Giordano with TD Cowen. Joseph Giordano: I'm just curious, Eric, like when you -- if you just like step back now, like after the -- and kind of take in the last year, 18 months or so, and you look at the deals you've done, clearly like interesting deals with positioned into the growth areas that you mentioned. But like if I compare like what we've been acquiring to what we used to acquire like -- was there a sense of like maybe we chase growth in a different way? And did we get away from what made IDEX unique in terms of the positioning and the -- like the visibility of these businesses? Or I'm just curious how you would kind of push more on the whole like the last 2 years here on the M&A side. Now that we're refocusing on 8020 look as a specific mandate again. Eric Ashleman: Yes. Yes. I appreciate the question. I think -- well, look, from probably the most positive aspect, the line of sight between the technology and the market access points we've acquired and areas of growth in the economy that are not affected by some of the things we've talked through, I think, is really positive. Almost every single point we've referenced here in terms of us making our own luck, you can trace it back to areas very close to the businesses that we've acquired. So I think that part of the thesis I feel very confident about. The actual work being performed is not that different then I remember kind of the earlier days of IDEX, while a lot of our traditional technology was pretty industrial in nature. The actual development and iterative innovation work that goes on there is very, very difficult in cutting edge. And so part of the thesis here really is to essentially set the same specification points now in emerging industries, be a part of that, be a partner with customers as they develop things and then solve problems that I think are honestly pretty equivalent to what we did back in the earlier industrial times. But there's new markets and new worlds here that are available that we need to be a part of that will be essentially annuity streams for us over the next decades here. They're different assets. We do a lot more of the work in clean room environments than we used to do in traditional manufacturing. But the nature of engineering first rapid iteration, kind of a big capital D and a small R in R&D, I mean, that's classic IDEX. And then the ultimate business filter here that looks at delivering massive criticality at a kind of low point of the bill of materials is just -- that's the sort of secret source code of our economic engine, that's constant as well. So I think it's -- while it is an evolutionary shift and probably the newest nature piece of it is the way that we're collaborating across borders within business. I actually think that's reflective of just where the world is now as well. The kind of solutions they're asking us to solve some of the best customers that are out there. They often demand work that transcends a single business or a single technology. So we're setting ourselves up in a way that we can continue to participate with a world that's evolving -- developing and evolving as well. Joseph Giordano: That's great color. And just kind of like an extension of that. And I understand that policies can change and they do change all the time from like a governmental, if we think about what's in place now and if I was to like ask you to do kind of like a 5-year kind of growth outlook, I'm not looking for the number, but if you were to compare that now versus like if I asked you 5 years ago, are any of like your businesses do you think like structurally differently positioned in a world where policy is kind of here thinking some of the -- maybe some of the -- on the Med tool side and something like the lab-based clinical applications. Eric Ashleman: Well, look, I think there's no question in certainly the last 5 years, things have changed and the pace of change is a lot faster than it used to be. So when I think of that from the highest level, I think about businesses in a company that's agile and can move on a dime and being able to quickly rally around change, I think we're actually really, really well set up for that. I'll just give you a quick example. We highlighted a lot of great things going on in this Material Science Solutions platform. Got some applications there on the data center side, they didn't even exist, on. They really weren't on our horizon. Even 1 year, 1.5 years ago. And there are a testament to the teams and the flat organizational nature of the way we run things and autonomy of decision rights, those teams jumped on that kind of put 100% effort on it, segmented it with 8020, went out, put prototypes in front of people and ultimately won the day very, very quickly. So I'll step back and say in a world of change, I do think we're very, very well set up just in terms of kind of how we run and lead IDEX to go after that. Now there are specific places, you mentioned one there on the life sciences side. And that's in a different space than it was years ago. But I think even there, the tunability of our technology allows us to respond to things very, very well. In Life Sciences today, there's absolutely some pressure on the kind of academic funding side of things. But there's a lot of strength on the pharma side, and we're able to tune resources and shift accordingly. So that ability to do that within kind of a small- to medium-sized organizational construct and do it fast. I do think sets us up for change sort of no matter what direction it takes us. And then just from a kind of a trade policy perspective, which is sort of the big headline today that we're dealing with, remember, this is a really localized business model. We tend to iterate, ideate, produce, source, make stuff and sell it within the same geography. So it protects us a bit from unexpected shifts there on that side as well. Operator: Our next question comes from the line of Nathan Jones with Stifel. Nathan Jones: I guess I'll come from the other side of the platforming strategy and some of the acquisitions that have been made here. Questions have obviously been focusing on growth. I think there are opportunities for you guys to take some more cost out of those businesses, maybe combining some rooftops. I know you did some headcount reductions earlier in the year. So maybe if you could just talk about it from the other side and the potential for reducing costs, expanding margins as part of this strategy as well. Eric Ashleman: Yes. Well, look, that's kind of a classic part of how we drive value at IDEX. We're very good at operational excellence. We apply 8020 to understand where resources are being well leveraged and where they're not. I'd kind of within a more recent framework, take you through maybe 3 of the acquisitions, so you can understand the work there. I'll go back a bit in time a few years ago, we bought Airtech. We did a lot of work with that business. We -- at one point, we did a kind of President's Kaizen Event there and brought in most of the senior leaders of IDEX and helped out on a number of elements to make sure that they were set up to grow that business. I was happy to say when I went back a year later that there you can see it, it's alive today and they've taken that and they've incorporated into their business, and it's how they're able to grow at the levels that they have. We've got some insight into the Material Science Solutions platform and Muon specifically here, where as you know, we took some cost actions there. In Q3, we see that at -- we can appreciate it at full run rate. And as you can see now, we've got profitability above the consolidated HST levels. and are well set up now to lever it as we go forward. And then more recently and certainly at a different scale, the work we're doing with Mott, it's the same thing. We're in there and we're making calls on business, where do we think the 80s are? Where are the 20s? How does this help us map resources accordingly. And we're doing a lot of work on the efficiency side. One of the highlights of Q3, as you know, Mott has a ramp, kind of a long linear ramp to Q4. They're going to step up that business, actually executed some of it early into the third quarter because of efficiency gains and some of the great work that, that team has done as well as the work on our side. More structurally, we've long referenced the work that we did around operational -- or structural productivity and delayering and things like that at the platform level, that's part of it, too. And when we move from single businesses and kind of a classic IDEX sense that has all the back office and all the administrative things happening business-to-business, and we combine them and they work together, we get back-office efficiencies there. So a lot of the things that are on the plate right now, that's where it came from. And now we're seeing full run rate here in the third quarter and we're -- it upticks a bit even into Q4. Akhil Mahendra: Nathan, just maybe to put some numbers around it, right? Eric mentioned the dealer and the platform optimization efforts. And then we -- the second bucket was really cost containment efforts and actions that we put into place in the -- starting in the second quarter. What you see today is we delivered $17 million across those two buckets and the step-up will be a few million dollars and run rating at about $20 million here in the fourth quarter. Nathan Jones: Are there further opportunities for these kinds of restructuring savings. I think you've talked about maybe consolidating some rooftops as one of the things to do in the future as part of combining these businesses, moving them closer together. Is there something that you're likely to move on in 2026? Eric Ashleman: Well, that's certainly a chapter that we'll take a look at. One of the advantages when you put similar businesses together, as you can absolutely look at your infrastructure topology and then ask questions around how to effectively lever that. I will say we haven't done as much of it here this year because that's a big variability element as we've worked on some of the other aspects of 8020 and bringing people together, particularly in a commercial and a technical way that's different. We've been a little careful not to superimpose more variability on top of it and run the risk that any of that then manifest through to the customer base. So that's a chapter to come. It's something that we'll certainly consider here, and we'll be thoughtful in how we layer it across, so that it doesn't interrupt growth. But that is an open up area of opportunity for us. And certainly, as we scale the company, we're always thinking of that because we want to take some of that complexity out of the system. Nathan Jones: I guess my follow-up is going to be around capital allocation. Specific change in priorities, I guess, really this quarter with I know you talked about M&A maybe taking more of a backseat now smaller deals, not the transformational deals. And you have repurchased shares each quarter this year, increase the authorization. Is part of the plan here to be more of a serial repurchaser of stock going forward? I would imagine that you think the stock is probably well below intrinsic value right now and IDEX has historically been a share repurchaser in that situation. So just how we should think about share repurchase, both opportunistically in the short term and more as a long-term avenue for capital deployment? Akhil Mahendra: Yes, Nathan, let me just sort of walk you through that framework, right? And first, I think it's important for me to recognize the high-quality portfolio we've built, which actually enables us to generate strong free cash flow consistently that we're actually able to deploy, right? And you sort of called it out M&A, there was a period of heavy investment for us during our growth platform building phase, and now we're focused on bolt-ons that are going to have attachment points to these growth platforms that we've built. And one of the greatest examples here that half for you who was in one of the slides was Micro-Lam, which we announced a quarter ago, right? Its integration is going really well. It's sort of plug in very nicely into the MSS platforms. Look, from a funnel perspective, our funnel is strong. We continue to cultivate proprietary ideas. And so we'll -- as those opportunities are available to us, right, we'll execute on them. And then as we think about excess cash flow, we'll continue to return that capital to shareholders. And that's through dividends. I do want to make sure that, you know, we spend a minute on that. That is sort of a policy that -- where we've grown our dividend here historically. We aim for 30% to 35% adjusted net income to be paid out from that front and then share repurchases, which, as you mentioned, right, we stepped up. So coming into the year, we had already stepped up the share repurchases because we were outside of that heavier deployment of capital towards platform building. And so if you look at sort of where -- how the numbers stack up, right, year-to-date, we've returned about 80% of our free cash flow to shareholders. So, as we think about this framework and look at what's ahead, especially us moving towards more bolt-on being able to add more things to the growth platforms, you'll see that excess cash being returned to shareholders. Eric Ashleman: But I think, Nathan, long-term -- also people to recognize, I mean, we've got some work in parallel. We're always thinking about where does IDEX go next, what other technologies are out there that could be interesting for us, are there access points for markets, so that work continues, but it's of a longer duration. So we're not -- it's really important that we don't interrupt it, but we're kind of do 2 parallel tracks here. And we're thinking ultimately about deploying capital to the points of highest return. I think right now, for us, taking advantage of what we purchased, getting it to work together effectively, working on both the top and the bottom line and driving a ton of value out of the base that we've acquired is absolutely a point of high return. And then as we do that, returning cash and capital to the shareholders, we think if nothing else, a real signal and sign of the confidence we have in the long-term growth strategy for the company. Operator: Our next question comes from the line of Bryan Blair with Oppenheimer & Company. Bryan Blair: The Intelligent Water platform has gotten a decent amount of airtime today. I think that's fair. Eric, as you called out, the team presented quite well at WEFTEC. So wondering if you could offer some finer points on contribution in the quarter. And I think you would noted high single digit. I don't know if that was a revenue or order expansion. A clarification there would be helpful. And then even more importantly, just speak to the underlying demand trends, visibility and growth prospects of the platform as we look to '26? Eric Ashleman: Sure. The high single digits is on the revenue side, orders were good as well. We point out the municipal facing side because when we talk about water platform as a whole, we also have a piece of it that's vectored towards high-purity applications. A lot of that's in kind of semi fab build-out areas. So we want to make the distinction, but the bulk of it is municipal facing. And it's -- I mean, the great businesses. We're doing a job there that is absolutely critical. We help people understand what's going on underneath the ground. These are environments, as you know, you don't want to spend a lot of time in. And we've augmented that through acquisition as well. So Nexsight, it brought us some more critical inspection gear and a lot of analytical intelligence. This is our most software-intensive business in all of IDEX. And we use it -- the 2 technologies together, think of it as flow monitoring, flow detection in very difficult environments. I assure you that's not an easy job to do. And then a data capture portion of it that then sends it into an analytical framework, which essentially allows us to help municipalities understand how the system is working. And so we present that information all across the global customers. And essentially, if you think about it, there's 2 primary customers. On the one side, there's the operator side that's trying to just run a good system day-to-day. But maybe even more importantly for us, we're actually supplying that analytical input into capital specification engineers, and they're using it then to essentially vector capital into larger scale projects and infrastructure build-out. Without the work that we do, that would be very difficult. So it's much more integrated than it was originally. We presented it that way at WEFTEC. It works that way in actual fact. And here with the latest addition, Subterra, that allows us kind of to go in, in an untethered way, a lot further and extends our reach with a pretty simple device. So we're really, really pleased with what we have there. It's great to see the growth as a reward, and we look for more in the future. Bryan Blair: That's excellent. I appreciate the color. And Q3, HST results were pretty encouraging overall. I know your team has been navigating challenging market conditions for a while, and perhaps there aren't standout green shoots quite yet, but it seems like, I guess, the aggregate demand outlook is, I believe, is gradually improving. Given the restructuring and optimization work your team has done, how should we think about HST incrementals once we do get back to a more supportive demand environment? Akhil Mahendra: Bryan, it's Akhil. Yes, I can take this one. Look, the way I would think about it is sort of from an incremental standpoint, just given sort of the demand dynamics that you laid out, we'd expect somewhere in that 35% to 40% incrementals. And again, as sort of if those demand dynamics weren't there, right, we'd vector to the lower end of that, but that's sort of how we're thinking about with demand there to support the business. Eric Ashleman: And I think as you said, and I want to highlight here, especially for the teams that are doing the work in HST. Yes, they had a really good year. I mean this segment has grown orders, sales and profitability, each of the 3 quarters that we've had here, and they're going to step it up again in the fourth quarter. Again, the underlying markets are -- some of them are better than others in IDEX, but a lot of this is on the backs of great work like we've outlined in MSS or in data center applications and Airtech and other places. Operator: Our next question comes from the line of Vlad Bystricky with Citigroup. Vladimir Bystricky: So maybe just going back to your commentary, Eric, on sort of the price versus volume dynamics that you've seen and you mentioned that you've been seeing strong price realization overall. So could you give any color on what price actually contributed in 3Q and how you're thinking about pricing heading into '26, particularly if kind of a still sideways or sluggish demand environment in portions of the business line. Eric Ashleman: Yes. Well, look, so price capture has increased, obviously, as we've gone through the year, much of it in response to the tariff announcements. And so in Q3, we were about 3.5%. That's a high point for the year. that's higher than everything we had in 2024, and it's kind of starting to approach some of the levels at the tail end of '23, which was kind of the end of that big inflationary cycle. So it's increasing. And two things I would say about it. One, I always want to remind people here. One of the reasons that we're able to do that and do it effectively, it is a testament to the differentiation that we have in our technologies, the positioning of our businesses and the great work of our teams. I say that because I think as this goes on and the levels get higher, I think this is an area where it's getting a little more difficult. I think there's some real pricing fatigue that is out there generally. And I think this is where I appreciate the differentiation that we have in our businesses and our ability to kind of withstand that argument. It goes back to the original business filter of the company of lots of criticality at a relatively low price point, so that when our increases do hit, they're easier to rationalize than some others. So heading forward, I think, obviously, from a pricing perspective, a lot of it is going to depend on where does policy go. So much of it has been a response to that, kind of the base level pricing entitlement that does things like covers traditional inflation for us and others. We've -- we're planning for that. We've got some of it out now as kind of a pre-announcement getting ready. So nothing really interrupting that side of the cycle. The real open question is, does policy become more aggressive? Does that then force us to go to even higher levels? And then ultimately, that's into an environment that I think is starting to have some real fatigue. Akhil Mahendra: Yes. And Vlad, I can put some dimensions around sort of the 3.5%, right? I think you heard us talk about it earlier in the year. We came out with sort of traditional price of about 1.5. And then in the second quarter, once we tarted to put tariff pricing in place to be able to offset that incremental cost. We're now at about a 2% run rate just to help you put some numbers around what Eric mentioned, and we expect that to continue here in the fourth quarter unless there's maybe a positive announcement here or it could go the other way, just given what's on the horizon. So we're not accounting for that, but our intention is to continue to offset it, just given the remarks Eric made here. Vladimir Bystricky: Okay. That's helpful color, helpful to understand. And then could you just -- maybe help me understand a little better kind of the cadence between 3Q and 4Q and whether you saw some shift in demand, just given the upside here in 3Q with the full year largely reiterated. Just what's changed amongst the quarters? Akhil Mahendra: Yes. Look, I think if you go back when we were out here in the summer, right, we talked about sequentially 2% to 3% would generally be flat and there was that step-up. And as we said in our prepared remarks, right, the teams did a really nice job executing with this backdrop and you think about certain order timing materialized earlier than we anticipated, the 8020 work that Eric mentioned with Mott and the operational improvements that we're seeing there. That left us with more of a balance 3 to 4Q, which is more reflective of a historical pattern for IDEX overall. We're in the 4Q, we still see a ramp in HST, but we've got line of sight to it. It's in our backlog. So we're pretty confident in being able to deliver on that. Operator: Our next question comes from the line of Rob Jamieson with Vertical Research Partners. Robert Jamieson: Just -- I know you're not going to give formal guidance on '26. But can you provide us maybe a little bit of framework of how you're thinking about next year. Just as we're trying to drive the business back to our historic mid-single-digit organic growth algorithm, like what are some of the key risks and opportunities that we should be thinking about and considering into next year? Eric Ashleman: Yes. Well, I mean, I think a lot of it still will come down to where is the -- what's the nature of kind of base level industrial entitlement because that still covers a decent part of IDEX. So as we go through Q4, monitoring those bellwether businesses to see if there is some inflection, that will be a key input for where we end up on a lot of IDEX on -- in terms of industrial coverage. Pricing dynamics will be important as well. So as Akhil mentioned, where are we going to be between that ratio of kind of a lower figure, which takes care of our own inflation and then a higher figure, which has to offset whatever policy may be at that point. That will go into the calculus. And then the bulk of it is really going to come down to momentum and where we are in these individual areas where we're creating our own luck. So kind of each one of the 5 growth platforms, we're starting there. We are having those discussions now around what's in the funnel, what are we winning? When does it look like it's going to come out. So I think those 3 pieces moving together is how we'll be thinking about the year to come out. The last piece is in our control. The other 2 largely, we are somewhat captive to how the world goes and how that shapes out given the diversified nature of the company. But we will be looking for signs of inflection as we go through Q4 and certainly would be referencing those as we talk together. Operator: Our next question comes from the line of Walt Liptak with Seaport Global Securities. Walter Liptak: Just a quick follow-on on that last one, thinking about 2026. I guess, one, just on the organic revenue, what's your feel at this point, if you can give us any about, are you cautious about 2026 or you're optimistic about the organic growth and especially given the platforms? And then maybe second, just help us think about the operating leverage that we should get when we're thinking about modeling 2026 EPS. Akhil Mahendra: Yes Walt, it's Akhil. So sort of just building on what Eric mentioned, right, we'll talk about guidance when we see here next. But just at a higher level, look, he sort of mentioned us monitoring the day rates. We are short cycle, have limited visibility. So we are continuing to do the work around '26 and what that's going to look like, taking into account all the factors that Eric mentioned, right? The pricing dynamics us being able to make our own luck and the work that we're doing within our growth platforms and then really just some of this macro backdrop around rapid fulfillment, and we're going to continue to monitor that pretty closely. But as you think about generally the incrementals, right, we sort of I mentioned, I would say, think of it as 30%, on a consolidated basis, 30-ish percent. Plus some are going to be higher here. So that is what we're going to be looking at from an incremental standpoint. Earlier in the call, right, we mentioned where HST would be, so I think taken together, that should hopefully give you some level of guidance of where we expect '26 incrementals to land. Eric Ashleman: And I would just say, Walt, to add on, the degrees matter here. closer the world tends to tilt towards flattish. Our incrementals don't spring as well. You get a little bit of buoyancy in the system and get that up around 3%, 4%, things start to perform a lot better. So kind of where we are in that spectrum will matter as well around that point that Akhil mentioned. Operator: Our next question comes from the line of Brett Linzey with Mizuho Securities. Brett Linzey: I wanted to come back to the platform optimization savings and the cost containment. So the $60 million, I guess, how should we think about any carryover into next year? And then how much would be maybe structural versus discretionary that would flex back up as these volumes might improve? Akhil Mahendra: Brett, it's Akhil. I'll take that one. So as you think about the couple of buckets here, right, you got this platform optimization and dealer layering bucket. I would think of that as more structural in nature, and that's going to achieve run rate this quarter here. And so you'll see that moving forward. That was about -- think of that as the a $42 million bucket that we had put forward here when we announced that on the back of our 4Q earnings earlier this year. And then you think about the second bucket that we talked about cost containment, again, that's also going to hit run rate here. That's more temporal in nature. I would think of that one as possibly coming back depending on the opportunity set that we're expecting to pursue here, we could make some of those investments to land those opportunities. So that's that $20 million bucket for a total of $62 million. So that's how I would parse the two. Operator: And we have reached the end of the question-and-answer session. I would like to turn the floor back to Eric Ashleman for closing remarks. Eric Ashleman: Well, thank you. Thanks for joining today, and thanks for your interest and support in IDEX. I think key takeaways here, certainly, we're making our own luck with 8020 in a really broadly uncertain world that taking you through our evolution, I hope you can appreciate we built some real strong foundational assets. We've got some outstanding businesses, very strong teams in talent, a highly engaged and collaborative culture and effective operating model powered by 8020. And now we boosted our technical and commercial vitality through these strategic acquisitions and divestitures and we're writing the source code for a new way of working together as a team within scalable growth platforms. And I'm happy to see we're starting to put some growth points on the board there as we do that work together. We're confident overall that we'll continue to build momentum through this work, focused work as we move forward to drive value for all of our shareholders. And I really look forward to talking to you about it more in the quarters ahead. Thanks so much, and have a great day. Operator: Thank you. And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and welcome to the Artisan Partners Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Brennan Hughes. Please go ahead. Brennan Hughes: Welcome to the Artisan Partners Asset Management Business Update and Earnings Call. Today's call will include remarks from Jason Gottlieb, CEO; and C.J. Daley, CFO. Following these remarks, we will open the line for questions. Our latest results and investor presentation are available on the Investor Relations section of our website. Before we begin today, I would like to remind you that comments made during today's call including responses to questions, may include forward-looking statements. These are subject to known and unknown risks and uncertainties, including, but not limited to, the factors set forth in our earnings release and detailed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those disclosed in the statement, and we assume no obligation to update or revise any of these statements following the presentation. In addition, some of our remarks today will include references to non-GAAP financial measures. You can find a reconciliation of these measures to the most comparable GAAP measures in the earnings release and supplemental materials, which can be found on our Investor Relations website. Also, please note that nothing on this call constitutes an offer or solicitation to purchase or sell an interest in any Artisan investment product or a recommendation for any investment services. I will now turn it over to Jason. Jason Gottlieb: Thank you, Brennan, and thank you for joining the call today. Our purpose is to generate and compound wealth for our clients over the long term. We do so by maintaining an ideal home for investment talent, providing a unique combination of autonomy, degrees of freedom, resources and support. Our goal is to be one of the world's preeminent multi-asset class investment platforms. Over our history, we have steadily expanded our capabilities across equities, credit and alternatives. While doing so, we have maintained our focus on investment and business results and delivered for our clients and shareholders. Turning to Slide 3. Investment performance remained strong across our platform with over 70% of our AUM outperforming their benchmarks for periods over 3 years. All 12 Artisan strategies with track records over 10 years have outperformed their benchmarks since inception. These 12 strategies have compounded capital at average annual rates of return from nearly 6% to over 13% net of fees. They have outperformed their benchmarks by an average of 243 basis points annually. On a shorter-term basis, several strategies have generated exceptional results, highlighting the breadth and diversity of our platform. In equities, the sustainable emerging markets, non-U.S. growth, global value and franchise strategies have all generated year-to-date returns of more than 20% with outperformance ranging from 425 to 934 basis points net of fees. In credit, the emerging markets local opportunity strategy has generated a year-to-date return of over 19%, 373 basis points above its benchmark. In alternatives, both credit opportunities and global unconstrained have generated absolute returns in excess of 8%, and Antero Peak has generated year-to-date returns of almost 21%. Across the broader platform, trailing 1-year performance has been weighed down by underperformance in several of our largest equity strategies, including international value and global opportunities, both of which have very strong long-term track records. Turning to Slide 4. Strong markets and investment performance drove our assets under management to $181.3 billion, an all-time high at quarter end. Firm-wide net outflows this year and in the third quarter are primarily a result of outflows from a handful of equity strategies that continue to experience rebalancing in up markets and to a lesser extent, client terminations. Those outflows mask a lot of very positive business development initiatives across the platform. Year-to-date, we have net inflows in 14 of our 26 investment strategies. Both Select Equity and International Explorer strategies funded large new mandates in the third quarter. Each strategy is now approaching $1 billion in AUM, 5 years from launch in 2020. We have continued our multiyear success in growing our credit business with $1.8 billion in year-to-date net inflows. The third quarter represents the 13th consecutive quarter of positive credit flows. In alternatives, we have raised $336 million this year for global unconstrained strategy, and we continue to build the pipeline for the credit opportunity strategy. Lastly, we have been executing a focused campaign to raise assets across our emerging market strategies. Each of sustainable emerging markets, developing world, emerging markets local opportunities and emerging markets debt opportunities has net inflows for the year, and demand continues to grow across these EM strategies. These positive areas validate our strategy and give us the conviction we are growing the platform in line with long-term demand from both institutional and intermediate wealth clients. Ultimately, though, we need to sell more and lose less. And we continue to develop and reorient our distribution function in order to do so. Slide 5 highlights our methodical approach to expanding our platform with new talent and investment capabilities. These efforts take shape internally through dialogue with existing investment teams to identify new areas for growth. Recent outcomes include the global special situation strategy within the International Value Group, custom credit solutions with the credit team and the franchise strategy we launched earlier this year with the growth team. We also maintain a regular dialogue with external talent interested in joining the Artisan platform to build differentiated and enduring investment franchises. Recent external engagement has focused on real estate, private credit and secondaries. We believe these capabilities would be a natural extension for our platform and are at the intersection of differentiated talent, large investment opportunity sets and long-term commercial demand. We are currently working on a number of internal and external opportunities and are excited to execute on some of these to further evolve and expand our multi-asset class platform. I will now turn it over to C.J. to review our recent financial results. Charles Daley: Thanks, Jason. Our complete GAAP and adjusted results are presented in our earnings release. We are pleased with our financial results for the third quarter. Revenue growth fueled by strong market conditions and lower fixed expenses led to margin expansion of 450 basis points and a 23% increase in earnings compared to the second quarter of 2025. Revenues for the quarter were up 7% compared to the June quarter and up 8% compared to the prior year of third quarter. Adjusted operating expenses for the quarter were down slightly from the second quarter of 2025, primarily from the absence of $2.4 million of costs associated with the closure of China Post-Venture strategy in the second quarter. Compared to the same quarter last year, adjusted operating costs were up 6%, primarily from higher variable incentive compensation expense due to increased revenues. Adjusted operating income increased 22% compared to the prior quarter and 12% compared to the same quarter last year. Adjusted net income per adjusted share was up 23% compared to last quarter and up 11% compared to the third quarter of 2024, consistent with operating income. Year-to-date, 2025 revenues were up 6% compared to the first 9 months of 2024 on higher average AUM. Year-to-date, adjusted operating expenses increased 5% from 2024, primarily from higher incentive compensation on elevated revenues and the impact of the addition of the January 2025 long-term incentive award. Calculating our non-GAAP measures, nonoperating income includes only interest expense and interest income. Although valuation changes on our seed investments impact shareholder economics, we fully exclude these valuation changes from our adjusted results to provide transparency into our core business operations. Turning to Slide 9. Our balance sheet remains strong with $300 million of cash on hand and $140 million of firm seed investments in emerging strategies and vehicles to support future growth. As strategies reach scale and our seed investments are redeemed, any redemption amounts realized are included in the cash available for corporate purposes, seed investments or as in addition to our year-end special dividend. During the quarter, we completed the closing of $50 million of new private placement debt on August 15, 2025. We used the proceeds from the new debt along with cash on hand to retire the $60 million of debt that matured in August 2025. In addition, our $100 million revolving credit facility remains unused. We continue to return capital to shareholders on a consistent and predictable basis. Consistent with our dividend policy, our Board of Directors declared a quarterly dividend of $0.88 per share with respect to the September 2025 quarter, a 21% increase over the prior quarter. Looking ahead, as a reminder, the fourth quarter includes the annual mutual fund distribution related to incoming capital gains. We anticipate approximately $900 million of those distributions will not be reinvested. Fourth quarter also represents the quarter in which we have the largest opportunity to realize performance fees. The measurement period for those fee opportunities is December 31. Approximately 3% of our AUM has a performance fee component. Last year's fourth quarter included approximately $17 million of performance fees. We are currently projecting total performance fees similar to what we generated in 2024, but all such fees will remain subject to market and performance conditions through the end of the year. That concludes my prepared remarks, and I will now turn the call back to the operator. Operator: [Operator Instructions] And the first question comes from John Dunn with Evercore. John Dunn: First question was just on this idea that there's growing demand for non-U.S. strategies. Maybe could you just give a flavor of regionally where the demand is and what strategy demands are? Like is it finally emerging markets? Or developed markets? Just a little more flavor on that. Jason Gottlieb: Yes. It's Jason. I can provide a little bit more flavor. I'd categorize it in 3 specific areas. The first one is in global mandates, and we're seeing that in both global value and to a lesser extent, in global opportunities, where we have large institutional clients across both European and U.S. markets that are interested in global, just gaining access through a slightly more asset allocated opportunity. The second is both in the intermediate wealth and in the institutional bucket for direct international equity exposure. We've seen a pretty meaningful uptick in the number of inquiries coming specifically in areas like our global equity franchise run by Mark Yockey. We're seeing really good interest there, largely because not only the asset allocation mismatch that I think we're seeing across asset allocations, but market has produced just phenomenal and outstanding results. For the year, I believe, is up about 900 basis points through Q3 and his international strategy. But if you look over the longer term, the numbers are quite compelling on both the benchmark relative as well as on a peer-relative basis. And we're also seeing a lot of interest from the emerging market side, both in credit as well as in equity. So our Developing World team and our Sustainable Emerging Markets team both had positive flows for the quarter and for the year. And there's just general broad renewed interest. Again, this is across both intermediate, wealth and institutional, where probably no less than 18 months ago, everybody was talking about the depth of emerging markets, there was cuts to asset allocations, and now we're just seeing that being revitalized. And you combine that with the fact that a couple of our large peers and competitors have made substantial portfolio management changes. So there's just a lot of money in motion. There's a lot of activity. And we think that we've got 2 world-class franchises that are able to capitalize that. And we're seeing the green shoots in terms of both flows, but importantly, their performance remains quite strong in both of those -- both of those areas. John Dunn: Got you. And then maybe just on the M&A front. You mentioned the 3 areas you've been looking at recently. Could you maybe size kind of like how much you'd be able to allocate to something like that from a team [indiscernible] maybe something more substantial? How much could you perhaps put to work? And then just your philosophy on the consideration, would you do a stock deal? Or might you consider putting on some leverage to do that? Jason Gottlieb: Yes. We're certainly very active in those 3 areas. And I'd highlight the slide, I believe it's Slide 5 in the material, where you can see we've taken about 400 meetings over the last 5 years. Our Investment Strategy group has been extremely busy. You can also see at the bottom, we haven't been terribly prolific. We've only added one team over that last 5-year period. But we have been very, very deep in the weeds with a number of really interesting opportunities. And I would say our pipeline has largely been homegrown. This isn't areas where we're seeing interesting things from bankers. We're really doing this on a bottom-up basis, which has always been the hallmark of how Artisan has identified great talent. And so when you think about those 3 areas, the one that probably comes most to mind in terms of our activity levels has been in the area of real estate. And I harken back to a call -- a quarterly call about 4 or 5 quarters ago, where we talked a little bit more about how close we were with one opportunity in particular. That clearly didn't come to fruition, but we're also back in at a point where we're seeing really good upside and opportunity from another opportunity, specifically in real estate. But I think it's also important to reinforce that what we did say and we will continue to say is that the M&A opportunities that we're going to look at are not going to be transformative. We're going to look at things that are going to keep us true to who we are, build around a really exciting and talented group or individual, resource them, make sure that we have an alignment from a business mindset, and grow it. And in alternatives, that's going to require from time to time, considering M&A and upfront consideration and then trying to align on the back end. We don't have a one size fits all. We obviously want to make sure that we look at talent first and then make the determination around what the consideration is going to look like. But I just really want to point out that it's -- none of these are going to be transformative at least the early ones, we really just want to stay true. And we think we can align the M&A model very much to how we think about lift-outs. And so you'll hear and you'll see that if we, in fact, do a transaction. We would consider any and all alternatives when it comes to M&A, whether it be stock, additional leverage or just cash. I think given the size of the opportunities that we're looking at, cash is probably the most prevalent source of opportunity when thinking about these. Operator: Our next question comes from Bill Katz with TD Cowen. William Katz: Just, Jason, you mentioned that you're focused on trying to improve the gross flows and stem the redemptions and it seems like you have a lot of really good things happening here, but the gross flow has been persistently flattish. Can you talk a little bit about some of the efforts you are doing to sort of redesign or amplify the opportunity set? And then within that, you've also mentioned that you continue to reorient distribution. Maybe just give us an update on what you're doing incrementally just to try and better map for the opportunity to grow it? Jason Gottlieb: Yes. Maybe the latter first. When it comes to distribution, I think there's a couple of things that we've talked about. And as you know, Bill, some of these things take a little time to really germinate and to see the benefits of. But the first one is we've been working with our model to just align compensation to more of a sales orientation and less of a service orientation. We've also been recruiting and hiring people. So if you think about our intermediate wealth and within that, we have an intermediary business that's facing off against RIAs, multifamily, single-family offices, et cetera. And we had about 10 people on the field, and we've been working really aggressively to sort of double that, and we're sort of where we need to be there. But you got to take the time to enculturate the individuals, make sure that they understand the philosophy, the process, the people. And we're starting to see some green shoots with the individuals that we brought on to the platform. And so we're excited to see some leverage and some opportunity there. Also, we're looking at growing out and expanding our regional footprint. So we haven't done a tremendous amount within the U.K. wealth market. And we would expect to have some people really targeting that area of the market, which we think is a really interesting and untapped opportunity. And at some point in the not-too-distant future, we would expect to have additional resources aligned to the Middle East, which we think is a big and broadening opportunity. And so that's one piece of it. I think the other piece is within our distribution efforts, we are really building out our capabilities around capital formation and having a team really dedicated to help identify and leverage the opportunity set across both intermediate wealth as well as the institutional channel. And those are very deliberate campaigns that we're running. You're hearing and probably heard a little bit about that in our commentary around emerging markets, where we've faced off resources against the opportunity set, and we're starting to see the fruits of that. It's a very, very early campaign. I believe we began that in late August. And I think for the quarter, we had about $400 million in gross inflows just off of that campaign. So early days, but we're also seeing early opportunity there. And then one of the things that we've been talking a lot about internally, and we're beginning to execute on is the modernization of our vehicle lineup. We've always been vehicle agnostic, being able to utilize our IP in wrappers that make sense for our business. We're seeing an evolution of our client base and their preferences, and we need to evolve with those preferences. And we're certainly working our way towards that evolution, and that can come in many different forms, models, SMAs, ETFs, semi-liquid funds as well as private funds. And so you'll see more and more of that to be a little bit more forward lean when it comes to just the vehicle of choice. William Katz: Great. Just a follow-up, just to come back to your conversation, and I sort of appreciate Slide 5, so thank you for that. You sort of mentioned both internal and external opportunities. Could you bifurcate a little bit like where you see the internal opportunity set? Like when I think of real estate, secondaries and private credit, I don't automatically think of Artisan. So no offense intended by that. So I'm just trying to think about what your existing team could sort of transition into versus what you'd have to look out -- look for externally? Jason Gottlieb: Yes, it's a good question. The private credit is clearly a natural extension. You've -- Bryan has done a tremendous amount to -- he does a lot of work across both the private markets and the public markets. And I think where he is and with his franchise and with the depth and the quality of this team, that would be a natural evolution point for our private credit platform, if we so desire to go in there. Bryan has and sources opportunities, the credits that he's looking at are looking at it both from a public market perspective and from a private market perspective. They're just looking for where they can get the best opportunity. And so he's very much in the mix on a lot of the pricing and deal activity across those markets, and they seem to be converging. And so it's obviously a prime opportunity if we decide to move in that direction to leverage Bryan, his brand, his platform and his performance in that regard. You're certainly right. I think private real estate is clearly one where if we were to go and do something, it would be from an external perspective. I think in private equity, there's a couple of teams that we could work with. I think our growth franchise has the depth and the skill to be able to go a little bit more into late-stage opportunities and potentially do something in a hybrid structure. But those are really opportunities that we were very early in conversations on. Frankly, private equity in general is just pure buyout or middle market is relatively difficult for us because we just don't know from a competitive standpoint, if we're really the -- in the right spot, that's why we've really focused on secondaries, which again would require us to likely go outside of the firm if we were to do something. And the pipeline really has been stacked in a way to align to that. So I'd say private equity secondaries has been a really strong area of interest for us, and we're seeing a lot of great talent. Real estate externally has and continues to be a really strong pipeline of opportunity. And private credit, probably a little less so. It's been more idiosyncratic, but we're not actively trying to pursue opportunities because we think the opportunity set might be right in front of us on our platform. Operator: And the next question comes from Kenneth Lee with RBC Capital Markets. Kenneth Lee: Just around the third quarter, you mentioned in the prepared remarks seeing some client rebalancing activity. I wonder if you could just give a little bit more color around that? What sort of trends are you seeing around that area? Jason Gottlieb: Yes. We could just dive in a little bit. So in Q3, we had 3 pretty big rebalances within our intermediate wealth space, and these were -- they impacted a couple of teams, international value, international small mid in particular, where clearly, the performance remains quite strong. These were in no way, shape or form terminations. They were just reductions in the overall exposure. One of the things that we found and we're excited about is that within the intermediate wealth space, the folks that we're talking with are highly sophisticated, and they run very similar models to what you think of a very large pension or institution would be running. So there's pretty frequent rebalances. And given the size of the programs that we're in, the models that they're running, it's not to be unexpected. We're in a high-class problem environment when it comes to our equity business. They're producing phenomenal returns over a short, intermediate and long periods of time, which in and of itself means that we're going to be a right candidate for rebalancing. And certainly, Q3 was no different in that regard. And then the one area where we did see a termination was a relatively small one, but again, it's a little bit more idiosyncratic. It's more idiosyncratic due to the market. It was an Australian client. As we have talked about on past calls, the Australian market from a regulatory perspective has forced a lot of people to reevaluate their allocations to active management, ultimately favoring passive management and just in-house strategies. And so that was a bit of a continuation there, but nothing that we could say was specific to the Artisan platform. Kenneth Lee: Got you. Very helpful there. And just one follow-up, if I may. In terms of the expenses, wondering if there's any kind of updated outlook over the near term around expenses? Charles Daley: Ken, it's C.J. I would just note that I think back in the beginning of the year, and I've confirmed, we thought we'd be around mid-single digits for fixed expense growth for the year. We're tracking there maybe slightly a little bit better. We're in the process of looking forward to 2026 budgeting. So I don't really have any updates there. But as we mentioned, we've been very disciplined on expenses in 2025 after a couple of years of -- strong years of headcount growth and building out distribution operations, adding capabilities to grow in the areas that Jason has spoken about. So I don't expect anything unusual moving forward and the guidance that we gave for 2025 still stands, might come in a tad better. Operator: And this concludes the question-and-answer session as well as the event. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to the Q3 2025 Earnings Conference Call. I am Mattilde, 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 Stefan Drager, CEO. Please go ahead. Stefan Dräger: Yes. Good afternoon, and thank you for joining our conference call on our financial results for the first 9 months of 2025. I have with me today Gert-Hartwig, CFO; as well as Tom Fischler and Nikolaus Hammerschmidt, both Investor Relations. I would like to take you through the results of the presentation that we made available on our web page this morning. Following the presentation, we will open the floor to your questions. Let's get started on Page 5 with the business highlights. With a significant increase in orders, noticeable growth in sales and very good earnings, we delivered a strong business performance in the first 9 months of 2025. Despite difficult economic conditions, demand for our Technology for Life rose to around EUR 2.6 billion. The last time we had such a high order intake after 3 quarters was in our record year 2020. Growth was driven by both divisions and all. The same is true for net sales, which increased to around EUR 2.3 billion. Earnings before interest and taxes almost reached the prior year level at around EUR 77 million despite the positive one-off effects mentioned above in the prior year. As a reminder, last year, we had divested a non-core business in the Netherlands and unused property in the United States and a building in Spain, totaling around EUR 30 million in one-off effects. Similar effects are missing this year. In addition, this year, we need to compensate for some quite strong headwinds, currencies and tariffs had a substantial negative impact on our earnings. So without these headwinds, our EBIT would have been significantly above the prior year level. Our business in the third quarter made a substantial contribution to the strong overall performance in the first 9 months. Net sales were significantly above the prior year level in Q3, while EBIT more than doubled. In addition to our top line, we were able to improve our operating cash flow in the first 9 months with a considerable increase by more than EUR 35 million to around EUR 93 million. This development has also been recognized by investors. Until the publication of our preliminary figures, our preferred shares had already increased by around 44% year-to-date. On the day after the publication, they rose by 12%, resulting in an increase of around 63% in the current year. Our common shares have shown strong performance as well with an increase of around 41% year-to-date. Ladies and gentlemen, as communicated 2 weeks ago, we now expect the net sales growth and the EBIT margin in the upper half of our forecast range. I'll come back to our outlook at the end of our presentation. With that, I turn over to Gert-Hartwig for a review of the financials. Gert-Hartwig, please. Gert-Hartwing Lescow: Thank you, Stefan, and welcome, everyone. Please turn to Page 7 for a group overview. As usual, all growth rates are quoted on a currency-adjusted basis. As Stefan Drager said, we continue to see strong demand for our Technology for Life in both divisions in all regions. Order intake rose by 9% to around EUR 2.6 billion in the first 9 months of '25. The Americas led the growth with an increase of around 19%, followed by EMEA and APAC. In Germany, the order volume was slightly above the prior year level. In the third quarter, orders grew by roughly 7% as the slight decline in Germany and APAC was more than offset by an increase in the other regions. Our net sales development has further accelerated in Q2. We are well on track to compensate for the slow start in the year caused by some supply chain disruptions. Net sales rose by more than 10% in the third quarter. In the first 9 months, they increased by roughly 4% to around EUR 2.3 billion. All divisions and regions contributed to growth in the respective reporting periods. The positive development in the third quarter was driven in particular by a significant increase in the EMEA and Americas regions. I'll comment on that when we get to the divisions. Our gross profit margin increased by 0.7 percentage points in the first 9 months to 45.1% despite currency headwinds and higher tariffs. The margin improvement was strong in the Medical division than in the Safety division. Operating costs rose only moderately, reflecting disciplined expense management. Our functional expenses increased around 6% in the first 9 months, but mainly driven by the absence of last year's EUR 30 million one-off income. Excluding the positive one-off effects mentioned above, the cost increase amounted to 2.4% in the first 9 months and to 1.5% in the third quarter. In nominal terms, however, functional expenses were on a slight decline in Q3. Due to the only moderate increased costs and the significant growth in net sales, we more than doubled our EBIT to around EUR 57 million in Q3, coming from around EUR 24 million in the prior year quarter, which had been still supported by the positive one-time effects amounting to EUR 10 million in the quarter. Our EBIT margin rose from 3.6% at 3.1% to 6.8%, strong earnings performance in the quarter. Over the first 9 months, EBIT came in at around 3% margin, slightly below last year's EUR 80 million and a 3.5% margin. Again, the positive one-off effects from the prior year are now missing. In addition, headwinds from currencies and tariffs strained our EBIT as the euro appreciated sharply against key trading currencies. Carefully monitor the development of foreign currencies and manage risks proactively through hedging and price adjustments. Having said that, FX still had a negative impact of roughly EUR 22 million on EBIT. Our operating performance improved year-on-year, and that improvement nearly but not fully offset the absence of one-offs and the FX and tariff drag; thus, our EBIT declined slightly. Finally, our rolling 12-month EBITDA improved significantly from roughly EUR 30 million to around EUR 49 million. Let us now take a closer look at on Page 8. We grew order intake by almost 12% to around EUR 1.5 billion in the first 9 months of 2025, driven by high demand for ventilators, anesthesia machines, services, and consumables. In the second quarter, mid-double-digit million euro order for hospital infrastructure from hospital further powered our growth in the Americas. But even without this large order, demand in the Medical division rose year-on-year. In the third quarter, order intake in the Medical division increased by more than 5%. The decline in APAC was compensated for by the significant growth in EMEA and by the positive development in the other regions. Thanks to EMEA and the Americas, in particular, net sales rose significantly by more than 10% in the third quarter after a slight decline in the prior year period. Looking at the first 9 months, net sales increased by around 5% to EUR 1.3 billion, driven by all regions. In APAC, growth was driven mainly by EMEA and China, with business development somewhat uneven in China. After solid growth in the first 6 months, demand has cooled considerably in the third quarter. Although the resolution of our Q1 supply chain problems had a positive impact in Q3 as expected, these effects were offset by the overall weak business in China, resulting in a decline in net sales compared to the prior year quarter. Our gross margin expanded by nearly 3 percentage points in Q3 and by 1.1 percentage points in the first 9 months, thanks to a favorable product and country mix and lower quality expenses from field actions. Functional expenses rose by 6% in the first 9 months of 2025 and by roughly 8% in the third quarter. Excluding the proportionate positive one-off effects from the sale of real estate in the prior year, the increase amounted to roughly 4% in the first 9 months and also in the third quarter. Earnings in Medical returned to positive territory in Q3 as we are making progress in improving the profitability in the division. Our EBIT grew considerably from minus EUR 4 million to plus EUR 11 million, lifting the EBIT margin from minus 0.9% to 0.3%. For the first 9 months, EBIT amounted to around minus EUR 23 million after around minus EUR 28 million in the prior year period. As mentioned before, one-off effects in the prior year's period played a role. Our rolling 12-month EBITDA improved significantly by around EUR 22 million to around minus EUR 45 million. I will now turn to our Safety division on Page 9. In the first 9 months, order intake rose by roughly 6%, driven by gas detection, respiratory and personal protection products, and Engineered Solutions. Orders for occupational health and safety normalized after last year's large order for NBC Protective filters, leading to a lower demand in Germany. EMEA and the Americas delivered strong double-digit order growth, while APAC remained almost stable. After a somewhat slower development in the second quarter, order intake accelerated in Q3 with orders rising by roughly 9%. In addition to the significant increase in EMEA and the Americas, growth in APAC also contributed to this development. Q3 net sales rose significantly by roughly 10%, driven by EMEA and the Americas in particular. The first 9 months, net sales increased by more than 2%, thanks to growth in all regions. That said, our safety business is back on track after slight weakness in Q2. Our gross margin expanded by 1 percentage point in Q3 and was stable in the first 9 months, thanks to a favorable product mix. Functional expenses rose about 5% in the first 9 months. This was mainly due to other operating income in the prior year period from the sale of our fire alarm systems business in the Netherlands and the sale of real estate. Higher marketing expenses also had a negative impact on function costs. Excluding the other operating income of the prior year period, functional expenses decreased slightly by 0.3% in the first 9 months of the year and by 2.4% in the third quarter. So good expense management and safety. Q3 EBIT improved significantly to roughly EUR 46 million after EUR 28 million in the prior year quarter. The EBIT margin increased to 12.6%. After the first 9 months, the EBIT came to just under EUR 100 million, down from EUR 108 million. The EBIT margin was just below 10%. Rolling 12-month EBITDA decreased slightly by roughly EUR 3 million to around EUR 94 million, coming from EUR 97 million in the prior year. That concludes the Safety division revenue. Let's move on to the development of our cash flow and other key figures on to Slide 10. In the first 9 months, we significantly improved operating cash flow by around EUR 35 million to roughly EUR 93 million. This was mainly due to effective working capital management, especially better development of trade receivables, trade payables and other liabilities. Outflows from investing activities more than tripled from EUR 2 million to about EUR 76 million, resulting in a free cash flow of around EUR 17 million after around EUR 35 million. Among other things, the significant increase in outflow was due to a base effect in the prior year, the sale of our fire alarm systems business in the Netherlands and the sale of the property in the U.S. led to a considerable inflow, which is now missing. On the other hand, Drager added an investment to one of its holdings in the first quarter of 2025, which has contributed to a higher outflow year-to-date. Looking at our net financial debt, we had modest reduction, keeping our leverage at a healthy 0.7 net financial debt to EBITDA. Our 12-month return on capital employed rose from 10.9% to 12%. This was due to the significant increase in our rolling 12-month EBIT, which was much stronger than the increase in capital employed. The considerable growth of our rolling 12-month EBIT resulted from the good performance in the fourth quarter of '24, which had delivered much higher earnings compared to Q4 '23. Net working capital was around 3% higher than in the prior year at around EUR 21 million. Our equity ratio as of September 30 stood at nearly 50%, remaining at the year-end level of 2024. Now I hand back to Stefan Dr ger for our outlook on Page 12. Stefan Dräger: Ladies and gentlemen, Q3 was a strong quarter for Drager. Our excellent order development and the increasing sales momentum make us optimistic about the further growth of the business for this year. Therefore, we now expect the upper half of our previous guidance. We now expect net sales growth of 3.0% to 5.0% net of currency effects and an EBIT margin of 4.5% to 6.5%. EBIT is now expected to be in the range of EUR 10 million to EUR 18 million so far, business development during the year has given us a good basis to reach our targets. We start in the most important quarter of this year with our typical seasonality. In the next coming weeks, we will remain focused on execution to deliver on our promises. With this, I would like to end the presentation and hand over to the operator to open the line for your questions, please. Operator: [Operator Instructions] The first question comes from the line of Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: I would have 3 and probably take them one by one, if possible. The first one would be on the ventilation market, if you just can discuss the dynamics there. I mean I assume the whole industry has benefited from the exit of Bayer, GE and Medtronic. There have been some kind of voices who claim that Tania and Hamilton have gained most from these kind of changes and Dr gerwerk somewhat less. I mean I assume everyone has seen significant growth. I was just trying to get a kind of feeling, do you feel that's fair? Or do you believe you have captured your kind of fair share in this kind of market development? And also to what extent if we move into next year, is that kind of challenging base effect? Or will this kind of market consolidation support further growth next year? That would be question number one, please. Stefan Dräger: Yes. This is Stefan answering your question, Mr. So, I believe all the market participants that are still there, they get a fair share, including ourselves of the opportunities that come from the withdrawal of the 3 players. And so, for me, I couldn't understand why they made this withdrawal these 3 players and I see that for the times to come, very beneficial to be in the market. As you know, we have the longest tradition and experience and the greatest production capacity for all players as we invented the ventilator in 1907, my great, great grandfather this. And I still see it for the future as very beneficial to be in there. And I see that both Mr. Hammerschmidt and myself, we address our customers personally the video message to let them know that we will be there at their side in the future. So, it's not a secret. For Hamilton, it's a challenge because although it's a U.S.-owned company, operations are based in [Biel/Bienne] in Switzerland, the tariffs for the U.S. are 39%. So that led to some extra effort to cope with that, that we don't have. So, it's beneficial for other European ventilator manufacturers, including the one in Sweden. Oliver Reinberg: That makes sense. And do you believe you can still grow from this kind of base next year? Or is that a kind of demanding base, of which we would expect to kind of decline? Stefan Dräger: No, I would not expect a decline. I think the overall market has still opportunities and room for growth, as the medical technology and environment, the general positive trends they are still there and continue. So, despite maybe some single countries drop out, the global trend is still there. Oliver Reinberg: Super. That's helpful. The second question is just on supply chain. I mean, there's obviously the kind of discussion on Nexperia, the kind of Dutch company where the conflict with China, I think, largely people focus on the automotive industry, but I think they're also a major supplier for chips for the Medtech industry. I'm just wondering, is there any kind of risk factor that you face here in particular as we move into the kind of Q4 now? Stefan Dräger: Not a big effect. We do use some of these chips, but only to a small extent. And we have larger inventory that we keep on stock as the automotive people do. And from what we can see, luckily, these are used for applications that are not so regulatory dependent. So it's easier to replace and there are alternative suppliers. So we may see some smaller effect, but not in Q4, maybe in the next year. Oliver Reinberg: That's super. That's reassuring. And then the last question, obviously, it's a bit too early for next year. But just to get any kind of flavor, we are making nice margin progress in 2025. At the midpoint, we would probably run 50 basis points ahead of the kind of normalized run rates toward a 10% EBIT margin in 2030. I'm just wondering, looking at the pulls and pushes for next year, I mean, is there any reason why you should be below the kind of 6% EBIT margin, which would be implied by this run rate for next year? And in particular, can you provide any kind of color what incremental margin headwinds you expect from currency next year, please? Stefan Dräger: So I'll give you the first part we keep reiterating. So the business cannot be judged by the quarter. So it can always be a bad quarter that does not mean that the worst is bad. And the same holds true if we have a very good quarter like. So if we look at the figures and analyze where we are, then we see we had an exceptionally good margin in the Q3. And so in addition, we had an exceptionally good margin in Q4 last year. So if we go back on an average margin for this coming Q4, then there is a reason to assume that it is not so extraordinary, then you might probably speak at the first glance. And going back to the margin to normal, that's partially fueled because there are some large tender businesses that start delivering in this current quarter. So it's better to be a little bit cautious with the forecast and development of the future. The effect of the currency, I hand over to Gert-Hartwig. Gert-Hartwing Lescow: Yes, there will be given current average rates, there will be an additional FX headwind. We are in the final steps of finalizing planning and currency adjustments, but it's possibly in the range of another percentage point margin. We will provide more clarity on that with the publication of our guidance for '26. Operator: [Operator Instructions] The next question comes from the line of Virendra Chauhan from AlphaValue. Virendra Chauhan: So for now, just one question around your margins. So Q3 was fairly strong margin. And like you pointed out in your notes as well as presentation that it came from the strong net sales growth that you saw in this quarter. Now, of course, the sales growth guidance as well being upgraded, is there a chance that we see a similar year-on-year margin expansion in Q4 as well, because Q4 of last year was also very strong, I think close to 12%, if I remember correctly. So that's my question around your EBIT margin, please. Stefan Dräger: As I just explained on the question from [Indiscernible] Q3 was a very good margin that resulted from a favorable mix of the products in the portfolio. And it is safe to assume that will normalize and decline slightly for the Q4 and for the future. And also keep in mind that Q4 in 2024 was also a very good margin if you compare the quarters. So keep that in mind and think about this so should not be overoptimistic for the good margin to persist. As I said in, we do not think in quarters because in single quarter can always be a little bit up or down versus the others. So we, as much as we appreciate the current good result and the general outlook on the single quarter and the margin, I expect that for the Q4, there could be a slight decline. The EBIT margin overall that is more the focus that is as we said in our guidance, the upper end of the previous guidance. And it is in line with what we said earlier that we strive for a continuous improvement of the EBIT margin that should be about the same figure as the calendar year. So for this year, it's 25 that we said that already a couple of years ago, then it should be plus/minus 5%. And again, 2026, you can think about the ballpark figure of 6%. Virendra Chauhan: Sorry, maybe can I just ask one more question. So on your connected care launch, the silent ICU that you had talked about on the previous call, and it was scheduled to be launched in H2 '25. So I had 2 bits on that. One is what is your early customer feedback? What is that? And then secondly, when do you expect in terms of a time line that this entire project or focus could translate into meaningful revenue generation for the firm? Stefan Dräger: The customer feedback from the ICU projects, it's very excited. So we are very happy to observe that, and we look very much forward to taking off. We just this we started our marketing campaign where we took the horn more explicitly for this approach. And so I expect that from the next year on, that can be effect to the business from these kind of projects. Operator: We now have a question from the line of Jean-Marc Mueller from JMS Invest. Jean-Marc Mueller: First, I would like to congratulate you on a very good Q3 results. Quickly on Q4. I mean, you spent quite some time when we spoke about the numbers adjusting them for one-offs. And it's fair to say that in Q4 last year, albeit the numbers was good, it was actually worse by roughly EUR 10 million than what it should have been because you had an impairment charge last year in Q4, right? The underlying number would have been EUR 124 million, not EUR 114 million. Gert-Hartwing Lescow: Yes, that is correct. Jean-Marc Mueller: So when you're now saying that Q4 might be maybe a little weaker than last year, are we talking about adjusted numbers or reported numbers? Gert-Hartwing Lescow: There is a range and what we try to emphasize is, and I think you're iterating that, Q4 last year was also operationally a strong quarter. And depending on the delivery and given that it is just by the total number of net sales, there is a higher, if you will, sensitivity to variations in net sales variations. There is a chance that we also get at the lower end when it comes to reported figures even. Not that we are striving for that, but the discussion was just wanted to point out that the Q4 was operationally and also nominally in spite of the charge, a relatively strong quarter. Jean-Marc Mueller: Yes. Okay. I understand. I understand. And maybe ask a little differently. I mean, it's the most important quarter, I understand that, and it's typically a big number when it comes to full year results. But the range of the guidance is still very wide. I mean we're talking from the lower end to the upper end, we're talking about roughly EUR 70 million EBIT range. Maybe you can help us a little bit what would need to happen that we really hit the lower end of the range and what has to happen that we get to the upper end of the range? Gert-Hartwing Lescow: There is a couple of factors. And obviously, firstly, I mean, let me just, that's not what we're planning forward. I think you're asking what risks, we have seen FX turning against us, and this could certainly be a risk going forward. We do see that in spite of the good development overall, we do see some areas where our business is developing not as nicely, if you will. We talked about China, in particular in the Q3, where we saw a bit of like up. We also see that our safety business, while very robust overall is in Germany, for example, being put under pressure due to the general market trends for the industry. Stefan Dräger: For the industry. And that s the customer to a chemical industry. Gert-Hartwing Lescow: We also see that in the U.S. for different reasons, many customers are reluctant to fully engage in investments. And to the degree that we see some of these risks to materialize over proportionally and perhaps not see the support or a bit of a slowdown in the support, we see a risk that we also get to the low end. But let me also reiterate, we would be disappointed if our margin falls below the 5%. But at this point, we wouldn't rule that out either. Jean-Marc Mueller: Okay. And the upper end would just be flawless execution of all the projects? Gert-Hartwing Lescow: Exactly. Exactly. The flawless execution will clearly lead to the upper end. Jean-Marc Mueller: But this is what you're good at, no, flawless execution? Gert-Hartwing Lescow: Well, you can keep the fingers, the thumbs pressed and I'm sure it will help us. Say you will get an FX development that for change is not running against us, but in our favor happen. Jean-Marc Mueller: No, no. I understood. And an add-on question quickly on the cash flow. I mean also Q4 last year, the cash flow was pretty solid despite that the working capital movement in Q4 was actually negative. What should we expect this year? I mean, we obviously, we should still expect a positive free cash flow, I would assume. But the magnitude, I mean, you lowered your investment guidelines. So I would assume that also cash flows in Q4 should be fairly strong. Is this a fair assessment? Or do you see things which will go against the strong cash flow in Q4? Gert-Hartwing Lescow: By and large, I would support that, and that leads is in our range of possible net financial debt, we expect in the normal course to be at the lower end, so more positively for us. There is no underlying risk for our Q4 cash flow situation. Operator: [Operator Instructions] We have a follow-up question from the line of Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: Probably also two or three. I mean the first question would be on anesthesia. There was some kind of news flow in the industry. Obviously, Jetting now has lined up with Philips. And in fact, also GE has introduced and called out the kind of launch of a new workstation, which is more meaningful apparently. I'm not sure if this is kind of normal industry development? Or is there a certain risk that may provide a kind of headwind for Anesthesia going forward? That would be the first question, please. Stefan Dräger: I would say that's a normal industry development. There are discussions, say, all the time. And we're also having discussions and that's a normal thing. So we're not afraid of this development. Oliver Reinberg: Right. So when you're also having discussion, that means you also are generally open to more different new ways of distribution. Is that the way to understand that? Stefan Dräger: That's very correct. And so there are obviously the companies like that do not have certain modalities and they are seeking and contacting the ones that have, because they want to become a full service suppliers. So that's a long development. And that has its pros and cons. And as I said, we are not afraid of this setup. Oliver Reinberg: Okay. Perfect. Understand. And on China, I mean, we've seen an improvement in the first half. Q3 looks like a kind of a larger change to the opposite again. I mean this is larger volatility? Or because you're calling that out, is there any kind of specifics that happened here? And why has it happened if you have any visibility here? Stefan Dräger: Basically I would say there's nothing new. It's very fragile from where we ended last year. And so far, it's say, stable, but at a modest level. And it's not likely that it comes back to where it was. So, for various reasons. Oliver Reinberg: Understood. And last question, any update on the defense-related demand in Germany in terms of what have you seen so far? Is there any kind of acceleration being seen at the moment? Stefan Dräger: Please keep in mind that last year in Q1, we received a large order for this last Mask 2000 for the Army of roughly EUR 15 million. And so that obviously did not repeat this year. And despite this not repeating a single order effect from last year, our orders are currently having a double-digit growth of around 25% year-over-year for the defense business. So, it is eventually picking up, and we do expect to receive more than EUR 100 million in orders in the current year. Operator: [Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Stefan Drager for any closing remarks. Stefan Dräger: Thank you very much to all of you that with us today for your time and your interest in here, and we look very much forward to meet you again, hopefully, sometime in person in the future. Have a pleasant afternoon and evening. Goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you.
Ingela Ulfves: Good morning, everyone. A warm welcome again to Fortum's joint webcast and news conference for the investor community and media on our January-September interim report. My name is Ingela Ulfves, and I'm heading the IR team at Fortum. As always, this event is being recorded, and a replay will be available on the website later today. With me here in the studio are again our CEO, Markus Rauramo; and our CFO, Tiina Tuomela. Markus and Tiina will present the group's financial and operational performance during the third quarter and first 9 months of this year. I would also like to remind you of the upcoming Investor Day for analysts, institutional investors and other capital market participants to be held on the 25th of November. It is possible to attend both in person in Helsinki and also virtually online. The registration is open on our website until the 17th of November. As we do not want to preempt the content and discussions for the event, we aim to strictly focus on the Q3 performance and results in today's webcast and then leave all the other topics to be addressed during the Investor Day. We look forward to your participation and hope that as many as possible of you are able to join us then. Now let's go to our Q3 presentation, after which we will take your questions in the Q&A session. So with this, again, I hand over to Markus to start. Markus Rauramo: Thank you very much, Ingela. A warm welcome to our Q3 results call also from my side. I will start by going through the key elements of our quarterly highlights and our financial performance, then say a couple of words about the hydrological situation. After that, Tiina will provide more details on the financials and how the operational performance turned into our results. Let me now start with the highlights. Starting with a very positive point. Our third quarter achieved power price was higher than last year's level, EUR 46.1 per megawatt hour compared to EUR 44.1 per megawatt hour, supported by higher spot prices and strong physical optimization. Realized market prices, which means the blended price for Fortum's price areas were EUR 17 per megawatt hour higher than in the third quarter last year. Then a few words about the volume challenges we have faced this year. As you remember from earlier quarters this year, both nuclear and hydro volumes have been clearly below the normal level. The same situation continued during the third quarter. So this year has been abnormal when it comes to generation volumes. However, this should be seen as temporary due to hydrology and unplanned nuclear outages. It shows quite clearly in this third quarter, which is typically the smallest quarter result-wise in our business. As said, unavailabilities in our nuclear generation fleet still continue to impact the fourth quarter. Tiina will talk more about generation volumes in her part of the presentation. The efficiency improvement program is coming to an end now by the end of this year. Fortum reduces its annual fixed cost by EUR 100 million, excluding inflation gradually until the end of 2025. The full run rate will be effective from the beginning of 2026. In July, we announced the acquisition of a wind power project development portfolio in Finland, which we bought from the German renewables developer and constructor, ABO Energy. This acquisition strengthens our development pipeline for renewables as we prepare for future growth. With the acquired 4.4 gigawatt portfolio, Fortum's pipeline of onshore wind and solar projects in the permitting phase is approximately 8 gigawatts with more projects in the early development phase. Potential investment decisions for these projects will be made case by case. The projects will be backed by customer PPAs and need to meet our investment criteria. Currently, there is sufficient power supply in the Nordic area, and we can sell PPAs from our existing outright portfolio. Fortum's coal exit progresses with the decarbonization of the Zabrze CHP plant in Poland. Today, we announced that we will invest approximately EUR 85 million in the plant's retrofit. This is in line with our target to exit coal by the end of 2027. On another positive note, we also updated our optimization premium for the year 2025. Now we estimate the optimization premium to be approximately EUR 10 per megawatt hour for the year 2025. Previously, we forecasted EUR 7 to EUR 9 per megawatt hour for '25. The main reason for the increase is higher power price volatility. The lower nuclear volumes this year also contributed slightly to the higher premium. Then I move over to our main figures and financial KPIs. Here are our familiar comparable headline KPIs for the group's third quarter and for the first 9 months 2025. As you see, all KPIs decreased in all periods, which reflects the lower generation volumes. In Q3, our comparable operating profit totaled EUR 97 million, while comparable EPS amounted to EUR 0.08. On a cumulative basis, the group's comparable operating profit amounted to EUR 674 million. Our comparable EPS was EUR 0.59 per share. The operating cash flow was at a good level. However, it decreased to EUR 787 million. For the balance sheet, our leverage, defined as financial net debt to comparable EBITDA was basically unchanged at 1.0x at the end of September. Tiina will go into more details on the result analysis in her part. Next, I will say a few words about the market environment, especially hydro conditions. Let's look at the situation of the hydro reservoirs for the Nordic market. It's good to note this is not only Fortum's reservoirs. As we have communicated earlier this year, reservoirs were record full during the winter, meaning in the first quarter. However, the water was mainly in Norway and northern parts of Sweden, where Fortum does not have hydropower. As the winter was mild and the snowpack was thin, this resulted in minor spring floods. Because of this, the reservoir levels decreased fast in the spring. And as you can see, now the reservoirs are close to normal level. As we have said, generation volumes will be clearly lower this year. The unplanned outages in our nuclear fleet, mainly in Oskarshamn 3 in Sweden, reduced our annual nuclear volumes by approximately 3.6 terawatt hours for the full year 2025. This is based on announcements so far. The current estimate is that Oskarshamn would come back online on 1st of November. We have also highlighted the risk of lower hydro volumes for the full year. Unfortunately, this seems to be the case. For the last 12 months, hydro volumes are 17.8 terawatt hours compared to a normal hydro output year, which is between 20 and 20.5 terawatt hours. It is not possible to give an estimate for the full year as hydro conditions might change, but the assumption is that our annual hydro volumes will be below that of a normal hydro year. Still coming back to the power price volatility. Lately, we have again seen increased volatility, partly because of the introduction of the 15-minute market. The continued high power price volatility supports our capability to generate a premium through our optimization. From a value creation perspective, this is reflected in the updated guidance. We expect our optimization premium for this year to be approximately EUR 10 per megawatt hour. This concludes my part, and I would now like to hand over to Tiina to tell more about our business performance. Tiina Tuomela: Thank you, Markus. Good morning, everyone, also on my behalf. I will now go through our financials in more detail. Let's start with the key financials. I will start with some of the comparable KPIs. The comparable operating profit for the third quarter amounted to EUR 97 million. In the third quarter, both our comparable net profit and comparable EPS decreased. This reflects the lower result in the Generation segment. At the same time, our Consumer Solutions business is doing well as they generated a record high third quarter result. We are very satisfied with the Consumer Solutions result performance this year. Our comparable net profit for the quarter declined to EUR 70 million. Consequently, our comparable EPS for the third quarter declined to EUR 0.08 compared to EUR 0.14 last year. Comparable EPS for the last 12 months is now EUR 0.77. Our cash flow during the quarter declined by EUR 218 million and totaled EUR 131 million, mainly reflecting the lower result. Then over to the segment result for comparable operating profit. Compared to the previous year, our result in our Generation segment decreased, while both Consumer Solutions and Other Operations segment improved. In the Generation segment, comparable operating profit decreased by EUR 84 million to EUR 92 million, mainly due to the lower nuclear and hydro volumes, lower hedge power price and somewhat higher property taxes in nuclear and hydro in Sweden. It is also notable that similar to the second quarter, the hedge ratio was high also in this quarter as a result of the lower volumes. The result contribution from the Pjelax wind farm was slightly negative. Seasonality is reflected in the district heating business, which was loss-making, mainly impacted by lower sales price for power in Poland. As said, the third quarter shows good performance in our Consumer Solutions business. The comparable operating profit reached an all-time high third quarter level of EUR 23 million. This is an increase of EUR 17 million, which mainly relates to the improved electricity margin in the Nordics and improved gas margin in the enterprise customer business in Poland. In the other Operating segment, comparable operating profit improved by EUR 6 million, showing a negative result of EUR 18 million. The main reason for the improvement was lower fixed cost and higher internal charges for the services of enabling functions. Then let's move on to the cumulative result waterfall for the segments. When looking at the waterfall for the first 9 months of the comparable operating profit at the segment level, it shows the same pattern as for the third quarter. Compared to the previous year, the result in our Generation segment decreased, while both Consumer Solutions and other operation segments improved. In the Generation segment, comparable operating profit decreased clearly by EUR 305 million to EUR 648 million. The main reason were lower hydro and nuclear volumes, lower spot and hedge power prices and somewhat higher property taxes in Sweden as well as higher nuclear fuel cost. The result contribution of the Pjelax wind farm was slightly negative and lower than in the comparison period as a consequence of lower power prices. In the comparison period, the result of the renewable business was positively impacted by a sales gain of EUR 16 million for the divestment of the Indian solar power portfolio. The result of the district heating business was at the same level as in the comparison period. Lower fuel and CO2 costs as well as higher heat price offset the impact from lower sales price of the power. Reaching an all-time high level for the first 9 months, the Consumer Solutions segment's comparable operating profit increased by EUR 36 million and was EUR 96 million for the first 9 months of the year. The continued improvement was mainly as a result of improved gas margin in the enterprise customer business in Poland improved electricity margin in the Nordics and approximately EUR 13 million of cost synergies. In the Other Operating section, comparable operating profit improved by EUR 22 million and amounted to minus EUR 17 million, mainly due to the positive impact from divestment in the Circular Solutions business finalized in 2024, lower fixed costs and higher internal charges for the services of enabling functions. Then over to the leverage and liquidity. Our financial position continues to be strong, primarily supporting our objective to maintain a credit rating of at least BBB. It naturally also provides a good financial foundation in this uncertain and turbulent market environment, but it also caters for growth and shareholder returns. When considering our capital allocation principles, we balance leverage, investments and dividends while always keeping the credit rating in mind. Fortum's current long-term credit rating by both S&P Global Ratings and Fitch Ratings is now BBB+ with stable outlook. I want to go through the reconciliation of our financial net debt in the third quarter. As you can see, it is fairly unchanged. At the end of second quarter, our financial net debt was EUR 1,270 million. In the third quarter, the operating cash flow was EUR 131 million and investment amounted to EUR 122 million. The change in interest-bearing receivables amounted to EUR 14 million, while FX and other FX were EUR 9 million. So at the end of second quarter, our financial net debt was EUR 1,283 million and the leverage ratio for financial net debt to comparable EBITDA was at 1.0x. Looking at our debt portfolio and the loan maturity profile, I want to highlight a few things. At the end of the quarter, our gross debt, excluding leases totaled EUR 4.7 billion. Bonds are and continue to be our primary source of funding. Our maturity profile is very balanced, and there are no large maturities in any single year. The next maturing bond is EUR 750 million in 2026. At the same time, our liquidity position is strong. We have ample liquidity reserve, EUR 7 billion with EUR 3.1 billion of liquid funds and EUR 3.9 billion of undrawn committed credit facilities and overdrafts. The cost for our EUR 4.7 billion loan portfolio is 3.3%, while the interest income that we get for our EUR 3.1 billion liquid funds has come further down and is now 2.1%. With the strong liquidity position, we continue to optimize our cash and credit lines. The overall objective is to have sufficient liquidity while optimizing the balance between debt and cash to minimize funding costs. Then over to the final section, the outlook. The outlook section comprises 4 familiar elements: guidance for outright portfolio, taxes, CapEx guidance and our fixed cost reduction program. As we have stated already a few times today, we will fall clearly behind the normal historical output level this year because of announced availabilities in nuclear and lower expected hydro output. For the sake of comparison, in a normal year, our annual outright volume is approximately 47 terawatt hours. Based on announced outages, nuclear output for 2025 is now estimated to be 3.6 terawatt hours lower this year, of which 3 terawatt hours realized in the first 9 months of 2025. Our hydro output for the last 12 months was 17.8 terawatt hours compared to the normal level of 20 to 20.5 terawatt hours. About the hedges. At the end of the third quarter, our hedge price for the rest of 2025 was EUR 42 and the hedge ratio was 90%. The hedge price for 2026 is EUR 41, EUR 1 higher compared to the last time disclosed, while the hedge ratio increased by 10 percentage points to 70%. As an update today, our annual optimization premium for the year 2025 is estimated to be approximately EUR 10 per megawatt hour. Previously, it was between EUR 7 to EUR 9 per megawatt hour. The guidance for our corporate tax rate also remains unchanged for the years 2025 and 2026. We expect the comparable effective income tax rate to be in the range of 18% to 20%. The Finnish government plans to decrease the corporate tax from 20% to 18% from the beginning of 2027. There is, however, no official law in place yet. Our very preliminary estimate is that this would result in a 1 percentage point decrease in the corporate tax rate from the year 2027 onwards. I also want to repeat that in Sweden, the property taxes are revised from 2025. For Fortum, the increase of the property taxes is now estimated to be approximately EUR 30 million for the years 2025 to 2030. The major part of the cost increase is recorded in our fixed cost. We do not make any changes to our capital expenditure at this point of time as this year is about to come to the end. However, we will come back to this topic in our Investor Day. Finally, a few words in our fixed cost reduction program. For the first 9 months, our fixed costs were EUR 615 million. For the last 12 months, fixed costs totaled EUR 884 million. We reduced our recurring annual fixed cost base by EUR 100 million, excluding inflation by the end of this year with a new run rate from the beginning of 2026. Our current estimate is that the new run rate for our fixed cost base in 2026 will be approximately EUR 870 million. This includes the fixed cost increase of EUR 20 million in the Swedish property tax. As mentioned before, there are additional costs for growth in 2025. These are related to, for example, renewables development, site development, buildup of commercial organization and the hydrogen pilot project. This was all for my presentation, and we are now happy to answer your questions. So with this, Ingela, over to you. Ingela Ulfves: Thank you, Tiina, and thank you, Markus. So as this was a more straightforward quarter, the presentations were also a bit shorter. So now we are then ready to take your questions, and let's begin the Q&A session. You can also ask your questions in Finnish. Moderator, please go ahead. Operator: [Operator Instructions] Tiina Tuomela: The next question comes from James Brand from Deutsche Bank. James Brand: English, unfortunately. Two questions for me. The first is on demand. So you highlighted that energy demand was pretty much in line with last year. And you said that was after industrial demand experienced a slowdown, particularly in Sweden. I was wondering if you could just give a bit more detail in terms of what you're seeing there and what's caused that? Is that just the general economic situation at the moment? Or is there something else going on? That's the first question. And then the second is on the supply business. You've obviously had a great year in supply, and you've seen quite a significant step-up in profitability and it looks like you'll be producing EBITDA of comfortably over EUR 200 million this year, depending on what happens in Q4. I just want to get some color from you on whether you think the profitability that you've seen this year is sustainable going forward or whether it's been a slightly exceptional year and we would be expecting a step down in 2026. Not necessarily looking for a precise guidance, but just directionally, is this sustainable? Markus Rauramo: Thank you. English is absolutely fine. So on the first one, so I attribute the, let's say, sideways movement of the demand a bit to the global geopolitical turbulence. So difficult for our customers to take investment decisions. So if I put this into a big perspective, we see good signs of decarbonization and electrification going ahead. We get the incoming inquiries for new power, but investment decisions take long to take place. We see that the consumers are saving and companies are being very scrutinous about their costs. So that's my quick take on the customer side. Then on the supply side, I assume you meant our Consumer Solutions business. So the business has experienced so far a very stable year. So there have been a few surprises. There's been volatility, but something we have been able to manage. So we haven't had risk events like we had in '21-'22. So in these conditions, this is a good indicator of what the business is able to produce. But the team is doing really good work. We're getting in synergies from the earlier acquisitions, and Mika and his team are working on the efficiencies continuously. Operator: The next question comes from Harry Wyburd from BNP Paribas Exane. Harry Wyburd: The line went blank for me at the very beginning of the call. So apologies if I've missed something in the very early part. Can I -- so two questions. So firstly, the CMD, I presume you want to sort of keep things back. But I wondered if you could clarify one very specific thing, which is, have you been in negotiations with a data center or hyperscaler developer over a PPA during this quarter? And would you rule out or rule in that you might announce a data center PPA at the CMD on the 25th of November? And then the second one is on the data center tax in Finland. So I read in the press and I noted in the release that the government has gone ahead with raising the power tax on data centers in Finland. So I wonder that they also mentioned that there might be some offsetting support package. So I wondered if you could give us some color on what that support package might be and when it might be announced and whether there might be a bit of a blockage on data center PPAs until -- in Finland until that's been straightened out. And are you seeing any discussion elsewhere in the Nordics along these lines about potential tax increases on data centers and politicization of data center demand? Markus Rauramo: Thank you. So maybe, Tiina, if you take the more general tax question. And then for the -- regarding -- well, I don't think you missed anything material that you wouldn't be aware of in the very beginning. It was about the results and the markets. But then with regards to negotiations, we are in negotiations and discussions with actually several data center operators. So like we have said earlier, there are discussions going on about steel, aluminum, chemicals, hydrogen and data center operators are looking for electricity contracts. So I cannot -- and of course, I'll not preempt the CMD or Investor Day, but discussions are going on certainly on many fronts. Then on the -- more generally, so indeed, there's a discussion going on as we can see it globally in various places. Regarding location of new industries, including data centers and what kind of pressure that puts on the systems. And that's why we engage in discussions about how will the whole energy system develop and what are we doing to make sure that there's then additional supply if customers are willing to pay for that, and how do we also bring stability to the market as well. And on the Finnish case, particularly, indeed, this has been now in discussion for a longer time that would or would not be the lower tax rate be applied to data centers going forward. And now it seems that the government is going ahead with the tax increase, but then a compensating support for data centers up to a certain level. Those details, how does that work? And what are the approvals needed for this whole setup? I think that's very much in the works still. But Tiina, do you want to comment further on the Swedish Finnish tax? Tiina Tuomela: Well, maybe to put some numbers around what has been discussed currently. So in Finland, we have the electricity tax and there the general level for the tax is EUR 0.0224 per kilowatt hour. And then data centers have been among those reduced tax level, which has been EUR 0.05 per kilowatt hour. And now this will change. So data centers will go back to this general tax level. But as Markus said, there is also a plan to have some kind of support mechanism, which should compensate at least some part of the increase in the taxes. In Sweden, there has been also discussing about the electricity tax, and they reduced the level from EUR 0.04 per kilowatt hour to EUR 0.03 per kilowatt hour. So still Sweden, slightly higher than the Finnish tax level. Harry Wyburd: Got it. Okay. And sorry, just to clarify on the first one. I think in your past conference calls, you've generally said that you didn't have any substantive discussions on the go with data center developers. And I think your past comments were that generally interest was more in the shorter tenors of 3 to 5 years. So Markus, should I take your comments and I know you want to hold back for the CMD, but should I take that as a change in the comment there? Has the nature and substantiveness of your negotiations on PPAs changed since we last had the conference call on Q2? Markus Rauramo: Not materially. But in the CEO comment, you would have noted that we said that we continue to see robust demand and that we thought very carefully. So like I said in the previous -- for the previous question, there is geopolitical turbulence. We see all kinds of questions around is the transition happening and so on. But our customer pipeline for the discussions we are having with the different sectors, that looks very similar to earlier quarters. So clearly, it looks like that industries and commercial actors continue to look for places where to locate their businesses. So the robust is the good work. Operator: The next question comes from Anna Webb from UBS. Anna Webb: Two from me and then maybe a clarification, if I can. So firstly, on data centers, when you do the site development, can I ask if you bundle that with PPA contracts, so you always do the sell the site and the PPAs or if they're sold separately? And what's the rationale on how you do that? Secondly, I think you said you had a negative contribution from the Pjelax wind farm, which was an issue as well earlier in the year. Can I ask what drives this because the operating cost for that should be pretty low. So I know you mentioned low power prices, but how do you get to a negative result, still a little bit unclear to me? And also whether that's a kind of one-off effect or you think this might be a headwind into the future? And then finally, just if I can clarify on the volumes. I know you said hydro volumes are variable and you can't comment on full year guidance. But if Q4 is normalized, can you comment on how much has the debt in the first 3 quarters has been versus a normal year? And so if Q4 was normal, what the loss would be on hydro, that would be really helpful. Markus Rauramo: Okay. I can start with the data center question. And then Tiina, if it's okay, if you can comment on the Pjelax impact and the hydro and nuclear volumes. So as you would know, when we developed the -- what is now becoming the Microsoft cluster in the capital region in Finland, we developed 3 sites, then found Microsoft and we sold the sites. And we actually did -- we bundled that with a deal to do the world's largest heat offtake. So we try to look for solutions where actually, we do a win-win both for our customers, for the society and ourselves. So this is supporting the Clean Heat Espoo project and decarbonization leading to a massive excess heat offtake. Of course, our interest is that we would do PPAs with the site development. But then we need to look at the various customers' situations that how committed can one be at the stage when we do the sites. And this is a dynamic discussion that we're having all the time, depending on the demand for the sites, what all can we bundle to that. But there is no one size fits all for these situations. Tiina Tuomela: All right. Then moving to the Pjelax. So we commented that in the third quarter, the Pjelax result was negative like previous year as well. So these are usually the quarters when the power prices are low, and this is also the reason. If we look at it on cumulative basis, so we can say that we are nearly to the 0 level. So it is, in that sense, let's say, seasonal. And the main reason really is the power price in the market and what the wind farm will capture. So even though the average price in the market is high, then when it's windy, so then the prices tend to be lower. So the capture rate has been lower now in the summer months. Then about the volumes. So what comes to the hydro volumes, so we have stated the average production is between 20 to 20.5 terawatt hours per year. And this year, I would say that particularly the second quarter was the biggest difference. There, we had the production volume of 3.7 terawatt hours, which is absolutely the lowest ever production volume in our history. And that was due to the lower inflow to the water reservoirs. And this second quarter, the hydro volumes were roughly 1.5 terawatt hours lower than our average production. So that gives some kind of indication. What is the difference to our average production in general. In third quarter, the production was lower than the previous year, but not that much difference to if we compare the longer-term average. Now the hydro reservoirs are nearly on roughly on the 0 level or 1 terawatt hour lower. So now the outlook for the remaining of the year looks fairly kind of normal. Operator: The next question comes from Julius Nickelsen from Bank of America. Julius Nickelsen: Just two for me. One follow-up on these PPA discussions that you've mentioned with the data centers and the industry. I mean, to the level that you can comment, do you see in these more long-term discussions that there is demand to pay a premium to the current futures curve? Because if I look at the '27 hedging that you've now disclosed, it doesn't seem that there's much premium to the current futures. And then secondly, on the optimization premium, obviously, the upgrade to EUR 10 this year. I mean, you haven't touched the long-term guidance is 6% to 8%. Is it still fair to say that given how the opportunities shape out at the moment that at least for the next 1 or 2 years, we should be more at the upper end of that scale? Or is that difficult to forecast? Markus Rauramo: Okay. Again, I'll take the first question. And Tiina, do you want to comment on the -- then on the optimization premium. Tiina Tuomela: Yes. Markus Rauramo: So indeed, compared to the implied forward curve, which I have to say is very thin. So liquidity is not high at all when you go further out. So when we think about the pricing, if we go out a few years and longer, then our price curve -- implied price curve is upward sloping. And that reflects the point of view that like was highlighted by the Pjelax example that new capacity with these prices is very hard to get to the market. So the prices need to be higher for new supply to come to the market. So to start with the further out we go in time, the higher our expectation for the price and then on top of that, there is still the optimization premium. So what we agree with the customer is then separate from what we get on top of that. Then the third element I'll mention is the different characteristics. So the more specific the customer demand is tied to the profile. If you want 8,500-hour product, that will have an impact on the availability of the product. If it's RFNBO earmarked to a certain asset, even more. And this we see practically in the PPA. So we talk about several euros of impact for longer-term contracts depending on what characteristics a particular contract would have and then optimization premium on top of that. And that's a good bridge to Tiina. Tiina Tuomela: All right. Very good. Thank you. Thank you, Markus. So the optimization premium, so we had a guidance for this year, EUR 7 to EUR 9 per megawatt hour, and we increased that after a very strong first quarter. So then the volatility was high, and we said that the optimization premium was around EUR 10 per megawatt hour. What we have seen that the volatility in the market has increased. Also, as Markus mentioned, our production volume has been somewhat lower, which was improved the number. But also what we can see that the predictability is getting more difficult. So therefore, what we have done that we fine-tuned the guidance further we go to the year and see how the optimization premium will develop. So EUR 10 for this year and for the time being, for the next year, EUR 6 to EUR 8 per megawatt hour. Operator: The next question comes from Louis Boujard from ODDO BHF. Louis Boujard: Two on my side. Maybe the first one regarding the hedging strategy. We see indeed that going forward, '26, '27 price are slopping down on a hedge point of view. At the same time, optimization is quite strong and is expected to remain quite strong. So I was wondering if you were thinking about eventually changing a little bit your hedging strategy going forward, notably in terms of duration or in terms of openness to the market prices in the short term so that you could capture better the short-term volatility of the market instead of having a stronger visibility into lower prices. And maybe the second question would be regarding what you mentioned on the wind farm Pjelax, notably regarding the fact that the capture price in the end below the one of the market regarding the fact that the wind, of course, blow for everyone at the same time. Do you think that it would make sense eventually to consider some investments in specific dedicated battery systems, which could be related to the different farm that you could develop in the future so that you could improve the returns expected from these wind farms? That would be my second question. Markus Rauramo: Okay. Thank you. So with regards to the hedging strategy, so of course, this has -- for the 13 years I've been with Fortum, this has always been the question that what is the strategy? And the idea with the hedging is to get visibility into the short-term cash flows. Then when we go longer out, then we can adjust also our operations. So when you go 3 years out, then we can do changes in our resources and processes and so on. If we look at spot price this quarter, the average in our areas was EUR 37. So rather close to the hedge price. So then having an open position wouldn't have had a huge impact, but negative nonetheless versus achieved power price. But in the comparable quarter last year, it was below EUR 20. So then being open would have impacted our result massively if we just look at the spot prices. So that's where the fundamental driver comes from. Then mostly when we do the bilateral hedging, as we did also in NASDAQ, it is financial hedging. So then we have still the possibility for the physical optimization. And then, of course, we have the risk that can we deliver the power at spot delivery, but that we settle, of course, always on a daily basis. But financial hedging with customers and then leaving the optimization. In the longer run, we have said that we want to get to 20% rolling 10-year hedge level. So we wish is that we target to stabilize the cash flows also going further. And the idea with doing PPA-backed investments, if there is need for additional power stems from that when we make investments, whether it's wind or solar or any other, the payback times typically are quite long and then stability has a positive impact on our internal cost of capital and thereby the return requirements. And that's a good bridge to the second question, which is that do we consider batteries or other flexibility connected to renewable investments? The answer is yes. So that's part of our development. We are typically citing also space for batteries connected with the renewables investment so that there is a possibility to do it if the financial conditions are there. Historically, we have built some batteries since a long time. Actually, when Tiina was heading generation even, we were doing that so already many, many years ago. And I believe that batteries will be -- of course, they will be a needed part of the system. What we see happening on that front also is that there are new uses coming for the -- that are catalyzed by volatility. For example, electrified heating, which I mentioned earlier, so heat offtake, heat pumps, electrical boilers, they can utilize very flexibly the low cost or even negatively priced towers. So the volatility will change also the business opportunities, and we are capturing those as we speak. Louis Boujard: Can I maybe a very quick follow-up? Markus Rauramo: Sure. Louis Boujard: Yes. Just wondering regarding the batteries. Do you consider that currently the regulation is supportive enough for you? Or does it need any change? Markus Rauramo: So of course, there are issues that need to be considered, for example, on the consumer side, when we have investments behind the meter, of course, then the taxation and grid fees and so on, these are of a lesser issue. But when we get to a communication between customer assets and the market, then these are things that need to be seriously addressed on European level and national level. Operator: [Operator Instructions] The next question comes from Harrison Williams from Morgan Stanley. Harrison Williams: Two for me and possibly one clarification. Firstly, on the optimization premium, so I appreciate that it's very strong this year with guidance at EUR 10 per megawatt hour. Can you give us what that number would be had you had a normalized nuclear year? Because clearly, that is helped a little bit by the lower nuclear volumes. Just understanding if that's within the 6% to 8% range or kind of above the top end of that. The second question I had was again going back to PPAs. I mean, I guess we've not yet seen any of these longer-term PPA contracts being struck. And trying to understand, is this a case of offtakers not being certain on the kind of volume requirements in the 5- or 10-year period? Or is this a mismatch between pricing expectations because you say yourself that you have maybe a higher exited forward curve than what we can see on our screens. So trying to understand where that is. Is that a volume mismatch? Or is that a price mismatch? And then the final clarification, thank you for the color on nuclear volumes this year. Can we clarify that next year, you are still expecting a normalized 26 terawatt hour output? Or is there anything we should be aware of? Markus Rauramo: Okay. So if I take the PPA question and Tiina, if you take again the optimization premium and volume question, so then we start to follow our pattern here. Tiina Tuomela: Yes, we will. Markus Rauramo: Okay. So for the long-term PPAs, so of course, we have a kind of inherent wish when we do new investments that are volatile and also we have the capture rate issues. So they would benefit from visibility long term. Otherwise, historically, we have been hedging in the short term. So the drive to do long-term PPAs isn't really coming primarily from our side, but it is how we communicate is based on what we hear from the customers. So customers are making inquiries on 3-year, 5-year, 7-year, 10-year and even longer PPAs. There are a couple of points I see there. One is this whole geopolitical situation. So the customers' investment plans are taking time to materialize. So our customer pipeline has stayed very stable. Like I said, the outlook from that point of view is robust. Then a contradictory point is that if I look at the Nordic traditional heavy industries, they typically would have a wish to get visibility for various inputs. But the order books, whether it is steel or chemicals or pulp and paper, they tend to be rather short. So we talk about months or a year. And then locking in input costs create a basis risk, which we all are very familiar with. So even if something would look inherently very affordable, there's still a risk that your incomes go below your costs and then you have out-of-the-money contract. So this is one structural thing that continues to be impacting our customers' ability to do long-term contracts. But overall, there is structural demand for power, power availability. And if the format to get that to the customers is the PPAs, then structurally, we're heading that way. We haven't done massive PPAs that we would have announced separately. But if you look at our hedging levels and the volumes, that actually implies that we're doing hundreds of bilateral contracts, also longer-term PPAs, which you can see in the 10-year rolling hedge ratio. So we are doing also long-term PPAs, but the volumes are not massive. But they're a good indication in line with what I said earlier. And then to the optimization premium and nuclear volumes. Tiina Tuomela: Alright, thank you. So when we calculate the optimization premiums, so we take the full volume, as you said, so 47 terawatt hours in the normal year. This year has been exceptional when it comes to the nuclear, so 3.6 terawatt hours more outages what we planned at the beginning of the year and also hydro being somewhat lower, particularly because of this low second quarter. Of course, what is the final number will depend on what will happen and how we run in the fourth quarter. But if we take roughly to give you an idea, so the optimization premium would have been roughly at the same level as the previous year. So previous year, it was EUR 8.7, so somewhere EUR 8.5 or that range with the normal, normal without particularly the nuclear extensions. Then what comes to the next year nuclear production. So the normal year, we have indicated is roughly 46 terawatt hours. And all the time, the nuclear producers will put the UMMs with the updated outages. And what we now know is that Loviisa and also Oskarshamn 3, they have a normal cyclical longer outages. So those are normal and planned and goes according to the schedule, but they are a bit taking the production volume lower. Operator: The next question comes from Harry Wyburd from BNP Paribas Exane. Harry Wyburd: Sorry to monopolize and to come back, but I'm sorry to really labor this topic, but it's driven a 10% or nearly 10% move in your shares since this morning. So it's really important, I think, to get the language sort of understood correctly. So I think from my question earlier, I interpreted that you were -- there maybe been a positive change in your discussions with data center operators versus what you told us at Q2. In the subsequent questions, you've kind of mentioned that if you did a big PPA, you'd announced that separately. You're doing -- you're not really doing big long-term PPAs. I think really to distill it down, what I think the market is questioning here is, are you poised to sign a big long-term PPA with a sort of big industrial data center operator. So just to really clarify what you said, is it plausible that you could sign a significantly sized long-term PPA with a data center operator or announced it in the next few weeks? Or is that something that we should interpret from your comments that is less what you're looking at, at the moment? Sorry for the long question. Markus Rauramo: That's absolutely okay. So like I said, I think the one word, the robust says it very well. So when we look at all the customer segments, there is continuous activity. And from our point of view, we see that electrification, decarbonization are driving industries. It will be more efficient. Clean power is actually more affordable than fossil power, the brand promises that companies have made, these are all pushing ahead what we have been preparing for. So the underlying activity is at a good level. But then in all honesty, there's a lot of uncertainty. So even with all these discussions, we don't know what they will materialize into before deals are done. And to -- not to try to shy away from the question, but to give you color on how do we address this is that we see the potential, but we see a lot of uncertainty. And that's why our preparation is that we're spending almost EUR 100 million a year in developing the renewables pipeline, pumped hydro, batteries, even new nuclear as a feasibility study for the future. We're developing the sites. So we want to create the optionality that if there is additional demand, we can answer that. And then we have the efficiency programs, the availability. We improve our processes to be able to serve from our existing portfolio. So it is not 1 or 2 discussions that we are having. It's a big list of customers that we're talking with all the time and preparing for that potential. Sorry for not being able to be clearer than that, but this is the very kind of honest picture of what is happening. But bottom line is that I'm positive about the whole decarbonization, electrification opportunity and the Nordics are in an excellent position to answer that. But it seems that the overall sentiment has a lot of uncertainty. So investment decisions also take time. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Ingela Ulfves: Thank you so much. Thanks for all your questions. Very interesting. And also happy to have gone through now the Q3 performance. As there were some technical issues in the beginning, I would just quickly repeat what I said about the Investor Day. So it was a reminder that we will host the Investor Day on the 25th of November and also then saying that the registration is open until the 17th of November. You're able to attend both in person in Helsinki, most welcome to join us in -- at the event, but then also participate virtually online. But with this, thank you for your participation, and we all wish you a very nice rest of the day. Markus Rauramo: Thank you very much. Have a good day. Tiina Tuomela: Thank you. Bye-bye.
Operator: Good morning, everyone, and thank you for joining today's Highwoods Properties Q3 2025 Earnings Call. My name is Regan, and I'll be your moderator today. [Operator Instructions] I will now pass the conference over to our host, Brendan Maiorana, Executive Vice President, Chief Financial Officer. Please proceed. Brendan Maiorana: Thank you, operator, and good morning, everyone. Joining me on the call this morning are Ted Klinck, our Chief Executive Officer; and Brian Leary, our Chief Operating Officer. For your convenience, today's prepared remarks have been posted on the web. If you have not received yesterday's earnings release or supplemental, they're both available on the Investors section of our website at highwoods.com. On today's call, our review will include non-GAAP measures such as FFO, NOI and EBITDAre. The release and supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Forward-looking statements made during today's call are subject to risks and uncertainties. These risks and uncertainties are discussed at length in our press releases as well as our SEC filings. As you know, actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update any forward-looking statements. Finally, we know many of you will be attending NAREIT’s Annual Conference in December in Dallas. We are hosting a property tour the afternoon of Monday, December 8, to showcase our Uptown Dallas portfolio. If any of you would like to join the tour, please let us know. With that, I'll turn the call over to Ted. Theodore Klinck: Thanks, Brendan, and good morning, everyone. We entered 2025 focused on the following strategic priorities: securing the embedded NOI growth potential in our operating portfolio by leasing up key vacancies, capturing the embedded NOI growth potential in our development pipeline by leasing up our 4 completed, but not yet stabilized assets; continuing our proven playbook of recycling out of noncore assets that are more CapEx-intensive into higher quality, higher growth and better located properties that have stronger long-term cash flows and maintaining a strong and flexible balance sheet. We made meaningful progress on each of these priorities during the quarter and believe we have opportunities to advance our progress even more significantly over the next few quarters. First, our second-gen leasing volume was strong with several sizable new leases inked in what we call our [ Core 4 ] operating properties that have elevated vacancy. Alliance Center in Atlanta, and Symphony Place, Park West and Westwood South, all located in Nashville. We signed over 1 million square feet of second-gen volume, including 326,000 square feet of new leases. Our leasing volumes have been strong now for 8 consecutive quarters. These strong volumes have driven our leased rate 340 basis points higher than our occupancy rate at quarter end, which explains why we are so confident occupancy will rise by year-end 2025 and throughout 2026. Back in February of this year, we stated that our Core 4 had approximately $25 million of stabilized NOI upside above our 2025 outlook. At quarter end, we have locked in over 50% of this upside with signed leases and have strong prospects to lock in another 25%. In addition to the strong volumes, pricing power is starting to improve as office users encounter a dwindling supply of high-quality space owned by well-capitalized landlords. This is demonstrated by growth in net effective rents, which hit a high watermark for us this quarter. We have long viewed net effective rents as the best indicator of underlying rent economics, which have been 18% higher over the trailing 4 quarters compared to our 2019 average. Second, we signed 122,000 square feet of leases across our development pipeline, driving the lease percentage to 72%, up from 64% last quarter. This means, we have now signed leases for over 70% of the $30 million stabilized annual future NOI growth potential from the 4 completed but not yet stabilized development properties. Plus, we have a strong pipeline of prospects to drive our lease percentage even higher over the next few quarters. We expect these properties will be a large driver of NOI growth in 2026 and 2027. Third, we were active with investment activity as we acquired the Legacy Union parking garage in Charlotte's Uptown BBD for a total investment of $111.5 million and sold a noncore property in Richmond for $16 million. The Legacy Union Garage was funded on a leverage-neutral basis through a combination of noncore disposition proceeds, proceeds from common equity issuances via our ATM program and incremental borrowing. In the short time since the acquisition of the garage in August, we've signed a 16,000 square foot ground floor retail customer and secured 150 additional monthly parkers from a corporate user that is not a tenant in our legacy Union portfolio. Given limited CapEx associated with garage ownership and a weighted average contractual term of roughly 9 years for 70% of our projected revenue, we believe our investment represents an excellent risk-adjusted return. Fourth and finally, our balance sheet is in great shape. During the quarter, we extended our only consolidated debt maturity prior to 2027, which gives us plenty of flexibility as we evaluate future investment opportunities that would significantly enhance our portfolio quality and BBD locations. Turning to the quarter, we delivered FFO of $0.86 per share. We have once again raised the midpoint of our FFO outlook, our third consecutive quarter increasing our 2025 outlook with the FFO midpoint now $0.08 higher than our initial outlook provided in February. We also raised the midpoint of our same-property cash NOI outlook by 50 basis points, while our year-end occupancy outlook points to meaningful upside over the final 3 months of the year. In addition to updating our financial and operational outlook, we also updated our outlook for investment activity, which indicates the potential for meaningful asset recycling over the next few quarters. We've highlighted the potential of up to $500 million of both acquisitions and dispositions during the next few quarters. So far this year, we've acquired 2 properties, both of which are high-quality, well-located assets with significant long-term growth potential. These assets were both acquired off market at an estimated combined cash NOI yield around 8% after factoring in the upside from the recent leasing activity and additional monthly parkers at Legacy Union. We have a healthy pipeline of additional acquisition opportunities, coupled with numerous noncore properties in various stages of marketing for sale. With these asset recycling opportunities, we could make significant progress over the next several quarters with regard to further strengthening our portfolio quality, growth rate and cash flow, similar to other major asset rotations that we've completed during the last decade. To wrap up, we're extremely excited about the next few years for Highwoods. We expect to deliver strong embedded NOI growth from signed leases that haven't yet commenced across both our operating portfolio and development pipeline, and we have strong leasing prospects that could drive our future embedded growth even higher. As signed leases convert into occupancy, we see a clear pathway to higher earnings and cash flow and meaningful value creation across our 26.5 million square foot portfolio. Further, we see additional opportunities to sell older nonstrategic properties where risk-adjusted returns don't meet our objectives and recycle that capital into high-growth assets in the BBDs of our markets at attractive risk-adjusted returns. With our proven playbook and a strong balance sheet, we are well positioned to execute on the opportunities ahead of us. Brian? Brian Leary: Thanks, Ted, and good morning, everyone. Thank you for joining us. Our commute-worthy strategy centered on creating exceptional environments and experiences continues to differentiate Highwoods in a market constrained by a limited supply and a dearth of well-capitalized owners. This quarter, our team once again delivered strong results. We signed more than 100 leases while maintaining a robust leasing pipeline spanning early, mid- and late-stage prospects across our entire platform, most particularly in our Dallas, Tampa and Raleigh developments and our Highwood-tizing redevelopments in Nashville. The quarter's achievements were notable. Net effective and GAAP rents reached new highs, while our 15.9% payback improved by 240 basis points relative to our 5-quarter average. Average net effective rents hit a new quarterly high, led by strength in Dallas, Charlotte, Atlanta and Tampa. Our trailing 12-month average is now 18% above our pre-pandemic peak reached in 2019. GAAP rents were strong with an 18% increase compared to expiring rents at a record $40-plus per square foot. We ended the quarter 85.3% occupied and 88.7% leased, consistent with what we've long communicated as our occupancy trough. With a limited near-term expiration outlook and more than 325,000 square feet of new leases signed during the quarter, we're well positioned to grow occupancy from here. This quarter, once again, expansions outpaced contractions 4: 1 this time. Year-to-date, we've signed 47 total expansions, outpacing our full year results each of the past 2 years and net expansions so far this year approximate 70,000 square feet, our highest year since before the pandemic. We also signed 122,000 square feet of first-generation leases in our development pipeline, lifting our lease percentage to 72%, up 800 basis points sequentially. While leasing momentum was balanced across our markets, Dallas, Nashville, Charlotte and Tampa were standout performers. Let's start with Dallas, a market that continues to shine across our portfolio. Dallas is, in many ways, an overnight success that's been decades in the making. Once defined by energy, it's now one of the most diverse and dynamic economies in the country. The Dallas metro population is projected to grow nearly 50% over the next 25 years, and about 400 new residents are moving in every single day. For 20 consecutive years, Chief Executive Magazine has named Texas the best state for business. and the Dallas Regional Chamber recently noted 10 major corporate and significant office using prospects are considering headquarter moves or large expansions. That strength is showing up in the data. CBRE and Cushman & Wakefield both reported positive net absorption for the fourth straight quarter and both highlighted Uptown as the top submarket with regard to rate and demand. Our partnership with Granite Properties continues to perform exceptionally well. In Uptown, McKinney & Olive remains 99% occupied and our new 23Springs Tower, which opened this quarter has already reached 67% leased, up 500 basis points quarter-over-quarter with rents well above underwriting. Similar success is occurring at the Tollway at Granite Park 6, where our lease percentage has increased 1,000 basis points to 69%. We have strong prospects for both of these buildings that will bring the lease rate to the mid-70s or higher. Moving to Nashville. It remains one of the most compelling and resilient markets in the Sunbelt. Unemployment sits at just 2.9%, the lowest among our markets and it's the epitome of an emerging landlord favorable market with the intersection of dwindling supply, increased inbound inquiries and a surging local economy. The construction pipeline has reached historical lows and nearly 12% of the downtown inventory, about 1.4 million square feet is being converted to hotel and residential uses. CBRE sums it up well. Landlords in Nashville now have considerable pricing power with asking rates up more than 11% year-over-year. Our own portfolio mirrors that strength. Downtown at Symphony Place is now 70% leased or out for leased with another 20% in active negotiation. In Franklin, Park Place West is over 80% leased or out for lease. And Westwood South and Brentwood is progressing with solid mid-stage prospects for the entirety of the building. With over 100,000 square feet signed this quarter, our 5 million square foot Nashville portfolio continues to benefit from broad-based demand across all 4 of Nashville's core BBDs. In Charlotte, the same FIRE and TAMI industries fueling growth in Dallas and other major markets are driving strong demand for the best Class A space available. According to CBRE, leasing is up 77% year-over-year with 80% of that activity from new or expanding tenants, and there are 17 active prospects larger than 50,000 square feet in the market. Our 96% occupied portfolio and strong inbound activity validates these trends. With very little new supply, top-end rents continue to rise and the calculus for new development is becoming more viable. During the quarter, we signed 200,000 square feet in Charlotte with net effective rents over $30 a square foot, GAAP rents approaching $50 a square foot and a low 10% payback. Office using employment in Charlotte grew 3.4% year-over-year, reinforcing our confidence in the city's ongoing strength. And finally, Tampa, where momentum continues to accelerate. CBRE reports 6 consecutive quarters of declining vacancy and the strongest absorption in years. With 1 million square feet of known move-ins ahead, the trend remains firmly positive. We signed 190,000 square feet of second-generation leases in Tampa this quarter, plus our Midtown East development doubled its lease percentage after signing 53,000 square feet of first-gen leases across 2 full floors with triple net rents in the mid-40s. With only a corner restaurant space and one last floor of office remaining, we couldn't be happier with where we are in Midtown Tampa. Across our diversified Sunbelt portfolio, we benefit from a broad tenant base, spanning industries, company sizes and geographies, anchoring in both urban and suburban BBDs. When you combine that diversification with our measured development activity, our continuous reinvestment in existing assets and our targeted acquisitions, the result is a portfolio built for resilience and sustained long-term growth. We're incredibly proud of how our team continues to execute market by market and building by building, delivering outcomes that reinforce the strength and momentum of the Highwoods value proposition. Brendan? Brendan Maiorana: Thanks, Brian. In the third quarter, we delivered net income of $12.9 million or $0.12 per share and FFO of $94.8 million or $0.86 per share. The quarter was relatively clean without any notable unusual items. Our leasing metrics during the quarter were healthy with net effective rents the highest in our history. The strength in leasing economics, combined with the embedded NOI growth in our operating portfolio and development pipeline bodes well for our long-term cash flow outlook. Cash flows during the quarter were impacted by the high expenditures of leasing capital ahead of our projected occupancy build. As leasing volumes normalize and NOI grows, we expect cash flow levels will improve significantly. Our balance sheet remains in excellent shape. Our debt-to-EBITDAre was 6.4x at quarter end. Similar to our cash flow outlook, we expect our debt-to-EBITDAre ratio will improve meaningfully as customers who signed but not yet commenced leases in our operating portfolio and development pipeline move into occupancy, which should result in higher NOI and higher EBITDA. All else being equal, these move-ins would reduce our debt-to-EBITDAre by 0.5x. We currently have $625 million of available liquidity with only $96 million left to complete our development pipeline. During the quarter, we extended the maturity on our $200 million variable rate term loan from 2026 to 2031, leaving us no consolidated debt maturities until 2027. While we have no immediate refinancing requirements, we are closely monitoring the capital markets and may seek to raise capital opportunistically to derisk future needs. As Ted mentioned, we acquired the Legacy Union Garage during the third quarter for a total investment of $111.5 million, including near-term planned building improvements. We funded this acquisition on a leverage-neutral basis, mostly through $59 million of equity issuances via our ATM program since the beginning of the third quarter, plus some incremental borrowing and modest proceeds from noncore asset sales. As a reminder, during the first quarter, we acquired the Advance Auto Parts Tower for $138 million, also on a leverage-neutral basis, but match funded that transaction entirely with proceeds from a noncore portfolio sale in Tampa. Both of these transactions demonstrate our proven track record of creatively funding acquisitions on a leverage-neutral basis. This is what we mean by frequently saying we have multiple arrows in our quiver. Acquiring Advance Auto Parts Tower and the Legacy Union Parking Garage this year significantly improved our portfolio quality in BBD locations were immediately accretive to cash flow and roughly neutral to near-term FFO while providing long-term upside to these financial metrics. As Ted mentioned, we updated our 2025 FFO outlook to $3.41 to $3.45 per share, which equates to a $0.02 increase at the midpoint. We added a year-end occupancy range to our outlook, which implies 70 basis points of occupancy growth at the midpoint during the final 3 months of the year and underpins our confidence in growing occupancy as we move into 2026. Finally, as you know, we plan to provide our 2026 outlook in February when we release our fourth quarter results. In the interim, there are 2 items I would like to highlight. First, we will begin expensing interest on our investments in the 23Springs and Midtown East development projects by the end of Q1 '26. Second, as Ted mentioned, we have secured nearly 2/3 of the $55 million to $60 million of stabilized NOI growth potential across the Core 4 operating properties and are completed, but not yet stabilized developments through signed leases. All of these signed leases are projected to commence by the end of 3Q '26, which should create a positive NOI and earnings trajectory as we migrate throughout next year. Operator, we are now ready for questions. Operator: [Operator Instructions] Our first question goes from the line of Seth Bergey of Citi. Seth Bergey: I guess just in kind of the outlook items, you noted the potential for increased acquisitions or dispositions, would those kind of take you into any new markets? Or where would you like to kind of increase your concentration into? Or would those reduce your exposure to any of your markets that you're currently in? Theodore Klinck: Seth, thanks for the question. Yes. So the acquisition opportunities we're looking at right now, none of them are new markets. They would all be adding to existing holdings in our existing markets. So -- and the ranges we put out there, as with the capital markets opening up, we're starting to see more opportunities really across the risk and return spectrum. So bid-ask spread seems to be narrowing. So sellers are bringing high-quality assets to the market. So yes, so we're taking a look at various opportunities across that spectrum, all in our existing markets. And then on the dispose side, I think right now, we have -- we've closed year-to-date $168 million. That includes a small $7 million asset that closed after quarter end. And we've got several other assets in the market. I think we're going to close a couple next week even that the buyer is hard on and maybe even a few extra -- a few other deals by the end of the year and then a few will leak into early next year. And I think we have assets on the market in all of our markets with the exception of Charlotte and Dallas. So it's really just trimming the noncore assets across our portfolio. And I think you know we've been a regular seller of assets over the years. So I think we're just continuing the portfolio rotation that we've been doing for many years. Seth Bergey: Great. And then just on financing assets, any potential acquisitions, would you look to do more on the ATM? Or would you primarily fund those through other dispositions? Brendan Maiorana: Seth, it's Brendan. I think plan A would be recycling capital with disposition proceeds used to fund acquisitions or new investments. But I would say there's -- we've done both so far this year. So we funded the Advance Auto Parts Tower with a rotation of capital from disposition proceeds. We funded the garage in Charlotte on a leverage-neutral basis, primarily through ATM issuance. So I think both are available, but I would say that our plan A would be use disposition proceeds. And given where the share price is now, the equity currency really isn't competitive. So I think disposition proceeds are most likely. Operator: Our next question comes from the line of Blaine Heck of Wells Fargo. Blaine Heck: It seems as though during the pandemic, we saw Atlanta benefit a lot from tenant migration from other markets. But in your prepared remarks, it struck me like maybe Dallas was leading in that trend at this point. So I was hoping you could just give us an update on which markets are benefiting most from migration from other markets and whether the level of that activity has changed significantly in any of your specific markets? Theodore Klinck: Sure, Blaine. Thanks for the question. No, I think you're right. Based on Brian's comments, it's really Dallas is seeing a significant amount of in-migration that Brian alluded to 10 significant office requirements that the Raleigh -- the Dallas Chamber is working on right now. That may be down to 9 now given the recent announcement of Scotiabank putting a pretty big presence in Dallas, which Dallas won that requirement from Charlotte. So Dallas is incredibly busy right now, a lot of new requirements. Charlotte, I'd say, is right behind. Brian alluded to 17 office requirements that are greater than 50,000 feet. Most recently, there's a news article yesterday about Pacific Mutual, 300-and-something jobs, high-paying jobs, I think averaged like $179,000 per job. So Charlotte has been incredibly busy. Right behind that is Nashville. We actually had our Board meeting in Nashville last week. And at the Board dinner, we brought both the economic development person for the Chamber of Commerce as well as the state-wide economic development person. They spoke to our Board and they basically said they're as busy as they've been in a long time. So from the office perspective. So I feel really good there. Raleigh is busy. The North Carolina economic development folks are actually in our headquarters building here in Raleigh. So we see them quite a bit. And the office requirements are picking up in Raleigh as well. There's been a couple of good announcements in Atlanta as well. Tampa, we just got somebody from a new out-of-state requirement in one of our buildings. So really, we're seeing it across our footprint. The in-migration is really -- it seems to be accelerating. Brian Leary: Blaine, Brian here. One thing I might add is where they're coming from, still usual suspects, California, Midwest and Northeast, but we're also seeing some international inbounds putting a toehold here in the states in these markets and growing. Blaine Heck: Great. Second question, Brendan, you guys are clearly going through a period of elevated leasing activity. And with that comes elevated CapEx, which you touched on in your remarks. I guess how long should we kind of expect these elevated capital expenditures to impact AFFO or FAD or cash flow? And related to that, anything you can say just to touch on your or the Board's comfort with the dividend level here would be helpful. Brendan Maiorana: Yes. Good question, Blaine. I think it probably depends on how long we think the occupancy build goes for. So I think it's clear that we would expect elevated levels of CapEx kind of through next year as we've got kind of the signed, but not yet commenced leases as you spend that capital. We've spent some of it already, but we're certainly planning on spending that as we migrate throughout 2026. But I think we are optimistic that our leasing pipeline is full, and we're going to kind of refill that signed but not yet commenced bucket of future customers, which will carry with it a high level of CapEx or an elevated level of CapEx. So I think we're optimistic that, that occupancy build is going to continue throughout 2027, which means in all likelihood, you're going to have higher leasing capital in not only just next year, but in '27 as well. But what I would say to that is, I think if you look year-to-date, our leasing capital, we're probably trending $40 million sort of above what's a normalized year. And we're doing -- cash flow is low, but it's not -- it's still reasonable. We've got a lot of NOI growth. So even if you assume that leasing capital remains high, there's a lot of NOI growth that will come online next year and into early '27. So I think just from the NOI growth coming online, cash flow levels are going to improve. And then as you have leasing costs normalize, they're going to improve even more. So I think we see a really clear pathway to very strong cash flow growth over the next several years, but there are a few legs to kind of -- or a few steps to kind of get to, to be there. But hopefully, leasing will continue to be strong and leasing CapEx will probably remain elevated for the next couple of years. Operator: Thank you. Our next question comes from the line of Rob Stevenson of Janney Montgomery Scott. Robert Stevenson: Brendan, what drives the $0.04 gap in the fourth quarter earnings guidance? What swings to the high and low ends variable-wise? Brendan Maiorana: Yes. Rob, I would say -- I mean, there's a little bit of discretion around expenses. And those can be volatile quarter-to-quarter when you recognize kind of the reimbursements on a normalized level kind of ratably throughout the year. So I would say the biggest swing factor in terms of kind of normalized in that range is probably some discretionary expense spend. So that probably kind of moved it, you would say, on a couple of pennies on either side. And then we always bake in a little bit of something here or there. So you never know, we factor in some bad debts. Those could be at the high end of the range or they could be 0. So that kind of moves things around. And then to the extent that anything other unusual happens, usually just bake a little bit that's in there. But I would say from a leasing perspective, there's really not a lot of spec leasing that's going to drive revenue substantially higher or lower based in the forecast. Robert Stevenson: Okay. And then the commentary that you made looking out to next year with the Core 4 leasing, does the occupancy there hit relatively ratably? Or there are certain quarters where there's a couple of big leases that hit that will really spike occupancy as we start thinking about the volatility of the occupancy number going forward? Brendan Maiorana: Yes. I would say that it's pretty ratable from a build from Q2 through Q4. I think Q1, there's a little bit -- we typically kind of go down a little bit in terms of occupancy in Q1 just on normal seasonal factors. And then I think if you -- if we go through some of the biggest kind of expirations that we have, they tend to be early in the year. Most of those are backfilled, but you've got downtime on those. So we've got a large lease in Dallas that's going to go from M&O, there's going to be downtime there. It is substantially backfilled -- so that's large leases kick in second quarter and then a little bit in third quarter. So I think you'll probably see occupancy dip a little bit in Q1 from where it was at year-end '26, not -- I wouldn't say it's a huge amount. And then I think from Q2 to the end of the year, we think there's a pretty substantial increase from there. Robert Stevenson: Okay. That's very helpful. And then lastly, Ted, given the positive market comments around the portfolio that both you and Brian made earlier, can you talk about the Pittsburgh market and how close you may be getting there to the right time to exit some or all of those assets? Theodore Klinck: Sure. Every quarter, the capital markets have been getting better for the last 2 or 3 quarters. So we have regular dialogue with our adviser on those assets. And certainly, we're going to bring those to market when the time is right. Rob, I don't think we're quite there yet. But certainly, I think over the next couple of quarters, we may come to a decision point. Leasing velocity is really good and combine that with capital markets improving, I think we're getting closer. Operator: Thank you. Our next question comes from the line of Nick Thillman of Baird. Nicholas Thillman: Brendan, you have been messaging sort of this ramp-up in occupancy 100 to 200 basis points throughout '26. Just wanted to double check on your comfort level there. And then the underpinning assumptions, is that similar leasing volume of this 300,000 square feet of new deals plus 50% retention, and that's how we get there. Is that the math? Just kind of -- just walk us through sort of that setup there. Brendan Maiorana: Yes. Nick, thanks for the question. Yes. So just to reiterate, I think last quarter, we talked about -- we thought we'd sort of be around 86% for year-end '25. We put that outlook in -- we formalized that in the outlook last night in terms of there, so right around 86%. And then yes, I think as we sit here late in '25, haven't given '26 guidance yet, but I think that 100 to 200 basis points of increase between year-end '25 to year-end '26, I think we're comfortable with that as we stand here now. Now, we'll sharpen our pencil and kind of look at those assumptions and provide formal guidance in February. But I think as we sit here, I think we feel comfortable with that kind of outlook and believe we've got a good pathway of growth between year-end '25 and year-end '26. And then I would say, in rough numbers, I think that's about right in terms of there's probably around 50% retention. That number always goes down the closer you get to kind of those expirations. So it might be mid-40s as it stands now. But I think if we can do 300,000 square feet of new a quarter and we're kind of at the retention levels that we've -- in that level, that's going to put us in position to be between 87%, 88% by year-end '26. Nicholas Thillman: That's helpful. And then, Ted, with the leasing volume remaining healthy here, on the acquisitions, what's the appetite for lease-up risk on sort of the pool of assets you're looking at? And along those lines, as we think about the earnings impact of selling versus buying, are you -- is this FFO dilutive, neutral? How should we think about that? Theodore Klinck: Yes, great question. Maybe I'll start and Brendan can chime in. Look, we look at everything across the risk return spectrum, and we will absolutely take leasing risk -- that's been our playbook coming out of the GFC. And we will do so in instances where we feel very comfortable about the leasing prospects, the momentum in the market and if we think we can lease it up and get paid for that lease-up risk, more importantly, right? So we are absolutely looking at assets that have vacancy risk that we can come in and add the Highwood-tizing and lease those up and get paid for it. Brendan Maiorana: Yes. Nick, just in terms of the earnings impact, there's obviously a lot of balls in the air. There's a lot of variables. That likely means that things are going to be kind of -- could potentially be noisy sort of quarter-to-quarter. I think the best way that we could probably frame this is -- if we go back to some of the other large kind of asset rotations that we've done, so think about the market rotation plan where we went into Charlotte, exited Memphis and Greensboro or the portfolio of office assets that we acquired from PAC and then subsequently sold a bunch of noncore. I think what we told you is if you sort of give us a year, the unaffected FFO -- the FFO run rate should be unaffected from where it is pre all of those transactions. And our cash flow should be higher, and we will return our leverage to the normalized kind of glide path. So there's obviously a lot of timing. So if dispositions happen first versus acquisitions, that likely impacts it. There's some lease-up stuff that's there. But I think we feel pretty confident that if we're able to do things on a leverage-neutral basis, that long-term FFO outlook is probably going to be unchanged. Cash flow is going to be higher. Leverage is probably unchanged, and we certainly think that there will be an uptick in terms of long-term growth rate and portfolio quality. Operator: Our next question comes from the line of Dylan Burzinski of Green Street. Dylan Burzinski: Ted, I think you mentioned that the capital markets environment continues to improve as we progress throughout 2025. But can you kind of just talk about sort of where for assets that you have sold, where pricing expectations have come in relative to your initial expectations? And maybe if you can follow that up with just any sort of color or detail around bidding tense. Are we starting to see more institutional capital come back? Or is it still, for the large part, mostly high net worth family office type money looking at the office space today? Theodore Klinck: Sure. First, on the pricing on the dispositions, and Dylan, it's all over the board. I mean, sort of what we're selling today, it's a mix of long-term single tenant with long weighted average lease term to land to lower occupied assets to some of our older assets that are going to have a higher cap rate. So -- but I would tell you, pricing is all over the board. But in general, our pricing is, I would say, meeting or exceeding our expectations of when we -- when we initially took the assets out to market. So the bidder pools are a little deeper. And the buyers, if you go back 2 or 3 years, we didn't recognize a lot of the buyers on the bid sheets. We're now starting to recognize the buyers on the bid sheets, so more familiar capital. Certainly, the debt capital markets are helping, I think, on pricing as they've gotten better, whether it be CMBS, the debt funds, you're starting to see some of the banks get more active as well. So just in general, more -- there's more liquidity in the capital markets today, and that's starting to help on pricing. With regard to the acquisitions, look, I do think there's more institutional capital coming making bids. It seems like from what we hear from the brokers, there's more bids on every deal, every subsequent deal that comes out to market. So I think there's been a lot of capital that if you go back a couple of quarters, they were office curious, and now they're getting more active and really constructive on underwriting office acquisitions. So I think that is just going to help get this capital markets flywheel turning even more and which is going to be helpful for the office sector. Dylan Burzinski: And then maybe one more, if I could. Just -- I know you guys are constantly turning the portfolio and selling noncore assets and reallocating that capital. But I guess as you look at the portfolio today, I mean, is there some percentage of it that you would sort of deem as noncore or that you have interest in disposing of over time? Theodore Klinck: We often get asked that, and it's really just a continuous portfolio improvement. For us as we buy new assets, fund them with dispositions or sort of pulling from the bottom of the assets. So -- and what I would tell you is what was core or noncore a few years or core a few years ago, it might be noncore today just as a result of growth trends or where we think the long-term growth rate maybe is not what it was a few years ago. So we're always evaluating our portfolio. We do it a couple of times a year as a management team and always reevaluating. Operator: [Operator Instructions] Our next question comes from the line of Ronald Kamdem of Morgan Stanley. Ronald Kamdem: Just 2 quick ones. Clearly, the capital recycling is pretty imminent, says in the next sort of 6 months. Just curious in terms of just markets, are these all sort of existing markets? Any new markets in there? And just remind us what markets you like to lean into, whether it's Dallas, Atlanta, just what stands out? Theodore Klinck: Sure, Ron. Yes, you must have missed the early part of the call. We had the same question. So really, it's what we're looking at now, we're pretty happy with our footprint. And so we're going to -- we're looking at assets that are in our existing footprint that would upgrade the portfolio. So I don't think we've got any market -- our core markets that we wouldn't add to if the right opportunity comes in. But -- so we're looking at stuff really across our entire existing platform. Ronald Kamdem: Great. And then my second question is just on an update on Ovation. I know you guys are not looking to do any sort of M&A development and so forth. But just current thinking there, sort of excitement, could that be at '26, '27? Just what the timing could be on that and what the thoughts are? Brian Leary: Ron, thanks for tossing one over the plate. This is Brian on Ovation. So we now have control over the entire site. So for a number of years, we were counting on others to deliver the placemaking part of that, the core of the community. So we stepped up over the last few years to kind of take our fate into our hands, and we went through an exercise with the city of Franklin to get it completely kind of re-entitled in a more integrated mixed-use way that actually got us some additional residential density to go into this vibrant mixed-use place. We have the right retail and multiple-use partners kind of being lined up. We've been in front of the prospects who would come in and open shops and restaurants, and it's been really warmly received. Nashville has very much shown up on every market for a retailer, fashion label. And so we feel like we're timing it right. Things are lining up well. So timing, to your question, ideally, we have some utility and site work to do next year and could be coming out of the ground vertically with the first phase, which would include office, retail, multifamily and a potential hotel in '27, opening in the fall of '28. We also love to see the rent growth in the market for mixed-use office generating about a 20% premium. So that will be kind of core to the underwriting. But thanks for asking about Ovation and more to come. Operator: There are currently no questions at this time. [Operator Instructions] Theodore Klinck: Well, thank you, everybody, for joining the call today, and thank you for your interest in Highwoods. And if you have any follow-up questions, please feel free to reach out to any of us. Thank you. Operator: Thank you. That will conclude today's call. Thank you for your participation. You may now disconnect your lines.
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: 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: 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: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the FIBRA Prologis 3Q 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Alexandra Violante, Head of Investor Relations. Please go ahead. Alexandra Violante: Thank you, Kate, and good morning, everyone. Welcome to our Third Quarter 2025 Earnings Conference Call. Before we begin our prepared remarks, please note that all information disclosed during this call is proprietary and all rights are reserved. This material is provided for informational purposes only is not a solicitation of an offer to buy or sell any securities. Forward-looking statements made during this call are based on information available as of today. Our actual results, performance, prospects or opportunities may differ materially from those expressed in or implied by the forward-looking statements. Additionally, during this call, we may refer to certain non-accounting financial measures. The company does not assume any obligations to update or revise any of these forward-looking statements in the future, whether as a result of new information, future events or otherwise, except as required by law. As is our practice, we have prepared supplementary materials that we may reference during the call as well. If you have not already done so, I will encourage you to visit our website at fibraprologis.com and download this material. On today's call, we will hear from Hector Ibarzábal, our CEO, who will discuss our strategy and market conditions; and from Jorge Girault, our CFO, who will review results and guidance. Also joining us today is Federico Cantú, our Head of Operations. With that, it is my pleasure to hand the call over to Hector. Hector Ibarzabal: Thank you, Alexandra, and good morning, everyone. Today, I'd like to begin by addressing the geopolitical environment in which we are operating. Trade uncertainty has improved slightly as Europe and Japan have formalized new trade agreements with the U.S., while negotiations between China and the U.S. remain intermittent. On the other side, the U.S. has hardened its stance towards Mexico and Canada, implementing additional sector-specific tariffs outside of the USMCA framework. In this environment, most manufacturing customers remain cautious about expansions and new projects. We've observed some improvement in manufacturing leasing activity in certain markets and also signs of customers reconfiguring their supply chains to strengthen their presence in the U.S., seeking political goodwill. Overall, the outlook is constructive, though we continue to monitor developments closely. If a definitive resolution on tariffs doesn't emerge in the next 2 or 3 quarters, we believe uncertainty will become the new normal and customers will begin to move forward incorporating that uncertainty into their business risk assessments. Turning to our consumption-driven markets, Guadalajara and Mexico City continue to perform exceptionally well, fueled by both e-commerce growth and the modernization of supply chains by major retailers. These dynamic markets represent about 50% of our operating portfolio. We continue to see a robust pipeline of customers seeking large modern spaces to optimize operations, particularly in Mexico City, which accounts for nearly 40% of our activity. E-commerce continues to expand its market share with leading players making significant investments in new facilities. Thanks to this strong diversification, FIBRA Prologis delivered outstanding financial and operational results this quarter. Jorge will provide more details shortly. Talking about market dynamics, new leasing activity totaled 10 million square feet, up sharply from 5 million last quarter and roughly in line with the 2024 average of 11 million. We saw a rebound in manufacturing markets and a notable uptick in Mexico City. Net absorption reached 7.8 million square feet, impacted by move-outs in Tijuana, but still consistent with the average of the past 4 quarters. New supply declined 33% versus last quarter's to 10 million square feet, but this level was sufficient to increase vacancy by 40 basis points to 5.3%. Construction starts totaled 14 million square feet, reversing the downward trend of the previous 2 quarters and nearing a historical record. Market trends were relatively stable this quarter with consumption markets seeing low single-digit growth, while manufacturing markets were flat to a slightly down. Property values were also stable with marginal cap rate expansion in select submarkets, mainly Tijuana. While headwinds remain on the trade front, customers appear to be gradually making investment decisions in advance of the upcoming USMCA renegotiation. The path ahead may be bumpy, but we expect a constructive outcome. We continue to closely monitor customer sentiment and policy developments to ensure we maximize long-term value for all stakeholders. Turning to the Terrafina acquisition. On October 14, we launched the third tender offer for the remaining 10% at MXN 42.5 per certificate. We are optimistic about the results and expect to provide an update by mid-November when the tender offer closes. By reaching 95% ownership, our intention remains to delist Terrafina. At the same time, we are making solid progress elevating Terrafina's operating standards, bringing contracts to market rents, which has surpassed expectations and moving forward our disposition and asset recycling goals. We remain fully committed to our shareholders and to always placing their interest first. With that, I'll hand it over to Jorge. Jorge Girault: Thank you, Hector, and good morning, everyone. We're pleased to share that our third quarter results were strong and on track. We continue to see clear benefits from the Terrafina acquisition, especially in bringing rents to market and strengthening our balance sheet. Now let's go to our financials. FFO was $0.056 per CBFI, up 28% from last year, reaching $90 million in nominal terms. AFFO totaled $78 million, up 50% year-over-year. Operationally, it was also a strong quarter. We leased a record 4.1 million square feet above expectations, reaching $9.2 million for the year, which represents 70% of the total 2025 expirations. Period end and average occupancy remains high at 98%. Tenant retention stood at 82%. Net effective rent change was 47%, consistent with our portfolio mark-to-market levels. Same-store NOI, both cash and GAAP, grew around 15%, showing the combined effect of rent increases and the neutral impact of peso movement. Let me spend a minute on the balance sheet. We've successfully refinanced short-term debt in both FIBRA Prologis and Terrafina. We are now developing a comprehensive debt financing strategy to enhance our access to the broader debt capital markets. While this process will take time, it will ultimately strengthen our balance sheet, making it more flexible, value-driven and better positioned to support future opportunities. Regarding impact and sustainability, ESG. Our MSCI rating improved from BB to BBB and Standard & Poor's Corporate Sustainability score also rose from 55 to 60, reinforcing our commitment to transparency and continuous improvement. I want to spend some time on Terrafina tender offer. As Hector mentioned, we launched a third tender offer for about 10% of Terrafina remaining certificates at MXN 42.50 per CBFI. We encourage investors to take part of this tender to avoid holding any illiquid privately held vehicle in the future. In compliance with tender offer process, we want to be addressing questions related to the Terrafina on this call. Please refer to the public information and feel free to reach out to the Acting [indiscernible] or Citibank's teams if you have questions about the process. Let me move to our 2025 taxable distribution. We expect taxable income boosted by peso appreciation and projected inflation to exceed our 2025 distribution guidance. If by year-end, FX stays at these levels, total taxable income to be distributed will be about twice our cash guidance. Therefore, we will be combining CBFIs and cash in line with local FIBRA tax rules to comply with additional requirements. This approach will protect our balance sheet by avoiding new debt through pro rata certificate issuance. We will be making a portion of this additional distribution before year-end and the remainder once final FX and inflation figures are confirmed. Going to guidance. Due to our internal process, we are adjusting our disposition guidance to be between $0 and $50 million. We are also revising our acquisition guidance to be between $50 million and $100 million. And we're revising our CapEx as a percentage of NOI to be between 9% and 12%, given timing and our -- and new budgeting on maintenance CapEx. All other guidance remains unchanged. You can find the details on Page 8 of our supplemental financial information. We believe that the key driver for continued operational excellence will be energy accessibility and customer service, which remain core to our DNA. Before we wrap up, I want to recognize our teams on the ground for their outstanding execution this quarter. We remain laser-focused on our long-term strategy and ready to adapt when needed, always guided by discipline and agility. With that, let me turn it to Q&A. Thank you. Operator: [Operator Instructions] Your first question comes from the line of Rodolfo Ramos with Bradesco BBI. Rodolfo Ramos: My question is, it's a bit on your guidance. I mean, when you look at fundamentals, they continue to seem quite solid. We've seen the light at the end of the tunnel, stable occupancy. We're seeing still very high rent rollovers. So can you give us a little bit of more detail on your lower outlook for asset acquisitions and dispositions? I mean, is this is a more of a timing issue that we're close to the year-end and things haven't closed through or sellers, buyers are just a little bit more reluctant to transact in this current environment. So any detail on that and perhaps how you see it going into 2026 would be helpful? Hector Ibarzabal: Thank you for your question, Rodolfo. Indeed, as I mentioned in my opening remarks, we have been very active on our asset recycling strategy. And as of today, I am very pleased with the results that we are receiving so far. As you mentioned, what is happening and the main reason behind this review on guidance has to do with timing. We found that the potential buyers that are active for the first portfolio are players that are active in the market as of today. So we needed to design a clean room in order to be able to share information according to compliance. This on top of having a new antitrust commission is making us feel more comfortable to move for the first quarter of next year, the disposition of the first portfolio. Regarding acquisitions, that's something that we monitor permanently, and we feel that we are not obliged necessarily to do them. It's not that there is no opportunities, but it's important to do the right opportunities, and we will never be forced to do acquisitions just because we guide on them. That doesn't mean that we will be showing on 2026 important opportunities, but we are not seeing them happening on 2025. Operator: Your next question comes from the line of Gordon Lee with BTG. Gordon Lee: I have a quick question on TERRA''s not related to the tender. But you mentioned that Hector in your remarks that you have continued to progress on improving TERRA's operating standards and bringing them up closer to Prologis' own standards, both operationally and financially. And I was wondering if you sort of had to benchmark to 100, right, 100 is as much as you can improve. Where are you in that process? And is the remaining portion at all impacted by having 2 listed entities? Is it easier if you're able to only have one vehicle? Hector Ibarzabal: Thank you, Gordon. I think that all the standards that Prologis has with its portfolio are already 95% implemented into the Terrafina assets. We have now fully dedicated teams. And I think that we have importantly enhanced the service that is provided to customers. We as well have been invested a fair amount of money on bringing the operational standards of the building to what Prologis uses as a market practice. Having said this, we have been able to importantly increase the rent on the renewals, above 40%, I would say, in the rollover that we have been experiencing. It's going to take at least 3 more years to bring 100% of the Terrafina portfolio up to market standards. But I think what I would like to highlight is that we are showing execution in these buildings that we are already operating, I would say, it's going to be 1 year that we have been having full control among them. Regarding the listing of Terrafina, I think that -- and as I mentioned in my opening remarks, by mid-November, once that the third tender process is completed, we will be able, hopefully, to provide positive news about it. And Jorge mentioned in his opening remarks, our objective is still to get the listing Terrafina hopefully early next year. Operator: Your next question comes from the line of Piero Trotta with Citibank. Piero Trotta: I have a question on CapEx. I would like to know if you could tell us if there is a relevant difference in CapEx requirements between Terrafina's portfolio and Prologis. I ask that because Terrafina's portfolio is on average older than Prologis assets. So it would be great if you could tell us on that. Federico Cantú: Piero, thank you for your question. This is Federico. So we've been -- as we guided, we're spending a little bit less as a percentage of NOI and CapEx, driven by careful analysis and rationalization in our CapEx investments, and we feel comfortable with these levels. We are assessing, of course, we constantly assess all our buildings and Terrafina perhaps need a little bit more CapEx investment, but we're bringing them up, as Hector mentioned, in line to our standards, and we feel comfortable with those levels. I would like to highlight that we maintain laser focus in providing the highest standards of quality in all our buildings. Hector Ibarzabal: We anticipated that the Terrafina assets had some lag on CapEx, and that was part of the underwriting when we were targeting Terrafina acquisitions. So nothing of what has been happening has been a surprise to us. Operator: Your next question comes from the line of [ Elena Ruiz with Actinver. ] Unknown Analyst: My first question is on -- you mentioned in your press release at the end of quarter, FIBRA Prologis and Prologis U.S. had 2.9 million square feet under development or pre-stabilization. Could you give us like a regional breakdown of how that GLA is distributed? And the second one is, could you give a little more color on the almost 15% same-store NOI growth, which percent of it came from the appreciation of the Mexican peso and which percent came from rent increases? Hector Ibarzabal: Thank you, [ Elena, ] for your question. Following market conditions, Prologis as a [ FIBRA ] sponsor and the one responsible of doing 100% of our development has an important backlog in all of the markets in which we participate. As of today, we decided until further visibility about the new reconfiguration of the trade agreements is reached that development needs to be more cautious. This is not the case in Mexico City. In Mexico City is the market in which we are more active because we are trying to fulfill the needs of the major players that are expanding importantly in the most important consumption market, which is Mexico City as a big apple of Mexico. So we are active. We are entertaining as well some build-to-suit opportunities. And I can say that once the definitions are reached or once that we have a better visibility of how the market is going to be recuperating, we have the ability to restart development in a few weeks. Jorge Girault: [ Elena, ] this is Jorge. You made a question on the 15% cash and GAAP NOI. The main drivers for the rent change -- sorry, the NOI increase have to do with rent change on rollovers and annual bumps. That's about 2/3 of the increase. The other 1/3 has to do with a pickup in occupancy versus the same period. FX, to your question, was muted. We are about the same levels than this time last year. So FX did not have an impact this time or it was very small. Thank you, [ Elena ]. Operator: Your next question comes from the line of Francisco Chávez with BBVA. Francisco Chávez Martínez: We have seen some volatility in the EBITDA margin from the high 70s in the first half of the year to the low 70s in 3Q. Where do you see EBITDA margin stabilizing? Jorge Girault: Francisco, this is Jorge. The short answer to your question is it's going to be around 77%. And yes, we have seen volatility given the acquisition of Terrafina and everything that has to be done. But in the long term, you should be -- you should see 77% and that's around the number if you take the 9 months for the year. That's about the EBITDA margin for the 9 months. So there you are. Thank you. Operator: Your next question comes from the line of Jorel Guilloty with Goldman Sachs. Wilfredo Jorel Guilloty: I had a question on the leasing spreads, the cash leasing spread. So it's been going up for a bit and hit about almost 40% in 2Q '25, but we saw that it was 26% now in 2Q '25. And we also noticed that the amount of leases that were commenced it is a materially bigger number that we've seen in the past few quarters. So I just want to get a sense about this decline in the sense of is this -- do you see this as a one-off that's just pertaining to these leases that are being signed? And how should we think about these cash leasing spreads going forward? Do you think we go back to the 40s we've been seeing? Or is it between 25% and 40%. So I wanted to get any color you can get on that one. Jorge Girault: Jorel, thank you for your question. This is Jorge. I'll try to simplify your question and give you a straight answer. Leasing spreads depend on 2 things. One is whenever we lease -- we have -- the rent is signed vis-a-vis when it's going to expire. And the other part is where the market is, obviously. So if we lease something 4 years ago, which expires today, the leasing spread on that specific rent is going to be somewhere in the 50%, 60%. But if it's a 1-year lease, meaning that we leased it a year ago and today, maybe it's a 10% or 5% leasing spread. So I mean it depends on the bucket of leases that are expiring per quarter and their venue, you may. Also, it depends on -- remember that we do it on a net effective rent basis. So we put everything into the blender, not only the cash rent, but also the concessions that are given or the increases if they're fixed annual increases if they're fixed into the formula. So it has a lot of bits and pieces, if you may. But I would say that the main one is when these leases are done or originally signed vis-a-vis today. So hopefully, this gives you a little bit more color. Operator: Your next question comes from the line of David Soto with Scotiabank. David Soto Soto: Congrats on the results. I just have one question. Could you please provide some detail if you have seen potential consolidation of 3PLs in Mexico City? Or would you consider that this could be a trend in Mexico City? And as well, have you seen any move-outs due to consolidation of 3PLs in other regions? Hector Ibarzabal: Thank you for your question, David. The 3PLs had worked in Mexico City is cyclical. You see top executives leaving some of the important franchises and then they start their own business. They pay a lot of attention to the customer, they grow the business and then they are bought by someone else. What is happening nowadays is not different from what has been happening in the past. The 3PL that we have seen very active on buying some competitors is DSV. DSV is one of the most important customers that we have in Mexico. And we have very good communication with our customers. So sometimes we get to know this even before they do the transaction because they need to do some planning about consolidation, about leaving some of the spaces. And the fact that we have the largest portfolio help them to achieve their objectives. So this will keep on happening is nothing new what we're seeing today. Operator: Your next question comes from the line of Felipe Barragan with JPMorgan. Felipe Barragan Sanchez: So I have a question on sort of what you guys have been seeing this month of October. There have been some companies seeing some activity pick up this month. So I just wanted to do a channel check with you guys. That's it. Hector Ibarzabal: Could you repeat your question? We had some trouble getting to the main point. Felipe Barragan Sanchez: Yes, of course. So we've had some peers that have been commenting that throughout October, there's been an uptick in activity. So I just wanted to check with you guys if you guys have also seen an uptick in activity throughout October after the quarter end? Federico Cantú: Yes, Felipe, thank you. This is Federico. Yes, we have seen over the last few weeks, somewhat of an uptick in activity. Our pipeline is healthy across all our markets, including the border markets, of course. And I just wanted to mention, as companies navigate this uncertainty, which has prevailed over the last few months, some companies have had to decide on current conditions and their best guess as to what's going to happen going forward. As we all know, we're getting closer to the renegotiation of USMCA. I think there is a somewhat of a prevailing mindset that we're going to have a good outcome in the negotiation, hopefully. And so that is, I think, factoring into some decisions. Let's not forget that markets continue to demand from our customers. So they're having to make decisions. So we feel very good about both renewal and new leasing going forward and we're encouraged to see this recent activity. Operator: Your next question comes from the line of Alan Macias with Bank of America. Alan Macias: Just if you can provide an update on Prologis' development pipeline, the GLA of the development and in what markets and the leasing ramp-up that you have been seeing there? Hector Ibarzabal: Thank you, Alan. I would say that 95% of our activity is devoted in the Mexico City market on the development front. Particularly in Toluca, we have found interesting opportunities that are just in line with what the main players of e-commerce are requesting. We do see the expansion plans that they have, and we are positive that this activity will remain on 2026 and on. Operator: Your next question comes from the line of [indiscernible]. Unknown Analyst: I also have a quick question regarding land reserves, specifically with Terrafina. Do you consider part of disposal assets? Or do you consider looking at part of the development pipeline that you might... Hector Ibarzabal: Thank you for your question [indiscernible]. I think the land that Terrafina has in its [indiscernible], which is not significant compared to the backlog that Prologis has, is following exactly the same result that the assets. The land that is in our markets is being kept for future opportunities and the land that is outside of our markets is in the process of disposition. Operator: [Operator Instructions] I will now turn the call back to Hector Ibarzábal, CEO, for closing remarks. Hector Ibarzabal: I want to thank you all for your time devoted this morning to FIBRA Prologis. We know well how valuable your time and attention is. I feel very comfortable on our progress looking to year-end, and I am very excited about the opportunities that I see in front of us. According to our practice, we will be reachable to all of you any time. Talk to you soon. Operator: Ladies and gentlemen, that concludes today's call. You may now disconnect. Thank you, and have a great day.
Operator: Good morning, everyone, and welcome to the American Assets Trust, Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the floor over to Meleana Leaverton, Associate General Counsel of American Assets Trust. Please go ahead. Meleana Leaverton: Thank you, and good morning. The statements made on this earnings call include forward-looking statements based on current expectations. These statements are subject to risks and uncertainties discussed in the company's filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements as actual events could cause the company's results to differ materially from these forward-looking statements. Yesterday afternoon, American Assets Trust's earnings release and supplemental information were furnished to the SEC on Form 8-K. Both are now available on the Investors section of its website, americanassetstrust.com. It is now my pleasure to turn the call over to Adam Wyll, President and CEO of American Assets Trust. Adam Wyll: Thank you. Good morning, everyone, and thank you for joining us today. At American Assets Trust, we remain focused on executing with discipline and consistency. Our vertically integrated platform, high-quality coastal portfolio and thoughtful approach to capital allocation continue to provide resilience and opportunity. As always, we remain focused on creating long-term value for shareholders across cycles. For the third quarter, funds from operations came in at $0.49 per diluted share, just ahead of our internal projections, supported by continued leasing progress, disciplined expense management and minimal utilization of our bad debt reserve. Portfolio-wide same-store NOI was slightly down for Q3 and is up almost 1% year-to-date, which candidly is tracking with what we've characterized as a transition year. Collections remain strong, and our teams continue to execute to the best of our abilities across all asset classes. The broader economic backdrop remains mixed. Interest rates have shown signs of stabilizing after 2 years of volatility, inflation has moderated but remains above long-term targets and consumer confidence has softened, perhaps less than some had feared. At the same time, capital markets activity remains relatively subdued for commercial real estate. Against this backdrop, our strategy of owning irreplaceable coastal assets, maintaining a strong balance sheet and operating through a fully integrated platform continues to serve us well, underscoring the durability of our long-term approach. Turning to portfolio updates. The office sector remains selective, and we remain very part of that select set. Tenants are focused on well-located, amenitized and institutionally managed assets, and our portfolio is designed to meet those demands. Our office portfolio ended the quarter 82% leased with our same-store office portfolio 87% leased and 5% of the office portfolio includes signed leases that have not commenced paying cash rents. Same-store office NOI increased positively for the quarter, ahead of expectations despite almost 160,000 square feet of known move-outs at First & Main, Torrey Reserve and 14 Acres. We completed approximately 180,000 square feet of office leasing during the quarter with comparable rent spreads increasing 9% on a cash basis and 18% on a straight-line basis, reinforcing that our best-in-class buildings continue to attract tenants even in a competitive environment. Importantly, while the time it takes to finalize office leases has lengthened across our markets, we are not losing deals as a result. Tenants are simply being more deliberate. Along those lines, entering Q4, we have over 25,000 square feet of signed leases and another 56,000 square feet in lease documentation with proposal activity over several hundred thousand square feet. At our new La Jolla Commons Tower 3, following quarter end, we executed leases or have leases in documentation for another 8% of the space with proposals out on another 15%. Momentum is clearly building with increased tours and RFP activity, and we remain optimistic that additional leasing will follow. Meanwhile, the new Travis Swickard restaurant opening later this year will further enhance the already robust amenity package at the campus. Combined with the scarcity of large blocks of Class A space in UTC, we believe this positions us well to capture demand in one of the healthiest office submarkets in the country. At One Beach Street in San Francisco, we saw continued touring activity and are in active negotiations for portions of the building. While San Francisco continues to evolve through its recovery, there are encouraging signs of improved tenant engagement at the highest quality properties such as ours, and we are confident that selective demand will find its way to our assets. It's only a matter of time. Our retail portfolio continues to perform well, thanks to strong consumer spending across our centers. Nationally, retail availability remains near record lows. New construction is virtually non-existent and asking rents have continued to rise. At quarter end, our retail portfolio was 98% leased with 2% signed but not commenced paying cash rents. We executed over 125,000 square feet of new and renewal leases in Q3, with spreads increasing over 4% on a cash basis and 21% on a straight-line basis. Same-store NOI was about $400,000 less than the comparable period, largely reflecting the amount and timing of expense reimbursements as well as lost rents from Party City and reduced rent from at home due to their bankruptcies. Nevertheless, tenant sales and foot traffic remained solid, supported by favorable demographics, resilient employment and limited new supply in our markets. Our focus remains on securing best-in-class retailers, maintaining high occupancy and continuing to drive rent growth over time. In multifamily, performance in San Diego reflected the dynamics of a market working through new supply. Rent growth has decelerated, yet our blended average rents remain positive and occupancy improved as we exited the quarter higher than a year ago, even as we enter the seasonally slower leasing period. At quarter end, our San Diego communities, excluding our RV park, were 94% leased, which is closer to 95% leased today based on recent leasing momentum. Same-store performance was notably impacted by higher concessions, military-related deployments and move-outs impacting almost 30 units in our South Bay assets. A reduction in international student occupancy at Pacific Ridge tied to recent administration policies and the timing of certain property expenditures. We achieved rent increases of 5% on renewals and 2% on new leases for a blended increase of 4%. Excluding our new Genesee Park acquisition, rent increases were a 3% blended increase. In Portland, Hassalo on Eight ended the quarter 91% leased and delivered slightly positive blended rent growth of 1%. Although the market continues to absorb new deliveries and faces affordability challenges, we are encouraged by steady leasing activity and strong retention. Looking ahead, the 4,000-seat live music venue under construction across the street from Hassalo scheduled to open in 2027 will add vibrancy and help drive continued demand. We recognize there is still room for improvement in multifamily lease percentages and rent levels, and our teams remain focused on driving occupancy and capturing long-term rent growth. At Waikiki Beach Walk, our retail component continues to perform in line with expectations, while our Embassy Suites lagged due to softer tourism and heightened rate competition in Oahu. Arrivals have been below prior year levels, reflecting both the stronger dollar and increased competition from other destinations. In addition, the hotel has been further impacted by labor and utility cost pressures and our guest base, which is more cost conscious, has felt the effects of economic uncertainty more acutely. Of note, in the past 3 months, more than $0.5 billion of leased fee interest beneath major Hawaii hotels have changed hands at yields of 4% or lower. This activity underscores the long-term strength and scarcity value of owning the fee simple under all of our Hawaii assets. We remain confident in the long-term appeal of this irreplaceable property and are managing costs and revenue opportunities carefully in the interim. Our priorities are unchanged: to convert leasing momentum across our office portfolio, including La Jolla Commons and One Beach into signed leases, sustain positive leasing spreads in office and retail leasing and support stable occupancy and rent growth in our multifamily portfolio as supply is absorbed. At the same time, we are managing expenses tightly and preserving flexibility to capitalize on future opportunities. All of this reflects our disciplined resilient approach to creating long-term value for our shareholders. Finally, I am pleased to share that the Board approved a quarterly dividend of $0.34 per share for Q4 payable on December 18 to shareholders of record as of December 4. In closing, I want to thank our teams across the company for their dedication and execution. Their hard work continues to position American Assets Trust to execute across cycles. With that, I'll now turn the call over to Bob. Robert Barton: Thanks, Adam, and good morning, everyone. For the third quarter, FFO was $0.49 per diluted share. Net income attributable to common stockholders was $0.07 per diluted share, and total revenue was $110 million for the quarter. Results were generally stable sequentially with modest variability by segment, largely reflecting known office move-outs, expenses, timing and softer tourism trends in Hawaii. Specifically, the $0.03 decline in FFO from Q2 to Q3 reflects 5 things: First, slightly lower office contribution due to a previously disclosed lease expiration at First & Main and the tenant termination at City Center Bellevue, which despite being cash positive with an immediate backfill resulted in a GAAP impact from writing off remaining straight-line rent. Second, retail results reflected timing of property tax refunds recognized in Q2 that did not repeat in Q3. Third, lower family base rent at Pacific Ridge from summer student move-outs and at Hassalo from Portland oversupply, along with higher operating expenses portfolio-wide. Fourth, softer tourism and rate pressure in Oahu; and fifth, partially offset by a $1.1 million lease termination fee recognized in the quarter. Let's talk about same-store cash NOI. For all sectors, same-store cash NOI combined decreased by 0. 8% in the third quarter of 2025 compared to the same period in 2024, which was generally in line with our expectations for a transition year. Breaking Q3 out by segment and each as compared to Q3 2024, our same-store office portfolio's NOI increased by 3.6%, benefiting from rent commencements and higher rents at our City Center Bellevue property and the expiration of rent abatements at Torrey Reserve. Our same-store retail portfolio's NOI declined by 2.6%, driven by credit-related loss of rents mentioned by Adam as well as timing of expense reimbursements. Our same-store multifamily portfolio's NOI declined by 8.3%, reflecting supply headwinds in San Diego and expense pressure at select properties. Our same-store mixed-use portfolio's NOI declined by 10%, primarily driven by lower-than-anticipated occupancy and average daily rate at Embassy Suites Waikiki. Specifically and compared to Q3 2024, paid occupancy for Q3 2025 was lower by 5.5%. RevPAR for Q3 '25 was $298, down 11.7%. ADR for Q3 '25 was $381, down 5.4% and net operating income for Q3 '25 was approximately $2.7 million, down $0.9 million. These results are similar to other hotels in our comp set in Waikiki, Hawaii. We view these macroeconomic pressures as near term and not reflective of long-term fundamentals, and we remain confident in the long-term performance of our Hawaii hotel. In fact, according to preliminary figures from the Japan National Tourism Organization, the number of Japanese nationals traveling overseas in August '25 reached 1.6 million, up 14% year-over-year. This was the highest monthly outbound volume so far this year. Compared to pre-pandemic August 2019 levels of 2.1 million. Outbound traffic has now recovered to nearly 80%. The trajectory of outbound travel is clearly upward. August strong performance reflects pent-up leisure demand during the summer holiday season, following fuel surcharges and increasing seat capacity by Japan's 2 national carriers. Hawaii continues to be one of the most aspirational overseas destinations for Japanese travelers and recovery trends in the outbound market directly benefit our property as well as the other properties in Waikiki and surrounding islands. Forward-looking trends from JAL and ANA Airlines suggest sustained demand for Q4, and we anticipate this momentum to carry into winter and spring 2026. As outbound volume nears pre-pandemic levels, Hawaii is well positioned to capture an outsized share of the recovery given its strong brand equity, culture affinity and increasing promotional activity. Let's talk about liquidity now. Turning to the balance sheet. As of the end of the third quarter, we had total liquidity of approximately $539 million, consisting of roughly $139 million in cash and cash equivalents and $400 million of availability under our revolving line of credit. Our net debt-to-EBITDA ratio was 6.7x on a trailing 12-month basis and 6.9x on a quarter annualized basis. And we remain committed to reducing leverage toward our long-term target of 5.5x or lower. Our interest coverage and fixed charge coverage ratios were both approximately 3.0x on a trailing 12-month basis. Let's talk about 2025 guidance. We are raising our full year 2025 guidance range to $1.93 to $2.01 per FFO share with a midpoint of $0.197 per share. This represents a $0.02 increase from our prior guidance midpoint of $1.95 issued in the second quarter of 2025. The upward revision largely reflects year-to-date performance. Outperformance towards the high end of the range would depend on consistent rent collections from tenants currently reserved for credit exposure, increased demand and continued expense discipline in multifamily, strengthening near-term travel trends at our Embassy Suites Waikiki. Together, these levers represent upside potential, and we will continue to monitor each closely as the year progresses. As a reminder, our guidance in these prepared remarks include the impact of any future acquisitions, dispositions, equity issuances or repurchases and debt refinancings or repayments, except for those already disclosed. We remain committed to transparency, and we'll continue to provide clear insights into our quarterly results and the key assumptions that inform our outlook. Additionally, please note that any non-GAAP financial metrics discussed today such as net operating income or NOI are reconciled to the most directly comparable GAAP measures in our earnings release and supplemental materials. I'll now turn the call back over to the operator for Q&A. Operator: [Operator Instructions] And our first question today comes from Todd Thomas from KeyBanc Capital Markets. Unknown Analyst: This is A.J. on for Todd. Adam, maybe starting with you. I appreciate your comments just in the opening remarks around the leasing pipeline. But just maybe pulling on that thread a little more. Would you just provide an update with regards to the anticipated time line to stabilize the La Jolla Commons 3 and One Beach Street assets? Adam Wyll: Yes, sure. I'll have Steve offer a little bit more insight. But what we are seeing lately, as I mentioned, is a lot more activity. And so though it's really difficult to pin actual stabilization date, we feel the momentum is carrying us to that date a little quicker than it had been in the past quarters. But Steve, maybe you can add a little bit more color on both of those. Steve Center: Sure. As Adam mentioned, we signed a lease with an international bank just last week, and then we have 2 others in lease documentation. One is a technology company in the legal field and the other is a very high-end insurance company. And then we've got 2 other proposals totaling actually 17,000 feet. And we've got 2 other competitors for this one 9,000-foot spec suite. So -- and then along those lines, we're building out more spec suites. We've got another several spec suites under construction and delivering spaces that are ready to go has really borne fruit. The bank that we signed went into a spec suite with minor modifications and the other tenants that are prospects are largely tenants that need the space sooner than later. So building the space out, having it ready to go with minor modifications is really playing out well. And the tenants that are signing leases are paying the rents. They want the best, and they're paying up for it. So we're hitting our numbers on the rent side. So we're very encouraged by that. And as Adam said, the activity is picking up. And with the completion of the restaurant and a major conference center that we're adding to the campus, we think the momentum in '26 is going to be really solid. As it relates to One Beach, we're excited. We just converted our first deal to lease documentation yesterday. We're getting that lease out today, and we hope to sign it gosh, by the end of the quarter, we expect to. We've got another prospect for the same space actually. And so we're playing that out. And we've got robust tour activity. Really, it's turning into an AI hub at the North Waterfront is in Jackson Square. There's one pivotal tenant that signed a lease 2 blocks away that really is creating some gravity in that location. And it's interesting being -- we talk to the CEOs of the 2 firms competing for the same space. They both live in the neighborhood. They can walk to work. So it really is turning out to be this new hub, and it's a great location. They love it. Furthermore, both firms looked at a bunch of space. They looked at competing projects, and they consider that all to be commodity space. And when they got to One Beach, they said, this is different. This is the first one we've been willing to step up and make an offer on. So we're encouraged by that feedback. And so as Adam said, we're more positive about stabilization of both. We can't predict exactly when, but it's sooner than we would have said last time we talked. Unknown Analyst: Understood. I appreciate that color, Steve. Well, I guess sticking with leasing, you guys are speaking about leases in the quarter. Any known move-outs, I guess, as we look to '26 that we should be aware of? Adam Wyll: Sure. There's -- well, they're not known yet. We've got some that we're forecasting. It's about 180,000 feet of those tenants that are up in the area. One case is -- let's see, Genentech. They're in 3 floors currently. They're considering getting back a floor, although we question whether that happens. So that will play out in the next 6 months or so. We've got a full floor health care clinic at Lloyd 700 that we know is coming back. So we've got 108,000 feet that's up in the air. We don't know for certain how that's going to play out. But we've got really strong leasing activity behind it. And so we've been able to really fight really well against those tides where we're swimming upstream, so to speak, but we only went backwards 10 basis points this quarter after losing 70,000 feet of known givebacks this quarter. So our new leasing activity is accelerating and the known givebacks this quarter are down to about 23,000 or 24,000 feet. So we think that's going to flip in our favor from an occupancy standpoint next year. Unknown Analyst: Perfect. I appreciate that. And then maybe, Bob, switching to you just real quick on the balance sheet. Just with leverage ticking up in the quarter, would you just provide some thoughts on the company's current leverage profile and perhaps plans and a time line to get back to under 6x on a Net Debt-to-EBITDA basis, closer to your long-term 5.5x long-term target? Robert Barton: Yes. From our perspective, we have a plan on how to get there. And the plan really is leasing up One Beach and La Jolla Commons 3. And with that, we'll have approximately $0.30 of additional FFO. We'll be back in the game and all the debt ratios will get closer to 6, if not below 6 by then. So we feel pretty confident about it. We've met with all 3 of the rating agencies, and they continue to give us a stable outlook. They understand. And even the rating agencies, all 3 of them have commented in their own information that they share with the public is that it's generally the expectation from their standpoint is it's generally 18 months out on leasing up office, high-quality office. If it's commodity, forget it. But if it's high-quality office like our portfolio, we have a good shot of even beating that. So we'll see. We'll take one step at a time. We feel positive about it. It's just a timing thing that's all it comes down to. Operator: And our next question comes from Rene Pire from Green Street Advisors. Reynolds Pire: So I know you mentioned the multifamily portfolio having been weighed on by higher deliveries in San Diego in addition to higher concessions. Just trying to get a sense of where you think that segment finishes out the year? Are you expecting some relief on the concessions front? I believe you've mentioned some stronger leasing recently in the portfolio. So trying to get a sense of where same-store NOI might finish the year out. Adam Wyll: Yes. I mean, well, just to start, the San Diego multifamily, we think that market remains fundamentally resilient. But as I mentioned, the near-term NOI is impacted by the higher operating expenses and some of the elevated supply. We have had some incremental leasing success. Maybe Abigail can share that with you high level. I'm not sure that we've modeled that in year-end NOI projections yet. So we just want to be careful about what we say on that front. But Abigail, do you have commentary perhaps on the incremental leasing we've seen over the past few weeks in our San Diego multifamily? Abigail Rex: We are currently 95% leased. And at the end of the quarter, specifically over at Pacific Ridge, we have seen a recent uptick with USD students securing tenant fees for their upcoming winter and spring semesters, which is really encouraging for us because going into what's traditionally a slower leasing season, we're finding that people are securing their units earlier sooner rather than later. And then also at our other communities, we're finding that leasing is moving forward strongly, specifically over at Loma Palisades and at Genesee Park, leasing over there has picked up, and we're upwards of 96%, 97% leased, again, in what's usually a historically slow leasing period for us. We really attribute that, as Adam mentioned, to well-maintained communities. Our properties are in the best ZIP codes in San Diego. And then we also have just incredible team members who are operating these communities. So we remain optimistic with our leasing through the end of the year and the end of the quarter. Steve Center: Yes, Rene, we expect stability to improve as supply is absorbed and expenses normalize. So that's the expectation looking out. Robert Barton: Yes. One last question, Rene. You have all 3 of us talking here on this, is that in San Diego, remember that you have the Pacific Ridge, which is right across from USD. So we do take a dip on the move out of tenants from July, August -- June, July, August. So that's our dip every year, and then we generally come back strong after that. But it's -- Abigail is doing a great job keeping the occupancy up. We're as competitive as anybody in San Diego when it comes to rate. But I think overall, I think people are feeling that there is pressure on the operating expenses. It's not just us, it's other multifamily as well. And I think with the competition, especially with -- compared to Mission Valley, there are concessions. So we're doing the best we can, and I don't think we're dissimilar from any other multifamily out there. Reynolds Pire: Great. I appreciate all that color. And then maybe a question for Steve primarily. Good quarter on the office leasing front. I was hoping you could give some detail around which tenant industries you're seeing the most active in market, that would be very helpful. Steve Center: Well, San Francisco, it's AI. And there's an emergence of new co-working operators in AI. So -- but it's really AI-driven for the most part there. We're seeing some of that in Bellevue as well. But we're also seeing a broad base of other types of tenants. So we've got a technology firm that's in the legal industry that's in leases at Tower 3. We've got an insurance company I mentioned earlier in Tower 3, that's ultra-high-end net worth people that they cater to. Let's see. We've got finance. We've got a company that's for a 4.5 and it's -- at First & Main in Portland, and they just did a valuation of a dental practice that we're doing an assignment on. So it's interesting. It's just a broad swath of really good quality tenants... Robert Barton: Law firms. Steve Center: Law firms. Operator: [Operator Instructions] Our next question comes from Ronald Kamdem from Morgan Stanley. Unknown Analyst: This is Matt on for Ron. I was just curious, you guys talked a little bit about the tenant types that are interested in leasing space. Could you talk about the leasing trends between the different submarkets? Would you say there's any markets that are seeing more concentrated interest or if it's just kind of widespread? Adam Wyll: It's a flight to quality. So I wouldn't talk about it market to market. It's really -- every market is mixed. Not all ships are rising. So it's really the activity is gravitating towards to the best properties, but also space that's ready to go. That's the biggest trend I'm seeing is tenants don't want to wait for TIs. Every tenant rep broker we talk to, we tell them our strategy of spec suites and having spaces ready to go, said we're spot on. And the results speak for themselves. We've got about, I think, 38% of the deals we've done year-to-date have been in spec suites. We're doing about 40% of our vacancy in spec suites. And these are smaller spaces. Our average space is 3,000 to 4,000 feet. So it's low risk. We build them out. They're ready to go with minor modifications at most. And that design will last longer than the tenancy. And if you look at our TIs on our renewals, they're very low because we've built out the spaces and they don't require a whole lot of working to relet them. Unknown Analyst: Got it. And then just as a follow-up to that, could you just talk a little bit about how we could think about the office occupancy trajectory over the coming quarters? You guys are seeing momentum in leasing and just kind of wondering how that actually builds into the occupancy as we get into '26. Adam Wyll: New leasing is about 70% of our activity right now. So that bodes well for making up any known givebacks that are coming. Q3 is a light known good back quarter, so we should make good ground up. And we've now recognized -- we're no longer looking at same store. It's really that 82% is the whole portfolio, including Tower 3 and including One Beach. So it is what it is. One Beach alone will really put a big dent in that. Tower 3, as I said, the momentum is building, and I think '26 is going to be a real strong year. So I think we'll go positive. We'll go positive in 2026. I can't tell you how far. We'll see how those known givebacks play out. But the new leasing is strong. If you -- Adam mentioned several hundred thousand feet of proposals, that's the biggest number we've had that I can remember. And our current leasing activity for the year, if we finish out the quarter as expected, it will be our second best quarter -- second best year since I've been here since 2018. Matt, we'll have more visibility into that with our next call in terms of occupancy expectations in the office sector. So we'll have dug in a little deeper on that through year-end. Operator: And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Adam for any closing remarks. Adam Wyll: Thank you for your continued support. We hope you enjoyed the call as much as we did, and hope you have a great day. Thanks, everybody. Operator: And with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Constellium Third Quarter 2025 Results Conference Call and webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Jason Hershiser, Director of Investor Relations at Constellium. Please go ahead. Jason Hershiser: Thank you, Razia. I would like to welcome everyone to our third quarter 2025 earnings call. On the call today, we have our Chief Executive Officer, Jean-Marc Germain; our Chief Operating Officer and CEO appointee, Ingrid Joerg; and our Chief Financial Officer, Jack Guo. After the presentation, we will have a Q&A session. A copy of the slide presentation for today's call is available on our website at constellium.com, and today's call is being recorded. Before we begin, I'd like to encourage everyone to visit the company's website and take a look at our recent filings. Today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements regarding the company's anticipated financial and operating performance, future events and expectations and may involve known and unknown risks and uncertainties. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the factors presented under the heading Risk Factors in our annual report on Form 10-K. All information in this presentation is as of the date of the presentation. We undertake no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law. In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our GAAP disclosures. And with that, I would now like to hand the call over to Jean-Marc. Jean-Marc Germain: Thank you, Jason. Good morning, good afternoon, everyone, and thank you for your interest in Constellium. I want to begin by addressing our executive leadership change that was announced this morning. On December 31, I will be retiring from my role as Chief Executive Officer of Constellium, and I will also be stepping down from my position as a Director on the Board at the same time. I plan to continue to serve as a special adviser to Board and management in 2026. Ingrid Joerg will assume the role of Chief Executive Officer of Constellium, and the Board will appoint Ingrid as a Director for the remaining term of my directorship. This leadership change comes following a multiyear planning process, and I will continue to support the Board and the management for a seamless transition in 2026, as I just said. Since I joined the company almost 10 years ago, Ingrid and I have worked very closely together, including the last 2-plus years, during which Ingrid was in charge of the company's operations in our capacity as the Chief Operating Officer. With more than 25 years of experience in the aluminum industry, including the last 10 with Constellium, Ingrid possesses deep industry knowledge, proven operational expertise, a wide network across our industry and strong commitment to our stakeholders, including our customers, employees and our shareholders. Ingrid has also contributed significantly to the development of the company's strategy and its long-term objectives. As you can see, our results and our outlook are strong today, and I am confident that Ingrid will continue to build on this strong foundation and lead Constellium to what will be a bright future for our shareholders. Okay. Now turning to Slide 5 now. Let's discuss the highlights from our third quarter results. I would like to start with safety, our #1 priority. Our recordable case rate in the third quarter was 1.7 per million hours worked, and our year-to-date recordable case rate remains at 1.8 per million hours worked. While this performance remains best-in-class, we all need to constantly maintain our focus on safety to further improve. Turning to our financial results. Shipments were 373,000 tons or up 6% compared to the third quarter of 2024 due to higher shipments in each of our operating segments. Revenue of $2.2 billion increased 20% compared to the third quarter of 2024 due to higher shipments and higher revenue per ton, including higher metal prices. Remember, while our revenues are affected by changes in metal prices, we operate a pass-through business model, which minimizes our exposure to metal price risk. Our net income of $88 million in the quarter compares to net income of $8 million in the third quarter last year. The main driver of the increase was higher gross profit in the quarter versus last year. Compared to the third quarter last year, adjusted EBITDA increased 85% to $235 million in the third quarter this year, though this includes a positive noncash impact from metal price lag of $39 million. If we exclude the impact of metal price lag, which, as you know, is the way we view the real economic performance of the business, we achieved an adjusted EBITDA of $196 million in the quarter. This is a new third quarter record for us, and it is up 50% versus the $131 million in the third quarter last year. Moving now to free cash flow. Our free cash flow in the quarter was strong at $30 million. During the quarter, we returned $25 million to shareholders through the repurchase of 1.7 million shares. Our leverage at the end of the third quarter was 3.1x or down about 0.5 turn from the peak last quarter. We delivered strong results this quarter that were above our own expectations despite the uncertain economic environment and continued demand weakness across many of our end markets. We remain focused on strong cost control, free cash flow generation and commercial and capital discipline. Overall, I am very pleased with our third quarter and year-to-date execution and performance. It is not on the slide here, but I wanted to quickly note that during the third quarter, we completed a small divestment of our Nanjing automotive structures plant to a local Chinese investment holding company. The terms of the transaction will remain confidential. Please turn now to Slide 6. Before turning the call over to Jack, I wanted to give you a quick update on the current tariff environment and how we see the potential impact to Constellium. As a reminder, we are mostly local for local in the regions where we operate. Today, our gross tariff exposure is mostly concentrated at our metal supply from Canada to our operations here in the U.S. We have made significant progress on pass-throughs and other actions to mitigate a large portion of our gross tariff exposure. At this stage, our direct tariff exposure remains manageable and is consistent with our prior expectations. Now the indirect positive impacts from tariffs are continuing to ramp up, including improved scrap spreads in the U.S., higher demand for domestically produced aluminum products and a more favorable pricing environment compared to expensive imports. Put it all together, we continue to believe that the current trade policies should be a net positive for us. Lastly, on tariffs, I want to reiterate that all known tariff impacts, both direct and indirect, and all of our mitigation efforts to offset the direct impacts are included in our guidance. With that, I will now hand the call over to Jack to further detail our financial performance. Jack? Jack Guo: Thank you, Jean-Marc. Congratulations, Ingrid, and thank you, everyone, for joining the call today. Before I get into the quarterly results, I wanted to point out that we had a revision of certain disclosures in previously issued financial statements. During the third quarter this year, we identified and corrected certain immaterial errors affecting metal price lag and the resulting segment adjusted EBITDA for the A&T segment for certain prior periods in 2025 and 2024. This revision resulted in slightly higher segment adjusted EBITDA as compared to prior disclosures in those periods. We included more details on this revision in both our earnings release and presentation today. Turning now to Slide 8, and let's focus on our A&T segment performance. Adjusted EBITDA of $90 million increased 67% compared to the third quarter last year. Volume was a tailwind of $6 million due to higher TID shipments, partially offset by lower aerospace shipments. TID shipments were up 16% versus last year. First, as commercial transportation and general industrial markets became more stable in the quarter, and we started to see some increased demand from onshoring in the U.S. And secondly, we also benefited from higher shipments in Valais following recovery from the flood last year. Aerospace shipments were down 9% in the quarter versus last year as commercial OEMs continue to work through excess inventory as a result of lingering supply chain challenges. Demand in space and military aircraft remained healthy. Price and mix was a tailwind of $11 million due to improved contractual and spot pricing in Aerospace and TID as well as improved aerospace mix in the quarter. Costs were a tailwind of $16 million, primarily as a result of lower operating costs. FX and other was also a tailwind of $3 million in the quarter due to the weaker U.S. dollar. As a reminder, the third quarter last year included an $8 million unfavorable impact from the Valais flood. Now turn to Slide 9, and let's focus on our Parts segment performance. Adjusted EBITDA of $82 million increased 14% compared to third quarter last year. Volume was a tailwind of $11 million as higher shipments in packaging were partially offset by lower shipments in automotive and specialty rolled products. Packaging shipments increased 11% in the quarter versus last year as demand remained healthy in both North America and Europe. In North America, we also benefited at Muscle Shoals from continued improvement of operational performance in the quarter. Automotive shipments decreased 13% in the quarter with weakness in both North America and Europe. Price and mix was a tailwind of $3 million, mainly as a result of improved pricing, partially offset by unfavorable mix in the quarter. Costs were a headwind of $7 million as a result of higher operating costs, including the impact from tariffs. FX and other was a tailwind of $3 million in the quarter. Now turn to Slide 10, and let's focus on the AS&I segment. Adjusted EBITDA of $33 million increased 371% compared to the third quarter of last year. Volume was a $9 million tailwind as a result of higher shipments in industry extruded products, partially offset by lower shipments in automotive. Industry shipments were up 40% in the quarter versus last year as we had higher shipments in Valais following recovery from the flood last year, while the industrial markets in Europe remained generally weak in the quarter. Automotive shipments were down 7% in the quarter with weakness in both North America and Europe. Price and mix was an $18 million tailwind in the quarter, mainly due to net customer compensation for the underperformance of an automotive program as previously discussed and better mix in the quarter. Costs were a headwind of $3 million, primarily due to the impact of tariffs. FX and other was a tailwind of $2 million in the quarter. As a reminder, the third quarter last year included a $10 million unfavorable impact from the Valais flood. It is not on the slide here, but our holdings and corporate expense was $9 million in the quarter. Holdings and corporate expense this quarter was up $7 million from last year, mainly due to higher accrued labor costs given our stronger performance this year, partially offset by lower head count. We now expect holdings and corporate expense to run at approximately $45 million in 2025, which is a slight increase compared to our view previously. It is also not on the slide here, but I wanted to summarize the current cost environment we're facing. As you know, we operate a pass-through business model, so we're not materially exposed to changes in the market price of aluminum, our largest cost input. Our other metal costs, we experienced a dramatic tightening of spot scrap spreads in North America in 2024. The tightness continued into the beginning of this year, though spreads have improved in the spot market as we move through the year. Given that a portion of our scrap purchases were negotiated previously, we did not benefit much from this dynamic during the period. However, we expect to benefit more in the fourth quarter this year. For energy, our 2025 costs are moderately more favorable compared to 2024, although energy prices remain above historical averages. Other inflationary pressures have eased to more normal levels. And as we said in previous quarters, given the weakness we're seeing in several of our markets, we have accelerated our Vision 25 cost improvement program. We have demonstrated strong cost performance in the past, and we're confident in our ability to maintain a right-sized cost structure for the current environment. Now let's turn to Slide 11 and discuss our free cash flow. We generated $30 million of free cash flow in the third quarter, bringing our year-to-date total to $68 million. The year-over-year increase in the first 9 months this year is a result of higher segment adjusted EBITDA, lower capital expenditures and lower cash taxes, partially offset by more cash used for working capital and higher cash interest. Looking at 2025, we still expect to generate free cash flow in excess of $120 million for the full year, which is unchanged from our prior guidance and from our guidance to start the year despite significantly higher working capital needs in the current environment. Working capital and other is now a larger use of cash compared to previous guidance, driven by higher activities as well as a significantly higher metal price environment in the U.S. compared to the start of the year. It also includes the working capital rebuild in Valais following the flood. So this was already embedded in our guidance to start the year. We continue to expect CapEx, cash interest and cash taxes to be around the same levels as per the previous guidance. As Jean-Marc mentioned previously, we continued our share buyback activities in the quarter. During the quarter, we repurchased 1.7 million shares for $25 million, bringing our year-to-date total to 6.5 million shares for $75 million. We have approximately $146 million remaining on our existing share repurchase program, and we still intend to use a large portion of the free cash flow generated this year for the program. Now let's turn to Slide 12 and discuss our balance sheet and liquidity position. At the end of the third quarter, our net debt of $1.9 billion was up approximately $115 million compared to the end of 2024, with the largest driver being the translation impact from the weaker U.S. dollar at the end of the quarter. As indicated previously, we expected leverage from last quarter to represent [ a peak ] and that leverage will trend down in the second half of this year. We have made good progress on that front, and our leverage decreased by almost 0.5 turn to 3.1x at the end of the third quarter, and we're on track to be below 3x by the end of the year. We remain committed to bringing our leverage back down into our target leverage range of 1.5 to 2.5x and maintaining this range over time. As you can see in our debt summary, we have no bond maturities until 2028. Our liquidity increased by over $100 million from the end of 2024 and remains very strong at $831 million as of the end of the third quarter. With that, I will now hand the call over to Ingrid. Ingrid Joerg: Thank you very much, Jack, and thank you, Jean-Marc, for your kind words. I'm honored by the trust placed in me by the Board, and I'm very excited to lead Constellium into its next chapter. Over the past years, we have developed and executed on a value creation strategy at Constellium through the focus on high value-added products, enhancing customer connectivity, optimizing margins and utilizations, focusing on cost and continuous improvement and showing strong commitment to our stakeholders, all of which I'm committed to carry forward. Together with the support of our talented teams, we will continue to strengthen our partnerships with our customers, deliver innovative, sustainable solutions and create value for our shareholders. With that, let's turn to Slide 14 and discuss our current end market outlook. The majority of our portfolio today is serving end markets benefiting from durable sustainability-driven secular growth in which aluminum, a light and infinitely recyclable material plays a critical role. Turning first to the aerospace market. Commercial aircraft backlogs are at record levels today and continue to grow. Major aerospace OEMs remain focused on increasing build rates for both narrow and wide-body aircraft as evidenced by higher plane deliveries this year compared to last year. Also, supply chain challenges have continued to slow deliveries below what OEMs were expecting for several years in a row now, we are beginning to see signs that these challenges are easing. Demand has stabilized for the most part, and we remain confident that the long-term fundamentals driving aerospace demand remain intact, including growing passenger traffic and greater demand for new, more fuel-efficient aircraft. Demand remains stable in the business and regional jet market and demand for space and military aircraft is strengthening. Looking across our entire aerospace business, we believe our product portfolio is unmatched in the industry, and we have industry-leading R&D capabilities for aluminum aerospace solutions. Turning now to packaging. Demand remains healthy in both North America and Europe. As Jack mentioned earlier, we continue to benefit from improved performance at Muscle Shoals, which has set numerous operational records this year. The long-term outlook for packaging continues to be favorable as evidenced by the growing consumer preference for the sustainable aluminum beverage can, capacity growth plans from the can makers in both regions and the greenfield investments ongoing here in the U.S. Longer term, we continue to expect packaging markets to grow low to mid-single digits in both North America and Europe. Let's now turn to automotive, which is a bit of a different story in Europe versus North America. Automotive production of light vehicles in Europe remains well below pre-COVID levels. Demand in Europe remains weak, particularly in the luxury and premium vehicle and electric vehicle segments where we have greater exposure. Automotive production in Europe is also expected to feel the impact of the current Section 232 auto tariffs given the number of vehicles the U.S. imports from Europe. In North America, automotive production is also below pre-COVID levels. So demand has remained relatively stable. During the quarter, one of our competitors had a very unfortunate fire at one of their facilities in the U.S., which has created an interruption in the aluminum rolled product supply chain in North America. The entire industry is mobilizing to ensure we limit the impact on our customers. We currently expect a modest benefit from this, so more so in 2026 than this year. In the longer term, we believe electric and hybrid vehicles will continue to grow, but at a lower rate than previously expected. Secular trends such as lightweighting and increased fuel efficiency will continue to drive the demand for aluminum products. As a result, we remain positive on this market over the longer term in both regions despite the weakness we are seeing today. As you can see on the page, these 3 core end markets represent over 80% of our last 12 months revenue. Turning lastly to other specialties. Industrial market conditions in North America and Europe became more stable in the second half of this year and overall demand appears to have stabilized, also at low levels. We have experienced weakness across most specialties markets for 3 years now. As a reminder, these specialty markets are typically dependent upon the health of the industrial economies in each region, including drivers like the interest rate environment, industrial production levels and consumer spending patterns. We continue to work hard to adjust our cost structure to the current demand environment, which will put the businesses in an even better position when the industrial economies begin to recover. We do believe TID markets in North America can provide us with some opportunities today given the current tariffs make imports less competitive compared to domestic production, and we are already seeing positive momentum on this front. To conclude on the end markets, we like the fundamentals in each of the markets we serve, and we strongly believe that the diversification of our end markets is an asset for the company in any environment. With that, I turn it back over to Jean-Marc. Jean-Marc Germain: Thank you, Ingrid. Turning lastly to Slide 16, we detail our key messages and financial guidance. Our team delivered very strong results that were ahead of our expectations in the third quarter this year, including record third quarter adjusted EBITDA and we returned $25 million to shareholders in the quarter with a repurchase of 1.7 million shares, which led us to reduced leverage of 3.1x. While tariffs are creating broader macro uncertainty and impacting end markets like automotive, we are proactively managing our business to the current environment. We remain focused on strong cost control, free cash flow generation and commercial and capital discipline. Given our strong performance in the first 9 months of this year and based on our current outlook, including the current end market conditions that Ingrid just described, we are raising our guidance for 2025. We are now targeting adjusted EBITDA, excluding the noncash impact of metal price lag in the range of $670 million to $690 million and free cash flow in excess of $120 million. Our guidance assumes an improvement in the second half this year compared to the first half, including our strong performance in the third quarter. The second half improvement includes the timing of certain tariff mitigations and customer compensations as well as more favorable scrap purchasing, the ramp-up in the Valais and favorable foreign exchange translation. Our guidance also assumes modest benefit from the recent aluminum supply chain interruptions in automotive and includes a revision in our A&T segment that Jack mentioned previously. Looking to the future, we also want to reiterate our long-term targets of adjusted EBITDA, excluding the noncash impact of metal price lag of $900 million and free cash flow of $300 million in 2028. To conclude, while we continue to face challenging conditions in many of our markets today, some of these challenges are starting to ease compared to the start of this year. We're extremely well positioned for long-term success and remain focused on executing our strategy and shareholder value creation. Before we move to Q&A, I just want to say that it has been an extraordinary honor to lead Constellium and to work alongside such talented colleagues across the globe. Together, we have built a stronger company, and I am deeply proud of what we have accomplished. Ingrid is an exceptional leader with a vision and experience to guide Constellium forward, and I am confident she will take the company to even greater heights. With that, operator, we will now open the Q&A question, please. Operator: [Operator Instructions] And our first questions come from the line of Katja Jancic from BMO Capital Markets. Katja Jancic: First, I want to congratulate both Ingrid and Jean-Marc. And then I want to start on the scrap spread. I know you mentioned it was a small impact this quarter. It's going to be a bigger impact next quarter. Can you maybe provide a little bit more color on what that impact specifically was and will be? And then how we should think about looking into next year, given that I think some of your contracts are being negotiated now. Jean-Marc Germain: Thank you for your kind words and encouragement and talking now about scrap spreads. So if you remember, in the past, we are saying in any given quarter, scrap spreads can move plus or minus $5 million, right? That was the past. Then obviously, in '24 and in '25, we had unprecedented changes of scrap spreads, very much tightening in '24 and now widening in '25. And we said the full impact in any given quarter can be $15 million to $20 million. However, plus or minus, right? In this case, last year, it was minus. This year, it's a plus. However, as you know, we buy our scrap in staggered installments and some of them are bought over spot market, some of them are quarterly, some of them are yearly. So you've got some kind of a tail in terms of how these scrap spreads flow to our bottom line. In Q3, we were still buying scrap at spot prices, but also higher prices from earlier in the year. And Q4, that has significantly gone down. And we're seeing the scrap spreads also widening as a consequence of the unfortunate fire we saw at one of our competitors. Looking into next year, to your question about next year, if we remain in the same environment, we believe that there will be some further help from tailwind from scrap spreads. We still maintain the $15 million to $20 million a quarter, but it wouldn't be -- we would be realizing all of it next year, and we've already realized some of it this year. Jack, do you want to add anything? Jack Guo: Yes. I think the only thing I want to add, Katja, is that in Q3, we actually didn't see much benefit relative to last year given the dynamic that Jean-Marc mentioned. And year-to-date, it's actually been a headwind for us. Jean-Marc Germain: Yes, that's an important precision. Katja Jancic: Okay. And just because I'm thinking -- I think the $15 million to $20 million was in '24, right, on a quarterly basis when the scrap spreads really compressed. But when we look at the Midwest premium where it is today, which is an all-time high, why -- I'm just trying to understand why the spreads as we see them right now wouldn't contribute more than the $15 million to $20 million. Jean-Marc Germain: And I think that's what -- I mean, it's always part of what reference are you taking, right? Back in '24, we benefited from good scrap spreads that were bought in '23 and bad scrap spreads that were spot purchased, right? So that diminished the impact. This year, the same phenomenon happens the other way around. And you're absolutely right that with LME and -- well, mostly the Midwest rising, that is widening even more the spreads in dollar terms. And we'll see most of that. We'll see some of that in Q4. We'll see most of that next year if the current environment continues. Katja Jancic: Maybe just. Jean-Marc Germain: And maybe, just on the 15 and 20, maybe trending closer to the 20 than the 15 given the Midwest price. Katja Jancic: Okay. And on the -- I know there was a quick mention on the Novelis fire would have a small benefit in '26. Can you quantify how big of a benefit it could potentially be? Jean-Marc Germain: It's enough that we talk about it, but not enough that we would put a number just yet. It will depend on a number of factors. As you know, following this fire, the whole industry rallied to support our common customers, right? But it was very hard to deliver in quantities in the -- just in the wake of the fire because products need to come a little bit from the U.S., which is actually quite tapped out in terms of capacity. So a lot of it needs to come from overseas. That takes time. You need qualification time even if it's accelerated. So we think we're going to see some benefit in '26, more in '26 than we're seeing in '24 -- in '25, sorry, and that should continue through the first half of '26. Precise number is too early to tell. Operator: We are now going to proceed with our next question. And the questions come from the line of Corinne Blanchard from Deutsche Bank. Corinne Blanchard: Congratulations on the strong quarter. Jean-Marc, I'm sure you will be missed, and welcome to Ingrid, and I'm sure people will be looking forward to hear more in the coming weeks. Maybe 2 questions. I mean, on the aerospace, I mean, you guys have had an amazing margin profile if you look back in the last 4 to 6 quarters, and I think we're only seeing an increase. Can you help us understand how do we model it out in 4Q and in 2026? And then maybe the second question would be now you're about $200 million away from that $900 million of EBITDA by 2028. Can you just help me again bridge the gap over the next 2 years and how to think about it from a volume and pricing perspective? Jean-Marc Germain: I'll ask my colleagues, both Ingrid and Jack to help me in answering your 2 questions. So -- but I'll take a crack at it first. So the -- if you take the midpoint of the range, we are 220 million away from our 2028 target. So there's still quite a bit of wood to chop, but I think it's fair to say we are ahead of our plan, and we feel more confident now. We felt very confident, but we feel even more confident with our 2028 target. If you remember the bridge to '28, we had a number of actions, but a lot of them were under our control. We have some specific investments that are in the plan. They are actually -- some of them are already operating like our recycle center in Neuf-Brisach. Others, we are digging furiously. Others, we're building furiously. And I'm thinking of the casting center in Muscle Shoals and the Airware, the aerospace-focused products in [indiscernible]. And then we have some that are still on the drawing board, even though we are starting to build -- to buy some long lead time items like the modernization and extension of our Cast House in Ravenswood. And when I say these are under our control, they are under our control from 2 standpoints. One is it's CapEx, right? So we build stuff and then we'll make products out of it. The other one is we don't need customers for these to be profitable. And certainly, as you know, most of these investments are geared towards recycling more products. And obviously, in the current environment, these investments are going to be more exciting and more profitable. The Airware investment is a little bit of a different story, even though it is casting, you need customers for that. And I think what we're seeing with the aerospace ramp-up getting a little bit easier and especially the development in space applications where we have a very strong position. I think that bodes very well for this investment. So overall, it's a long answer to one part of the bridge, right, the CapEx side, we feel very comfortable with our execution on CapEx and our ability to make money and maybe more money than what we had initially planned with those investments. Now there are other aspects to the bridge. Some of it was our outlook on scrap spreads. The scrap spreads we have in the bridge to 2028 are lower. I mean, are narrower just to be precise and what is currently the case, much narrower. We'll see whether the current spreads continue. And if they are, that would be a tailwind to us. Now on the headwind side, I think it's fair to say that we're disappointed with automotive, the end market, right, the SAARs, the number of vehicles built in Europe, especially, but also a little bit in the U.S. So that would be a headwind. And we are seeing overall weak conditions in Europe. Now by 2028, I think Europe will have gotten their act together and things will be better. But at the moment, if I look honestly at it, I think we're running behind on that front. So that's kind of the puts and takes to the 2028 target. And obviously, on the cost side, we've done a very good progress with our cost management with Vision 25, more to come. I'm sure Ingrid will have a new plan for us, for the company in the future. So I think we're in pretty good shape on this. And then you had a question also on Aerospace, I think Ingrid knows aerospace inside out. So it is best she answers it. And obviously, you've got your own views on the 2028 long term. So please go ahead. Ingrid Joerg: Thank you very much, Jean-Marc. And thank you, Corinne, for your nice words. I think with respect to aerospace, I think what makes us very different from some of our competitors is that we have a very, very wide product portfolio, including aluminum lithium technology, which is really a great material for a lot of niche markets where we play. So we are really focused on more value-add per product that we sell versus some of our competitors are maybe more dependent on volume ramp-ups of aerospace OEMs. And this is really driving our margin that is very, very different to some of our peers. And that's really a multiyear journey that we have developed with our R&D capabilities. So we have a lot of innovation material in the pipeline that is driving this differentiated margin, and we will continue to work on this. You also know military jets are good. Space has been actually quite good for us in terms of development. And overall, the supply chain in aerospace seems to improve, particularly on the side of Airbus. With respect to 2028, I think Jean-Marc has already mentioned almost all of it. I would just maybe add one little point around commercial discipline and operational execution. I think you have seen now that [ TARP ] has much better financial performance driven in part by the Muscle Shoals better operational performance. So that remains a huge focus for us. We have worked very hard already on this on the cost side and operational excellence, but we still have potential to improve, and this will also be part of our journey to the $900 million for 2028. Jean-Marc Germain: I will just add, I mean, Ingrid doesn't brag about it, but you guys have followed us for quite a while. You see our aerospace margin, which you hinted at being exceptional this quarter, Corinne. We say we're at more than $1,500, $1,600 year-to-date. When Ingrid took over the A&T segment, that's 2015, right, 10 years ago, we're running at less than $500 per ton. So the focus on value-added cannot be understated -- overstated, sorry. We have really an excellent commercial and capital discipline to make sure we -- an innovation drive to make sure we get the best out of our assets so that we get the best returns for our shareholders. Operator: We are now going to proceed with our next question. The questions come from the line of Bill Peterson from JPMorgan. William Peterson: I also would like to congratulate Ingrid on the new appointment and also John-Marc, it's been a pleasure working with you. I wanted to first ask about the bridge, just basically to understand the drivers for the 2025 guidance, if you can quantify or stack rank things like the onetime customer payment, any benefit or if there is any benefit from the restatement you spoke to, maybe the potential tariff headwind, which may not be as much of a headwind or where you maybe found some success versus what you've been able to mitigate. And then, of course, scrap spreads, just to try to really define how much, I guess, of a benefit we should think about in the fourth quarter or if there's anything else to raise as part of why you raised your guidance for this year? Jean-Marc Germain: Thank you, and I'll turn it to Jack for this difficult question. Jack Guo: Yes. I'll start and Jean-Marc can help me. So you mentioned a few elements, Bill. I think you have -- there's a reference point. You have to be careful about whether it's versus our prior expectation or kind of versus prior year, if you will. and the expectation there. But for customer compensation, for example, AS&I, that was already embedded in our prior guidance. Now we did realize the benefits this quarter, which is great. And specifically in terms of the amount, we're not going to be very kind of explicit, Bill. But if you were to refer to the bridge in the price and mix bucket, mix was a little bit more favorable, if you will. But then the vast majority of the price is driven by this customer compensation for the underperformance of automotive program. So that's kind of one piece. And then in terms of raising the guidance, obviously, we had a very strong third quarter, which has led us -- give us more conviction into Q4 and to finish off the year. And Q3 was -- came in better than what we had expected. On top of it, you alluded to this accounting adjustment and the magnitude there, we can be very explicit because it's been disclosed. It for the first half of the year, it's in the neighborhood of $10 million -- $12 million to be exact, $12 million of benefits, a good guide for A&T segment adjusted EBITDA. And then in terms of the scrap piece, I think Jean-Marc already talked a lot about the dynamics there. We didn't see as much benefit as maybe you would have imagined based on where the spot markets are today year-to-date, but we do expect to see more benefits in the fourth quarter given our kind of more open positions and some modest benefits coming in from the unfortunate fire that happened at one of our competitors' plants. And obviously, we'll continue to focus on cost control and Vision 25. On the flip side, and here, I'm going to a little bit of kind of puts and takes, right? On the other side, when you look at the guidance for Q4 with relation to the view on the full year, we had very strong performance in A&T. We're able to benefit from favorable mix in aerospace due to a good volume of high-margin products, which could help compensate for a weaker mix in the fourth quarter due to timing reasons. And then Europe continues to be quite weak across many different markets. And by the way, yes, we should see some modest benefit from the fire at our competitors' [ plants ]. But on the other hand, it also it's creating a little bit of uncertainty or volatility with order patterns with the domestic OEMs. So you got to take that into consideration. Jean-Marc Germain: And maybe more specifically to this point, Bill, we'll sell more rolled products, but not enough, obviously, to compensate for the shortfall that is created by this fire. You've heard [ Ford reduce ] their projections for build rates. And obviously, we also supply out of auto structures and industry products to different customers, including this one. So if you don't build the cars, we don't sell the product. So there's all kinds of puts and takes to our -- to this guidance here. But fundamentally, we have momentum [ which ] I think, the main message. William Peterson: Yes. No, a lot there. I appreciate the color. I wanted to ask a bit more on aerospace. It sounds incrementally more positive that the aerospace destocking is easing. I guess how should we view the recovery? Is this still kind of maybe in your mind, more of a 2027 story? Or is this -- can this actually revert and turn positive in '26? Just trying to get a sense for the trajectory of coming out of this destocking cycle. Ingrid Joerg: Thanks for the question, Bill. I believe that -- I mean, it's very hard to predict because there is new issues for [indiscernible] as they ramp up. But clearly, we see, particularly on the European side that now it's only 2% of the supply chain that is holding back the rest of the supply chain. So it's a very small number today. And I'm sure with the different task forces that exist to overcome those industry challenges, this is going to ease throughout the year of 2026. Now whether it's going to come towards the end of '26 or '27, I think, still remains to be seen. But clearly, there is an improvement that we feel across the supply chain. And you have heard also that Boeing is going to raise the build rates. They got approval from FAA for the 737 MAX, even though it's small, but it's the first path to the trajectory of growth that they have been painting to their suppliers. So I feel that things are starting to come together. And in a few quarters from now, we should see a potentially much better picture than we see today. Jean-Marc Germain: Bill, I think it's fair to say that we are more optimistic about faster path to recovery for the supply chain than we were 3 months ago. Ingrid Joerg: Yes, definitely. Jean-Marc Germain: It's difficult to put a date to it. We'll let you know as soon as we see. Operator: [Operator Instructions] We are now going to proceed with our next question. And the questions come from the line of Timna Tanners from [indiscernible]. Unknown Analyst: Congrats to Ingrid. Best wishes to Jean-Marc. I wanted to follow up with the same kind of question that Bill asked on aerospace, but on the broader European market. I know for a while now we've been waiting for that market to kind of bottom out broadly. Any things that we should watch for just interest rates, any sentiment, anything that you can guide us to, to get confidence in a turnaround in Europe and timing there? Jean-Marc Germain: You're talking the broad European market beyond aerospace, right? Unknown Analyst: Yes. Ingrid Joerg: Timna, thank you for the question. Yes, I think it feels that the markets have been really weak for 3 years now. And we see some markets to really bottom out. It's very, very difficult to predict. As you know, we have strong markets in Europe, like packaging is very strong for can sheet, but also other packaging markets like flexible packaging. So these are running very, very well and very stable. Automotive, of course, is impacted by everything that's happening from the tariffs to the transition to electric vehicles. So I think there's a lot of questions right now on what is the best powertrain for the future and how is regulation going to change. So I think a lot of our automotive customers are really reviewing what their strategy medium to long term is really going to be. And then I think on industrial markets, we see mixed pictures. I mean some of our operations are well loaded. Some operations are really struggling. Rail business is good and continues to grow. So I would say it's a very, very diversified picture, but it's clear that the more commodity-based markets like building and construction, where we don't really have a footprint continue to be weak. So I would say there is positives and negatives. Jean-Marc Germain: But it feels to Ingrid's point about 3 years and counting, Germany seems to go into a mode of stimulating a little bit more its economy. So that's a positive, should be a positive. And then you've got defense spending, which should ramp up as well, where we are well positioned. So I think the way to think of Europe is a tale of many different niches, right? There's one big market, can sheet, which is great. Actually, it's undersupplied. We're sold out for many, many years. And then you've got plenty of different niches that are some good, some bad. And automotive, I think the jury is still out. Unknown Analyst: Okay. My other question is just trying to dig in a little bit on the impact of the rise in aluminum and Midwest premium price in particular. So I know you exclude the noncash impact of the metal price lag, but the higher EBITDA guidance and no change in free cash flow implies an increase in working capital that makes sense. Can you talk us through any -- or quantify any benefits of the price run-up in the quarter for your higher EBITDA? Or is that at all an impact? And if you could also address the way to think about the cash impact as well. Jean-Marc Germain: So Jack will help me. But on the EBITDA side, the only benefit from the rise in LME and Midwest is actually through scrap spreads, right, which follow supply-demand balance situation, and it's favorable to the buyers today. So -- but that's an impact we have, right? Recycling becomes more profitable when the material is more expensive, primary is more expensive and recycling scrap becomes more profitable. But on the other aspects, it's a pass-through business. So you may have a little bit of a timing-related impact one month to the next, but that's nothing really to write home about. And on the cash impact, obviously, rising metal prices means we need to replenish our inventories constantly, and we replenish them with more expensive metals. So that is a drag on our cash flow. That's a one-off drag on our cash flow this year. Jack Guo: Yes. And I think -- I mean, it's a type of question, Timna, that we can go into a lot more details afterwards, right? But maybe one way to think about it is to take a look at the changes in working capital over the first 9 months, and you see it's a large negative. Now there's an element related to higher activities, right? We're doing more business, higher volume. But then there is a big piece that related to the metal price increase. But all in all, on a net basis, that's why we have maintained our free cash flow guidance of over $120 million even though -- even though adjusted EBITDA, excluding that lag, the guidance there was great. Jean-Marc Germain: And Timna, just to build on that, if you look at our initial guidance and now our guidance today, the EBITDA has increased, the cash flow hasn't. And the delta here can approximate the drag we get because of the LME Midwest going up, right? So that gives you an idea, are we in the $60 million, $70 million, $80 million, $90 million. I mean that's kind of a broad range of drag we have. So what it means is the cash flow generation, if everything holds exactly the same next year [ that ] $120 million is vastly understated. Unknown Analyst: Right. And just to finally clarify, so the guidance does reflect the fact that the aluminum price is even higher today's spot price than where it was average for the third quarter. Is that reflective in your guidance? Jean-Marc Germain: Absolutely. Operator: Thank you. We have no further questions at this time. So I'll hand back to Jean-Marc Germain, CEO of Constellium for closing remarks. Jean-Marc Germain: Thank you. Thank you, everybody. So as you can see, we are ahead of our plan. We are building momentum, and our new CEO, Ingrid, is ideally suited to lead the company towards its 28 objectives and beyond. I leave as CEO at the end of the year, but I remain as a shareholder as an adviser to the Board, very excited about what's ahead, and I very much look forward to hearing about our prospects for 2026 from Jack and Ingrid when they update us on our progress in February of next year. Thank you, everybody, and have a good day. Bye-bye. Ingrid. Ingrid Joerg: Thank you very much, Jean-Marc, for your kind words. Well, thanks, everybody, for your interest in Constellium. We are happy with the progress we made, as Jean-Marc just said, and we look forward to an exciting end of the year. We also look forward to updating you on our progress in February, and thank you very much in the meantime. Bye-bye. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a great day.
Daniel Schneider: All right. Well, welcome to Photocure's Third Quarter 2025 Results. I'm Dan Schneider, President and CEO. And with me today is Erik Dahl, our CFO. A reminder that the usual disclaimers are in effect for today's presentation.  So I'd like to start with this slide, the strategic priorities and initiatives. It's our guide to how we execute and allocate resources across the company. At a high level, our strategy is centered around 3 key pillars: strengthening the core Hexvix/Cysview business, advancing blue light cystoscopy as a definitive standard of care in bladder cancer, and expanding our reach into the broader uro-oncology and precision diagnostics space.  The first pillar, accelerate and expand, is about delivering on our financial guidance for disciplined growth in revenue and EBITDA in our core business, and to continue generating operating leverage, which we continue to do so. It's also about driving the blue light cystoscopy mobile strategy, ForTec, in the U.S., and increasing penetration in EU, particularly in the priority growth markets, France, Italy, U.K. through blue light expansion and the image upgrades, most recently, Visera III, by Olympus. And thirdly, expanding our geographic footprint and leveraging our distribution partnerships across the globe.  In the second pillar, positioning and access, we're building on the foundations of BLC as a primary precision diagnostic, and you watch throughout today's presentation, I talk often about precision diagnostics in this space that's exploding as a tool to facilitate early and appropriate use of non-muscle invasive bladder cancer, the detection, the surveillance, and the therapeutic monitoring. Inclusive of life cycle management is demonstrated by our recent strategic collaboration to develop the world's first and only Blue Light AI system, which we'll discuss more later today.  We also want to support high-def Blue Light Cystoscopy technologies entering the market. Upgrades of the 3 big OEMs, so the big Wolf, Olympus, Karl Storz, support the efforts of other manufacturers who want to enter into the U.S. market via the reclass process that's still ongoing or other methods. And also the partnership with Richard Wolf on building an adoption in Europe for the flexible Blue Light Cystoscopy interim solution, while we continue to advance the development of the high-definition 4K state-of-the-art and world's only Blue Light flexible system for global use. These efforts will not only drive near-term growth, but will also solidify our long-term competitive positioning.  And finally, third pillar, acquire and transform. We are looking ahead and actively assessing opportunities within non-muscle invasive bladder cancer and the uro-oncology indications, which focus on rapidly growing interest in precision diagnostic indications, biomarkers, artificial intelligence, new technologies, digital pathologies, all about diversifying our portfolio and building on our commercial footprint and bladder cancer expertise.  The real-time examples would be Richard Wolf's collaboration on the blue light flexible high-def system and the ForTec mobile strategy employed in the U.S., both leveraging our existing commercial infrastructure in the broader uro-oncology segment. M&A is a focus this year in an effort to expand our footprint, grow faster, increase our ability to generate a strong cash flow into the future.  So I'm pleased with third quarter results, and the highlights are very evident. Overall, we had 12% product growth. That's 14% minus FX impacts. In North America, we delivered 14% unit growth and 12% product revenue growth. That would have been 19% without foreign exchange impacts, offsetting the continued Flex decline, which was measured at about minus 52% versus third quarter last year. I will remind everyone that Flex now has reached a level of below 5% of our total sales. There are several accounts that still use Flex sparingly, and we intend to keep them alive as long as we can to continue to generate data in anticipation of our future launch of the Richard Wolf collaboration.  The installed base of Saphira Blue Light equipment continued to increase with 7 tower placements and 7 upgrades in the U.S. In July, Karl Storz implemented a promotional program that does take time to take hold. So we expect this development and momentum to continue to build into Q4. We had a fantastic 20% unit growth in the rigid surgical market, inclusive of ForTec medical mobile solution. And actually excitingly, ForTec added 6 more rigid Saphira systems to their national fleet of rentals and began deploying them in September, underscoring the growing demand for Blue Light Cystoscopy in the U.S.  The number of active accounts increased by 23% year-over-year to 373 accounts, and this sets the stage for continued momentum into the future. In Europe, revenue was up 11% and units up 4%. We continue to execute in Europe with strong growth in the Nordics and DACH, driven by Olympus upgrades of the Visera III, and that continues to be a focus throughout Europe. Approximately 30% to 40% of the accounts in Europe use Olympus equipment and particularly strong, as we've talked in the past, in the Nordics, Germany, and France.  The launch early this year of the Olympus Visera III BLC-equipped system continues to gain momentum with 49 Visera installs in the field. The funnel is very strong. Our strongest country to date with conversions is actually Austria. So we're looking forward to the future of these continued upgrades and their impact because every upgrade has an impact of double-digit growth.  We generated positive EBITDA of NOK 10.2 million BD expenses of NOK 14.1 million. So when we look at our EBITDA, we look at an adjusted EBITDA, and that growth was to NOK 14.1 million positive. It's a 10th quarter in a row of positive EBITDA, continue building operational leverage throughout 2025, strong balance sheet of NOK 247.8 million in cash, and no term debt. And we completed the 500,000 share buyback program. On the news flow, on September 22, a new publication from the Italian Society of Urology, the first national recommendations on Blue Light Cystoscopy. Blue Light is recommended for the first TRBT, the second resection, and the recurrence of non-muscle invasive bladder cancer in populations of high risk, very strong recommendation in the Italian Society of Urology, and we expect that will start impacting the Italian market.  On September 16, a publication came out that was derived from the EU roundtable on bladder cancer. The recommendations published were based on an important meeting of experts in April of 2025 by the International Center for Parliamentary Studies, ICPS, that organized senior-level roundtable on bladder cancer with leading clinicians, industry experts, the EAU, and the World Bladder Cancer Patient Coalitions. The objective of the collaboration was to establish a set of recommendations for the EU and member state policymakers to enhance awareness, prevention, and optimizing early diagnosis and treatment of bladder cancer in Europe.  The resulting recommendations were published, and they basically stated about -- talked about equal access to advanced technologies, identifying tumors in bladder cancer that reduce the burden on patients and health care systems. Bladder cancer is one of the most costliest cancers to treat, and precision medicine and precision diagnostics are exactly the future, and that's exact positioning for Blue Light Cystoscopy.  On partner news, and we'll talk a little bit about this as well. I know many are questioning what's going on. Asieris announced that Cevira advanced to the second round of technical review, and anticipating an approval that would trigger an $11 million milestone. They are in active conversation with the NMPA, and there has been no pause in the process; they're moving forward. On October 15, we announced our strategic partnership with Intelligent Scopes Corporation, agreeing to develop the first and only blue light cystoscopy artificial intelligence, and more about that on my next slide.  So Intelligent Scopes Corporation, the U.S. subsidiary of Claritas HealthTech, is set up to develop an AI software for real-time tumor detection using Blue Light Cystoscopy.  The overview through this collaboration, Photocure and ISC are combining complementary strengths, Photocure's leadership in bladder cancer detection and ISC's deep AI expertise, to build an intelligent diagnostic platform designed to improve accuracy and consistency in tumor detection. The pilot program analyzed over 200 cystoscopy procedures with over 80,000 images. It demonstrated extremely strong early performance in detecting high-risk and early-stage lesions. It's a joint development work is underway, and the ENABLE clinical study is initiated in both U.S. and Europe. Following the development phase, we plan to pursue FDA and CE submissions, with Photocure holding exclusive perpetual global commercialization rights once the software receives its clearance. The rationale of the value creation we see in this -- the partnership is strategically important for several reasons. It strengthens our position as a reference company for next-generation cystoscopy, integrating artificial intelligence and Blue Light Cystoscopy. It leverages the synergy of AI and BLC to enhance the detection, accuracy, and completeness of tumor resection, which directly translates to better patient outcomes and stronger clinical adoption. It extends our technology moat around the data-driven precision care. Paving the way for future AI-enabled diagnostics in uro-oncology. Importantly, it adds a high-margin, scalable software component to our business model, creating durable value beyond our current consumable base. Moving to segment trends. So looking at North America and Europe, both delivered continued growth. In North America, the business has significantly overcome the continued decline of Flex surveillance market, which in the first half overall was minus 60%. It was minus 71% in Q1, minus 46% in Q2, while rigid surgical market delivered a 20% unit growth in Q3. In Europe, the Q3 units surpassed previous Q3 high watermarks as momentum continues to build throughout the region through upgrades. Europe is beginning to see the impact of the Visera 3 upgrades rollout, particularly in DACH, and I called out specifically Germany and Austria, France, and the Nordics with 49 through Q3, with more in the pipeline, particularly in the Nordics and the DACH region. Upgrades deliver positive double-digit impact. And a reminder on the impact of these upgrades, 40% of Europe is dominated by Olympus. So we see this as a significant development and opportunity for the European continent. Turning to North America and trends in North America. Sales still impacted by the downturn of Flex, but despite this, we see adjusted unit growth increasing 20% with the addition of the ForTec mobile solution. 14 new Saphira were installed at 7 upgrades, 7 new, adding to the active BLC account growth of roughly 23% year-over-year, and this bodes well for quarters ahead. The ForTec mobile solution now reaching 121 accounts as of the start of service. That's plus 19 from Q2, and over 185 different physicians have now had access to Blue Light Cystoscopy that otherwise would not have had access to it. This is up 19 accounts from Q2, demonstrating growing momentum and demand. And as I mentioned in the kickoff, ForTec has added 6 more Saphira systems to the fleet, bringing their total to 24. And it remains -- bringing access of Blue Light Cystoscopy in the U.S. remains a top priority as demonstrated by our efforts with the FDA in reclassification and reimbursement. Europe growth has also remained strong with solid growth in the DACH and Nordics, which make up a majority of the revenue, and the priority markets of France, U.K., and Italy seeing double-digit growth. As I mentioned, 49 so far, Visera III Olympus systems have been installed and has very strong healthy pipeline behind that as we move through Q4 and into 2026. The picture at the bottom is just a picture of the presence is our presence at DGU.'s the German Urology Conference held in Hamburg, Germany. Bladder cancer was one of the headline areas at ESMO 2025, which took place in Berlin just a couple of weeks ago, with significant momentum around earlier intervention. I'm excited to say that Blue Light Cystoscopy was frequently mentioned as the key to finding the right patients who can benefit from these precision medicines that are coming on the market, thus reinforcing the growing strategic and scientific interest in this space. Looking specifically U.S. and growth, significant growth in accounts of 23% of active accounts who have ordered at least once in the last 12 months. The ForTec accounts continue to be a significant portion of our business, reaching over 11% or 12% of our total, spiking up as high as 15%. We believe this is a strong business opportunity for Photocure, and we'll continue to support the ForTec initiative with the mobile solution. This slide is an illustrative representation. I think it's good to just sort of step back for a moment and look at where we're at and what we see as inflection points that can bring us significant growth potential. Despite the progress we are making, we are still in the early stages in the U.S. market and remains a single most important opportunity for Photocure and is significantly underpenetrated with less than 10% market share today. We have a long runway for growth as awareness, access, and equipment availability expands. Bladder cancer represents a major unmet need in the U.S. There are approximately 85,000 new cases every year and 0.75 million patients living with the disease. Across the U.S. and Europe, there are over 700,000 TRBT procedures and 1.6 million surveillance cystoscopies annually. The total addressable market for flexible cystoscopy exceeds USD 1.3 billion globally. And we believe Blue Light Cystoscopy, in particular, the one we're developing with Richard Wolf, is uniquely positioned to capture a meaningful portion of this opportunity. We expect several catalysts to help drive the next wave of growth in the U.S. market. First, improved CMS reimbursement, which we are pursuing through direct conversations with CMS and through legislative efforts in Washington, D.C. Both would further support adoption for BLC across academic and community settings. The return of the BLC Flex system to the market, with a proprietary development work with Richard Wolf, will enable broader access for outpatient and office-based procedures. In particular, in light of the many therapeutics are being used, the therapeutic monitoring aspects will be increasingly important. Entry of additional Blue Light OEM partners would expand the installed base and provide more choice to urologists in all types of institutions. And finally, the FDA reclassification of Blue Light Cystoscopy equipment, for which there is an ongoing citizens' petition. This could be a potential milestone that would significantly lower barriers and accelerate nationwide uptake. And overall, the momentum. The momentum in the macro environment as reinforced at ESMO, the expensive precision therapeutics are turning to precision diagnostics like Blue Light Cystoscopy as necessary to find the right patients who can benefit from their therapeutic. Taken together, these drivers support the long-term growth trajectory for the U.S. business that is both scalable and sustainable. The bottom line is we have a proven product with growing clinical endorsement and an enormous underpenetrated market, giving us a potential exponential upside as these catalysts materialize in the coming year. Our growth initiatives. Jud just really briefly hit on a couple of them. Two key updates. We now have 121 ForTec accounts actively using 185 different users, gaining experience to patients who would otherwise not have had access to Blue Light Cystoscopy. The Richard Wolf interim solution for Flex is on track. When I announced that a year ago, we said it's a 30-month development that is totally on track. And this would open up the market for a $1.3 billion total addressable market in the U.S. and EU5. Super excited about it. The final comment in the third box, as mentioned earlier, AUA, EAU, the trends are clearly blowing in favor of Blue Light Cystoscopy. The momentum and pressure continues to build behind the notion of accurate diagnosis and complete resections in line with the precision pathway for bladder cancer patient care. We believe Blue Light Cystoscopy can play a central part in determining that precision pathway, and that is being echoed at every conference we attend, currently. The precision pathway starts with a precision diagnostic like Blue Light Cystoscopy that leads to the right precision therapeutics that are bombarding the market. And most recently, there's been 5 most recent FDA approvals, 2 in the last several months. There are over 26 unique therapy-focused non-muscle invasive bladder cancer trials going on. Billions are pouring in, and they're looking for solutions in the diagnostic place, and we believe Blue Light Cystoscopy plays a central role going forward.  And 2 value-generating Asieris programs. The partnership continues to progress favorably. We have taken over $18 million in milestones across both programs, with the potential for significant cash in the future to help fuel our corporate ambitions. Here are the highlights of the 2 deals, which are very different.  On the Cevira out-license program to Asieris, the Cevira NDA remains under regulatory review for potential approval in China later this year into early next year. This will be one of the first Chinese-approved drugs before the rest of the world. In other words, they're getting the product approved in China first, and then they're going for the rest of the world. Typically, it's the other way around. What we can say is only what Assyis is publicly disclosed.  They are a public company in their annual report. They remain under review with the NMPA. If it approved, it would be the first product approved in China before rest of world. They've had meetings with the EU and U.S. regulators to determine a way forward in both these large markets. in U.S. and EU. And Asieris also disclosed interest in pursuing a secondary indication, which brings additional milestones to Photocure upon approval.  On the Hexvix commercial partnerships, we're still awaiting the approval of the Richard Wolf Blue Light system that could come at the end of this year or early 2026, with a 2026 commercial launch of Hexvix in China. And with that, I'd like to turn it over to Erik to review the financials.  Erik Dahl: Thank you, Dan. So I will give an overview of the third quarter financials, including the consolidated income statement. We're looking at the segment report for our 2 main segments. And finally, we'll be looking at the headlines for the cash flow as well as the balance sheet.  A couple of words about foreign exchange first, year-over-year and measured by unweighted monthly averages, the Norwegian kroner in Q3 appreciated 5.7% against dollars and depreciated 0.3% against the euro. If you measure this in kroner, the year-over-year FX impact for Q3 revenue was negative approximately NOK 3.4 million, and for OpEx, positive approximately NOK 2.9 million. And the consolidated impact of foreign exchange on EBITDA was negative approximately NOK 0.5 million.  Final remark, as always, all financials in the presentations are in Norwegian kroner unless other currency is specified. Now I go looking at the consolidated income statement. Hexvix/Cysview revenues in the third quarter increased year-over-year 12% to NOK 134 million, which follows the trend from the record second quarter.  The revenue increase was mainly driven by a combination of volume increase of 6% and higher average pricing in both regions. Partially offsetting this was the expected decline in the flexible kit sales in the U.S. and the impact of foreign exchange. Total revenues in the third quarter increased 12% to NOK 135 million. No milestone payments have been received in the third quarter for either year. Year-to-date, total revenue increased 3%, impacted by milestone payments received from Asieris in Q2 last year related to the development of Cevira.  Q3 total operating expenses, excluding depreciation and amortization, but including business development, were NOK 112.8 million compared to NOK 107.3 million Q3 last year. The increase is mainly driven by business development expenses, merit, and inflation. Foreign exchange had a positive impact on operating expenses of approximately NOK 2.9 million.  Operating expenses, excluding business development expenses, were NOK 109 million compared to NOK 106 million in Q3 last year, an increase of 3%, reflecting merit and inflation. As previous quarters, personnel expenses were relatively stable year-over-year, except for the merit increase. However, project-driven expenses, particularly within business development, may vary significant year-over-year as well as sequentially between quarters.  Business development expenses in Q3 were NOK 3.9 million compared to NOK 1.2 million in Q3 last year. The expenses relates mainly to advisory services, market research activities, and legal fees related to partnership contract support.  EBITDA in Q3, including business development expenses, was NOK 10.2 million compared to last year of NOK 5 million. The company did not receive milestones in Q3 this year and last year.  EBITDA, excluding business development expenses, was for Q3 NOK 14.1 million compared to Q3 last year of NOK 6.3 million, an improvement of NOK 7.8 million from Q3 last year, reflecting improved operating leverage for our core business.  Depreciation and amortization was NOK 7.3 million in Q3. Main cost item was [indiscernible] of the intangible assets related to the return of the European business from Ipsen. Net financial items in Q3 were a cost of NOK 3.3 million compared to a net cost of NOK 2.8 million Q3 last year. And net financial costs were driven by foreign exchange losses as well as accrued interest costs included for the deferred earn-out liability due to Ipsen, offset by gains on foreign exchange and incurred interest income.  Net profit after tax was NOK 4 million for the third quarter, compared to a loss of NOK 3.5 million in Q3 last year. Now let's look at the segment performance. Next slide, please.  In segment reporting, we will focus on the 2 main segments, North America and Europe, and I'm starting with North America segment, which includes U.S. and Canada. Revenue for North America increased 12% in Q3 to NOK 54.8 million. The increase was driven by volume growth of 14% and higher average pricing. However, the growth was partially offset by $3.4 million unfavorable impact from foreign exchange. The volume growth was driven by increased volume for the rigid market, including ForTec Mobile. This was partly offset by the impact of the phase-down of system usage in the Flex segment. However, the impact from the Flex decline gets less and less over time. Q3 direct cost, NOK 42.1 million, below Q3 last year. Cost containment and revenue growth has resulted in significant improvements in financial results for the North America region. The contribution has more than doubled to NOK 9.9 million and have secured an EBITDA close to breakeven for the quarter.  Also, our European business had a positive development in the third quarter with year-over-year revenue growth of 11%, mainly driven by DACH and Nordic. We also experienced strong growth in priority growth markets such as U.K. and Italy. Q3 direct costs decreased 9% year-over-year, driven by headcount adjustment. We ended Q3 with a contribution of NOK 38.2 million, which is 48% of revenue, and EBITDA was NOK 19.7 million, driving an EBITDA margin of 25%.  Now let's look at the cash flow and balance sheet. Next slide, please.  So I'm looking at cash flow first. And as usual, I'm focusing on year-to-date cash flow and ending balance. Year-to-date cash flow from operations was positive NOK 26.4 million compared to positive NOK 61.1 million last year year-to-date. The difference is mainly due to the milestone of NOK 21.6 million received from Asieris Q2 last year, as well as the development in working capital driven by increased product revenue year-over-year.  Cash flow from investments was NOK 7.2 million year-to-date and includes interest received and paid and investments in intangible and tangible assets, including partnerships with ISG and Richard Wolf. Cash flow from financing year-to-date was negative NOK 65.3 million compared to negative NOK 32.8 million year-to-date last year. And the amount is driven by the Ipsen earn-out payment for both years, as well as the share buyback programs current year. In total, we paid NOK 29.6 million for the 500,000 shares we acquired this year. Year-to-date, the net cash flow was negative NOK 46.1 million compared to positive NOK 31.5 million year-to-date last year. The 2 main drivers for the decline are, first of all, the Asieris milestone last year, but also the share buyback program this year. Excluding the share buyback program, we had year-to-date a positive net cash flow of NOK 16.5 million, of which NOK 8.7 million in the third quarter. So I believe we're reaching -- we have reached a turning point, being cash flow positive. We see it now. Looking at the balance sheet, we ended the quarter with total assets of NOK 696 million. Noncurrent assets were NOK 322 million at the end of Q3, and this included customer relationship with NOK 83 million. Customer relationship is the intangible asset identified with the purchase price allocation for the Ipsen transaction. Noncurrent assets also include goodwill from the Ipsen transaction of NOK 144 million, a tax asset of NOK 53.7 million, and intangible and fixed assets totaling NOK 41 million. Inventory and receivables were NOK 122 million at the end of Q3 compared to NOK 131.8 million at the end of Q2 this year. Long-term liabilities of NOK 122 million include the earn-out liability related to the Ipsen transaction, totaling NOK 104 million at the end of the quarter. And finally, equity at the end of the quarter was NOK 486 million, which is 70% of total assets. And this concludes the financial section. Thank you. Dan, it's back to you. Daniel Schneider: All right. Well, thank you, Erik. Thank you very much. So as you can tell by Erik and I's tone, we're very excited about not only the quarter, but where Photocure is and how we're positioned going forward. We had 12% global product revenue year-over-year, and we continue to execute on the key initiatives. We had positive EBITDA of NOK 10.2 million, and I think adjusted EBITDA of over NOK 14 million, and that's 10 quarters in a row of positive EBITDA. And as Erik said, it's starting to translate down into the cash flow with positive cash flow. Ex-BD and milestones, it's NOK 14.1 million, but we continue to invest in key growth initiatives that we believe will make a difference. One, positioning ourselves for long-term success; two, generate future revenue growth opportunities; and three, increasing our operating leverage. In the flex and surveillance market, it's now and in the future. Richard Wolf and Photocure's joint development is on track, and we expect another 15 or so more months of development with market readiness in 2027. In the interim, we are beginning reintroducing the interim Flex by Richard Wolf. The first cases took place in the U.K. in July. They've gone quite well. The idea of this is to keep the interest and generate the data in anticipation of our launch of the high-def 4K system. In North America, the account growth was substantial with installs, upgrades, and mobile. Product revenue grew at 12%, unit sales, plus 14%. We grew our active accounts by over 23%. We had 24% growth in Q2, 17% growth in Q1, 11% in Q4. So you can see the momentum continuing to build behind it. And as I mentioned earlier, our greatest opportunity is the underpenetrated U.S. market with less than 10% share. There is such an opportunity there, and there are a lot of really good initiatives and inflection points we anticipate as we move through 2026. We continue to work with Karl Storz to grow the installed base of Blue Light scopes in the U.S. And it's a key initiative for Karl Storz as well. They have approximately 130 to 150 standard definition machines in the U.S. still deployed, and they're looking to upgrade them. And with all our upgrades, regardless of who the OEM is, they bring usually double-digit on average, double-digit growth in those accounts once they convert to the high-def systems. The ForTec national mobile rollout continues to gain traction. They added 6 more towers. Those will start having their impact in Q4 going forward. They'll continue to add more over time as demand grows, but we're really excited to now have a fleet of 24 deployed nationally in the U.S. And there's over 120 accounts and nearly 200 users now utilizing Blue Light Cystoscopy, who otherwise would not have had access to it. In Europe, the revenue grew 11% with 4% unit growth, DACH and the Nordics, and the priority growth markets kicking in. We continue to facilitate the quality image upgrades with our nearly 600 target accounts. And we believe that the Olympus Blue Light upgrade will help strengthen this initiative. There's been 49 upgrades since January. And Germany, France, and Nordics are now kicking in with strong pipelines and aligned interests with Olympus. Strong cash balance at NOK 247.8 million. And as Erik mentioned, we've added cash to the balance sheet. We continue to advance several business development initiatives in next-generation precision diagnostics, inclusive of our partnership with Intelligent Scope Corporation, or Claritas as known as a subsidiary, to develop AI software for real-time support during Blue Light Cystoscopy procedures. And let's look forward to anticipated milestones and corporate objectives. So we've narrowed the guidance, 8% to 10% from the original 7% to 11% guidance. We expect year-over-year EBITDA improvement and increased operating leverage to flow through. We also see increased Cysview and Hexvix account utilization through upgrades and installs, and the increase in development of the mobile solution in the U.S. We're going to advance the development of the next-gen state-of-the-art 4K high-def Flex systems to access and unlock the potential within the 1.2 million surveillance procedures done in the U.S. and EU5. We continue also to expedite the strategic partnership with ICS, Claritas, to develop BLC artificial intelligence, which is what we believe will be a game changer in bladder cancer precision diagnostic care. We continue to generate data and have presentations, in particular, with health economics and positioning Blue I Cystoscopy as the go-to precision diagnostic in bladder care. We want to increase BLC in the U.S. vis-à -vis the C' petition or other alternate pathways to U.S. approvals. So we're supporting the capital equipment guys coming into the U.S. and of course, supporting Asieris' progress across both Hexvix and Cevira with potential to receive significant milestones in the future. And with that, I think we can go to Q&A. Thank you. Erik Dahl: Thank you, Dan. There are usually a number of questions regarding Cevira. So we will take them into one. So could you put some more flavor about the Cevira approval process? Daniel Schneider: I mean it's a typical process in China. There's nothing unusual that's taken place to date. We cannot say any more than Asieris has said publicly. And I know many of the listeners are monitoring the Asieris public airways and the NMPA. We do the same. We get our information the same way. So at this point, they still remain very positive. And I mean very optimistic on an approval. I think they're just working through like we do in the U.S. or any other country, working through the conversation with the authorities to get themselves to where they can get their approval. So more to come. Erik Dahl: 2 new scope manufacturers looking to enter the U.S. market file their FDA submissions yet? If not, when do you expect this to happen? Daniel Schneider: They have not. Of course, no one can file anything in the U.S. right now because our government is shut down. So they're not accepting. There's always something, right? So as soon as the government reopens, I think both manufacturers will probably be in early 2026 is my anticipation, if not sooner.  Erik Dahl: The updated revenue growth guidance indicates a slower growth rate in Q4 compared to Q3. Could you elaborate on the drivers?  Daniel Schneider: I think the way to approach is to have a look at the last year, the 2024 fourth quarter revenue, which was the record year up to that time. And I want to be careful in terms of prognosis or estimating a revenue, which is above or significantly above what we had before. So it's core.  Erik Dahl: What was the growth impact of shipments to the wholesale market in Europe? And was there any stocking of kits from ForTec?  Daniel Schneider: I think we're talking about somewhere -- top of my head, somewhere between 150,000 and 200,000. Yes. And I can add ForTec. So Forteq does not buy the kits for the accounts by the kits. The way the process goes is that ForTec engages the account with us. We work through the formulary approval needed to get our products shipped in. We set up the account. ForTec sets up the procedural day, and then we ship the product directly to the account, and then the procedure goes off. So the account is the one. Generally, they don't stock a bunch of inventory. It's usually just in time or near time for the procedure.  Erik Dahl: How are Olympus new placements in Europe tracking with the targets for the year?  Daniel Schneider: Very good. Actually, extremely good. Like I said, we have 49 Visera already upgraded. They have a very healthy pipeline, double that size. I don't know that we'll get the other half of that pushed through this year, but we still see a significant upgrade coming through Q4. And if you think about it, and this is just more high-level, of the 600 or 700 accounts, if 30% or 40% of those are Olympus accounts, that's roughly 200, 240 accounts, and we've got 50 of them already upgraded, and maybe another 40 to 50 coming in the near term.  That's a healthy upgrade. And as I mentioned, every upgrade on average brings a double-digit growth to that account. So we're really excited about the development here. And again, it's all about positioning as well because the folks at Olympus have white light, they have MDI, and they have blue light. And all 3 are important in the diagnosis of a patient. So we're getting a really nice positioning of blue light, particularly for high-risk patients.  Erik Dahl: What is your view on the timeline of a potential down class?  Daniel Schneider: I don't know. And the government shutdown. Honestly, we created optionality. And I think that's the thing everyone should focus on. The system petition and going through governments, everyone is part of the government that's on this call. I think we all have sort of a general opinion that it's often difficult and bureaucratic. That hasn't stopped us. We put a tremendous amount of pressure. It's been all of Photocure's work, getting the KOLs, the capital equipment manufacturers, patients, therapeutic companies, all the right into that system petition, urging the FDA for this reclass.  The FDA closed the system petitions public portal last December, I believe it, somewhere around then. So we know it's under consideration, but it's about initiating it and picking it up. In the meantime, I think more importantly, what we should focus on is the ultimate goal. And the ultimate goal is to get multiple capital manufacturers into the U.S. market. And as I mentioned in the question earlier, there are a couple of manufacturers, and we're working with all of them to find a pathway into the U.S. market because it is a tremendous opportunity. And we believe having more manufacturers in this marketplace, especially with hospitals that have preferred vendor relationships, will open this market up drastically.  Erik Dahl: There are several questions about ForTec, so we will cluster them into one. What does ForTec say about the utilization of the towers currently?  Daniel Schneider: They excited. This has exceeded their expectations. The way they look at it -- you've got to remember, their towers are moving from one location to the next every day of the week. So, what they try to do and they encourage it financially as well in terms of case costs is they try to stack cases at hospitals. So if you're a hospital and you want to try Blue Light Cystoscopy, they encourage the physician, we support it as well, to not just do one case because you basically bring a tower in for just one case.  They want to stack several cases. But that's always patient-dependent. And not every patient comes in on a Tuesday and has a Blue Light procedure. But they do the best they can. They want to continue to consolidate procedures into 1 day and get the most out of every tower. But their #1 objective is to treat every patient who wants Blue Light Cystoscopy and every physician who wants to use it.  Erik Dahl: The wind-down of revenue from Flex is almost complete. Growth in the Regis segment is strong in the U.S. Do you expect this strong growth rate from Regis in the U.S. to continue beyond 2025?  Daniel Schneider: I do. And I think the way to look at this is at one time, Flex was nearly 20% of our business. This is less than 2 years ago, 20% of our business, and we've turned it around, gobbled all that up, and now we're growing at 20% in the regional market. It's quite astounding. And I don't see any reason for it to slow down. I think the mobile solution has really added some jet fuel to our efforts. I think Karl Storz has a renewed focus in this area. I think the overall macro environment with these expensive therapeutics coming out has also added to the interest in Blue Light Cystoscopy.  So I don't see any slowdown here. It might fluctuate around those growth rates. Maybe it's high teens, maybe it's 20%, but I don't see a slowdown to this, and I see more and more opportunity in the U.S., especially as more OEMs come into the marketplace in hopefully 2026 sometime.  Erik Dahl: Long-term gross margin level do you currently expect?  Daniel Schneider: I expect to see better than what we see in the P&L right now because we've had some adjustments this year. So I expect the gross margin to go down to approximately the level that we've seen before.  Erik Dahl: And we have a couple of questions regarding AI. So, can you elaborate on the preliminary study in the BLC study?  Daniel Schneider: Yes. I think the way to look is if you layer AI onto white light, you get one level of artificial intelligence support. And it's really a decision as a physician support system. But what ICS/[indiscernible] is super excited about is when you look at Cysview and Hexvix, it is instilled into the bladder. It is a metabolic biological effect. What it does is it produces texture patterns and color changes that aren't visible and aren't accessible under white light. And that leads them to believe that this could go much further, typically identification.  In addition, you got white light. And if there's an AI white light, it's only going to learn from what white light sees. And we all know, everybody on this call knows that white light misses 30%, 40% of the tumors, especially CIS, flat lesions, right?  Blue light is going to see more than white light AI. And AI blue light, we believe, could lead to better segmentation, stratification, and decision-making by physicians. We think it's a game-changer. And that's the way ICS is seeing it, and they're super excited about this. When I say super excited, like they really couldn't wait to partner on this project. So we're really excited about this.  Erik Dahl: We have one more question here. Could you give us a quick recap of your tax position carry-forward loss in the U.S., both on and off balance sheet?  Daniel Schneider: I guess you're talking about the tariffs.  Erik Dahl: Your tax position.  Daniel Schneider: Loss carryforward. Yes. Well, obviously, there has been interest among the auditors about our tax loss carryforward, and in terms of the debt that the U.S. has. We're evaluating what's going to happen with that right now, but it's too early to say what the consequence will be.  Erik Dahl: Thank you so much. That concludes the questions we have received online. So, back to you, Dan.  Daniel Schneider: All right. Well, great. Well, thank you all for joining. I'm super happy with where the organization is. I think we've had a lot of challenges in the past years, but the agility and resilience have come through, a strong balance sheet, and a strong company poised to really make a difference in bladder care. When this macro environment is really emerging, we've got an opportunity to be a major player. And I think mostly, if you look at the U.S., the opportunity is immense, and we have some inflections coming in as we turn the corner into 2026. So thank you for joining us. I think we'll see you on February 18 for Q4. Until then, have a great week and great holidays.
Operator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Extreme Networks First Quarter FY '26 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to Stan Kovler, Senior Vice President of Finance and Corporate Development. Please go ahead. Stan Kovler: Thank you, operator. Good morning, and welcome to the Extreme Networks First Quarter Fiscal Year 2026 Earnings Conference Call. I'm Stan Kovler, Senior Vice President of Finance and Corporate Development. With me today are Extreme Networks' President and CEO, Ed Meyercord; and Executive Vice President and CFO, Kevin Rhodes. We just distributed a press release and filed an 8-K detailing Extreme Networks' financial results for the quarter, first quarter 2026. A copy of the press release, which includes our GAAP to non-GAAP reconciliations in our earnings presentation is available in the IR section at extremetworks.com. Today's call and Q&A may include certain forward-looking statements based on current expectations about Extreme's future financial and operational results, growth expectations, new product introductions and strategies. All financial disclosures made on this call will be on a non-GAAP basis unless stated otherwise. We caution you not to put undue reliance on these forward-looking statements as they involve risks that can cause actual results to differ materially from those anticipated by these statements. These risks are described in our risk factors in our 10-K and 10-Q filings. Any forward-looking statements made on this call may reflect our analysis as of today. We have no plans to update them except as required by law. And following our prepared remarks, we will take your questions. And now I will turn the call over to Extreme's President and CEO, Ed Meyercord. Edward Meyercord: Thank you, Stan, and thank you all for joining us this morning. The first quarter marked our sixth consecutive quarter of revenue growth and third straight quarter of double-digit year-over-year increases. Strong execution and our differentiated technology solutions are fueling market share gains, driving growth in the Americas and expansion across EMEA and Asia Pacific. Revenue reached $310 million, up 15% year-over-year, driven by competitive wins with large customers across all verticals. Product revenue increased double digits year-over-year for the third consecutive quarter. Sustained growth in our cloud subscription drove SaaS ARR up 24% year-over-year to $216 million. One of the important growth engines with large enterprise customers continues to be Extreme Fabric, which is uniquely designed for enterprise campus environments. We deliver unmatched automation of service delivery with zero-touch provisioning, unique security benefits and millisecond conversion -- convergence that supports greater resiliency that our competitors can't replicate. There's strong interest in our new Extreme Platform ONE, which uses agentic conversational and multimodal AI to transform networking, cutting routine tasks from hours to minutes. We're also seeing increased adoption of our WiFi 7 solutions, which boosts network efficiency, minimizes downtime and supports the demand of modern business applications. Given our momentum in technology innovation, IDC recently recognized Extreme as a leader in its 2025 market scape, highlighting our fabric, Extreme Platform ONE, flexible deployment by universal hardware and expertise in high-density environments were key differentiators. We're also seeing strong growth across our commercial models with our MSP program partners and bookings, both nearly doubling year-over-year and bookings up nearly 30% sequentially. Our consumption-based billing eliminates upfront costs, while poolable licensing lets MSPs easily allocate licenses across devices, locations and customers supporting scalable growth. In the quarter, we expanded our footprint within a major government in Asia Pacific, where we displaced a leading competitor. The project will create a network that connects all government offices nationwide with extreme fabric over SD-WAN. Our proven execution with government agencies in the region is opening very large and valuable new partner relationships and expanding market opportunities, including new sovereign cloud capabilities that enable highly regulated customers to leverage our AI-powered networking innovations. This is a major factor in our ability to win larger deals and move up market. Other wins in the quarter included T-Mobile Center, a premier multipurpose arena in Kansas City, chose Extreme for our proven expertise in deploying next-generation wireless and high-density venues. X-Sight, a EUR 5 billion global leader based in Germany, specializing in clean room technology and complex plant engineering has standardized exclusively on Extreme for LAN, wireless LAN, network access control, all managed by ExtremeCloud IQ. Burgers' Zoo in the Netherlands at over 111 acres recently deployed Extreme wired and wireless solutions managed by Extreme Platform ONE to ensure reliable connectivity for security cameras, ticketing, guest WiFi, mobile point-of-sale systems and smart habitats. Global health care organizations like University Hospital, Birmingham NHS Foundation Trust and Henry Ford Health are deploying Extreme's WiFi 7 to enhance bedside patient access, keep critical medical devices online with real-time data transmission and support advanced applications such as real-time imaging and secure clinician mobility. Gateshead Council in England deployed Extreme Fabric to modernize and secure its network across roughly 200 sites, creating a unified, secure and agile digital foundation managed through Extreme Platform ONE. In September, we announced an extension of our relationship with the NFL through 2028. Now in our 13th season as a partner, Gary Brantley, the CIO of the NFL, said, partnering with Extreme Networks has been transformative for the NFL, elevating both our stadium operations and the way fans experience the game. We're the only vendor in our space offering true cloud choice and deployment flexibility. Customers can choose our cloud solutions across public, private or hybrid environments, and we include AWS, GCP and Microsoft Azure in our public cloud menu. In contrast, many of our competitors are locked into public cloud-only and expensive purpose-built architectures, creating major hurdles as they attempt to build the flexible deployment models that customers demand. These capabilities are driving growing interest in Extreme and competitive wins. Extreme Platform ONE, which became generally available in the first quarter, is earning positive customer feedback for AI-powered automation that cuts routine IT tasks from hours to minutes, improving efficiency and accelerating issue resolution, especially with the addition of our innovative service agent. Previously, IT teams had to manually gather logs for multiple devices, correlate alerts, run diagnostics and then create support cases, often taking hours or even days per issue. Our service agent assigns automated tasks to subagents with complete visibility to its reasoning at each step with an emphasis on human in the loop. It diagnoses problems, collects the necessary evidence and generate support cases in minutes, allowing IT teams to resolve issues far more quickly and efficiently. Extreme's Agentic AI architecture goes well beyond our competitors' older first generation and limited AI features. Extreme Platform ONE simple interface, our AI Canvas that is truly unique in the industry, removes the complexity of navigating multiple applications, copying data between systems and manually tracking device life cycle, subscriptions and compliance. Now all this can be customized with a composable single interface with automated tracking and real-time alerts, delivering unmatched visibility, efficiency and faster, more reliable IT operations. On November 13, we'll host an AI Summit in New York City to share trends, strategy, expert insights and our vision for the next wave of AI-driven innovations. You should tune into this event to better understand the future of enterprise networking. Finally, we recently released our corporate responsibility report for fiscal '25. Since 2021, we've reduced our emissions by 34% and cut our office footprint in half, lowering electricity, natural gas and water usage. Looking ahead, we aim to source 50% of electricity from renewables and cut emissions by 50%. Given this success, Newsweek recently recognized Extreme as one of America's greenest companies. For the remainder of fiscal '26, we expect revenue growth to accelerate to 10%. Given the growing volume of large opportunities and our increasing winning percentage, we believe this fiscal year will mark an inflection point in our company's growth trajectory. Now let me turn the call over to Kevin to discuss financial results and guidance. Kevin Rhodes: Thanks, Ed. I'm very pleased to report strong first quarter execution and financial results with revenue exceeding the high end of our guidance range. We achieved earnings per share of $0.22, exceeding the midpoint of our guidance range and consensus of $0.21 per share. Earnings per share was up 29% from $0.17 per share in the year ago period. Total revenue in the quarter was $310 million, and that grew 15% year-over-year. This marks our sixth consecutive quarter of growth and the third consecutive quarter of double-digit year-over-year revenue growth as well. SaaS ARR once again grew 24% year-over-year, driven by recent large wins, adoption of our new Platform ONE and from expansion of our new commercial models. The adoption of Extreme Platform ONE was well ahead of our expectations in the quarter, and the sales pipeline is looking very strong. Bookings in the quarter grew 21% year-over-year, reflecting strong customer demand across our portfolio. Our year-over-year bookings growth across all regions is a testament to the success of our new commercial models, large customer wins in Asia Pacific and EMEA this quarter. Our new commercial models are contributing about 14% of our total new subscription bookings, and we expect this to grow over time. Product bookings were comfortably ahead of our product revenue in the quarter as book-to-bill ratios were strong. Product revenue of $194 million grew 20% year-over-year and was up 1% sequentially in a traditionally seasonal slower quarter. Driven by strong demand for Extreme solutions, we continue to move upmarket and grab market share. We achieved our sixth sequential quarter of product revenue growth, which is driving subscription attach and ARR growth. Geographically, we saw particularly strong performance in Asia Pac and EMEA as we continue to benefit from recent larger new customer wins. We continue to gain traction in the region as a strategic alternative to incumbents, particularly in the public sector and hospitality. In the first quarter, 36 customers spent over $1 million with Extreme, up from 34 last quarter and 27 in the prior year quarter. Total subscription and support revenue was $116 million, up 9% year-over-year. Total recurring revenue grew 8% year-over-year, representing 36% of total revenue. As a result of our growth in SaaS ARR, SaaS deferred revenue jumped 16% year-over-year to $327 million and recurring revenue growth brought the total deferred revenue up to $618 million. This growing base of contracted future revenue provides strong visibility into our recurring revenue and healthy margins. Non-GAAP gross margin was 61.3% in the quarter and was impacted by industry-wide increases in component costs, such as memory, metals, including copper and aluminum and other semiconductor parts. We do expect margins to recover over time as we recently implemented some price increases like others in our industry to mitigate the higher costs and drive margin recovery over the course of fiscal 2026. In addition, discount trends have been stable across our business. We expect to exit with gross margins up 100 bps to 200 bps from current levels. Our first quarter operating expenses were $149 million, which were primarily driven by higher onetime sales commission expense due to accelerators for large deals we recently closed. Operating margin was 13.3%, up from 12.4% in the prior year quarter. We expect to continue to achieve operating leverage throughout the rest of fiscal 2026. I'm pleased to report that we generated $45 million in EBITDA, up 21% year-over-year as we continue to drive profitability ahead of revenue growth. Free cash flow usage of $21 million was largely due to onetime payments associated with certain -- finalizing certain legal matters, which are now behind us. Turning to capital management. During the first quarter, we repurchased 577,000 shares for a total of $12 million. We ended the quarter with $209 million in cash and had a positive net cash position. We continue to improve our cash conversion cycle down to 60 days from 81 days in the previous quarter as we continue to improve and lower inventory balances. We expect a recovery in cash flow during the rest of the fiscal year as we continue to grow revenue and improve profitability. Now turning to guidance. For the second quarter of fiscal 2026, we expect guidance as follows: revenue to be in the range of $309 million to $315 million; gross margin to be in a range of 61.4% to 62%, operating margin to be in the range of 13.4% to 14.6% and earnings per share to be in the range of $0.23 to $0.25. Our fully diluted share count is expected to be around 136 million shares. For the full fiscal year 2026, we expect revenue to be in the range of $1.247 billion to $1.264 billion with some normal seasonality in Q3, followed by sequential growth in the fourth quarter. The midpoint of this range suggests 10% growth year-over-year. Our goal for SaaS ARR continues to be in the low 20% range for year-over-year growth. Recurring revenue is expected to be about 35% of total revenue in fiscal 2026. And with that, I'll now turn the call over to the operator to begin the question-and-answer session. Rebecca? Operator: [Operator Instructions] Your first question comes from the line of Mike Genovese with Rosenblatt Securities. Michael Genovese: Guys, can you talk about more about these component price increases hitting the gross margin, sort of what's going on there? And then also touch on plans to kind of lift ASPs through Extreme Platform ONE or price increases. So gross margins now and sort of the plan to improve them going forward? Edward Meyercord: I can jump in high level. And then, Kevin, why don't you come back and follow up. Mike, yes, we've seen prices in memory and optics shoot up in the near term. And Kevin mentioned in his remarks that we put in place a price increase to recover those expenses. I'd say in addition to what would be a mid-single-digit price increase where we would really feel those -- feel the impact there in Q3 and Q4, we've got a variety of other initiatives, tactical initiatives from the supply chain teams to help us drive the gross margins back up over that 63% number. Kevin, do you want to add to that? Kevin Rhodes: I think you're right, Ed. I mean, we had talked about this pretty openly in Q4. We had about $1.5 million of incremental costs, right? We were waiting a little bit there, Mike, around what was the industry going to do from a price increase perspective. We saw industry price increases go into effect across Cisco and HPE and Juniper. And so that gave us, if you will, the license to also raise price on our end as well to recover some of those costs that we saw. And naturally, we'll see those come into the business over the next couple of few quarters, and that's why we're guiding up to get to 63% by the end of the year with 100 bps to 200 bps improvement. On the ASP question that you asked, I mean, we are expecting an increase in average selling price, especially on the cloud applications that we have, in particular with Platform ONE. And we're already seeing that already with the bookings that we're seeing. We've talked about 10% to 15% increase in what we're seeing there. And so that we're still on track for that. Michael Genovese: Great. And I have 2 more questions. I'll just ask them at once, even though they're unrelated. One, I didn't hear anything about a federal government shutdown. -- certainly didn't see it in the revenues here. So just want to ask about federal exposure and anything you're seeing from the shutdown. And then secondly, just on a sort of Cisco versus Juniper competitive environment right now? Are you seeing more traction against one versus the other? Kevin Rhodes: Yes, I'll... Edward Meyercord: Maybe we'll take them in order, Kevin, and we'll cover the federal question first. Mike, given how small our market share is in the federal space and given that we've just recently certified our portfolio, and we're now in a position where we can bring fabric, we can bring cloud, we've really opened the door to the federal market. And I would say that the shutdown for us has had little to no impact on our business. If anything, we're seeing a much larger -- we're seeing much larger opportunities open up on the federal side with the growth and the expansion of our certifications. As far as E-Rate business, we really see no impact to our E-Rate business, and we've got a very healthy E-Rate cycle. Kevin, I don't know if you want to add to that before we go competitive. Kevin Rhodes: No, I think that makes sense. That's it. Edward Meyercord: Okay. Yes. On the competitive front, Mike, we've got 2 different things -- 2 very different things going on. Obviously, we have HPE acquiring Juniper. I'd say we're surprised at how long it's taken them for them to put their plans in action. The first thing that we've been able to take advantage of is on the human talent front, we've been able to hire some great talent, which is going to help us when we talk about moving upmarket, we're bringing people on board that also have connections in the channel and directly with customers and with MSPs, for example, who are going to help us accelerate and move up market. So that is a positive. And we also -- we hear from the channel, and then we also hear from customers who are confused about the road map and exactly which way the technology is going to go. There are mixed signals that come from corporate versus what's being set out in the field, and that's always helpful for us. As it relates to Cisco, it's a very different situation. Cisco is overhauling their partner program and is going to create a lot of disruption. That's going to play through not only for partners, but also for customers. And that's going to -- that's creating different opportunities. This is kicking off in the beginning of November. So there's been a lot of discussion. Now we've been privy to some of the changes that they're making in the plans. And net-net, the changes are going to favor the very top Cisco partners. These are partners that we do very little business with. So we think it will leave the mid-tier and smaller partners somewhat disenfranchised looking for alternatives. And here, we feel like there's an opportunity now that, quite frankly, we haven't seen in a very long time. So we're excited about the channel disruption there. And then as we look over at HPE, it's about people and it's about confusion as it relates to the road map. There are some issues with Mist being a public cloud as the only play there. And as we look at and what we highlight in some of our comments, the importance today of cloud choice and cloud flexibility as far as items, important items like data sovereignty, et cetera, et cetera. So as HPE and Juniper try to match together their portfolios and their clouds and their lakes, et cetera, this is going to open up some opportunities for Extreme. And Kevin, feel free to jump in and add to that. Kevin Rhodes: I think you nailed it all. Yes. And obviously, Cisco's publicly announced their refresh opportunity, which is our refresh opportunity as well to go after them. I think the competitive markets right now are very frothy for us in terms of being able to take some of the competitive dynamics and turn to our favor right now. So I think we're seeing that reflected in our financial results and our revenue growth as well. Operator: Your next question comes from the line of Ryan Koontz with Needham & Company. Ryan Koontz: I want to ask about Platform ONE and where you are in terms of that commercial introduction. I know it's a new product. And can you share any kind of any metrics you have or any kind of qualitative feedback from customers on renewals and what kind of traction you're seeing there with Platform ONE, that would be great. Edward Meyercord: Sure. Ryan, and I will say we're going to -- on Investor Day, we'll dive into a lot more detail, and you can hear directly from our PLM and engineering teams. And then we have our AI Summit, which is really about the future and the vision of where we're going with our Agentic AI platform. At this stage of the game, it's early for us to present metrics. If you'll recall, we went GA with Platform ONE at the very beginning of the first quarter. And with that, commercially, we're selling Platform ONE, but our customers still have the availability to use XIQ and Site Engine and all the applications they've had before. So when they're buying a new license, it's backwards compatible. This is a decision that we made, and it's been very popular. Basically, what that means is that customers are able to buy the license and they're able to work within the platform. So they're getting to know Platform ONE as we complete the first wave releases of Platform ONE, which will be towards the end of this year, towards the end of November and December, that's when we expect to see customers start to make the full migration and move entirely over on to the new platform. So what I would say is based on how we've measured it, -- we're obviously tracking this very closely. We've seen high adoption. We've seen a lot of excitement about the capabilities. As we mentioned, we've just released our service agent, which can provide a lot of benefits to customers. And I think there's a lot of excitement about that. And there's a lot of differentiation with what we're bringing to market and what's been out there as far as those Gen 1 AIOps solutions. So it's early innings for us. And yes, what we've shared is that as we turn the corner on the calendar year, that's when we'll start opening up and creating metrics for the [ Street ]. Kevin Rhodes: And Ed, I would just add to that, that it was ahead of our expectations in the quarter, which is obviously a good thing. Ryan Koontz: Yes. Got it. And maybe another if I could follow up. Relative to your TAM of TAM growth, I assume is kind of mid-single digits. How should investors think about your long-term revenue growth prospects relative to your share gains and your strength of markets you're seeing? Edward Meyercord: Well, what we've talked about is repointing the year-over-year growth to 10%. And what we're also looking at is the growth of Extreme Platform ONE and the kind of services that we can bring to bear and the solutions that we can bring to bear. If you look at the traditional TAM for Extreme and we look at our largest win in the quarter, the largest win in the quarter was also our largest SD-WAN win ever, in which case, in a very innovative solution, we're bringing our fabric technology across the wide area network and creating a very unique solutions for government customers. This has also spawned a lot of other opportunities. And I would argue that this is TAM expanding for us. I've also mentioned the fact that we've turned up certifications that are allowing us now to have hunting licenses to go play in the federal markets. And we're doing some things in terms of cloud ops and making investments in Europe that will also open up new government opportunities in those markets. The last area to comment on are those commercial models where historically, we haven't played in the MSP space, and we're getting tractions. I think we would all say that the MSP evolution has taken a little longer than we thought to get rolling, but it seems to be hitting its stride and the growth metrics, obviously, for this quarter were very strong. So as we look at the overall market, we see Extreme taking share, and we look at ourselves longer term as a double-digit player with higher growth and more emphasis now on services and solutions that will evolve from Platform ONE and that subscription line. Kevin, do you want to add? Kevin Rhodes: No, I think as we think about the new commercial models, like you talked about, we think about Platform ONE, that's all going to drive growth on the ARR, the SaaS ARR side, right? And we're seeing that now grow 24% year-over-year. So that's going to continue to -- we're going to continue to drive that part of the business. I think it's a solution, right? It's kind of hardware and software, but I think we're adding more and more software solutions, and there's a bit of transformational journey that the company is going on right now to create more recurring revenue helps our margins, helps our margin profile in terms of improvement better and helps our profitability as a business. So it is a full solution with everything. And I think people are realizing the benefits of all the different kind of product offerings that we have as a company, and that's helping us compete better and go upmarket. Ryan Koontz: Got it. Just a quick follow-up there on your MSPP or MSP traction there. you have new MSP count? I know you disclosed that in the past. Kevin Rhodes: Yes, we're at 61 now. Operator: Your next question comes from the line of Dave Kang with B. Riley. Dave Kang: My first question is regarding Cisco's recent partnership with NVIDIA. So just wondering what your countermeasure would be? Edward Meyercord: Yes. I think, Dave, I think if you think about what we're where we're focused, we're not playing in the market, which is building networks for AI systems. We're in the market for bringing AI to networking. And so we're leveraging AI tools, and we talked about this conversational multimodal Agentic platform. We have a true Agentic structure that we've built. We've released our service agent. You'll hear us talk about our AI Summit and on Investor Day, the evolution of the release of many agents and many new services that we'll bring to bear. This is where Extreme is leading. And I think it's important that we make that difference between building networks for AI systems versus leveraging AI technology for driving enhanced performance and visibility and capabilities for people delivering a networking experience. So that's where we're focused. This is where Extreme is a leader. We have a -- we're in a very strong position. We actually, given our size, have some competitive advantages relative to some of these larger players. And this is where we're making a dent in the market. Dave Kang: Got it. And my second question is regarding gross margin. Kevin, I'm trying to understand -- so you talked about component prices going up. So that was roughly about 100 bps impact? Kevin Rhodes: Yes. I mean probably about that somewhere in that range. I mean there's a combination of things here, right? Dave, around we expedited some of our deliveries for some of these larger customer wins. So there was more expedite fees there. We also have just component costs that are higher than we expected. The 100% China tariffs kicked in, in some of those component costs as well. And then also just the cost of copper and aluminum and some of these metals as well just went up throughout the quarter as well. So those are some of the costs that we had experienced, and we had talked about $1.5 million in Q4. We continue to see about roughly the same amount in Q1. And now we've raised price to basically offset that into Q2 and beyond and then Q3, Q4 as well because it's obviously partially in Q2 and then with it becoming November 1 effective date, and then we'll see a full quarter effect in Q3 and Q4. Dave Kang: And I think you said you're going to raise prices by mid-single digits. Did I hear that correctly? Kevin Rhodes: Yes. We looked at all the different SKUs. Some are in the low single digits, some in the mid-single digits, but we looked at the SKUs across some we didn't change at all. But I mean, at the end of the day, we kind of looked at it and then we kind of followed the industry pattern for what HPE, Juniper and Cisco did. Dave Kang: Got it. And my last question is, was there any FX impact? Kevin Rhodes: Very little. We hedge our balance sheet, and so we don't have a lot of FX issues. Operator: Your next question comes from the line of Chris Schwab with Craig-Hallum. Christian Schwab: On the good quarter guys. Just a further clarity on the gross margin, given the increased prices of different commodities and raising prices to offset that and seeing an improvement in the second half of this fiscal year, which you've made clear. Can you just remind us what -- say, following that going into the next fiscal year, what you think the targeted gross margins will be given the increased Platform ONE and services and subscription growth? Are we targeting to be a 62% to 64% gross margin? Or are we still kind of thinking 62% plus or minus? Kevin Rhodes: Yes. Maybe we can hold that for the Analyst Day here on November 10 because I think we will walk through what the long-term model looks like beyond this year as we think about the next 2 or 3 years. I don't think there's going to be a lot of change from the 64% to 66% range that we've talked about in the past. It's really these kind of more acute component costs that we've seen recently, where we've had to raise price against them that have caught us a little bit like unexpected from -- over the last year or so that we're just basically making the price changes to combat that. But I do believe that from a long-term perspective, the SaaS subscription revenue growth engine in the business is going to continue to help us drive those margins in the future. So we're still very optimistic about the financial model in the future. Edward Meyercord: I would just chime in, Kevin and Christian, I would just say we haven't changed our long-term outlook for gross margins. And mix will factor into the equation. We are expecting a very significant ramp in Extreme Platform ONE, and there will be margin benefits there. Keep in mind, there's a combination of that service element to our solution set along with the subscription and enhanced new services. So that really starts to come into play in fiscal '27 and fiscal '28. -- what we see happening with gross margin currently, these are sort of more near-term tacticals that will correct. We've been in this movie before, and we know how to correct these things. So as Kevin mentioned earlier, we'll get ourselves back up to that 63-plus percent and then get back on track to the longer-term goal. I think we have a 64% to 66%. Kevin Rhodes: That's right. That's right. Christian Schwab: Great. And then my last question, and maybe give you a chance here. The 10% top line growth exceeding the TAM of the industry, as we talked about federal markets, Europe, Platform ONE, Services Solutions, -- but the bookings continue to be very strong. Is there anything else going on in the marketplace regarding total cost of ownership, just making a better product that is driving that? Or is it pretty much everything we've already discussed? Edward Meyercord: Christian, I think it's pretty much everything we discussed. There's -- look, if you just look at Extreme, we've continued to invest in our fabric technology. It's one of the quivers that we have from a competitive standpoint. But we're the only ones that have this, and we have unique capabilities for enterprise campus solutions. I think larger enterprise customers are surprised when we get into proof of concepts and all of a sudden, we're starting to demonstrate our capabilities that our competitors just can't match. And one of the very largest defense contractors in the world who's actively looking at Extreme said, wow, what you guys do in 6 minutes is taking Cisco 6 hours to do. And we actually had this time lapse video where we show this. But when we talk about the automation and the capability, the delivery of services, the security benefits that we bring with this technology, how that produces a very different kind of wide area network, SD-WAN solution when we apply Fabric, when we look at the subsecond and millisecond convergence as far as resiliency of the network, the large players can't replicate it. So this is something where we're moving upmarket and we're winning and we go toe to toe. Now when you add on top of that Extreme Platform ONE and the fact that we'll be bringing these capabilities into the platform with enhanced visibility and having one single place to drive our multi-vendor capability, that's something that is -- that quite frankly, we bring choice and flexibility and new capabilities and we go toe to toe and we win against the larger competitors. So I think we have technology differentiation more so now than we've had. Yes, we're out in front with WiFi 7. Yes, we have these new commercial models and ways to win and new certifications, et cetera, we're staying out in front of that. But we have real differentiation today, and our teams are executing well. Our sellers are executing well and the channel is picking up on it. We are -- we see this in our funnel. We see this with the close collaboration of our marketing teams and our sales teams as we look at these opportunities and we look at higher win rates. And then the last factor is what was brought up earlier by Mike, where -- it's a bit of a mess at HPE-Juniper right now. And there's a lot of confusion. There's a lot of people changing. Now they're setting up overlay teams and who's covering the channel, who's covering the customer. There's just -- there's a lot of unknowns that create opportunities for us. And then the same thing is true with Cisco talking about their refresh, but then also talking about making it really difficult for partners below partner #50 to make money. And they have thousands and thousands of partners. So there's just -- there's a lot of disruption right now with the largest players that have 75% of the market that are causing people to take a look at Extreme. And when they take a look at Extreme, they're kind of blown away by our technology, our differentiation. And keep in mind, we always win very high marks for the level of our customer support and how people work with Extreme and they feel like there's a different level of customer intimacy that we bring to the equation. Operator: Your next question comes from the line of David Vogt with UBS. David Vogt: Guys, I want to come back to the gross margin question. Again, I'm sorry to belabor the point, but obviously, we've had a pretty steep rise, as you guys called out in memory and optics. And Ed, I appreciate the potential cyclicality of those markets if history is any guide, but the severity of the increase is pretty daunting. And I want to get a better sense for how you're thinking about how you're pricing in that dynamic the balance of the year. I appreciate the price increases that you talked about, but is there a chance that you could come back and effectively take another bite at the apple if need be from a pricing perspective? Or do you think the price increases that you announced across the portfolio, low single digits to mid-single digits covers you for the balance of this year -- if things get potentially a little bit more challenging? And I'll give you my second question is, Kevin, maybe for you on the subscription side, obviously, SaaS has been a big driver. You've done a great job there. But I guess I'm trying to understand the gross margin dynamics on the subscription support side looked a little bit light relative to Q4, down sequentially. And kind of what's going on there? I would imagine that support services or installation is probably a bit lighter in revenue. So I would have imagined that subscription gross margins would have been up sequentially. Any kind of color there that you can share with us would be great. Edward Meyercord: Yes. I --... Kevin, do you want to... Kevin Rhodes: Go ahead Ed. I'll follow up. Edward Meyercord: Yes. Upfront in terms of memory and optics. And David, you can imagine we're all over this, and we have teams and people with these are -- we're very actively engaged with our suppliers across the board, and there's kind of all hands on deck. There are secondary suppliers of both memory and optics for us that we look at that -- and we're very active is what I would say. And we feel very confident in one, in how we're calling the current market conditions; and two, our plans to recover where we are. And we have baked that into our price increase. We do not expect to come back and revisit and have yet another increase, and we feel very confident in terms of how we planned it. Kevin, do you want to talk about the combination... The subscriptions... Kevin Rhodes: Yes, yes. I'm happy to. So we are investing a little bit on the subscription side with Platform ONE on the Agentic AI. So there's some increased, I'll call it, cloud spend that we have on our end. Please don't take that as like that's going to be forever more. These are just upfront investments as we launch Platform ONE to have a more robust, right, Agentic AI agent experience for the customers. We fully expect all the pricing that we have and the bookings that we're getting from Platform ONE. Remember, when we get a booking for Platform ONE, it gets recognized over time. So you're not even seeing today in our first quarter results, even the total bookings that we had in the quarter being reflected in the revenue so far. So we are optimistic about the subscription revenue, the subscription margins that we will have and that they will continue to play out to be very strong in the 80% range. So I'm feeling good about what our subscription revenues. And then I would also add is, we are seeing continued positive momentum on these new commercial models like MSP and others, and those have a higher margin impact as well. And those will play out into the model over the next year or so. So I'm very bullish about the subscription margin story that we have as a company and our focus there for several quarters and even years out at this point. I feel like we were in a very good path there. And we'll recover these costs that we've seen these onetime costs, if you will, that have come in on the components over the next couple of quarters. But I do believe, as we said earlier, we'll get back to that 64% to 66% gross margin targeted [indiscernible]. David Vogt: Can I ask one follow-up, Ed? Have you shared with the market kind of the BOM that's related to either optics and/or memory? Is it like 5% to 10% of like a typical switch BOM that is impacted by these rising component costs? Edward Meyercord: We haven't shared that. I'm sure I can get it for you, Dave, and circle back separately on it. But we haven't shared what the percentage of the BOM is for memory for components, et cetera. I don't know if we'll share it, but we'll certainly look into it for you. Operator: Your next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Eric Martinuzzi: I wanted to revisit the guide for the second quarter and specifically that the low end would actually be sequentially down from the first quarter revenue. I was wondering if you got -- were there any pull forwards out of Q2 into Q1 as far as the large deals that you won? Kevin Rhodes: Not on the revenue side, Eric. We had some bookings that came in at the end of the quarter ahead of the price increases. Those didn't make their way into the revenue actually. So it's kind of made its way more into backlog. Eric Martinuzzi: Okay. But I mean, historically, you would be up sequentially that September versus December quarter. I just -- was there just conservatism in the outlook and kind of handicapping... Kevin Rhodes: Well, I mean, at the midpoint, you've got to increase, right? So at $312 million versus the $310 million, I think you're referring to the range of $309 million versus $315 million? Eric Martinuzzi: Yes. Kevin Rhodes: I mean -- so at the low end of the range, yes, it would be $1 million lower. At the high end of the range would be higher. The reality is we are expecting to continue to grow for a seventh sequential quarter in Q2 at the midpoint at the $312 million. So I wouldn't look at that necessarily as a message that we are expecting to go down in Q2 over Q1 from a range perspective. We're still optimistic about the business. Edward Meyercord: Yes. And I think it's fair to mention, Kevin, that Eric, we had a very strong quarter in Q1. We had a lot of large deals come in and land in the quarter. So -- and it started from the get-go. I would say linearity was very strong in Q1, starting with bookings in July. And I think we just had a very strong quarter there on the heels of our Q4. Eric Martinuzzi: Yes. Certainly, good numbers in Q1. I don't want to take anything away from a beat and guide up quarter. Edward Meyercord: Yes, no, it's good enough. Operator: At this time, there are no further questions. I will now turn the call back over to Ed Meyercord for closing remarks. Edward Meyercord: Thank you, Rebecca, and thank you, everyone, for joining the call. As always, I know we have employees, customers and partners that also kind of join in here, and we appreciate the partnership and the continued growth in our relationships. We continue -- we're excited to continue to build on our success. We're really looking forward to updating everybody at our Investor Day on November 10. And we're going to be able to take a deeper dive into the markets where we're playing in our technology and our execution, and we'll be able to field all questions there. So we look forward to your participation there. Thanks, everybody, and have a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.