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Operator: Ladies and gentlemen, welcome to the Temenos Q3 2025 Results Conference Call and Live Webcast. I am Matilda, 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 Takis Spiliopoulos, Interim CEO and CFO. Please go ahead. Panagiotis Spiliopoulos: Thank you, Matilda. Good evening, good afternoon. Thank you all for joining us for our Q3 '25 results call. I will talk you through our key performance and operational highlights for the quarter before updating you on our operational and financial performance. So starting with Slide 6. We delivered a strong performance in Q3 '25, benefiting from a stable sales environment throughout the quarter. There was no impact from the U.S. bank credit concerns in Q3, and we have not seen any impact so far in the current quarter. Demand in Q3 was broad-based, and we signed a number of deals across new logos and the installed base. I would note that there were no large deals in the quarter, though we do have several we expect to sign in Q4. We announced a number of AI-powered products this year, in particular, our AI agent for financial crime mitigation and Money Movement and Management, and we have seen good traction on both of these. From an investment perspective, we have continued executing our strategic road map, investing across the business. Sales headcount, in particular, is on track to increase by around 50% by year-end. When we launched our new strategic plan in November last year, we indicated we expected around $20 million to $25 million of cost savings in 2025, and these efficiency gains are largely funding the investments we are making this year. The operating leverage in our business model is evident. Our profitability has therefore benefited from the sales momentum and the cost efficiency programs, which are funding our investments. We remain prudent in our outlook given there are a number of large deals expected in Q4. However, based on our Q3 performance and the stable sales environment, we are raising our guidance for 2025 for subscription and SaaS, EBIT and EPS and are reconfirming our 2028 targets. Turning to Slide 7. We signed a number of deals with new and existing clients this quarter, and we have highlighted 4 of these on this slide. A couple of the highlighted deals are in the Middle East with clients either expanding into new geographies or launching new digital banks on our platform. We also have a client in the ASEAN region upgrading and moving to the cloud and a client in LatAm moving on to Temenos core banking in the cloud. The key things across all of these clients are the reliability and scalability of our platform, the uniqueness of our country model banks that clients can leverage to rapidly expand into new geographies and the flexibility to deploy in the cloud or on-premise, and we will continue to expand our offering in all of these areas through our R&D road map. Moving to customer success on Slide 8. This quarter, we went live on a major U.S. SaaS expansion with FundBank a global bank offering banking and custodial solutions to the asset management industry. FundBank selected Temenos to support their U.S. expansion due to our comprehensive SaaS banking capabilities tailored specifically to the U.S. market. We deployed a full suite of services, including digital and core banking, payments and data analytics on Temenos SaaS allowing FundBank to launch new products faster, elevate the digital experience and scale efficiently. Notably, FundBank can now offer a fully digitized corporate onboarding experience allowing clients to complete the process quickly and securely. This go-live continued the extension of our leadership in best of suite in the U.S., in line with our 2028 strategy around 3 core levers. On Slide 9, we have our latest payments innovation that we launched at SIBOS in September. Money Movement and Management is a single pre-integrated AI-powered platform that enables our clients to replace fragmented, siloed legacy platforms or to rapidly launch new lines of business. It is deployable on-prem, in the cloud or as SaaS depending on the clients' needs. We have already seen good traction on this and other AI-powered products such as FCM AI agent, and we will continue investing in specific AI use cases to meet the needs of our customers. Moving to the next slide. I am proud of the industry recognition Temenos continues to receive. It is a great achievement whether that is for the strength of our core banking platform, specific aspects of our offerings such as deposits or from our employees where we have been recognized as a Great Place to Work in 15 countries. This last recognition is particularly important to me and a testimony to our values and culture. People are the key to our success. Finally, on Slide 11, I would like to give an update on the execution of our strategic road map. We have been hiring talent across the R&D organization globally, in particular in India and the U.S. Our innovation hub in Orlando is having a visible impact on our U.S. expansion strategy with the first prospective clients leveraging the hub to co-innovate with our teams in the quarter. And we are on track to increase sales headcount across the regions by 50% by end of December. We have also been making investments in our sales training and governance process to maximize the quality of our pipeline. Lastly, we are looking to improve the efficiency of our operating model rolling out AI initiatives across the business, including in software, legal, marketing and finance, in addition to R&D, where the focus is on leveraging AI for development, testing and support. Moving to Slide 13. We delivered 11% total revenue growth this quarter, driven by broad-based wins with both new and existing customers. We had another strong quarter for subscription in SaaS, which grew 10% in Q3 as well as maintenance, which was largely driven by premium maintenance signings. Services revenue also grew for the second quarter in a row. Moving to Slide 14. Our EBIT grew 36% in the quarter, driven by the strong revenue growth and operating leverage. Our ongoing investments in product and tech and go-to market were largely offset by our cost savings program, in line with our self-funded investment strategy that we announced at last year's CMD with an expected $20 million to $25 million of cost savings in 2025, funding the majority of our investments. There is also some impact from cost phasing with some catch-up expected in Q4 '25. EPS grew 41% in Q3, largely driven by EBIT growth and benefiting from the lower share count. Moving to ARR. It has once again benefited from the growth in subscription in SaaS and maintenance. As a percentage of last 12 months revenue, ARR equaled 88%, up from 87% in Q3 '24. This gives us excellent visibility on future recurring revenue as well as our future cash flows helping underpin our 2028 targets as well. On Slide 16, I would like to highlight a few items. Maintenance grew nicely in Q3, up 14% and we now expect maintenance to grow around 11% constant currency for the full year. I would also flag that subscription and SaaS has grown 12% year-to-date, total revenue 10% and EBIT 24%, which supports the increase in full year guidance we announced today. Given the continued strength in EBIT growth in Q3, we now expect our EBIT margin to be up at least 170 basis points for the full year. On Slide 17, net profit was up 35% in the quarter, in line with EBIT with higher tax charges, offset by lower financing costs. The tax rate in Q3 was around 21%, and we maintained guidance of our 2025 reported tax rate of 15% to 17%, benefiting from a one-off tax benefit from prior years, which will materialize in Q4 '25. The normalized underlying tax rate, excluding this one-off benefit, remains at 19% to 21%. EPS grew by 42%, ahead of net profit growth as it did last quarter, once again supported by the lower share count. Moving to free cash flow. We delivered significant growth of 30% in Q3 '25. As expected, we are showing an acceleration in H2 '25 driven by the growth in deferred revenue and lower restructuring costs than in H1 '25. We have now absorbed $30 million of restructuring headwind in the first 9 months of the year. Free cash flow has now grown 13% year-to-date. So we are confident that we will deliver on our full year guidance of at least 12%. Next, on Slide 19, we show the changes to group liquidity in the quarter on a reported basis. We generated $61 million of operating cash and bought back $148 million worth of shares, completing our CHF 250 million buyback program in August. We ended Q3 '25 with $184 million of cash on the balance sheet. Our leverage stood at 1.4x at the end of the quarter, and we also expect to end 2025 within our target leverage range retaining flexibility for either further share buybacks or bolt-on M&A. Now moving to Slide 20, a couple of items to highlight on our balance sheet. We completed our CHF 250 million share buyback program in August at an average price of CHF 63.25 per share, representing 5.5% of registered share capital. These shares will be proposed for cancellation at the 2026 AGM. In July, we closed a $500 million revolving credit facility signed in Q2. As previously mentioned, we have no further refinancing requirements until 2028. The bond maturing in November of this year has already been refinanced by the bond issued in March of this year. Our reported net debt stood at $702 million at quarter end. Turning to Slide 21. I would first like to note that we remain prudent in our 2025 outlook, given there are several large deals in the Q4 pipeline. However, given the good performance in the first 9 months of the year, we are increasing our subscription and SaaS guidance to at least 7% to reflect the sales momentum. As a result of our operating leverage, premium maintenance signings uplift to Q3 EBIT and the self-funding of our investments, we are raising our EBIT growth guidance from at least 9% to at least 14%. Correspondingly, we are also upgrading our EPS growth guidance from 10% to 12% to 15% to 17%. We are keeping ARR guidance of at least 12%, given the delayed benefit to ARR from stronger subscription and SaaS growth, and we're also keeping free cash flow guidance of at least 12% growth unchanged. As a reminder, our guidance is non-IFRS in constant currency, except for EPS and free cash flow, which are on a reported basis. Both the 2025 guidance and the 2024 pro forma numbers exclude any contribution from multifunds. And free cash flow is, of course, under our standard definition, including IFRS 16 leases and interest costs. And lastly, we have reconfirmed our 2028 target. Before we head to Q&A, I'm sure you will have seen the statement from our Chairman in the press release that the CEO search conducted by the Board is currently ongoing. As you can appreciate, this is not something I can comment on any further. With that, operator, can we please open the call for questions. Operator: [Operator Instructions] The first question comes from the line of Sven Merkt from Barclays. Sven Merkt: Maybe one on the pipeline. Can you just comment on the quality of the pipeline and the visibility you have into Q4? You called out that there are a number of large deals in the pipeline. I guess this is the case usually in the fourth quarter. So is there anything unusual here to point out? And what sort of pipeline conversion do you assume for these large deals compared to prior years? Panagiotis Spiliopoulos: So on the pipeline, there is nothing that has changed from the previous 3 months. Clearly, we have the large deals in the pipeline as we commented back in July. And we also do not assume any change in conversion rates. The way we look at this is always as a weighted average at the start of the year when we provide guidance, clearly, we take an assumption on conversion rate of large deals, which is lower than we use for, let's say, the average deal. So nothing has changed in terms of the pipeline. What we have clearly seen is no impact from any macro uncertainty. I think that's good to highlight, given we're 3 months more into the year. We have seen in Q3 good execution and good conversion rates across the regions. So also nothing to highlight. But clearly, we want to remain prudent on how we assess the pipeline. Clearly, the pipeline is growing quite nicely, as you would expect with a substantial increase in the number of salespeople working to build the pipeline. But again, let's remain prudent. There is still some macro uncertainty out there, but we have seen no change in bank's behavior in terms of spending plans. Clearly, they still want to invest. They prioritize digital transformation. So this is, I would say, what we call a stable sales environment, and we expect this to remain for the remainder of the year. Operator: The next question comes from the line of Laurent Daure from Kepler Cheuvreux. Laurent Daure: I have one and a follow-up. First is on the support revenue. I mean you had another great quarter. Where do you stand in terms of the mix between the premium maintenance and classic maintenance, in order to help us to see what could be the growth rate in maintenance a bit normalized 1 or 2 years out? And my follow-up is on the U.S., if you could give us an update on a penetration of some Tier 2, Tier 3 banks that were part of your long-term plan. Panagiotis Spiliopoulos: Laurent, let me address the maintenance question first. Clearly, 14% was a good number. Discontinued the trend from what we have seen last year and also the first half, clearly benefiting from premium maintenance, but it's not just premium maintenance. Also, keep in mind, we get uplift from renewals, and we also have the CPI indexation, which over the years, obviously falls into the number. We have seen clearly clients taking up our premium maintenance offering on the one hand, but on the other hand, we have also seen clients not churning on this. So they maintain those premium maintenance offerings for a much longer period than in the past, and clearly, that helps. If you don't have churn, that helps a lot. And this is what we also see in terms of visibility going forward. Now we said 11% for the full year. So that's about the number in Q4 as well. For the next years, I think it's too early to provide specific guidance, and we're not disclosing the split other than we're growing on all the maintenance streams. For the next years, I think what we had implied in our original CMD plan was somewhere 5%, 6% as a base rate because clearly, we have seen some catch-up, so some normalization is probably what we would model in, in that case. On the U.S., as you would expect, clearly, we're seeing a very nice buildup in our pipeline for the U.S. I think also in terms of the signed deals, we will see even more of the impact materializing in 2026, in line with our strategy. The sales team is now fully in place. And I think this is clearly shown in the pipeline generation. We see -- we get with more people and a better understanding of our offering. Clearly, we get into more RFPs and also our win rate is improving from the data we have. And clearly, you need to keep in mind we are tackling a huge market with a real need and a long runway for banks to modernize. I think we have a much better value proposition in terms also of strategic road map versus where we were 1 year ago. The investments we have done, both on the product side but also on the go-to-market side. And some of that road map, some of the products in the road map that are very specific to the U.S. market. And we need to be -- as we said, we wanted to be closer to the customers, and clearly, they see our investment in go-to-market in the product as well. So yes, the innovation hub clearly has helped a lot also for awareness building. As you know, pipeline is 12 to 18 months to develop. This gives us a good level of confidence that the conversion of this pipeline in to signed deals will clearly will accelerate next year. Operator: We now have a question from the line of Frederic Boulan from Bank of America. Frederic Boulan: If I may, a question around Q4. So if I look at your guidance, weighted guidance still implies much less growth in Q4 versus what you've done year-to-date and the same on EBIT, you're guiding for 170 bps margin expansion. I think you've done 4 points in the first 9 months. So any specific moving parts you want to call out for Q4? And then anything you can share on your free cash flow conversion? You've grown EBIT $22 million year-on-year in Q3; net profit, $16 million, but the cash flow growth is about $6 million. So if you can talk about some of the drivers for free cash flow conversion? Anything specific you want to call out for the rest of the year, DSOs or else? And any specific elements you want to call out into next year? Panagiotis Spiliopoulos: Okay. A lot of questions, Fred, let me take them one by one. I think on -- if we start with subscription and SaaS and keep in mind that we want to remain prudent as we started the year, there is still macroeconomic uncertainty. And what we did, given we have not changed the outlook for the sales environment, the -- if you want the upside, we were going for around 6% in Q3, delivered 10%. So the upside of, let's say, $5 million, we let it flow through the -- into the guidance. So this is where the upside for subscription and SaaS is coming from. We are not flagging any explicit risks other than we have large deals in there. No change to visibility. Again, it's at least 7%, and we want to remain prudent for this time. Also keep in mind, we have -- and this shows maybe the underlying very robust growth that we still have the impact from this BNPL customer in every quarter. So if you exclude the impact from that, we would show -- this really shows the underlying growth, which is very healthy. So nothing specific to flag here other than large deals, and we want to remain prudent. On EBIT, yes, the guidance implies some deceleration. We have seen year-to-date EBIT growth of 24%, clearly has benefited from a strong growth in subscription and SaaS of 12%, strong maintenance growth. And clearly, there also been the full impact of the cost savings initiatives, but clearly not yet the visibility on the investments, which are tracking somewhat slower. But if I look at the Q3 exit cost in September and October trend that clearly is the right number to target. Also keep in mind, we have the majority of our variable costs, bonus accruals, commissions always in H2 versus H1, even more loaded towards Q4. So clearly, that is driving some of the cost increase. And it's very similar to last year. If I look at the cost we added H2 versus H1 last year, H2 versus H1 this year, this is very similar, maybe even some higher costs there. And ultimately, it's at least 14% is the guidance. So that's where we would go. Finally, on free cash flow. Yes, 30% in Q3 was clearly materially ahead of our full year guidance. But keep in mind, we had the bulk of restructuring costs of $30 million out of the $35 million in the year-to-date number and substantial outflows linked to that. And then it was really in line with our expectations, the 30%, which gives us 13% for year-to-date growth, so well on track. And there's clearly nothing special to there. If you were to exclude -- if you take the EBIT to free cash conversion, if you were to exclude restructuring costs, we will be at a very high conversion. But even with that, let's say, EBIT of 14% or at least 14% and free cash flow at least 12%, so there is not such a big delta. We have a bit of catch-up to do on investments in Q4, so we feel comfortable with the at least 12% free cash flow guidance. Nothing special to flag on cash. Operator: The next question comes from the line of Josh Levin from Autonomous Research. Josh Levin: Two questions for me. Just to be clear on the new guidance, you've talked about large deals. To what extent does the new guidance bake in the new deals? Are they fully baked in or partially baked in? And then second question, I read how Morgan Stanley is using AI to rewrite old outdated code written in COBOL to more modern programming languages. Is that a good thing or a bad thing for Temenos? Panagiotis Spiliopoulos: I think there has not much change in terms of how we assess large deals. Clearly, number one, we clearly want to remain prudent. What we -- what I said before is at the start of the year, we have a view on large deals evolution and for any specific quarter and the full year we always take a risk-weighted approach to large deals, i.e., we assume -- for the same dollar value of large deals, we assume a lower conversion rate than for a standard deal size. So this is how it's reflected in Q4 and the full year guidance. There is no excessive dependency on large deals. We had this in Q2, given Q2 was a much smaller quarter than Q4. This is why we had flagged this in Q2. On AI, we are -- I mean, we are using AI ourselves quite a lot. And clearly, AI is a big opportunity. I think on both sides, we are clearly investing on AI use cases on the client side. We showed some of the AI-enabled products. But clearly, we have rolled out a substantial double-digit number of AI initiatives internally as well. So we are product and tech organization, we are having some pilots with some clients. It doesn't -- it's not that straightforward to take COBOL code and just use AI and make it modern. It sounds nice and there is a lot of challenge given there is no documentation and anything. What we can -- what AI can help with is in the documentation of old code and then trying to map this into new functionality. A Tier 1 bank like Morgan Stanley, they will always have the capacity of internal development. So they have done it before. So it's unlikely they would change that. But what we see is helping banks reduce implementation effort helps them move faster to a newer release, move faster in upgrades. This is where we see the AI opportunity. And I think this is tracking well with the pilots we're doing. Operator: We now have a question from the line of Charles Brennan from Jefferies. Charles Brennan: It sounds like 2025 is in good shape. I was wondering if you can just lift horizons to 2026. And specifically, you think about the subscription revenues. You started to shift to subscription in [ anger ] in 2022. And if those deals run to the natural 5-year duration, I guess that's a 2027 renewal cycle. Do you think that's how it will play out? Or do you think it's inevitable that those deals renew slightly earlier than the contract termination date? And we start to get a renewal cycle start in 2026. And is that going to start to help the visibility and the predictability of the business? Panagiotis Spiliopoulos: It's an interesting point you raise. And we had the start. And if you go back and look at the numbers in 2022, clearly, we started with the subscription transition, but we still had quite considerable term license business there as well, so not all the license business in '22 was subscription. It's correct that those will come up for renewal in 2027. It's also correct that you're going to see the 10-year renewals from 2017, which was a strong year for Temenos, renewing in 2027. Let's not get into the debate about when these contracts will renew. In general, as you know, clients never wait until last minute to renew because that's not a good starting point from their side. So do we have the visibility on 2026 subscription? I think we have good visibility stemming especially from the pipeline build we have seen over the last 12 and 18 months. The renewal cycle is something you take as it is planned. It's not -- we don't have a specific renewal strategy. So let's see, we have good visibility on '26. Let's not speculate on the renewals. Operator: Next question comes from the line of Justin Forsythe from UBS. Justin Forsythe: I've got my one question here and follow-up. So Takis, I guess, from the outside looking in, it would seem like the year has gone quite well to start under the guidance and shepherding of Jean-Pierre. So maybe you could talk a little bit about your initial conversations with the Board, what they expect you to do? Are you continuing to execute on the strategy that he laid out? I would imagine that, and I caught this from the commentary on the management call that there are some things that the Board would expect to change going forward. So are you then, therefore, beginning to implement some of those changes? And maybe you could just outline a little bit on the strategy going forward. And then I just wanted to hone in a little bit on the big contract loss. So maybe you could just remind us when you expect to lap the impact of that and the magnitude of it. And just circle back on what exactly happened there? If the provider, I think it was PayPal, decided to go with just a different provider or if that was something that they decided to in-source? Panagiotis Spiliopoulos: First, on strategy. Keep in mind, our strategy is not created by 1 person. So the strategy which was presented last year at the CMD and validated before by the Board was created by the entire management team and actually the leadership team. So this is how we came up with a bottom-up strategy looking at what we need to do on the product, what we want to do on product and go to market and aligning this with the market perception. So it was not Jean-Pierre creating a strategy, it was really the leadership which was then validated by the Board. So the strategy, as our Chairman mentioned early September, remains unchanged, and this is also why my primary focus is on executing the strategy. We've done this in Q3, we'll continue to do this also in Q4 and beyond. We have the people in place, and it's actually great to see that everyone is delivering. And the team is very motivated and standing behind the strategy. So it's really a focus we all have. And if you look at the progress we have seen across the different elements, we said we're going to substantially expand our sales force across the regions, they have done that. We will increase the headcount 50% by year-end. On the product side, Barb has brought in some great talent. And we're also hiring both in the U.S. and in India complementing our road map. So it's really executing this and then on top of all the operating model changes. On the BNPL, we -- I think there is no new information to give on BNPL on the reasons we can't comment on individual customers. And whether the name you mentioned is correct or not. Clearly, there is a headwind this year, which we communicated already at the start of the year. It's equal numbers in every quarter and the guidance is fully reflecting this. Justin Forsythe: Okay. Got it. No, that's fair. Maybe I'll just ask then since you can't answer that one, a quick follow-up, which is on the sales force that you expect to increase quite drastically. Could you just give us a little bit of a lean on what types of customers you expect them to serve. So is that Tier 1, Tier 2, Tier 3 or down in the credit union space and what geographies you expect them to come in or if that's more balanced? Panagiotis Spiliopoulos: So again, back to the strategy. We're growing in all regions. So the sales force is expanding in all regions across -- really across the world. It was a scale-up, which we needed and wanted to do also to support our 2028 targets. We emphasize the U.S. where we started first, but Will and his MDs have expanded the sales force across the world. And it's -- nothing has changed in terms of the strategy. In the U.S., we go Tier 2, Tier 3, the three growth levers we have defined best of suite, the modular approach and adjacent solutions. So the growth levers are valid and still applied globally. So no change to tiering or regional focus or anything. It's just really adding capacity and capabilities to deliver the 2028 targets. As we said, it's an investment year. The good thing is we do a lot of self-funding for those investments, but no change to that. Operator: [Operator Instructions] We now have a question from the line of Toby Ogg from JPMorgan. Toby Ogg: Maybe just one quick one and then a follow-up. First one, just on the guidance. EBIT and EPS upgraded, but no change to the free cash flow guidance. What are the factors driving that? And then just on AI. You mentioned in the release a number of AI product launches gaining traction. So FCM, AI agent and the money movement and management piece. Can you just give us a sense for how you're monetizing this? Is this through higher pricing or is there incremental modules being cross sold? And then can you just give us a sense for the size of these AI product revenue streams today and then when you'd expect them to start becoming a more meaningful revenue driver for you? Panagiotis Spiliopoulos: Toby, let me get back to the free cash flow question first. Clearly, as we said, if you look at the pure numbers, there is not that much change in terms of the EBIT growth and the free cash flow growth expected for this year, if you want to go back to the conversion question. But ultimately, there is always a lag. It's similar to ARR. We can't translate a positive subscription and SaaS impact to free cash flow immediately given there is a time difference. And as we said, there is still some catch-up in terms of investments to do. And finally, there is -- we still have a large Q4 ahead of us. This is always the most important quarter for us in terms of free cash flow. So yes, we're quite happy with our 12% free cash flow guidance. Now on the AI products. So clearly, we had some product launches at the flagship event TCF, FCM AI agent and also the other product. Now clearly, we're not going to go into that level of detail, although that we have seen a number of deals signed for -- or especially the FCM agent already in the last few months. Usually, this comes as an add-on to existing core installations, so clearly, there is a good market demand there. We have also seen a very large Tier 1 bank using this, so that's a testimony to the real use case we're providing here. And it's a very interesting product, substantially reducing the number of false positives in screening, which is driving a lot of manual work at banks. So there is clearly a business need for that. So the numbers are still small, especially in the context of our of overall business. But this is what we are seeing together with banks, developing use cases. And referring to our development partner program, we're not just going out there and inventing something in the lab and then see whether this sticks. We're really codeveloping use cases, which we know banks are interested in and are willing to pay for this. Yes, but no further financial details we can provide on AI products. Operator: Ladies and gentlemen, that was the last question. The conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good day, and welcome to the Cincinnati Financial Corporation 2025 Third Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Dennis McDaniel, Investor Relations Officer. Please go ahead. Dennis McDaniel: Hello. This is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our third quarter 2025 earnings conference call. Late yesterday, we issued a news release on our results, along with our supplemental financial package, including our quarter end investment portfolio. To find copies of any of these documents, please visit our investor website, investors.cinfin.com. The shortest route to the information is the Quarterly Results section near the middle of the Investor Overview page. On this call, you'll first hear from President and Chief Executive Officer, Steve Spray; and then from Executive Vice President and Chief Financial Officer, Mike Sewell. After their prepared remarks, investors participating on the call may ask questions. At that time, some responses may be made by others in the room with us, including Executive Chairman, Steve Johnston; Chief Investment Officer, Steve Soloria; and Cincinnati Insurance's Chief Claims Officer, Marc Schambow; and Senior Vice President of Corporate Finance, Andy Schnell. Please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties. With respect to these risks and uncertainties, we direct your attention to our news release and to our various filings with the SEC. Also, a reconciliation of non-GAAP measures was provided with the news release. Statutory accounting data is prepared in accordance with statutory accounting rules and therefore, is not reconciled to GAAP. Now I'll turn over the call to Steve. Stephen Spray: Good morning, and thank you for joining us today to hear more about our results. We had an excellent quarter of operating performance and remain confident in the long-term direction and strategy of our insurance business. We also reported very strong investment income growth in the third quarter of this year, with ongoing benefits from rebalancing our investment portfolio in the second half of last year. Net income of $1.1 billion for the third quarter of 2025 included recognition of $675 million on an after-tax basis for the increase in fair value of equity securities still held. Non-GAAP operating income of $449 million for the third quarter more than doubled the third quarter from a year ago. Our 88.2% third quarter 2025 property casualty combined ratio improved by 9.2 percentage points compared with third quarter last year, including a decrease of 9.3 points for catastrophe losses. The 84.7% accident year 2025 combined ratio before catastrophe losses for the third quarter improved by 2.1 percentage points compared with accident year 2024. Although the pace of growth slowed, our consolidated property casualty net written premiums still grew at a healthy 9% for the quarter. Our underwriters continue to emphasize pricing and risk segmentation on a policy-by-policy basis in their underwriting decisions. Estimated average renewal price increases for most lines of business during the third quarter were lower than the second quarter of 2025, but still at a level we believe was healthy. Commercial lines in total averaged increases in the mid-single-digit percentage range and excess and surplus lines was again in the high single-digit range. Our personal lines segment included homeowner in the low double-digit range and personal auto in the high single-digit range. Additional support for our premium growth objectives includes outstanding claim service and strong relationships with independent insurance agents who enthusiastically partner with us. Next, I'll highlight third quarter performance by insurance segment compared with a year ago. In addition to premium growth, underwriting profitability for each area was excellent. Commercial Lines grew net written premiums 5% with a 91.1% combined ratio that improved by 1.9 percentage points, including 2.8 points from lower catastrophe losses. Personal Lines grew net written premiums 14%, including growth in middle market accounts and Cincinnati Private Client. Its combined ratio was 88.2%, 22.1 percentage points better than last year, including a decrease of 19.5 points from lower catastrophe losses. Excess and surplus lines grew net written premiums 11% and produced a combined ratio of 89.8%, an improvement of 5.5 percentage points. Cincinnati Re and Cincinnati Global each had an outstanding quarter and continue to reflect our efforts to diversify risk and further improve income stability. Cincinnati Re, third quarter 2025 net written premiums decreased by 2%, primarily due to changing conditions in the property market. Its combined ratio was 80.8%. Cincinnati Global's combined ratio was 61.2%, along with premium growth of 6% as it continues to benefit from product expansion in recent years. Our life insurance subsidiary had another strong quarter, including 40% net income growth. In addition, term life insurance earned premiums grew 5%. I'll end my comments with a summary of our primary measure of long-term financial performance, the value creation ratio. Our VCR was 8.9% for the third quarter of 2025. Net income before investment gains or losses for the quarter contributed 3.1%. Higher overall valuation of our investment portfolio and other items contributed 5.8%. Now I'll turn it over to Chief Financial Officer, Mike Sewell, for additional insights regarding our financial performance. Michael J. Sewell: Thank you, Steve, and thanks to all of you for joining us today. We reported growth of 14% in investment income in the third quarter of '25, reflecting efforts during 2024 to rebalance our investment portfolio in addition to strong cash flow from insurance operations. Bond interest income grew 21% and net purchases of fixed maturity securities totaled $232 million for the quarter and $944 million for the first 9 months of this year. The third quarter pretax average yield of 5.10% for the fixed maturity portfolio was up 30 basis points compared with last year. The average pretax yield for the total of purchased taxable and tax-exempt bonds during the third quarter of this year was 5.52%. Dividend income was up 1% and net purchases of equity securities totaled $57 million for the quarter and $118 million on a year-to-date basis. Valuation changes in aggregate for the third quarter were favorable for both our equity portfolio and our bond portfolio. Before tax effects, the net gain was $846 million for the equity portfolio and $242 million for the bond portfolio. At the end of the third quarter, the total investment portfolio net appreciated value was approximately $8.2 billion. The equity portfolio was in a net gain position of $8.4 billion, while the fixed maturity portfolio was in a net loss position of $217 million. Cash flow, in addition to higher bond yields, contributed to investment income growth. Cash flow from operating activities for the first 9 months of 2025 was $2.2 billion, up 8%. Turning to expense management. Our third quarter 2025 property casualty underwriting expense ratio decreased by 0.5 percentage points, primarily due to growth in earned premiums outpacing growth in expenses. For loss reserves, our approach remains consistent and aims for net amounts in the upper half of the actuarially estimated range of net loss and loss expense reserves. As we do each quarter, we consider new information such as paid losses and case reserves. We then updated estimated ultimate losses and loss expenses by accident year and line of business. For the first 9 months of 2025, our net addition to property casualty loss and loss expense reserves was $1.1 billion, including $900 million for the IBNR portion. During the third quarter, we experienced $22 million of property casualty net favorable reserve development on prior accident years that benefited the combined ratio by 0.9 percentage points. On an all lines basis by accident year, net favorable reserve development for the first 9 months of '25 totaled $176 million, including favorable $236 million for '24, favorable $16 million for '23 and an unfavorable $76 million in aggregate for accident years prior to '23. I'll conclude my comments with capital management highlights. We paid $134 million in dividends to shareholders during the third quarter of 2025. During the quarter, we repurchased approximately 404,000 shares at an average price per share of $149.75. We believe both our financial flexibility and our financial strength are in excellent shape. Parent company cash and marketable securities at quarter end was $5.5 billion. Debt to total capital remained under 10%. On October 10, we terminated our existing $300 million line of credit agreement that was set to expire on February 4, 2026 and entered into a new $400 million unsecured revolving credit agreement. This new agreement has a 5-year term with 2 optional 1-year extensions and is fully subscribed among our 4 lenders. Our quarter end book value was a record high, $98.76 per share, with $15.4 billion of GAAP consolidated shareholders' equity, providing ample capacity for profitable growth of our insurance operations. Now I'll turn the call back over to Steve. Stephen Spray: Thanks, Mike. I think this quarter's strong results demonstrate that we have the people and plans in place to keep building on our success. Our associates continue to answer the call for our agents and the communities they serve, building strong relationships and informing smart underwriting decisions. In September, Fitch Ratings recognized our decade of delivering profitability and growth by upgrading our insurer financial strength ratings for all of our standard market property casualty and life insurance subsidiaries to AA-, very strong from A+, all with a stable outlook. As our 75th anniversary celebration winds down, we are looking ahead to the future, and we are excited by the opportunities we see to keep living the golden rule, meeting the evolving needs of agents and policyholders and creating value for shareholders. I'll also note that Senior Vice President, Andy Schnell, is on the call and will be in future quarters. Following Theresa Hoffer's retirement, Andy joined Cincinnati Insurance 23 years ago and has worked his way up the accounting ranks, proving his business acumen and his leadership abilities. He, Theresa and Mike, all worked closely over the past year to ensure a smooth transition that maintained our consistent accounting processes and procedures. As a reminder, with Andy, Mike and me today are Steve Johnston, Steve Soloria and Marc Schambow. Chloe, please open the call for questions. Operator: [Operator Instructions] The first question comes from Michael Phillips with Oppenheimer. Michael Phillips: I wanted to start with commercial auto, if I could, try to drill down a little bit. So kind of what's happening there for you guys. You've taken small bites, obviously really pretty small bites of the apple, PYD, I think, 5 quarters in a row. But how do we -- I guess how do we get comfortable with PYD charges at the same time your current picks are kind of coming down at the same time? Can you talk about that, please? Stephen Spray: Yes, Mike, this is Steve Spray. I can start there. Let me just talk about maybe overall reserves in general because I think that's a question that we'd love to address. And the way I look at it is we've had 30-plus years of all lines favorable development. And through the 9 months of this year were favorable. The quarter is favorable. Every quarter, we're getting -- I noticed we get movement to and fro. This quarter, commercial property work comp, very favorable. Obviously, commercial auto and casualty, we're having a little bit of a prior year. I think the one way I get really comfortable -- the data point that I'm getting comfortable with is, if you look at on an all-lines basis from each accident year from 2020 forward, our initial pick for each of those accident years has developed favorably as of 9/30. Now commercial auto has had maybe a little bit of a noise in it there by accident year. But we're profitable through 9 months on commercial auto. And I just feel like the prudent approach that we have taken, the consistent approach, the consistent team, we're just -- we're trying to stay ahead of that line of business that has a little bit of a temperature. Michael Phillips: Okay. Steve, I guess that's it -- I mean a little bit of a temperature. We've seen some companies take some charges, some not, but some, I think, more have than those that haven't. And so when we see kind of the decrease in your current picks that maybe has some -- for that line specifically, Steve, they make some worry that maybe down the road, some of that could reverse back and those PYD charges could increase. Anything in particular on commercial auto specifically that worries you or that you see that would give calls for alarm there? Stephen Spray: Yes. The one thing I look at there, too is, as you know, Mike, we're a package underwriter, a package company, typically small to mid-market. We don't write a lot of transportation business. We don't have a big heavy auto fleet. And I think some of the challenges, especially with severity that you've seen in the industry over the last several years has really come from that segment. So just in the book itself, I've got confidence over the long [ pole ]. And especially, again, we're profitable in 2025 here, both for the quarter and for the full 9 months in commercial auto. I don't know, Mike, if you want to add something here. Michael J. Sewell: Just real quick, Mike, just to put that $10 million of unfavorable development into perspective, about $7 million of it was from accident year 2019 and 2020. So a little bit older. Total reserves for commercial auto is approaching $1 billion. So when you kind of put it all together, like Steve said, I think we're -- we feel really good where we're at and with the reserving that we do. Michael Phillips: Okay. Yes. No, Mike. That's good color. I guess last one then, if we look at your -- the incurred loss detail by line for commercial lines, and this could be just an anomaly. But is there anything you're seeing -- so the large losses, $5 million and up kind of picked up. It looks like the largest in quite a while. Anything you're seeing on the large claims that is worrisome? Or is this more of a quarterly anomaly? Michael J. Sewell: I would say -- this is Mike Sell again. So let me just answer that real quick. For the current accident year, we had about the same number of large losses in total. There was 44 new losses in the current year versus 45 last year. So one less large loss. And again, that would be for a current accident year basis. But it's about $34 million higher in the current year than last year. That was led, I'll say, by both the -- or at least the increase was led by commercial property, homeowner -- or the commercial property was up $30 million, the homeowner was up about $27 million. But on the other side, commercial casualty was down $12 million and other commercial was down $12 million. So you've got some ups and downs, I would say, from looking at the large losses, there was no indication of anything that was an unexpected concentration. I'll say of the large losses, whether it was by risk category, geographic region, agency or field marketing territory. So there's just going to be some volatility from quarter-to-quarter, but nothing too exciting to point out. Operator: The next question comes from Paul Newsome with Piper Sandler. Jon Paul Newsome: Could you take Mike's question and insert general liability instead of commercial auto and maybe give us some thoughts there? Obviously, everyone is referring back to the selective bad quarter and their issues in both of those lines and it's fairly natural given that they've long throw themselves as peer of yours. Stephen Spray: Yes. Paul, I appreciate the question. Kind of what I was talking about before, where I get the confidence. One thing I would say, again, maybe kind of a bigger picture is I think it's well documented across our country, how legal system abuse is impacting all of us, including our industry, including Cincinnati Insurance. So that is certainly adding some pressure there. But again, let me go back to what gives me the confidence, and I'll specifically speak to casualty as well is just, again, a consistent process, we have consistent team, the overall all-lines track record of 30-plus years of favorable development, again, favorable for the quarter, favorable for the full 9 months. And then the other data point that I was really paying attention to for this quarter is just again, if you look at each of the accident years from 2020 and forward, if you look at our initial pick for each of those accident years, it has developed favorably on an all-lines basis as of 9/30, and that holds true for casualty as well. Jon Paul Newsome: Fantastic. And then a completely different subject, actually got some questions this morning on the investment portfolio. Ordinarily, I never ask about this because the credit quality in the book has been extraordinarily high for a long time. But just kind of looking at a couple of months, it looks like there may be some subprime borrowers in there. And just curious if there's been any change in the credit quality profile and any thoughts that you have about, I guess, like PrimaLend or whatever you got in there that might be a little different than what you've historically seen in the bond portfolio. Stephen Spray: Thanks, Paul. This is Steve. Overall, the strategy hasn't changed. Our focus has been more on the higher quality bond area. If we were involved in the high-yield area, it would be in the BBs. But for the most part, we're buying investment-grade quality bonds, attending to keep quality in the portfolio as opposed to reach for yield where we don't need to. Operator: The next question comes from Gregory Peters with Raymond James. Charles Peters: So the first question is just on the new business trends. And obviously, there's probably some price competition issues that are affecting some of your new business, but maybe you could speak to the results in the third quarter and what you think about new business going forward because it is a competitive marketplace. Stephen Spray: Yes. Thanks, Greg. Steve Spray again here. If you look -- first of all, I would say, feel really good about the new business numbers for all segments, all majors of our standard segments plus our E&S company on an absolute basis. And I -- admittedly, I hate saying there's a tough comp in the prior year. It sounds like an excuse. We don't do that around here. But if you kind of harken back to 2024, let me talk about talk about personal lines first. For the last couple of years, we've been talking about this once in a generation, once-in-a-lifetime hard market in personal lines. And 2024 was probably the peak of that. And we were able, as a company, because of our balance sheet, because of our financial strength, because of the relationships we have with our agents, we are able to take advantage of that hard market opportunity and really pick up the pace, I'd say, on new business growth or take advantage of that opportunity. A matter of fact, over the last 3.5 years, we've doubled our personal lines net written premium as a company. So again, hard market there, and we were able to take advantage of that. That new business this year is still strong. California is making a little bit of an impact there. But just on an absolute basis, personal lines new business is strong. Commercial lines, same kind of thing going. If you look at on an absolute basis, the new business dollars there are, again, very strong. And you're right, there's pressure from a competitive standpoint. But our underwriters, both new and renewal, are executing on our segmentation strategy and not giving up an ounce of profit over the long term for any short-term top line growth. So I just -- I feel on an absolute basis with the numbers, I feel really good about the new business, given the market. And I also feel good about, more importantly, how we're pricing and underwriting that business. And then our E&S company, the new business, again, maybe under a little bit of pressure. But on an absolute basis, it's something that I'm very comfortable with and think that our runway by appointing more agencies continuing to expand our appetite and expertise. I just feel good about where we're heading for the future on that. Charles Peters: Yes. You brought up in your answer California, and you also mentioned the once-in-a-generation hard market in personal lines. Given the events of the first quarter, the big fire loss in California, can you talk about how you're viewing California and the opportunity for growth in that state, whether it's E&S, personal or commercial or maybe even admitted as you think about the plans for 2026? Stephen Spray: Yes, absolutely. First, I'd comment that we've got great agents and policyholders in California. And as a company, we want to continue to be a stable, consistent market for them. As we've talked over the -- since the fire, we always do a deep dive on large losses and see if there's any lessons learned. And I think it's safe to say that we and the industry have an updated view of risk resulting from that fire. And kind of cutting to the chase on that for you, Greg, it really is around just updating the model view, conflagration, the sustained level of wins, and it's giving us a different view of risk on aggregation. And from my perspective, our E&S pricing in terms and conditions pre-fire even post fire, I look at them and say, very solid, really comfortable with where we were there. So we're focused on just a new view of aggregation, and our plans are already in motion and being executed from that standpoint. Now to your question on E&S Or Admitted and then commercial. As of 12/31 of '24, 77% of our homeowner premiums in California were already written on an E&S basis. You can expect that number will grow. We put some moratoriums in place for new business, while we were gaining our lessons learned, and we've begun writing some more new business in non-aggregation areas, as you might imagine. So I think E&S is going to continue to be a big portion of what we do in California going forward. Now commercially, we are not active in California on an admitted basis. And when I say active, we don't -- we're not appointing agencies in California from admitted commercial. We don't have associates on the ground in California calling on agents from an admitted standpoint. We did, just several months ago, enter California for commercial E&S business, and that's going well. It's early, but that's going well also. Charles Peters: I guess related to that answer, just on California, you said that E&S is still a focus for you for personal lines. Do you have any view on the regulatory framework around the sustainable insurance mechanism that they're trying to roll out? I guess the fact that you're focused still on E&S suggests that you're somewhat skeptical or cautious about that, but just curious if you have a view on that initiative by the politicians and the Department of Insurance. Stephen Spray: Yes. That's something we're watching closely, and we're continuing to work with the California Department of Insurance to say, in areas where we're not wildfire prone, in areas where we do write admitted business, our auto, our other coverages would be written on an admitted basis. The homeowners is primarily where you're going to find the E&S and just continue to work with the California DOI to try to get to a win-win for everybody. We -- like I said before, we've got great agents, and we've got great policyholders, and our claims staff just did an outstanding job through the fire. The feedback we got from agents and policyholders alike -- didn't surprise me, but it just validated everything we've done at this company, delivering on the promise for the last 75 years. California was a microcosm of, I think, everything we do well when things go bad. Operator: The next question comes from Mike Zaremski with BMW sic [ BMO ]. Michael Zaremski: Circling back to -- I was trying to think of a joke at BMO, obviously. Circling back to the capital investment portfolio questions. Steve, you started out saying -- talking about the strength of investment income from the rebalancing last year, I guess we can see the equity markets have been extremely strong year-to-date, which has helped you all. I'm just trying to understand is, there a fast and hard kind of ratio that if the equity markets still keep going up, you'll need to do another rebalancing? And just related has Cincinnati's view of excess capital changed at all in recent quarters? Steven Soloria: Steve, this is -- sorry, this is Steve Soloria. In regards to the equity portfolio, we have always managed and trimmed around growth in individual names or sector exposures, kind of adhering to our investment policy statements. We continue to evaluate it. Last year's move was kind of a compilation of a lot of internal discussion, but a lot of external factors driving our action. Our initial decision to trim was a typical one that we would have, and it just kind of grew as we began to look at external factors like the upcoming election, potential tax rate changes and the implications for the capital gains we might have to pay. So there were a lot of external factors driving it, which made it a big -- a larger bite of the apple, so to speak. I wouldn't take it off the table moving forward, but there -- those external factors aren't weighing on us right now. So we'll continue to kind of manage it more at the individual security and industry level where we need to just trim to manage the portfolio. I'll kind of leave the capital management discussion for a different audience. Michael Zaremski: Yes. Got it. I guess just sticking with excess capital in the U.S. portfolio. From the outside looking in a high level, Cincinnati would appear to have very large excess capital position. But would you not agree with that because the regulatory framework or your internal model would say, hey, you need to factor in a big equity market decline that stays there for a period of time. So you're really just effectively not holding excess because you want to have that money for potential worst times in the equity markets? Michael J. Sewell: Thanks for the question. This is Mike Sewell. Really, our capital position of how we manage capital really has not -- I'll say, has not changed. We think of it there's 5 ways to invest your capital. And our #1 is invest in the business. So we're holding enough capital to grow the business. We've gone through those details with whether it's Cinci Re, CGU, California, et cetera, et cetera, E&S business. That's our #1 use of capital. We do think, obviously, of dividends that we pay to shareholders, buybacks and other things. But there are some regulatory requirements that we watch to make sure that we don't hold too much equity securities, and we're well within any parameters there. So I think it's been a winning strategy what Steve Solaria has done with the portfolio. And looking at the results this year, I think it's been very exciting, and I'm excited to see what we do with that capital as we grow our business for the remainder of this year and '26, '27 and beyond. Michael Zaremski: Got it. And lastly, moving to the commercial competitive environment, probably not E&S, let's just say, traditional standard commercial. A lot of questions fielded all around on kind of the cycle. No surprise, right? You talked about pricing power decelerating a bit sequentially. Should investors, I guess, be prepared for pricing to continue to decel on average in the coming years, just given the health of the industry and Cincinnati included? Or is there a dynamic on loss trend, right? You've got a lot of questions on casualty flare-ups and a little additions to reserves? Or is there a dynamic on loss cost trend that we're not appreciating that might kind of keep this cycle from looking like many previous soft cycles? Stephen Spray: Yes. Thanks, Mike. Yes, I'd say on the commercial standard, the admitted business, I would call the market -- it's competitive, but I would still call it rational, stable. I think there are still loss headwinds for our industry that impact that commercial, severe convective storm or just cat losses in general. Q3 was a light cat quarter, but let's look at a full year and just the trends that have been going on with catastrophes. I think the legal system, we talk about legal system abuse or social inflation, however you want to look at that. I think that is still facing us as an industry and certainly here at Cincinnati Insurance, we're paying attention to it. So I think we're still in a favorable rate environment. Now for us, specifically at Cincinnati, it literally -- we talk about this all the time, and I think it's key is it's -- we're underwriting and pricing risk by risk. The next risk in front of us is how we're viewing it. Now maybe on a -- and I won't speak necessarily for the go forward for the industry. But I can tell you for Cincinnati, our net written premium growth for commercial lines here was, I think we announced 5%. And commercial lines, again, standard admitted commercial lines, 13 consecutive years of underwriting profit. And our underwriters working with our agents, executing on a segmentation strategy or just doing -- they're doing exactly what we ask of them. And as that book continues to perform well, I think it's reasonable to understand that the price adequacy of the book continues to improve. And just as we ask our underwriters to take appropriate action on the business that is, we'll call it, least adequately priced. We tell them to, on the other hand, that business that's very adequately priced, do what we need to do to retain it. So as that book becomes more and more adequately priced, and we are executing on that segmentation strategy. I think what you're seeing is some pressure on the average net rate. Does that make sense? Michael Zaremski: Yes. Yes, it does. I guess, we're all trying to figure out if others are also feeling like they've re-underwritten well enough to kind of do the same. But clearly, you guys are in a great position. Stephen Spray: Yes, Mike, I would make -- I'd just make sure I'd make a point that it's -- for us, it's not a re-underwriting. This is what -- this is the strategy that we've been executing really for the last decade that has served us well, and we're going to stick to it going forward, too. So it's profit first and stable, consistent financial strength for our agents and policyholders over the long pull, which comes with a modest underwriting profit. Operator: The next question comes from Josh Shanker with Bank of America. Joshua Shanker: Obviously, the growth, even though it's decelerating, it's still better than most of your competitors. A lot of that is due to the significant increase in agency appointments and whatnot. Is there anything you can do to help us to sort of disaggregate how much of the growth is expansion into new agencies and how much is further penetration into the agencies you already have? Stephen Spray: Yes, Josh, it's Steve again. We -- I forget the exact number that we disclosed as far as how much the new agency appointments have impacted new business. But what I will tell you there is we've got a proven strategy, I think, of really knowing how to underwrite agencies and that agencies and do business with the most professional agencies go into an agency out in the field and find agencies where we're aligned and be very deliberate about expanding the distribution. And then we build deep relationships with them. And when we onboard an agency, you've seen one agency, you've seen one agency to be perfectly candid, that some will take off faster than others. But what we focus on is the relationship that we have with those agencies. I guess a long-winded answer way of saying this is a long-term thing for us. So can we see an uptick in new business quarter-to-quarter from the new agencies we appoint? Yes. But that's not what we're focused on. We're focused on these relationships and making sure that we're aligned and that we're deepening the relationship. We're giving each one of these agencies, what I call, the Cincinnati experience and then over the long haul, the premium, the growth will take care of itself. Joshua Shanker: The Cincinnati experience, I remember when I started covering the second, I think you had 1,600 agents. And in the last 9 months, you've appointed 355. Part of that experience was the direct relationship with the agents in a very intimate manner. At this level of growth, how are you maintaining that cultural part of what the Cincinnati agency experience used to be? Stephen Spray: Yes. Thanks, Josh. I think it's all relative. And you're right, we were at 1,600. Now we're at say roughly 2,300 agencies. And if you look at us relative to our peers, we still have an extremely exclusive contract. And agencies run in different circles. Agencies have different centers of influence. They write -- 2 agencies in the same town obviously write different business. And we've got plenty of room to continue to expand the distribution to keep appointing agencies across the country in our footprint and not dilute that franchise. The franchise value, I think, is the -- like you said, the Cincinnati experience. And by that, I mean, associates on the ground in the community where the agents are calling on them on a regular basis, making decisions locally. That's the Cincinnati experience. And we can repeat that over -- even continuing to add more and more agencies. And we've seen over the last several years as we've added more agencies in our current footprint, that our relationships with our long-term partners stay solid. In many cases, we continue to grow even more with those agencies. And then now we've picked up an additional partner and we get access to the book of business that they have. So we're going to be -- I don't want to be willy-nilly about it, Josh, at all because it's anything but that. This is the same thing we've done for 75 years in partnering with professional agents. It's just that we are picking up the pace a bit. Joshua Shanker: Would you expect to have more agency appointments in 2026 than in 2025? Stephen Spray: Yes. We haven't put out any goals on that. The last thing we want is just to be appointing an agency to be appointing an agency. We ask every single one of our field reps, 185 of them across the country to know every single independent agent in their territory and make sure those agencies identify those agencies where we are most aligned. And when it's time to make another appointment for whatever reason, they go ahead and do that. So we're not putting out any goals. We're not putting any additional requirements on the field reps or just adding more territories. That's one key to it is we're not going to -- our field territories right now, our field reps average -- they call on an average of about 14 agencies. We don't see that changing over time. Again, the same Cincinnati experience, just more of the same. Michael J. Sewell: Josh, let me just mention on Page 42 of our 10-Q, we do give some information on premiums by new appointed agencies in '25 and '24. Operator: [Operator Instructions] The next question comes from Meyer Shields with KBW. Meyer Shields: Great. I wanted to get a sense as to how you're thinking about catastrophe reinsurance for 2026. And I don't know whether that thought process has changed from early in the year when we had these very significant fire losses to more recent periods where catastrophes have been benign. Stephen Spray: Yes. Thanks, Meyer. Steve Spray again. Obviously, we are in the throes of renewal season, specifically for property cat cover. Just as a reminder, right now, we have a $200 million retention on any individual cat event and then we buy 1.6 x of that $200 million of the tower. Without committing to what we're going to do on 01/01/26 because that's not been finalized, I can say that we will remain consistent in the way that we purchase property cat cover, and that is for balance sheet protection. We talked a little earlier about our strong capital position. We believe in underwriting and pricing our own business and sharing in the losses. So over time, we've always continued as we've grown and as our capital position has grown, we've moved up in retention, and we continue to buy more on top of the program for that -- again, for that balance sheet protection. And so that philosophy, that strategy will not change. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Steve Spray, CEO, for any closing remarks. Stephen Spray: Thank you, Chloe, and thank you all for joining us today. We also look forward to speaking with you again on our fourth quarter call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Björn von Sivers: All right. Let's kick this off. Welcome to VNV Global's Third Quarter 2025 Report Conference Call. On the call today, we have Per Brilioth, CEO, and Dennis Mohammad, Investment Manager, and myself, Bjorn Von Sivers, CFO of the company. I'll start with the high-level numbers of the report. And following that, we'll start with the portfolio overview that Per will run. And as a reminder, in the end, we'll open up for Q&A and easiest to do that in the Q&A function here in the Zoom. I will address those questions towards the end. Let's start with the numbers for the quarter. So as per September 30, our NAV stood at $587 million or USD 4.52 per share, which is down roughly 1.1% in dollars over the quarter. In SEK terms, NAV is about SEK 5.5 billion or SEK 42.5 per share, down 2% from the previous quarter. For the 9-month period, NAV is up in dollar terms, 2%, but down close to 13% in SEK given the large FX movements during the year. If you move to the next slide there, we have an investment portfolio that amounted to $652 million, consisting of roughly $581 million of investments and $71 million of cash and cash equivalents as per quarter end. Borrowings totaled roughly $91 million as per September 30, but we'll come back to that a little bit later. As you see here in the slide, we continue to trade at a material discount to the NAV. The share price as of yesterday was around SEK 23.60 per share, implying a 44% discount to NAV. I could highlight here that during the quarter before the blackout period, we did repurchase approximately 1 million shares before heading into the blackout period. And if we move to the next slide, just a short section on the main contributors to the fair value change. Largest company continues to be BlaBlaCar, valued at $184 million, our position, model-based valuation down 8% over the quarter or roughly $15 million. Voi also model-based valuation is valued at $137 million, up 7% or $9 million during the quarter. Numan is valued at $37 million based on transactions, so flat. HousingAnywhere valued at $36 million, model-based valuation down roughly 11% over the quarter or $4.3 million. Breadfast on transaction based $30 million, so flat. And finally, of the 6 top companies, Bokadirekt valued at $27.8 million based on the model, which is up roughly 18% over the quarter. All in all, these 6 names represent close to SEK 33 per share in aggregate or approximately sort of 77% of the NAV. And if we move to the next slide, finally, before jump -- handing over to Per, I thought given the plenty of developments in early Q4, we sort of highlight that the cash and debt movements post quarter ending. So again, we ended up Q3 with $71 million in cash. Post quarter ending, we received $9 million from the Tise exit and is expecting the remaining sort of $26 million related to the Gett transaction shortly. On October 3, we also completed a partial bond redemption of roughly $46 million. So resulting in sort of adjusted or pro forma cash position of $61 million that will take us to a positive net cash balance of approximately $16 million. With that, I thought I'd hand over to Per to go through the main developments and the portfolio companies during the quarter. Go ahead, Per. Per Brilioth: Thanks, Bjorn. And yes, picking up on that. So what you see on the left-hand side here is the actual portfolio as of the actual end of the quarter, and the one on the right is -- which looks pretty much exactly the same, but that has all these adjustments that Bjorn just went through, including paying down half the bond. So $16 million of net cash now feels great. We've sort of finally gotten out of this sort of debt overhang that we've had, and we move into a new investment phase, which we're all very excited about. Now I will touch upon these sort of main constituents on the portfolio in this call. So BlaBla, Voi, Numan, I think also Breadfast, what we -- there's not much to say about Housing, but I'd use this sort of landing page to just say that Housing down 11% is not -- is driven a lot by Airbnb. As you know, HousingAnywhere is like an Airbnb type of business in Europe. But in contrast to Airbnb, which is sort of weekends and 1-week holidays kind of thing, this is more medium-term rentals in Europe. And so Airbnb is just a very good peer. And so -- but hasn't -- for whatever reason, hasn't done so well of late in the stock market. So it's been -- it's had some impact on the parts of our portfolio, BlaBlaCar, too, but Housing, especially. Housing in general is doing fine. New management, I think we've talked about that before, which we're very excited about, and they're getting ready to sort of produce some serious growth there, which will be very exciting. But if we go on, the portfolio is, as Bjorn talked to you about, carries an NAV, which has our shares trading at like a 44% discount. We move into new investment phase, and there's just nothing better that we can invest into than the portfolio that we know so well and that we're so bullish about, even from the NAV level, you can buy that at sort of 45%, 44% -- 40% to 50% discount, that's -- it's very hard to find anything that matches that. So when we did get this cash taking us to net cash, we did restart this buyback program that we have been such large participants in over the past decade or so. And that feels really good. So 1 million shares -- around 1 million shares bought back before we went into the blackout and that continues now that we're out of the blackout. We are -- it's difficult to pinpoint down why this discount is there. We -- in some ways, we think it's great because it's a good opportunity for us to sort of invest our shareholders' cash in. But one thing maybe was the debt. The debt is now behind us with net cash, I mean, we paid down half the bond and the other half remains, but we have cash to pay that down. So we're in net cash. So maybe the news of that just takes a little while to work itself into the market. But we also -- this kind of discount sort of in our minds sort of may be reflective of a situation which is stressed for something, maybe stressed for cash. Maybe there's a portfolio that's in needs of cash. That's not our portfolio. This portfolio is roughly 80% of it is EBITDA positive. We carry Voi in this figure here with an EBIT positive. We talked about that before. You need to talk about EBIT at Voi. The rest of the portfolio, they don't depreciate and carry these sort of fixed assets that Voi does. So you can talk about EBITDA. But yes, and this is down somewhat when we're taking Gett out of the portfolio, but it's roughly the same. It's just a few percentage points behind -- below 80. So this is not a portfolio that is in sort of dire needs of large cash investments just to maintain our sort of ownership in these companies. On the contrary, it's a portfolio that sort of has over these past years and continues to sort of be profitable and beyond that, also a very growing profitability. We showed this at the CMD, and we like just to remind people that the growth in the portfolio and this is that the revenue level is accelerating between '24 and '25, you're looking at 40% plus growth. This shows you our pro rata of the top 6 companies. And so -- and in fact, and we don't have that here, but if you -- if we allow ourselves to with sort of -- very sort of [ sustained ] projections, look 2 years out, the earnings growth profile of these companies has grown to a level where if you compare our pro rata of these 6 companies EBITDA, EBIT for Voi and you compare that to the market value of VNV, you're looking at -- we're trading at an earnings multiple of 10 for these 6 companies. And then you get the rest, the remaining sort of 50 companies or so for free. And these companies are not worth 0. These are -- they may be smaller stakes compared to BlaBla, Voi, Numan, et cetera. But Flo, as you know, raised money at $1 billion from General Atlantic. Oura just made a big round. Ovoko is Europe's leading car -- marketplace of spare cars -- for car -- for spare parts for cars, et cetera, et cetera, et cetera. Tise, we just sold to eBay. So this portfolio, which you get for free, if you think with a multiple of 10 is really not -- is a portfolio that's very much alive and doing quite well. And also back to the sort of -- yes, it's difficult to value unlisted assets when there are no perfect peers in the listed market. But also within this sort of the rest of the portfolio kind of notion that we're talking about now, we have had also markups over this last period where -- I mean, there's been transactions in these 3 names, for example, which have been at a material sort of higher mark than where we were carrying them at. Tise was for cash, an exit to eBay. YUV, the company that's disrupting hair colored industry, as we know, big EUR 100 billion sort of industry. YUV is disrupting that. They raised money at a material uptick from where we had it. And Oura, of course, we have a very small stake in this wearable -- huge wearable company, but they did raise money, and they raised it at a large sort of premium to where we're carrying at. So it's good that we're -- we think there's upside in our NAV. Just a few points on BlaBlaCar. We sort of -- a reminder, I think everyone knows what this is. But one way to look at this is that it's a marketplace for long-distance travel. So there's a supply of cars, but also buses and in some smaller way, but also trains, all suppliers of long distance sort of means of travel. And they meet a very, very fragmented demand base that is looking to sort of travel long term. I think those of you who have sort of followed us for a while, I think you'll recognize this picture, which I think is especially good. This is if you come to the BlaBla office, this is sort of in the entrance. And every little dot here shows you sort of basically a BlaBlaCar trip happening. And so you can see sort of that across Europe, of course, with a heavy sort of emphasis on France, there's just a lot of activity going on. But importantly, also in emerging markets, and we sort of highlighted India here, you can see sort of patches of large activity, especially in the North, Mexico, but also Brazil, a lot -- especially along the coastline. We don't show Turkey on this map, but there's just 150 million passengers in 2025. I mean we haven't closed this year, but we're looking at that kind of figure, which then is sort of the calc of -- that this is every second 5 empty seats are filled. It's a fascinating thought. And yes, we -- the other thing that's important to sort of remember in BlaBlaCar is the sort of premium service that they sell. In some routes, there is increasing competition from city center to city center. This you can -- at some parts of the year, you can find cheap tickets to go by train, for example, from Paris to Madrid. Now those train tickets are probably below cost. So I don't know how sustainable they are. But importantly, sort of I think it's worth sort of -- for us to sort of double-click on the fact that BlaBlaCar is not city center to city center. It's of this -- as you see on this picture, it's from Quevilly, which is like this little town outside Rouen, and it's a trip from that little town outside Rouen to Orvault, which is a little town outside Nantes. And if either you take a BlaBla, a carpool product, takes 3.5 hours, cost you EUR 25. Your alternative is this 4 stopover sort of journey. You have to take the bus into Rouen, the bus into Paris, metro inside of Paris to go to -- from Saint-Lazare to Montparnasse, train down to Nantes and then another bus to Orvault, takes 6 hours, cost 4x more. So this is why -- and I've been using the service of late just to get reengaged with it. And this is what the customers of this company love so much. It's cheaper and it's just so more convenient. Just summing up, there's not that much going on around BlaBlaCar in the quarter. We marked it down a little bit. Multiples were down -- I mean, peer group multiples were down. Airbnb is, of course, a big sort of a very logical contributor to how we mark this. And we -- and as I was talking about earlier today, it's also where -- and we'll come back to Voi, Voi is sort of growing, and it's growing in sort of money, revenues and earnings. At BlaBlaCar, there's an enormous amount of growth happening, but it's not growth that sort of transforms itself into money and revenues and earnings over these next 12 months. We look out on the next 12 months. But Brazil and India, which we show here just contribute a lot to this enormous growth of passengers. Passengers grow when there's enough liquidity on the marketplace, this enormous GMV that you have in just these 2 markets will allow the marketplace to start to monetize. And then this not only grows in revenues, but it grows in revenues that falls directly down to the bottom line. So this being marked down does not mean that we're less enthusiastic about the prospects of this company. And as we go forward and as these unmonetized markets, which carry a GMV to the order of $0.25 billion, as that starts to be monetized, we'll see a market -- that -- the growth will transform itself into something that you can pick up in a financial model over the next 12 months, which doesn't capture all the stuff that's going on at the company today. With that, I thought if Dennis, if you could take us through a few words on what's going on at Voi. Dennis Mohammad: Yes. Thank you, Per. Voi has had a very strong performance this year with, as Per alluded to, revenue growth accelerating while margins have expanded significantly, which I'll get to in a minute. Looking at the VNV valuation in Q3, our EV/EBITDA model is up on Voi this quarter. While the peer group multiple is actually down, as a reminder, the pre-discount multiple, which you find in the report sits at 14.4x next 12 months EBITDA. And then we always take a 10% to 30% discount. So the multiple in use is not higher than 13x next 12 months EBITDA for Voi. But the company's strong performance has increased the outlook, and our model is therefore up around 7% in Q3 for Voi. This improved outlook is, I should say, further confirmed by the EUR 40 million bond tap, which the company completed a few weeks ago, which is funding 2026 vehicle CapEx. The bonds were placed above par at a price of 104.75% of the nominal amount, which corresponds to roughly 500 basis points until maturity, given that the original framework carries a floating interest rate of 3 months Euribor plus 675 basis points per year. And then the EUR 40 million will be used to buy new e-bikes and e-scooters for 2026. In Q3, the company continued to win tenders in cities such as Edinburgh, Essex and Glasgow and a couple more. But perhaps most importantly, and as Per alluded to in the Management Director intro to the report, we have now launched the e-bike offering in Paris. Paris is a tender we won earlier this year. But as of October 1, Voi is now operational with the e-bikes in Paris. And just within 2 weeks, Paris is already a top 10 city for Voi, and we expect to become the company's largest city with double-digit euro -- millions of euros in revenue contribution. We're very happy not only about the win, but also about the very strong start in Paris. Last on this slide, as you can see on the right-hand side of the slide, Voi actually yesterday announced that they have reached 400 million rides since inception. It took the company roughly 8 months to get to the first 1 million rides. I was working at Voi at the time, so I witnessed it firsthand. It then took around 3.5 years to reach the first 100 million rides, and Voi has now completed the last 100 million rides in less than a year. So yes, really compounding at its finest, as you can see on the rightmost graph here. If we switch to the next slide, what is very encouraging is that this growth in usage is also reflected in the P&L. As seen in the leftmost graph, revenue growth has accelerated significantly in the last 12 months ending Q3 of 2025. Voi has delivered around EUR 163.5 million of net revenue, driven by an increase in the fleet size, which you can see on the line graph to that graph, but also an increased revenue generation per vehicle. So we're actually generating more, if you will, like same-store sales despite increasing the fleet quite significantly. The company has grown this top line while expanding the vehicle profit margin. This is the second graph that you're seeing on this slide, and this is the margin after charging, logistics and repair costs, essentially the gross margin of the business, which now sits at 59%, an improvement that's driven by both improved vehicles, but also just continuing to hone operational excellence at Voi and heavy usage of data and everything from predictive maintenance to fleet allocation decisions to make sure the fleet is where the users are at all times. We're also seeing a significant increase in the adjusted EBITDA growing to EUR 28.3 million, which is approximately 17.3% margin in the last 12 months, primarily driven by the fact that central overheads have essentially remained flat. I think they're even down a bit despite this growth on top line, really showing the operational leverage in Voi. Looking at EBIT -- adjusted EBIT, the company has delivered around EUR 5 million of adjusted EBIT at a roughly 3% margin in the last 12 months, and we're seeing this margin expanding significantly year-over-year as well. This was negative in the previous LTM period. The last thing to highlight on Voi, which is not shown on this slide, is that cash flow from operations grew roughly 67% in Q3 alone this year, reaching an all-time high of EUR 19.8 million of positive cash flows. One should remember, this is a seasonal business with Q3 being the seasonally strongest quarter, but it is very encouraging to see Voi delivering almost EUR 20 million of cash flows in a single quarter and a real sign of strength for Voi. That was all I had on Voi, but I think I'll continue with a couple of words on Numan. As a reminder, Numan is a U.K.-based online health clinic offering personalized care on one digital platform to do everything from clinical guidance, medication, diagnostics and supplements. And I would say the biggest therapeutical area today is weight loss, primarily through GLP-1 medications and has been for the past 2, 3 years. Operational momentum remains very strong at Numan. The company grew around 130% last year with positive EBITDA and is on track to deliver similar growth in 2025, also with positive EBITDA. So looking over the last 2 years, we're looking at more than 5x growth on top line for this business. As already covered last quarter, they secured around $60 million of financing in Q2, consisting of both an equity round led by Big Pi Ventures and a growth debt facility from HSBC Bank. With the new funds raised, the company is now looking at investing into their platform and diversifying revenues and expanding their footprint. And in Q3, VNV values its stake in Numan on the back of this transaction. As a heads up, since the transaction is denominated in Great British pounds, our USD mark of Numan is down around 2% this quarter, but this is driven solely by FX on a GDP basis, the valuation is unchanged since it is on the transaction. Last, during the quarter, just worth highlighting, Eli Lilly increased their prices on their GLP-1 products. And while this at least initially created some volatility in the market, the impact on Numan has been quite limited, and we're happy to see that the company is trading in line with their ambitious budget year-to-date. That's it for me. Per Brilioth: And then finally, a few words on Breadfast from Bjorn. Björn von Sivers: Yes. So Breadfast, just a reminder, is our investment in the leading brand for online groceries and household essentials in Egypt. The company is continuing to grow really, really well, accelerating growth as of sort of August here, 2025, at the annualized gross transaction value, sort of gross revenue of $119 million. And the top right graph here shows that GTV development over the last few years in constant dollars. And more importantly, sort of this development is coupled with improving unit economics. So the below graph to the bottom right is the average store EBITDA or contribution margin 3, as they call it. And here from sort of an average 3% profitability level, it's increased by just being more efficient on costs and operational efficiencies to 10%. Breadfast also raised an additional $10 million during the summer from EBRD as part of their larger Series B2 funding round that kicked off earlier this year. And then also interesting and very exciting development is that they in early October, launched their fintech offering more broadly with the Breadfast Card, which is a sort of prepaid debit card, which will allow their users to use sort of the Breadfast platform also outside Breadfast's core offering. We're super excited about the company, and they continue to sort of go from a clearer to clearer path, coupled also with a more stable macro now in Egypt. So very exciting. Over the quarter, we valued this on the basis of this recent transaction at $30 million. With that, I thought I'll hand back to you, Per. Per Brilioth: Yes. I think that sort of concludes what we'd sort of talk about. And then we can move to Q&A. And Bjorn, do you want to remind people again how that sort of works? Björn von Sivers: Yes, sure. And also, as I said in the beginning, easiest is to use the Q&A function here in Zoom. I will try to go through the questions one by one. And I'll start with one here. Are there any of your current portfolio companies where there are upcoming funding rounds that you would consider it attractive to participate in and to increase your exposure? Per Brilioth: Well, in the larger ones here, there are no funding rounds really sort of planned right now. So that's really not that relevant. But in the smaller ones, there will be the odd one, but that we think -- that where we would participate, but those check sizes are really, really quite limited. So for the size that sort of matters, it's not really sort of on the table. So it leaves us with the cash liquidity to sort of buy back stock instead. Björn von Sivers: Good. And sort of a follow-up here, so that -- given that you're now in a positive net cash position, would you say that you're still focused on divestments and exits? Or will that activity sort of slow down going forward to more investing? Per Brilioth: Yes. I -- I mean, there are some things in the portfolio where -- which might lead to sort of more exits, but it's not really driven by us. It's more if a company sort of gets taken out like Tise, for example. I mean we were not sort of -- Tise marketplace growing very well, a good company and everything, but eBay came in and bought the whole company at -- well, way above our mark. So in terms of where in relation to the market, it's all good, and then they may still do a very good deal out of that. But -- and there's some stuff like that still going on in the portfolio here and there. But it's not that we are sort of actively sort of pushing anything out. I mean we -- the big exits that we've done that completed this transformation from being in debt to now being a net cash was essentially Gett and Booksy. And we still think that the -- those 2 sort of exits were done at decent sort of return profiles for us and decent marks. So not -- and also done in proximity to -- both of them were done around NAV. So yes, but -- anyway, sorry, the short answer is that there's no -- nothing sort of -- there's no exit that we're going to announce on Monday. Björn von Sivers: And then there's a few questions here on BlaBla and the first one. So do you have any sort of time line on the monetization in the newer markets such as Brazil and India, which has been in the media as of late? Per Brilioth: No. I mean the monetization, I mean, first out of Brazil is sort of starting now, but it's -- but as we remember also from monetizing sort of other marketplaces in emerging markets, it sort of starts small and then it increases over time. And then one can also sort of monetize this route and not that route and this region and not that region, all depending on where liquidity is at a level which -- where it becomes sort of conducive and good to monetize. So if I -- if you sort of ask me for a time line when those markets are fully monetized, sort of fully monetized as sort of maybe carpooling in France, which we're looking at like a take rate of 30% in some -- on some -- yes, 25% to 30%, then you're looking at definitely -- I mean that's probably like 4, 5 years out. In the meantime, the emerging market sort of GMV, which is today, call it, $0.25 billion will be much, much higher. And if monetization starts today -- I mean monetization can still start much earlier than that. But when you reach sort of take rates that are similar to France, it will take a few years. But we will -- as we go over 2026, when we talk again quarter-by-quarter, well, Q4 '25 and then into '26, I would endeavor to say that you'll have much more sort of visibility on how this has started, et cetera. So yes, we -- emerging markets, we have a lot of experience in emerging markets and see that the marketplaces in emerging markets can be monetized in ways that is very similar to developed markets. That's certainly the case for classifieds, and now BlaBlaCar is sort of a frontier product. We only see how excellence in monetization looks like in France and that market is, of course, solely sort of operated by BlaBlaCar. And so there's no sort of listed peer to point at. But if you're within the company, you see that this has a fantastic potential to monetize very well. And we feel that and know from experience that one should be no sort of stranger to monetizing emerging markets in similar sort of fashions to developed markets. We -- and within the portfolio, we have one country that is monetized and that is generating very large revenues and earnings for BlaBlaCar and that's Turkey. So Obilet in Turkey is -- that's probably like a $400 million, $500 million value if you'd sell that company today. Will Brazil and India be $500 million? I mean there will be much, much more if you give it a few years. So huge potential there. Sorry, I'm rambling on way off the question. Let's talk about another question. Björn von Sivers: Yes. And those were -- sort of a final question that we received from a few participants here on BlaBla as well is if we could provide some additional color on the sort of markdown over the quarter of 8%. What's the primary driver behind that valuation change? Per Brilioth: It's a mix of Airbnb type of companies being down. I think Airbnb is a big -- it's a very natural sort of peer to look at sharing economy, travel. So for those of you who follow that market closely, you'll see that, that's sort of not been -- I mean, that's down over the quarter, this last quarter. And the other one is still sort of adjusting the company, especially in Europe to a little -- we're in an adjustment period basically to where we see sort of growth and look like in Europe. So it varies a little bit from quarter-to-quarter that outlook. But once those adjustments are down, then we really see sort of the potential for pickup in sort of growth and activity. We expect the company to show a strong EBITDA this year. We expect that EBITDA to grow significantly to next year and to grow significantly the year after that. So that kind of growth will work itself out -- will work itself sort of into the way this company is valued as well, I'm sure. Björn von Sivers: Good. And then sort of another portfolio-related question here on Voi. Is there anything additional color you can provide around sort of a potential IPO or when Voi becomes ready to sort of go to public markets or similar? Per Brilioth: Sure, sure. Yes. No, Voi is sort of internally ready for an IPO, has been for quite a while. It's really run like as a public company. And of course, you can even say that it is -- I mean, it is a public company today since their bonds are listed, and they produce sort of quarterly accounts to the requirements of the stock exchange here in Sweden. So they are ready to list their equity, but they don't have to list their equity. They're funding themselves well in the debt market. They're -- it's turned EBIT positive. So they -- I think it's fair to assume that Voi will list itself if it makes a lot of sense for them funding-wise. And the way I see it is that what we have ahead of us is supposedly an IPO of their biggest competitor, Lime. Now Lime has -- there's been talk about IPO-ing Lime on Monday for the past 10 years -- no, 2 years or so, 18 months maybe. But -- so there's been a lot of talk, but it's never happened. From what we understand, Paris is a big market also for them, and the sort of renewal or loss of their license in Paris, which worked out to be a renewal, I think would have been an important thing to sort of have behind you if you wanted to go to public markets. So now that that's done, and there's still -- I mean, it's basically Voi and Lime and one more in Paris. But it's -- you can see across Europe, it's basically Voi fighting Lime and the other way around. So with that behind you, I mean, there's now much more noise about an IPO of Lime. And if IPO Lime and -- if Lime IPOs, sorry, and that becomes a successful IPO giving them access to a certain cost of capital, it's sort of fair to assume that the part of the industry that is ready to IPO will also IPO to sort of get the same cost of capital. So a successful IPO of Lime could be something that accelerates an IPO of Voi. That's just me. We own 20% of the company. There's lots of other voices around that. But I think that's the way to look at it. And -- but Voi doesn't have to IPO. It controls its own destiny, it can fund itself in the bond market and the private equity markets. So we'll just -- we'll look out and see if Lime IPOs and how that IPO goes. That will be interesting. Björn von Sivers: And then we have another question here on buybacks. Now with a bit more liquidity on our hands, how do you see buybacks going forward? Per Brilioth: I think you should assume that we will do buybacks like we've done in the past. I mean we bought back, and we distributed like $700 million -- is $750 million over the past 10 or so years, mainly through buybacks. And if you've sort of seen how we've done it over the years, we haven't chased the stock. We've bought on down days and picked up here and there. We're not doing this to sort of set the price of the stock. We're just using the opportunity that the market is giving us where we can sort of buy this portfolio, which we love and where we think there's a significant return profile at very reasonable risk. And from the NAV level, if you could buy that at a 40% or so discount, it's just hard to resist as an investment opportunity. So yes, Gett cash coming in, us moving to net cash, sort of restarted a buyback sort of period. We bought back about 1 million going into the blackout of this report, and we'll get going again now. So -- but there's nothing that we've communicated, and there's nothing -- we're not going to -- it's not as if we're going to buy back x amount of dollars or x amount of shares until Monday or next year or something. We'll just be very optimistic about it. But right now, there's nothing sort of material that we can do better than to buy back our own stock. Björn von Sivers: And then I think sort of we touched upon essentially all questions, but one final here. And that is sort of if you can pick 1 or 2 of your smaller holdings today that you think have the potential to become a new Voi or Avito in the portfolio and a meaningful contributor, which would you highlight? Per Brilioth: Well, I mean, if that sort of excludes the ones that show up on a pie graph like this because -- I mean, it's difficult to choose amongst your children. I mean I actually think BlaBlaCar has a fantastic potential. I know we're sort of -- it's been a tough few years with all these sort of environmentally sort of related revenues getting out of their mix and et cetera, et cetera. But if you exclude those, I mean, we have a few companies in this other part of the portfolio. And one that stands out is actually -- and we talked about it before. I think they've been part of our CMDs in the past, but you should look at Alva, which is one of the -- which is like an HR tech company here, and they're based in Sweden. It's run by some Avito alumni and some others. And so management is just excellent. We think they are very, very capable. They're sort of very, very focused on their product here, which is sort of basically LinkedIn 2.0, a CV is a crude way to sort of find the best employee and then for the best employee to find the job. They have a new way of doing that, which we think has got a lot of potential. So that we want to pick up on. And we'll also make a note to make sure that they may be present at the next CMD. We actually thought that we'd sort of not -- in these sort of quarterly reports, not only have you listened to us 3, but that we'd also maybe make some room for people like Alva, for example, to sort of talk about shortly in condensed way what they do and what's important for the next 12 months, et cetera, et cetera. I think -- yes, I think that will be interesting. Anyway, I'll pick Alva amongst all the children, but -- yes. Björn von Sivers: Great. Thank you. I think we've sort of touched upon all questions. If we missed one, please reach out offline, you know where to find us. Any final remarks, Per? Per Brilioth: No. Thank you, everyone, Bjorn, Dennis and everyone listening in. And we'll see you around. Yes. Björn von Sivers: Thank you. Dennis Mohammad: Thank you.
Operator: Good day, and welcome to the Ramaco Resources Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jeremy Sussman, Chief Financial Officer. Please go ahead. Jeremy Sussman: Thank you. On behalf of Ramaco Resources, I'd like to welcome all of you to our third quarter 2025 earnings conference call. With me this morning is Randy Atkins, our Chairman and CEO; Chris Blanchard, our EVP for Mine Planning and Development, and Mike Woloschuk, our EVP for Critical Mineral Operations. Before we start, I'd like to share our normal cautionary statement. Certain items discussed on today's call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent Ramaco's expectations concerning future events. These statements are subject to risks, uncertainties and other factors, many of which are outside of Ramaco's control, which could cause actual results to differ materially from the results discussed in the forward-looking statements. Any forward-looking statements speaks only as of the date on which it is made, and except as required by law, Ramaco does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. I'd also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss today in our press release, which can be viewed on our website at www.ramacoresources.com. Lastly, I'd encourage everyone on this call to go on to our website and download today's investor presentation. With that said, let me introduce our Chairman and CEO, Randy Atkins. Randall Atkins: Thanks, Jeremy. First, I want to thank everyone for being with us this morning. Again, we've got a lot to unpack today. We had another exceptionally busy quarter on the rare earth front and somewhat of a continuation of last quarter's results on met coal. Since our rare earth transition has grabbed most of the attention, we will start there. Both myself and later, Mike Woloschuk, our Head of Critical Minerals are going to go through a number of updates on various developments since our last call. After our July groundbreaking with Secretary of Energy, Wright, we have moved to rapidly capitalize on this momentum to derisk our future execution as we move forward on this unique corporate transformation. Here is a short breakdown of where we are headed as we build out this vertically integrated and mine mouth critical minerals platform. First, of course, we start with our large deposits. That is what frankly provides us all the optionality. We believe we will have the largest upstream production platform in the U.S. for heavy magnetic rare earth as well as the 3 critical minerals we possess, which are gallium, germanium, and scandium. On the midstream front, following an optimization at our pilot plant, which is now under construction, we intend to build a large commercial oxide separation and processing facility. It will be large enough to have refining capacity for not only our own coal-based feedstock but also to hopefully process third-party feedstock should that be an attractive accretive proposition. This is the concept of developing somewhat of a regional or perhaps even national processing hub. We intend to try and keep optionality on the size of the plant, dependent, of course, on market dynamics as we get further along. And lastly, on our downstream operations, we just announced that we intend to establish a national strategic stockpile and terminal for rare earths and critical minerals at our Brook Mine. We're calling it the Strategic Critical Minerals Terminal. We plan to develop this in collaboration with a leading commodity structuring and financial adviser who we will be announcing shortly. We feel that being a significant or even dominant factor in each component of the rare earths supply chain will position Ramaco as the most comprehensive, vertically integrated upstream, midstream and downstream producer of critical minerals in the United States. In terms of advancing this platform, as you know, in August, we raised $200 million in a common stock placement. We now have a record level of liquidity, and of course, will require even more as we move forward. In September, we announced plans to increase the base size of the Brook Mine by 2.5x to a level of approximately 5 million tons. We would provide increased feedstock for a greater level of annual oxide production of more than 3,400 tons per year. I'd also point out that depending on ultimate market demand, we have the operational and technical capacity subject to normal approvals to again upsize this production level to an even higher level of at least 8 million tons of annual coal production. That would then produce by our estimate, roughly 5,000 tons of oxide production. As detailed in my shareholder letter in September, we're currently estimating that at the 5 million-ton coal base production level, that in the first year of commercial oxide production, which we now estimated in 2028, our rare earth platform could generate more than $500 million of EBITDA. It could also have a projected NPV of more than $5 billion. These are, of course, projections but show the magnitude of the project. I'll note that these estimates though, were arrived at deploying the same price deck that was used in the summary of Fluor's preliminary economic analysis report in July. And candidly, they were prepared and reviewed by the same person who is Mike Woloschuk, who, of course, has now joined us along with another senior member from Fluor. Obviously, as we move forward with design, engineering and optimization, we will refine these numbers along with current market prices and other figures. Since July, given market conditions, we have seen Western offtake deals for substantially higher prices than what was the case in the Fluor report. There is now a clear decoupling of Western price realizations, which were in the past, tied to Chinese published prices. There is going to be a premium for reliable Western supply lines. This is becoming more apparent by the day and is caused by Chinese export restrictions. As you have read, it now appears Trump and President Xi may have kicked the can down for a year on enforcement of China's new REE restrictions. But the overhang of Chinese control is not going away. Like it or not, we are in a full long-term mineral war with China. This is especially true for scandium, where the Department of War's Defense Logistics Agency recently signed an offtake to purchase scandium at more than $6.2 million a ton. That pricing is 2/3 higher than the $3.7 million level used in both the Fluor report and my shareholder letter. There are similar upward adjustments across the board for several of the other oxides we will produce. But to focus on scandium for a moment, although Mike will also discuss in more detail later. It is a particular interest given our large future production level. It is called the forgotten rare earth. The U.S. is 100% import reliant on scandium. We have no stockpile, no recycling capability nor current production capacity. It is used in lightweighting autos and planes, solid oxide fuel cells, semiconductors, 6G wireless for drones, satellite communications and other defense capabilities. Global production is very scarce with a small global market of frankly under 50 million tons per annum. We will produce almost 180 million tons per annum, and it's estimated that scandium alloys in the auto sector alone would require over 1,000 tons per annum which is frankly not currently available. In line with that, from recent discussions with potential scandium oxide off takers, we expect almost price insensitive demand to exceed the Brook Mine's projected annual production. The mineral, as I said, is critical to lightweighting of cars and planes as well as technologies used in a variety of military applications. It is just simply not available for these types of uses to make long-term planning for a mineral, which is now under complete Chinese control. Its demand growth is exceptionally strong and as I said, there has been no ability outside of China to develop any meaningful reliable Western supply. We will be well positioned to provide that meaningful supply in scandium. Looking forward, in order to support the expansion of our rare earth operations, we plan to actively engage with federal and state officials to expand the existing approved Brook Mine permit. It now covers roughly 4,500 acres, and we expect to expand it to ultimately include most of our nearly 6,000 acres of control. Since our groundbreaking in July, we've now mined about 125,000 tons of coal and material, which frankly provides us with enough ore feedstock to operate the pilot plant for a considerable period. We expect to intermittently mine additional coal once we start the pilot operations as well as mine for possible sale of coal to third-party local utility customers. Chris Blanchard will speak more on our mining in a moment. As far as our midstream operations, our commercial oxide processing facility will be engineered and designed to have the optionality to increase its capacity to accommodate production of higher levels of oxide. As I said, we are doing this not only to accommodate our own increased capacity, but also for the possibility that we might want to do some form of third-party merchant processing. But before advancing to a full-scale commercial plan, we will, of course, work to de-risk this complex execution by the design, testing and optimization of various separation and refining processes at our pilot plant, which, as I said, is now under construction outside Sheridan. Our goal is to appropriately size, design and execute on the plant development, focusing on controlling both capital cost as well as future operational expenses of the plant. We broke ground on the pilot last week and expect to begin initial operations in '26. Mike will be discussing this further in much detail. In the interim, to accelerate the pilot process, the plant components are currently being designed, engineered and tested on a shakedown basis at a facility in Canada owned by a company called Zeton. Zeton is the world's largest pilot plant design and fabrication company. Most of this testing will also be coordinated with Hatch Ltd., which is also Canadian and then is preparing our feasibility analysis. Our commercial processing plant will focus on refining a number of rare earths and critical minerals, including, of course, our heavy magnetic rare earths, like terbium and dysprosium, and critical minerals like gallium, scandium and germanium. All of these have been banned by China from export to the U.S. In some cases, we will be the sole U.S. producer of these oxides. And in many, we will also be the largest or dominant producer in the country. We are now taking steps to accelerate the engineering and planning for the commercial oxide facility. We hope to begin the engineering and procurement work on this plant next spring. Our goal is to initiate site work and initial construction on the facility in late '26 or early '27. This would, of course, be subject to normal issues of availability and timing of equipment and related purchasing. Our record liquidity levels, however, should help us be in a position to prepurchase some of this equipment to help expedite the process and fast track it as best we can. We appreciate the execution risk associated with any new development. Indeed, the DNA of our whole operations since this company was founded, is to build projects from scratch, on budget and on time. I'd point out that since Ramaco was formed, we have deployed in excess of $0.5 billion in capital on greenfield development projects. We have already hired both in-house and externally an exceedingly talented and experienced group of professionals to help guide our execution in this area. We will be hiring many more as we move forward. And we will continue to refine the project size and design as I said, to bring the project in with the greatest levels of cost control we can develop both on the CapEx spend as well as on the future operating costs. Given the importance of this project, frankly, to our country, we will have a lot of help. We will continue to work with our long-time partners at the Department of Energy's National Labs to deploy some very novel science and technology to achieve, hopefully some important technical results. And of course, as we have always said, we will only move forward with actual construction of the full commercial facility, once we have a sufficient level of long-term offtake contracts in place. And on that front, we are very encouraged with the procurement discussions that we continue to have. I would point out that since the Chinese embargo and export controls were announced, there has been a market decoupling away from China. As we get feedback from counterparties, there will probably not be a future point where any customer in the West is going to feel comfortable with China as a reliable long-term supplier. This has direct implications for us, both in terms of customer demand as well as long-term pricing. Going forward, the historic prices quoted from China will now be dramatically different than prices from a reliable Western supplier, which is what we intend to be. Also, as I mentioned, last week we announced that our Board had approved creating the U.S.'s first and currently only strategic critical mineral terminal and stockpile at the Brook Mine. For Ramaco, this operation will create a fee-based terminal services business. This is going to leverage not only our own production, but our existing logistical and infrastructure advantages of being located on our own vertically integrated Brook Mine site. We anticipate no commodity price exposure on the terminal and will receive predictable revenue streams. For our customers, the terminal will provide a secure, auditable storage of strategic rare earths without capital outlay or operational burden. The terminal will have a rapid deployment capability and provide domestic supply chain resilience. Our strategic adviser will assist in the development and execution of offtake agreements with both private and public customers as well as on the development of the financial contracting and operational implementation of the terminal. We will be speaking more about this as our plans progress. Now I'd like to move to our metallurgic coal business. The overall met markets still remain challenged. The reason is the same as we have highlighted basically all year. China continues to flood cheap steel into world markets with the impact of depressing both prices and production worldwide. Jeremy is going to discuss markets in more detail in a moment. As we have talked about on previous calls, we made what seems like a very logical decision to refuse to sell tons at a loss into an oversaturated market. We're fortunate that we now have the strongest liquidity position we have ever had, which allows us the flexibility to take this posture. As a result, we are again modestly trimming production guidance despite the fact that our mines continue to produce extremely well and with solid lower mine costs. It is about as straightforward as the fact that we intend to match our production with demand. And to be clear, this guidance reduction is solely caused by weak pricing conditions in export spot markets. It's not because of high mine cost. Indeed, we are one of the only U.S. met coal producers with cash costs now below $100 per ton with our third quarter cash cost coming in at about $97 a ton. I'd point out that starting in Q4, our costs are currently even below that figure. We are now, of course, also currently in discussion with North American steel mills for the annual 2026 domestic contracts. We'll talk about that more in a moment, but the negotiations are still taking place with, frankly, reality checks on both sides. No producer should have to sell to steel companies at loss-making prices. We are certainly not going to. We will talk about those negotiations more, frankly, when they are complete. And consistent with what we have already said, until markets begin to improve, we will keep future growth CapEx at our met mines at minimal levels. We intend instead to focus on the rapid commercialization of our rare earth elements and critical minerals business. Yet, we're always going to keep an eye out on opportunistic low-cost asset acquisitions in the met space as they might present themselves. Our view is to try and position Ramaco's met business for longer-term growth on an advantaged financial basis when the situation might present itself. So I'm going to wrap up on a very positive note. The bottom line is that we are in the best liquidity position we have ever been in as a company. And we're now moving rapidly along a multiyear path to transition Ramaco into becoming the only U.S. dual critical mineral platform in both rare earths and met coal. The task ahead is large, but we intend to rise to the occasion. We are going to approach the transition with the same sense of capital, financial and operational discipline that we have shown to date. And as we move forward, I strongly feel we will serve both our shareholders and our nations well for the years to come. And with that, I'd like to turn the floor back to the rest of our team to discuss finances, operations and markets. And first, I would like Mike Woloschuk, who leads our critical mineral business, to share some further thoughts on our rare earth business. Mike? Michael Woloschuk: Thank you, Randy. There has been a ramp-up in third quarter activities, and I would like to highlight some of them. Firstly, we hired Martin van Wyk as Senior Vice President of Critical Minerals Processing. Martin joined us from Fluor Australia, where he was the global subject matter expert for rare earths. He has over 20 years of experience in mineral processing, hydrometallurgy and rare earth element flow sheet development. He holds a Master of Chemical Engineering and a Post-Graduate Certificate in Corrosion Engineering from Curtain University in Perth, Australia as well as a Bachelor of Metallurgical Engineering from the University of Pretoria in South Africa. We anticipate his relocation to the U.S. with his family in early 2026. On September 4, we awarded the Brook Mine pre-feasibility study to Hatch. As Randy mentioned, Hatch has a world-class expertise in rare earths and critical minerals hydrometallurgical flow sheet development. Hatch's scope includes the development and management of the metallurgical test work programs to support the pre-feasibility study as well as process flow sheet optimization and pilot plant design. The final PFS report is scheduled to be completed in April. We also awarded the metallurgical test work programs to 2 commercial laboratories, ElementUSA and SGS Lakefield. Both of these labs are known to Ramaco, and they come with extensive experience developing rare earths and critical minerals, hydrometallurgical flow sheets. We are executing test work in parallel to accelerate the optimization of the flow sheet. We also completed umbrella agreements and task statements for the U.S. Department of Energy National Labs to execute test work scope there when they return from the government shutdown. Also in late September, we published an updated S-K 1300 compliant technical report, which included an inferred resource estimate for the currently permitted area. The results of this report suggest potential opportunity to increase the cutoff grade and increase throughput to achieve higher critical mineral production compared to the previous phase. We commenced a drilling program at the Brook Mine that is currently in progress to complete infill drilling in the permitted zone, aiming to increase geological confidence necessary to support selective mining. We are also completing step-out drill holes to evaluate the extension of high-grade trends southward and to grow the size of the total resource beyond the currently permitted area. As Randy mentioned, we awarded the detailed engineering, procurement and construction package for the pilot plant to Zeton, a recognized global specialist and leader in the design, fabrication and construction of pilot and demonstration plants. The pilot plant will be built on skids and shipped to our pilot facility in Wyoming. We completed architectural and engineering designs for the Brook Mine pilot plant and laboratory facility, which Chris will get into a bit more detail soon. This complex will be constructed on Ramaco's property directly across the interstate from Ramaco's existing iCAM facility, a high-voltage electrical power, the site geotechnical work and foundations were completed. We placed orders for analytical equipment that will be put into the laboratory facility for our own on-site analytical lab. Ramaco has fielded queries from investors and the media related to the grade of the deposit, and I'd like to talk a little bit about that. Unlike other commodities such as gold and copper, which report equivalent grades to account for byproduct credits, the rare earth industry does not account for this in reporting parts per million total rare earth oxide, and it does not have a neodymium or praseodymium equivalent grade concept. As a result, deposits with high-grade critical minerals such as the Brook Mine must be compared on an equivalent basis, which is referred to in the industry as a basket price. If you compare the Brook Mine basket price on an NdPr equivalent grade, we are more than 10x higher than the industry trend for our parts per million TREO. And that's a reflection of the high-value components that we have in our deposit. Furthermore, typically higher parts per million TREO deposits are dominated by low-value lanthanum and cerium. Many of the highest grade deposits are about 70% to more than 80% lanthanum plus cerium, which are costly to basically remove from those flow sheets. With that said, I would like to now turn the call over to our Chief Financial Officer, Jeremy Sussman. Jeremy Sussman: Thank you, Mike. Starting with the balance sheet. I'm pleased to note that we had record liquidity of $272 million at the end of Q3. This is the strongest level of liquidity that we've ever had. Liquidity was up over 237% compared to the same period of 2024. We ended the quarter with a net cash position of $77 million. During the third quarter, we issued $200 million of common stock underwritten by Morgan Stanley and Goldman Sachs. In addition, we announced the redemption of the $34.5 million 2026 senior notes at 9% and the issuance of $65 million of 2030 senior notes at 8.25%. As noted, focusing on our core met coal business, our third quarter 2025 operational results were again solid with cash cost per ton of $97. This continues to put Ramaco in the first quartile of the U.S. cash cost curve. Cash cost per ton sold fell $6 from the second quarter on stronger overall productivity. As we head into Q4, our mine costs continue to have dropped throughout October. We would note that November and December are holiday months, which will have some impact on costs. Our Q3 production fell modestly from the second quarter to 945,000 tons. This was the result of both the typical July 4 minor vacation as well as our continued focus on value over volume. As Randy noted, we would rather leave production in the ground versus selling it at a loss into the spot market. Thankfully, our strong balance sheet, including our record liquidity position, allows us this flexibility. Overall tons sold fell to roughly 900,000 in Q3 from roughly 1.1 million tons in Q2. This was largely due to the fact that some shipments originally scheduled for July ended up shipping in the back end of June, coupled with our disciplined approach to spot sales. Unfortunately, metallurgical coal spot price indices have continued to decline. U.S. indices fell another 6% in Q3 versus Q2 and almost 20% year-over-year. This caused a year-on-year decline in earnings despite strong operational achievements. Despite the continued fall in index pricing, we managed to print Q3 financial results that were similar to Q2 financial results. To get into some specifics, Q3 adjusted EBITDA was $8.4 million compared to $9 million in Q2. Q3's net loss of $13 million compared to Q2's net loss of $14 million. Class A EPS showed a $0.25 loss in Q3 versus a $0.29 loss in Q2. While none of our primary peers have yet reported Q3 results, we suspect that our $23 per ton cash margins in Q3 will be among the highest of our peer group. As a reminder, our Q1 cash margins of $24 per ton were the highest among our peer group. Since then, our cash margins have declined just $1 per ton. This is despite an almost $20 per ton fall in U.S. coal indices from Q1 to Q3. Again, this is a strong testament to execution from both our operations and sales teams. Looking forward, we are making a few small adjustments to our 2025 operational guidance given current market conditions. Specifically, we're optimizing our overall production and sales. We're reducing selective higher cost production to limit any need to move tons at potentially lower-priced spot sales, especially into Asia. At current prices, this should provide a net benefit to free cash flow. As a result of the idling of our Laurel Fork mine at the Berwind complex, full year 2025 production is now anticipated to come in at 3.7 million to 3.9 million tons versus 3.9 million tons previously. Full year 2025 sales are now anticipated to come in at 3.8 million to 4.1 million tons versus 4.1 million tons previously. We're generally maintaining the midpoint of all other guidance other than lowering DD&A from $71 million to $76 million to $70 million to $72 million, lowering the estimated tax rate by 5% to 20% to 25% and slightly increasing idle expenses from $1 million to $2 million to $2 million to $2.5 million. Please note that our SG&A guidance now includes stock comp to guide apples-to-apples to the income statement figures. Now turning to our rare earth elements and critical minerals business. I'd encourage you all to read Randy's September shareholder letter, which is on our website, which goes through the recently announced upsize of the Brook Mine. Specifically, the economics show a pretax NPV using an 8% discount rate of $5.1 billion and an IRR of more than 150% with a total initial capital cost of $1.1 billion. At full year almost steady-state production by 2028, we show achieving more than $500 million of EBITDA from the Brook Mine. Given the multiples on the rare earth names, needless to say, we're incredibly excited about the potential of this new business line. With Jason traveling, I'll briefly touch on markets for metallurgical coal and REEs. First, on the metallurgical coal side, markets continue to be plagued by continued oversupply of Chinese steel exports. This dynamic has negatively impacted steel production in virtually all of our traditional markets. While China's anti-involution rhetoric regarding supply side reform has been encouraging, we have not yet seen a meaningful decline in Chinese steel exports. One positive dynamic that we've seen in the market is that supply in each of the main markets of Chinese domestic met coal, seaborne and U.S. met coal production has all been under pressure. This is due to the fact that price indices are currently trading into the third quartile of the global cost curve and much of this supply is underwater at these price levels. We've even begun to see Tier 1 Australian producers idle some supply due to challenging market conditions. Now as the calendar shifts to 2026, we anticipate further supply rationalization. At this point, we don't see any meaningful upward trend in pricing. Speaking of 2026, we're currently in negotiations for the sale of metallurgical coal in 2026 to North American steel groups, which is ongoing. As Randy said, we will provide an update on such sales once this process is complete. The rare earth and critical minerals markets clearly have been dominated by recent political headlines coming out of the United States and China. As you know, earlier this month, China again put further restrictions on exports of its rare earth elements. These additional restrictions further underscore the need for a reliable domestic REE industry, especially for the heavy REEs in critical minerals such as gallium, germanium and scandium. Collectively, these very elements comprise more than 90% of the anticipated revenue of the Brook Mine. These elements have also been banned for export to the U.S. from China, and there's virtually no production in the United States today of any of these REEs and critical minerals. To that end, what we've seen over the past quarter is truly a bifurcated market between Chinese and Western pricing. As Randy said, perhaps the best example is scandium. There's currently no reliable Western index for scandium. That said, the U.S. Department of War recently signed a deal with Rio Tinto to purchase their scandium byproduct for $6.25 million a ton. This price is 67% higher than the $3.75 million price that was used in both the summary of the Fluor PEA and in Randy's shareholder letter, and it's more than 5x greater than the Chinese manipulated index prices. Overall, we believe political tensions will only lead to this bifurcation between Chinese and Western REE markets increasing. We've met with a number of potential customers since our Q2 call. While we will certainly let the market know when we have definitive offtake agreements in place, I'm encouraged by the wide range of inbound calls that we have received from industry-leading companies in sectors ranging from aerospace and defense to automotive, just to name a couple. I'd now like to turn the call back to Chris Blanchard, our EVP for Mine Planning and Development. Christopher Blanchard: Thank you, Jeremy, and good morning to everybody who is with us today. Following some of Mike's earlier comments, I'll start with some of the ongoing work on the ground at the Brook complex since our last call. At our pilot plant location, the geotechnical drilling commenced and was completed during the month of September and the subsequent engineering report to allow our foundation design was completed just in the last weeks. In parallel with this, we have also obtained all local zoning permits to begin construction and site the pilot plant. We broke ground on the facility last week, as Randy mentioned, and we expect to get the actual foundation work begun in November. We expect to have the building under roof early in 2026 to receive delivery of the first pilot plant modules from Zeton. As Mike mentioned, in this facility, we will also house our own analytical testing laboratory. Chief among those components will be 2 ICPMS machines, which have been ordered and will accelerate the testing of our ore for rare earth elements and critical minerals. At the Brook Mine itself, as Randy mentioned, we moved a large amount of coal rock and ore during the initial months of operation. To be more granular on some of this, we mined and isolated approximately 300 tons of high-grade REE critical mineral ore for further bench testing and pilot testing, both on-site and off-site. All of this material was located in one band of strata between our Dietz Seam and our Monarch Seam. We have already sent bulk samples, approximately 500 kilograms each to the national labs as well as third-party commercial labs for continued flow sheet optimization and testing. To put the amount of stockpiled high-grade ore in perspective, we anticipate our pilot plant once on site and operational to process approximately 3 tons per day of ore. With what we have already accumulated, we have approximately 20 weeks of continuous operation available to process at full pilot plant capacity. Nevertheless, we are active in the mine this month and expect to ship and sell our first thermal coal from the Brook Mine in the coming weeks for a test run at a local utility. Assuming that the testing is satisfactory, we expect we may enter into a term agreement to commercially sell thermal coal separate from our rare earth ore. While we are active in the pit for the -- collecting the coal for the test burn, we will also be separating new critical mineral ore from the next stratigraphically lower horizon from the partings in the Monarch Seam floor. We expect this to be similarly high concentration from all of our initial drilling and testing. This Monarch ore zone will likely allow us to gather enough additional ore to support our pilot plant through its first full year of operation. The mine continues to remain in active status to allow us to obtain additional samples for testing as needed and also to advance the larger project. Longer term, we have already engaged with Sheridan's regional power supplier to begin the upgrade process for the high-voltage transmission lines in the area to support the high-voltage power needs of the full commercial processing plant at Brook. Now moving to the east and the metallurgical operations. The third quarter was operationally successful. We saw progressively better and lower cash cost each month following the July holiday month, culminating in company-wide cash costs of $86 per ton for the month of September. As has been mentioned, early in September, we made the difficult decision to idle production at our low-vol Laurel Fork mine, which is located at the Berwind complex. Unfortunately, given the current and near-term sentiment of the market, financially, it did not make sense to continue to operate the mine as our holding costs were in line with our net operating costs. The impact of the removal of the relatively higher Laurel Fork costs did contribute a couple of dollars to the lowering of the overall company cash cost in September. And of course, we would expect that to continue. We are keeping the mine on a hot idle status and are maintaining the mine and infrastructure until such time as the market fundamentals have improved enough to bring back these incremental tons. Despite the fact that we are now operating 3 underground sections less than we originally budgeted to be operating in 2025, September productivity levels exceeded budgeted levels enough to almost match the full original budget for produced tons. I would remind everyone that the fourth quarter does have 2 months with the traditional shutdown vacation weeks. So while we expect productivity and production to continue at its current levels, the impact of these 2 vacation months will temper the cash cost performance levels seen in September and that we expect to continue or be better in October. Operationally, as we complete our budgets for '26 and the years beyond, we're positioning all of our complexes to be able to quickly pivot as the market improves. However, little material capital for met coal growth is planned to be deployed in 2026. In line with that, we are also working with all of our vendors and suppliers to reduce costs anywhere we can. Similarly, we are working with our lessors to get relief on royalty rates or strategically move our sections where we can from higher third-party royalty areas to our own coal. Simply put, as we close out '25 and head into 2026, on the metallurgical side of the business, we will put ourselves in the best position we can and control the things we can control, that is volume and operating costs. We will continue to maintain our position as one of the lowest cost domestic producers and be ready to reinitiate our growth targets as soon as it is responsible to do so. With that said, I would now like to turn the call back over to the operator for any questions from those on the line. Operator? Operator: [Operator Instructions] Our first question comes from Ben Kallo with Baird. Ben Kallo: Thank you for all the detail. Just a big picture, lots of talks about deals with the United States and our allies, could you maybe kind of give your viewpoint on that? And then how that impacts any kind of support that you give to the United States government for your development? And then I have a follow-up, too. Randall Atkins: Well, I think in the political arena, when the U.S. starts making deals with foreign countries that obviously has macro political implications. As far as the supply implications, I think it remains to be seen specifically what type of supply that those countries will be supplying to the U.S. So I think the jury is still out. I'll let Mike maybe comment on that because he's probably much more familiar with some of the operational aspects of some of the countries over there. As far as it has to do with the U.S. and what it will do or not do with trying to support its own domestic industry over here. I think the government is moving forward on various fronts to try to be as supportive as they can, as we've seen over the last several months. But Mike, please go ahead and comment on that. Michael Woloschuk: Yes. Look, my view on this is that these are short-term agreements. Until the U.S. ramps up domestic supply of these critical minerals. There's a need perhaps to close the window in the short term. But I think given the application of what these critical minerals are used for, that there will be domestic supply in the U.S., and this is really a short-term solution. Ben Kallo: My follow-up is just about extracting rare earth from coal. Can you talk about what you've done and what you -- still need to be done to derisk that process and that it's been done elsewhere? Or just give us some thoughts around that. Michael Woloschuk: Sure. I think some of the industry thinks we're extracting coal from -- rare earths from fly ash, we're not doing that. We spent a good part of a calendar year testing various processes and metallurgical flow sheets to achieve one main objective, and that is to solubilize all of the high-value critical minerals. So we are -- our process plant is basically taking the plays and the shales that are intermingled with coal, and we're extracting the rare earths from those. Once soluble, the flow sheet is less risk in terms of purification and separation because there's technologies out there and examples and commercial applications that do that. So my view is that the high-risk part of this flow sheet was proving that we can extract the minerals which we've done. So currently, in the pre-feasibility study. We're spending more time on that downstream purification, looking at options, for instance, do we look -- do we use precipitation, ion exchange. We're concentrating our rare earths and critical minerals for further downstream processing and optimization. So like in every project as we advance through the engineering studies, where we're looking for more engineering design definition and optimization. Randall Atkins: Yes. I'll make one other comment, which is what that we've said before, but probably merits saying again, so coal is essentially an unconventional source of rare earth. It's unconventional in a number of capacities, one of which, of course, is most rare earths are found in hard mineral. So coal is much easier to mine. It's a much softer material to process as well. And of course, from a processing and mining standpoint, it is not radioactive. So most of the other hard rock minerals have radioactive tailings, which has to be dealt with, both in terms of the mining, the waste side of that after the mining has been done as well as, obviously, through the processing. So coal is a much more benign feedstock to work with. Operator: Our next question comes from Colin Rusch with Oppenheimer. Colin Rusch: Could you talk about how modular your plans are for the processing facilities and how we could think about some of this capacity coming online? Is it possible that you could start ramping some of this capacity a little bit earlier as you ramp up certain segments of the facility? Michael Woloschuk: Yes. Look, we are -- and I think we've announced the acceleration. What I spoke about today is we're conducting test work programs in parallel. So we have 2 commercial labs working on this flow sheet optimization as well as the U.S. government labs when they get back to work. We intend to have testing being conducted at 3 facilities. I think in terms of ramp-up, we've talked about that. We have some optionality with ramp up, whether that's staging to meet the demand. But I think in terms of what we need to achieve first is confirmation of the flow sheet, early engagement with technology providers, and we are having some of those conversations now to make sure that they advance the engineering with us and identification of long lead items, which Hatch is working on now so that we can place equipment orders early. I think the fact that we're permitted gives us some advantage because we can get into this site to do some early site works versus projects that are still waiting for permits. So all of those factors are going to help us ramp up more quickly. Colin Rusch: And then just given some of the substantial value that is coming from the facility or coming from the site through scandium, can you talk about how mature those conversations are? Any sort of issues around pricing, either higher or lower that you see potentially impacting some of these estimates as some of the incremental capacity comes online? I think some folks may get a little concerned that you start impacting some of broader market prices, but that may not be the case. Just want to get a sense of how substantial those conversations are and some of the impact around some of the... Randall Atkins: Sure. We're not going to get too far -- yes, we're not going to get too far under the weeds in terms of discussions about negotiations that are taking place in real time. I will say that we are having discussions with both domestic and international customers as it relates to scandium. We've not gotten to price specifics at this point. But as I mentioned, the last, frankly, major price marker was the one that the U.S. government established with their deal with Rio here a couple of weeks ago. And in terms of negotiations, we obviously don't negotiate in public like anyone else does. And once we get to a point where we have actually agreement on any points, then obviously, that will be disclosed. Operator: Our next question comes from Matthew Key with Texas Capital. Matthew Key: Staying on kind of the rare earth side. We've seen some other coal companies hit at the potential for rare earth development in the PRB. Could you maybe share some color on why you view Brook as unique compared to other PRB assets? And kind of what's the major differentiator there in your view? Randall Atkins: Sure. I'll give you basically what we have been told by NETL which did a national assessment of rare earth sites, frankly, all over the country and specifically in the Powder River Basin. So in the Powder River Basin, of course, there are areas where there is REE concentrations. The unique thing about the Brook site is that we are, frankly, on the far western edge almost the edge itself of the Powder River Basin. To our West is where there was a great deal of volcanic activity, millions of years ago, which we benefited by having that volcanic ash rain down on our site. And we also had similarly a lot of deposits of rare earth that frankly were co-mingled with the alluvial seas, and they permeated up through the crust on to our site. The comment that was made to us by NETL was that you might go just a few miles from where we are, and we have a -- we probably have about a 7 or 8-mile site and you might not find anything. Indeed, when we've mined, you can go and find high concentrations and then go probably 10 to 15 feet away and you don't hit any. So we can't really comment on what somebody else's site might or might not have, but we have been led to believe that we have a particularly unique site with some geological anomalies that might not be repeatable elsewhere. Matthew Key: Got it. That's super helpful context. And staying on Brook, I was curious in regards to the Strategic Critical Minerals Terminal, is that expected to add a material amount of CapEx to the overall project? Or should it be relatively small? Randall Atkins: It should be relatively small. And certainly, the overall context, the big spend, of course, is going to be on our commercial oxide plant. But I think it does add a very unique dimension because it allows us to control some of the downstream. We will sort of be a unique site there where we can act as sort of certainly, as I said, either regional or a national hub to stockpile rare earth for whether they are public or private uses and it gives us some price visibility on what we're doing and also allows us to put our own feedstock and oxides into the stockpile to be able to have some form of controlled marketing as well as some finance opportunities. Operator: Our next question comes from Nick Giles with B. Riley Securities. Nick Giles: My first question, I just wanted to follow up. To better understand the rationale behind the Strategic Critical Minerals Terminal, what kind of economics will be third-party receiving? And I guess my question is, why not sell directly to customers with a smaller footprint for potentially more attractive economics? Randall Atkins: I'm not sure I understood your second question. But I mean the first question, what our customers receive, basically, we will be able to have sort of a clearing house, think of it more in the context like a regional petroleum hub where you can basically market from that site to third parties in a controlled manner, which provides some optionality both for other producers as well as for ourselves. And in terms of the overall economics, I think it will be a net benefit. It's obviously not going to be a heavy CapEx requirement for us, but it does provide us some visibility into the market that we might not otherwise have. Nick Giles: My second question was, you announced the pilot plant oxide facility the day and -- or the groundbreaking at least. And the target is to be operational by mid-'26 and then you expect to operate it for a 6-month period. I believe that's fairly accelerated relative to other pilot facilities across the space. So my question is what ultimately gives you the confidence that you'll be able to fine-tune and validate the processing techniques on this time line? Randall Atkins: We get into -- I'll let Mike get into some of the technical aspects. But as I said earlier, what we're trying to do is kind of fast track it by first of all, while we're actually constructing a facility to build the pilot plant in. We are going to have that basic engineering design and testing done off-site at a spot that's already got all of the equipment, infrastructure and testing facilities to do that in real time for a period of months, maybe as long as 6 months before we even have to get our own site positioned to basically have all that material moved into it. So we'll accelerate that from that standpoint. That's the Zeton arrangement. But Mike, go ahead and touch on some other aspects here. Michael Woloschuk: Yes. I think it's worth mentioning. I mean we've been designing the pilot plant now for a couple of months. So although we've just announced where we're at, there's been -- Hatch has been involved with us putting together a basic engineering package. So we've got the mass balances, the flow sheet. We've sized the equipment. We've handed over a detailed engineering package to Zeton. So this is well underway. We know what equipment -- the sizing where we're going to source them. Chris mentioned, we came to a 3 ton per day of ore throughput to the pilot plant. We picked Zeton because this is their wheelhouse. They design and build these plants. They have technical skills in-house that can fabricate vessels if they need to be custom designed for instance. So we're not sending things to third parties to get fabricated I think the other thing to mention is Zeton was involved with them more than 20 years ago on a very complicated pilot plant also. In terms of your -- answering your question about ramp-up. Frankly, we've got Hatch who's got several subject matter experts in rare earths in the Americas. We brought Martin on board which -- coming from Fluor, we -- there were similar unit operations with separation purification. So we have some knowledge in-house about what we're going to do with the design to help us get ramped up. The 6-month operation period is really to generate product that's going to be quality spec for our off-takers but that pilot plant is going to be an asset that we're going to continue to run for years ahead as needed and testing and continually optimizing like other facilities when they have pilot plants on site, it's really an asset for the company long term. Randall Atkins: I'd just like to add, I think we are doing a lot of stuff behind the scenes that we're not exactly announcing on a daily basis. We have been at this now for about, I guess, going on our seventh year. So the amount of behind-the-scenes work is a lot more substantial than I think might meet the eye. Operator: Our next question comes from Nathan Martin with Benchmark. Nathan Martin: Thanks, operator. A lot of information discussed already. I guess maybe at a high level, what do you guys need to see from the pilot plant process, customer conversations, et cetera, to make you feel comfortable enough to move forward with full commercialization? And do you still expect to make that decision by the end of next year, possibly? Randall Atkins: Sure. I'll make a comment on the high level probably from a financial and strategic standpoint. I'll let Mike comment from a high level on the technical side. So obviously, as a normal development project, particularly in a new business line. We're going to want to see confirmation of customer acceptance of our product, appropriate pricing for our product and appropriate contracts, hopefully, on a long-term basis to establish the underlying predicate to do normal forms of finance. This is not going to be an inexpensive project. We know that. It's a critically important project, not only of course for Ramaco, but frankly, we feel for the country. And so we will take all deliberate steps. We are not gunslingers. We are not promoters in the sense that we're trying to get out in front of markets that aren't there. But I think we will be deploying the same sort of careful discipline that we have used in our met coal business to ensure that we've got a market for the product that we will build. And we will finance it conservatively, and we will try to make sure that operates efficiently and at low cost. So Mike, I'll let you pick up from there. Michael Woloschuk: Sure. I think the purpose of piloting is twofold. It's prudent for us to provide confidence that we have a flow sheet that works, and we can produce product on spec for our off-takers. There's plenty of projects, commercial plants that are built without piloting. But given we have an unconventional deposit, it provides people with confidence that technically our flow sheet works and that we can achieve the product spec. So that's really what I'm aiming to achieve is on the technical validation, and that's why we're piloting. Nathan Martin: I appreciate those comments, guys. And then maybe just one question on the met coal side of the house, updated full year sales guidance, looks like it assumes about 900,000 to 1.2 million tons shipped in the fourth quarter. It looks like 3.9 million tons committed, I believe. So where do you think you ultimately kind of end up within that range? What could be some puts and takes there? Jeremy Sussman: Nate, so I mean I think as Randy said and Chris said as well, the mines are running great. But obviously, we've continued to sort of rationalize production because we're just not going to sell at a loss into the spot market. So certainly, we've got inventory on the ground and the ability to hit the high end of the range, but kind of similar to Q3, where you saw us obviously come in a little bit more towards the lower end of the range on shipments. We will monitor the market and sort of see where things shake out. So I would say probably the vast majority of the range is just candidly market driven. Randall Atkins: Yes. I'd say Nate, one of the things we always find in the fourth quarter is that at least for the last couple of years, a lot of the domestic steel guys have frankly, underbought as they go into their original contract procurement and you get to the fourth quarter and they need to play catch up. This is perhaps particularly true in a year where there is a supply rationalization. So as you well know, we've seen a number of suppliers in the market cut back or frankly, go under. So I think it's going to be interesting how the fourth quarter plays out. Operator: Our next question comes from Alex Fuhrman with Lucid Capital Markets. Alex Fuhrman: You have a really diverse portfolio of critical metals at the Brook Mine. Is the pilot prototype that you're building in Ontario, is that designed to process the entire range of minerals that you have? Or is it possible that you're going to need some additional partnerships to process some of the less common metals? Would love to get some more color on that. Michael Woloschuk: Yes. We aren't anticipating any partners. I think there has been some conversations recently about -- is there -- is there an opportunity to pull something else out of this mix. You're right. It's a very unique basket. There's been interest in yttrium, potential samarium and others. Gadolinium has been mentioned. So I think the beauty of a pilot plant is there is some flexibility in being able to test other things. So we are designing with that in mind that we have flexibility with the pilot plant. That if we want to bolt something on to test or to validate that we have the opportunity to do that. Operator: Our next question comes from Jeff Grampp with Northland Capital Markets. Jeffrey Grampp: I wanted to talk on the permitting side of things. Can you guys give us a sense of the time line to get the remainder of the mine permitted to handle the increased throughput plans you guys have talked about? Randall Atkins: We will be -- we are already meeting with some of the federal groups on permitting. We've had ongoing dialogue, of course, at the state level. We just received our next 5-year renewal on our original mine permit, which frankly lets us continue to do everything we want to do without further amendment. What we're developing right now, and I'll maybe let Chris speak just a little bit to it, but we are developing our mine plans as it relates to the balance of our 16,000 acre site. Of course, the original mine plans only cover about 1/3 of that or less. And once those plans are developed, then we will proceed probably on somewhat of a combination of both a federal and state expanded permitting. So Chris, you might want to just talk a little bit about your mine planning. Christopher Blanchard: Yes, just to add a little bit of color to what Randy said. We already have the permitted areas, a huge area. It's about a 30-year mine plan at the base rate. So we have the ability to deploy 2 or 3 fleets for the size that we ultimately choose to mine at Brook within the permitted area. So that will require minor modifications to the permit as far as the staging of the mine, but not actually having to have the entire property permitted on day 1. So we've got a lot of runway in front of us. We are drilling all the testing wells that are required for water outside that permit area and quite frankly, to go deeper as well. But with the amount of area that we have at Brook, that's not even a start-up concern on the initial mine permit. Randall Atkins: Yes. I mean the one thing I'd point out, just given the frankly, massive size of the deposit, depending upon the sort of velocity of our mining. We've got, on one end, probably north of 150 year mine life. If we want to accelerate the mining, obviously, that number goes down, depending on how quickly we intend to mine on an annualized basis, but we have more than enough to say grace over at the moment. And the interesting from a permitting standpoint, I would add also one other aspect. We have only, frankly, tested, as I've said before, on a sort of conventional Powder River surface mine program where we have core drilled down to about 150, 200 feet. We have discovered or, frankly, NETL helped us discover that we have deposits that frankly are much deeper. We have done some cores now that have found, frankly, much higher concentrations down in about the 500 to 600-foot levels in some of our areas of the site. So in addition to what we've got, at the surface. We've also got potentially a very large sort of untapped and unexplored area in a much more subterranean area, which might lend itself to a different kind of mining. We've talked about before the notion that we could do some form of in-situ injection well mining for some of the deep stuff which will probably encompass another type of permitting exercise. But it just shows how big this deposit really is. Jeffrey Grampp: That's really interesting. Just a quick follow-up. Randy, you mentioned being on a lookout for some opportunistic bolt-on acquisitions. Can you just shed a little light on what kind of opportunities you guys are looking for and how you characterize the overall attractiveness of the acquisition market? Randall Atkins: Yes. I mean when we get asked about M&A opportunities, I always quip, we're not particularly interested in the M, but we'll take a look at the A. So we have kind of had a program of the past of picking up somewhat opportunistically assets, be they reserves or infrastructure in the coal space that are accretive to us and that we're able to pick up on an advantage basis based on perhaps market distress that others might have. And frankly, we've -- we're looking at some of those now. We've also made a small acquisition out, frankly, in the Brook Mine area where we bought about 1,200 acres of surface property on top of what we already own, which is going to provide us a lot of optionality for some of the planning for where we might want to site some of the industrial areas out there. So we're always on the lookout, but we're kind of a rather opportunistic buyer. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Randall Atkins, Chairman and CEO. Randall Atkins: Well, I'd just like to thank everybody for being on the line today. I realize this was a little bit longer than our normal quarterly call. But as we move forward, we're basically giving a rundown on 2 separate operations, both of which are very important. So we appreciate you bearing with us. And we'll certainly look forward to keeping everybody apprised as we move forward, and we'll look forward to our next call after the end of the year. Take care. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good evening. We welcome you to The Navigator Company Third Quarter 2025 Results Presentation. [Operator Instructions] I'll now hand the conference over to Ana Canha. Please go ahead, madam. Ana Canha: Ladies and gentlemen, welcome to The Navigator Company conference call and webcast for the third quarter and nine-months results. Joining us today are the following directors, Antonio Redondo, Fernando de Araujo, Nuno Santos, and Antonio Quirino Soares. As usual, we will start with a brief presentation, and we will have Q&A session at the end. The presentation can be accessed through the links available on the website, and questions may also be submitted using the webcast platform. Antonio will start by commenting on the main highlights of the quarter. I will now hand over to Antonio. Antonio Redondo: Good afternoon, and thank you for joining us today. I'm pleased to share the results for our third quarter and first nine months of 2025. As you will see in today's presentation, Navigator once again demonstrated its ability to adapt swiftly to very challenging market conditions while maintaining its strong competitive position in Europe. We continue to focus on creating value and protecting margins while investing in diversification and reinforcing the foundations for sustainable growth. I will begin with Slide 4 with an overview of the key highlights. The first nine months of 2025 were marked by very significant volatility driven by geopolitical tensions and rising protectionism, adding to macroeconomic risks. Like others in global trade, Navigator felt the impact of slower demand in key markets. The pulp and paper sector has faced severe pressure visible in the sharp downturn in pulp prices in China since April, which also significantly impact Europe. As anticipated, the third quarter marked the lowest point in this downward cycle. Faced with falling prices across its markets, Navigator succeeded in positioning itself competitively. We are firmly established around the globe, which enabled us to seize opportunities, grow our sales volumes in all paper segments and increase our market shares. Focused on operational excellence, the company implemented initiatives to optimize its variable costs and streamline its operations. The downward course of production costs is already visible despite the temporary impact of cost categories such as energy and chemicals, the effect of which has tended to be diluted as the nine-months period progressed. Pulp and tissue cash costs dropped to near the lowest since mid-2021, with while paper cash cost reached a two-year low. As a result, the pulp and tissue cash costs fell at the end of third quarter to the second lowest level since mid-2021. The paper cash costs were the lowest of the last two years. Despite significant market volatility across all segments, our packaging and tissue businesses delivered solid year-on-year growth and already account for 32% of the EBITDA and 29% of the turnover. In tissue, we are successfully scaling up operations and following recent acquisitions, namely Navigator Tissue U.K. In packaging, our sales continues to show positive momentum with growth in volume, value and strategic positioning in lower basis points. We maintained a strong financial position after dividends and strong CapEx, keeping our net debt-to-EBITDA ratio at 1.85x. Now turning to Slide 5, please, with the main financial figures. Turnover totaled EUR 1,489 million. EBITDA stood at EUR 300 million with an EBITDA margin of 20.2%. Fernando will highlight the main impact on the period. The successful execution of our diversification strategy has strength resilience amid market volatility with tissue and packaging segments helping to offset the impact of subdued pulp and paper prices. In an uncertain macroeconomic environment, our EBITDA margin remains among the strongest in the industry, namely amongst those exposed to pulp, although below our historical average. I will now hand over to my colleagues, who will walk you through the results in more detail and share some insights on how our different business areas have been doing. Fernando will start by the main impacts on EBITDA. Fernando, please go ahead. Jose de Araujo: Thank you, Antonio. Turning to Slide 6. We can take a closer look at the main impacts on EBITDA in the year-on-year comparison. As already mentioned, EBITDA stood at EUR 300 million, down 30% year-on-year with an EBITDA margin of 20%. Year-to-date results were below last year's due to lower sales price and rising cash costs, mainly for energy and chemicals in the beginning of the year, which, as I mentioned, has since started to reduce. The downward trend in uncoated woodfree and pulp sales price were pressured by falling benchmark index. Change in our product mix also influenced our average sales price. Apart from pulp sales, all paper and tissue products saw a significant increase in sales volume over the nine months period. Turning to Slide 7 with a quarter-on-quarter EBITDA analysis. In this quarter, EBITDA stood at EUR 84 million, down 17% quarter-on-quarter, reflecting EBITDA margin of 18%. Quarter-on-quarter, the EBITDA decreased mainly due to the sharp price reductions, partially offset by strong volumes and variable and fixed cost savings. Navigator sales price fell across all segments quarter-on-quarter, following the drop in key benchmark index. We witnessed a strong rebound in pulp sales versus Q2, plus 31,000 tonnes, driven by the market recovery in Europe and overseas despite our selective sales strategy amid sharp price drops. In uncoated woodfree and packaging, we sustained volumes, offsetting the typical seasonality of the third quarter. We saw a good trend regarding production costs. Wood costs were down due to lower prices and lower extra Iberian purchase. Energy and chemical costs also decreased due to lower prices. External fibers were also down as a result of lower market prices. As Antonio already mentioned, pulp and tissue cash cost dropped this quarter to near their lowest since mid-2021, while paper cash costs reached a two-year low. Turning to Slide 8 with debt maturity and liquidity. During the first nine months, we repaid close to EUR 400 million in debt, including EUR 275 million early repayment, strengthening our debt profile and increasing the share of sustainability linked instruments. We also secured EUR 365 million in long-term facilities with EUR 140 million still available, including an European Investment Bank loan, EUR 40 million to support the decarbonization projects with no significant payments due in the next five years. We raised EUR 225 million new debt with a seven-year maturity, extending our average debt maturity to 5.2 years from 3.5 years in December. We also raised the weight of sustainability-linked debt to 79%. After this debt renegotiation cycle, Navigator reduced its debt repayment commitments to very low volumes over the next five years, hence ensuring the reduction of its average credit spreads and increasing the weight of the debt raise and the ESG requirements. At the end of the period, 78% of our debt was on a fixed rate basis. It should be noted that despite the rising interest rates in relation to our last financing cycle, our average cost of financing at the end of September remained low at around 2.6%. The unused long-term credit facilities currently totaled EUR 140 million. Turning to Slide 9 with an overview on CapEx. The high strategic CapEx cycle start in 2023, boosted by the NextGenerationEU and innovation funds is coming to an end and expect to be phased by mid-2026. In the first nine months of 2025, CapEx totaled EUR 160 million, of which approximately 61% of total corresponds to value creating environmental or sustainable investments. NextGenerationEU projects advancing on schedule, reflecting our strategic discipline and focus on delivering results with 77% is secured by the end of September in time within the PRR calendar and in budget. Moving to Slide 10, which presents key performance indicators. Let me highlight our ongoing commitment to operational excellence and long-term value creation with a strong focus on decarbonizing our industrial process and investing in innovative technologies that improve resource circularity and cost efficiency. This quarter, we achieved a significant milestone in our decarbonization road map, namely with two biomass power lime kilns in the operation at our Aveiro and Setúbal sites and the third biomass power kiln at Figueira da Foz is now in the start-up phase. These projects are designed to reduce both greenhouse gas emissions from pulp mills and the dependence on fossil fuels. Notably, the new lime kiln in Figueira da Foz will also make a very significant contribution to simpler use of resource by enabling reclamation of carbonate sludge, reducing the quantity of this waste sent to landfill by around 90%. Thanks to this investment, the Aveiro and Figueira da Foz mill will operate in 2026, producing around 9% renewable energy. The conversion of lime kilns from fossil fuels to sustainable biomass will open the door to the innovative use of Eucalyptus globulus, a byproduct from wood preparation operation as a renewable fuel. At the Setúbal mill, the conversion of lime kiln to biomass as this energy source will lead to a reduction in carbon emissions of around 17,000 tonnes CO2 emission license per year. In Aveiro and in Figueira da Foz, the project will allow a reduction of approximately 10,000 tonnes CO2 per year in each site. In Setúbal, this groundbreaking project has attracted support from the Innovation Fund, the European Union Fund for climate policy, geared especially to energy and industry and working to bring to the market solutions for decarbonizing the European industry and helping it make the transition to climate neutrality. The Aveiro project and the new lime kiln in Figueira da Foz have been partially financed by the NextGenerationEU funds. Together, these three projects represent a total investment of approximately EUR 60 million. This innovation substitution of fossil fuels will improve the cost base of the pulp production process. It once again demonstrates Navigator commitment to operational efficiency and underlines how its actions are aligned with the principles of sustainability in transforming waste into value and taking real steps to consolidate the group's circular economy strategy. Antonio Quirino will now comment on pulp and paper price. António Soares: Thank you, Fernando. Turning to Slide 12 with pulp and paper prices. Between April and August this year, the hardwood kraft pulp price index in China sharply decreased, strongly influenced by overcapacity in the pulp and paper sector in view of the current situation of severe tensions in international trade and the reduction in demand in several paper segments in Western markets. The price dropping cycle bottomed out at a price of $493 per tonne, which is down by 18%, the lowest since 2021. Although this downward cycle has been shorter than previous cycles, it started from a significantly lower peak, reflecting a structurally weaker base than in preceding cycles. In Europe, the benchmark index for hardwood pulp, the peaks hardwood kraft pulp in dollars rallied to $1,218 per tonne in April, up 22%, only to lose ground again in the months that followed, returning to $1,000 per tonne in August, down by 18% as well and remaining at that level until the end of September. In both regions, China and Europe, prices ended the third quarter on an upward trajectory. Moving to paper. The benchmark index of office paper in Europe, PIX A4 B-copy stood at an average of EUR 1,023 per tonne in the first nine months, which is 8% down on the same period last year, but 21% above the pre-pandemic average of EUR 847 per tonne in the period of 2015 to 2019, but below 25% from the 2022 peak. As we review Navigator's performance in Europe, I would like to highlight our approach to sales pricing, which closely track the evolution of benchmark indices. We pursued two different strategies. First, we placed greater emphasis on economy products. So this allowed us to increase our sales volumes, though it did have some impact on our overall product mix. This strategy enabled us to offset the decline in imports into Europe by offering products with superior quality and stronger environmental credentials compared to typically typical imported papers into Europe, particularly those from Asia, while maintaining a price point above imports, but below our premium and standard ranges. At the same time, it allowed us to continue supporting our most loyal premium customers with this economy offerings. Second, we maintained price premiums on our value-added product. This strategy ensured that our pricing on premium and standard products remained favorable compared to the market index and specifically for A4 B-copy PIX. It's important to note that in international markets, our prices were affected by two other factors, namely the weaker dollar and the decline in the pulp markets in China. This dual approach has helped us remain competitive and responsive to market dynamics, balancing volume growth with value retention. Moving to Slide 13 on printing and writing paper market, we see that the global apparent demand for these papers fell by 2.7% until August. Specifically, uncoated woodfree paper remained the most resilient, falling 1.6% this year, which is aligned with historical average market decline, and this compares with 5.1% decrease in coated woodfree papers and 4.2% decrease in mechanical fibers papers. In Europe, the apparent demand for uncoated woodfree paper fell by 6.4% until August, driven specifically by a reduction in imports that were 11% below the same period of last year. In the United States, demand slipped by just 1%, while the closure of a major mill drove import reliance at 31% year-on-year, leveraged by tariff expectations. With capacity cuts and duties adding pressure, prices have climbed and are likely to remain strong with more increases forecast through 2026. In the first nine months of 2025, Navigator grew its share of total deliveries from European mills by 1.2 percentage points year-on-year, reaching about 26%. This was driven by strong gains in international markets at 6 percentage points, while our European share remained steady at over 18%. Navigator's operating rate rose to 87% in the first nine months of the year, 7 percentage points above the same period last year. Meanwhile, the industry rate as a whole recovered slightly from 80% to 81%. These developments enabled Navigator to strengthen its order intake market share by 3 percentage points globally to 27% and by 2 percentage points in the European market to reach 19% year-on-year. Now moving to Slide 14 to discuss pulp market. As Antonio mentioned previously, from April through August, there was a steep downward adjustment in pulp prices. In terms of demand, global demand for hardwood pulp grew by 8% year-on-year until August. China remaining the main engine of growth with an impressive increase of 12% due to the continuous in new paper capacities in several grades followed by the rest of the world with a 9% increase. In contrast, demand in Europe continued to fall following the shrinking consumption of printing paper, as mentioned before, edging down by 1%. In the U.S., demand dropped by 1% as well after heavy restocking over the same period last year. The strongest global growth was for eucalyptus pulp, which was up by more than 10% in the first eight months of the year, with China growing impressive 14% and Europe in line with the same period of last year. This performance has consistently boosted Eucalyptus share in the hardwood reach segment on the chemical pulps. On the supply side, the ramp-up of projects on the pulp side that were brought online in 2024 increased the availability of market pulp in 2025, exerting pressure on operating rates. Even so, factors such as growing consumption, maintenance shutdowns and recently announced cuts in production helped to balance the market and sustain the activity of hardwood producers in the first nine months of the year. The global pulp market will continue to be influenced by China, where growth in domestic consumption and projects for new tissue, paper and board capacity have shaped the market balance. However, a significant proportion of these new lines are still at the initial start-up stage, which could mitigate the impact in the short term. Doubts also mounting as to the region's ability to supply wood sustainably for the new capacity. In Europe, stock levels remained relatively stable. In China, although stocks at ports have been building up since January, analysis of paper production suggests that this growth is proportional to the expansion of their industrial operations and not an anomalous accumulation. The ratio of stock of days of production has been stable in recent months, pointing to a balance between supply and demand. Our sustained competitive advantage is anchored in the uniqueness of Eucalyptus Globulus, eco-efficiency and fiber quality. On a positive note, as Antonio mentioned, our pulp cash costs ended Q3 at the second lowest level since mid-'21, down 20% from January to September and 19% quarter-on-quarter. Moving to Slide 15, covering the tissue market. We see that after a substantial growth of 6.3% in 2024, Western European demand for tissue was up year-on-year by 0.6%. Navigator's tissue sales volume, finished products and mills grew to 177,000 tonnes, a 14% increase compared with the same period of last year, with sales up 17%, boosted by the integration of Navigator Tissue U.K. in May last year. The recent acquisitions in Spain, '23 and the U.K., '24 have enabled us to balance our geographical mix and creating greater resilience in our tissue business. Finished products accounted for 98% of total sales, while wheels accounted for the remaining 2%. The at home or consumer retail segment has grown in importance and currently accounts for around 83% of sales. The away-from-home segment, wholesalers, the Horeca channel and offices accounts for the remaining 17%. The highlight of the quarter in the Tissue segment was the business in Iberia, which recorded its best ever quarter in sales of finished products. We continued with the integration of the U.K. operation with increased collaboration between local and Iberian teams, aiming to boost cross-selling opportunities between markets, optimize the portfolio and identify and implement further cost cutting and efficient opportunities. Navigator also launched a strategic plan to consolidate its U.K. tissue rolled operations, building on an already efficient model to achieve even greater competitiveness and alignment with best practices. Moving to Slide 16 on the Packaging segment, we see that the global market for machine glazed and machine finished kraft papers grew by approximately 11% year-to-date August, reflecting its strong performance. In this segment, Navigator sales were up 7% year-on-year in volume compared to last year, thanks to a rise of 1% in price and a 7% increase in volume with a 10% growth in the area of paper sold due to an increased penetration in low grammage segments according to the strategy. Navigator has been developing and investing in the gKRAFT sustainable packaging segment, offering alternatives to fossil-based plastics and supporting the transition to renewable low-carbon products. gKRAFT brand has won market recognition, achieving a 15% growth in new customers opened during the period of year-to-date September with a presence now in more than 40 countries worldwide. The top performance in the period was the release liner products, together with solutions for food and nonfood packaging, which are strategic priority areas for our business. These segments benefit more significantly from the use of lightweight papers, where the Eucalyptus Globulus offer significant competitive advantages, both economically and technically. MG and MF kraft papers or machine glazed and machine finished kraft papers are used in similar applications such as bags, sachets and several flexible packaging items. Traditionally, machine finished is a slightly lower cost alternative with inferior surface quality in comparison with machine glazed. However, with the conversion of PM3 in Setúbal, production of machine-finished kraft papers in the gKRAFT range will be able to compete with machine glazed on quality. In Europe, machine finished kraft paper for packaging purposes is produced by paper suppliers who typically can only ensure products above 60 grams. The overwhelming majority of the paper machines able to produce below 40 grams are old, small and nonintegrated machines and aimed at the machine-glazed kraft papers. The rebuild of the PM3 machine in Setúbal takes advantage of Navigator's vertical integration and the cost efficiency of the Eucalyptus Globulus fiber for production of distinct top quality kraft papers. As a result of this project, Navigator will move up to fourth place in the European league table of low-grammage flexible packaging manufacturers, strategically consolidating its presence in the segment where demand is surging. In order to ensure that the asset maintains its flexibility and it is adaptable, the project has been designed to allow, if necessary, the production of different grades of uncoated wood-free paper, guaranteeing our capacity to respond to market dynamics and preparing us for future scenarios. I will now hand over to Antonio. Antonio Redondo: Thank you, Quirino. Let's please turn to Slide 17 with a wrap-up of the Q3 and nine months results. Our diversification strategy is paying off. The diversification to higher growth and less cyclical markets such as tissue and packaging, although more dependent on end user consumption, reinforces the company's long-term value creation and resilience. In tissue, we are successfully scaling our operations, expanding into new markets and positioning ourselves to further unlock long-term synergies that will drive sustained growth. In packaging, increased penetration in low-grammage segments confirmed the strong appeal of Eucalyptus Globulus fiber for the same, leading to a 10% increase in paper area sold compared to a 7% increase in sales volume in tonnes. By focusing on efficiency and cost management, we achieved a significant reduction in cash costs across all pulp and paper segment. We kept our focus on core operations, business transformation and innovation. We carried out value-added CapEx of EUR 160 million aimed at sustainable long-term cost efficiency, while keeping consistent conservative financial policies after high level of CapEx and EUR 175 million dividend payout. Let's turn to Slide 19 with a few words about the outlook. Let me now share our perspective on the current market environment and our outlook for the coming months. Globally, we are seeing a reduction in overall uncertainty and still moderate growth prospects. It's important to recognize the continued presence of risks, protectionism, economic fragmentation and financial vulnerabilities in major economies remain a concern. While a recession does not appear imminent, growth is still relatively subdued and ongoing uncertainty continues to weigh on investments and international trade. Despite the challenges and limited visibility, we are cautiously optimistic about short-term market development. We anticipate that conditions will improve, particularly in the pulp, tissue and packaging segments, where the printing and writing paper segment demand is expected to remain under pressure, although with uncoated woodfree presenting most likely again better perspective than other printing and writing papers. Regarding the pulp market, China continues to play a decisive role. Growth in domestic consumption and new capacity projects have shifted the market focus. That said, many of these new lines are still in the early stages, which should moderate the immediate impact. There is also increasing uncertainty regarding the region's ability to source wood sustainably for the expansions. As a result, we have seen pressure on global prices and a change in trade flows with China in growing. Notably, the third quarter of 2025 was the weakest since 2021 with prices averaging USD 500 per tonne in China. We believe this marks the bottom of the current price cycle as both China and Europe saw prices start to recover towards the end of the last quarter. In the printing and writing paper, the overall global outlook remains challenging and need a structural consumption downturn. Europe with strong uncoated woodfree demand contraction, while U.S. and remaining overseas markets with a more moderate fall. Global uncoated woodfree demand with minus 1.6% so far this year is in line with the last 10 years yearly rate. On the supply side, Europe has seen significant capacity reductions with recent closures removing around 430,000 tonnes annually, about 7% of the region's capacity. Another major European player is also facing financial difficulties, which could lead to further capacity cuts. European imports remain stable with no upward pressure. EUDR discussions continue and its implementation is expected to reinforce European pulp and paper market. Meanwhile, the U.S. market has shown great resilience. The closure of the country's largest mill accounting for 8% of total capacity has deepened the market shortfall with North American production estimated to lag 800,000 to 1.1 million tonnes versus North American demand. Another closure announced this quarter will remove 320,000 tonnes of uncoated woodfree capacity by Q3 next year, further increasing U.S. import requirements. Meeting this demand will depend on a select group of countries able to supply products meeting U.S. market stringent specifications, primarily manufacturers in Europe and Latin America. Latin American suppliers, however, are facing the prospect of higher tariffs, both antidumping duties and custom service than those currently imposed on European imports. In response, U.S. producers may focus on their domestic market, potentially creating opportunities for competitors in their existing export market. Despite this complexity, new opportunities are arising in the uncoated woodfree market. For example, Mexico's customs tariffs on Asian imports and Colombian tariffs on imports from Brazil are providing competitive advantage for Navigator in these countries, supporting sales and expanding our footprint. In tissue, demand has increased by an estimated 0.4% so far in 2025, with annual growth expected to hold steady at around 1% through to 2029. The integration of Navigator Tissue U.K. is progressing with stronger collaboration between the local and Nigerian teams, unlocking cross-selling, optimizing the portfolio for higher-margin products. To strengthen our market position and operational resilience, we have launched a strategic plan to consolidate our U.K. tissue roll operations in two sites, Leyland and Leicester, reducing sites from five to two, integrating production and storage for greater efficiency, scalability and cost competitiveness, building on an already efficient model to achieve even greater competitiveness and alignment with best practice. Regarding a new tissue machine, the final investment decision is anticipated by year-end 2025. Packaging continues to perform strongly with growth in sales and price. Our project to convert the PM3 paper machine at Setúbal is progressing as planned. This will elevate Navigator to fourth place among European manufacturers of low-grammage flexible paints, consolidating our presence in a segment with robust demand. Navigator's integrated management, sound financial position and our ability to respond flexibly to market demand from forest to finished products are enabling us to face these challenges and prepare confidently for the future. Continued development and diversification of our business base will further reinforce the resilience and sustainability of our business model. The next slide provides a quick update on our operational excellence initiatives. Amid the ongoing global uncertainty, Navigator is proactively strengthening its resilience through several targeted initiatives under a program called Operational Excellence Initiatives 2025, 2026 as already announced last quarter. Keeping its focus on high operational standards, the company has launched internal programs designed to act on different fronts to protect results. These involve programs for the optimization and reduction of variable costs by streamlining specific consumption of raw and subsidiary materials, seeking strategic negotiation with suppliers as well as logistic cost reductions. The company will also step up its commitment to Iberian wood, promoting local and sustainable fossil fuel. in this first quarter is already visible the impact of some of the measures implemented. As mentioned in our previous call, Navigator is advancing its operational excellence through a robust investment in AI, namely advanced process control solutions aimed at enhancing process stability, efficiency and product quality. The company has successfully deployed third-party APC systems, two in classification processes and value of breaching with two more in the pipeline, while it is also developing proprietary machine learning algorithm solutions internally. These include optimization of precipitated calcium carbonate incorporation and reduction of variability in tissue grammage control and integrated control of thickness, grammage and reference in uncoated woodfree paper production. This multipronged approach reflects Navigator's commitment to innovation and continuous improvement and across its industrial operations. We're also focusing on improving efficiency by cutting fixed costs, mainly freezing headcount and optimizing running costs. We continue to invest in reliability by speeding up implementation of the asset performance management, APM system and executing specific action plans to build up teams and improve systems for asset management, maintenance and reliability. Along CapEx -- alongside this CapEx plans will be subject to careful review, especially as regards to scheduling, seeking to reduce projects in 2025 by approximately EUR 40 million, prioritizing those under the resilience and recovery program and those offering higher rates of return. Lastly, we will address our commercial strategy and market diversification by relaunching economic products, being more aggressive with low-end products in the face of the current economic situation, while protecting the margins and volumes of premium products. With a positive perspective following the decisions of the European Commission on 24th of April 2025, the ERSE, the energy regulator in Portugal on 22nd of July, a revised third-party access tariff for less intensive customers has been set. Navigator installations in high and medium voltage will benefit from rant discussion on those tariffs between May and December '25. In addition, with approval of increased support for indirect CO2 costs in Portugal through the environmental fund. This support, we must say, has been both delayed and very modest, especially when compared to the more substantial measures provided to our competitors in several other European countries, notably in Spain, in France, in Germany, and in Finland. Business diversification and innovation in products remain at the heart of Navigator strategy, especially in the tissue and packaging segment, where there is still great potential for growth. Thank you. Ana Canha: Thank you, Antonio. This ends our presentation. We are now open for the Q&A session. Operator: [Operator Instructions] Our first question comes from Cole Hathorn from Jefferies. Cole Hathorn: I'd just like to follow up on your office paper business. In a challenging demand environment, you've done exceptionally well. So I'm just wondering on your commercial strategy, how did you maintain the stronger operating rates of kind of 87% versus the industry? Was this a real focus on the economic products to keep your operating rate elevated. I'm just wondering commercially how you drove the better operating rates in uncoated woodfree. And then I'm also just wondering, sticking to Europe, was there also something around one of your competitors or some of your competitors dropping the ball commercially? Just wondering if it's a bit of both. Antonio Redondo: Okay. Thank you for your question. And I'm trying to rephrase it just to make sure we fully understand them. I will give some elements to the answer, and then I'll ask Quirino to follow up. Your first question is focused on office papers. And you realize that our results are quite resilient under the present situation, and you would like to understand how this resilience can be explained vis-a-vis our European competitors. Is this right? Cole Hathorn: That's correct. Antonio Redondo: Okay? And the second question is if you believe that some of our European competitors have dropped the ball under the same context, I understand. Cole Hathorn: Yes. Antonio Redondo: Okay. I will give you some elements of answer and then Quirino will follow up with more details. For the first question, I think there is not a silver bullet. We didn't perform one single action that allow us to be significantly more resilient than our competitors. First and probably foremost, we have a unique product quality that is second to none to anybody else in the world. And we have very, very strong brands. And I think, again, this quarter, our quality has proven to be very differentiated from our competitors. And in an environment where people consume less products, they probably can afford to choose better products. At the same time, our brands have a very large recognition in the world, but particularly in the markets where we are in. The second element, I think, is related with our sustainability practices and our sustainability reputation. We didn't saw and we are not seeing any drawback any decrease on sustainability when choosing papers, namely office papers and filling and writing papers. And we have the sustainability credentials that we show, we prove, we demonstrate, again, second to none in the group. The third element is probably related with our geographic spread. We are very much present in the corners of the world, if you will, with a strong presence in Europe and a growing presence outside Europe, which I think also Quirino demonstrated. I will stop here on the first question. I will ask Quirino to complement what I've mentioned. And then we can also explain how economic products has helped us to support the high end. António Soares: Absolutely. Thanks for the question. So I think Antonio mentioned the key points. So we see a strong resilience on our premium and branded offering products in the market. And this is related with the fiber and the quality of the products, which is very appreciated in the market. So I think this is really, as Antonio mentioned, a strong element to the answer. The other one is in geography. Actually, our coverage of around 130 countries in the world provide contrary to some of our smaller competitors in Europe provide an insurance, let's say, because we're covering several regions, we take profit from local regional growth. We did see the Americas, both in North America and Latin America quite positive for us as well. Don't forget that we saw this year also a decrease in imports into Europe, which was also helping the European industry to find some space. But your question relates to our comparison to Europeans. So imports is not an element to answer this, but it helps everyone, I would say. And I would just comment on what I mentioned before on the dual pricing strategy where we continue to protect more the price -- decreasing less the prices on the premium and branded products. But we went more strongly into the economy market with our partners, supporting them on their needs of economy products now that imports are reduced. And so this increased penetration in economy products also boosted our operating rates compared to European mills. Antonio Redondo: Regarding your second question, I think we can -- sorry, regarding your second question, I think we can concur with you. What we have seen so far is exactly in a market where demand is shrinking in some regions more than others. We see a significant amount of competitors leaving this market, either leaving to other markets or just, as you said, dropping the ball. This was the case clearly in the States, as we mentioned, with one large mill announced for this year, actually already stopped and another one preannounced for next year. We had a sale towards the end of last year and early this year in Europe. And without naming competitors, I think we can keep on seeing the same pattern. If you just look to the results and keeping the geography around if you just look to the results of our European competitors in Q2 and Q1 this year, I think it's easy to understand that some of these companies will never be viable. So in a market that is going down in terms of demand and lacking strong elements of competitiveness, I think it's a question of time before we see others keep on reducing capacity. Cole Hathorn: And maybe just as a follow-up, your cash costs, you have on Slide 14, your cash cost going down 19% quarter-on-quarter. That's a very big reduction in cash costs. We've seen some of the Nordic players talk about lower wood costs. We've seen some easing of wood costs after a rally in wood costs, but most people are talking about an easing of costs into 2026. So I was just surprised to see cash costs coming down so much for Navigator. So I'm just wondering if you could give a little bit more color of what drove the lower cash cost. Is it wood? Is it just better operating rates? Is it your own self-help initiatives to reduce chemical energy consumption? Any color would be helpful. Antonio Redondo: Okay. So if I understand correctly, you'd like us to give a bit more color on the cash cost reduction, correct? Cole Hathorn: Yes, please. Antonio Redondo: So the cash cost decreased in all different segments. They have decreased in pulp, they have decreased in uncoated woodfree and packaging and they have decreased in tissue. The ones that you mentioned that are in our Slide 14 are specifically referring to pulp. And let me add the following. I think probably we have a couple of elements here. One, as we have seen, our cash costs are on top at the level of 2021. So it's a significant reduction on 2021. Having said that, we had an increase of cash costs in Q1. So we are comparing Q3 with the Q1 where we had higher cash costs. At the time we explained, this was mainly related with energy and chemicals. So the different elements that we have mentioned, they all play a part here in the reduction. I think we can also say that in between September and January this year, our total cash cost dropped 20%. So you see the big impact that we are trying to have on cash cost control. What are the main elements? For sure, energy and chemicals that have a bigger impact on the first quarter of the year. Also, wood is mainly by managing wood origins by managing the sources of wood. And also, we have managed to keep in control fixed costs. Of course, when your operating rates are improving, you have also an efficiency element on it. I will pass to Fernando if he wants to add something. Jose de Araujo: No. Perhaps on the fixed cost that is on the payroll side, at the beginning of the year, the expectations for the year were higher than the ones that we have now. And part of our payroll expenses are related with the performance of the company. This means it's also some justification for the declining in the cash costs in the period. Related to direct costs, it's like Antonio said, the energy, chemicals and the wood. Part of it is price and part of that is management, the proportion of wood available from different sources and trying to be more efficient on the operational side. Antonio Redondo: Following up the comments from Fernando,, let me just add one thing about HR, which is we took the decision on -- already on the second quarter. We announced it when we present second quarter results as a freeze in recruitment. So we are managing our operations with, I would say, a more limited number of people, which is a challenge because in some areas, we are building new equipment, we are building operations, we are growing. In some other areas, we are not. So we are balancing people between different operations to keep costs under control. Operator: Our next question comes from Bruno Bessa from Caixa Bank BPI. Bruno Bessa: I have three, if I may. The first one, you mentioned an improvement in terms of your backlog for the Q4. Just wondering whether this is a pure seasonal effect or if there is an upturn in terms of demand that is above the usual pattern in Q4. This will be the first question. The second question regarding paper prices. In the last cycle trough, you control quite well the price level because you reduced you and your competitors reduced the average capacity utilization rate. My question is why aren't you doing the same this time around? What has changed in the market for you not to follow the same strategy this time? And the third question, we saw a relatively weak quarter on volumes in the tissue business following on a year-on-year basis. Just trying to understand what is behind this effect, if there is any kind of one-off impact in terms of production? And what are your expectations for the upcoming quarters? Antonio Redondo: Okay. Thank you. Again, for sake of clarity, I'm going to try to rephrase the questions and I will give some elements of answer. I will ask my colleagues to help on replying. So your first question is about the improvement of backlog. I think you are referring to uncoated woodfree and you'd like to understand if this is demand or purely a seasonal effect. Bruno Bessa: Correct. Antonio Redondo: Okay. Thank you. Your second question is that you believe that previously this industry a better discipline on pricing and we try to understand what is happening right now. Bruno Bessa: That's correct. Antonio Redondo: And the third question is about tissue. You saw coming to what you were expecting weaker volumes on Q3. And would like to understand if this is one-off impact or any issue regarding our mills. Bruno Bessa: That's it. Antonio Redondo: Okay. I will give elements over three questions. For the first two, I would then ask Quirino to follow up. And for the third, I will ask Nuno also to comment. So starting with backlog improvement. A very quick comment, and Quirino will detail much more than myself. This is much more than seasonal effects. We are actually conquering, if you will, market share. I think we have shown that in one of the slides. We are conquering market share in order intake. Quirino can elaborate a bit more why we are doing that, but some elements of that have already been given, namely by enlarging our product offer with adding new -- not new, adding products that we didn't have before. On paper prices, I think we agree with you. We see the same. We see that the discipline of the market this time was not at the level that was before. We, as a market leader, try to keep prices and provide actually an umbrella for prices where the majority of our competitors could protect themselves, but they choose not to do. They choose to -- in spite of that to lower prices and, of course, we are also reacting namely with low-end products. Look, I'm not sure if I mentioned this in one of these calls, but I mentioned this very often. There is a very famous sentence from Robert Crandall. Robert Crandall was the CEO of American Airlines after the liberalization. And he said the airline industry was run by the dumbest competitor. And I think this applies also to pulp and paper. I mean no matter the effort that we, as a market leader, do to protect prices, some of our competitors, I guess, out of the aspiration, I go back to the first question that was raised by our colleague from Jefferies. Out of the aspiration, they just give up drop wall, I think was the expression and decreased prices. Nuno, do you want to follow up, please? Nuno de Araújo Dos Santos: Yes. So on the backlog on Q4 is a bit seasonal, but more than seasonal. So we see -- first, we are getting our market share in deliveries, in sales. But what you see in backlog is actually our ability more recently to progress more in market share in order intake, which is a bit more forward-looking because these are orders to be delivered in the next few months. So we are progressing on that. Again, in the Americas, a bit in Europe as well. And in what we call the overseas markets, the North African and Turkish market, which also are picking up a little bit due to the opening of the upward trend on the pulp prices that we mentioned. So this is bringing more activity to the paper market as well. On the prices, only to agree with what Antonio said, I mean, with low pulp prices in -- during the number of months in a row with a portion less now than in the past, but with a portion of players which are nonintegrated, operating on average. Our competitors were, on average, at a lower level. You listened for sure that on average, including us, the uncoated woodfree industry in Europe was operating at 81%, so slightly up from 80% last year, but we increased much more than the market. So our competitors are under severe pressure. So probably that's the explanation over there. Jose de Araujo: Regarding your third question on tissue, also an introductory comment and I'll pass to Nuno. First of all, no, we don't have any issue in our mills, so no operational issue, no one-off impact. The economic situation across Europe is not across the world, but particularly across Europe, and this affects tissue, obviously, that affects other brands, less tissue than other brands that also affects tissue. But also, we have been working on improving profitability and we have decided to net down some sales that we believe are not profitable for our objectives. Nuno, do you want to follow up, please? Nuno de Araújo Dos Santos: Okay. Can you hear me? I hope so. Antonio Redondo: Yes. Nuno de Araújo Dos Santos: Okay. No, basically, you said it all already. The market in tissue this year is slightly slower in terms of growth. I think we've said it versus last year, we were -- we have a 3%, 4% growth rate in the market. This year, European market, Western market has been growing at around 0.3%, 0.4% growth rate, which is relatively small, reflects the economy, some tendency for some consumers to trade a bit on specs. So instead of buying three or four ply products, they might choose a similar product, but with two plies or reduce a bit the kitchen rolls used at homes. But I mean, this reflects the overall economic sentiment on one side. And the second reason that Antonio also mentioned, we want to have sustainable and healthy relationships for both sides, always with our partners and clients and protect the long-term sustainability of the relationship. In some situations, it's better to drop a bit some volumes, but to protect the way we are able to serve those clients, and this is what we've been doing. But nothing that is concerning for others. Bruno Bessa: Okay. If I may, just a follow-up on the first question about the demand for -- and the backlog that you have. From what I understand, the improvement you are seeing is mostly driven by your market share gains more than an effective healthier end demand market at this stage, right? Antonio Redondo: Yes. The market in Europe in the latter part of the nine months is not significantly better than what it was in the beginning of the year. Of course, there is one positive impact is that imports are significantly increasing. And this, of course, also open space for long-term strategic suppliers to our customers. Operator: [Operator Instructions] Our next question comes from António Seladas from A|S Independent Research. António Seladas: I have three. First one is related with the different dynamics between Europe and U.S. regarding the printing and write paper. So U.S. is coming down by 1% and Europe about 6%. So what are the difference why the difference is so large, taking consideration that, I guess, the digitalization and all that stuff is more or less similar. Second question is related with saving costs at your U.K. tissue operation. If you can provide some color on it and when we should start to see the results on the profit and loss account. And last question is related with -- there were some provisions on the third quarter figures that you released last week. So I don't know if you can provide also some insight or explain why were these provisions. Antonio Redondo: António, sorry, I'm so sorry, but I think I can summarize the first two. I didn't at all got the third one. Can you please be so kind to say it again? António Seladas: Sure. There were some provisions on your profit and loss on your third quarter figures in your third quarter results release last week. So if you provide -- if you can explain why were -- what was the reason for the provisions? Antonio Redondo: Okay. I'm going to rephrase the questions just to make sure that we fully understand them. First one, you'd like to understand the different dynamics between U.S. and Europe in terms of the downturn so far this year? António Seladas: Yes, exactly. What explains the difference, so big, so large. Antonio Redondo: Okay. Okay? The second one, if I understood correctly, is about our tissue U.K. operation. And by saving costs, I'm not sure if you were referring about synergies or if you're referring about our project to consolidate into a smaller number of installations. António Seladas: It's the second one, in fact. Antonio Redondo: Second one. And the third one are provisions on the third quarter results. Correct? António Seladas: Correct. Antonio Redondo: I will give a quick comment on the first one and the second one, I'll pass then to Quirino or Nuno and the third one, Fernando will answer you. So the different dynamics. I think most likely, we cannot justify what is happening in the uncoated woodfree market no longer by digitalization because I agree with you, if it was purely digitalization, the conversion will be more or less the same, and it is quite significant. Having said that, let's not forget that the market downturn started in U.S. prior to Europe, a couple of years, three or four years prior to Europe. And in U.S. for probably quite some time, we see more an asymptotic behavior of demand. So I think the main explanation for the difference is the economic dynamics on -- between U.S.A. and Europe. But I will leave to Antonio to comment further. António Soares: I think just the same, if you think on the data between '19 and '25, if you compare 2019 with 25% and you average the average percent will increase in the market, the annual -- the compound annual growth rate is actually quite the same. It's 5.5% in North America per year from '19 to '25 with COVID in the middle and all of that and Europe as well, 5.5%. So as you mentioned, Antonio, there is a matter of timing where U.S. started to decline much before and now it's more an asymptotic with 1% decrease. Antonio Redondo: Regarding the cost savings in tissue by consolidating the operation, and before passing to Nuno, just to remember, we are doing this with an ongoing operation in five sites. and we are not buying new machines. So this process is a process that is relatively slow because we need to make sure that we do not let our customers down. So we can only migrate the machines when we are able to reach production in such a way that we keep on supplying our customers in a continuous way. Also, this implies a reduction of number of people and in some cases, a reduction, which is the most expensive. In some other cases, people moving from one side to the other. So if this takes people into consideration, you have from one side, our concerns with people like a company that is very much concerned with its HR. And also we have consultation processes with the employee representatives. So the process already started. It started around August to take significantly more than one year. Nuno? Nuno de Araújo Dos Santos: Yes. I think it might be worth stating even though that's not exactly the objective of your question, but we are addressing both fixed costs and structural costs, but also variable costs in the U.K. operation. So we have -- since we acquired the company last year, we have been performing a revision and the redesign of all cost items. So our paper costs are going down significantly, but also, let's say, the packaging materials, logistics, et cetera. So that's one big element that we are working on. Second, as Antonio mentioned, we are working on the fixed costs. First, of course, Accrol, as you know, as you remember, was floated in the market. We took out a lot of PLC costs and cost -- excess costs that a company that was independent and directly floating in the U.K. market required. Now we have started as it was announced in the process of restructuring and consolidation of our sites. We've just started. It's planned to last until last year. We will again optimize the cost structure of the company, and we will do this in order to have one of the most competitive and most efficient operations in the U.K. In addition to that, something that we are working also in parallel, let's call it the third element of it is increasing productivity of our lines and our plants for you to have an idea, efficiency when we started and we -- the company joined Navigator one year ago, 1.5 years ago was around the OE of the operation was around 30%, 35%. And since then, we have already improved it to 45%. So this is a technical industrial measure KPI, but it's worth mentioning that productivity on the lines, the production lines has also increased significantly over the last 16 months. So overall, we're working on all of these elements. Jose de Araujo: About the provision, the provision has two elements. One element is the fact that we will dismiss some people at the U.K. and that represents more or less 30% of the value. The remaining value regards different with a supplier in our investment phase that is asking works and things like that, and it starts with process. And despite the fact if you lose this will increase only the amount of investment, we have accounted a provision because we have some tax benefits on that. António Seladas: Okay. Just a follow-up question regarding the different dynamics between U.S. and Europe. Should we expect -- what kind of demand should we expect in Europe for next year? So I don't know if you can share with us your ideas. Antonio Redondo: This is the hundred million dollar question. Again, First of all, we cannot share what we have, but this is competitive information. But I think some of the elements that we gave you as an answer can provide you -- before I can provide you an answer now. If we believe this is very much linked to the economic situation across Europe, if we are positive that the economy next year is going to be significantly better, I think we will see a significantly lower decrease. If we believe that the economy is going to be more or less at the same level, we will probably see more or less the same type of decrease. Operator: Ladies and gentlemen, there are no further questions from the conference call at this time. We will now proceed to read the first question from the webcast. The question comes from Jaume Rey Miró from GVC Gaesco. And the question is, do you expect CapEx linked to ESG projects to keep these high levels we have seen in the last three years until you achieve these CO2 targets in 2035? Can we have a forecast in absolute terms for CapEx in general next year? Antonio Redondo: Okay. I'm going to give an introduction and then Fernando will follow up. ESG is not only decarbonization, but I understand that the main concern and of course, also the main CapEx so far has been decarbonization. If you probably remember the slide in our presentation, Slide #10, and you see that the emissions will be stable from 2026 to 2030. So we will drop vis-a-vis the reference here, which is 2018. In '26, we expect to drop 55% out of 86%, and in 2030, 58% out of 86%. So I'd say the large majority of the emission reduction is done. So purely decarbonization, the large majority of the projects are behind us. is why we are able to keep this level of emissions in the next four to five years. Of course, we are always willing to look to opportunities to speed up the decarbonization provided we find that the projects are value added and they are value added by themselves or Europe makes available funds to increase decarbonization and we increase the value added by using those sites. So, in short, a large majority of the ESG investments dedicated to decarbonization, which is the largest part, I would say that will be concluded by 2026 when we conclude the PRR, the EU Next Generation funds. Jose de Araujo: This means 2026 despite lower than the amount that we are expected to spend in 2025, it's still above our average investment. Antonio Redondo: Our average CapEx is around EUR 100 million and EUR 120 million. This means from 2027 onwards is what we would expect. Of course, without expansion CapEx. So the PM3 expansion, which will mainly in 2026 and using again grants from next-generation funds will be concluded by September 2026, and we hope to be able to take the final investment decision on the tissue machine by the end of this year and also the impact of '26 and '27. Fernando was referring this ballpark EUR 120 million is outside the normal maintenance CapEx without expansion CapEx. Ana Canha: This ends our session. Thank you all for your time. As always, we are available for any additional clarification through our usual contact. Have a great evening.
Björn von Sivers: All right. Let's kick this off. Welcome to VNV Global's Third Quarter 2025 Report Conference Call. On the call today, we have Per Brilioth, CEO, and Dennis Mohammad, Investment Manager, and myself, Bjorn Von Sivers, CFO of the company. I'll start with the high-level numbers of the report. And following that, we'll start with the portfolio overview that Per will run. And as a reminder, in the end, we'll open up for Q&A and easiest to do that in the Q&A function here in the Zoom. I will address those questions towards the end. Let's start with the numbers for the quarter. So as per September 30, our NAV stood at $587 million or USD 4.52 per share, which is down roughly 1.1% in dollars over the quarter. In SEK terms, NAV is about SEK 5.5 billion or SEK 42.5 per share, down 2% from the previous quarter. For the 9-month period, NAV is up in dollar terms, 2%, but down close to 13% in SEK given the large FX movements during the year. If you move to the next slide there, we have an investment portfolio that amounted to $652 million, consisting of roughly $581 million of investments and $71 million of cash and cash equivalents as per quarter end. Borrowings totaled roughly $91 million as per September 30, but we'll come back to that a little bit later. As you see here in the slide, we continue to trade at a material discount to the NAV. The share price as of yesterday was around SEK 23.60 per share, implying a 44% discount to NAV. I could highlight here that during the quarter before the blackout period, we did repurchase approximately 1 million shares before heading into the blackout period. And if we move to the next slide, just a short section on the main contributors to the fair value change. Largest company continues to be BlaBlaCar, valued at $184 million, our position, model-based valuation down 8% over the quarter or roughly $15 million. Voi also model-based valuation is valued at $137 million, up 7% or $9 million during the quarter. Numan is valued at $37 million based on transactions, so flat. HousingAnywhere valued at $36 million, model-based valuation down roughly 11% over the quarter or $4.3 million. Breadfast on transaction based $30 million, so flat. And finally, of the 6 top companies, Bokadirekt valued at $27.8 million based on the model, which is up roughly 18% over the quarter. All in all, these 6 names represent close to SEK 33 per share in aggregate or approximately sort of 77% of the NAV. And if we move to the next slide, finally, before jump -- handing over to Per, I thought given the plenty of developments in early Q4, we sort of highlight that the cash and debt movements post quarter ending. So again, we ended up Q3 with $71 million in cash. Post quarter ending, we received $9 million from the Tise exit and is expecting the remaining sort of $26 million related to the Gett transaction shortly. On October 3, we also completed a partial bond redemption of roughly $46 million. So resulting in sort of adjusted or pro forma cash position of $61 million that will take us to a positive net cash balance of approximately $16 million. With that, I thought I'd hand over to Per to go through the main developments and the portfolio companies during the quarter. Go ahead, Per. Per Brilioth: Thanks, Bjorn. And yes, picking up on that. So what you see on the left-hand side here is the actual portfolio as of the actual end of the quarter, and the one on the right is -- which looks pretty much exactly the same, but that has all these adjustments that Bjorn just went through, including paying down half the bond. So $16 million of net cash now feels great. We've sort of finally gotten out of this sort of debt overhang that we've had, and we move into a new investment phase, which we're all very excited about. Now I will touch upon these sort of main constituents on the portfolio in this call. So BlaBla, Voi, Numan, I think also Breadfast, what we -- there's not much to say about Housing, but I'd use this sort of landing page to just say that Housing down 11% is not -- is driven a lot by Airbnb. As you know, HousingAnywhere is like an Airbnb type of business in Europe. But in contrast to Airbnb, which is sort of weekends and 1-week holidays kind of thing, this is more medium-term rentals in Europe. And so Airbnb is just a very good peer. And so -- but hasn't -- for whatever reason, hasn't done so well of late in the stock market. So it's been -- it's had some impact on the parts of our portfolio, BlaBlaCar, too, but Housing, especially. Housing in general is doing fine. New management, I think we've talked about that before, which we're very excited about, and they're getting ready to sort of produce some serious growth there, which will be very exciting. But if we go on, the portfolio is, as Bjorn talked to you about, carries an NAV, which has our shares trading at like a 44% discount. We move into new investment phase, and there's just nothing better that we can invest into than the portfolio that we know so well and that we're so bullish about, even from the NAV level, you can buy that at sort of 45%, 44% -- 40% to 50% discount, that's -- it's very hard to find anything that matches that. So when we did get this cash taking us to net cash, we did restart this buyback program that we have been such large participants in over the past decade or so. And that feels really good. So 1 million shares -- around 1 million shares bought back before we went into the blackout and that continues now that we're out of the blackout. We are -- it's difficult to pinpoint down why this discount is there. We -- in some ways, we think it's great because it's a good opportunity for us to sort of invest our shareholders' cash in. But one thing maybe was the debt. The debt is now behind us with net cash, I mean, we paid down half the bond and the other half remains, but we have cash to pay that down. So we're in net cash. So maybe the news of that just takes a little while to work itself into the market. But we also -- this kind of discount sort of in our minds sort of may be reflective of a situation which is stressed for something, maybe stressed for cash. Maybe there's a portfolio that's in needs of cash. That's not our portfolio. This portfolio is roughly 80% of it is EBITDA positive. We carry Voi in this figure here with an EBIT positive. We talked about that before. You need to talk about EBIT at Voi. The rest of the portfolio, they don't depreciate and carry these sort of fixed assets that Voi does. So you can talk about EBITDA. But yes, and this is down somewhat when we're taking Gett out of the portfolio, but it's roughly the same. It's just a few percentage points behind -- below 80. So this is not a portfolio that is in sort of dire needs of large cash investments just to maintain our sort of ownership in these companies. On the contrary, it's a portfolio that sort of has over these past years and continues to sort of be profitable and beyond that, also a very growing profitability. We showed this at the CMD, and we like just to remind people that the growth in the portfolio and this is that the revenue level is accelerating between '24 and '25, you're looking at 40% plus growth. This shows you our pro rata of the top 6 companies. And so -- and in fact, and we don't have that here, but if you -- if we allow ourselves to with sort of -- very sort of [ sustained ] projections, look 2 years out, the earnings growth profile of these companies has grown to a level where if you compare our pro rata of these 6 companies EBITDA, EBIT for Voi and you compare that to the market value of VNV, you're looking at -- we're trading at an earnings multiple of 10 for these 6 companies. And then you get the rest, the remaining sort of 50 companies or so for free. And these companies are not worth 0. These are -- they may be smaller stakes compared to BlaBla, Voi, Numan, et cetera. But Flo, as you know, raised money at $1 billion from General Atlantic. Oura just made a big round. Ovoko is Europe's leading car -- marketplace of spare cars -- for car -- for spare parts for cars, et cetera, et cetera, et cetera. Tise, we just sold to eBay. So this portfolio, which you get for free, if you think with a multiple of 10 is really not -- is a portfolio that's very much alive and doing quite well. And also back to the sort of -- yes, it's difficult to value unlisted assets when there are no perfect peers in the listed market. But also within this sort of the rest of the portfolio kind of notion that we're talking about now, we have had also markups over this last period where -- I mean, there's been transactions in these 3 names, for example, which have been at a material sort of higher mark than where we were carrying them at. Tise was for cash, an exit to eBay. YUV, the company that's disrupting hair colored industry, as we know, big EUR 100 billion sort of industry. YUV is disrupting that. They raised money at a material uptick from where we had it. And Oura, of course, we have a very small stake in this wearable -- huge wearable company, but they did raise money, and they raised it at a large sort of premium to where we're carrying at. So it's good that we're -- we think there's upside in our NAV. Just a few points on BlaBlaCar. We sort of -- a reminder, I think everyone knows what this is. But one way to look at this is that it's a marketplace for long-distance travel. So there's a supply of cars, but also buses and in some smaller way, but also trains, all suppliers of long distance sort of means of travel. And they meet a very, very fragmented demand base that is looking to sort of travel long term. I think those of you who have sort of followed us for a while, I think you'll recognize this picture, which I think is especially good. This is if you come to the BlaBla office, this is sort of in the entrance. And every little dot here shows you sort of basically a BlaBlaCar trip happening. And so you can see sort of that across Europe, of course, with a heavy sort of emphasis on France, there's just a lot of activity going on. But importantly, also in emerging markets, and we sort of highlighted India here, you can see sort of patches of large activity, especially in the North, Mexico, but also Brazil, a lot -- especially along the coastline. We don't show Turkey on this map, but there's just 150 million passengers in 2025. I mean we haven't closed this year, but we're looking at that kind of figure, which then is sort of the calc of -- that this is every second 5 empty seats are filled. It's a fascinating thought. And yes, we -- the other thing that's important to sort of remember in BlaBlaCar is the sort of premium service that they sell. In some routes, there is increasing competition from city center to city center. This you can -- at some parts of the year, you can find cheap tickets to go by train, for example, from Paris to Madrid. Now those train tickets are probably below cost. So I don't know how sustainable they are. But importantly, sort of I think it's worth sort of -- for us to sort of double-click on the fact that BlaBlaCar is not city center to city center. It's of this -- as you see on this picture, it's from Quevilly, which is like this little town outside Rouen, and it's a trip from that little town outside Rouen to Orvault, which is a little town outside Nantes. And if either you take a BlaBla, a carpool product, takes 3.5 hours, cost you EUR 25. Your alternative is this 4 stopover sort of journey. You have to take the bus into Rouen, the bus into Paris, metro inside of Paris to go to -- from Saint-Lazare to Montparnasse, train down to Nantes and then another bus to Orvault, takes 6 hours, cost 4x more. So this is why -- and I've been using the service of late just to get reengaged with it. And this is what the customers of this company love so much. It's cheaper and it's just so more convenient. Just summing up, there's not that much going on around BlaBlaCar in the quarter. We marked it down a little bit. Multiples were down -- I mean, peer group multiples were down. Airbnb is, of course, a big sort of a very logical contributor to how we mark this. And we -- and as I was talking about earlier today, it's also where -- and we'll come back to Voi, Voi is sort of growing, and it's growing in sort of money, revenues and earnings. At BlaBlaCar, there's an enormous amount of growth happening, but it's not growth that sort of transforms itself into money and revenues and earnings over these next 12 months. We look out on the next 12 months. But Brazil and India, which we show here just contribute a lot to this enormous growth of passengers. Passengers grow when there's enough liquidity on the marketplace, this enormous GMV that you have in just these 2 markets will allow the marketplace to start to monetize. And then this not only grows in revenues, but it grows in revenues that falls directly down to the bottom line. So this being marked down does not mean that we're less enthusiastic about the prospects of this company. And as we go forward and as these unmonetized markets, which carry a GMV to the order of $0.25 billion, as that starts to be monetized, we'll see a market -- that -- the growth will transform itself into something that you can pick up in a financial model over the next 12 months, which doesn't capture all the stuff that's going on at the company today. With that, I thought if Dennis, if you could take us through a few words on what's going on at Voi. Dennis Mohammad: Yes. Thank you, Per. Voi has had a very strong performance this year with, as Per alluded to, revenue growth accelerating while margins have expanded significantly, which I'll get to in a minute. Looking at the VNV valuation in Q3, our EV/EBITDA model is up on Voi this quarter. While the peer group multiple is actually down, as a reminder, the pre-discount multiple, which you find in the report sits at 14.4x next 12 months EBITDA. And then we always take a 10% to 30% discount. So the multiple in use is not higher than 13x next 12 months EBITDA for Voi. But the company's strong performance has increased the outlook, and our model is therefore up around 7% in Q3 for Voi. This improved outlook is, I should say, further confirmed by the EUR 40 million bond tap, which the company completed a few weeks ago, which is funding 2026 vehicle CapEx. The bonds were placed above par at a price of 104.75% of the nominal amount, which corresponds to roughly 500 basis points until maturity, given that the original framework carries a floating interest rate of 3 months Euribor plus 675 basis points per year. And then the EUR 40 million will be used to buy new e-bikes and e-scooters for 2026. In Q3, the company continued to win tenders in cities such as Edinburgh, Essex and Glasgow and a couple more. But perhaps most importantly, and as Per alluded to in the Management Director intro to the report, we have now launched the e-bike offering in Paris. Paris is a tender we won earlier this year. But as of October 1, Voi is now operational with the e-bikes in Paris. And just within 2 weeks, Paris is already a top 10 city for Voi, and we expect to become the company's largest city with double-digit euro -- millions of euros in revenue contribution. We're very happy not only about the win, but also about the very strong start in Paris. Last on this slide, as you can see on the right-hand side of the slide, Voi actually yesterday announced that they have reached 400 million rides since inception. It took the company roughly 8 months to get to the first 1 million rides. I was working at Voi at the time, so I witnessed it firsthand. It then took around 3.5 years to reach the first 100 million rides, and Voi has now completed the last 100 million rides in less than a year. So yes, really compounding at its finest, as you can see on the rightmost graph here. If we switch to the next slide, what is very encouraging is that this growth in usage is also reflected in the P&L. As seen in the leftmost graph, revenue growth has accelerated significantly in the last 12 months ending Q3 of 2025. Voi has delivered around EUR 163.5 million of net revenue, driven by an increase in the fleet size, which you can see on the line graph to that graph, but also an increased revenue generation per vehicle. So we're actually generating more, if you will, like same-store sales despite increasing the fleet quite significantly. The company has grown this top line while expanding the vehicle profit margin. This is the second graph that you're seeing on this slide, and this is the margin after charging, logistics and repair costs, essentially the gross margin of the business, which now sits at 59%, an improvement that's driven by both improved vehicles, but also just continuing to hone operational excellence at Voi and heavy usage of data and everything from predictive maintenance to fleet allocation decisions to make sure the fleet is where the users are at all times. We're also seeing a significant increase in the adjusted EBITDA growing to EUR 28.3 million, which is approximately 17.3% margin in the last 12 months, primarily driven by the fact that central overheads have essentially remained flat. I think they're even down a bit despite this growth on top line, really showing the operational leverage in Voi. Looking at EBIT -- adjusted EBIT, the company has delivered around EUR 5 million of adjusted EBIT at a roughly 3% margin in the last 12 months, and we're seeing this margin expanding significantly year-over-year as well. This was negative in the previous LTM period. The last thing to highlight on Voi, which is not shown on this slide, is that cash flow from operations grew roughly 67% in Q3 alone this year, reaching an all-time high of EUR 19.8 million of positive cash flows. One should remember, this is a seasonal business with Q3 being the seasonally strongest quarter, but it is very encouraging to see Voi delivering almost EUR 20 million of cash flows in a single quarter and a real sign of strength for Voi. That was all I had on Voi, but I think I'll continue with a couple of words on Numan. As a reminder, Numan is a U.K.-based online health clinic offering personalized care on one digital platform to do everything from clinical guidance, medication, diagnostics and supplements. And I would say the biggest therapeutical area today is weight loss, primarily through GLP-1 medications and has been for the past 2, 3 years. Operational momentum remains very strong at Numan. The company grew around 130% last year with positive EBITDA and is on track to deliver similar growth in 2025, also with positive EBITDA. So looking over the last 2 years, we're looking at more than 5x growth on top line for this business. As already covered last quarter, they secured around $60 million of financing in Q2, consisting of both an equity round led by Big Pi Ventures and a growth debt facility from HSBC Bank. With the new funds raised, the company is now looking at investing into their platform and diversifying revenues and expanding their footprint. And in Q3, VNV values its stake in Numan on the back of this transaction. As a heads up, since the transaction is denominated in Great British pounds, our USD mark of Numan is down around 2% this quarter, but this is driven solely by FX on a GDP basis, the valuation is unchanged since it is on the transaction. Last, during the quarter, just worth highlighting, Eli Lilly increased their prices on their GLP-1 products. And while this at least initially created some volatility in the market, the impact on Numan has been quite limited, and we're happy to see that the company is trading in line with their ambitious budget year-to-date. That's it for me. Per Brilioth: And then finally, a few words on Breadfast from Bjorn. Björn von Sivers: Yes. So Breadfast, just a reminder, is our investment in the leading brand for online groceries and household essentials in Egypt. The company is continuing to grow really, really well, accelerating growth as of sort of August here, 2025, at the annualized gross transaction value, sort of gross revenue of $119 million. And the top right graph here shows that GTV development over the last few years in constant dollars. And more importantly, sort of this development is coupled with improving unit economics. So the below graph to the bottom right is the average store EBITDA or contribution margin 3, as they call it. And here from sort of an average 3% profitability level, it's increased by just being more efficient on costs and operational efficiencies to 10%. Breadfast also raised an additional $10 million during the summer from EBRD as part of their larger Series B2 funding round that kicked off earlier this year. And then also interesting and very exciting development is that they in early October, launched their fintech offering more broadly with the Breadfast Card, which is a sort of prepaid debit card, which will allow their users to use sort of the Breadfast platform also outside Breadfast's core offering. We're super excited about the company, and they continue to sort of go from a clearer to clearer path, coupled also with a more stable macro now in Egypt. So very exciting. Over the quarter, we valued this on the basis of this recent transaction at $30 million. With that, I thought I'll hand back to you, Per. Per Brilioth: Yes. I think that sort of concludes what we'd sort of talk about. And then we can move to Q&A. And Bjorn, do you want to remind people again how that sort of works? Björn von Sivers: Yes, sure. And also, as I said in the beginning, easiest is to use the Q&A function here in Zoom. I will try to go through the questions one by one. And I'll start with one here. Are there any of your current portfolio companies where there are upcoming funding rounds that you would consider it attractive to participate in and to increase your exposure? Per Brilioth: Well, in the larger ones here, there are no funding rounds really sort of planned right now. So that's really not that relevant. But in the smaller ones, there will be the odd one, but that we think -- that where we would participate, but those check sizes are really, really quite limited. So for the size that sort of matters, it's not really sort of on the table. So it leaves us with the cash liquidity to sort of buy back stock instead. Björn von Sivers: Good. And sort of a follow-up here, so that -- given that you're now in a positive net cash position, would you say that you're still focused on divestments and exits? Or will that activity sort of slow down going forward to more investing? Per Brilioth: Yes. I -- I mean, there are some things in the portfolio where -- which might lead to sort of more exits, but it's not really driven by us. It's more if a company sort of gets taken out like Tise, for example. I mean we were not sort of -- Tise marketplace growing very well, a good company and everything, but eBay came in and bought the whole company at -- well, way above our mark. So in terms of where in relation to the market, it's all good, and then they may still do a very good deal out of that. But -- and there's some stuff like that still going on in the portfolio here and there. But it's not that we are sort of actively sort of pushing anything out. I mean we -- the big exits that we've done that completed this transformation from being in debt to now being a net cash was essentially Gett and Booksy. And we still think that the -- those 2 sort of exits were done at decent sort of return profiles for us and decent marks. So not -- and also done in proximity to -- both of them were done around NAV. So yes, but -- anyway, sorry, the short answer is that there's no -- nothing sort of -- there's no exit that we're going to announce on Monday. Björn von Sivers: And then there's a few questions here on BlaBla and the first one. So do you have any sort of time line on the monetization in the newer markets such as Brazil and India, which has been in the media as of late? Per Brilioth: No. I mean the monetization, I mean, first out of Brazil is sort of starting now, but it's -- but as we remember also from monetizing sort of other marketplaces in emerging markets, it sort of starts small and then it increases over time. And then one can also sort of monetize this route and not that route and this region and not that region, all depending on where liquidity is at a level which -- where it becomes sort of conducive and good to monetize. So if I -- if you sort of ask me for a time line when those markets are fully monetized, sort of fully monetized as sort of maybe carpooling in France, which we're looking at like a take rate of 30% in some -- on some -- yes, 25% to 30%, then you're looking at definitely -- I mean that's probably like 4, 5 years out. In the meantime, the emerging market sort of GMV, which is today, call it, $0.25 billion will be much, much higher. And if monetization starts today -- I mean monetization can still start much earlier than that. But when you reach sort of take rates that are similar to France, it will take a few years. But we will -- as we go over 2026, when we talk again quarter-by-quarter, well, Q4 '25 and then into '26, I would endeavor to say that you'll have much more sort of visibility on how this has started, et cetera. So yes, we -- emerging markets, we have a lot of experience in emerging markets and see that the marketplaces in emerging markets can be monetized in ways that is very similar to developed markets. That's certainly the case for classifieds, and now BlaBlaCar is sort of a frontier product. We only see how excellence in monetization looks like in France and that market is, of course, solely sort of operated by BlaBlaCar. And so there's no sort of listed peer to point at. But if you're within the company, you see that this has a fantastic potential to monetize very well. And we feel that and know from experience that one should be no sort of stranger to monetizing emerging markets in similar sort of fashions to developed markets. We -- and within the portfolio, we have one country that is monetized and that is generating very large revenues and earnings for BlaBlaCar and that's Turkey. So Obilet in Turkey is -- that's probably like a $400 million, $500 million value if you'd sell that company today. Will Brazil and India be $500 million? I mean there will be much, much more if you give it a few years. So huge potential there. Sorry, I'm rambling on way off the question. Let's talk about another question. Björn von Sivers: Yes. And those were -- sort of a final question that we received from a few participants here on BlaBla as well is if we could provide some additional color on the sort of markdown over the quarter of 8%. What's the primary driver behind that valuation change? Per Brilioth: It's a mix of Airbnb type of companies being down. I think Airbnb is a big -- it's a very natural sort of peer to look at sharing economy, travel. So for those of you who follow that market closely, you'll see that, that's sort of not been -- I mean, that's down over the quarter, this last quarter. And the other one is still sort of adjusting the company, especially in Europe to a little -- we're in an adjustment period basically to where we see sort of growth and look like in Europe. So it varies a little bit from quarter-to-quarter that outlook. But once those adjustments are down, then we really see sort of the potential for pickup in sort of growth and activity. We expect the company to show a strong EBITDA this year. We expect that EBITDA to grow significantly to next year and to grow significantly the year after that. So that kind of growth will work itself out -- will work itself sort of into the way this company is valued as well, I'm sure. Björn von Sivers: Good. And then sort of another portfolio-related question here on Voi. Is there anything additional color you can provide around sort of a potential IPO or when Voi becomes ready to sort of go to public markets or similar? Per Brilioth: Sure, sure. Yes. No, Voi is sort of internally ready for an IPO, has been for quite a while. It's really run like as a public company. And of course, you can even say that it is -- I mean, it is a public company today since their bonds are listed, and they produce sort of quarterly accounts to the requirements of the stock exchange here in Sweden. So they are ready to list their equity, but they don't have to list their equity. They're funding themselves well in the debt market. They're -- it's turned EBIT positive. So they -- I think it's fair to assume that Voi will list itself if it makes a lot of sense for them funding-wise. And the way I see it is that what we have ahead of us is supposedly an IPO of their biggest competitor, Lime. Now Lime has -- there's been talk about IPO-ing Lime on Monday for the past 10 years -- no, 2 years or so, 18 months maybe. But -- so there's been a lot of talk, but it's never happened. From what we understand, Paris is a big market also for them, and the sort of renewal or loss of their license in Paris, which worked out to be a renewal, I think would have been an important thing to sort of have behind you if you wanted to go to public markets. So now that that's done, and there's still -- I mean, it's basically Voi and Lime and one more in Paris. But it's -- you can see across Europe, it's basically Voi fighting Lime and the other way around. So with that behind you, I mean, there's now much more noise about an IPO of Lime. And if IPO Lime and -- if Lime IPOs, sorry, and that becomes a successful IPO giving them access to a certain cost of capital, it's sort of fair to assume that the part of the industry that is ready to IPO will also IPO to sort of get the same cost of capital. So a successful IPO of Lime could be something that accelerates an IPO of Voi. That's just me. We own 20% of the company. There's lots of other voices around that. But I think that's the way to look at it. And -- but Voi doesn't have to IPO. It controls its own destiny, it can fund itself in the bond market and the private equity markets. So we'll just -- we'll look out and see if Lime IPOs and how that IPO goes. That will be interesting. Björn von Sivers: And then we have another question here on buybacks. Now with a bit more liquidity on our hands, how do you see buybacks going forward? Per Brilioth: I think you should assume that we will do buybacks like we've done in the past. I mean we bought back, and we distributed like $700 million -- is $750 million over the past 10 or so years, mainly through buybacks. And if you've sort of seen how we've done it over the years, we haven't chased the stock. We've bought on down days and picked up here and there. We're not doing this to sort of set the price of the stock. We're just using the opportunity that the market is giving us where we can sort of buy this portfolio, which we love and where we think there's a significant return profile at very reasonable risk. And from the NAV level, if you could buy that at a 40% or so discount, it's just hard to resist as an investment opportunity. So yes, Gett cash coming in, us moving to net cash, sort of restarted a buyback sort of period. We bought back about 1 million going into the blackout of this report, and we'll get going again now. So -- but there's nothing that we've communicated, and there's nothing -- we're not going to -- it's not as if we're going to buy back x amount of dollars or x amount of shares until Monday or next year or something. We'll just be very optimistic about it. But right now, there's nothing sort of material that we can do better than to buy back our own stock. Björn von Sivers: And then I think sort of we touched upon essentially all questions, but one final here. And that is sort of if you can pick 1 or 2 of your smaller holdings today that you think have the potential to become a new Voi or Avito in the portfolio and a meaningful contributor, which would you highlight? Per Brilioth: Well, I mean, if that sort of excludes the ones that show up on a pie graph like this because -- I mean, it's difficult to choose amongst your children. I mean I actually think BlaBlaCar has a fantastic potential. I know we're sort of -- it's been a tough few years with all these sort of environmentally sort of related revenues getting out of their mix and et cetera, et cetera. But if you exclude those, I mean, we have a few companies in this other part of the portfolio. And one that stands out is actually -- and we talked about it before. I think they've been part of our CMDs in the past, but you should look at Alva, which is one of the -- which is like an HR tech company here, and they're based in Sweden. It's run by some Avito alumni and some others. And so management is just excellent. We think they are very, very capable. They're sort of very, very focused on their product here, which is sort of basically LinkedIn 2.0, a CV is a crude way to sort of find the best employee and then for the best employee to find the job. They have a new way of doing that, which we think has got a lot of potential. So that we want to pick up on. And we'll also make a note to make sure that they may be present at the next CMD. We actually thought that we'd sort of not -- in these sort of quarterly reports, not only have you listened to us 3, but that we'd also maybe make some room for people like Alva, for example, to sort of talk about shortly in condensed way what they do and what's important for the next 12 months, et cetera, et cetera. I think -- yes, I think that will be interesting. Anyway, I'll pick Alva amongst all the children, but -- yes. Björn von Sivers: Great. Thank you. I think we've sort of touched upon all questions. If we missed one, please reach out offline, you know where to find us. Any final remarks, Per? Per Brilioth: No. Thank you, everyone, Bjorn, Dennis and everyone listening in. And we'll see you around. Yes. Björn von Sivers: Thank you. Dennis Mohammad: Thank you.
Operator: Good day, and welcome to the Franklin Electric Reports Third Quarter 2025 Sales and Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to introduce CFO, Jennifer Wolfenbarger. Jennifer Wolfenbarger: Thank you, Andrew, and welcome, everyone, to Franklin Electric's Third Quarter 2025 Earnings Conference Call. Joining me today is Joe Ruzynski, our Chief Executive Officer. On today's call, Joe will review our third quarter business highlights, then I will provide additional details on our financial performance, and Joe will make some additional comments related to our key growth and value drivers, along with our outlook. We will then take questions. Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the company's annual report on Form 10-K and today's earnings release. All forward-looking statements made during this call are based on information currently available, and except as required by law, the company assumes no obligation to update any forward-looking statements. Earlier today, we published a slide deck to accompany our prepared remarks. The slides can be found in the Investor Relations section of our corporate website at www.franklin-electric.com. With that, I will now turn the call over to Joe. Joe? Joseph Ruzynski: Thank you, Jennifer, and good morning, everyone. Thank you for joining today's call. Before we get into the details, I want to start with a few key takeaways from the quarter. Franklin Electric delivered another quarter of strong performance, in line with our expectations. The quarter was marked by growth across our end markets, disciplined execution, solid integration of our acquisitions and continued investment in our long-term growth priorities. Despite a dynamic operating environment, our teams delivered solid organic sales with both volume and price, margin expansion and solid cash generation. These results demonstrate the strength of our strong channel partners, commitment to delivering the best service in the industry and the diversified global portfolio that our customers trust. Q3 has shown our ability to manage through varying macro conditions and drive profitable growth. Our teams were able to overcome some challenging weather conditions, regional headwinds, slow existing home sales and relatively few housing starts to ultimately deliver solid results. Our resilience is in part attributable to ongoing price and cost actions, which continue to prove effective. We also maintained strong cost discipline through the quarter, with SG&A improving as a percentage of sales despite several onetime acquisition-related costs. As we navigate the near term, we remain focused on our strategic priorities, advancing several key initiatives this quarter, pushing on the pace of innovation and completing several capacity expansion projects that position us well for the future. With a global footprint, strong balance sheet and operational excellence, we are building enduring advantages that distinguish our business and support long-term value creation. Moving to Slide 4, I want to take a moment to thank our Global Franklin team for their commitment to our customers and to each other. My first year has brought change and an agenda of growth and innovation and market conditions that make great results challenging. We have 2 new officers that started in the third quarter, and our team has done a great job of getting them up to speed and welcoming them to our Franklin family. Our culture is strong, and our team is getting stronger. My very humble and sincere thank you to our Global Franklin Electric team. Turning to our results on Slide 5, consolidated sales for the quarter were $582 million, up over 9% year-over-year with strong organic contribution. Importantly, pricing was positive as we continue to offset tariff impacts and manage impacts of inflation through disciplined pricing actions. Gross margins were up 20 basis points and operating margins grew by 80 basis points, reflecting strong execution, cost control and volume leverage. Looking at our business segments, Water Systems sales increased 11% year-over-year, driven by price, volume and acquisitions. Our ability to deliver both price and volume growth this quarter reinforces the strength of our competitive position and demonstrates that our pricing initiatives are holding up well in the market. Performance was solid across various regions with strength in Europe, the U.S. and Canada. U.S. and Canadian markets continue to perform well despite softer housing starts, underscoring our resiliency and ability to capture share even in the challenging environment. We're also encouraged by the results of our -- of several key product lines with groundwater exhibiting momentum and water treatment continuing to gain share and grow organically throughout the year. In Energy Systems, sales were up nearly 15% year-over-year, reflecting strong growth in the U.S., Europe and India. As we discussed last quarter, Q2 represents a seasonal peak for this business, and we expected a moderation in Q3 due to timing, product mix and tariff impacts. Continued price realization efforts will take effect over the coming months, which should help offset the tariff pressure we saw in Q3 and preserve margins as we move into 2026. Order intake remains healthy. The backlog is up, and we continue to see steady demand across the end markets. Our critical asset monitoring business continued to gain traction in the quarter due to deeper customer adoption and ongoing channel expansion. In distribution, sales were up 3.4%, driven by both price and volume. This marks the strongest pricing performance we've seen in this business in more than 2 years and reflects the effectiveness of our self-help initiatives. Our channel inventory is down slightly year-over-year and healthy. This is mostly due to stronger performance in our supply chain and shortening of lead times through our value chain. From a macro standpoint, conditions remain variable and residential construction activity remains subdued, leading us to maintain our focus on disciplined execution in this environment. We continue to perform well relative to the market, supported by strength in key product categories and solid channel relationships. Our wide portfolio and strong customer intimacy provide important earnings durability across evolving market conditions. With that, I'll turn the call back over to Jennifer to discuss the financial results in more detail. Jennifer Wolfenbarger: Thank you, Joe. Moving to Slide 6, our fully diluted earnings per share was $0.37 for the third quarter 2025 versus $1.17 for the third quarter 2024. The company terminated its U.S. pension plan for approximately $55.3 million pretax and an estimated EPS impact of approximately $0.93 per share. Our adjusted fully diluted earnings per share was $1.30 for the third quarter 2025 versus $1.17 for the third quarter of 2024, up 11% versus prior year. Moving to Slide 7, third quarter 2025 consolidated sales were $581.7 million, an increase year-over-year of 9%. The sales increase in the third quarter was due to the incremental sales impact from recent acquisitions and higher volume and price in all 3 segments. Franklin Electric's consolidated gross profit was $208.7 million for the third quarter 2025 up from the prior year's gross profit of $189.7 million. The gross profit as a percentage of net sales was 35.9% in the third quarter of 2025, an increase of 20 basis points compared to the prior year. Moving on to SG&A expenses, we have seen a 60 basis point improvement in our SG&A as a percentage of sales metric as a result of cost improvement actions taken in the last year. SG&A expenses were $123.5 million in third quarter of 2025 compared to $116 million in the prior year. The increase in SG&A expenses was primarily due to additional expense impact of our 2025 acquisitions, including various onetime deal-related costs. Absent acquisition-related SG&A expenses, the company experienced an increase in SG&A expense year-over-year of approximately $2 million or 2%, primarily driven by compensation. Consolidated operating income was $85.1 million in the quarter, up $11.6 million or 16% from $73.5 million in the prior year. The increase in operating income was primarily due to volume pull-through, price and cost management. Operating income margin was 14.6%, up from 13.8% in the prior year. Moving to segment results on Slide 8, Water Systems sales in the U.S. and Canada were up 9% compared to the third quarter 2024. At a product level, sales of large dewatering equipment increased 38%. Sales of water treatment products increased 9%. Sales of all other surface pumping equipment increased 4% and sales of groundwater pumping equipment were flat compared to Q3 2024. Water Systems sales in markets outside the U.S. and Canada increased 15% overall. Foreign currency translation increased sales by 1% and recent acquisitions added roughly 13% to sales. Excluding the impact of acquisitions and foreign currency translation, sales in the third quarter of 2025 increased 1%, led by higher sales in Europe, partially offset by sales declines in Latin America. Water Systems operating income was $60.2 million, up $7.4 million or 14% versus the prior year. The increase in operating income was primarily due to higher sales and price offsetting inflation. The third quarter operating margin was 17.9%, an increase of 40 basis points from 17.5% in the third quarter of the prior year. Distribution third quarter sales were $197.3 million versus third quarter sales in 2024 of $190.8 million, an increase of 3%. The Distribution segment sales increase was primarily due to higher volumes and price realization. The Distribution segment's operating income was $16.3 million for the third quarter, a year-over-year increase of $4.1 million or 34%. Operating income margin was 8.3% in the third quarter, an improvement of 190 basis points versus the prior year, driven by higher volume, positive price realization and improved margins as a result of margin and structural cost improvement actions taken in the last year. Energy Systems sales were $80 million, an increase of $10.3 million or 15% compared to third quarter 2024. Energy Systems sales in the U.S. and Canada increased 11% year-over-year. The increase was broad-based and across all product lines, led by fuel pumping systems. Outside the U.S. and Canada, Energy Systems sales increased 26%, led by increased sales in India and our European markets. Energy Systems operating income was $25.4 million compared to $24.1 million in 2024. Operating income margin was 31.8% compared to 34.6% in the prior year, a decline of 280 basis points. Operating income margins decreased primarily due to unfavorable geographic mix and sales, increased tariff impact and a challenging comparable in 2024. The effective tax rate was 27% for the quarter compared to 24% in the prior year quarter. The change in the effective tax rate was driven by an increase in foreign earnings taxed at rates higher than the U.S. rate as well as less favorable discrete items. Moving to the balance sheet and cash flows on Slide 9, the company ended the third quarter of 2025 with a cash balance of $102.9 million and with $66 million outstanding under its revolving credit agreement. We generated $135 million in net cash flows from operating activities during the third quarter compared to $151 million in 2024. The company did not engage in stock repurchases in Q3 of this year. Year-to-date, we have repurchased approximately 1.4 million shares from shareholders. As of the end of third quarter of 2025, the total remaining authorized shares that may be repurchased is approximately 1.1 million shares. Yesterday, the company announced a quarterly cash dividend of $0.265. The dividend will be payable November 20 to shareholders of record on November 6. Moving to Slide 10, we are holding our full year expectations of $2.09 billion to $2.15 billion and tightening the range of our EPS guidance. We are maintaining the midpoint of our GAAP EPS guidance, targeting a range of $4 per share to $4.20 per share, adjusted to remove the impact of the termination of our U.S. pension program. Now I will turn the call back to Joe for some additional comments. Joe? Joseph Ruzynski: Thanks, Jennifer. Turning to Slide 11 and our value creation framework centered on 4 key pillars that guide everything we do at Franklin Electric, growth acceleration, resilient margins, strategic investments and top-tier talent. This quarter, we made great progress toward our growth and investment objectives. This past year, we've added great talent. We've improved our integrated operating model, made 2 important acquisitions and saw our focused margin efforts in water treatment and distribution gain momentum. Moving to Slide 12, innovation is core to our growth strategy. As several of our legacy markets are more mature, we are sharpening our focus on customer feedback, aligning our priorities with their evolving needs and leveraging the strength of our channel partners. By delivering targeted solutions, we continue to drive meaningful growth across our business. I'd like to highlight our new pressure boosting platform, which enhances efficiency and reliability for homeowners, businesses and contractors. Three new products we are launching this year, the VR SpecPAK, which was built to bring a wide range of features in an industry-leading footprint, the in-line SpecPAK designed for an efficient footprint with minimal noise and our VersaBoost Pro, which is easy to use and solves your residential pressure challenges in an elegant and compact design. These products are seeing strong interest and early adoption and all the quality and service expected from a Franklin product line. The pressure boosting market is a growing one and shows our commitment to migrate to faster-growing applications in our markets. And now on to Slide 13, we also made meaningful progress in our global capacity expansion with a new factory on our campus in Izmir, Turkey, the latest addition. We are a global company and growing our capabilities close to our growing customer needs in Eastern Europe and the Middle East are critical for our growth. We had the chance to review this progress during a recent visit and are pleased to start production in Q1. We will now turn the call over to Andrew for questions. After Q&A, we'll return for closing remarks. Andrew? Operator: [Operator Instructions] Our first question comes from the line of Mike Halloran with Baird. Michael Halloran: So can you just give some thoughts on how you see the end markets playing out as we move into next year? Probably a bigger focus on the water markets as you sit here today. Maybe just puts and takes in how you see the sequential trends playing out. Sequential trends imply growth next year on a volume basis. Is volume growth something you're planning for in some of those core water markets next year? Or is it mostly going to be led by price? Just kind of understand how those puts and takes are playing out as we sit here today. Joseph Ruzynski: Yes. Thanks, Mike. I think as we look at next year, we see market conditions relatively similar, starting with the U.S. and Canada to this year, which is subdued market, flattish market, but we do expect volume growth. I think a key part to our story, if you look over the last few quarters, is delivering volume expansion in markets that aren't really doing anything that are helping us a ton. If you look at housing starts, if you look at interest rates, all of the other trends that we see in here in the market, but our expectation is volume growth. One of the reasons we like ending this conversation on innovation is we want to create some of that own space -- some of that space for ourselves. So I think our good channel partner relationships, some new products we're bringing to market. I think the story of bringing new products to our end customers, this is both distribution. This is in the Water Systems business overall, and then adding dealer and expanding our network in water treatment, we feel that, that flywheel has helped us to kind of create some of our own space even in the more mature markets. I would say when you look outside the U.S., we're more optimistic about just the market in general for water. We've built a strong position in Latin America. With our acquisition, we're starting to see some of that pull-through on the growth synergy side there. With our acquisitions in large dewatering, we read about the trends in mining. We read about the trends where we have to move big volumes of water, getting those products to the markets that need them in Brazil and South Africa and other places, some of the initial trends they're on a smaller scale, but they're positive. And I think talking about capacity expansion, where we see growth is really where we're trying to make sure that we're positioned to serve it. We talked a little bit about India, the Middle East, Turkey, just Eastern Europe in general, that position we have in Southeast Europe has been one that's paid some good dividends. So we feel better about market growth outside the U.S. U.S., flattish, but yes, volume expectation. And we would expect the opportunity to price -- for price realization to be more subdued, but we do expect price next year as well. Michael Halloran: And part of that price is just the carryover work that you've gotten this year into next year, right? So that price comment is less -- is more incremental price from what you've already announced is more subdued? Joseph Ruzynski: Exactly. I think you're going to see price carryover in that 1% to 2% range based on what we've done thus far. But our expectation is there'll be some more price. I think Jennifer alluded to this, but we set price in some of our segments here going into next year. The Energy segment is an example. So we do expect incremental price next year as well. Michael Halloran: And last question. Just maybe help with the Energy Systems margin profile. Obviously, variability as you work through this year, mix, I'm assuming is a big component of that. What's the baseline that we should be thinking about for this year as we move into next year? In other words, how do you expect that to play out? And what's kind of the base we should be building off of? Joseph Ruzynski: Yes. I'll make a comment and Jennifer can add some color to it. I think we've kind of set the table that as we grow internationally, you're going to see a slight moderation based on mix. And that growth is starting to read out. Middle East, India, we called those out specifically. From a tariff standpoint, we knew that Q3 would be the most pressure. And part of that is due to that onetime April big lift on some of those input costs coming from China. So one is we're working to normalize that supply chain and make sure that we're prepared for next year. But two is that's my comment on incremental price. Maybe Jennifer wants to talk about our thoughts on margin as we go into next year for that Energy segment. Jennifer Wolfenbarger: Yes, I think we're well positioned. As Joe mentioned, we did announce a price increase for the Energy Systems business in September that will kick in, in December. That will help as well as we continue to moderate additional tariffs or the tariffs that we're experiencing. In Q2, we did call out, we shared that, that was a little bit of an anomaly. And Joe mentioned that we were in the high 30s in our operating margin. That was a little bit of an anomaly given the outsized mix that we saw in the quarter. Where we ended this quarter, we're very pleased in the low 30s. We'll continue to see that play out through the balance of the year. Joseph Ruzynski: Yes. That low to mid-30s kind of expecting further income growth next year is the expectation we would set. But we feel good about the strength of that portfolio. It's going to grow well outside the U.S., but the U.S. growth for next year in that segment looks strong as well. Operator: And our next question comes from the line of Bryan Blair with Oppenheimer. Bryan Blair: The value prop of the water pressure boosting line, that's pretty clear. We saw some of the technology at WEFTEC, it's impressive. I was wondering if you're willing to speak to your team's opportunity there a bit more. What's the current TAM of the pressure boosting vertical? And what kind of share capture do you think is realistic over, say, the medium term? Joseph Ruzynski: Yes. We feel -- I mean, the TAM is in the high hundreds of millions of dollars that we have access to today. But I would say what we like about that -- about the application in that space is it's a growing market. We see that market continuing to grow. As you see further expansion in suburbs and cities and residential buildings, the need for pressure boosting just becomes more and more as hotels get built, as businesses get built, and the opportunity for us is both on commercial, industrial and residential, which is why we wanted to show a blend of some of those different products there. I think you saw a few of those in terms of the SpecPAK products. But customers are very specific about we want to be able to put these in, in existing buildings as they have those needs, and we have to address those needs. And they're asking for a couple of things. They're asking for a variety of solutions. All of the elements of those products are designed internal to Franklin, so from software, hardware, the actual panels, the pumps, et cetera. And they want to be able to park those into compact spots within legacy footprint. So we found good response to those products. We think that that's going to continue to grow as you see the urbanization, not just in the U.S. from a commercial and industrial standpoint, but really in Latin America and the Middle East and other places. And from a residential standpoint, we're excited. We've been working on an elegant residential solution there for a while. So to launch these 3 products in the back half of this year, the response thus far has been very positive. Bryan Blair: That's very encouraging. I appreciate the color. If I ask a finer point on energy margin, just to level set there, are you willing to parse out the impact of geographic mix versus tariffs in Q3? Jennifer Wolfenbarger: Yes. I would say, and we're looking year-over-year, the majority of that impact is going to be tariffs. I would say probably more than 2/3 of the impact you're seeing on the variance year-over-year. The balance is going to be really mix, yes, primarily mix. Bryan Blair: Okay. Understood. And one last one, if I may. Obviously, you have a lot of balance sheet capacity and your team seems quite keen on deploying your balance sheet going forward. How are you feeling about the deal environment now? You've obviously transacted a couple of high-stakes deals. And I'll reiterate, there's a ton of capacity there. So curious what you're seeing, the opportunity set, actionability, et cetera. Joseph Ruzynski: Yes. We think that space is getting a little bit more active. I'll just put it that way. We saw a little bit of a pause in the first half of the year as people were trying to sort out what tariff impacts would be and what the supply chains of these companies look like. But definitely, there's more activity there. We're seeing and hearing more things. I'd say more than that, though, Bryan, is we've built a biz dev team to really focus on putting our eyes on markets that we like more and making sure that we're being proactive as well in terms of how we look at those markets and what further products could bring to us. I think a nice advantage of Franklin is just our commitment to global growth doesn't limit us to just the companies in the U.S. The markets inside and the outside U.S. in terms of what's available and the prices you pay for them are very different. So similar to your reference to our deals in Q1, we cast a global net. And if you look at our funnel, it's a good mixture of companies inside and outside the U.S. So we're feeling good about it. I think we want to put that balance sheet to good use next year. And we feel better about it coming into '26 than we did as we came into 2025. Operator: And our next question comes from the line of Matt Summerville with D.A. Davidson. Matt Summerville: I want to talk a little bit more about energy. You mentioned seeing some nice backlog sort of growth there. If you can maybe touch on that a little bit. And then where are we from a cycle standpoint with respect to ongoing investments in fuel and infrastructure and what kind of informs you of that view? Joseph Ruzynski: Yes. Maybe a couple of thoughts there. One is just starting with kind of that core and our biggest market in the U.S. The outlook for '26 looks favorable right now. We can see a little further out in that business from a backlog standpoint relative to some of our other businesses. And the backlog is up nicely year-over-year. You can see kind of the revenue trend that really started as we came into this year, and we expect that to continue for some time. But '26 growth prospects for the major marketers, the C-store investment, our view there is that continues to be a positive trend and a good story next year. I think where we're also excited about, and this has been a few areas -- these are a few areas we've been working on the last few years is some of the growth that we see outside the U.S., we really see some positive trends there as well. Some of these are regulation-driven that we're well positioned to support as people look to strengthen their infrastructure in places like the Middle East. In other instances, it's building our ability to serve those customers in emerging markets that are serving more cars, more people, the more need for regulation in countries like India and Latin America. So we see that trend continuing. Next year is shaping up to be a nice year from an outlook standpoint in energy. Matt Summerville: And then I apologize if I missed it, could you give a little bit more granularity as to groundwater performance, in particular, what you saw in North America across resi and ag and maybe what your high-level thinking is for next year in those key markets? Joseph Ruzynski: Yes. The groundwater market in the U.S. was -- the market itself was relatively flat this year. I think our volume growth, we feel, is a bit of an outlier in our space. I think next year, that outlook looks similar, where the market we tend to see is flattish. We'd remind everyone that one benefit of Franklin is our replacement rate in the groundwater, both ag and resi is very high in the high 70s. So from that standpoint, for us, it's relatively stable, and then we look to create our own space. But I think in the U.S., that market is going to see low single-digit growth. And part of that is supplemented by some share take and some additional work that we know we need to do. So not a great ag market for next year, I think similar to this year. But I think we're well positioned to be able to serve that market and continue to see some volume growth. Operator: And our next question comes from the line of Ryan Connors with Northcoast Research. Ryan Connors: I wanted to take -- go back to one of the first questions regarding kind of the planning assumptions for 2026 and look at that more from a scenario perspective. I mean you laid out your base case pretty well, but there's a lot of talk about renewed weakness in residential, especially on new lot development. But at the same time, we have the Fed lowering rates, which should be good. I mean what -- is there an upside scenario for 2026, where talk about if things go well, what could things look like around that base case? Joseph Ruzynski: Ryan, I feel I was asked this question last year and tried to predict it and maybe didn't do a great job. I would say interest rates would have to move quite a bit more before we see yields drop and we see that impact in terms of just people being able to get houses started and to make those investments. Our expectation and kind of how we're modeling it is, again, is a subdued residential market. But I think I'd just call out a couple of things, and I know we talked about these in our script here. But one is, if you look at the water treatment business, we think that's a great example of our ability to succeed in markets that are relatively flat. That business has continued to grow. We've expanded our margin there in a really nice way. And part of it is just due to adding customers, adding dealer, adding to our channel. I think on the other side, if you look at that distribution business, the growth in both volume and price in that business is about bringing products that we can see in certain regions to other products. We now have a fairly nice reach with both our independent distributors and our distribution arm as well and finding other opportunities to bring products there, whether it's in wastewater or in groundwater. So I think that template has proven effective, and we expect that to continue next year even if we don't see that upside. I would say just a final comment, your question is, is there an upside scenario? Well, one is given our customer intimacy, the fact that we can see end customers, I'd tell you, we're ready for it. We've got a value chain from suppliers to factories to a really strong channel throughout where if we see those trends, our ability to get product there and to serve those markets, I think, is -- would be an exciting opportunity. Not a whole lot of it baked in our plan here right now as we look at 2026. Jennifer Wolfenbarger: I'll just add on to that last comment there on being well positioned and Joe touched on this from a water treatment perspective. We've added significant share in storefront there and in distribution with our on-site inventory applications and the adds that we've done in 2025 sets us up for real great success. If those macros take off, we'll capitalize on that even more. If they don't, I mean, we're going to continue to grow that. And I think the service, the quality, the lead time that we've been able to demonstrate has really helped us with gaining that share and gaining that customer loyalty. So that will continue. Ryan Connors: Got it. And the one number that really jumped out, large dewatering, up 38%, if I heard that right. And I know that business does tend to jump around a bit, but that's a big number. And I'm just curious, any added color there? Was that -- is that -- is the rental fleets involved with that? Or anything short-term oriented that, that should normalize? Or does that set up a difficult comp for next year? And any color on that big number in dewatering would be helpful. Joseph Ruzynski: Yes. That -- so starting with the fleet business, some of that is surely the fleet business. And if you remember, last year was kind of the low end of that cycle that tends to run in 18 months -- kind of an 18-month span. We saw that pickup coming into -- as we exited Q1 coming into Q2. And we think that, that story continues in 2026, which means that market will be relatively stable and strong. But there's other elements of that large dewatering business that we're excited about. We made a few acquisitions here over the last few years recently in Q1 with PumpEng down in Australia. As we bring those markets to our customer and we start to build that portfolio and take a complete line in addition to our legacy Pioneer brand, we're seeing some good opportunities there, not only in the industrial and the municipal side, in the fleet business, but also in the mining space. So I think dewatering, that trend going into next year, we feel it's going to be a relatively good space for us. Ryan Connors: Got it. Okay. And then just a couple of quick -- more very quick ones, this pressure boosting product line sounds very exciting. Is that -- is there a big retrofit opportunity there? Or is that mostly related to new buildings going up? Joseph Ruzynski: It's really both. From a retrofit standpoint, some of the challenges that customers have, as you add water treatment, as you add other applications for water within legacy multifamily apartments, hotels, we're finding it's a mixture of customers calling us to say, look, we have problems that we've got a legacy building here that we need to solve for. Same for residential. I think a great time for us as we're servicing that groundwater business or from our water treatment business to go in and solve those problems. So that one is -- it's a mixture. I would say more of that probably is in legacy builds than it is new builds, which, again, we're not waiting for interest rates to drop for some of those builds to pick up. We think that there's a good market there for us to go serve from a retrofit standpoint. That's probably -- it's probably a little bit stronger on the retro than it is on new. Ryan Connors: Got it. And then just a housekeeping for you, Jennifer. It looks like ForEx was almost $3 million bad guy year-over-year in the quarter. I mean does that stabilize through the end of the year? Or should we expect that to be -- to shrink a little bit in 4Q? Any color there would be helpful. Jennifer Wolfenbarger: We're not really anticipating that's really driven -- step back a little bit that the FX challenges and what we saw in the third quarter, and we saw a bit of it in Q2 as well as hyperinflation really in areas such as Turkey, Brazil and Argentina. We're not really banking on that improving into Q4, although I do anticipate we should see some improvement, particularly in Argentina. We're not baking on it at this point in time. Operator: And our next question comes from the line of Walter Liptak with Seaport Research . Walter Liptak: I wanted to ask about the distribution business. The 8.3% margin looked pretty good. And I wonder if you could help us understand the different puts and takes there, the cost structure improvements versus mix versus anything else that went on? Joseph Ruzynski: Yes. Maybe just a few thoughts, and then I'll let Jennifer add to it. But we've really put a clear focus on this business the last year in a couple of ways. One is making sure that our input costs are well managed. So strategic contracts upstream, working on consignment models to help us align commodity prices with that sell point. And then also just looking at the overall infrastructure of that business. I think I've mentioned this before, but as we've grown acquisitively over the last 4 or 5 years, our opportunity to streamline the back office to make sure that rooftops align with how we serve market, and Jennifer talked about this a moment ago, but how we get better at hub-and-spoke OSI, which is on-site inventory. And we've just -- we've built out a data and a technology infrastructure that allow us to get a lot more efficient in how we serve those end markets. We expect that to continue. I think I've said this before, but we think that there's margin room. We called that out this year that, that would be a key focus for us. It is going into next year as well. So we've taken some of those cost actions in the last few quarters in terms of aligning cost with market, but also the self-help piece is better input cost, strategic pricing management and then just getting more efficient in terms of that overall value chain of how we touch product and serve end customers. So yes, we're excited about that story, and we're excited to continue to talk about it. Jennifer Wolfenbarger: Just to pile on there, I want to take a moment just to give a shout out to our teams in the distribution space that have really worked to improve the margin and the structural cost of our business. That's really driven what you're seeing in the readout. We saw it in Q2. We saw it in Q3. Joe touched on the margin enhancement, just to maybe provide a little bit of a deeper insight. It's buying better, spending better, but also working with our customers, we had to make some tough decisions in certain SKUs and so forth to rationalize and make sure that we're not sacrificing service to our customers, providing the right products at the right price, but also ensuring we reap the respectable margin for that business. And then the structural work, really, we did much of that work back in late 2024. You're seeing that readout. We continue to make adjustments throughout our structure to make sure that we have the right structure in place, leveraging technology. We'll continue to do that as we head into 2026. Walter Liptak: Okay. Great. And so for the 2025 cost structure actions and profit benefits, what kind of magnitude can you -- if the market were flat next year, could you see profit growth? Joseph Ruzynski: Yes, we expect profit growth in that business for next year. So even with less help from the market. Maybe one other comment, too, just on the market, I think a big benefit that we've got from that distribution business as well is bringing new products to the end market. So again, with macro headwinds, wherever they may be, we still expect to grow volume and our margin for that business in 2026. Walter Liptak: Okay. Great. And on the factory expansion in Izmir, Turkey, is that going to become accretive in 2026? Is there a cost that we should be modeling in? Joseph Ruzynski: Our expect is to start production in Q1. Clearly, any time you start a new factory, there's some costs associated with ramping that up and commissioning the equipment. So there could be some impact in the first half of next year. But I would say our expectation is to run at normalized margins as we get into the back half. And then finding ways to make that more efficient. We've got a great ops team. They know how to start this up. One beautiful thing about that factory is it's on the same campus where we have another factory. So it's not a greenfield in a new country, in a new place. So our expectation is we get to normalized margins in fairly quick order. So nothing to model at this point. I think this is work that our team needs to do. But we're excited about the start, and we're actually ahead of schedule there, too. So. Operator: I'll now hand the call back over to CEO, Joe Ruzynski, for any closing remarks. Joseph Ruzynski: Appreciate it, Andrew. So in summary, a great quarter. We're excited about another solid quarter of both volume and profitability. We continue to execute well, invest strategically and build momentum for the future. Our team is going to innovate. We're going to focus on growth, and we're going to lead with our great products, our great people and how we serve our customers. We have more great opportunities in front of us and are pleased with the team that we're building, the strategy we've developed and the progress thus far in 2025. Our consistent performance through varied market conditions demonstrates the strength of this model and the dedication of our global team. Thank you, everyone, and have a great day. Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
Operator: Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Group Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to introduce Blake Vanier, Vice President of Investor Relations. Mr. Vanier, the floor is yours. Blake Vanier: Good morning, everyone, and thank you for joining us today for our third quarter 2025 earnings call. Joining me here in Miami Jason Liberty, our President and Chief Executive Officer; Naftali Holtz, our Chief Financial Officer; and Michael Bayley, President and CEO of the Royal Caribbean brand. Before we get started, I would like to note that we will be making forward-looking statements during this call. These statements are based on management's current expectations and are subject to risks and uncertainties. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release issued this morning as well as our filings with the SEC for a description of these factors. We do not undertake to update any forward-looking statements as circumstances change. Also, we will be discussing certain non-GAAP financial measures which are adjusted as defined, and a reconciliation of all non-GAAP items can be found on our investor website and in our earnings release. Unless we state otherwise, all metrics are on a constant currency-adjusted basis. Jason will begin the call by providing a strategic overview and update on the business, and Naftali will follow with a recap of our third quarter, the current booking environment and our outlook for the remainder of 2025. We will then open the call for your questions. With that, I'm pleased to turn the call over to Jason. Jason Liberty: Thank you, Blake, and good morning, everyone. I am pleased to discuss our third quarter results, updated outlook and the many exciting initiatives fueling our momentum at the Royal Caribbean Group. This has been another great quarter for us. We continue to see strong momentum across our business, powered by accelerated demand, growing loyalty and all-time high guest satisfaction. Our commercial flywheel combining innovative ships distinctive destinations and world-class brands continues to drive sustained growth in guest trust and our ability to deliver the best vacation experiences responsibly. Before getting to the results for the third quarter, I want to highlight how we are continuing to build a stronger, further leading and more resilient vacation company for the long term. We are focused on building a vacation platform that continues to lead the leisure market through innovative ships, a growing portfolio of exclusive destinations, technology and AI that enhance every step of the guest journey. Together, these high-return investments, strengthen guest loyalty and attract new travelers positioning us to win more share of the fast-growing $2 trillion vacation market. Earlier today, we announced the Royal Beach Club, Santorini, further expanding our portfolio of exclusive destinations, extending our brands reach beyond the ship and meaningfully enhancing the guest experience. This reflects our vision to redefine how the world vacations. And together with the Royal Beach Club Paradise Island, Perfect Day Mexico and others, we expect to increase our exclusive land-based destination portfolio from 2 to 8 by 2028. These initiatives reflect a thoughtful, sustained investment behind our commercial flywheel and reinforce the strength of our vacation platform. Cruising and leisure travel continue to outperform the broader travel industry, and we are exceptionally well positioned to capture that momentum. With a powerful pipeline of strategic initiatives, a strong balance sheet and a disciplined approach to growth. We have both the resources and conviction to continue making game-changing investments that delight our customers strengthen our competitive advantage and drive long-term shareholder value. I want to thank the entire Royal Caribbean Group team for their passion, dedication and commitment that enable us to deliver the best vacation experiences responsibly and to drive exceptional financial results. Turning to our results and outlook. Third quarter results exceeded our expectations, driven primarily by strong close-in demand for our vacation offerings and lower costs. In the third quarter, our capacity increased 3% and we delivered nearly 2.5 million incredible vacations, a 7% increase year-over-year at high guest satisfaction scores. Net yields grew 2.4%, driven by strong demand across all key itineraries. We delivered adjusted earnings per share of $5.75 for the third quarter, which was 11% higher than last year. Naftali will elaborate more on Q3 results in a few minutes. Moving to our outlook for the remainder of the year. Our capacity in the fourth quarter is up 10% year-over-year, and we expect to grow yields 2.2% to 2.7% on top of a 7% yield increase in the same quarter last year. Our fourth quarter [ year ] outlook has been trivially impacted due to adverse weather and the unplanned extension of the temporary closure of Labadee, one of our exclusive destinations. Despite these marginal headwinds we are expecting our total revenue to be up approximately 13% year-over-year in the fourth quarter. Full year net yield is expected to grow in the range of 3.5% to 4%, that's 25 basis points better than our initial expectations in January, which highlights the continued strong demand for our brands and the amazing vacations they deliver. Our yield growth this year is on top of several years of double-digit growth resulting in an industry-leading 31% yield growth compared to 2019. This highlights the remarkable transformation of our business and the enduring strength of our leading brands. Full year adjusted earnings per share is now expected to be in the range of $15.58 to $15.63, a 32% year-over-year growth. We are also on track to deliver nearly $6 billion of operating cash flow this year, a significant step change in our performance. We are a growth company and our proven formula of moderate capacity growth, moderate yield growth and strong cost discipline is driving significant earnings growth, continued margin expansion and robust cash flow generation. We remain on track to achieve our Perfecta targets by 2027, a 20% compound annual growth rate and adjusted earnings per share and return on invested capital in the high teens. As we've always said, Perfecta is an important milestone on our growth journey, but our ambitions go well beyond. The combination of our game-changing ships on order, our growing exclusive destination portfolio advancing our commercial technology platforms that are fueled by AI and disciplined capital management is setting up the post Perfecta era for another step change in the guest experience and financial performance. Now I'll provide some more insight into what we're seeing in the demand environment. Consumers continue to prioritize experiences and make room in their budgets for meaningful vacations. Our independent research, combined with millions of daily customer interactions continues to show positive sentiment towards travel and leisure and continued growth in spend. Roughly 3/4 of consumers intend to spend the same or more on vacations over the next 12 months, a level that has remained consistent for several quarters. While the broader consumer environment has normalized from the exceptional strength over the past 2 years, demand for experiences and leisure travel remains intact. Cruising offers superior value for money versus alternative options driven by the high-quality onboard amenities and services, pricing, inclusive of meals and entertainment and the opportunity to visit a variety of destinations with the convenience of having everything in one place. Earlier this year, we announced our plans to launch a new vacation experience, Celebrity River. The introduction of Celebrity River has received an extraordinary response with all initially available deployment selling out almost immediately. The majority of booked guests are Royal Caribbean Group loyalty members without prior river cruise experiences, highlighting a powerful opportunity to attract new guests to this segment and deepen engagement by creating new vacation occasions with our existing ecosystem. In fact, the majority of guests shared their primary motivation for booking a Celebrity River vacation was the opportunity to experience a new celebrity product, driven by the trust and affinity they have for the celebrity brand. Guests are also motivated by our new River ship design and features with most of them expecting superior stay rooms, ship amenities and outdoor spaces, all hallmarks of the brand. These early booking patterns are a powerful validation of our strategy to expand the Royal Caribbean Group vacation ecosystem, creating new ways for guests to experience the world with us while deepening the connection to our family of brands. We continue to be encouraged by the demand environment. Since the last earnings call, bookings are up on both new and like-for-like hardware with particular acceleration for close-in families. Booked load factors for 2026 remained well within historic ranges at record rates, with booked APD growth at the high end of historical ranges. As always, we remain focused on optimizing our pricing and yield growth. Our spectacular new ships continue to generate strong quality demand. Start of the season is exceeding our expectations and Celebrity Xcel is shaping up to be the best performing new ship in the brand's history. The last 3 years saw unprecedented yield growth, and although that creates a high bar for comparables, our proven formula for success of moderate capacity growth, moderate yield growth and strong cost control is expected to continue to drive top line growth margin expansion and substantial cash flow. While still very early in the planning process, we anticipate earnings in 2026 to have a $17 handle on it. At the Royal Caribbean Group, we've always believed that clarity and conviction are competitive advantages. Our mission is clear to deliver the best vacations responsibly and our objective is just as ambitious to capture a greater share of the growing $2 trillion global vacation market by turning a vacation of a lifetime into a lifetime of vacations. We don't just talk about that ambition. We built a robust multiyear plan that shows exactly how we intend to get there through bold high-return investments that strengthen our brands, elevate the guest experience and create long-term value for our shareholders. That includes our expansion into River, the ongoing expansion of our private destination portfolio, the transformational development of Perfect Day in Mexico and, of course, a steady stream of game-changing ships. This quarter, we announced a long-term agreement with Meyer Turku securing shipbuilding slots through the next decade to continue both companies' tradition of innovation. The agreement confirmed an order for Icon 5 for delivery in 2028, added an option for a seventh icon class ship and positions us for a new game-changing class beyond Icon, making the next stage at Royal Caribbean Group's history as we continue to redefine the future of vacations. In a world where digital experiences also define customer expectations, we're working to set the standard. We continue to enhance our digital capabilities, to engage customers, remove friction from the guest experience and drive incremental revenue. When we first introduced our app in 2017, the goal was simple. Give guests back the first day of their vacation by eliminating the need to wait in line for onboard reservations. Since then, the app together with our e-commerce engines, has evolved into a cornerstone for our e-commerce strategy, transforming from a utility into a powerful platform that drives revenue, improves operational efficiencies and deepened guest engagement. In the third quarter, e-commerce visits and conversion rates both increased double digits versus last year, marking a very strong improvement for these channels. In addition, a record share of onboard revenue was booked pre-crews with nearly 90% of those purchases being made through our digital channels. And we continue to redefine loyalty in a way that deepens engagement and provides guests with greater flexibility in how they earn points and status. Building on the success of status match I'm excited to announce Points Choice, the next evolution and how guests earn and apply loyalty points across our family of brands. Beginning in early 2026, Guests will be able to apply loyalty points to the Royal Caribbean Group brand they prefer, regardless of which brand they are sailing with. This initiative further strengthens the overall value of our loyalty proposition deepening engagement across our portfolio and reinforcing our commitment to putting the guests at the center of our orbit. As our ecosystem expands, it creates a virtuous cycle of demand, value and advocacy one that drives both short-term performance and enduring growth. It's a model that compounds over time, and we're just at the beginning of what it can become. I am incredibly proud of our teams at the Royal Caribbean Group for their dedication and exceptional execution. The opportunity is significant, and we're well positioned to lead the next era of leisure travel. With that, I will turn it over to Naftali. Naf? Naftali Holtz: Thank you, Jason, and good morning, everyone. I will start by reviewing third quarter results. Net yields grew 2.4% in constant currency compared to the third quarter of last year, 15 basis points above the midpoint of our guidance. The yield outperformance was driven by the stronger-than-expected close-in demand. Yields grew across all key products and were mainly driven by existing hardware given the timing of new ship deliveries. During the quarter, a record share of onboard revenue was booked pre-cruise and nearly 90% of those purchases were completed through our digital channels, with the app emerging as the fastest-growing driver of engagement and conversion across those platforms. NCC, excluding fuel, increased 4.3% in constant currency 195 basis points lower than our guidance as we continue to find ways to better deliver the best vacations without compromising the guest experience. Adjusted gross EBITDA margin was 44.6%, 60 basis points better than last year. And operating cash flow was $1.5 billion. Adjusted earnings per share were $5.75 and 11% higher than last year and 3% higher than the midpoint of our guidance. Earnings out performance was driven by the strong close-in demand and lower costs. As Jason mentioned, demand for our portfolio brands and industry-leading experiences continues to be very strong. Book load factors remain within historical ranges, at record rates for both 2025 and 2026. Capacity is expected to grow 5.5% for the full year and 10% in the fourth quarter. As expected, capacity growth in the fourth quarter is driven by new ships, Star of The Seas and Celebrity Xcel as well as additional APCDs due to lower dry dock days compared to 2024. The Caribbean represents 57% of our deployment this year and 63% of capacity in the fourth quarter, a region where we hold a strong position and are advancing a series of strategic initiatives to reinforce that. These include industry-leading hardware, shorter and longer attractive itineraries, the upcoming Royal Beach Club Paradise Island and Perfect Day Mexico. Our Caribbean capacity is up 6% for the year and 10% in the fourth quarter. And even with capacity growth in the region, we see continued yield growth with Caribbean yields in the fourth quarter expected to be up 37% compared to the fourth quarter of 2019. Europe will account for 15% of capacity for the year and 9% in the fourth quarter and in a strong booked position as European season wraps up. Asia Pacific is expected to account for 11% of capacity for the year and 13% for the fourth quarter. Now let me talk about our updated guidance for 2025. Our proven formula for success, moderate capacity growth, moderate yield growth and strong cost discipline is expected to drive significant earnings growth and higher cash flow generation. We continue to expect net yield growth of 3.5% to 4% for the full year driven by gains in load factor and APD across new and like-for-like hardware. Full year net cruise cost, excluding fuel, expected to decline approximately 0.1%, 40 basis points better than our prior guidance as we remain focused on better execution through leveraging our scale and utilizing technology and AI, all while ensuring strong customer satisfaction and enhanced product offering and vacation experiences. We anticipate a fuel expense of $1.14 billion for the year, and we are 68% hedged below market rates. Based on current fuel prices, currency exchange rates and interest rates, we expect adjusted earnings per share between $15.58 and $15.63. The $0.12 increase compared to our prior guidance is driven by Q3 outperformance, $0.02 of better Q4 performance, offsetting a $0.05 impact from recent adverse weather events and the unplanned extension of the closure of Labadee. We also expect 18% growth in adjusted EBITDA to just above $7 billion and 290 basis points growth in adjusted EBITDA margin. This positions us to accelerate our cash flow generation, which allows us to continue investing in our strategic initiatives, maintaining investment-grade balance sheet metrics and expanding capital return to shareholders. Now let me comment on fourth quarter guidance. In the fourth quarter, we expect capacity will be up 10% year-over-year with net yield growth of 2.2% to 2.7%. As noted on the last earnings call, the timing of Celebrity Xcel's delivery and fewer dry dock days versus last year will unfavorably impact fourth quarter net yield growth by about 90 basis points. Net cruise costs, excluding fuel, I expect a decline between 6.6% and 6.1% during the fourth quarter. Taking all this into account, we expect adjusted earnings per share for the quarter to be $2.74 to $2.79. Now I will share insights for 2026 which is shaping up to be another very exciting year for us with multiple strategic initiatives that are already well underway. 2026 capacity is expected to be up 6% and as we introduce Legend of the Seas in Europe this summer as well as benefit from a full year of Star and Xcel. Capacity growth is higher in the first and third quarter due to the timing of new ship deliveries and dry docks. In 2026, we expect to have more dry dock days compared to this year partially due to longer dry docks for several planned modernization projects of our existing ships. Caribbean capacity will represent about 57% of our deployment in 2026. For Caribbean products, we have continued to add shorter itineraries, building on our success in the last several years, enhanced by the opening of the Beach Club in Nassau this year. European itineraries will account for 14% of our capacity. Alaska and West Coast will account for about 10% and Asia Pacific will also account for 10%. As Jason mentioned, book load factors remain within historical ranges at record rates for 2026. Bookings for 2026 have come in at APDs that are nicely higher than prior year resulting in 2026 booked APD growth at the high end of historical ranges. Now moving to costs. We remain committed to driving margin expansion supported by strong cost performance even as we advanced major initiatives throughout 2026, including the opening of the Beach Club in Nassau and the build-out of Perfect Day Mexico. Even with these strategic initiatives, the weigh on the NCCX metric, while being significantly accretive to margins, we expect anemic cost growth next year. We continue to focus on improving fuel efficiency and are also hedging our rate exposure. Next year, we expect EU ETS to increase from 70% this year to 100% weighing on our energy efficiency gains. Moving belong the line. Keep in mind that announced dividends and already completed share repurchases were funded through a combination of strong operating cash flow and incremental borrowings, while maintaining our commitment to keep leverage below 3x. Additionally, we expect the global minimum tax policy updates beginning January 1, 2026, to impact us by an incremental couple of 100 basis points. Taking all this into account, we expect adjusted EPS to have a $17 handle, and we will provide more details during our fourth quarter earnings call. Turning to our balance sheet. We ended the quarter with $6.8 billion in liquidity and its adjusted leverage that was below 3x on an LTM basis. We're in a very strong financial position, which allows us to fund our growth ambitions while also returning capital to shareholders. During the third quarter, we issued $1.5 billion of investment-grade unsecured notes at [ 5% ] and [ 3.8% ] coupon. Proceeds were used to opportunistically finance the delivery of Celebrity Xcel at a lower cost than the existing committed ECA financing as well as refinance other debt. This was an opportunistic issuance where we utilize our strong investment-grade balance sheet to access the capital markets to finance a new ship delivery. We intend to continue to evaluate these types of transactions compared to existing committed ECA arrangements to lower cost of capital and gain tenure. We have very limited maturities left for this year, all related to ship amortization payments that we plan to repay with cash flow. In connection with the debt offering, Fitch upgraded our clear rating to BBB and S&P updated our outlook from stable to positive. We are very pleased with the recognition of the rating agencies of the strength of our balance sheet and our strong financial performance. In September, we received a cash dividend of $258 million from our joint venture to Cruises, and we expect it to continue to pay a regular cash dividend given its strong financial performance and balance sheet. Also during the quarter, we repurchased approximately 1.3 million shares. And as of September 30, we have $345 million still available under the current authorization. In September, the Board of Directors authorized a 30% increase to the quarterly dividend to $1 per common share. We remain focused on both growing the company through strategic investments as well as returning capital to shareholders. Since July 2024, we returned $1.6 billion of capital to shareholders through dividends and share repurchases, and we intend to utilize our strong financial position to return capital going forward. In closing, we remain committed and focused on our mission to deliver the investigation experiences responsibly as we wrap up another strong year and look ahead to an exciting 2026. With that, I will ask our operator to open the call for a question-and-answer session. Operator: [Operator Instructions] Our first question will come from the line of Steve Wieczynski with Stifel. Steven Wieczynski: So Jason, you mentioned that '26 EPS is going to start with the $17 handle, and it seems pretty clear that '26 bookings, demand pricing all look pretty solid at this point. So look, I fully understand you guys aren't prepared to give detailed guidance for next year. But as we think about '26 I would assume your company tagline very much remains in place here, meaning, look, we know capacity growth offset at 6%. Moderate yield growth, I would assume is kind of in that low- to mid-single-digit range and that the disciplined cost control probably means low single-digit growth or in your terms, anemic, even with some of your structural costs you'll be taking on next year. So from a high-level perspective, is that kind of the right way to think about '26? Jason Liberty: Steve. Yes, I think that is a good high-level way of saying it. I think first, to start off with, it is early in our planning process. And actually, I even said -- I said it earlier to you on CNBC, $17 handle does not mean $17.01. If you take moderate yield growth, you take good cost control or as Naf used the term anemic, which I think is probably a better description of how we think about costs for next year as we are significantly leveraging our scale and leveraging technology and so forth to get more and more efficient each and every day that leads you to sizable earnings per share growth, ROIC growth, et cetera. I think where there's probably a little bit of noise is below the line and probably in fuel. And so there are an increase in our fuel costs that have a compliance component to it. And then also, as we -- as we're managing global minimum tax, there is a slight increase in the taxes that we're anticipating to play. And that's probably where there's a little bit of a disconnect. The other thing I just want to add is we're also investing a lot in technology. We're investing a lot in these new destinations. We're going from 2 to 8. And so as we bring these things online, there's also depreciation and other things that could potentially come into play. Lastly, I would just add is we're also leveraging to return capital to our shareholders. And you saw that here with the raise in our dividend to $1. And I think you've also seen that, as talked about in our buyback of shares. And so we are -- our balance sheet is in an incredibly strong position, and we are opportunistically buying back shares, and we're doing that and taking advantage of being able to lever ourselves up to maintain a strong investment-grade position but maintaining that leverage point that we've said to maintain that rating. So we feel really good about the book position, the rates that we're booking at provide us a lot of rate room and opportunity for next year as we are optimizing our yield profile while we're growing the business at 6% on a capacity basis and bringing on new incredible destination experiences with the Royal Beach Club here in Nassau. So there's a lot of really great and exciting things. And I would say just last one is that we continue to see a very strong consumer. Our guests are -- their thirst for our brands, for the ships, the destinations and the incredible experiences that our incredible crew are delivering is at the very highest level, and we see that in our Net Promoter Score. So we're super excited about the strength and there was a little bit of noise here in the fourth quarter. There were 3 storms that just one, even in Asia, there's a typhoon in Asia that impacted our -- some of the land-based experience and some of the compensation we needed to give back. But that's not a reflection of the strength that we're seeing. Operator: Our next question will come from the line of Robin Farley with UBS. Robin Farley: I also wanted to think a little bit about your 2026 comments. To clarify, when you talk about the anemic net cruise cost growth, is that sort of anemic before, because that would sound like sub-2%. And is that before we think about the impact of the new destinations you're opening? In other words, would that be in addition? Was that anemic referring to sort of like-for-like and then there would be more than that? And then a similar clarification on the bookings side of things for 2026, it sounds like your price on the books is up year-over-year and maybe booked load is down year-over-year. And I assume that's intentional. Maybe you could just kind of give us some color around that. Naftali Holtz: Robin, let me talk about the cost expectations for next year. So in the last couple of years, we're opening and we have plans to open every year private destination, right? So next year is going to be the Paradise Island Beach Club in Nassau. And we have a lot of other initiatives that we're doing. But at the end of the day, the way we manage our costs is we look at -- we were subscribed to our formula. We have the moderate capacity growth, moderate deal growth, strong cost control. We grow capacity next year by 6%. So with all this, we take this into account, and my comments are totally under total amount. And of course, we have those headwinds. But on the other hand, we have a lot of things that we're doing. We are finding better ways, as I noted in my remarks, to manage the business, deliver the experience. in a more efficient way through technology, just efficiencies and AI. And so the way we manage it is all in a total. And so my comments are on the total cost growth for next year. Jason Liberty: Yes. So -- and just to put a point on it, Robin, is that the anemic comment includes the structural costs. So it's not just like-for-like. It includes the Royal Beach Club in the Bahamas as well as we leverage AI and we leverage the scale of our business. On the comment -- on your question on the bookings side of things, I think there's a few things to keep into consideration. One, we've obviously -- leveraging our incredible ships and leveraging our private destinations while also considering what different segments that consumers are looking for, we have more short product coming online next year and those guests book closer in. And so that's a little bit of probably what I would say is the year-over-year comparable on the load factor standpoint, this really is what influences that. We actually think we're in an optimal book position. We're at rates that are, I mean, higher than we probably thought that they would be at, which I think is a really great thing as we see really strong demand and people are dreaming more and more on their vacation experiences. And we're also seeing that translate to onboard spend. And so we're thoughtfully meeting our guests with the experiences and they're willing to pay for that. Operator: Our next question will come from the line of Matthew Boss with JPMorgan. Matthew Boss: So Jason, maybe could you just elaborate on the progression of global demand that you saw over the course of the third quarter any change in momentum at all that you've seen in October? And maybe to your comment before, just drivers that you see supporting '26 bookings at the high end of historical ranges. And maybe just if you're seeing anything different from new customer acquisition. Jason Liberty: Sure. So I'll just start off maybe first on the new customer acquisition side. First, our -- all the things that our brands are doing and what we're doing on an enterprise basis, to really kind of build out further our commercial flywheel is really working. So even like the announcement today about Points Choice and making sure that our guests when they choose to sail in any of our brands that they're getting the points that they want on their primary brand that they have loyalty status in. We continue to evolve things like that. Our technology, our AI tools are getting smarter and smarter so that we're able to curate what is relevant to that consumer. And that's drawing in more new to cruise, really seeing an elevated amount of increase first to brand. So seeing people shift from other cruise lines to our brands, we've seen an elevated amount of that. And then our loyalty program and what we've been doing to add to that is we're just getting more and more reps from that consumer. And so we're really happy about that. When you think about just what we see broadly, really, each of the markets that we're doing business in or that we're sourcing our guests from is doing quite well. We saw a little bit of a pullback from the North here in Canada in the early kind of mid part of the year, but we've now seen that normalize. Demand from Europe this summer was really strong, and their focus now on booking into 2026 is actually stronger. And the reason for that, when we talk to those guests and our travel partners, is that we didn't have a lot of inventory left in the summer of 2025 for the European consumers that typically book a little bit later. So they're getting a little bit ahead of that curve, and that's really encouraging. And then -- but we -- again, we continue to see the U.S. consumer really across all segments, whether that's our family segment to our ultra-luxury segment. we want you to stay with us and so those demand patterns have been quite strong. What I will say is that as these tools develop, our forecasting is getting better. And so our ability to predict what's going to happen in a quarter and then close-in is getting better as this kind of marriage between AI and our historical forecasting capabilities is getting closer and closer in terms of its predictability. And so I would not, in any way, take that because we hit the high end of our range in Q3, that's -- we don't guide with the hope of coming out with some incredible beat. We guide because that's our best thinking at a point in time. It's a 50-50 forecast. And that's how we try to manage the business. We've just, I think, all collectively been in an environment where what we would see in the forward-looking picture was greater than what we saw in the previous picture. And we're seeing that, but now we're able to predict it better. Operator: Our next question will come from the line of Lizzie Dove with Goldman Sachs. Elizabeth Dove: I just wanted to ask about the Caribbean. There's been a lot of talk about whether there's oversupply in the region as people move more capacity there. You gave that great start about 4Q and it doesn't sound like you're seeing it, but curious what you're seeing there, whether there is oversupply and how you think about the setup for 2026 specifically? Jason Liberty: Yes. Well, I mean, it's -- I think it's well known. It's been known for some time that there is an increase in supply in the Caribbean, of course, Caribbean has been working incredibly well for us. And so not surprised that there's been a supply increase there. But it's a very manageable increase in supply. So we've seen it -- it's been a little bit more -- a little bit more promotional in the Caribbean activities. But for us, I think, because of our differentiated assets with our ships and our destinations and our ability to kind of keep our guests inside of our ecosystem, and we're seeing a draw from other ecosystems coming to our ecosystem that we're able to not only manage that demand, but we're able to see our guests pay up to experience our delivery. Operator: Our next question will come from the line of Brandt Montour with Barclays. Brandt Montour: Great. So if you look at your guidance for the fourth quarter net yields and you add back the 90 basis points or so from the comparison issues that you laid out? And then maybe add something for the storms you kind of get to, I don't know, maybe something like mid-3s exiting the year. I just want to know if that's the way you would sort of cleanse the fourth quarter in terms of how yield growth is exiting the year to the lens of the fact that there's not much new hardware helping out there. And so maybe this is what we could look at as a like-for-like exit in the year. But let me know if there's other puts or takes, as we think about building our models for '26. Naftali Holtz: Yes. I mean, obviously, we're not providing guiding for '26, but we are going to subscribe to the formula, as we just talked about. But in terms of how you exit the fourth quarter, your math is directionally correct. So we did quantify the more -- the less dry docks as well as the new hardware. And so when you take kind of a more normalized new hardware and like-for-like, you're definitely in the ZIP code. Operator: Our next question comes from the line of James Hardiman with Citi. James Hardiman: So maybe to that last point, as we sort of roll things forward into 2026, I think investors are very keen as we think about puts and takes that there's a lot of puts, right? You've got, whereas in 2025, you had sort of negative ship timing. That was a headwind that now becomes a tailwind. Obviously, weather, it's not a big number, but in theory, that becomes a tailwind as we think about 2026. I guess where I struggle a little bit is to get to anything less than [ $18 ] if I don't assume that yields are, I don't know, less than they were this year as we think about growth. So maybe help us -- are there any takes as we think about the puts and takes specifically, are some of these tailwinds may be offset by a weaker consumer environment broadly, It doesn't really sound like it. We're just trying to sort of put some of these items. Jason Liberty: Yes. So thanks, James, for the question. I think, first, to start off, is that the consumer or our guests is strong. They have great jobs, they have great balance sheet, bank accounts. And they have a strong desire to vacation and build experiences and memories with their friends and family. But there's -- we're also not immune to what's generally happening in the environment. And so it's what the consumer is willing -- their willingness to pay up, and they are willing to pay up. They may not be willing to pay like last year, double digits up for the year before, I think it was 13% or 14% up but they're willing to pay more. And so I think in your math of yield growth is we expect moderate yield growth for next year. I would describe like this year was a moderate yield growth type of year, which we had at foreshadowed for a very long period of time. I would say, second, as we said, is our -- we expect our costs to grow on a per APCD basis at an anemic level. So we want to have a healthy margin between our yields and our costs, and that's going to drive more margin to our business, more returns, more cash flow to our shareholders. and gives us the confidence to continue to invest in our business. I think where -- when you're probably trying to reconcile your numbers, I mean, you can certainly -- Blake and team can help you do more of it. I think it's -- more of it is below the line, where I think that there's an opportunity to provide some clarity here. And again, I just want to stress, I did not say our earnings for next year are going to be $17 I said that they're going to have a $17 handle on there. Just to clarify, again, so I think we feel very good about the business for next year. And it's -- whether we look at our book position or what we're hearing from our guests, we're going to continue to generate very strong demand and deliver these incredible vacation experiences. Operator: Our next question will come from the line of Ben Chaiken with Mizuho. Benjamin Chaiken: I have a question on River. You mentioned Jason sold out your '27 itineraries in a few hours. I think you have 10 ships in the first order. How are you thinking about allocating capital to this opportunity in the context of what appears to be accretive ROI? Like are there balance sheet limitations? Is there ship construction limitations? Or was it just getting comfortable with the opportunity? Jason Liberty: Sure. Thanks for the question, Ben. First, it didn't sell out in a few hours and sold out in a few minutes. So to our Head of our Celebrity brand, I told you so. . Naftali Holtz: The good news is we're going to have more. Jason Liberty: That's right. Yes, that's right. Yes. So we -- our initial order was 10. We -- obviously, we have options for much more than all of that. First and foremost, what you want to do is you want to make sure that you get the product right. And so our launch of it and you had the opportunity to see what the ship is going to look like, the amenities that it's going to offer it will deliver on the true DNA of the Royal Caribbean Group, right? It will be a step change and it will change the expectations of what our guests are looking for. As I also said when we announced this, this is not a hobby. We do expect to be a substantial vacation player in the River business, and so we will continue to grow that. I mean our limitations, I think more is just squaring up that we got the experience on what we want it to be. And then this is an area where we have an opportunity to accelerate into here, and we have confidence in doing that. Operator: Our next question will come from the line of Conor Cunningham with Melius Research. Conor Cunningham: Maybe just going back to comment and moving to shorter-duration itineraries and as a result, banking on closing yields. I think that a lot of the questions have just been obviously around the yield performance in the next year. But it seems to that mix dynamic is really what's kind of changing your approach to the 2026. So I guess maybe my question is, if close-in demand were to stay here, would that suggest that like the ultimate -- like that you would see significant upside to your underlying earnings upside in 2026. Is that a fair assumption? Jason Liberty: Yes. So one, I wouldn't say that we are -- you're banking on close-in demand. I would probably describe it as each product that we offer to our guests and they're different segments and different brands and different destinations, has a different booking pattern to it. That's very natural. And I think a weekend getaway is not typically what's on somebody's mind 18 months in advance. And so as we have more of those opportunities that we're able to deliver because of the assets that we have, that is what's driving a change in that behavior. But the behavior in our other products actually looks very similar to what we -- what we have typically seen for 7 night Caribbean or 7 night in Europe, et cetera. And so those patterns are there. They're strong and they're accelerating. And so I think that's what you want to see is that for each of the product and those different tracks that things are moving at a rate that's going to optimize your total revenue performance. And so that's how we think about it. Now certainly, we have seen in the past, and we do not count on this, is that you close in on all these products accelerate and we end up beating our expectations. But we do, of course, try to bake in to our forecast. These are the patterns that -- the patterns we saw last quarter, the patterns we saw a year ago try to inform how we expect the track to occur. It's -- and that's how our yield management works, that's how our tools work and trying to predict and to lay out what we should be offering in the market. So I think, again, we feel very good about the booking environment. We feel good about our book position. I would read into our commentary, is we are optimizing our revenue -- as when we look back in time, we see more often than not that we've left some money on the table, and that's -- it's our job to maximize revenue. Operator: Our next question will come from the line of Sharon Zackfia with William Blair. Sharon Zackfia: I wanted to talk through kind of the composition of your revenue as you ramp up more of the owned destination. So I know with CocoCay, you also saw a ticket lift in addition to the onboard spend that you get on the island. Is that a similar dynamic with the Royal Beach Clubs or as the Royal Beach Clubs come on, do we start to see the composition of yield shift a little bit more to onboard spend and how that lead versus ticket? Michael Bayley: Sharon, it's Michael. Yes, it's a good question. I mean Perfect Day was -- really was a huge driver of ticket lift as well as onboard spend. I think with the Beach Clubs, it's a slightly different products. So it does kind of slip more into the short excursion onboard revenue frame. And so it's also a driver for itinerary as well because we're beginning to see that itineraries that include the Beach Club as well as Perfect Day seem to be driving even more demand than historically, which has been really strong. So I think we'll see that kind of combination of Beach Clubs really pushed through in onboard revenue and short excursions. And then the Perfect Day is typically a key driver of ticket. Jason Liberty: Yes. And Sharon, I think just to add on to Michael's point, it's got to modulate a little bit, right? Because the Perfect Day model is -- tends to bring a lot of premium on the ticket side. And so we still have -- there's opportunity for us to grow more in CocoCay, but as Perfect Day Mexico comes online, that is probably a little bit more of a balance between ticket and onboard, when the Beach Clubs come online, it's more on the onboard side. So it will modulate a little bit here. And -- but it's -- the answer to all of it is it's great revenue. It's a great guest experience, great margins, great returns. And so it's a true kind of win-win opportunity for everybody. Operator: Our next question will come from the line of Vince Ciepiel with Cleveland Research. Vince Ciepiel: Just wanted to clarify kind of the yield picture here in '25. The first half was up, I think, closer to 5%. Second half looks on track for 2.5% or maybe something a little bit north of that. Clearly some moving pieces. How much of that decel is related to just tougher compares versus maybe less new hardware tailwind? Is new hardware still a tailwind for the second half on a year-over-year basis? Or has it kind of transitioned to a little bit of headwind. And then the last piece, obviously, is you've called out, I think, some port fees as well as dry dock as well as Haiti, et cetera. So there's a number of like isolated headwinds, but just help us kind of bridge that step down, first half versus the second half, if you could. Jason Liberty: Yes. And thanks, Vince. So every quarter has something, right, because the ship delivery timing does impact those. These are large ships. And this year, we had 2 deliveries. I think the best way to look at it is you kind of look at it on a yearly basis, and that's -- if you kind of kind of look at it across the board, it's probably -- if you normalize all these quarter-over-quarter things, some of it was at '24, easy comp or a harder comp. And some of it is just some of these events and timing of ship deliveries and how we ramp up. But if you look at it on a yearly basis, that's a great, I think, just a way to look at our business. And it also subscribes to our formula, which we've said all along, this is how we manage the business. This is how we subscribe to that and then we drive to grow the business according to that formula, including the yield, the capacity and the cost. Operator: Our next question will come from the line of Andrew Didora with Bank of America. Andrew Didora: Actually, Naf, I just wanted to touch on the bond deal quickly to finance the Celebrity Xcel. Obviously, not a usual way to finance a ship, but certainly makes sense given the rate differential. I guess my question is are you pretty much indifferent in how you finance the ships right now as long as there is that rate benefit? And out of curiosity, are there any additional benefits of tapping the unsecured market as opposed to the ECA financing? Naftali Holtz: Yes. Great question. Thank you. And so, yes. For now, we're in a place where we have a very strong investment-grade balance sheet. We're benefiting from rates that are basically commensurate with our financial performance and our ratings. And so when we evaluate that, we look at it and we say, what does that make sense to finance with ECA, obviously, they're great partners. We're very grateful to kind of the partnership we have. It's obviously very important during the construction period to have the financing and these ships will -- they always have that committed financing in place also post delivery, which is obviously very valuable. But when we come to the decision, when we take the ship, we have this alternative -- and for this one, we negotiated this financing several years ago when credit rating was not as good as today. And so we -- and our improvement in the capital markets was quite substantial. And so when we looked at that, it just made more sense and much lower cost of capital. The other thing is just to remind everybody is these ECAs also have amortization payments. So when you look at the average tenure, of the loan is roughly a little bit over 6 years. We're obviously now issuing 10-year piece of paper in the unsecured market. So it's not just that the cost is low, we also gain tenure with it. And obviously, the covenant package is a little bit different, too. So you have the benefit there. We're very happy with kind of how this went. We're going to continue to evaluate all the alternatives -- it's very important to understand that all our ship financing -- all our ship deliveries and orders will have committed financing going forward, and then we'll have that option to evaluate what's the best alternative for us when we take delivery. Operator: And that will conclude our question-and-answer session. I will turn the call back over to Naftali for closing comments. Naftali Holtz: Thank you. We thank you all for your participation and interest in the company. Blake will be available for any follow-ups. We wish you all a very good day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good morning. Welcome, everyone, to the CEMEX Third Quarter 2025 Conference Call and Webcast. My name is Becky, and I'll be your operator for today. [Operator Instructions] And now I will turn the conference over to Lucy Rodriguez, Chief Communications Officer. Please proceed. Lucy Rodriguez: Good morning and thank you for joining us for our third quarter 2025 conference call and webcast. We hope this call finds you well. I'm joined today by Jaime Muguiro, our CEO; and by Maher Al-Haffar, our CFO. We will start our call with an update on the progress made so far on our strategic plan, followed by a review of our business and the outlook for the remainder of the year. And then we will be happy to take your questions. Please note that although the sale of our business in Panama was successfully completed on October 6, these operations were reclassified as discontinued as of the end of the third quarter and have been excluded from our results for both 2025 and 2024. As communicated previously, we retained our admixtures business in Panama, which we will continue to operate. In the case of Couch Aggregates, after increasing our holdings to a majority stake, we are fully consolidating these assets and their results in our U.S. business effective September 1. And now I will hand the call over to Jaime. Jaime Dominguez: Thanks, Lucy, and good day to everyone. Six months ago, I outlined our vision for CEMEX with 2 core objectives: attaining best-in-class operational excellence and delivering industry-leading shareholder returns. I also presented our strategic framework and the guiding principles to drive our company's transformation. These levers aim to enhance profitability, increase free cash flow conversion, improve asset efficiency and generate returns that comfortably exceed our cost of capital. Since then, we have worked relentlessly bringing together and aligning our entire organization with these principles. This has required sustained commitment and a willingness to embrace change at all levels. By engaging our teams and fostering a shared vision, we are ensuring that everyone at CEMEX is dedicated and empowered to deliver on our strategic plan. Today, I am pleased to share with you that while we still have much work to do, we are making important progress on our key priorities. As anticipated in our full year guidance, which assumed a significant year-over-year recovery in the second half, we're now seeing an improved performance in the third quarter. Consolidated EBITDA rose sharply, increasing at a double-digit rate with solid growth across our portfolio. Substantive margin gains in every region were largely driven by cost savings under Project Cutting Edge and higher prices. In the quarter, we made significant headway in the implementation of Project Cutting Edge with the realization of approximately $90 million in EBITDA savings. This keeps us on track to reach our 2025 full year goal of $200 million in savings. We continued executing on our portfolio rebalancing and growth strategy by divesting our operations in Panama while investing in targeted businesses in the U.S. with the consolidation of Couch Aggregates, strengthening our position in the Southeast. Our operations in Europe remain at the forefront of our decarbonization agenda and point to our climate leadership with net CO2 emissions on a per ton of cement equivalent basis ahead of the European Cement Association's 2030 target. All of these achievements serve as important stepping stones, strengthening our resolve to continue working towards our long-term goals. Third quarter results surpassed our recovery expectations for the back half of the year. Consolidated net sales are growing for the first time since the first quarter 2024 on the back of a stable volume backdrop and higher prices. Demand conditions in Mexico, while still soft, are showing signs of improvement, and Europe continues with its volume growth trend. The increase in consolidated EBITDA was supported by all regions with EMEA, Mexico and South Central America and the Caribbean region recording double-digit growth. EBITDA margin expanded by 2.5 percentage points, reaching its highest level for a third quarter since 2020. The U.S. and Europe reached record third quarter margins, while Mexico and our South, Central America and the Caribbean region posted multiyear margin highs. Net income performance in the quarter was largely explained by the prior year one-off gain from asset divestments. Adjusting for discontinued operations, net income is growing by 8% in the quarter and by 3% year-to-date. Free cash flow from operations benefited from higher EBITDA, lower interest costs and cash taxes. Importantly, the free cash flow from operations conversion rate, a key operating metric for our strategic plan, reached 41% on a trailing 12-month basis despite severance payments of $135 million. I expect free cash flow generation and the conversion rate to continue improving as we make additional progress on our strategic priorities. Consolidated volumes in the quarter were stable with growth in EMEA compensating for dynamics in other markets. While demand conditions are still soft in Mexico, we saw the first signs of improvement in the quarter. In the U.S., while year-over-year volume performance improved versus the first half of the year, we attribute this change primarily to an easier prior year comparison base. We are pleased with the positive trend in our operations in Europe. Cement volume growth was driven by higher activity throughout Eastern Europe and Spain with relatively stable performance in Germany and the U.K. Overall, while we have faced challenging volume conditions in 2 key markets this year, we remain optimistic on fundamentals going forward. With our renewed focus on operational efficiency, we're well positioned to capitalize on the strong operating leverage in our business once volumes improve. Consolidated prices were stable on a sequential basis, reflecting the customary annual first half price increases that generally prevail in our industry. On a year-over-year basis, consolidated prices are up low single digits, in line with our pricing strategy for at least covering input cost inflation. In Mexico, despite the volume backdrop, prices remain resilient with cement, ready-mix and aggregates prices increasing by a mid-single-digit rate since December. In the U.S., adjusting for product mix, aggregate prices are up 5% since the beginning of the year. In EMEA, rising cement prices in the Middle East and Africa more than offset performance in Europe. EBITDA growth was largely driven by our self-help measures and higher prices. Costs across the various categories declined by close to $80 million, accounting for approximately 2/3 of the like-to-like increase in EBITDA. Consolidated margin expanded by 2.5 percentage points with all of our regions as well as our 3 core products recording relevant margin gains. After a year of FX headwinds, we're benefiting this quarter from stronger currencies versus the dollar. In our Urbanization Solutions portfolio, better results in admixtures are partially compensating for still challenging conditions in other businesses. Going forward, our Urbanization Solutions business will primarily focus on admixtures, mortars and concrete products, which we believe offer strong synergies with our traditional core business as well as high margins. Under Project Cutting Edge, we have committed to an annualized recurring EBITDA savings of $400 million by 2027, with half related to overhead reduction. Importantly, with most of the actions required to achieve the overhead savings already done, we anticipate this effort to deliver about $75 million in the second half of 2025 and $125 million in 2026. We achieved about 40% of the 2025 overhead savings in the third quarter. We're also making progress on the implementation of the operating initiatives, including fuel efficiency, optimization of fuel mix, improvements in logistics and supply chain, among others. As a result of these efforts, both cost of goods sold and operating expenses as a percentage of sales are declining throughout all regions, leading to an expansion in EBITDA margin. With total EBITDA savings captured in third quarter of $90 million, we remain on track to reach our full year 2025 target of $200 million. As we go into 2026, we expect additional progress on Project Cutting Edge to further support margins. Complementing Project Cutting Edge, our ongoing business performance reviews should provide more visible improvements in EBITDA, profitability and free cash flow during 2026 and beyond. I am confident that by working with a clear focus on our key priorities of operational excellence, free cash flow conversion and return on capital, we will continue to identify opportunities to further optimize our operations. We're also advancing on our portfolio rebalancing efforts, creating shareholder value through disciplined capital allocation. As our growth strategy shifts towards prioritizing small to midsized acquisitions, we will reallocate capital to opportunities that are immediately accretive. We will continue seeking potential divestments in non-core markets to strengthen our position in the U.S. with a clear focus on aggregates and building solutions such as admixtures and mortars, which strongly complement our cement and ready-mix businesses. Allow me to emphasize that we will be disciplined when evaluating potential growth opportunities, following our return criteria and protecting our investment-grade capital structure. A clear example of this value creation approach is the recently announced transactions in Panama and Couch Aggregates in the U.S. We completed the divestment of our operations in Panama at an attractive multiple of about 12x. At the same time, we allocated part of the proceeds to acquire a majority stake in Couch Aggregates, a leading player in the aggregates materials industry across the Southeastern U.S. with an implied valuation of a high single-digit multiple after synergies. We expect that in the short term, this investment will offset the loss of EBITDA from the sale of our operations in Panama. This transaction is strengthening our aggregates footprint in the U.S., providing significant synergies and allowing us to better serve customers with a more complete offering. I am highly encouraged by our achievements in the quarter, which confirm that we're moving in the right direction, setting a strong foundation to position CEMEX as a more focused, agile and high-performing company. And now back to you, Lucy. Lucy Rodriguez: Thank you, Jaime. We are encouraged by our third quarter performance in Mexico. EBITDA grew 11%, marking the expected inflection point in quarterly performance underlying our annual guidance. A leaner cost base and higher prices drove this double-digit growth despite lower volumes. After a challenging first half, volume trends suggest an improvement in demand conditions. Average daily cement sales volume outperformed historical sequential seasonality patterns in the quarter despite heavy rains in August and September. In bagged cement, we benefited from a gradual rollout in rural road projects as well as other social programs. While demand in the formal sector remains soft, there are promising signs of recovery in the near term. In infrastructure, contracted volumes in our ready-mix backlog have increased in each of the last 4 months with several rail projects expected to commence construction soon. We are seeing incremental activity in projects related to the 2026 World Cup in Mexico City, Monterrey and Guadalajara with investments in roads, metro lines, airport terminals, stadium renovations and hotels. The social housing program, which was recently expanded to a goal of 1.8 million units during the administration's 6-year term is accelerating. We are already participating in the construction phase of several projects, which represent about 26,000 units with a similar amount in the planning phase. Prices for cement continued their positive trajectory with a sequential increase of 1%. Over the first 9 months of the year, cement, ready-mix and aggregate prices are up by mid-single digits, working to offset input cost inflation. We recently announced a mid-single-digit price increase in bagged cement. Project cutting-edge initiatives are already delivering relevant operational improvements, reflected in the 5 percentage points of margin expansion in the quarter. We believe we have additional opportunities to further drive margins in 2026. Importantly, the 33.1% EBITDA margin achieved in the quarter was the highest level for our Mexican business since 2021. Going forward into 2026, as the government enters its second year in office, we expect to see the customary pickup in infrastructure spending as well as potential benefits from the upcoming renegotiation of the USMCA trade agreement. As demand conditions improve, operating leverage should continue supporting profitability in Mexico. Our operations in the U.S. reached a record third quarter EBITDA and EBITDA margin, driven by increased cost efficiencies and higher prices. While year-over-year volume performance improved in third quarter, this was largely due to an easy comparison base resulting from adverse weather conditions in the prior year. Adjusting for ready-mix asset sales and the consolidation of Couch Aggregates volumes for our 3 core products declined by 1%. Demand continues to reflect strength in infrastructure, offset by persistent softness in the residential sector. With 3 consecutive years of volume declines, we have seen increased competitive pressure in select markets within our footprint, explaining the slight decline in sequential cement prices. In aggregates, we continue to experience robust pricing with prices adjusting for product mix, rising 5% since December. Our efforts to improve cement kiln efficiency continue to pay off in the U.S. with domestic production replacing lower-margin imports leading to relevant EBITDA gains. In our aggregates business, which is responsible for about 40% of EBITDA within the U.S., we continue to focus on initiatives to make our operations more efficient as well as expand our production. The recent upgrade of our Balcones quarry in Texas, one of the largest quarries in the United States, is optimizing our cost structure and contributing to higher margin. The recent consolidation of Couch Aggregates, along with other expansion projects in Florida and Arizona are expected to increase our aggregate production capacity by about 10% in 2026. Going forward, we expect infrastructure to continue driving demand as IIJA transportation projects continue to roll out. About 50% of funds under IIJA have been spent with peak spending levels expected during 2026. We remain optimistic about the outlook for the industrial and commercial sector, which continues gaining momentum with health care projects, data centers and chip manufacturing facilities being planned in our markets as well as relevant works in the Cape Canaveral. While there is continued weakness on single-family residential, we see strong potential over the medium term as mortgage rates decline and market sentiment improves. It is important to highlight that as in the case of Mexico, operational leverage should result in additional benefits once volumes recover. Our EMEA region continued with its strong performance, reaching new records in EBITDA and margins in both Europe and the Middle East and Africa. In Europe, high single-digit growth in cement volumes was mostly driven by infrastructure throughout Eastern Europe, with housing activity also boosting demand in Spain. In the U.K. and Germany, volumes are stabilizing. Infrastructure activity driven by EU funding, along with a gradual recovery of residential should continue supporting construction in the region. In the Middle East and Africa, ready-mix and aggregate volumes expanded by 13% and 1%, respectively. The slight decline in cement volumes is explained by a temporary regulatory impact in Egypt with demand already improving on strong market fundamentals. Higher cement prices in the Middle East and Africa more than offset dynamics in Europe. While price performance in Europe is largely explained by geographic mix, we have also faced some limited competitive pressure in specific markets. For the full EMEA region, cement ready-mix and aggregate prices are up low single digits since year-end. Our European operations remain at the forefront of our decarbonization efforts, having already surpassed the European Cement Association's 2030 consolidated net CO2 emissions target, further reinforcing our position as an industry leader. The implementation of the carbon border adjustment mechanism in 2026, along with the gradual phaseout of the free EU ETS allowances should be supportive of cement prices next year and beyond. We remain optimistic on the outlook for the region with a continued positive trend in infrastructure and further recovery in residential. Our South Central America and the Caribbean region posted impressive results with EBITDA rising by 54% and margin expanding by 6.8 percentage points. This strong performance was driven by several factors. The completion of the debottlenecking project in Jamaica, allowing us to substitute low-margin imports with domestically produced cement, benefits from savings realized under Project Cutting Edge, improved demand conditions in both Colombia and Jamaica and a more favorable prior year comparison base. In Colombia, demand is being driven by the informal sector with a rebound in bagged cement volumes and the metro project in Bogota. In Jamaica, we are seeing tourism-related developments along with improved bagged cement sales supported by remittances. Sequential prices for cement and ready-mix in the region are broadly stable with variation explained by regional mix. We remain optimistic on the medium-term outlook for the region, where improved consumer sentiment and formal construction are expected to drive demand. And now I will pass the call to Maher to review our financial development. Maher Al-Haffar: Thank you, Lucy, and good day to everyone. We are very pleased with our performance in the quarter. On the back of single-digit growth in our top line, we delivered 19% growth in EBITDA. Free cash flow from operations was close to $540 million, an improvement of more than $350 million versus third quarter of last year. The year-over-year growth was driven by the initial effects of our cost-cutting efforts, lower maintenance CapEx, interest expense and taxes. Adjusting for extraordinary items such as the payment of the Spanish tax fine in 2024, discontinued operations and severance payments, this year, free cash flow for the quarter grew 29% to approximately $600 million. In line with our normal seasonality, we saw a divestment of more than $130 million for working capital during the third quarter, and we expect this favorable trend to continue in the fourth quarter. Our year-to-date average working capital days stood at negative 10 days, an improvement of 5 days versus the same period last year. Our free cash flow conversion rate reached 41% for the trailing 12 months ending in September versus 35% for the full year 2024. As mentioned earlier, we are seeing the initial benefits from our efforts to optimize our cost base under Project Cutting Edge. During the third quarter, cost of goods sold as a percentage of sales was 71 basis points lower year-over-year, while operating expenses as a percentage of sales were 164 basis points lower. Energy cost on a per ton of cement basis declined by 14% in the first 9 months, driven by lower fuel and power prices and a continued improvement in clinker factor and thermal efficiency. Record net income of $1.3 billion for the first 9 months of the year was driven primarily by the sale of our operations in the Dominican Republic, a favorable FX effect and lower financial expenses. Our leverage ratio under our bank debt agreements stood at 1.88x in September, moderately higher than at the end of last year. We expect our leverage ratio to end 2025 below last year's level. We have fine-tuned our full year guidance for working capital and now expect a range of $0 to $50 million in incremental investment compared to the prior year. In the case of cash taxes, we now anticipate $350 million in 2025, which is $100 million lower compared to our previous guidance. And now back to you, Jaime. Jaime Dominguez: Thank you, Maher. In light of our year-to-date results and reflecting the progress achieved in Project Cutting Edge, we are maintaining our full year EBITDA guidance unchanged, expecting a flat performance versus 2024 with potential upside. Based on more visibility, we have made some small adjustments to elements in our free cash flow spend guidance that should positively impact 2025 free cash flow generation. We remain focused on the implementation of our strategic plan, delivering EBITDA savings under Project Cutting Edge, higher free cash flow conversion rate and returns above cost of capital. We will keep you updated as we continue making progress towards these objectives. And now back to you, Lucy. Lucy Rodriguez: Before we go into our Q&A session, I would like to remind you that any forward-looking statements we make today are based on our current knowledge of the markets in which we operate and could change in the future due to a variety of factors. In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases or decreases, refer to our prices for our products. And now we will be happy to take your questions. [Operator Instructions] Operator: First question comes from Carlos Peyrelongue from Bank of America. Carlos Peyrelongue: Congratulations, Jaime, Maher and Lucy, on the strong results. My question is related to cash conversion. It improved materially in the last 12 months. What should we expect for next year and 2027 besides the cost-cutting that you mentioned as part of Cutting Edge, what else could drive higher cash conversion in the next 2 years? Jaime Dominguez: In 2026, I'm targeting around 45% free cash flow conversion from operations, and you do expect further improvement beyond '26. We should be targeting around 50% free cash flow conversion from operations. What is driving and will drive this improved performance is basically a reduction in strategic CapEx and an optimization in platform CapEx. We will continue reducing interest expenses for the most part. So that's how we're going to do it, and I feel pretty comfortable about 2026 45% free cash flow conversion. Operator: The next question comes from Adrian Huerta from JPMorgan. Adrian Huerta: Congrats on the results. You touched base a little bit on my question, which is regarding Mexico, especially for 2026. You mentioned the increased backlogs in the last 4 months on the infra side. We've seen different actions kind of happening but not being advertised on the infra side. In prior presidential changes, we saw volumes recovering 30%, 50% of the volumes lost in the prior year. It seems like this year; volumes are going to be down high single digits as you're expecting. Is that -- given what you're seeing so far, can we say that we could potentially at least see that type of recoveries closer to half of the volumes lost this year? And if you can give us additional color on what else you're seeing that is giving you confidence on that? Jaime Dominguez: Adrian, thanks for your question. Well, first of all, I don't think I would be crazy if I told you that volumes -- the demand volumes in Mexico next year should grow by no less than 2.5% to 3% and when demand volumes grow, some of it driven by infrastructure, CEMEX tends to do very well because we do have an extensive technical and operating capability to serve complex infrastructure projects, both highways and rail. This means that most probably, we would be gaining some market share next year in the infrastructure sector as it gets back on track, potentially 1 percentage point market share, which is what we normally lose when infrastructure becomes weaker. So we're ready to see that unfolding next year, supported by infrastructure. To give you a little bit more of examples, right now, we're executing projects such as Escolleras, Dos Bocas, terminal de carga in Quintana Roo, Camino Real, Colima, [indiscernible] La Primavera in Sinaloa. And we do have an extensive number of projects in the pipeline, [indiscernible], so on and so forth. So definitely, we see a better outlook for Mexico for next year. To what extent, I'm comfortable saying that demand will grow by at least 2.5%, close to 3%. Please also note that we do see already the social housing unfolding. As Lucy highlighted, we are supplying already projects. And when I talk to our partners, customers, they are becoming more excited about the social housing program. And then I don't know what you think, Adrian, but if interest rates in Mexico continue dropping a bit, that should be supportive of a very resilient formal housing sector, which has been surprisingly good so far this year. I hope I have answered your question, Adrian. Lucy Rodriguez: Thanks, Adrian. And if I could just complement, we, of course, will continue fine-tuning our thoughts on next year, and we'll give guidance on Mexican volumes in early February, but we are quite positive. The next question comes from Francisco Suarez from Scotiabank. Francisco Suarez: Congrats on the wonderful execution, exciting times for sure. My question relates with the massive EBITDA margin expansion in Mexico in the quarter. Can you give us a little bit of color on the breakdown roughly of the 500 basis improvements between, say, Project Cutting Edge, how much of that was also driven by lower pet coke prices? How much was by thermal substitution, perhaps prices or any other thing that you can give us a little bit more color? Jaime Dominguez: Francisco, thanks for your question. Well, yes, we had a solid 5-percentage-point expansion. It explains basically around the following: #1, prices close to 4-percentage-point. Then very pleased with our SG&A and corporate reductions that contributed with around 0.8-percentage-point improvement. variable cost, 0.9-percentage+point; fixed cost around 0.3-percentage-point. When you look at variable cost, energy continues to be a tailwind, both electricity, although there, I must acknowledge that last year, we had a one-off, but still it's tailwind as we take advantage of the wholesale electricity market, right? And then positive contribution of fuels, around 1.1-percentage-point. So that was also encouraging with a minus 18% decrease in unitary fuel cost. So I hope that I answered your question. Francisco Suarez: So that creates a wonderful foundation for further improvements in 2026 on your operating year-end, isn't it? Jaime Dominguez: Well, in Mexico, particularly, we're targeting to be the most efficient operator in the country. We've done extensive benchmark with others, although we have a different business model Francisco, mainly in retailing, but we are seeking to be best-in-class in margins in Mexico. Lucy Rodriguez: Thanks, Paco. And to your point, Mexico is the region that probably has contributed the most to date in terms of Project Cutting Edge, and we do believe that next year a lot of that will continue. The next question comes from Anna Schumacher from BNP Paribas. Is the industry deprioritizing CCUS? I appreciate CEMEX has always taken a pragmatic approach. Could your schemes like Rudersdorf be delayed? And how will you decide? Jaime Dominguez: Thanks for your question. You're asking me whether the industry is deprioritizing CCUS, among other things, I won't answer on behalf of the industry, but I'll give you a color on how we think in CEMEX. We've always prioritized first traditional delevers -- sorry, levers to decarbonize. And on that, we're doing pretty well. We continue to see a good runway to continue deploying traditional levers, particularly a significant reduction in clinker factor, further improvement in energy efficiency and beyond Europe, a ramp-up of alternative fuels with biomass content. CCUS continues to be a lever that CEMEX will need a midterm. And we will deploy CCS projects provided that they are accretive to value creation. And for the time being, for that to happen, we need 2 things: significant subsidies on both CapEx and OpEx and then green premium. And in that -- regarding the latter, we are excited about potential bilateral agreements with some offtakers under the book-and-claim scheme that we're working on. But again, although I recognize that CCUS is fundamental for net zero we will not deploy CCS that destroys value. We need to do more work on regulations, right? And we will not deploy CCS in an asset that we might not continue running long term. So as we speak, we're reviewing, particularly in Europe, right, our asset footprint because we do see opportunity to optimize our asset base. Some of our kilns might be converted to produce calcium clays, while we do micronization technologies to reduce clinker factor and introduce new blends. And our priority for decarbonization continues to be Europe, followed by California. And everywhere else, we're profitable and accretive to shareholder returns, we will continue decarbonizing because it continues to be a priority. Thanks, Anna, for the question. Lucy Rodriguez: The next question comes from Yassine Touahri from On Field. Yassine Touahri: Congratulations for the fantastic results. My question would be around the price for next year. Could you -- have you already sent a letter to your clients in the U.S. and Europe for 2026 price increase? Could you provide an order of magnitude of the price increase that you would like to deliver in those 2 regions? That would be very helpful. And could we see -- I think prices in the U.S. and Europe were a little bit muted in 2025. Could we see a change in direction next year? Jaime Dominguez: Yassine, thanks for your question. We haven't yet sent our price increase letters to our customers. We're working on it but allow me to share with you the way I'm thinking -- the way we're thinking. Across all our markets, our pricing strategy should more than offset input cost inflation. We're excited about Europe because next year, we will begin to see the CBAM, which could add between EUR 5 to EUR 10 per ton when you think about what importers would have to start paying. In the case of CEMEX, right, we do have an advantage because in Europe, we have much lower CO2 footprint on clinker and cement terms. But the way we're thinking is we understand that competitors, local producers do not have enough CO2 surpluses, would need to buy CO2 credits at EUR 77, EUR 75 per tonne. And then you need to include the CBAM from imports because the Turks, the Algerians and others do have a CO2 footprint per tonne of clinker and cement that is much higher than the European benchmark. And next year, in 1Q, the European Union will publish the new benchmark. It could be as low as 650 kilos per tonne of clinker. So it means that we're going to have the CBAM. And if producers do the math the way I do it, which is thinking about the CO2 incremental cost, right? I'll say that there could be interesting pricing characteristics in Europe. As we speak, I'm reviewing macro market by macro market, but I'm excited about that. And in the U.S., we will -- unlike in 2025, 2026, we will, right, target price increases, hopefully to more than offset input cost inflation, recovering what the opportunity lost in 2025. Now what's new is tariffs, right, and potentially some FOB cement and clinker price increases out of the Med Basin, which could be positive for the Gulf Coast and the Eastern coastal U.S. markets. So I hope that I have answered your question. Lucy Rodriguez: And the next question comes from Ben Theurer from Barclays. Benjamin Theurer: Jaime, congrats on the great execution here once again. I wanted to follow up real quick on the performance in the U.S., particularly as it relates to volume. Clearly, you've highlighted it was still down across all segments. But I wanted to understand if you're seeing any regional differences in the performance. And if you could maybe dig a little bit deeper into the subcategories, residential versus industrial, commercial and infrastructure as it relates to the U.S. volume in specific. Jaime Dominguez: Ben, thanks for your question. Yes, as we speak, and I'm relating more to the third quarter, we saw weaker volumes in Florida and California and Arizona, partially compensated by growth in Texas, Colorado and the Mid-South. And the outlook looks like this. We do continue to see strong infrastructure. Nothing tells us that, that dynamics will change next year. On the contrary, because of what Lucy explained about the infrastructure bill and how it will -- the investment will peak in 2026. We continue to see data centers, chip factories, second phases and projects around chip factories, some high heavy commercial jobs, right? But what continues to be weak, and I don't think it will recover next year is single-family homes is residential. You know that mortgage rates are reducing, now around 6.3%. I think mortgage rates will stay for longer at around 6%. And I believe that we need to see the Americans who need to buy a house to emotionally understand that mortgage rates might not drop significantly sooner, and that might trigger the need to jump and purchase a house. But I don't think that's going to happen in the short term in '26. So I'm expecting still a -- stabling though, stabilizing, though, but a weak residential, and I hope to see that recovery in 2027. I do expect U.S. demand to grow next year low single digit, though. Lucy Rodriguez: The next question comes from Alejandra Obregon from Morgan Stanley. Can you elaborate on the evolution of your optimization plans and yield improvement initiatives at Balcones in Texas? And how can these translate into profitability improvements in Texas as you substitute imports with domestic production? Is there room for similar improvements in any other plant in the U.S. Jaime Dominguez: Alejandra, thanks for your question. First, allow me to explain a little bit what we're doing in Balcones. We are using artificial intelligence to help operators run our raw mills, the kilns and the cement mills in autopilot, allowing the artificial intelligence to take on real-time decisions on operating parameters. And what we're finding is that we do see between high-single-digit to double-digit, low teens yield increases. Basically, the artificial intelligence uses good data much faster to adjust operating parameters that otherwise a human being will need to wait for days, particularly when it comes to adjusting chemistry because of quality adjustments of raw materials. So it's very exciting. And clearly, we do see the opportunity to expand and scale the technology to all our cement plants in the U.S. because all of them present opportunities for increased yield. This year, we've seen a solid improvement that led to so far, an increase in cement production of more than 500,000 short tons. And that's clearly expanding margins as we replace imports, but also as we operate in a stable environment, which leads to improved energy efficiency. Do expect more to come. The potential is simple. I'm targeting -- we are targeting, my U.S. folks are targeting incremental 1 million short tons more from our current asset base. Clearly, the technology will help. And that means that you should expect further cement margin improvement in the U.S. going forward. It could be as high as 2 to 3 percentage points midterm. Thanks for the question, Alejandra. Lucy Rodriguez: The next question comes from Gordon Lee from BTG Pactual. Gordon Lee: Congratulations on the results. Just a quick question, Jaime, and you addressed this a little bit in your opening remarks, but I was wondering if you could speak a little bit more about the Urbanization Solutions business and specifically, the decline that we've seen year-to-date in revenue and EBITDA, is that a function of the completion of projects? Or should we interpret that as a strategic deemphasizing of its relevance within CEMEX or maybe also as a product of the implementation of Cutting Edge? Jaime Dominguez: Gordon, thanks for the question. The reduction in sales and EBITDA are unrelated to completion of projects. The reason why you see a drop in sales and EBITDA is mainly twofold. It's concrete block Florida, for obvious reasons, weakness in residential and then is Mexico infrastructure because of our concrete paving solutions because of much lower infrastructure activity. Those 2 continue to be core to everything we do because as you can understand, it's very synergetic, right, upstream with raw materials, cement, admixtures, aggregates, but also distribution and downstream with a similar customer base. But because you're asking the question about deemphasizing, what I can tell you is that we are reviewing the umbrella of Urbanization Solutions. And I do see some businesses that will not remain under Urbanization Solutions as such businesses because most of what we report is on internal transactions. Let me give you an example that is New Line Transport business in Florida. So that's a good example, 98% of what we do is internal, and we do sell to third-party shippers, but we're not planning to grow that business. So any business that we are not planning to grow going forward would not be part of Urbanization Solutions. As we speak, we're very excited about admixtures. We will continue to be there. It's a very solid business. And next year, we will begin to share more data about every vertical. I'm very excited about mortars, stuccos, renders because it's very synergetic and we know it very well, right? And also recycling concrete, recycling aggregates, recycling construction demolition waste where it makes sense, micromarket by micromarket and concrete products such as sleepers, concrete block and infrastructure, which I see it is a vertical that we -- where I see significant opportunity for accretive growth. So I hope that I have answered the question, Gordon. Lucy Rodriguez: The next question comes from Anne Milne from Bank of America. Anne Milne: My question is on the debt profile. So you -- a couple of things. One, you have large maturities next year. It looks like most of that is in the debt market. And if you could just give us an idea, sort of some of the thoughts you have for that. But also your average life is 3.7 years, your yields on your bond now are pretty attractive. I mean, spreads on your 31 bonds are somewhere between 20% and 25% over Mexico, just about 100 and something, low hundreds over U.S. treasuries. Just wondering if you were thinking maybe, you could extend out a little bit from here. And then related to that, I like the number of net debt with a 5 handle, $5 billion or something. And I also like leverage with the 1.88 number. I also know that CEMEX is looking on doing some -- potentially some acquisitions. Do you have a range where you'd like to see leverage going forward? So it's all on the debt profile. Jaime Dominguez: So I will pass the word to Maher to answer the first part of the question. So Maher, you'll take that. I just want to tell you about the leverage. Look, I'm more comfortable using the fully loaded leverage. I don't think that bank leverage has any meaning going forward. And the range I want to set up is between 1.5x to 2x, fully loaded. Back to you, Maher, you may answer the question. Maher Al-Haffar: Yes. Thank you, Jaime. And thank you, Anne, for the question. I -- we're totally aligned, and we definitely think that from the rating agencies' perspective and the debt markets, using the fully loaded leverage ratio makes a lot more sense. And to your question about balancing between investment grade versus potentially slightly higher leverage, we feel very comfortable with that, especially as our EBITDA improves. over the next 12 to 24 months and beyond. We think that, that will give us -- will -- definitely that plus cash on hand as a consequence of some of our portfolio rebalancing efforts, we should have more than adequate M&A capacity without really risking our ratings and in fact, maybe driving our ratings towards the BBB, solid BBB metrics. So we're very comfortable with that. We don't see any divergent kind of forces in that respect. Now in terms of the maturities, we definitely -- we agree with you. We like the yields that we see. Of course, we'd like them to be lower. And certainly, we'd like them to tend towards our peers, which are probably a good 15% to 20% lower than ours. And definitely, we are looking at extending maturities. One thing I would like to highlight to everybody is that if we include the 2 subordinated notes that we have, which is $2 billion into our debt profile structure, just hypothetically kind of giving them a 10-year tenor from issuance date, our average life would be closer to 5 years. Having said that, the market on the long end is very attractive. So definitely, we are thinking potentially about extending maturities. Of course, we're always balancing cost of debt versus tenor. But certainly, the positivity of the markets leads us to believe that that's something that perhaps we should consider next year. And as you know, there are some maturities coming up. There's the loan -- the term loan facility is getting closer. We have a EUR 400 million bond that is due next March. So we have a lot of flexibility in terms of liability management and our ability to take advantage of that. The other thing is one of the subordinated notes resets next year. The 5.125 resets next year to -- by quite a bit, which again gives us the opportunity to potentially do something with that as well. So thank you. I hope that answered your question. Anne Milne: Yes. I just have one clarification. When both you and Jaime mentioned fully loaded debt, are you talking about financial debt and leases or something in addition to that as well? Maher Al-Haffar: No, we're talking about adding the subordinated notes to the total debt outstanding. Anne Milne: Okay. So that would be in the 1.5 to 2 range figures. Maher Al-Haffar: Right. Lucy Rodriguez: And the next question comes from Jorel Guilloty from Goldman Sachs Goldman Sachs. Wilfredo Jorel Guilloty: Mine is a more big picture question. So I was wondering if you could provide some color as to how you see the capacity of CEMEX after Project Cutting Edge is completed in 2027. In other words, given the leaner structure you're pursuing, what will be the capacity of the company that we see at the other end of this? Are you thinking that it's a lower yet more profitable volumes? Is it a larger company growing through acquisitions with a leaner base? Just to get a sense of this cost structure vis-a-vis your capacity going forward? Jaime Dominguez: Jorel, thanks for the question. What we see going forward for the time being is a company that achieves excellence in operations and very strong best-in-class shareholder returns. This means that as volumes grow and markets recover, we have very significant operational leverage, which we will enjoy. We want to achieve -- we will have a very responsible capital allocation with very strict parameters and always credit investment rating no matter what we do and a company that does return cash to shareholders. Yes, we do want to do bolt-ons in the U.S. first around aggregates, mortars, renders for the most part, right? And a company that relentlessly looks at its portfolio to have businesses that deliver ROIC above cost of capital and free cash flow conversion at a consolidated level of no less than 50%. For the time being, we are prioritizing the U.S., Mexico and Europe as the regions where we want to grow. And finally, socially responsible, right, adding value to the communities where we do business, and doing so sustainably from a safety standpoint, right, attracting best talent in the industry and decarbonizing while also taking care of biodiversity and water management. So that's what I can tell you for the time being, Jorel. Thank you for your question. Lucy Rodriguez: We have time for one last question, and it's coming from Adam Thalhimer from Thompson, Davis. Adam Thalhimer: Congrats on the strong Q3. And I was curious if you could update us, Jaime, on -- and you just touched on this a little bit, but the outlook for U.S. M&A. What are you looking at? What's ideal and potential time frame? Jaime Dominguez: Adam, thanks for your question. We -- first of all, we are strengthening our team with a few key additions who are bringing great expertise and capabilities on bolt-on acquisition strategy and deployment, and that was important. At #2, we are strengthening the pipeline. So far, we are looking at 100 family-owned aggregate targets in the U.S. And we're beginning to engage with many of them with flexible approaches as we did in Couch, as an example, meaning we entered with a minority equity option to acquire a majority equity holding, so on and so forth or full acquisition. We're also looking at mortars, stuccos, renders because, Adam, those businesses, we know how to run, and they are very synergetic because upstream, right, those businesses consume our cement, our cementitious, some of our sand and our admixtures solutions. And it also brings distribution synergies, I mean, logistics and more importantly, customer base synergies. And then we do want to explore some niche opportunity in admixtures as well in the U.S. and elsewhere in Europe primarily. So that's what we're looking at for the time being. And allow me to take advantage of your question just to highlight that, again, we will anchor any decisions to preserve our IG rating. And we've got very clear metrics for acquisitions, such as, you know, free cash flow per share, which must be accretive in year 1, definitely ROIC over WACC plus 100 basis points in midterm, any acquisition we do with synergies with around 3% of sales so that we drive the multiple to high single digit. right? And again, focus is going to be on aggregates and mortars, renders, and stuccos. I hope I answered your question, Adam. So muscle is -- we're working the muscles, and we will be deploying as the opportunities come along, nurturing them in the U.S. Lucy Rodriguez: Thank you, Adam. We appreciate you joining us today for our third quarter results, and we hope that you will come back again for our fourth quarter 2025 webcast on February 5, 2026. If you have any additional questions, please feel free to contact the Investor Relations team. Many thanks. Operator: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect your lines. Good day.
Operator: Good morning, and welcome to the Principal Financial Group Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Humphrey Lee, Vice President of Investor Relations. Please go ahead. Humphrey Lee: Thank you, and good morning. Welcome to Principal Financial Group's Third Quarter 2025 Earnings Conference Call. As always, materials related to today's call are available on our website at investors.principal.com. Following a reading of the safe harbor provision, CEO, Deanna Strable; and CFO, Joel Pitz, will deliver prepared remarks. We will then open the call for questions. Members of senior management are also available for Q&A. Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company's most recent annual report on Form 10-K filed by the company with the U.S. Securities and Exchange Commission. Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures may be found in our earnings release, financial supplement and slide presentation. Deanna? Deanna Strable: Thanks, Humphrey, and good morning to everyone on the call. This morning, I'll discuss our strong third quarter performance and the continued execution of our strategy, focused on delivering sustained growth across our diversified businesses. Joel will then provide additional details on our financial results and capital position. Turning to Slide 2. Our third quarter results build on the momentum of the first half of the year and demonstrate another period of strong performance toward our financial targets. We delivered 13% adjusted earnings per share growth year-over-year and 14% year-to-date above our target range. Our return on equity expanded significantly the last year and is now at the high end of our target range. And our year-to-date free capital flow conversion ratio of over 90% is tracking above target. Additionally, we returned $400 million of capital to shareholders in the quarter, including $225 million of share repurchases. We also raised our common stock dividend for the ninth consecutive quarter, an 8% increase on both a quarterly and full year basis. These results were driven by strong business fundamentals across the company, including enterprise net revenue growth of 4%, margin expansion of 180 basis points and positive enterprise net cash flow. Given the strong performance through the first 3 quarters and our business momentum, we fully expect to deliver on our full year enterprise financial targets. Moving to Slide 3. We continue to make progress on our strategic priorities highlighted at our 2024 Investor Day. As a reminder, we're focused on 3 significant profit pools where we are uniquely positioned to win, the broad retirement ecosystem, small and midsized businesses and global asset management. Let's start with the retirement ecosystem in which we offer a comprehensive suite of capabilities across recordkeeping, asset management, wealth management and income solutions. We're seeing strong momentum across key metrics. Workplace Savings and Retirement Solutions, or WSRS transfer deposits grew 13% year-over-year, demonstrating the strength of our retirement recordkeeping platform and the breadth of our distribution reach. We're serving an increasing number of participants and the participants we serve are saving more. This is evidenced by a 3% increase in the number of participants deferring into their retirement plans compared to the year ago quarter with average deferrals up 2%. Total RIS sales of $7 billion increased 8% year-over-year with strong growth in WSRS and pension risk transfer. On a year-to-date basis, nearly 1/3 of our PRT premiums came from existing defined benefit clients. Additionally, nearly half of our year-to-date nonqualified life insurance sales are part of a total retirement solution with RIS. Our retirement investment expertise, an important growth driver within the retirement ecosystem, continues to gain traction with third-party retirement platforms as evidenced by DCIO sales of $2 billion in the quarter. These connections within and across businesses demonstrate our power across retirement and reinforce our unique competitive advantage in delivering retirement solutions to employers and their employees. Moving to our small and midsized business segment. Our differentiated capabilities and deep expertise in this attractive segment continues to drive results. WSRS SMB recurring deposits grew 8% and transfer deposits increased 27% compared to the year ago quarter. In Benefits and Protection, our business continues to show growth and resiliency. Employment growth for our block was nearly 2% on a trailing 12-month basis, and we're seeing continued success in deepening relationships. Based on our latest insights, employee retention remains a top priority for small business owners and executives, and we're well positioned to help them achieve their goals with our comprehensive suite of solutions. In Global Asset Management, we're generating strong momentum with gross sales in Investment Management of $32 billion, up 19% year-over-year. Revenue on these sales is up even more. Our private markets capabilities remain attractive to clients globally, generating net inflows of $1.7 billion in the quarter. Private AUM grew 9% year-over-year as strong demand continues across our real estate, infrastructure and private credit strategies. Additionally, our ETF business delivered net inflows of $500 million in the quarter and $1.3 billion year-to-date. These results reflect the strength of our diversified business mix across asset class, geography and client base. Looking across our 3 long-term strategic focus areas, I'm encouraged by the momentum. The breadth of our retirement solutions, our leadership position in serving small and midsized businesses and our expanding global asset management capabilities create multiple paths for sustained growth. These competitive advantages, combined with our integrated business model and strong execution position us well to capitalize on the significant opportunities ahead while creating value for our customers, shareholders and employees. Before I turn this over to Joel, I want to acknowledge our recent release of the Fourth Annual Global Financial Inclusion Index, which tracks how governments, employers and financial systems around the globe are advancing financial inclusion. Since the index launch, we've seen how digital solutions have emerged as a powerful driver of progress, helping people make informed choices and achieve greater financial security. Markets making the fastest gains are embracing fintech solutions that expand access while embedding financial education and safeguards. While current economic uncertainty has temporarily impacted employer financial inclusion programs, it's encouraging to see governments and financial systems stepping up. The findings highlight the tremendous opportunities ahead and reinforce our important mission to help people feel more confident in their financial decisions. Joel? Joel Pitz: Thanks, Deanna. This morning, I'll share the key contributors to our strong financial performance for the quarter as well as details of our capital position. As shown on Slide 4, we reported non-GAAP operating earnings of $474 million or $2.10 per share, a 19% increase year-over-year. And on a year-to-date basis, reported EPS increased 21% excluding significant variances, non-GAAP operating earnings were $523 million, an increase of 9% year-over-year and EPS of $2.32 increased 13%. On a year-to-date basis, adjusted EPS increased 14%. While not on the slide, third quarter reported net income, excluding exited business, was $466 million, an increase of 11% over the prior year quarter with minimal credit losses. Turning to capital and liquidity. We ended the quarter in a strong position with $1.6 billion of excess and available capital. This includes $800 million at the holding company at our targeted level, $350 million in our subsidiaries and $400 million in excess of our targeted 375% risk-based capital ratio, which was estimated at 400% at quarter end. We returned approximately $400 million to shareholders in the third quarter, including $225 million of share repurchases and $173 million of common stock dividends. We are confident we will deliver on our full year capital return target of $1.4 billion to $1.7 billion, including $700 million to $1 billion of share repurchases. Last night, we announced a $0.79 common stock dividend payable in the fourth quarter. This is a $0.01 increase from the dividend paid in the third quarter and an 8% increase over both the year ago quarter and trailing 12-month period. This aligns with our targeted 40% dividend payout ratio and demonstrates our confidence in continued growth and strong capital generation. Moving to AUM and net cash flow. Markets created tailwinds in the quarter with positive results across U.S. and international equities, fixed income and real estate. Total company managed AUM of $784 billion increased 4% sequentially, driven primarily by strong market performance, along with positive net cash flow. Total company net cash flow was $400 million in the quarter, a sequential and year-over-year improvement, driven by Investment Management flows. As Deanna mentioned, this was largely driven by strong private inflows. Moving to the businesses. The following commentary excludes significant variances, which can be found on Slide 10. Significant variances this quarter include a net unfavorable impact to GAAP earnings from our actuarial assumption review, primarily driven by model refinements. It is important to note the actuarial assumption review impacts our GAAP-only and noncash and therefore, has no impact on free capital flow for the enterprise. The remaining significant variances are a slight net positive. Starting with RIS and as shown on Slide 5, third quarter top line growth was 4% towards the upper end of our target range, driven by growth in the business and favorable markets. This, coupled with expense discipline while investing in the business, resulted in a 42% margin, a 130 basis point improvement over the third quarter of 2024. Pre-tax operating earnings of $315 million increased 8% from the prior year quarter, driven by growth in the business and margin expansion. As Deanna noted, fundamentals across the business remain healthy. Total WSRS recurring deposits grew 5% on a trailing 12-month basis with our SMB segment continuing to outperform at 8% growth over the same period. Additionally, consistent with the first half of the year, withdrawal rates in the quarter remained stable. Turning to Slide 6. Principal Asset Management delivered strong earnings on revenue growth and margin expansion. Within Investment Management, pre-tax operating earnings increased 9% from the prior year quarter. Management fees increased 5% year-over-year, driven by higher AUM and a stable fee rate against the backdrop of industry fee pressure. This, along with continued expense discipline, contributed to a 180 basis point improvement in Investment Management's quarterly operating margin. Net cash flow was $800 million in the quarter, supported by inflows in privates with 2 large wins in private real estate equity as well as positive flows in high-yield, emerging market fixed income and active equity ETF strategies. Moving to International Pension. We delivered record reported AUM of $151 billion, an increase of 9% year-over-year. Operating margin of 47% expanded 180 basis points from the prior year quarter and remains comfortably within our targeted range. Turning to Slide 7. Specialty Benefits pre-tax operating earnings were $147 million, a record quarter. This was an increase of 28% compared to the year ago quarter, driven by more favorable underwriting results and business growth. These results reflect our focus on pricing discipline and profitable growth. Total SBD loss ratio improved 340 basis points compared to the year ago quarter and was below our target range. These results were driven by favorable group life and group disability underwriting as well as a 100 basis point improvement in the dental loss ratio. Operating margin of 17% expanded 330 basis points compared to the year ago quarter and is above the high end of our target range. In Life Insurance, premium fees increased 3% compared to the third quarter of 2024 as strong business market growth of 11% continues to outpace the runoff of the legacy life insurance business. Mortality in the quarter was better than expected, but slightly less favorable than a year ago quarter. In closing, our strong enterprise performance reflects successful execution of our strategy and strong fundamentals. Our diversified business demonstrates its strength through profitable growth and expanded margins. As Deanna highlighted, this momentum, coupled with our year-to-date performance reinforces our confidence in delivering on full year enterprise financial targets and positions us well for sustained long-term performance. This concludes our prepared remarks. Operator, please open the call for questions. Operator: [Operator Instructions] Our first question comes from Jack Matten with BMO Capital Markets. Francis Matten: So the first question on margins. I'm just wondering if you would expect to continue seeing strong margin expansion kind of in line with the 180 basis points this quarter with market performance remains strong. And I guess relatedly, can you discuss areas where Principal is either accelerating or expanding its investments in growth initiatives? Deanna Strable: Yes. Thanks, Jack, for the question. Obviously, the margin expansion in the current quarter was impacted by both strong underwriting results as well as very disciplined expense management. I'll have Joel talk about that and then maybe ask each of the presidents to maybe highlight a few areas where we're investing in the business. Joel Pitz: Yes. Thanks for the question, Jack. From a margin perspective, we certainly expect margins to continue to expand, but importantly, while investing in the business, as you said. So this quarter was no different than we've done in the past, where we're going to make sure that we ensure that expenses grow at a much slower pace than revenues. And as you said, we had margin expansion of 180 basis points at the enterprise level and on a TTM basis was a 100 basis point improvement. Once again, we'll continue to actively and responsibly manage expenses, and particularly in the fee-based businesses, where you do see some macro benefits emerging. We're going to continue to invest meaningfully in that regard. Deanna Strable: Chris, maybe highlight a few investments that you guys are focusing? Christopher Littlefield: Yes, sure. Jack, obviously, margin was strong for RIS this quarter, and we continue to the sort of guide toward the upper end of our margin range. And despite that strong margin performance, we're making a lot of significant investments, both in modernizing our record-keeping capabilities as well as building out our capabilities to serve the individual customers and retirement plans. So we're making very significant investments and still being able to deliver on our margin. Deanna Strable: Amy? Amy Friedrich: Yes, thanks, Jack. So obviously, margin for the SPD businesses was exceptional this quarter. And then when we look across the margin for life, that was within the range as well. So I'd echo what Chris said. Again, we're meeting our margin targets. We're exceeding them in one of the businesses, and we're still investing for the business. So when I think of those key investments we're making, a lot of them are multiyear in nature. So we've been working on some multiyear investments related to our front-end acquisition systems for our group benefits business, also some increased data exchange capabilities, and those are going to benefit our employer customers as well as the brokers and advisors who really have to recommend us for that business. So I'm excited to see those capabilities coming to the marketplace in late '25 and early '26. Deanna Strable: Kamal? Kamal Bhatia: Sure. Jack, just I'll highlight both IM and IP for you. Both had excellent quarters on margin, and I expect them to continue on IM, the margin is around 36%. And it's largely aided by the results we highlighted in our cash flow, but also markets. And in IP, where net flows may not be that strong, we still have excellent margin. And the drivers of our margin in both those businesses are slightly different. In Investment Management, our investments continue to be around building new investment capabilities that will generate higher fee revenue for us. You've seen that in our private markets area, and we continue to do that now in public markets as well, particularly global equities, which we believe will actually add to our growth potential. In IP, our focus continues to be to optimize our sales distribution network across the various regions and leveraging the collaboration between IM and IP in those regions. So that is probably the bigger area of our investment in the IP area. Deanna Strable: Jack, did you have a follow-up? Francis Matten: Yes, very helpful. Yes, follow-up maybe on free capital flow conversion. It's been running at healthy levels over 90%, I think even if you back out the GAAP assumption review. Is there anything notably that you'd call that's driving that and how you would expect that to trend over the near term? Deanna Strable: I'll ask Joel to address that. Joel Pitz: Yes. Thanks, Jack. We are in a very strong capital position as we end third quarter. We have the luxury of a very capital-efficient mix of business, which affords us the ability to organically invest in our business, again, while freeing meaningful capital up for the benefit of shareholders. As such, we have and will continue to operate from a position of capital strength. You saw from our disclosure at the end of third quarter, we do have $1.6 billion of excess and available capital. This is $150 million higher than we had coming into the third quarter, while investing in organic growth and deploying approximately $400 million of capital in the form of share buybacks and dividends during the quarter. As signaled in the quarter last call, we expected and our deploying elevated levels of capital in the latter part of the year. And you saw this in the third quarter with the $400 million of capital deployed in the course of the quarter, $225 million of which was in share buyback activity. So as we sit here today, we feel really good about our share buyback activity and positioning for fourth quarter. Just we had elevated third quarter deployment. We expect fourth quarter to be even further elevated. And so we feel really good about our prospects for deploying capital in an optimal and strategic way from this point forward. And last but not least, as we announced last night with the dividend, that continues to be a priority for us. We increased our quarterly dividend by $0.01. And again, that's a testament to our commitment to growing our dividend and maintaining that 40% dividend payout ratio. So Jack, I hope that helps. Deanna Strable: Jack, the only thing I'd add to that is, obviously, as we grow our fee-based businesses across the enterprise, that will provide some tailwinds to that free capital percentage as well. Operator: One moment for our next question. Our next question comes from Ryan Krueger with KBW. Ryan Krueger: First question is on Investment Management flows. Can you talk a little bit about any changes you're seeing in investor sentiment from your clients in particular appetite for the areas that you're focused on in that business? And maybe a little bit of perspective on how the pipeline looks going forward as well? Deanna Strable: Kamal? Kamal Bhatia: Sure. Ryan, so I think let me just first start with the strong results this quarter. I think as Deanna mentioned in her remarks, we had positive net cash flow of $800 million. I think equally impressive is if you look at our non-affiliated NCF, it was $1.8 billion positive, which is largely with the long-term mandates in private markets that not only contributes to the fee rate, but also revenue growth. The other dynamic I would highlight for you is we had net cash flow growth this quarter across multiple channels. We actually had wins in global institutional, which I've highlighted to you in the past. We actually had positive net cash flow across our U.S. retail platform, where we have had a change of trend as well as in our local managed products across Asia and Lat Am. So I think the key observation I would give you is that our focus on having scale in global distribution is really kicking in, and I expect that to continue over a period of time. If I even look at our active ETF business, over 2025, our net AUM growth has been over $3 billion in the last 12 months. So we continue to expand in that business. What I would highlight for you with respect to with the areas where we are seeing continued momentum, real estate, as I've highlighted for you in the prior few quarters, is actually seeing increased momentum. I think the cycle is slowly turning, but the more impressive piece for us is we are actually gaining market share, which I expect to continue as we expand our product lineup. And then the results in fixed income continue to be quite impressive, particularly our growth we have seen in emerging market fixed income is an area I would highlight where we continue to win mandates across the world. So Ryan, hopefully, that answers the question you had. Deanna Strable: Ryan, do you have a follow... Ryan Krueger: Yes, just a quick one. Are performance fees still expected to be fairly modest in the fourth quarter? Has anything changed? Deanna Strable: Yes, that's a great question. I'll have Kamal address that. Kamal Bhatia: Yes, Ryan. So yes, performance fees are probably still expected to be the same level as they were in 2024. The area that I would highlight for you is we've actually seen an uptick in transaction and borrower fee activity. I think as the markets have unclogged here a little bit, when I looked at transaction borrower fees year-over-year, there's a slight improvement in there of 10% to 20%, but they're still below their long-term potential. Longer term, I would expect performance fees to tick up, but not yet, where it would be we are in the market cycle. Deanna Strable: Yes, Ryan. And as you know, performance fees, borrower fees, transaction fees can be volatile quarter-to-quarter, but it's great to see the 5% increase in management fees year-over-year because, again, that's the momentum of the business that's going to drive margin and growth across the enterprise. Operator: Our next question comes from John Barnidge with Piper Sandler. John Barnidge: The Barings strategic partnership, do you have any visibility into whether that relationship fee rate enhancing versus the blended fee rate at Principal Asset Management and possible other similar opportunities? Deanna Strable: Yes. I'll maybe ask Joel and Kamal to add to that. Obviously, a large proportion of our general account is managed by our internal asset management business, but we have, for a long time, also used third-party providers in areas that we feel are critical for us meeting our strategic asset allocation, but also meet our return and risk thresholds as well. And so we were happy to announce the Barings partnership, and it gave us a unique opportunity to partner with them, but also have some co-investment opportunity as well. So maybe I'll have Kamal address that. And then ultimately, if Joel has anything to add as well. Kamal Bhatia: Sure. John, thanks for highlighting that partnership. So it's part of our strategy to continue expanding our private market expertise. As Deanna highlighted, part of this partnership is to assist on the general account side. But what's most unique about this partnership is, is we have historically done both origination and portfolio management in the private markets area. And the Barings partnership is unique because they had a unique strength in origination in an asset class that they had an edge in. And we continue to play the role of being the portfolio manager, the underwriter of those transactions, which also is our expertise. So we're looking at unique opportunities that expands our business base, but also creates value for Principal overall. Deanna Strable: Joel, did you have anything to add? Joel Pitz: Yes. And John, just to comment that we have the luxury of great in-house capabilities. So within our general account, we can meet the needs through our investment capabilities where we manage about 95% of the general account portfolio. And we'll continue to look at collaborative ways and whereby we can partner with others in order to augment those capabilities that we need to support our general account. And Barings is a great example of that. Deanna Strable: John, did you have a follow-up? John Barnidge: Yes. My follow-up is on the 401(k) business. With the baby boomer generation more and more retiring and pulling down on those retirement dollars, flows might not be the best metric to look at as much as profit growth. But my question is on that secular headwind to flows. What does that make you think about the consolidation in 401(k) more broadly given the leading position the company has? Or is it really just more about winning business that comes to market? Deanna Strable: Yes, I'll have Chris to address that. Christopher Littlefield: Yes. John, thanks for the question. No, I think as I've mentioned in prior quarters, consolidation is definitely happening in the industry. And there's 2 ways that consolidation happens, right? It's happened through large M&A transactions, which we saw a few years ago, and you've seen more muted activity on the inorganic side over the last couple of years. But what's really happening is there's been a real shakeout of lower scale players. And so we are seeing the benefits from being able to win more plans from those players. And I don't think over the long term, the market is going to be able to sustain what is the current about 40 different record keepers in the industry. We believe that, that's going to shrink closer to single digits sometime over the next 10 years. And as the #3 player, we expect it be a real beneficiary from that consolidation, and we see that in the overall results. So we will continue -- scale is important. We will continue to evaluate our position. We're comfortable with our position now, and we're focused more on how do we continue to drive organic growth in our business than on any large transaction at this point in time. Deanna Strable: Yes. The other thing I'd say, John, and you started your question out here, Chris has continued to reiterate that revenue growth is his focus. Obviously, there's some dynamics within just looking at flows, whether it be the market impact, the baby boomer generation, as you talked about and just the overall fact that positive macro, even though positive to our overall business can be punitive to net cash flow. And so ultimately, that team has been very focused on driving profitable revenue growth. And I think this quarter is another great demonstration of that success. Operator: Our next question comes from Jimmy Bhullar with JPMorgan. Jamminder Bhullar: First, just had a question for Kamal on net flows in asset management. I think if we look at your commentary over the past year, it's been fairly positive and flows had been weak, but this quarter obviously showed a turnaround. To what extent do you think it's the beginning of a trend given the favorable market backdrop that you have? And how do you think about like the weaker investment performance that you've seen recently factoring into your net flow expectations over the next year? Kamal Bhatia: Sure. Deanna Strable: Go ahead, Kamal. Kamal Bhatia: Sure. Jimmy, and thanks for highlighting the turnaround. You've always been a believer in us, so I appreciate that. With respect to your question around the sustainability of the trend and what's driving it, I will tell you that the quality of flows we are actually seeing this quarter is actually quite high. When I look at the clients who are giving us the mandate, they tend to be more longer term in nature, and they're also putting it in areas that are in the trough of a market cycle. So I expect returns to be quite strong in those areas as we move forward and certainly helps with the sustainability of our flows. I think as Deanna highlighted, one of the other things we did this quarter is not only were cash flows positive, our management fee rate was 5% higher, which is generally bucking the industry trend and something we continue to focus on. So when I look forward, I think 4Q has always been an active quarter for rebalancing and a lot of strategic allocation happens. This year, given the strength of the marketplace, it could be more active than usual. And that is something that other peers are also going to experience. So there will be higher volatility of allocation changes happening. One sentiment signal I could give you to your question that we continue to track is the questions we get in our RFPs. While overall RFP volume as we enter 4Q here is lower than it is in 2024 generally across the industry and for us, we are sort of starting to see a shift in the type of questions we get. They're shifting to focus more on exploration and new idea request rather than active allocation among existing mandates. So I do believe the investors after the run-up in markets are looking for new products, new ideas or areas that have generally been under allocated to. I highlighted global equities as one of those areas where I do believe I think there will be more allocation coming. With respect to timing of flows, it can be very difficult to predict. But what I can tell you, I remain very, very confident that the second half for asset management and IM flows will be much stronger than the first half for our business. Deanna Strable: Jimmy, did you have a follow-up? Jamminder Bhullar: On just the part about performance, is that factoring into because I think if I look across your various asset classes, the performance recently, the numbers seem a little weaker than they've been in the past. Is that factoring into your net flows and pipeline? Kamal Bhatia: So if you decompose the performance drivers, a very large part of our underperformance has come in our multi-asset products, in certain target date funds. Our hybrid target date fund continues to perform very well, but the active product has underperformed. And yes, it has had impact in both on and off-platform retirement flows, particularly in [indiscernible] business and our off-platform business. So certainly an area we continue to pay a lot of attention. Our performance in other areas like international equity has become stronger over time. So I would highlight that for you. And our performance, we actually are just hitting a 3-year number on our data center product that we launched, which continues to have very, very strong performance. So there are certain areas that continue to do well. And the areas that are weak, we continue to enhance our risk management talent and tools, and we continue to add new talent in areas where performance has been weak, and that's generally been on the equity side for... Deanna Strable: Yes. I think, Jimmy, obviously, as Kamal reiterated, delivering alpha generation is a long-term priority. Obviously, in markets like we've seen where equity performance has been concentrated in a few number of names, you can see some volatility quarter-to-quarter. But ultimately, again, our focus is staying close to our customers, making sure we understand what's important to them and delivering alpha generation. So we'll stay focused there and ultimately continue to focus on driving revenue growth for our clients and for our shareholders. Operator: Our next question comes from Wilma Burdis with Raymond James. Wilma Jackson Burdis: Could you talk a little bit more about where you are on growing the spread-based balances in RIS? And which products you're most focused on to grow that spread business and what you're finding most favorable today? Deanna Strable: Yes. Wilma, thanks for the question. Obviously, there's a number of categories of types of sales within the spread business, including supporting our WSRS platform as well. But I'll have Chris get into some more details on where our focus is. Christopher Littlefield: Thanks, Wilma. Thanks for the question. Yes, I mean, we've seen really nice performance in spread-based over the last several quarters. And our emphasis, as we've talked about in prior quarters, is really continuing to figure out how to drive revenue growth within our retirement plans, which includes how do we sell our guaranteed products at a faster pace. We've seen very nice inflows and growth in our WSRSGA products sold through retirement plans. We also have seen nice performance over the last several years in PRT. We had a very strong PRT quarter this year. And as we've talked about, we're not so much focused on volume there. We're focused more on returns. But despite the industry backdrop of declines, we continue to see strong performance in PRT, and we're going to be -- are continue to be disciplined there and focus in our target market, which is in the smaller segments of the market, not the jumbo side, which is where most of the pressure has been felt on PRT. And then lastly, with respect to our annuities business, we've seen very nice growth in the RILA business over the last several years. That provides a lifetime income product for our customers. We focus primarily on serving the lifetime income needs of our retirement customers. And so that is why that exists there. So -- and across all of those, we've seen really nice growth on the spread-based side and not just growth, but growth at really nice returns. Deanna Strable: Wilma, do you have a follow-up? Wilma Jackson Burdis: Yes. And then, Amy, maybe you could talk a little bit about what drove the favorable loss ratios in Specialty Benefits and what you're seeing there as far as the upcoming quarters? Deanna Strable: I'll have Amy address that one. Amy Friedrich: Yes. Thanks for the question. It was a fantastic quarter in terms of underwriting results. And so I think the first thing I would note is really, there's not one particular product that's driving it. We're seeing really nice performance from group disability. That is specifically driven by lower LTV incidents in this quarter. We're also seeing really nice performance from group life. That's driven by lower frequency. As Joel noted in his opening comments, we had a 100 basis point improvement in our loss ratio also for dental. So we're seeing a nice return and improvement kind of back to the path that we want for our dental business. For our supplemental health, again, I would say that one is performing as we expected. We want that business on a run rate basis to perform a little bit higher in terms of loss ratio than it had been doing earlier in the year or late into last year. So I would say the types of loss ratios that business is putting down is kind of what we would expect. And then there's also the individual disability business, which performed very well. So I think the driver is we're focused on the right marketplaces. We're in that small- to medium-sized business marketplace. They know they have needs. We're able to grow in that marketplace, and we're able to do that in a way that we can drive both great benefits that we put in the hands of those business owners, but also appropriate profit for us. So I see the balance of that paying out. We don't have to necessarily go outside of our underwriting guidelines very often. We don't have to put plan maximums in that we're uncomfortable, and we're growing the right pieces of business. The last piece I would note there is that our worksite business and our voluntary practices, voluntary participation, worksite array of products that we offer, we're really growing that piece as well. That piece gives us a nice bit of margin expansion over time as the shift of business begins to be a bit more voluntary, and it's helping our results as that supplemental health line begins to grow. Deanna Strable: Thanks, Wilma for those questions. Operator: Our next question comes from Joel Hurwitz with Dowling & Partners. Joel Hurwitz: So first, I wanted to get an update on the capital deployment outlook, Joel. You mentioned the pace should increase again in Q4. But I guess what would drive you guys towards the higher end of that $1.4 billion to $1.7 billion capital return range, right? Because if I just look at your excess capital position is very strong and then Q4s are typically the strongest capital generation quarter. Any reason why you wouldn't really accelerate and lean into buybacks where the stock is at now? Deanna Strable: Yes, Joel, thanks for the question. I think if you have followed us for years, you know that we have a very balanced and disciplined approach to capital deployment and ultimately also want to make sure that we're delivering consistent and growing capital return to our shareholders over time. And so it can be volatile quarter-to-quarter, but ultimately, we are focused on delivering strong returns to our shareholders and returning excess capital to shareholders over time. But I'll have Joel address your specific question. Joel Pitz: Yes. And Joel, you raised a good point. We are sitting in a great position from a capital perspective at $1.6 billion, as you mentioned. And as we signaled on last quarter's call, we did do outsized or higher, I guess, third quarter share buybacks than we did in the first half of the year. So as you know well, the first half of the year, we did about $350 million in share buybacks. We did $225 million in the third quarter, and we certainly expect elevated levels from there in the fourth quarter. And so what happened in the third quarter is we did have very positive free capital flow conversion while still investing in the business. And we just feel really good about the optionality we're afford as it relates to investing for organic growth as well as delivering meaningful share -- meaningful capital back to shareholders. So again, you will see some outsized fourth quarter share buybacks relative to what you saw in the third quarter. Does that help, Joel? Joel Hurwitz: That helps. And then just shifting back to Specialty Benefits. Amy, any early outlook on how 1/1 renewals and new business is shaping up? Just how is the competitive landscape looking at this point? And do you see a path to have top line return back to that long-term growth range in '26? Deanna Strable: Yes, I'll ask Amy to address that. Amy Friedrich: Yes. Thanks, Joel. So just before I directly get back after it, and Joel did a really nice job covering this in his opening comments. But when you look at the stats, like earnings up 28% year-over-year, margins expanding at by 330 basis points, underwriting, improving at 340 basis points. I think the trade-off we've been talking about is sometimes a bit slower growth is what you do to drive the profitability that you need for the business. So I feel like that trade-off is working really, really well. That said, when I look ahead at 1/1 business, I think we're seeing more opportunities to write profitable business than we saw at the same time last year. So we are seeing things come to market that look attractive to us. We're winning against some of those bids. And I like what we're doing with respect to both renewals and new sale as I look ahead. So I had listed before a couple of those multiyear technology initiatives. Those are really starting to bear fruit and will in late yet in fourth quarter '25 and into '26. And I feel like those investments are really positioning us to move closer to that low end of that range. Now I know we'll have more to say about that in our next earnings and outlook call, but I feel good about the volume that I'm seeing right now. Deanna Strable: Yes, Joel, and I think as Amy highlighted, we continue to balance pricing discipline with our competitive positioning. And ultimately, we aren't going to chase growth for the sake of growth, and we've done that successfully for decades, and I don't see that not continuing as we look out into the future. Operator: Our next question comes from Suneet Kamath with Jefferies. Suneet Kamath: I wanted to ask about private credit. Obviously, we've had some flare-ups here in the past couple of weeks. And I know your portfolio is a little -- maybe a little bit different than other companies given its tilt towards real estate. But really just curious what you're seeing in terms of the private credit markets, both in terms of performance, competition and just overall credit quality? Deanna Strable: Yes, Suneet, thanks for the question. I think there's 2 aspects of our private credit perspective. One is within our general account, which I'll ask Joel to address and one is within how we think about private credit with our third-party investors as well. So I'll maybe ask Joel to start and Kamal to add on to that. Joel Pitz: Yes. So Suneet, thanks for the question. A really good proof point for our managing credit losses is a testament to our third quarter losses, which is about $8 million after tax, as you can see within the financial supplement. The credit losses from securities were at very low levels in 2Q '25 as well. So what you saw a little bit in 3Q was a few impairments, what was very de minimis, no commonality or reason within the industry as it relates to those credits. And importantly, the portfolio credit loss remains below our modeled long-term run rate estimate. Success of any underwriting depends on the quality of the underwriting, and we're real proud of our practices in that regard, whether it's public or private. So we remain really confident in our underwriting standards. We continue to focus on diversification, quality and liquidity profiles that meet our liability needs, which, as you know, are very conducive to investing in privates given our liability profile. So given our quality and well-diversified portfolio, the credit risk is very manageable. And as I said before, remains below long-term expectations and is certainly factored into our capital and deployment expectations. Deanna Strable: Kamal? Kamal Bhatia: Sure. Suneet, so I'll go to the 2 points you raised, which is how have we done from a performance perspective and what are my overall observations about the industry and the market dynamics. So first, I think as Joel highlighted, our own exposure in private credit is relatively modest, and it's quite aligned with our risk and ALM parameters. One of the highlights I would give you is we've had no direct exposure to some of the names that have been mentioned in the news recently. The quality of the holdings we have in our business are largely underpinned by the extreme focus on underwriting. In fact, we have a very high selection ratio, the number of deals we look at, the number of deals we underwrite and participate in, somewhere 1 out of 7 deals only makes it through the funnel. And then the other thing I would highlight for you is most of our vehicles have very low leverage ratio. One of the challenges in the industry has been is a lot of vehicles today in the industry have very high leverage ratio just by the way they were designed. So I would say we remain quite focused on underwriting and the portfolio is doing quite well. When I even look at 3Q, we had lower nonaccrual rates and higher quality loan distribution compared to the rest of the industry. Now going back to the industry dynamic, I do think it deserves some caution. The asset class has grown quite rapidly. The amount of capital that is being expected to invest has also grown quite rapidly. And my personal view on this remains that the risk of accident in the space is really around entities that have to deploy very large amounts of capital very quickly and constantly. Deanna Strable: Hope that helps, Suneet. Suneet Kamath: Yes. That's very helpful. And then my second question is just on the wealth management opportunity that you guys have talked about. I think you've mentioned having -- I think it's 500 advisors that are helping your plan participants to handle retirement. Can you just maybe provide some metrics on that? What sort of penetration are you having? Is it leading to better asset retention within the franchise? Just -- I don't think we've seen any metrics. I'm just curious if there's anything you're willing to share? Deanna Strable: Yes, Suneet, thanks for recognizing that. We did highlight at our 2024 Investor Day that this was a priority for us, but we also highlighted that it was a long-term build, and it would take time before it actually moved into critical metrics that we would track and share. But I'll ask Chris just to talk about some of the things that we're watching. I think it's 200 advisors that we have licensed to actually have the advice conversations. But Chris, can you add some additional color? Christopher Littlefield: Yes. Yes. Thanks for that, Suneet. Yes, as Deanna mentioned, it is going to be a long-term build, and we did at the end of last year, so fourth quarter last year, begin the introduction of our advisory services with 200 salary-based advisors. And we've seen very nice early indications of the success of that program. First of all, we have about 90% plan sponsor adoption of the service, so making it available to participants that call in and need help. So very strong plan sponsor adoption. We've also seen a very nice increase in this year of the number of clients that we're serving, individuals we're serving. And so we've seen about a double-digit increase in our advisory and retail customers served through our workplace personal investing solutions. And then another sort of green shoot, I would say, is that we've also seen a nearly 20% increase in roll-ins this year. So people that have a prior plan and then are moving to an employer that's served by Principal, we've seen a 20% increase in the amount of their rollover transfers or roll-in transfers in the Principal plan. So those are early days, but those are good early metrics, and we remain very optimistic about the long-term value, but the short term is going to be a bit more muted as we continue to build our capabilities. Deanna Strable: Thank you, Suneet for the question. Operator: Our next question comes from Tom Gallagher with Evercore ISI. Thomas Gallagher: First question for Kamal. The -- really a question on CRE. All returns, flows in asset management and the commercial mortgage loan exposure to your general account, those all look pretty good this quarter. And I've kind of viewed that, we'll call it, overall market exposure as being very important for Principal as a firm. And seeing everything kind of being more choppy in the past, all looking better this quarter, do you think we're at a better inflection point here broadly on those issues? Because I look at a mega CRE investor like Blackstone and they had, I would say, more mixed results this quarter. I look at your results, it kind of looked better across the board. So curious what you're thinking there? Deanna Strable: Yes. Obviously, we have been a leader in real estate for decades. I'm very proud of our long-term position. And when you're a leader for decades, that means you know you have navigated multiple economic cycles, both for our own balance sheet as well as our clients. It's been a tough couple of years from a real estate perspective, but I think we're feeling better relative to where we are in the cycle, but I'll let Kamal add some additional perspective. Kamal Bhatia: Yes. Thank you, Deanna. Tom, it's a great question and very timely. So I think you asked two things. One is just our own real estate book and where do we see it and the strong results we continue to deliver and the inflection point question. So first, I would say when I look back over 3 years, I would say CRE, our commercial real estate has probably been in the strongest position over the last 3 years. It's obviously coming off of a trough. And I would say as the year has gone by, we have seen more stability both on the occupancy side, but more importantly, for somebody like us on the pricing power of many of the properties we manage or underwrite. The more important thing over the last few quarters has been that capital flows are improving as well. So our own year-to-date private market cash flow is going to reach $3 billion. And I certainly expect that to improve over time. The big change more recently probably has been the transaction volume. Compared to last year, we are about 17% up year-to-date comparisons. 4Q tends to be a little bit more -- last year, 4Q was very, very strong. So you may see a slight lowering of transaction volume, but still up 10%. I think to the question you raised, there is going to be a big dispersion in real estate winners and losers in this market cycle. One of the things that we see is that the people who don't have any redemption queues in their products are actually going to have a benefit of putting fresh capital to work at much more better valuations, and they will get back to getting higher IRRs from that refresh of the book. I believe those managers will outperform and get market share, and that's where I see the strength of the Principal franchise being positioned. The other benefit we have is our book is largely institutional or comes from our insurance company, which provides us the right match to where the market opportunity is and the liability needs are. So I think those 2 forces are definitely going to help our business and our market position. Deanna Strable: Thanks, Tom. Do you have an additional question? Thomas Gallagher: I do, Deanna. And this one is for you. Just -- and I think you and Chris have both sort of answered the question, but I just wanted to rephrase it, just the view of M&A because if I go back several years ago, Principal was very, we'll call it, M&A focused from a capital deployment. And now it's mainly common dividends and buybacks and minimal M&A. Would you still -- is your philosophy still very much along those lines? Or would you consider if there were lumpy defined contribution type assets that came to the market, would you still take a hard look at those? Because I think there might be some more lumpy larger properties that are coming to market in the next year or 2. So just curious what your philosophy on those situations might be. Deanna Strable: So the first thing I would say is just because I'm sitting in a different seat, our philosophy here at Principal around how we approach inorganic opportunities isn't changing. We're going to continue to be really disciplined and focused and ensure that anything that we take a run at, one has strategic alignment, one can give us capabilities that can allow us to even increase our growth potential, has to meet our financial targets. And if we're bringing on people, it has to be very culturally aligned with how we function on a day-to-day basis. The first thing I'd point out that we can meet our financial targets on an organic basis. And so first and foremost, that's our focus of our team is to execute with -- without -- at a very high level to ensure that we're focused on that. We will be inquisitive and we have the capital flexibility to look at opportunities that are out there, but there's a high bar. And that high bar exists, whether it's an organic deployment of capital or an inorganic deployment of capital. We recognize that scale is going to be critical, especially in some of our businesses. And so it's important for us to be inquisitive around those opportunities and ultimately lean into those that come our way that does meet those financial, strategic and cultural thresholds. And ultimately, I think you'll see the same level of discipline as we've had in the past. As I sit here today, we've had 3 or 4 years where we were integrating successfully the Wells Fargo acquisition. We were then focused on divesting of a few of our perspectives than sitting here today, we can be on our front foot, being able to lean into growth opportunities, both organic [indiscernible] still do it with the same level of discipline that we've had in the past. Operator: Our final question comes from Wes Carmichael with Autonomous Research. Wesley Carmichael: I just wanted to come back to the assumption review in the Life Insurance segment. Just curious if there's any color on the drivers of experience-related assumptions that's lapse or mortality. And just how should we think about the model refinements? Is that in the rearview mirror? Or should that kind of continue going forward? Deanna Strable: Yes. I'll maybe see if Joel can add some color there. I think this is something we do with discipline on an annual basis. And ultimately, we also then take the opportunity to step back to say, does anything that we found as part of that review change how we think about our business on a go-forward basis. And I think the answer to that second question is there was nothing that we saw or put through our GAAP financials that makes us think differently about our business or the ability to meet our financial targets going forward. But I'll maybe ask Joel give a little more double-click on the life impacts in the quarter. Joel Pitz: Yes. Thanks for the question, Wes. And Deanna said exactly right. The impact, as I noted in my opening remarks, reflects a range of tactical model updates and experience, as you mentioned. And these are normal course refinements to this long-term business, and we remain confident in the business. I think it's important to take that away as well. The life impact is modest in scale relative to the overall size of our business. As it relates to model refinement specifically, that was 2/3s of the impact to not only the enterprise but also life. And this really reflects refinements on how policyholder behavior and product cash flows are reflected in the models across a number of products. So think about like as added sophistication to our models is how I view refinement. That's for the experience, that was about 1/3 of the impact in life, and there was not a single driver behind the change. Again, this outcome reflects our disciplined process of updating the assumptions based on our own experience and industry experience. And importantly, the adjustments span across multiple products rather than be concentrated in any one area. So as noted in the prepared remarks and also to reinforced here, it's reflective of a broad range of model refinements and experience updates. It's GAAP only, noncash. It has no impact on our free capital flow for the enterprise. And importantly, it's immaterial to the ongoing run rate, which is actually reflected in our third quarter results. So it certainly does not impact our outlook or expectations on the future growth and profitability of not only life business, but also the enterprise in total. Deanna Strable: Thanks, Wes. Do you have a follow-up question? Wesley Carmichael: I do. Just one quick one maybe, but any insight into how VII variable investment income is shaping up for the fourth quarter? It did sound from Kamal's remarks like maybe there's a bit of real estate transaction momentum. So just curious if there's any foresight into that. Deanna Strable: I'll ask Joel to address that. Joel Pitz: Yes. So VII performed very well in the third quarter amongst all asset classes. From a reporting perspective, the real estate was the reason why we were below long-term expectations within operating earnings. But importantly, within the real estate portfolio, we did have a gain, manifest itself below the line or an NRCG about $25 million due to a transaction that occurred in the third quarter that doesn't get OE treatment. And so when you look at that in conjunction with what we report above the line, we're very much aligned not only for all other asset classes, but also real estate as well. And so in last quarter, we signaled that there would be more transaction activity in the latter half of the year. That certainly manifests itself in the third quarter, and we expect more of the same in the fourth quarter. So our VII outlook remains just as it was going into the third quarter, I'm very optimistic for the latter half of the year. Deanna Strable: Thanks Wes, for those questions. Operator: We have reached the end of our Q&A. Ms. Strable, your closing comments, please? Deanna Strable: Thank you. As we close today's call, I want to thank all of you for your time, your questions and your engagement. Our strong third quarter and year-to-date results reaffirm the strength of our strategy and our discipline around execution, which is driving strong profitable growth, expanded ROE and robust free capital flow. We continue to see a momentum across our strategic priorities. Our position across the retirement ecosystem is strong. Our SMB relationships are growing and deepening, and our global asset management platform is scaling with purpose. I'm thankful every day to our almost 20,000 employees that wake up committed to serving our customers. We're focused on providing long-term value to our customers as well as our shareholders and remain well positioned to deliver on our full year financial commitments. We look forward to connecting with many of you in the months ahead. Have a great day. Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Airtel Africa Half Year Results for the year ended March 2026. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Chief Executive Officer, Sunil Taldar. Please go ahead, sir. Sunil Taldar: Thank you. Hello, everyone, and a very good evening, good morning to you all, and thank you once again for joining us today. I have with me Kamal, our CFO; and Alastair, who is Head of our Investor Relations. Let me give you some brief highlights over the last 6 months before running through our strategic and operational achievements and how this has translated into a strong set of results we have reported today. After that, I will hand over to Kamal to run through the financials. We have seen our performance over the last 6 months supported by a much more stable macroeconomic and currency backdrop. This has been a very welcome development, and I believe enables us to clearly showcase the scale of growth that is available to us across the region and the ability of our team to execute against the opportunity. Not only is it positive for us and our business, but the most stable environment is really encouraging for our customer base as well as given the significant volatility that they have faced in the last few years. While this most stable environment is supportive, it is also extremely important that we really double down on our strategic focus to ensure that we can capture the opportunity that is available to us. We have seen strong growth momentum in both our operational and financial performance, and this has left our constant currency revenue growth to 24.5% for the first half of the year with reported currency growth of almost 26% as currencies appreciated in many markets. This strong growth combined with continued cost efficiency measures have helped drive EBITDA margins to 48.5%. Importantly, we have seen another sequential increase in EBITDA margin to 49% in quarter 2, reflecting the sustained momentum we have seen across the business. Importantly, the overall performance we have reported today would not have been possible without a continued focus on CapEx investment, which is the foundation of our ability to sustain the revenue performance. The strong backdrop and strong operating performance gives us increased confidence in the outlook, and it is this that has driven our decision to increase our CapEx guidance for this year, which Kamal will talk through later in the presentation. The strong performance has driven free cash flow generation, which has further enhanced the capital structure of the group, enabling the Board to declare another 9.2% growth in the dividend. Our purpose is to transform lives across Africa by bridging the digital divide and drive financial inclusion through the continued rollout of our mobile money services. This slide serves to highlight the key components of our performance over the last year, which is facilitating our purpose across Africa. Over the year, we have seen a continued increase in smartphone penetration and an accelerating growth in our mobile money customer base to approximately $50 million. We will unpack this a little later on in the presentation, but we have been consistently expanding the ecosystem by offering more services, which have contributed to over 35% growth in TPV or transaction value to over $193 billion annualized. The constant currency revenue growth of 24.5% for the group, again, reflects that we are a business that continues to see one of the industry-leading levels of growth in the global telecom industries, and we will continue to drive growth through the consistent deployment of our strategy. The revenue growth and cost efficiency measures have contributed to a further uptick in EBITDA margins, as I mentioned earlier, and we remain optimistic on our ability to realize further efficiencies. In addition, our capital structure remains attractive, which gives us the flexibility to continue investing across our network. With lease adjusted leverage down to 0.8x and 95% of debt in local currency, we are in a strong position to accelerate network investment while also enabling shareholder returns. This slide serves as a snapshot of our financial performance over the last 6 months. Revenues of almost $3 billion for the last 6 months, growing at almost 25% is certainly a very strong performance. The EBITDA growth of almost 32% is once again a strong performance with improving margins, which has significantly contributed to the 10x increase in basic EPS. Importantly, FCF generation was very strong in this period as well. It's worth reminding you that it is not only this period's performance, which has been strong, even on a 5-year CAGR, revenue and EBITDA have increased by 20.6% and 24.8%, respectively, showing that this performance is not a one-off. It is a reflection of a sustained performance over the last 5 years. Let me now spend a few minutes explaining the significant opportunities across our markets and how our strategy will enable us to continue executing on this opportunity. Many of you will recognize this slide, which summarizes the key components of our strategy. Our business strategy is designed to ensure we continue to address the huge opportunities in our 14 markets and deliver sustainable, profitable growth that creates value for all our stakeholders. The 6 pillars of our strategy focus on our investment and the expertise of our talented people on the core business activities that will unlock the significant opportunity. It is underpinned by a continuous drive to keep optimizing cost, meeting our sustainability objectives and sustained investments in our talent. At the heart of the strategy are our customers. Our success is driven by enhancing their experience, and this is why everything is designed around the customer. Now let me briefly touch upon a few initiatives, which showcase how our strategy is being embedded across the business, and how it is driving practical benefits for our customers to increase customer loyalty and drive an improved offering. Let me address a few of them very brief. The first is the Airtel AI SPAM alert, which was really designed to protect our customers and provide a solution -- and provides a solution to tackle our customers concerned about the high level of spam messages and calls they receive. We are receiving very positive feedback from our customers as the technology really provides a differentiated customer experience and increase loyalty. Developing partnerships across our markets is key to strengthen our customer proposition and promoting digital inclusion by expanding access to reliable connectivity across our markets. We have partnered with Starlink to enhance our offerings and our network sharing agreements with Vodacom and MTN will also contribute to the accelerated rollout of services across our key markets. We're also seeing very pleasing progress as we scale HBB and enterprise with the continued growth in HBB customers and the recent launch of East Africa's largest data center. This is just a brief snapshot of key strategic initiatives across the business. Let me now briefly reflect on the opportunity and the recent performance of our business. The scale of the opportunity across Africa remains substantial despite the strong operating performance we have reported of late. From a high level, we have a population of over 660 million people. But importantly, the demographics are very attractive with the median age of under 20 years, which compares to over 42 years of age in developed markets. This shows the scale of the population that will be the customers of the future, supporting the outlook for our customer base. This, combined with relatively low levels of smartphone penetration will continue to support data customer growth but also data usage as new and existing customers increasingly use more data services often for the first time. Home broadband is an area which we are very focused on. And the chart on the bottom left reflects why we are encouraged by the potential. We have very low home broadband penetration across our markets, will inevitably increase as rollout of these services to a wider segment of the homes across the region. And then for our mobile money segment, many of you will be aware of the levels of financial inclusion across our markets. With only 35% to 40% of adults owning a bank account compared to over 90% in more developed markets, this is a key opportunity for us, and you will be able to see how we are executing against this opportunity. Before running through the individual segments, this chart aims to show that our growth of almost 25% in constant currency at the group level is not only down to one segment, instead it is broad-based growth across both businesses with the Mobile Services segment growing by over 23% and Mobile Money by 30.2%. We continue to see this as a differentiating factor for us with both business segments delivering on growth opportunities. Now let me first focus on the Mobile Services segment. We continue to see the onboarding of customers as a key priority. The focus remains on strengthening our go-to-market to ensure we remain accessible to our customers, a key strategic objective. But it is not all about our distribution. It is also maintaining network investments to ensure increased capacity and coverage and embedding digital services across our footprint to simplify the customer journey. The results speak for themselves with customer-based growth accelerating to 11% in the period and voice remains a key driver of our mobile services segment with ARPU continuing to expand as usage on the network continues to expand, translating into a 13.2% constant currency growth for voice services. As many of you are aware, data remains a substantial opportunity for us given the scale of the demand across our footprint. With population coverage of over 81% and almost 99% of our sites being 4G enabled, we continue to prioritize investment into the network to facilitate this demand, providing enhanced coverage and capacity is all fundamental to being able to provide a customer experience that will not only maintain loyalty but also attract new customers to our network. This was all supported by the initiatives we have spoken about around digital innovation and simplifying the customer journeys, driving accelerated data customer growth. We've also seen smartphone data customers continue to grow faster than the data customer growth as more customers migrate to smartphones, ultimately driving increased usage. During the period, we saw data traffic increase over 45% as usage per customer continues to rise to 8.2 GB per month. The sustained data demand story has contributed to 37% growth in data revenues and has now become the biggest component of revenue for the group, which we see as another support for our top line growth outlook. Now turning to our mobile money business. The chart on the left and the chart shared earlier confirms our views that our mobile money business operates in a vast underpenetrated markets. We operate in one of the world's largest untapped financial services market, supported by powerful demographic tailwinds, rapid urbanization, rising smartphone adoption and surging demand for digital financial inclusions and solutions. While the outlook for mobile money looks attractive, it is important to highlight our structural competitive advantage with a captive customer base with only 29% of our telecom customer base currently using the service. This, combined with our extensive on-the-ground infrastructure provides us with a unique opportunity for increased market reach and low-cost scalability providing a substantial differentiation versus our competitors. What I mentioned in the previous slide, is clearly playing out in terms of our operating and financial performance. The opportunity, the distribution reach and the scalable customer-centric platform gives us the ability to offer a range of different services, which is ably supported by deep-rooted partnerships, which can unlock new growth opportunities and drive the business to new levels. This, combined with continued innovation and the rollout of digital offerings has seen an accelerating uptake in customers and we are now approaching $200 billion of annualized transaction value with ARPUs up 11% in constant currency terms. The result has been a strong 30% growth in revenues which has once again been sustained over a number of years, indicative of the opportunity this business holds. The strong performance of the top line should also put into context of the overall financial performance with EBITDA margins of almost 52% profit after tax for the period of $188 million and strong operating free cash flows. Let me briefly touch on how our mobile money business has evolved and is likely to continue evolving in future years. The business mix has transformed as we have innovative products, which have been rapidly adopted by highly engaged user base. This is particularly evident within payments and transfers, which has grown to 42% of our revenues from 33% 5 years back. These revenues have been growing at a 5-year CAGR of 36% and continues to see strong growth. In addition, we are particularly excited about our financial services product segment, which captures our most recent innovation in the bank to wallet, lending savings, wealth and insurance sectors. Over the last 5 years, these products have been growing at a CAGR of 61% with the last 12 months having seen the growth of 73% in constant currency. Overall, this mix shift reflects our maturing customer cohorts, adopting a richer set of use cases and illustrates our trajectory towards a diversified resilient ecosystem with high monetization per user. Let me now briefly call out the key conclusions from our recent performance in each of the regions, starting with Nigeria. We have continued to see strong operating momentum in Nigeria with customers increasing around 10% and ARPU is growing almost 40% in constant currency. We are very encouraged by the macro stability that has returned to Nigerian markets, which has enabled us to report these strong trends. While the tariff adjustments made by the regulators have certainly benefited our performance, we have seen sustained usage growth, particularly in data driving a strong revenue growth performance of almost 15% in the period. EBITDA margins have increased by over 7 percentage points as a strong revenues improved macro and stable diesel prices and execution of our cost efficiency measures have taken hold. In East Africa, trend remains strong with constant currency revenue growth of around 40% despite the high base. What we've also witnessed in the region is some appreciating currencies, which resulted in reported currency growth of almost 23% for the region. Once again, the strong subscriber base growth and increased usage of our services, which has driven rising ARPUs has been foundation of the strong growth with EBITDA margins rising to over 53% in the period. The performance in the Francophone region has also been very encouraging. We've been seeing a clear turnaround in the performance in the region driven by consistent focus on driving base level growth through the relentless focus on our strategy. This combined with increased adoption of services has contributed to an ARPU increase resulting in strong revenue growth of 16.1% in constant currency. Currencies have also benefited from appreciation resulting in reported currency revenue growth of 19.2%. This improved revenue growth -- revenue performance supported by a continued improvement in EBITDA margins over the year with EBITDA margins up 122 basis points over the year to 44%. Before handing over to Kamal, let me briefly touch upon the opportunity in enterprise and home broadband and what we are doing to capture this. We are in a unique position to really drive the home broadband opportunity, utilizing our extensive 4G and 5G network. Home broadband services can capture a higher share of wallet by bundling premium connectivity with entertainment, smart home and mobile offerings that deepens customer engagement and drives increased ARPU. We are already seeing a strong performance, and we look forward to reporting further successes. The growth of the enterprise segments and the scale of the SME sector also provides a real opportunity for us to capture the evolving needs of the enterprise and public sector, in particular, we announced recently the commencement of construction for a 44-megawatt data center in Kenya, which will run alongside the ongoing construction in Lagos of our Nigeria data center. In conclusion, hopefully, this clearly summarizes our position across the market and reflects the performance we have achieved over the period. Importantly, we believe in our strategy and the execution of this strategy is integral to capturing these opportunities. Let me now hand over to Kamal to run through the financials. Kamal Dua: Thank you, Sunil. A very good morning and good afternoon to all of you. Let me start with the key financial highlights. Overall, this was a very good quarter and the first half of the year for us with a strong set of financial results, which was also helped by stable to positive macroeconomic environment in most of our geographies. Revenues for the first half at almost $3 billion, grew by 25.8% in reported currency and 24.5% growth in the constant currency. The reported currency growth was higher compared to constant currency growth due to the appreciation of currencies in few markets. For the quarter ended September, the reported currency revenue growth was at 29.1% against constant currency revenue growth of 24.2%. The acceleration in revenue growth was also supported by tariff adjustment in Nigeria, which we did it in quarter 4 of the last year. EBITDA at $1.45 billion in reported currency grew by 33.2% in the half year. The EBITDA margin at 48.5% improved by 268 basis points in reported currency and 258 basis points in the constant currency. This expansion in margin is a result of our operating momentum, sustained benefit from our continued cost efficiency programs and stable macroeconomic environment. Quarter 2 EBITDA margin reached at 49%, up from 46.4% in the prior period. The CapEx investment for the half year was at $318 million, which was similar to the prior period spend. Given the revenue growth momentum and stable macroeconomic environment during the period, we have revised our CapEx guidance upwards to $875 million to $900 million for the current year as compared to the previous guidance given of $725 million to $750 million. Resultant operating free cash flow at $1.1 billion in reported currency is up by 46.5%, primarily driven by the growth in EBITDA. Lease adjusted leverage at 0.8x improved from 1x again due to higher EBITDA. Similarly, our leverage at 2.1x improved from 2.3x. Earning per share before the exceptional item at $0.083 in half year was up 70% as compared to prior period EPS of $0.049. Prior period also had an exceptional ForEx losses as a result of significant naira devaluation, and basic EPS for prior period was only $0.008 as compared to $0.083 in the current period. The EPS for the first half of this year is also helped by the derivative and foreign exchange given on account of appreciating currencies, the positive impact of which is $0.014. The Board has declared an interim dividend of $0.0284 per share, up 9.2% versus last year, in line with our current dividend policies. Coming to the next slide. The overall revenue growth was at 24.5% in constant currency, while in reported currency, the growth was 25.8%. The reported currency revenue growth was also supported by the currency appreciations mainly in the Central African franc, Ugandan shilling and Zambian kwacha. In constant currency, our All Service segment grew double digit with voice revenue 13%, data up by 37% and mobile money revenue up by plus 30% on a year-on-year basis. With this, the absolute data revenue is now higher than the voice revenue in our GSM business. The consolidated EBITDA at $1.45 billion is up by 33.2% in reported currency, while the constant currency EBITDA grew by 31.5%. The group EBITDA margin improved by 268 basis points in reported currency to reach 48.5% for the period. In constant currency, the margin improved by 258 basis points. As discussed earlier, the margin improvement was driven by flow-through from our accelerated revenue growth, continued benefits from our ongoing cost efficiency programs and further supported by the stable to positive macroeconomic environment in most of our markets. Coming to the next slide. This slide reflects the key component of finance cost movement from last year. In prior period, we have derivative and foreign exchange losses of $260 million, of which losses on account of naira devaluation was $231 million, which was categorized as exceptional. However, the current period was supported by a derivative and foreign exchange gain of $90 million, especially on account of appreciation in Nigerian dollar, Central African franc and Uganda and Tanzanian shilling. Excluding the impact of derivative and foreign exchange fluctuations, finance cost increased by $126 million, largely driven by higher lease interest of $108 million, which was primarily related to the renewals of our tower contracts. As communicated in the earlier periods, the increase in finance costs due to tower contract renewal is an outcome of application of IFRS accounting standard. However, the renewals have neutral to positive impact on the cash flows of the company. Higher interest on the market net was on account of our dedollarization program. As you all are aware that we have moved a significant portion of OpCo debt from low interest foreign currency debt to high interest local currency debt, which has shielded us from exchange rate volatility by reducing our foreign exchange exposure. Coming to the EPS. EPS before the exceptional item was up 70% to $0.083 in the current period as compared to $0.049 in the prior period. Excluding the impact of derivative and foreign exchange fluctuations, EPS before exceptional items improved from $0.054 in the prior period to $0.069 in the current period. This increase was driven by higher operating profits during the current period which partly got offsetted by the higher finance charges, which was primarily due to higher lease interest on account of the renewal of the contract, which has been discussed in the last slides. Coming to the normalized free cash flow. The business generated a free cash flow of $368 million in the current period as compared to a loss of $79 million in the prior period. This slide gives us a bridge between EBITDA and normalized free cash flow for the current period. The difference between the 2 other cash payments from the EBITDA in the current period will primarily include the CapEx payment of $356 million, income tax payment of $203 million, which also includes the dividend tax, the cash interest of $388 million and the other cash payments, such as lease repayments and the dividend distribution to the minorities. We continue to focus on strengthening our balance sheet by reducing our foreign currency debt exposure across OpCos. OpCos foreign currency debt is now at 5% as compared to 11% last year, while HoldCo continue to be debt free. Our group leverage at 2.1x has improved from 2.3x compared to last year as a result of increasing EBITDA. The lease adjusted leverage has also improved from 1x to 0.8x. Our strong operational and financial performance has translated to a substantial return that we have given to our shareholders in the last few years. We have returned $1.3 billion in the last 5.5 years by way of dividends and the buyback of the shares. On our capital allocation, our allocation policy remains the same and consistent as was in the last period. Our key priority remains to continuously invest in our business. strengthen our balance sheet and return cash to the shareholders. Our CapEx remained stable compared to the previous year with a notable increase in spending during the second quarter. With the stability in the macroeconomic environment and sustained industry growth, we believe this is a time for us to accelerate some of our CapEx investment to support and accelerate our business growth. Consequently, we have revised our CapEx guidance from the previous range of $725 million to $750 million to $875 million to $900 million. This additional CapEx will primarily be allocated towards network investment in expansion of 4G, 5G data capacity and the coverage expansions. The second pillar of our capital allocation policy is to ensure a sustainable capital structure with leverage having fallen by 0.2x and a low level of dollar debt on our balance sheet. I'm very pleased with the current state of our capital structure. Finally, the third pillar is all about returning cash to shareholders through our progressive dividend policy. This policy has been very consistent and is again reflected in the Board decision to pay an interim dividend of $0.0284, a growth of 9.2%, which is almost consistent over the last few years now. With this, let me now hand over the call to Sunil for his concluding remarks. Sunil Taldar: Thanks, Kamal. Finally, on Slide 30, just a few words on summary and outlook. As you've seen from our results, our strategic focus has consistently driven positive momentum across the businesses and reflects our strong track result in execution. Key to delivering value to our stakeholders is to drive continued growth across our base. Our focus will remain on investing in our network and on further expanding our distribution to be closer to our customers, while at the same time, looking at new opportunities for growth. Mobile money remains a fantastic business, and we look forward to the upcoming IPO in the first half of calendar 2026. The recent macro backdrop has been supportive for our business of late, which has been very welcome. But this does not change our relentless focus on executing our strategy to maximize our value creation for all our stakeholders. We are exposed to a region which offers a fantastic growth opportunity. We have shown a very strong track record of execution, and we have a capital structure that will allow us to continue executing on our strategy. This puts us in a very strong position to drive significant value for our shareholders. and we look forward to reporting on these successes in the future. And with that, I would like to thank you all for your attention today, and we would now like to open the floor for questions. Operator: [Operator Instructions] The first question we have comes from Ganesh Rao of Barclays. Ganesha Nagesha: So a couple of questions from my side. The first one on the CapEx guidance. So could you provide some color on the factors that are driving the increase in the CapEx for the year. So how much of this is one-off project versus the structural hike? And do you believe like this represents the peak in spending? Or how should we about CapEx trajectory heading into, let's say, FY '26, '27. My second question is on the Nigeria market. So while the data consumption remained strong in the region, so the voice usage has seen like double-digit decline during the quarter. So how do you see the trends evolving in the market? And when do you expect overall growth to return to normalized level for the voice usage? Sunil Taldar: All right. Thank you for the question. Let me just respond to the first on the CapEx guidance first. See if you look at, there's been a significant improvement in the overall macroeconomic environment across most of our markets. And this is supported by a reduction in inflation and currencies are stable. The opportunity in Africa across our footprint remains very, very compelling and additional spend will only allow us to create a platform to capture further growth. With the stability in the macroeconomic environment and sustained industry growth outlook, we believe this is the right bank for us to accelerate some of our CapEx investments to support and accelerate our business growth. Now the step -- what this does, this increase in CapEx, it actually demonstrates our confidence in the market and the opportunity that exist in the market. And as we execute our plans, we are very hopeful and confident that our customers will continue to support us and reward us. The additional CapEx that we are deploying is predominantly going into 3 areas. The first is you've seen the numbers. There is a significant increase in our data consumption, overall data usage. The first is increase in data capacity across regions, which will further future-proof our growth initiatives and unlock additional revenues for our avenues for growth. This includes a particular focus on 5G services to enhance our network quality and speed across key areas in our larger markets. So that's the first area where the additional CapEx investments are going. The other is, there remains an opportunity in Africa on expanding our coverage as we are seeing response to our investments. What we're trying to do now is to accelerate our network coverage and drive digital and financial inclusion across our markets. And this is the reason why we are significantly scaling up our capital investments in the second half. And as I said, what it does is it actually -- it reflects increased confidence that we have in the market, given the recent stable macro environment and the sustained demand that we've seen, which has also been reflected in our results. The acceleration in spend will enable us to further capture the share of the market. That's the reason why we are accelerating spends on CapEx. Coming to your question -- second question on Nigeria. See if you look at Nigeria, the overall performance remains very strong. We have seen a significant improvement in our overall revenue growth, as you pointed out. There is -- the voice revenue growth has -- from our last quarter of 36% has come down to circa 33% -- 32%, 33% this quarter. There is predominantly 2 reasons that we ascribe to this. First is, there is some amount of seasonality that we see in the business, which is what has kicked in. The second thing that has happened is voice is very closely associated with the base growth. We've seen that in Nigeria because of changes in NIMC platform, the entire industry acquisition got impacted in back half of June and some part of July. And this is something that is also getting reflected in our overall -- the voice volume that -- or revenue that you are alluding to. Lastly, there are certain -- they've also done tight rating on certain payments that we had in the business, which is getting reflected. Overall, the health of the business, underlying metrics, they remain strong. So that's how I would say is what's happening in the Nigeria business from a voice revenue point of view. Can we have the next question, please? Operator: The next question we have comes from Maddy Singh of HSBC. Madhvendra Singh: Congrats for a great set of results. Just a couple of questions from my side. The first is a follow-up on the CapEx part. If you were to give some indication on the split of the incremental CapEx. Is the more of the new CapEx going into backhaul or radios? And what about the data center part? Because it seems like your data center ambitions are also going to cost decent money. So how much of the CapEx increment or overall CapEx for this year is going into data centers? So if you could talk about that. And then secondly, on the -- your home broadband strategy, that is very interesting to see that you are talking about that in such -- I would say, increased passion. So I wonder, why do you think 4G is the right way to do that? Wouldn't 5G be a better fixed broadband, home broadband -- fixed wireless home broadband strategy from that perspective, 5G would be better? Or is that also part of the CapEx plan that you want to do more of that using this incremental CapEx. So if you could talk about that. And just on the same topic, if you could also give some indication on which countries is the CapEx actually going into? Is it Nigeria? Because second quarter in Nigeria was apparently quite low on CapEx. So I wonder which countries the CapEx is also going? Sunil Taldar: Sure. Thank you very much for your questions and your comments. Let me just quickly try and address the 3 questions that you asked. On the CapEx, as I said, most of our CapEx are going into network, and this is predominantly in driving data capacity and coverage. We don't provide split between data capacity, transmission or the size, which is going into coverage. But net-net, this entire investment is going into making sure that we are delivering the best experience to our customers in the market as we see a significant increase in our usage or consumption of our services across both voice and data. The second thing is with the improvement in the macroeconomic environment, we also felt that there is a need for us to accelerate our coverage expansion, and this is something that we are doing. And that's where the investment predominantly is going. When we look at addressing need for creating capacity for higher data consumption, it would actually mean addressing both radio as well as backhaul or transmission. So to answer your question very simply, it is radio transmission both and also capacity and coverage. That's how we're looking at our overall CapEx investments going. On your question on data center, this increase doesn't capture any investment on the new data centers that we've announced, whether the investments that we announced for our data center in Nigeria or in Kenya that we recently announced. Most of those investments will come in the future. So these are all long gestation projects. Moving on to the question that you asked on home broadband. See, home broadband, we see as a very, very attractive opportunity for Africa because the current penetration in home broadband in this category is very, very low. And that is the reason we said that this category needs a lot of attention and for us to make right investments, at the same time, build our capabilities within the business to be able to go and capture this opportunity. The approach that we are taking is to first leverage our 5G investments in spectrum through the FWA rollout because that's where we are able to -- with respect to speed to market and also the current consumption in the market for the customers is relatively low, and we believe that we will be able to meet the customers' expectations, meet their consumption requirements and offer very good experience through the FWA. So it serves both the purposes for us to be able to leverage our 5G spectrum investments or the radio investments. At the same time, also deliver the right experience to our customers. Having said that, we are also, at the same time, looking at selectively wherever we need to deploy fiber home buses in select geographies within our markets. So that's the work which is separately happening. But this is an evolving space. We have started this work. We're building a lot of capabilities, as I said, both in terms of our ability to serve our customers, our go to market and our ability to manage and deliver experience to our customers, and we'll continue to give you more updates on this front as we progress. The third question was with respect to which countries that we are looking at from a home broadband point of view. This home broadband, we're looking at across our footprint. In most cases, the opportunity actually is in the urban markets. On the CapEx, the question that you asked, which countries? We don't provide country-level breakup. The breakup at the market segment is available in the results that we have declared. In Nigeria, there is also -- overall, if you look at in the first half, our CapEx is very similar to what we had last year at an overall level. Quarter 4 of last year saw significant CapEx deployment in two of our market segments. And therefore, this is the highest EBIT, which saw some impact in the first half of this year, but we are seeing investments going across markets wherever we feel that there is a need. Because we have a very strong framework for determining our entire capital allocation and CapEx investments. And we are guided by that, and that's something that will decide, and this is something that is guiding our decisions. So as I said, Nigeria, East Africa saw a significant quarter 3, quarter 4 investments, and you will see the rest happen across markets in the balance part of the year. Operator: The next question we have comes from Rohit Modi of Citi. Rohit Modi: [indiscernible] some of them has been answered. I have 2 follow-up on 1 question on margin. A follow-up again for CapEx part. Can you confirm like this is now the base CapEx level for future years? And given you said this doesn't include the data center CapEx that you allocated for Nigeria and that has been postponed a couple of times. That doesn't include so the CapEx should -- could I believe increase from these levels if we go ahead and build those centers as well. That's my first question. Second, again, a follow-up on the Nigeria Voice [indiscernible]. I mean, again, you can just confirm like [indiscernible] normal way of voice continue to low [indiscernible] given you have seen all the [indiscernible] have now have gone in and you will see more growth from here kind of any color there. And thirdly, on the margins, your commentary around improvements in margins. Just any color in which country [indiscernible] anything or margin improvement? And just particularly especially from Nigeria because you have [indiscernible] margins in Nigeria right now, which kind of [indiscernible]. Do you see more improvement in Nigerian margins? And what will be driving that? Is this the operational leverage or [indiscernible] margin? Sunil Taldar: Yes. So let me just try and address the questions that you asked. You were not very clear on your second question that you asked on voice -- Nigeria Voice. If you can just repeat that, that will be helpful. Rohit Modi: Sure. On Nigeria Voice, [indiscernible] you mentioned last quarter that a bit of a last year such an impact that you see [indiscernible] on voice and that grew something in last quarter, but you have seen more decline. So I'm just trying to understand, is this a bottom in terms of voice you say when you go from here? Or is [indiscernible] where you see voice is declining and data is growing and there's a bit of [indiscernible]? Sunil Taldar: So -- okay, Let me just try and address the 3 questions that you asked. The first is on the CapEx for future. We don't give future guidance for CapEx. Right now, what we have done is given the, as I said, a very strong macroeconomic development and certain need that we felt and the response that we're getting to our investments is where we've increased our CapEx for this year. We will talk about our -- the CapEx for next year, when we -- at the end of this financial year. Data center, as I called out, is not part of, say, for example, this increase in CapEx that we have. That data center investment is we will see over the course of next 2 to 3 years, because as I said, it's a long gestation, and the 10-year data center we've just announced, and it will flow over a period of time. But we'll provide details for FY '27 when we meet at the end of this year. On the voice revenue, the question that we asked -- that you asked, as I said, these are -- there are 2 reasons which is predominantly, as we said. The first is with respect to -- there is a base growth sequentially that we have seen -- there was an impact because of -- there was a NIMC correction. We expect the voice revenue to recover. At the same time, there is a little bit of seasonality that we've seen. And to separate what has been the real impact of these 2? And is there any drop in voice revenue that we see, very difficult to say at this point in time. As we start to pick up on our customer acquisition and our base growth accelerates, we should see uptake on the revenue. Having said that, because we've also done some titrating of the minutes, and which is where we are seeing some amount of consumption change as well. So voice revenue on -- we remain confident that overall revenue growth for Nigeria looks very, very solid right now. But -- and there are 2 reasons, as I said, for the impact on voice revenue. Will it continue to hold? We should see because it's very difficult for us to split as to how much of this is being caused by removal of the minutes and how much is the base growth. Coming on to your question on EBITDA margins that have reached almost 56.5%. See, on Nigeria specifically, which is where you were pointing to, the margin expansion is an outcome of first and foremost is a very stable macroeconomic environment. Because in Nigeria, in the past, we were seeing significant challenges because of inflation. The second was fuel prices. The fuel prices have -- are stable in Nigeria. The second is inflation is coming down. And the third is we remain very, very focused on our cost efficiency programs, which has also significantly helped us to improve margins in Nigeria. And in macroeconomic environments remaining stable -- and we continue -- we remain focused to make sure that we continue to push for opportunities of cost saving and cost-saving initiatives in further opportunities for saving costs in Nigeria and across all our markets. Kamal Dua: Yes. And just to build on Sunil's point, this is Kamal. We have recovered our margin from the last year of 45% to 49% now. With the stable macroeconomic conditions yes, and like this continued cost efficiency program and flow-through operating momentum, we are pretty hopeful that we will keep on working on the expansion of the margin. Subject to the stability in the macroeconomic environment, we will see the improvement in the margin, but the rate of increase in the margin may not be in line with what we have seen in the last 3 quarters. Operator: [Operator Instructions] The next question we have comes from Cesar Tiron of Bank of America. Cesar Tiron: I have 2, if that's okay. They're both on Nigeria. The first one, I'd like to understand a little bit better why your service revenue growth rate is below that, which was reported by the market leader in the past quarter. We don't -- we're not sure for this quarter, right, because we've not reported yet. But what do you attribute this to when you look at the data? Is it a difference of pricing and how you increase prices a couple of months ago? Or do you think that actually relates to network availability, which actually explains why you had to increase the CapEx so much? That's the first question. Second question, I wanted to ask about the potential for price increases in Nigeria in 2026. Do you have any opinion on it? Sunil Taldar: All right. So if you look at our overall growth in Nigeria, which is approximately 50%. So we are very happy with the growth, which has benefited following the adjustments of our tariffs, which is in line with the approvals that we received from the regulator. While I will not comment on the performance of the competition, the way we look at it is, we had 75% of our total portfolio, which is where we have applied our pricing. Was it similar or different for the competitor, we will not be able to comment on that. But the way we look at, Nigeria still continues to offer significant opportunities for us for growth. We have seen strong execution of our strategy in Nigeria. We've also seen the overall pricing has settled down well with significant growth across all the revenue segment that we have. So that's where we are, and we continue to stay focused on -- and we are making significant investments in making sure that we have enough capacities in our network and our go-to-market to be able to accelerate our growth in Nigeria. So that's for So that's on your first question. The second thing that you asked about our pricing for the future, which is for next year. There is no minimum period before which we can increase pricing in Nigeria. So we will assess when is the right time. Once -- we are right now seeing that the price -- the overall price adjustment of circa 50% has been kind of well accepted. The markets have settled. We will decide at the right time to approach the regulator and go for another price increase. Whether the extent of that is something that we will have to assess, but there is no minimum time or period before which we can take another price increase. Those options are absolutely available to the operators. Cesar Tiron: I just wanted to follow up. I just wanted to understand if the price increase that was implemented this year, was it part of a multiyear framework where we agreed with the regulator to pass on back to the customers some of the inflationary impact on the business? Or was it just a one-off? Did you agree on the framework? Or did you -- just on the one-off in 2025? Sunil Taldar: This was -- because given the inflationary conditions that were during the time when we reached the regulator for a price increase, that is a time that when -- there were 2 or 3 pressures in Nigerian economy at this point in time. This was a significant devaluation of currency, very high inflation, high fuel prices. To offset all of that, this was the price adjustment that the authorities have agreed to give to the industry. This, I don't think serves as the precedent or neither was there a time period, as I said. So we have the option to go back to the regulator and ask for another price increase at the right time. And this is something that we will surely assess. Yes. Thank you. Operator: The next question we have comes from David Lopez of New Street Research. David Lopez: I have 2. The first one is on mobile money in Nigeria. If you could give us an update on how long do you think you need -- how much time to fully build the base? And when should we see a step up in revenue there? And the second question is just on the spectrum auctions, if you could tell us what are the upcoming spectrum auctions across the group, please? Sunil Taldar: All right. So let me first address the Nigeria money opportunity. So if you look at Nigeria offers a very large opportunity for the mobile money business. At the same time, it is also relatively as compared to what we see on the other parts of our footprint, it's an evolved relatively more mature markets with significantly a large fintech operators as well as banks well entrenched in the ecosystem. Having said that, we have a very clear opportunity because we currently enjoy an existing relationship with our customers. and with high smartphone adoption, this market offers significant opportunities for growth for us. So where are we focused right now is -- and I say this, I think almost I've said this even in the past quarters, that this market is going to take some time as long as we are doing the right things and building the right capabilities to be able to win with our customers. So I'll tell you what we are doing right now, and we are seeing early green shoots of some of the work that we're doing. In terms of our key focus areas, we first is acquiring quality customers. In terms of our base growth, we now have about 2 million active customers in Nigeria. And most of these customers, a very large portion of these customers is engaged in our mobile money app, which allows us to engage with them very, very actively. The second thing that we are doing is we're building capabilities to be able to meet all the asks and demands of our customers and match up to the functionalities that they get from other fintech. Whether it is a virtual card or a saving bank account, these are capabilities that we are rolling out in Nigeria. The way I see it, it's a big opportunity. Our teams are doing a fantastic job in building capabilities and acquiring customers. And the only thing that I will say is, this is relatively a difficult market because it's a well entrenched market. It's going to take us some time, but this is one area where we are -- we have a massive focus and there is -- we're not leaving any stone unturned, neither are we saying no to investments to accelerate our business in Nigeria. As I said, we are already seeing some early green shoots, which make us hopeful that we'll be able to turn around this business in Nigeria. Coming to -- Kamal, do you want to just talk about the spectrum auction business? Kamal Dua: Yes. In 2027, I think Nigeria 10 megahertz of 900 is coming for renewals and Kenya, license for 2G, 3G will start coming for renewal. So these are the 2 large renewals, which is due in 2027. Thank you. Operator: [Operator Instructions] I would now like to hand over to Alastair for any webcast questions. Please go ahead, sir. Alastair Jones: Yes. Thank you. Just a couple of buckets of questions coming in from the website. I was hoping that Sunil and Kamal address. Firstly, just in terms of the mobile money, the intragroup agreements, there were some amendments made -- and just some clarity on what those renewed agreements would impact, how they impact revenues and sort of what is the retention revenue? What you sort of define as retention revenue? So that's on one point. And then the second point, just coming back to cost efficiencies. Can you elaborate on any specific cost efficiency initiatives that you are looking at the moment? Could you just give some sort of color as to how -- what efficiencies we're looking at? And secondly, just associated with that, has there been any margin benefit from a drop in fuel prices or diesel prices in our numbers for this quarter? Sunil Taldar: Sure. So let me address your first question, which is on the IGA changes. See if you look at our GSM business and mobile money business, they are interdependent businesses. And in ordinary course of business, there are various services exchange between them such as Airtel Money providing services for -- to the GSM business like recharge collections and disbursements. Similarly, GSM providing services to Airtel Money like SMS, USSD and go-to-market, et cetera. So these -- all these agreements that we have, all these services are governed by long-term agreements that we have. And these agreements are very established, and they are also as per -- they're fully compliant with the regulation for both the businesses. As these long-term agreements came up for -- as I said, they were agreed upon some time ago, and this was time for us to -- as they come up for renewal and in line with the market benchmarks, so we've kind of revisited these agreements and renegotiated the terms of intragroup agreements in line with the changing market dynamics between the mobile services and the mobile money businesses during the second quarter, while ensuring that they continue to be on arm's length. These agreements are also discussed and aligned and agreed with the minority shareholders. So that's where we are. And the full impact -- and I must also add here, the full impact of these agreements or of these changes will come in phases over the next 8 to 10 quarters based on the current volumes. The current year impact will be circa about in terms of percentage EBITDA because Airtel Money is also a very high-growth business. In percentage terms, the impact would not be maybe more than 1 or 2 percentage points of EBITDA as we go forward. It will be in low single digits is the way I would put it, overall impact of the IGA changes on the Airtel Money EBITDA. And coming to your second question on cost efficiencies. There are 3 or 4 areas that we look at from a cost efficiency point of view. The first is if you look at where our big cost components are? Our big cost is actually in network. The way we are looking at is, first is a big -- within network, a big cost component is our tower running expenses, which is energy. So what we're doing is we're working with tower companies to invest in more energy-efficient solutions, whether it is batteries or solar, invest in lithium-ion batteries or solar equipment, and this is one area that we're working on. The second area that we are working on is, as we look at our new sites which are coming in either in rural or these are the infill sites in urban areas. So instead of having a full macro sites, do we have lean sites, which are relatively lower in terms of cost -- running cost is lower. The third area is moving sites from off-grid to grid. So these are 2 or 3 areas where we are working very closely to be able to generate certain efficiencies. And as we said that the stable oil prices is one of the reasons for us not to see margin kind of deterioration we've seen some benefit because our oil prices have, by and large, been stable. We've not seen oil prices go down. We have seen oil prices remaining stable. So we're not adding to increase in costs, but at the same time, there is -- we're not seeing a significant cost reduction because of oil prices. Alastair Jones: Thank you. Go back to the Q&A. Operator: The next question we have comes from John Karidis of Deutsche Bank. John Karidis: Is it possible, please, to explain the reasons for the nearly sort of 200 basis points reduction in mobile money EBITDA margin in the second quarter, I'm trying to figure out whether it's exceptional or not. And then secondly, regarding the CapEx, I'm sorry to come back to that. I know you don't give guidance for next year, I'm just sort of trying to figure out whether we should all go back to our spreadsheets and assume $150 million more CapEx per year going forward, from what you say in terms of coverage, once you get the coverage, you don't need to keep expanding. But for data capacity, you might need to keep adding capacity. So if I were to look at your CapEx envelope over more than 1 year, are you bringing forward capital expenditure? Or are you sort of increasing capital expenditure consistently over that period of time, just so that we know what to put in our estimates, please. Kamal Dua: Okay. Thank you for your question. I'll take your first question first on the mobile money EBITDA margins. As Sunil had just spoken about our renegotiation of the intragroup agreement, the impact of those renegotiations is roughly $11 million on EBITDA of Airtel Money, and which has an impact of roughly 2.3%, 2.4% on Airtel Money. So if we normalize for that, intrinsically, the EBITDA margin of Airtel Money is flat to slightly positive. So there is no one-off exception which has been sitting in the EBITDA margin of Airtel Money. I'll hand it over to Sunil to take the second part of the question, please. Sunil Taldar: Yes. Your second question was the future guidance of CapEx, right? Essentially, I'll be repeating myself... John Karidis: I'm sorry, I'm just trying to figure out whether this is a sort of permanent increase in yearly CapEx or not? Because if I read what you're saying, if you're going just for coverage, you only spend it once. But for data capacity, you spend it yearly. So just sort of a steer would be good. And by the way, I'm sorry, I asked the same question about the margins. The line is not good. So I'm sorry about that. Sunil Taldar: Okay. Let Kamal repeat the response of the margin. Kamal, the line wasn't clear. So... Kamal Dua: No worries. So this margin drop is on account of the new intergroup agreements, which came into effect effective first of July this year. The impact of that is the margin for mobile money is coming down. The impact on the mobile money absolute EBITDA is roughly around $11 million. And on year-on-year margin is roughly around 1.5%, 1.3%, 1.4% for the first half and 2.3%, 2.4% for the quarter, if you compare the same quarter of the prior period. So if you adjust for the impact of the renegotiation of the intragroup agreement between the group, intrinsically, the margin for mobile money is flat to slightly positive. So that was an answer on intragroup agreement. If you don't have any further question on mobile money margin, I'll hand it over to Sunil to answer the CapEx part of the question, please. Sunil Taldar: So I'm assuming that your mobile money margin question is answered. I'll respond to your question on CapEx investments. See, I'll be kind of repeating myself, but it is very -- we don't give future guidance on CapEx investment. Having said that, when we -- CapEx has -- when we did this exercise with the recent increases in data consumption and also a need for us to accelerate given the response that we are getting in the market. It's a very detailed exercise that happens to determine what's the real CapEx requirement for the businesses. Now our next year client cycle actually has just about started and we will conclude this by December, and that's when we go to the Board because there are many moving pieces. With this investment that will go in how much of the population that we are wanting to cover that gets covered, how much capacity have we added? There is also some amount of changes, which is what I was alluding to the other question on margin, which is I spoke about, which is a mix of lean sites versus macro sites. So there are a few -- and plus there are a few moving parts that we have, and therefore, it is very difficult for us to give any guidance to say whether this is a new normal or that we will go -- or this is a one-off. For this year, definitely, what it actually talks about is our confidence in the overall macroeconomic environment remaining what it is. And we felt that this is the right time for us to make investments, create capacities, deliver great experience, accelerate our growth and take higher share of the growth opportunity that Africa offers across our footprint, which is something that we've done. We'll have a little more clarity once we have done our own workings to say whether this is going to be -- which is probably that you're trying to understand, same as next year or probably a new normal. But we are not in a position to help you to plug this in your worksheets, so to speak, which is something that you're trying to solve here. Alastair Jones: Just to clarify quickly just on the commentary around the intragroup agreements amendments, just what Sunil was saying, the impact over the sort of medium term as a result of those agreements, given volume flows, et cetera, is going to be low single-digit impact on EBITDA margins. Just to clarify that. Sunil Taldar: Yes. The impact of these intergroup agreements on mobile money margins will be in low single digit. Operator: Ladies and gentlemen, unfortunately, we have reached the end of our allotted time for today's question-and-answer session. Sir, would you like to make any closing comments? Sunil Taldar: Yes, I want to thank everyone for joining the call today and for all their questions, and we look forward to our continued engagement with you all. Thank you. Thank you very much. Kamal Dua: Thank you. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Hello, everyone, and welcome to the KRC Third Quarter '25 Earnings Conference Call. My name is Emily, and I'll be coordinating your call today. [Operator Instructions] I would now like to turn the call over to Doug Bettisworth, Vice President of Corporate Finance to begin. Please go ahead. Douglas Bettisworth: Good morning, everyone. Thank you for joining us. On the call with me today are Angela Aman, CEO; Jeffrey Kuehling, EVP, CFO and Treasurer; and Eliott Trencher, EVP, CIO. In addition, Justin Smart, President; and Rob Paratte, EVP, Chief Leasing Officer, will be available for Q&A. Please note that some of the information we will be discussing during this call is forward-looking in nature. Please refer to our supplemental package for a statement regarding the forward-looking information on this call and in the supplemental. This call is being webcast live on our website and will be available for replay for the next 8 days. Our earnings release and supplemental package have been filed on a Form 8-K with the SEC and both are also available on our website. Angela will start the call with a strategic overview and quarterly highlights. Eliott will provide an update on our recent transaction activity and Jeffrey will discuss our financial results and provide you with updated 2025 guidance. Then we'll be happy to take your questions. Angela? Angela Aman: Thanks, Doug, and thank you all for joining today's call. As we enter the final stretch of the year, Kilroy is capitalizing on accelerating momentum across our West Coast office and life science markets. Return to office continues to improve, supported by evolving workplace norms, shifting employer expectations and recognition of the office as a driver of culture, collaboration and innovation. These trends, in combination with improving quality of life dynamics are driving enhanced vibrancy, a resurgence in leasing activity and a meaningful increase in institutional investor interest in high-quality West Coast commercial assets. At the same time, rapid advancements in artificial intelligence are reshaping demand across both the office and life science sectors, accelerating innovation and reinforcing the strategic importance of well-located real estate in concentrated tech and biotech hubs. Nowhere is this more evident than in the Bay Area. In the city of San Francisco alone, office demand has reached a post-pandemic high of nearly 9 million square feet, up from approximately 7 million square feet last quarter, with much of this demand being driven by AI and other technology companies. Importantly, the growth in demand statistics has persisted even if the pace of lease executions has significantly increased with San Francisco leading all U.S. metros and office leasing growth over the last 12 months. Against this backdrop, I'm pleased to report another strong quarter of execution across our portfolio. During the quarter, we signed over 550,000 square feet of new and renewal leases, marking our highest third quarter of leasing activity and our strongest year-to-date performance in 6 years. Leasing momentum was robust in San Francisco with activity in the south of market or SOMA submarket, particularly notable. Our SOMA assets continue to outperform with over 95,000 square feet of new and renewal leases executed this quarter and a growing forward pipeline with tour activity in our SOMA assets up 170% year-over-year. At 201 Third Street, we signed a full floor lease with Tubi, a global streaming entertainment company for their new headquarters, marking the third consecutive quarter of major leasing at this property. Our continued success at 201 Third highlights the exceptional ability of our leasing, construction and asset and property management teams to understand and meet the evolving needs of today's tenants, many of whom are prioritizing landlords that can deliver speed from lease execution through tenant occupancy. Encouragingly, as the San Francisco recovery continues to accelerate. We're now seeing this momentum expand to nearby assets in our portfolio, which is 360 Third Street, where we recently signed our first lease since 2022. While the recovery in San Francisco certainly deserves a significant amount of focus and attention, it's important to note that we're seeing improving dynamics across nearly all of our markets with tenants demonstrating greater conviction and willingness to execute. During the third quarter, capitalizing on this improved sentiment, we made important progress in addressing some of our largest remaining 2026 lease expirations. In San Diego, we completed a long-term renewal with Scripps for their entire 119,000 square foot lease at Kilroy Center Delmar. And at Long Beach, we executed a short-term renewal with SCAN for 87,000 of their approximately 220,000 square feet at Aero. While we anticipate that SCAN will vacate at the end of their extended term and relocate into owner-occupied space, the phasing of this move out provides valuable near-term stability as we work to programmatically backfill. And subsequent to quarter end, we signed an additional 148,000 square feet of renewals related to 2026 lease expirations, as Jeffrey will detail in a moment. Taking into account the renewal signed subsequent to quarter end, 2026 lease expirations now total approximately 970,000 square feet, reflecting a retention ratio of over 40% on the pool reported at the beginning of this year. Our leasing team has worked diligently to renew tenants as early as possible, and I'm very pleased with the progress we've made to date. That said, the pool of remaining renewal opportunities in 2026 is now much more limited. The path forward will require a greater emphasis on new leasing activity. As a result, we're approaching the remainder of this year with a clear focus on capturing growing demand across our markets and ensuring that our assets are well positioned to outperform as momentum continues to accelerate. Turning to life science. We're encouraged by a variety of important signals that speak to the improving fundamentals we're seeing in our portfolio. The XBI is up more than 20% year-to-date with strong broad-based performance from both large and small cap biotech companies, fueled in part by greater clarity on the regulatory backdrop for the sector and a variety of positive company-specific clinical trial and drug approval announcement. In addition, biotech M&A volume has accelerated with large pharmaceutical companies actively pursue new pipelines to offset significant patent expirations over the coming years. Kilroy Oyster Point Phase 2, our premier development project in the heart of the South San Francisco life science ecosystem is benefiting from this material improvement in sentiment and activity. We're pleased to report that we've signed 84,000 square feet of leases to date with well-established biotech companies. In addition to the 24,000 square foot lease with Color that was announced in September, last night, we announced the execution of a 44,000 square foot lease with MBC BioLabs and a 16,000 square foot lease with Acadia Pharmaceuticals. MBC BioLabs is the Bay Area's leading life science incubator and has helped launch more than 500 companies collectively raising over $20 billion in capital. MBC's presence will help create a diversified tenant base of early-stage biotech companies at KOP, advancing our strategic goal of cultivating a dynamic innovation-driven life science ecosystem at Kilroy Oyster Point that will support the long-term growth and value creation of the project. MBC is expected to commence occupancy in the fourth quarter of 2026. Acadia Pharmaceuticals is a biopharmaceutical company committed to advancing therapies for underserved neurological disorders and rare diseases. And this recent execution marks Acadia's entry into the San Francisco Bay area. Already a valued Kilroy tenant in our San Diego portfolio, we're proud to expand our relationship as trusted partners. Acadia is expected to take occupancy in the second quarter of 2026. The future pipeline at KOP 2 is robust, and we're actively engaged with a variety of potential tenants, including several with larger format requirements. These discussions, though still early, reflect both an overall improvement in the life science market and a growing appreciation of Kilroy Oyster Point's purpose-built life science construction and market-leading amenitization. Based on the status of current conversations, we believe that KOP 2 is now well positioned to exceed our previously communicated goal of 100,000 square feet of lease executions by year-end, and we expect this project to be a meaningful contributor to the company's growth over the next several years. From a capital allocation perspective, we continue to be active and disciplined as we recycle capital with a focus on long-term cash flow growth and value creation. Our approach remains responsive to evolving dynamics in both the office and life science sectors as well as shifts in the relative attractiveness of the submarkets in which we operate, staying agile and prioritizing opportunities that align with our long-term strategic vision for the portfolio. During the quarter, we completed the previously announced sale of a 4-building campus in Silicon Valley for gross sales proceeds of $365 million, and the acquisition of Maple Plaza, a Class A office campus in the iconic Beverly Hills submarket of Los Angeles for $205 million. Maple Plaza marks Kilroy's first investment in Beverly Hills, a highly sought-after, well-amenitized and supply-constrained environment with one of the lowest vacancy rates in the Greater Los Angeles market, and the asset has quickly become the strongest driver of leasing activity in our Los Angeles portfolio. Looking forward, expect us to continue to thoughtfully and strategically rotate capital out of assets where we believe value has been maximized and as proceeds are realized, pursue a balanced mix of selective reinvestment opportunities and debt repayment, considering all redeployment alternatives with a focus on optimizing portfolio returns and maintaining a strong and flexible capital structure. With respect to future development pipeline, we continue to work through additional land parcel monetization and expect to have further announcements in the coming quarters. In addition, we've been hard at work on the Flower Mart project, which is our single largest investment in the future pipeline. As we pursue additional flexibility and optionality that will allow us to ultimately maximize value on the site while being responsive to the evolving needs of the San Francisco community. During September, as part of our redesign and reimagining and Flower Mart project, we submitted 4 development scenarios to the City's Planning Department, each illustrating a potential path forward for the site, including a range of commercial and residential uses. Our conversations with the city to date have been constructive and encouraging and while those discussions are still ongoing, we have now gained greater clarity on both the approval process and the time line required to secure the optionality we're targeting. As a result, based on the best information available today, we expect interest and other expense capitalization to Flower Mart to continue through June 2026. We'll keep you updated on this assumption as appropriate. In conclusion, I want to thank the entire Kilroy team for an extraordinary effort this quarter as the pace of leasing and transaction activity have accelerated. I couldn't be any more pleased with the energy, enthusiasm and execution that this team is delivering each and every day. Eliott? Eliott Trencher: Thanks, Angela. As Angela noted, fundamentals are accelerating across all of our markets, which is not only good for leasing, but also for transactions. Buyers are underwriting vacancy and rollover with more conviction, leading to deeper bidding pools, which in turn is giving sellers increased confidence they are transacting at market pricing. All of this is leading to more deals being marketed and closing. We have been fortunate to benefit from these trends as both a buyer and a seller. Starting with dispositions. We had a productive first 3 quarters of the year, closing on $405 million of previously disclosed sales. As we continue to evaluate dispositions, our strategy remains the same. Monetized properties in lower conviction locations at values that imply forward returns less than our cost of capital. We are fortunate to have the benefit of a strong balance sheet, meaning we are not going to sell at any price and instead, we'll only transact when a deal meets our rigorous thresholds. Turning to land sales. As previously discussed, we had $79 million under contract between 26th Street in Santa Monica and Santa Fe Summit in San Diego. Both buyers continue to advance their plans and the transactions will close upon receipt of entitlements, which we currently estimate to be mid-2026. We are making progress on additional land sales and remain on track to hit our goal of at least $150 million in gross proceeds. On the acquisition side, during the quarter, we bought Maple Plaza on Beverly Hill. Beverly Hills has many of the characteristics we look for in the submarket. It's centrally located within the west side of Los Angeles with proximity to decision-makers, amenities and a diverse mix of tenants across multiple industries. Because it is essentially located the barriers to entry are quite high with cumulative new supply of only 260,000 square feet over the last 10 years. Additionally, 3 of the neighboring properties totaling roughly 400,000 square feet have been acquired by users in recent quarters, which has further reduced competitive supply and enhanced vibrancy in the micro market. Maple Plaza was recently renovated and amenitized so there are no major capital projects required at this time. Our basis of roughly $670 per square foot is meaningfully below replacement costs, which we estimate to be roughly $1,200 per square foot. As we lease up vacancy, we anticipate a stabilized yield in the high single digits and an unlevered IRR in the low double digits. In the few weeks we have owned the building, leasing activity has been strong from a mix of new leasing from new and existing tenants, confirming our view on the market and our underwriting. We're very excited about this acquisition and believe the inflection of leasing fundamentals combined with below historical average interest in the office sector created a unique opportunity. We do not know how long a window like this will last or if other similar opportunities will present themselves since more capital is consistently coming into the office sector. However, we continue to evaluate the full spectrum of investment alternatives and will not be afraid to transact if we find something that meets our stringent criteria. With that, I will turn the call over to Jeffrey. Jeffrey Kuehling: Thanks, Eliott. FFO for the quarter was $1.08 per diluted share, which includes approximately $0.03 per share of onetime items, including $0.02 per share related to real estate tax appeal wins, an additional $0.01 per share of noncash income related to a reversal of straight-line bad debt expense. Cash same-property NOI growth for the third quarter was 60 basis points with the previously mentioned real estate tax appeals contributing 150 basis points of growth. Occupancy statistics now reflect the recently stabilized redevelopment projects, 4400 Bahana Drive and 4690 Executive Drive, which represented a 50 basis point negative impact to occupancy during the third quarter. We expected that occupancy would dip on a sequential basis due to the redevelopment projects entering the stabilized pool and expected move-outs. However, occupancy improved modestly, ending at 81%, up from 80.8% at the end of the second quarter. The improvement relative to our prior expectations was a result of earlier than anticipated rent commitments totaling approximately 200,000 square feet, all of which were originally projected to take occupancy in the fourth quarter. At the end of the third quarter, the spread between leased and occupied space was 230 basis points, which represents meaningful embedded growth expected to materialize throughout the remainder of 2025 and into 2026. It's important to note that KOP 2 leasing activity is not included in this lease versus occupied spread and should be considered separately. We now anticipate that any improvement in occupancy in the fourth quarter will be modest due to the accelerated rent commencement activity that occurred in the third quarter. Additionally, our assumptions now reflect the bankruptcy-related October move-out of NeueHouse, a 95,000 square foot tenant at Columbia Square. While the departure is now reflected in our occupancy outlook, the space's high-quality build-out and historical significance are generating strong interest from prospective users and the team is working diligently to minimize downtime. Portfolio retention in the third quarter was approximately 60% and year-to-date retention, including subtenants, stands at 39%. Following quarter end, we executed a 79,000 square foot renewal with Ride Games at Westside Media Center and a 67,000 square foot lease with ByteDance, a current subtenant with a 2026 expiration at Key Center. While these recent transactions are not yet reflected in our operational metrics, we are very pleased with our leasing performance on 2026 expirations, which demonstrates strong momentum heading into next year. Turning to guidance. We raised our 2025 FFO outlook to a range of $4.18 to $4.24 per share, representing an $0.11 per share increase at the midpoint. This revision reflects several key updates to our expectations. We now anticipate approximately $0.05 of additional noncash income driven by tenants taking occupancy earlier than expected in the previously mentioned straight-line bad debt reversal that occurred in the third quarter. Our updated same-property NOI guidance contributes an incremental $0.03 per share, while interest capitalization adjustments account for $0.02 per share. As Angela mentioned, we have also updated our assumptions for the Flower Mart project, which is now expected to cease capitalization in June 2026. With the progress made to date and the recent submission of our development applications, we're in a stronger position to find the process time line and have updated our assumptions accordingly. As the reentitlement process advances, we anticipate reaching a point we are short of executing a demand-driven development, all feasible progress that the project will be complete, at which time, capitalization will need to be suspended indefinitely. We will continue to revisit our assumptions and provide updates as new information becomes available. As it relates to Kilroy Oyster Point, we are making excellent progress on the lease up of the project. Following the 84,000 square feet of lease executions to date in our healthy forward pipeline, it's appropriate to begin framing up the project's expected NOI and FFO impacts in 2026. Once the project transitions into the stabilized portfolio in January, capitalization will end and operating expenses, property taxes and interest expense will be recognized through the income statement. During the third quarter, operating expenses and property taxes and KOP 2 totaled approximately $5 million while capitalized interest totaled approximately $10 million, both of which are a reasonable quarterly run rates for next year. As tenants begin to take occupancy starting in the first half of 2026, the negative earnings impact from the projects will moderate before becoming a net contributor to growth in the coming years. With that, we're happy to answer your questions. Operator: [Operator Instructions] Our first question today comes from the line of Nick Yulico with Scotiabank. Nicholas Yulico: So first question is, I guess, just turning towards some of the expirations you talked about getting addressed for 2026. And I know you had a higher also retention ratio this quarter. So at a high level, I mean, are there any sort of thoughts you can give us on like next year, how to think about retention for expirations and then also getting some benefit, as you talked about from commencing occupancy on that gap right now between signed, but not occupied space? Angela Aman: Sure. Thanks, Nick. This is Angela. I'd start with sort of going back to where we started with the 2026 expiration pool at the beginning of 2025. We were showing about 1.9 million square feet, when you take into account all the leasing activity and renewal activity that's been completed through the third quarter and the almost 150,000 square feet of renewals that were signed subsequent to quarter end. We're down to a remaining expiration pool in 2026 of about 970,000 square feet. As I mentioned earlier, I think there's a limited opportunity for additional renewals out of that pool. So we do expect that you're going to see move-outs in 2026 for the majority of what's left in the 2026 expiration pool, and we'll need to offset that through new leasing, right, both through a combination of, as you point out, a pretty healthy spread between signed and commenced occupancy that's already been executed and then additional new leasing activity that can take effect during 2026. I think as we've talked about on prior calls, one thing I would note that's a little bit different in the current environment is across many of our markets, the interest that tenants have and getting into space as quickly as possible. We've seen that most notably in San Francisco, where there's a real demand, especially from some of the new business formation we're seeing in that market to really compress the time between lease execution and occupancy commencement, but we've also seen it in other markets as well, including the Pacific Northwest and even in San Diego and Austin. So our spec suites program can be really meaningful in addressing some of that remaining exploration activity in 2026 or offsetting it. So that's what we're focused on right now is really driving some additional renewals out of the '26 pool, but really focusing on new leasing and particularly the new leasing that can take occupancy during 2026. Nicholas Yulico: Okay. And then just second question is on San Francisco. If you could talk a little bit more about how you're seeing your space be competitive in the market versus other options? And then also sort of an update on competitive sublease space that's in the market, and sort of just sort of depth of the tenant pool there overall? Angela Aman: Sure. Yes, I'll take the first part, and then going to turn it over to Rob to talk about some of the more specific dynamics in the market. But what we've continued to see in San Francisco is a real expansion of where tenants are looking for space in the market. And then again, a real priority on landlords who can move quickly and deliver certainty in terms of compressing that time period between lease execution and rent commencement. When we talk about sort of the -- where tenants are looking in the market, that's where we've seen a pretty remarkable sea change in activity from where we were 9 to 12 months ago, that's really captured our SOMA assets and in particular, 201 Third, where as I mentioned earlier, we've now completed 3 consecutive quarters of major leasing at that property. We're now seeing that activity expand further into SOMA and into assets like 360 Third Street. So we've seen really sort of a healthy dynamic is where tenants are willing to look at expanded. And then again, I think our vacancies are really well positioned given that we're very focused on delivering -- meeting those expectations and delivering space as quickly as possible. A. Paratte: Thanks, Angela. Nick, it's Rob Paratte. I guess I'd make a couple of points about the market. One is that larger tenants in San Francisco are starting to come back to the market and our touring. We're also seeing that in Seattle. And I think one change we're noticing in our portfolio is that there's, I'd say, less demand for bargain space and more demand for impactful space. And that impactful space ties directly to the return to office phenomenon that you're seeing where San Francisco particularly has dramatically improved in the past couple of quarters. AI demand continues to be a very strong driver in the market. There's about 1.5 million square feet of AI demand currently touring in San Francisco. And then relating to sublease space over 2 million square feet of sublease space has been basically taken off the market through either going direct, taken off the market by the sublessor or being leased. And that's a notable number. And when you look at the Kilroy portfolio, we've had 200,000 square feet taken off the market this quarter by tenants. So all of that points to, I think, a sustained recovery as the office fundamentals are improving and showing signs of sustained recovery, we're already at pre-pandemic levels, as Angela pointed out in some of the statistics. So I'm pretty convinced that not only the momentum we're seeing here in Q4 will continue into Q1 and '26. Operator: Our next question comes from Jana Galan with Bank of America. Jana Galan: Congrats on a great quarter. I wanted to follow up on the increased leasing outlook near term at KOP 2 and just kind of the current demand in tours, whether that continues to be more traditional biotech or it's kind of across the board? A. Paratte: Sure. I'll -- let me kind of frame up where we are with life science in KOP in South San Francisco. So in Q3, there were slightly over 600,000 square feet of leases signed, which is on par again with pre-pandemic levels. Look, we're seeing -- I can only speak to our project. What we're seeing is that the best projects in the market are seeing the most demand. And our life science team -- dedicated life science team is nimble accretive and they're really quick to respond adding to this momentum, which gives me a lot of confidence that momentum will not only continue in Q4, the remainder of Q4 as Angela said, but well into Q1 and 2026. Life science demand rose over 20% from 1.8 million feet to 2 million feet in Q3, another very positive indicator. And I think the one thing that we've seen that's really changed, again, as I mentioned earlier, in San Francisco, there are large tenants that are coming back into the market. So combined with the life science demand, we're seeing -- we're also seeing other sectors that have improving demand, including semiconductors, AI and robotics. And that's not just South San Francisco specifically, it's a trend moving from South San Francisco down through the peninsula. Angela Aman: Yes. I think -- I mean, Rob's really hitting on the right point. We're thrilled to be at the point we are right now. It's 84,000 square feet of leases executed at KOP. As you've alluded to, we feel like we're very well positioned to exceed the goal we put out for ourselves last quarter of 100,000 square feet by year-end. I also think, as we indicated last quarter, we're very pleased that the first wave of deals we're signing at KOP 2 have all been biotech, biotech related. I think that's a really important point as we think about the future growth and evolution of this project in Phases 3, 4 and 5 down the road. We're being very intentional about creating the right sort of life science ecosystem at the project that can support that growth down the road as well. And then Rob made a really important point, which is we have lots of -- as we think about the pipeline going forward, there continues to be lots of demand from biotech and biotech related companies as we look out finishing this project, but we are seeing really important demand that's giving us a little bit more leverage in leasing for the remainder of KOP 2 from other uses outside of life science as well. So overall, I think a really healthy backdrop as we think about leasing up this project and ensuring that it's going to be a net contributor of growth over the next several years. We've got a lot of options and a lot of momentum. But again, really pleased that we're able, with these first leases that are being signed, take the first steps at creating that dynamic life science ecosystem on site. Jana Galan: And just given kind of the improvement and diversity in activity across the portfolio, should we think about that there'll be less reliance on kind of the shorter-term leasing going forward? Angela Aman: Yes. I mean this quarter, the shorter-term leasing, I think it was 129,000 square feet. Most of that was renewal activity. And I spoke to some of that in my prepared remarks. We're going to be flexible in this environment with tenants that need a little bit longer-term, even if they're vacating, just to give us additional opportunity and time to backfill some of that space. So there's probably some more of that short-term renewal activity over the coming quarters. I would say, as we think about the new leasing dynamic, we've signed very few actually new leases on a truly short-term basis. There continues in the city of San Francisco as we think about some of this new company formation and AI growth, specifically in the city of San Francisco, still a desire for leases that are shorter-term in nature than a traditional 10-year lease. So we are seeing that demand in sort of that 3- to 5-year window for many of these AI companies, but we do believe we're in a position to stretch those terms a little bit longer, where we can provide a reasonable path to growth and expansion for some of those tenants over the course of that term. They're prioritizing that flexibility as it relates to the shorter lease term because they do believe their businesses are going to grow and evolve and they want to make sure that they can have space over the next 5 to 10 years, that's going to meet their needs. So where we can provide that flexibility, we have a chance at getting those terms extended a little bit longer. But the truly short-term leases, again, have been almost all renewal activity. And that's, in many ways, just a normal recurring part of the business. Operator: Our next question comes from Steve Sakwa with Evercore ISI. Steve Sakwa: Jeffrey, I don't know if you could provide a little bit more color on just the NeueHouse lease. I appreciate you for clarifying that, that really was, I guess, in the quarter end occupancy and comes out in the fourth quarter, but could you maybe just help size up for us kind of what the rent contribution was from NeueHouse in the third quarter so we could just kind of adjust the revenues appropriately for that? Angela Aman: Yes. We don't -- Steve, we don't typically talk about individual rent commencements on a tenant level basis. You've got the occupancy contribution about a 50 basis point -- 50 to 60 basis point impact on occupancy. I think the important point here is that we really held our average occupancy guidance flat despite taking that unexpected impact in the fourth quarter of this year. Rob and team, I'll let Rob comment on sort of the re-leasing backdrop for that space in a moment. But we're really focused on re-leasing that space as quickly as we can. It's got a very high-quality build-out, and we think there are opportunities that will really help us minimize downtime as we look to reposition that space, which will address some of the concern you're raising. A. Paratte: Steve, yes, we started fairly early on looking at opportunities for the former NeueHouse space in terms of what can be done with it. And I'm actually pretty pleased with the activity we've seen from a variety of sectors, including the hospitality and entertainment sectors. And as you know, the space is very highly designed, very well designed. We own all the FF&E. There's a lot of advantage to what's in the space, not only from a just architectural point of view, but the existing facilities, including multiple food and beverage opportunities. And I think most -- or not most importantly, but very important aspect is that the historic studio, the CBS former auditorium can house up to 400 people. And so that's a very limited commodity in Hollywood. And so that does seem to attract quite a bit of attention and can generate revenue. So again, we're seeing kind of a disparate group of interested parties right now that we're talking to. Steve Sakwa: And just any comment, Rob, just about kind of how the rent would maybe stack up to the prior rent? Would that be a roll up, roll down, flat? A. Paratte: Hard to say, Steve. It depends. I mean some of these uses may have more new for capital depending on if it moves toward hospitality. It's really going to be very deal specific, but it's quite unique space. And the thing I'd say is if you look in Hollywood to have historic space like this that ties back into the 30s and 40s and 50s at the prime of Hollywood that cache carries a lot of value for future users. Operator: Our next question comes from Seth Bergey with Citigroup. Seth Bergey: I guess the first one, just to go back to kind of the KOP leasing activity you've done. Can you provide a bit more color on kind of the lease economics you're achieving there? And maybe touch on kind of how those leases kind of compared to your initial underwriting? A. Paratte: I'll start with the beginning that the lease economics vary between whether it's a spec lab or whether it's going from shell construction. So there's variability there. But we're very attuned to what the market is and happy with where we're getting -- where we're achieving our rental rates. And TIs have no doubt gone up since we originally underwrote the project, but we're meeting the market in terms of where the demand is and providing that value that I mentioned earlier. Angela Aman: Yes, I think Rob categorized it exactly right, which is I do think rents have held in pretty well relative to our original underwriting, even on these first handful of deals we're executing, which you would expect to come in a little bit below. So rents are pretty much in line. Capital is higher and that's a comment we've made on prior calls as well. One thing I would note when you look at the -- our disclosure around the lease executions in the second -- or for first generation space in the supplemental, any deals that are signed for spec suites are burdened with 100% of the spec suite capital in those TI numbers, even though those tend to be almost by definition, some shorter-term deals and that capital is designed to be easily reusable for future tenants. So that's just one element I would note, as you think about some of the TI numbers you're seeing in the supplemental and we'll see on the spec suite deals going forward. Seth Bergey: That's helpful. And then maybe for a second one. I believe in your prepared remarks, you mentioned 1.9 million square feet of kind of '26 expirations that kind of need to be backfilled primarily kind of by new leasing activity. Can you just kind of quantify kind of what the tour activity you're seeing on those spaces and maybe kind of how it compares to last quarter or some way to benchmark it just kind of as you guys are seeing this recovery in demand? Angela Aman: Yes. Let me make a point of clarification, and then I'll turn it over to Rob. But 1.9 million was the 2026 lease expiration tower we were facing at the beginning of 2025. Over the course of the last 3 quarters and with some renewal signed subsequent to quarter end, we're now down to 970,000 square feet of remaining 2026 lease expiration. So we've substantially addressed that original tower. That's translated into about a 40% retention on the original 1.9 million square feet with additional vacancy or potential move-outs being addressed through disposition. So we've actually been very successful at addressing the original 1.9 million. I'd just say tour activity across the board and the pipeline across the board looks really very strong right now. And we mentioned specifically in San Francisco, a 170% increase in tour activity in our SOMA properties, in particular, where we do have vacancy. We're seeing really great momentum. But I'll let Rob comment on the broader pipeline and tour activity. A. Paratte: Yes. Seth, the only thing I'd add to what Angela has said is that it goes beyond the market we're talking about. And it's just that demand is across the board increasing of the 900,000 feet remaining. There's always a chance someone -- a lot of times things pop up at the end, where somebody wants to hold over, it could end up in short-term or it could end up in a longer-term lease. But as Angela said, I think we've harvested most of what we can get. That said, we have marketing and business plans put together for all that vacancy for the 900,000 that remains. And we're really positioning it early on to start leasing it and are in conversations on some of it already. Operator: Our next question comes from Anthony Paolone with JPMorgan. Anthony Paolone: I just want to go back to KOP and revisit the prior question a bit. Just a 2-parter there. One, at the rate -- at the rental rates you're achieving and what you're seeing out there? What would the yield be on your cost? And then the second part of that, the $1.25 billion. Remind me, is that fully loaded for tenant improvements, leasing commissions, prebuilts, all that? Angela Aman: Yes. I mean I'll make a couple of comments. We're 10% leased on this project right now, right? So we've got an 84,000 square foot lease on 875,000 square feet or thereabouts. So I think it's a little premature to talk to the total economics of the projects overall. I think as we continue to execute on this project and we demonstrate further progress on the leasing, it will be the right time to take a step back and talk about the overall economics of this project. But doing so on the first 3 leases that got executed is just a little bit premature. The numbers we have in the supplemental do reflect our original expectations as it related to capital. So at the right time, and again, as we get through additional leasing activity, we'll update as appropriate. Anthony Paolone: Okay. But -- so then, I mean, you mentioned the capital running a little bit ahead of plan rents kind of more or less in line. So does that mean it likely us to bump up a bit or still too early to tell? Angela Aman: It's still too early to tell. I think it's -- we'll continue to evaluate as we get additional leases signed and hope to have additional updates over the coming quarters. Operator: Our next question comes from Brendan Lynch with Barclays. Brendan Lynch: You've mentioned some of the components that will feed into this, but guidance calls for a 1% contraction year-over-year, but same-property NOI was up 1.4% year-to-date. Maybe just walk us through some of the considerations that we should keep an eye on in the fourth quarter? Jeffrey Kuehling: Yes. Thanks, Brendan. The big, I think, kind of bogey is just a difficult comp in the fourth quarter from last year. So we did recognize about $6.7 million of restoration fee income. So when you look at kind of the sequential decline, at least for the fourth quarter, you should see a pretty big run down or expect to see that. Brendan Lynch: Okay. That's helpful. And then maybe just -- you mentioned strength in all your markets. Maybe just hone in on Austin. It looked like you had a lot of leasing progress there at the Indeed Tower. Maybe any extra color that you can provide there and an update on the ground floor space that's available? A. Paratte: Sure, Brendan, and the ground floor space is exactly what I wanted to talk about, which is, I think, a really monumental accomplishment by our Austin team leasing what we call the post, which is a freestanding historic building on the project site. And we're not at liberty to disclose the tenant, but I'll say that they're a nationally recognized successful operator of food and beverage venues across the country and had many successful startups and built several chains through that entity. And this amenity, it's really an amenity, but it's not only an amenity for the building, it's suited for the tenants in the building, which we think is really going to improve the foot traffic and demand on the Sixth Street corridor, where we are, but it's also a really important amenity. It's big enough, meaningful enough that it's a big enough amenity for the overall Austin CBD. And all I can say is it's a complicated project. It took a long time. We have a multi-floor building that's historic that was in shell condition and will truly be special space. And I think all of us at Kilroy really look to our Austin team for having the perseverance and patience to go through that and execute it. And then what that leaves us with is our office space. And we continue -- again, I can't speak to the competition. I can only speak to what we see. And as Angela has said a couple of times, we're seeing a lot of activity on our spec suites oftentimes as they're under construction, they lease. So we're continuing on that program, and we don't have much contiguous space left for larger tenants, but we do have 2 floors that we're marketing. So we're really pleased with the activity we're seeing at Indeed Tower, and we think this post enhancement will also lead to increased activity. And I think long-term, just a great investment in that project. Operator: Our next question comes from John Kim with BMO. John Kim: I had a couple of questions on your leasing pipeline at KOP 2. If you could maybe provide some more color on how large that pipeline is today versus last quarter or the last time you provided an update. And how many of these tenants are growing within the South San Francisco market versus just upgrading space within the market or musical chairs? A. Paratte: John, it's Rob. I'd say our demand -- I mean, we've said this for maybe 3 quarters now that our demand has continued to increase, at least we've seen an uptick and continuous uptick in tour activity. Suffice to say what I said earlier that we're confident in the pipeline we have in the remainder of Q4 and the executions that Angela talked about. And I think that our momentum is strong enough that Q1 and Q2 well into the rest of the year is going to be quite strong. The project, I've said this on a couple of calls is attracting interest from across the Bay Area. So we have a very concerted focused marketing effort. The project can accommodate tech as well as life science. The bulk of our activity is in the life science space because it's purpose-built life science, but other entities are also interested in it. So I'm very confident in the pipeline we got. And then I'm sorry, the second part of your question was are they seeking... John Kim: If they're seeking additional space within the market? Or is it just upgrading the space? A. Paratte: It's both. It's leases expiring, plus they're seeking upgraded space. John Kim: Okay. On the 970,000 square feet of potential move-outs next year, can you provide color on why these tenants are not renewing their space? And just your ability to backfill that space next year either through leasing or extending the current leasing? Angela Aman: Yes. I mean, I guess, I'd go back to the comments I made earlier. When you think about the 1.9 million we started the year with and look at just what's been re-leased on a long-term basis within that pool, we've achieved a 40% retention rate or a little bit over 40%, which is a material improvement since any year through the pandemic. So actually, on a total retention basis, those numbers are very strong. And I think what you're saying is normal course activity in the portfolio in any year, even close to pre-pandemic level of retention. So it's just a combination of tenants with shifting needs. We mentioned one example in my script that was a tenant moving to owner-occupied space. There's been some of that activity in the portfolio, but it really does just run the gamut. And again, at a 40% or better than 40% retention rate, we think we're back to pretty historical levels of activity from a move-out perspective. Operator: Our next question comes from Upal Rana with KeyCorp. Upal Rana: I wanted to get your thoughts on your capital allocation strategy and priorities going forward, especially with the recent Maple Plaza acquisition and the expectation of getting the space back for next year? Eliott Trencher: Paul, it's Eliott. I mean, as we mentioned, we're looking at all different alternatives that are out there. So our general alternatives are anything from investing in an asset, be that an office asset or life sciences asset or buying back stock, and we just sort of evaluate the opportunities as they present themselves. Overall, we've been encouraged at the types of opportunities that are out there and we're fortunate enough to be successful in closing on Maple Plaza. But we'll see. We'll see what else comes out, but we're definitely spending time looking at all of the above. Angela Aman: Yes. And just to add to that, we're a net seller this year so far of about $200 million. We continue to evaluate what we think are a growing number of opportunities in the market. And then a point Eliott made earlier, which I just think is really important is that we do think we're in a really unique window of time here where fundamentals from a leasing perspective are getting better across all of our markets, and we're still early in institutional investor interest coming back to the market. We're seeing it happen across San Francisco, certainly, but really all of our West Coast markets. And that can change quickly and change the dynamic quickly in terms of what's actionable for us from an acquisition perspective, certainly helps us on the disposition side. So we'll continue to evaluate all opportunities and execute where we do feel like we're in a unique period of time where valuations are pretty compelling and compelling relative to other alternatives. Upal Rana: Okay. Great. That was helpful. And then as a follow-up, could you talk a little bit more about Flower Mart? And could you share any recent conversations you've had with the city on that project? You mentioned continuing GAAP interest there until June 2026, but any additional color there would be helpful. Angela Aman: Yes, sure. I'll take it, and we can certainly dig more into it, Justin's here as well to talk about it to the extent you have follow-up questions. But as I mentioned in my script, we submitted to the planning department recently, I believe, in early September, additional potential path forward for the Flower Mart that included a broader mix of commercial and residential uses. We're going through the exercise of the planning department to understand sort of what's achievable on the site and how that would lay out and what the ultimate path forward will look like from an execution perspective. So as I said earlier, we're pretty early days in those conversations, but everything to date has been constructive and encouraging. And I think we are aligned with the city in ensuring that whatever ultimately gets approved here meets the needs of the San Francisco community as it continues to evolve. Operator: Our next question comes from Caitlin Burrows with Goldman Sachs. Caitlin Burrows: I guess maybe just as a follow-up on the Flower Mart point. So it seems like over the, call it, year-to-date, the amount of activity that you've been able to continue doing has changed and your own expectations have changed. I guess, can you just go through like what those changes are and like the current expectation is for June 30? Like how much visibility do you have on that? Or is it kind of up to the city and that's causing the changes and kind of we'll see as it gets closer to June, if that changes again? Angela Aman: Thanks, Caitlin. As you might remember from prior calls, sort of the path we're taking here on the Flower Mart and what we're looking for in terms of additional flexibility and optionality that will help us maximize value on the site is unique relative to the way San Francisco has historically approved projects. So the time line and the path forward hasn't been completely clear, which is why we've tried to do the best job we can of being transparent with investors about what we know at different periods in time and then updating those expectations as appropriate. With us filing the additional proposals or additional potential paths for the Flower Mart with the planning department, in September, we have greater clarity on that process -- that step of the entitlement process and believe that will take us through the first half of 2026. As we continue to work through the process and get additional information, we'll update that assumption as appropriate. Caitlin Burrows: Okay. And then just maybe a minor point on the Silicon Valley sale. Could you guys give us more detail just on when that closed in September if it was the beginning of the month or the end of the month? Eliott Trencher: It would be very end of the month. Operator: Our next question comes from Michael Carroll with RBC. Michael Carroll: I wanted to quickly circle up on the Flower Mart. Are you able to have discussions with potential partners as you kind of reentitle that site if you're going to build resi and/or sell off certain sites? Or is it just too early to tell? You can't have those discussions because you just don't know what the city is going to be willing to give you yet? Angela Aman: Yes. I think it's a little too early, right? I think if you take a look and it's been reported in the press at our application to the planning department, you see a wide range of uses for different potential paths that include commercial, a full commercial program like we're currently entitled for a fully residential program, a mix of different uses on site as well. So I just think what we're looking for right now is making sure that we have all the flexibility and optionality with our existing entitlements and with the development agreement to execute on whichever one of those paths is ultimately going to maximize value for the site, but we need to get a little bit further through that process to better understand it, to continue to evaluate economics in the market as those shift and change as well to be able to really determine the best path forward. So stay tuned. We're continuing to work through it. I'm really pleased with the progress we've made to date, but we have some significant work still to do. Michael Carroll: Okay. That's helpful. And then just related to the other land sales that you kind of mentioned in your prepared remarks, are these really going to be focused on the parcels that have kind of been preannounced? Or are there other potential sales that could be announced that's new that we haven't heard about yet. I mean, I guess, are these like kind of the near-term type events? Or are these going to be a longer-term multiple year process to kind of wind down that land book? Eliott Trencher: Yes. I think to get to the $150 million, those are things that are actively being worked on right now. So I think that, that should be more near than long-term. And we've really focused our efforts on where we thought there were actionable items within the land bank. And so as markets continue to recover, I think that the opportunity set can really broaden, but we've tried to take it in phases and the $150 million is kind of that first phase, and then we'll reassess as to what the right next thing is to do with what remains. Angela Aman: Yes. But just to be clear, the $150 million includes both what has already been announced and some expectation of things that haven't been announced quite yet. I mentioned in my remarks, we hope to have additional announcements to get up to that $150 million number over the coming quarters. So as Eliott said, pretty near-term. Stay tuned. Operator: Our next question comes from Omo Okusanya with Deutsche Bank. Omotayo Okusanya: Just a quick one around just some of the quarterly numbers. Eliott, could you again just walk us through the straight-line bad debt reversal exactly what that was? And also what drove the fairly large increase in tenant reimbursements quarter-over-quarter? Jeffrey Kuehling: Tayo, it's Jeffrey. Straight-line bad debt, it's just a function related to a tenant moving from cash to accrual. So we had to unwind the previous adjustment we made in the prior period. From the reimbursement income from our perspective, we look at it from a net number. So we'll take into consideration operating expenses, real estate taxes. And when we look sequentially Q2 to Q3, it's about a $1.5 million change. So it's not a huge driver quarter-over-quarter. Omotayo Okusanya: Got you. Okay. That's helpful. And then on the whole slide in regards to just potential office demand from AI. And Angela, you kind of made a couple of comments earlier on. But I guess from our end, like how does one really kind of think through how large of an opportunity that is for KRC. I mean, could we kind of see some AI companies in some of the KOP Phase II cards? Like how do you kind of help us kind of think through that a little bit more about kind of new -- kind of new leasing that would come from that driver? Angela Aman: Yes. I mean I think if you look at -- and I mentioned the total requirements in market in the city of San Francisco right now being about 9 million square feet, which is a dramatic increase relative to even just last quarter, and we were totaling and had been covering around 7 million square feet for quite a while. A big driver of that is AI-related companies. I think it's probably over 30% of tenants in market at this point are AI or AI related. And we've definitely seen that be a driver of leasing activity across our portfolio. It wasn't interestingly a huge driver of leasing activity in our San Francisco portfolio in Q3, but we had just broad-based demand from a wide range of users. So that's definitely come back in the San Francisco market as well. But certainly, even in Q2, where we signed the 93,000 square foot lease with Harvey AI, it has been a driver of activity, particularly in our SOMA portfolio and we would expect that to continue. As I mentioned earlier, we've worked really hard to understand what those tenants need from landlords and how we can really hit that demand and that need and a lot of it has been from -- a lot of it has been from understanding their need for very near-term occupancy. And so getting tenants into space as quickly as possible, we're using existing improvements as we did in the case of Harvey AI building out spec suites trying to get in front of some of that demand, all those things are really impactful in our ability to capture an outsized share of AI demand going forward. As it relates to KOP and other projects in the portfolio, including other markets like Bellevue and South Lake Union, we're seeing demand from AI tenants across the board. We definitely executed some on the AI side in the Pacific Northwest. We've seen some of that demand at KOP, and we'll continue to work through and find ways that we can continue to capture that demand while also ensuring that our tenant profile overall remains broad-based and reflects a wide range of potential uses that will help us continue to maximize cash flow durability and growth over time. Operator: Our next question comes from Dylan Burzinski with Green Street Advisors. Dylan Burzinski: Eliott, just going back to your comments around sort of the capital markets and transaction environment improving in terms of owners bringing their -- being more comfortable bringing their properties to market. Are you seeing more of these types of assets that are being brought to market, more similar in risk profile to Maple Plaza or are you seeing more stabilized core deals coming to market. I guess just as you guys are evaluating these opportunities, given the existing level of vacancy in the market, are you guys more focused on maybe more stabilized type transactions? Or is it really a project level of risk-reward analysis that you guys are doing? Eliott Trencher: Yes. So we're really seeing all of the above, and we've seen core deals, core plus value-add and then heavy repositioning opportunities. And I think that speaks to just the overall trends. As far as where we try to spend our time, it's more bottoms up than top down. And we're looking at the dynamics of that particular asset in that particular submarket and then how it relates to other risks that are already existing in the portfolio. And so we want to make sure that we're smart and thoughtful about the kind of risk that we're taking and not necessarily doubling down on existing opportunities that already exist with vacancy that we had elsewhere in the portfolio. So in the instance of Maple, we were not in that submarket, but we spent a lot of time studying it and getting comfortable with the leasing trends, and we thought we could underwrite it in a way that give us enough runway to be able to execute on a lease-up plan. And so far, we feel encouraged by what we see. Angela Aman: Yes, I'd just add to that. I think our cost of capital has improved on both the debt and equity side over the last 3 to 6 months, which we're encouraged by. But we're still trading at a discounted cost of capital. And as a result, we're probably not the best buyer for truly core stabilized properties. We need to find opportunities where all of the core competencies on the Kilroy platform can be brought to bear to really drive value and create value through those acquisitions. I think we found that in the case of Maple Plaza, and that's how we're continuing to think through and look at opportunities across the board. Operator: Our next question is a follow-up from Caitlin Burrows with Goldman Sachs. Caitlin Burrows: I feel we've talked a lot about the leasing volume, but not as much on the pricing side. So it looks like the leasing spreads you guys report did get better in the third quarter. I guess as you guys look out to 2026, do you have an idea of, if you think like the year-to-date results or the 3Q results would be more telling of what could happen in the future? Any comments on what you expect on like the pricing side? Angela Aman: Yes. I think it's a really good question, Caitlin. I think it's a little bit difficult to answer when you think about how we report our spreads. There's no cutoff in terms of how long a space has been vacant. We're showing you basically a complete population. So it's really going to depend on where the new leasing activity happens across the portfolio in 2026. From a market-by-market perspective, we have markets where we believe we're below market and where leasing in those markets are going to result in pretty positive spread dynamics. And then markets, including the city of San Francisco, where we're probably still reporting a role -- a step down in rents as we re-lease space. I think the most important thing to consider about San Francisco and the overall dynamics in that market, is that obviously, as we all know, that's a market that really was challenging, very challenging. Even 12 months ago, still a lot of vacancy in the market that's starting to be addressed. We're getting more stability on the occupancy side. You're seeing it through new leasing activity. And as Rob mentioned earlier, sublease space coming off the market. So occupancy is starting to stabilize, starting to firm up a little and then starting to move in the right direction. As occupancy moves in the direction, there will be inherently more pricing power in the market. So I think we're at the -- I think all the pieces are in place, including that growing demand picture for things to continue to get better in San Francisco. The leases signed over the next year, probably on average in that market are going to be negative re-leasing spreads. Operator: We have no further questions, and so this concludes our call. Thank you all for your participation. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Hubbell Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Innamorato, VP of Investor Relations. Please go ahead. Daniel Innamorato: Great. Thanks, operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the third quarter. The press release and slides are posted to the Investors section of our website at hubbell.com. I'm joined today by our Chairman, President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note our comments this morning may include statements related to the expected future results of our company. These are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Please note the discussion of forward-looking statements in our press release and considered incorporated by reference into this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures, which are included in the press release and slides. Now let me turn the call over to Gerben. Gerben Bakker: Great. Good morning, and thank you for joining us to discuss Hubbell's Third Quarter 2025 results. Hubbell delivered double-digit adjusted earnings growth in the third quarter, driven by strong high single-digit organic growth in Electrical Solutions and Grid Infrastructure as well as a lower year-on-year tax rate. In Utility Solutions, T&D markets remain strong as utility customers invest to interconnect new sources of load and generation on the grid, while aging infrastructure continues to drive solid hardening and resiliency activity. Our Grid Infrastructure businesses achieved high single-digit organic growth in the quarter. While the pace of inflection in Grid Infrastructure growth was steadier than we anticipated in our July outlook, markets and order activity are strong, and we anticipate further improvement in year-over-year organic growth in the fourth quarter. While Grid Automation sales declined 18% in the third quarter on large project roll-offs, we anticipate these headwinds to fade in the fourth quarter as the business returns to more normalized comparisons. In Electrical Solutions, we delivered high single-digit organic growth with continued margin expansion and double-digit adjusted operating profit growth. Our segment unification efforts and strategy to compete collectively are driving outgrowth in key vertical markets, most notably in data center, where new product introduction and capacity additions contributed to strong performance in the third quarter with visibility to continued strength in the fourth quarter. We continue to simplify our HES segment to drive productivity and operating efficiencies, which we are confident will drive long-term margin expansion. Turning back to overall Hubbell. While cost inflation accelerated from the first half as anticipated, our pricing and productivity actions have been successful in more than offsetting these costs. Our strong positions in attractive markets and our execution in proactively managing our cost structure drove positive price/cost productivity in the third quarter and positions us well to drive continued profitable growth going forward. We are raising our full year 2025 outlook this morning. Operationally, we anticipate the impact of lower organic growth to be fully offset by stronger margin performance, while a lower full year tax rate drives higher adjusted earnings per share relative to our prior outlook. As we look ahead to 2026, we anticipate a year of strong broad-based organic growth across the portfolio. Hubbell is uniquely positioned at the intersection of grid modernization and electrification, and we have driven strong performance over the last 5 years. As these megatrends accelerate and we exit 2025 with recent supply chain normalization dynamics behind us, we are confident in our ability to deliver continued strong performance in '26 and beyond. Now turning to Slide 5. We announced at the beginning of October, the closing of our acquisition of DMC Power. We are very excited to add DMC to Hubbell's portfolio as the business is highly complementary to our utility connector product offerings and provides a unique technical solution in high-growth substation markets. Hubbell has been very successful in our acquisition playbook in utilizing our industry-leading sales force and portfolio breadth to drive penetration of new solutions across our customer base, and we are confident that we can accelerate DMC's strong growth trajectory further over the long term. This acquisition is a continuation of our capital allocation strategy to acquire high-growth, high-margin businesses in attractive markets with strong strategic fit and product differentiation. We anticipate the acquisition of DMC will contribute approximately $0.20 of adjusted earnings per share accretion in 2026. Before I turn the call over to Bill, I want to highlight our recent announcement of Bill's upcoming retirement as CFO at the end of this year. Bill's contributions to Hubbell have been immeasurable over his 18-year career with the company, but let me highlight a few statistics that put his impact into perspective. He led 68 quarterly earnings calls, including more than 50 as CFO. He led the acquisition of 50 companies, averring a double-digit ROIC for our shareholders. And most prominently, under Bill's tenure, Hubbell has more than doubled sales, improved OP margins from low teens to over 20% and increased our market cap from less than $3 billion to $23 billion. In short, Bill's strategic and financial leadership have helped shape Hubbell in the company it is today. He is valued and respected by our employees, customers and shareholders alike. And on a more personal note, Bill has been a trusted partner to me and our entire leadership team. Thank you for your distinguished service to Hubbell, Bill, and we wish you all the best in a well-earned retirement. One of Bill's many strength was developing a strong bench of finance talent at Hubbell, and I am pleased to have announced Joe Capozzoli as Bill's successor. Joe has held a wide range of leadership positions across Hubbell and the finance organizations over his 12 years and most recently has been the CFO of our Electrical Solutions segment, where he has worked as a close business partner to our segment President, Mark Mikes, in implementing our strategy to transform HES as a unified operating segment. You can see the success of Joe's leadership in that role through the strong growth and margin expansion of HES over the last few years. Joe and I have worked closely together over our careers, and I am confident in a seamless transition and in Joe's ability to drive further value for all of our key stakeholders in his new role as CFO starting in 2026. With that, let me turn the call over to Bill to provide some additional details on our financial results. William Sperry: Good morning, everybody. Thanks for joining, and thank you, Gerben, for those remarks. I'm especially appreciative of the partnership you've offered me over my 18 years. And I think particularly the past 5 have been really special to me. And Joe, I congratulate. I recruited him about 15 years ago, worked super closely with them. We've given him a variety of roles, as Gerben has noted, incorporate in the field, inside of finance, operations and shared services. And I think you're going to find he's really well prepared to be our CFO, and I think will be a great partner to Gerben, and I'm sure a great communicator to our shareholders. So I'm going to use the slides that you found. I'm starting on Page 5, the third quarter results. You see sales up 4% to about $1.5 billion. OP similarly up 4% to $358 million. Adjusted diluted EPS up 12% and free cash flow up 34%. Let's go through each of those measures individually. So starting with sales. Those results show really strong performance across the entire Electrical segment and the Grid Infrastructure unit within our Utility segment. Those 2 areas, Electrical and Grid Infrastructure grew collectively at around high single digits, where the Grid automation component of Utility segment contracted and created about a 4% drag to the overall growth. What's important about that, as we look forward, we can see that the year-over-year compare for Grid Automation will start to flatten and that drag of 3 or 4 points will start to ebb away, as Gerben said, fade. So the combination of growth in the Electrical segment, growth in Grid Infrastructure plus the flattening of Grid Automation is a good driver of Q4 and ultimately a good setup for 2026. The second column there is operating profit, 4% growth to $358 million, margins roughly comparable with effective price pulling offsetting combination of tariffs and a higher level of restructuring spending, which we feel is really important to continue to drive productivity and to keep pushing margins up into the future. The earnings per share in the third column, up 12% more than the growth rate in operating profit, and that's driven by tailwinds below the OP line. Specifically, we had share repurchases in the first half of the year totaling about $225 million, that's helping lift EPS. And we had a lower tax rate as there was an international acquisition that gave us the opportunity for a tax-friendly restructuring and helped us drive the rate down. So helping push EPS up. And the fourth is free cash flow, up 34%, $254 million, most importantly, in line to deliver our 90% of net income to the full year, which continues to replenish the balance sheet. So Gerben commented on the DMC acquisition. And even after that, $825 million investment, our balance sheet is still poised for investment. And so very good to see us be able to absorb an acquisition of that size and just take that in stride. So now let's unpack the performance by segment. And on Page 6, we'll start with the Utility segment results. See sales up 1% to $944 million. OP roughly comparable in dollars to $242 million. Back to sales, you see the Grid Infrastructure unit, which accounts for about 3/4 of the segment, grew high single digits. And I think the good news about that strength is that it was broad across all of the end markets. So transmission was double digit, seeing strength driven by load growth and grid interconnections. Substation was up mid- to high single digit. Distribution up double digit with grid hardening and resiliency initiatives. And that's a good sign. That's representing acceleration as we move past a period of inventory normalization in distribution area. And lastly, Telecom and Enclosures returned to growth in the third quarter. I think you'll remember that had been dragging on us through an overstock situation there. So third quarter experiencing good breadth of sales strength in Utility and Grid Infrastructure. I think as we look to the fourth quarter in that area, we've got very good visibility to stronger growth rates in the fourth quarter. That's really being driven by the order book, which has really accelerated over the past 2 months in September and October, really releasing some pent-up spending and I think is a good sign for 4Q and beyond. Grid Automation, continuing the trend from the last several quarters, down double digits, driven by project roll-offs that aren't being backfilled with new projects, and that's being partially offset by growth in grid protection and control products. I think what's important here about the Grid Automation is, we're really coming up to the point where we've had 4 quarters in a row now sequentially bouncing around between about $230 million to $240 million of quarterly sales. And so that started in the fourth quarter of 2024. So as we get to the fourth quarter of 2025, we're going to start to see that sequential flatness turn into year-over-year flatness and really remove the drag on this segment that we've been experiencing. So good news there just around the corner. On the OP side, dollars roughly comparable. Pricing and cost management created a nice tailwind, but offset largely with higher levels of restructuring spend and decrementals from the Grid Automation side. Page 7, let's switch to the Electrical segment. And you'll see Electrical segment continuing a string of strong performance here over the last several quarters. So you see double-digit sales growth of 10% and 17% OP growth with about 140 basis points of margin expansion. Returning to those sales, you'll see 8% organic fundamentally across the end markets, that lift is coming from 2 of those markets. One is data centers where we're selling connectors and grounding balance of system products as well as modular power distribution skid solutions, very strong growth there. Also very strong growth from the light industrial segment, where we see connectors being sold into industrial applications, providing the lift there. That's where our Burndy brand is. Continuing through the markets, heavy industrial, a little bit mixed in the quarter and nonres remaining soft as it has been for the past few quarters. So basically, by market there, you see about 8% growth. But beyond market growth, we feel good that we're pushing for both organic and inorganic growth here. So we've effectively realigned the sales force. We have a more geographic bent now, which creates some efficiency, and we're complementing that with some vertical market specialists, which creates some effectiveness, and we're very happy about how that's working for us. New product development, which Gerben had mentioned, we continue to expand the franchise organically through those measures. And on the inorganic side, we've been successfully operating an acquisition since the first quarter of '25 and Ventev provides solutions that power, protect and connect wireless networks. So Electrical really doing both organic and inorganic measures here. On the OP side, the 140 basis point of margin expansion coming through volume growth, price/cost management and productivity initiatives to drive efficiency, as Gerben described, both Joe and Mark Mikes and their team putting in initiatives to compete collectively as a segment. So really nice job turned in by Electrical Solutions segment, a continuing multiyear story there, driving margins up. Let's pivot from describing the third quarter to looking forward on Page 8. And you'll see that we've adjusted our EPS guidance upward for the year as well as narrowing the range. So we had a $0.50 range from $17.65 to $18.15. We now have a $0.20 range from $18.10 to $18.30. That's a midpoint movement from $17.90 to $18.20 or a $0.30 increase, and we're essentially passing through a lower expected tax rate for 2025. And that really implies that operationally for us, the third quarter was in line with what we needed to hit the full year target. We're getting there with a little more weight to Electrical versus Utility, and we're getting there with a little bit more weight to margin and sales versus what we had originally expected. But this outlook now can be summarized in that 3% to 4% organic growth, OP margins expanding in the 50 to 100 basis point range, good pricing, good productivity initiatives. The DMC acquisition, which Gerben highlighted, we're anticipating being neutral to earnings in Q4 as we set it up to contribute $0.20 next year. And we've got the free cash flow driving towards 90% adjusted income conversion. It may be instructive to comment on Q4 and talk about the Q4 that's needed to deliver this full year guide. It's a little bit stronger than normal seasonality. And I just want to take a second to describe why we're confident and have the visibility in that. So the fourth quarter would imply 8% to 10% organic growth with contributions from both segments. And if you think about the step-up in growth if we walk sequentially, you can see -- we talked about the absence of the Grid Automation headwinds that adds substantially. We've got incremental price in the fourth quarter, and we see strong visibility to data center projects, new capacity inside of our Burndy business from some investments we've made in automation there and very substantial pickup in September and October in the transmission and distribution orders of the Utility segment. So we see that -- we've got visibility to that, and we see margin expansion in both segments in the quarter. And so that's leading to our ability to maintain that original guide with the pass-through of the taxes creating a $0.30 increase. So with that, I'll pass it back to Gerben and ask him to pull back the lens from this quarterly focus to a longer-term view of our Utility franchise. Gerben Bakker: Okay. Great. Before we give our preliminary thoughts on 2026, we thought it would be instructive to set the stage by taking a closer look at the performance of our Utility segment over the last 5 years and how that sets us up looking ahead to 2026 and over the next several years. And this is on Page 9. While there is a lot of information on the page, let me highlight a few key points. First, while supply chain dynamics have impacted the various pockets of our segment over the last few years, we have executed well through these dynamics, and they will be fully normalized exiting 2025. Second, the strong growth and margin expansion we have delivered has been driven by our large, high-growth and margin businesses. Most notably, T&D infrastructure has grown at double-digit CAGR over the last 5 years, underpinned by our strong portfolio, position and secular megatrends and proactive price/cost management. While our meters and AMI performance has been more modest, we are confident that we have repositioned this business with the appropriate cost structure and a more focused strategy to deliver growth at improving margin levels moving forward. Third, our M&A and capital allocation strategy has been effective in driving outgrowth while expanding our leading Utility positions, most notably in Substation automation with the acquisition of Systems Control as well as the attractive area of grid protection and controls. And finally, as we look back at the last several years of performance as a whole, HUS has delivered organic growth in line with strong utility CapEx budgets, which are set to accelerate further over the next several years as customers increase their investment budgets to meet the demands of grid hardening, load growth and data center interconnections. We are confident that our strong position in these attractive markets will enable our Utility Solutions segment to meet or exceed our long-term targets for mid-single-digit organic growth moving forward. Now turning to Page 10. I'd like to provide some preliminary views on our end markets for the next year before providing a more comprehensive full year outlook in the next few months. In Utility Solutions, we have high visibility to robust project pipeline supporting continued strength in substation and transmission markets, while ongoing hardening and resiliency activity support continued momentum in distribution markets and modernization initiatives support strong growth in grid protection and controls. In our smaller end markets, we anticipate a return to growth in meters and AMI as well as telecom. In Electrical Solutions, we expect data center, light industrial and T&D markets to remain strong, while macroeconomic uncertainty drives a more modest preliminary growth outlook in areas of the portfolio such as nonresidential construction, heavy industrial and renewables. We are confident that our strategy to compete collectively in HES will continue to drive above-market growth and long-term margin expansion. Overall, we see an attractive end market environment, which we believe will enable us to deliver organic growth in line with our long-term targets. And we are confident that accelerating megatrends impacting the largest high-margin areas of our portfolio will underpin strong performance in 2026 and beyond. With that, let me turn the call over to Q&A. Operator: [Operator Instructions] Our first question comes from the line of Jeffrey Sprague from Vertical Research. Jeffrey Sprague: Bill, thanks for everything over the years and best of luck. Hopefully, we'll see you around. And then just kind of appreciate on 2026, maybe you don't want to kind of get over your skis given how frustrating this utility guide has been this year. But I just want to sort of interrogate a little bit Q3 versus Q4 in utility and think about what that exit rate really means for 2026. I think there's a little bit of debate about what is normal seasonality. But one could certainly make a case on simple arithmetic that this exit rate for utility would actually point to maybe double-digit utility growth in 2026. So I just want to get your thoughts on that. Again, I understand you don't want to get ahead of your skis here, but maybe how unusual is Q4? Did stuff that you expected to happen in Q3 slip into Q4, and therefore, we need to be a little judicious about thinking about this exit rate. William Sperry: Yes. I think you hit on several important points in that question, Jeff, which we would agree with. And thank you for the well wishes, by the way. But I do think that there's a chance you could see a very strong year. I think -- we think, as you say, it's prudent for us to plan our resources around that sort of long-term guidance that we've had. Fourth quarter has got some easy compares and you point out seasonality as a point of debate, which usually we have a head and shoulders construction where the fourth quarter is a little bit lower. And we still probably have that, but your year-over-year with some easy comps help really boost that. So I think you start looking at the sequentials and then apply seasonality to '26 and you start to feel that setup is pretty good. So we share your confidence. We think it's prudent to, as you say, not get over the skis. Gerben Bakker: Maybe one thing to add -- yes, maybe the one thing, and we're certainly looking at those exit rates as well with the businesses and to see what this could be. And I think, Bill, you said it well, maybe going into the year and a little bit to your point of the frustration this year is that we'll take a more conservative approach going into next year and really making sure that our cost is aligned to that lower volume. And then if we do see the upside, and I think, Bill, you're correct that, that upside could likely happen, we'll benefit from it, so... Jeffrey Sprague: Could you elaborate a little bit more on the September, October order strength? And also just thinking about the up arrows here on this slide for telecom and meters specifically. Obviously, these have been nagging issues and problems all through 2025, some of it's comps, but still sort of an issue of can those businesses grow? Why will they grow? Should they grow? Just the confidence to put up arrows on those into 2026? William Sperry: If we started with telecom, again, it's a function of sequential math where we got flat for more than 4 quarters. And so the growth comes, but certainly, Jeff, off of a lower level, right? And that's just -- that's already sort of happened, and we see demand there and orders in line to support that. I think with meters and AMI, it's not dissimilar. We've seen 4-ish quarters of contraction and building a franchise that's maybe to led off some of the larger public utility projects and kind of getting down to a size that is based on stronger MRO base as well as some good repeatable business inside of the muni and co-op segments. So I think that's -- and you will note the color there of yellow maybe suggests some of it's -- it's an up arrow, but let's call it modest, Jeff. And then the September, October order strength, I think the best thing to say about it is it's very broad-based inside of the T&D world really across all of the products. So I don't know, Gerben, if you have anything to add. Gerben Bakker: Yes. And I would say this was the inflection we were expecting to happen and perhaps a little bit later. And if we think back and with some of the discussions with our customers, certainly with the tariff environment and there have been some pretty significant ongoing tariff increase and price increases over the summer. These customers are working within their budgets and assessing what this all means for their budgets. And I think that perhaps influenced a little bit. But it's very hard to call exactly in timing to a specific month or quarter. But the good news is we're seeing it come up. And I would say this is what we've been waiting and expecting to happen. Jeffrey Sprague: I'm sorry, just one quick one. Is this tax rate sustainable into '26? William Sperry: Yes, it's driven by an international acquisition restructuring. So I'd say it's project-driven, Jeff, and we're anticipating tax rate normalizing next year. Operator: Our next question comes from the line of Tommy Moll from Stephens. Thomas Moll: I want to make sure I'm hearing you here on the pace of recovery for Utility. Is it a fair characterization that in reducing the organic guidance for this year, the revenue guidance, it was entirely within the Utility segment, but that the shape of the recovery is as expected, the timing has shifted. William Sperry: I would say both your points are accurate, yes. Thomas Moll: Okay. And that would be true as well of the distribution piece of that business? Daniel Innamorato: Yes. I think we saw a good inflection in distribution in the third quarter, Tommy, but I think that's a similar comment as well. Thomas Moll: And I'll move to a housekeeping type item here. On your early commentary for 2026, which is appreciated as always, you indicated the organic growth is in line with long-term targets. We've heard from you before on the sales piece of that 4% to 6%. Have you commented explicitly on what your organic earnings algorithm is? I know you've communicated a double-digit pace, but I think that includes some acquisitions. And so if there's anything you could do to tighten it up, that would help. William Sperry: What we've talked about is 4% to 6% from the top line. We've talked about incrementals in the 25-ish to 30% range that gets you alone into high single digits. And then we're talking about buttressing that inorganically, Tommy. So that's kind of mathematically how we build to double digits for kind of mid-cycle sustainable earnings growth. Operator: Our next question comes from the line of Steve Tusa from JPMorgan Chase & Company. C. Stephen Tusa: I'm not a big management tire pumper here, but thanks a lot for all the interactions over the years, Bill. And I think you're not only a really good and honest CFO, but a great guy. So it's been a pleasure working with you and hopefully see you around the golf course in the future. William Sperry: Thank you, Steve. Likewise, back at you. C. Stephen Tusa: So just on the quarter pricing, what was -- what's kind of the breakout by the 2 segments? William Sperry: Yes. We were talking about pricing for the year being in the 3-point range and the quarter was in line with that. And I'd say, reasonably balanced between the segments, Steve. C. Stephen Tusa: Okay. And then any -- can we just talk about the puts and takes on the margins for next year? Anything moving around on the PCP front for next year? William Sperry: Yes. I mean I think I'd rather wait and let my esteemed colleague, Joe, give you those guidances in our January call. But I do think if you take the long-term setup that we're referring to, which goes back to Investor Day, the incrementals that we cite are below what I would call maybe harvesting incrementals. And that implies that we would anticipate continuing to make investments along the way. As you know, there's a little bit of wraparound price embedded, and we could -- we'll talk through all that in detail in January, but that's kind of how that long-term framework really plays out. Gerben Bakker: And maybe the only thing to add is, we certainly will continue to manage the price/cost productivity equation to net neutral or better. C. Stephen Tusa: All right. And then, Jeff had like, I think, 3.5 questions. So I'll just do 3. The -- I guess just on this drag from the meters and the other kind of infrastructure, more infrastructure-type businesses. How much visibility do you think you have on that bottoming? And do you just get the sense that some of your businesses are getting like crowded out from an investment perspective with such a significant focus from the utilities on P&G as opposed to the D side of the equation? Gerben Bakker: Yes. So the first question -- remind me, sorry, Steve, I was thinking about the second... C. Stephen Tusa: I did. I snuck in 3.5, maybe 4. But the first one is just how much visibility do you have on this Aclara and Grid Infrastructure drag? Like how confident are you... Gerben Bakker: Yes. I would -- Yes. Thanks, Steve. I would say it's generally longer dated than our -- certainly our distribution side of the business. But it's -- after these big project roll-off, this business now has more of a component of MRO, and we see future projects actually being less lumpy. We're refocusing this business on more of the public power. Those projects tend to be smaller, and they tend to be implemented over a longer period of time as well. So I would say what was much longer visibility is now much smaller. But I think it's also going to be more predictable for that business. And certainly, distribution is still going to be very good growth. William Sperry: Yes, the crowding out point, I think, is one we debate a lot, Steve. And I think, Gerben, the way he was asking is a heavy amount of T&S spending going to for -- by definition, drive D kind of down a little bit. And we've seen a very healthy D. And even though there's some logic and there's a fixed number of dollars, it just feels like there's going to be growth across those 3 markets. Gerben Bakker: And maybe the one thing to add, if it did drag it out -- and we saw the upside in substations at which we will. We're a little bit agnostic. We're a very strong position in all 3 of those markets. I would say equally strong position, so if $1 -- an additional $1 goes to substation and transmission, that just delays the investments that need to be made in distribution. So we'll probably extend that cycle of investment that will benefit. So we see our position to benefit equally if some of that happens and it could. Operator: Our next question comes from the line of Chris Snyder from Morgan Stanley. Christopher Snyder: I just wanted to follow up on, I guess, the softer back half utility organic growth. I guess, maybe relative to 3 months ago, is this like a function of Aclara maybe softening a little bit versus that Q2 kind of expectation? Is distribution turning just maybe not as sharp as previously expected? I guess just kind of what specifically is kind of causing the utility back half to come in below? William Sperry: Yes, Chris, it's not Aclara. Aclara has been kind of as expected. There is just a little less from the T&D side. Now we say that and it's growing 8%, right? It's not like that's a low growth rate, but we were expecting kind of this sharper snapback that the September and October orders are suggesting. And so I think Gerben described it as a more steady improvement rather than maybe that third quarter snapback, but I think we're going to see a little snap in the fourth quarter here. So it's within T&D, just, I'd say, 90 days delayed, Chris, is really what I would say. Christopher Snyder: I appreciate that. And then, I mean, it seems like the full year guide kind of calls for pricing to exit maybe in like the 5% range versus, I think you guys said 3% in Q3. So I guess, is that right? And then just any commentary you would have on price realization? Any pushback on price in the market? Any elasticity you're seeing tied to that? William Sperry: Yes, let's start with kind of the timing of pricing, and we've recognized tariff costs increasing throughout the year. And similarly, pricing to match that has increased throughout the year. So I think you're right to say if we end the year in the ballpark of 3% you do a little bit better in the fourth quarter. And then I think some of that would wraparound. In terms of stickiness, I think the stickiness has been quite good. In terms of pushback, I'll maybe ask Gerben to comment, but I would say, so far, we're talking about very constructive discussions with our channel partners, very constructive discussions with our end market partners. And -- but I don't know, Gerben, if you had anything to say on stickiness and/or... Gerben Bakker: Yes. Yes. No, I'd say our price realization has been quite strong this year. And I'd say not much different from what it has been the last couple of years. And if you remember, our -- certainly are in the market -- some of the markets that we operate in, the demand is pretty strong if you look at utility and data centers. The other thing to remember, we're generally a small part of the total cost of systems we go in, but critical in the use. So usually quality, service, availability is the leading conversations and questions with strong specified positions in many of the markets that we deal in. So that all works in our favor for why you would have strong stake right now. The conversations have been more frequent, I would say, as some of these tariffs came through. But a big part of that was just helping our customers understand where some of these costs were coming from, how this affected our product line, what we're doing about it to partially offset it. And I would say that combination of those 2 things has caused us to have pretty good stake rates here. Operator: Our next question comes from the line of Joe O'Dea from Wells Fargo. Joseph O'Dea: Can you just touch a little bit on behind-the-meter infrastructure investments and what that means from a content perspective for you on both the Utility and the Electrical side, how that would compare to an alternative of in front of the meter? Any perspective on sort of dollars per megawatt in a data center and how to think about that from the different kind of angles of investment? Gerben Bakker: You're talking about data center investment, Joe, or... Joseph O'Dea: Specifically data center investment, but whether that's being supported from kind of behind the meter or in front of the meter and how to think about what it might mean for differences in your content opportunity? Gerben Bakker: Yes. I would say probably immediately on the data center, it's directly more on the electrical side with some of the Burndy businesses, with the grounding system, I mean, tremendously strong position with some of our electrical connectors that are going into the data centers. As a matter of fact, a lot of NPD that we're doing to continue to support data centers with higher amperages that are going through it as well as our PCX business. So I would say there, we feel the direct impact of it. But I think what you're pointing out, which is clearly a benefit for us as well on the Utility side of how do we support the data centers with the power that they need. And that comes in various forms. I would say the primary way that a data center wants to be served, it served by utility companies for that power. And there's a lot of investment going in there, not just in new generation, but in how you can connect -- interconnect the grid better to provide that load. But then also, we have very strong relationship with the independent power producers, the EPCs. So in some cases, you see data centers maybe looking in the short term to fulfill some of that generation more directly. And I'd say we would benefit from that as well when you interconnect these data centers to -- with substations and with the short lines that you would need to bring into the data centers as well. So I think our position is good to benefit from this. But I would say generally, a data center would have a preference to have utilities provide that power. William Sperry: And I think, Joe, maybe one of the things you're pointing out when we talk explicitly about our data center exposure, we are talking about that behind-the-meter piece. And I think you're pointing out that in front of the meter, there's quite a bit driving growth that doesn't exactly -- we don't call that data center because it's going into our utility customer. But I agree with you, there's a driver there, too, for sure. Joseph O'Dea: Right. No, exactly. Just trying to understand kind of those different phases of investment and opportunities and appreciating the direct kind of data center exposure within Electrical that you're reporting. And then just thinking about the Grid Automation piece, where that sort of CAGR has been relative to target over the past couple of years and trying to think through like any perspective that you can add on meters and AMI, maybe sort of growth not performing to what those targets would be, but whether there's broader value within the portfolio that maybe is underappreciated. And so is there synergy value that, that business is bringing that remains attractive to you? Gerben Bakker: Yes, I would say the short answer to that is yes. And you're right to point out that the financial performance of it has been below our expectations. Now we've not set still on that, and we've pivoted that business to where we believe we can compete, we can win and we can get a margin that's more closely in line with the rest of our portfolio. But yes, it's actually one of the strategic reasons we acquired that business in 2018 when we assessed our portfolio and we have a tremendously strong position in the component side, and that continues today. That continues to be needed for it tomorrow. But as we saw the grid modernizing, we really didn't have the right resources or portfolio to do that. And so we acquired Aclara in it. And initially, it was just Aclara. Today, it's Grid Automation. So half of the revenues of this business today is not Aclara for products that we've since acquired, that we have developed and that are growing at the high end of our portfolio growth. So I would say it's absolutely contributed to the whole of Grid Automation, but we're also focused as we are in the rest of our portfolio that the individual businesses have to perform and contribute to the whole, and that's where our focus right now is with Aclara. Operator: Our next question comes from the line of Julian Mitchell from Barclays. Julian Mitchell: And I wish you all the best, Bill. Thank you for the help and congratulations to Joe. Maybe just my first question would be around operating margins. Just wanted to try and understand, as we think about next year, I understand there'll be more flavor or color in 3 months' time. But if there was anything to highlight in terms of the effect from restructuring costs not repeating or higher savings, any kind of carryover to margin effects next year from self-help measures this year? And whether there would be any effect on the year-on-year margin progression from the accounting change earlier this year. Just to see if you could flesh out a little bit the comments around incrementals next year. William Sperry: Yes. I think restructuring, Julian, we've tried to put it into this virtuous cycle where we spend roughly the same amount every year. Maybe it bumps around a little bit quarter-by-quarter. But then you don't notice it annually in terms of the margins. And we continue to believe that restructuring program is important in driving future productivity. We might call that productivity with a capital P, lots of smaller productivity initiatives with a lower case P, obviously. And so I think that part is something we hope not to whipsaw you with margin-wise and that we feel -- I know a lot of our competitors would exclude that number from their margin and say that it's a discretionary item. And we just feel it's going to be part of our year in and year out modus operandi, and therefore, we include the cost because we expect you to experience it every year plus it's not just an expense. It's basically an investment to get margins up. So that's why we included and hoping that you don't see a lot of distortion from that. And the accounting change, I don't think would change the margins percentage next year either. Julian Mitchell: That's great. And then just maybe on the top line for a second, a lot of explanation understandably around the Utility market, but maybe switching to Electrical and the commentary around, I think, nonresidential and also kind of heavy industry into next year is quite muted per Slide 10, I think. Maybe sort of flesh out any movement you've seen there? I know some other companies have sort of talked up U.S. nonresidential in the past month or 2. It seems like you're a bit more cautious. William Sperry: I think we are probably a little cautious. It's been reasonably mixed and soft for us. But I wouldn't be surprised if you see a decent rebound. Our exposure in that space has gotten smaller as a result of some of our business development work, both in terms of what we bought and what we sold. And the heavier industrial, it's always interesting to look at steel prices and the like to see if you start to see some output increase there. But that will certainly true that up, Julian, by the time we get to our January guidance. I think you'll find -- I don't think we'll be an outlier from the general market expectations there. Operator: Our next question comes from the line of Nigel Coe from Wolfe Research. Nigel Coe: Bill, you look forward to be useful to be retiring, but I know you've had a long career. So congrats, and I hope you enjoy retirement. So no comment on that, so I'll move on. So a couple of -- a couple of quick modeling items, and then I've got a... William Sperry: I can see that today, so I'm older than I look.... Nigel Coe: Yes, you definitely have that youthful sort of -- kind of look. But a couple of quick modeling items, and then I've got a bit more of a strategic one. Just on DMC, we understand the margins there are really rich and north of 40% EBITDA margins. Is that -- is that the case? And then maybe just comment on the 3Q utility performance. Was there any impact from the storm activity? It seemed like there weren't any big storms down in the Gulf Coast area. I know that can swing things a little bit. So just wondering if there was an impact as well. Gerben Bakker: Yes. Maybe I'll start with the second first. So storm impact, there was none. It was quite a calm season, although there is a big one right now that's hitting Jamaica. But yes, that -- and that generally, we would say in the overall scope of Hubbell is not a big driver of revenue. But within a quarter, certainly, that could have a couple of points if there's storm activity. On the first question on DMC, that's indeed a quite attractive margin business. And if you think about the application of this, it's in substation, very high stakes, I would say, environment of power with a very unique solution of a sewage technology to put these crimp first on these connectors onto the conductors, what traditionally would be a specialized welding application in a substation. So you can imagine both the application of something like this and the savings or the efficiency in installation, that's what drives a really nice margin. And when you put that then in our portfolio, and I would say this is about as down the fairway as you can get for fitting in our portfolio because we do a lot of connectors, and this is enough solution of that, we generally are able to add and to boost what privately or single-line player can get with our sales force, with our relationships. So we're really excited when we are able to fold in businesses like this into the portfolio. Nigel Coe: Run DMC. And then my follow-on question is really -- it seems like there's a huge market for control house applications in data center. And my understanding is systems control, certainly, the sort of the history of system control is very much in the substation for utilities. So I'm actually wondering if there's a sales channel opportunity into the data center for that business. William Sperry: Yes. We bought a company a little while ago called PCX, which does the control house to data centers. And -- we do think, Nigel, the application has got a lot of growth in it, and we do agree there's some interesting best practices to be shared between data centers and the Utility side on the substation. So I think you -- we would agree with your press. Gerben Bakker: Yes. The only thing I may say is, we are very busy trying to serve our Utility customers at this point. We're adding capacity in this business, but we see like you an opportunity to expand it in those other areas. Operator: Our next question comes from the line of Christopher Glynn from Oppenheimer & Company. Christopher Glynn: A lot of ground has been covered, but Bill, it's been a pleasure to work with you and we've observed the excellence you brought to Hubbell for a long time. So thanks for all that work together. Yes, just looking at data center, I don't know if we got a particular call out on the growth rate there, but I think that's kind of the spearhead of your vertical market strategy. Light industrial is obviously a little bit more diversified, but I think you're probably seeing some of that there. I'm just curious if you could comment on that as we think about the vertical market strategy being bigger than a data center theme for HES. William Sperry: Yes. It's -- I would say you're right, the data center is driving a lot of notable growth inside of the Electrical segment and some of it is a dedicated unit, PCX and some of it is the connectors and grounding solutions. So I agree -- but I think I also agree with you that there are other verticals besides data centers where we've tried to add sales and marketing specialists, do a better job of cross-selling across different units and we're finding those efforts to be well worth it. And it's not just the data center vertical, as you say. It just happens to be a very high-growth pointed one right now. Christopher Glynn: Okay. And then just wondering if you have the D&A numbers for DMC in particular, maybe the depreciation since the amortization backs out anyway? William Sperry: Yes, I don't have it off the top of my head. But the math right, you're talking about sales growth in the 20-ish percent range. You're talking about EBITDA, as we said, in the 40-ish percent range, and you should assume -- I may be guessing here, but it's a couple of points of sales. And then we'll do -- we'll be doing some investing in that business. So we'll be ramping those margins up over our ownership time, I would, Chris. Operator: At this time, I would now like to turn the conference back over to Dan Innamorato for closing remarks. Daniel Innamorato: Great. Let me take the call here, and I just want to make a comment of thanks to all of you for the well-deserved, well wishes for Bill. I'm sitting here across from him. And while he's not always reacting verbally, I can tell what it means to him. And also, I think we set the bar for Joe coming in of beating 50 earnings calls as CFO. So I'll make sure to relay that to him. But thanks and look forward to connecting in the first quarter. Thank you much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the H2O America Third Quarter Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ann Kelly, Chief Financial Officer and Treasurer. Please go ahead. Ann Kelly: Thank you, operator. Welcome to the third quarter 2025 financial results conference call for H2O America. I will be presenting today with Andrew Walters, Chief Executive Officer; and Bruce Hauk, President and Chief Operating Officer. For those who would like to follow along, slides accompanying our remarks are available on our website at h2o-america.com. Before we begin today, I would like to remind you that this presentation and related materials posted on our website may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in light of its experience, historical trends, current conditions and expected future results as well as other factors that the company believes are appropriate under the circumstances. Many factors could cause the company's actual results and performance to differ materially from those expressed or implied by the forward-looking statements. For a description of some of the factors that could cause actual results to be different from statements in this presentation, we refer you to the financial results press release and to our most recent Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission, copies of which may be obtained on our website. All forward-looking statements are made as of today, and H2O America disclaims any duty to update or revise such statements. You will have an opportunity to ask questions at the end of the presentation. This webcast is being recorded, and an archive of the webcast will be available until January 19, 2026. You can access the press release and the webcast at H2O America's website. In addition, some of the information discussed today includes the non-GAAP financial measures of adjusted net income and adjusted diluted earnings per share that have not been calculated in accordance with the generally accepted accounting principles in the United States or GAAP. These non-GAAP financial measures should be considered as a supplement to the financial information prepared on a GAAP basis rather than an alternative to the respective GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the table in the appendix of our presentation. I will now turn the call over to Andrew. Andrew Walters: Thank you, Ann. Welcome, everyone, and thank you for joining us. Before we discuss our third quarter 2025 progress to date, I would like to share that earlier this month, we welcomed another highly accomplished leader to H2O America. Jonathan Reeder is our new Senior Director of Treasury and Investor Relations. Many of you know Jonathan from his time as an equity research analyst at Wells Fargo Securities, where he covered the utility sector, including leading the teams water utility coverage. Jonathan has a deep understanding of the industry from his more than 2 decades of experience covering utility stocks, making him an outstanding addition to our team. He shares our commitment to culture, service and investor outreach, and we look forward to introducing him to many of you in the future. I am pleased to share that in the third quarter of 2025, we delivered strong financial results, including net income of $1.27 per share on an adjusted or non-GAAP basis, an 8% increase over the third quarter of 2024. Our performance reflects our continued execution of our proven growth strategy, which focuses on making the much-needed water infrastructure investments across our national footprint of systems while constructively engaging our key local stakeholders and a consensus-building process to provide timely regulatory recovery while maintaining customer affordability. Some highlights from the third quarter. Starting with the infrastructure surcharges, the application for Connecticut Water's Infrastructure and Conservation Adjustment was approved as filed, while Texas Water filed its third System Improvement Charge just after the quarter ended. I am also happy to share that we are trending ahead of the CapEx plan we guided to earlier in 2025. We have invested $358 million in water and wastewater utility infrastructure across all 4 states through September 30th. This is 74% of our upwardly revised $486 million budget. Finally, on the M&A front, we announced 2 Texas deals. First, we -- was the transformational Quadvest deal at the start of the third quarter, followed by the tuck-in acquisition of Cibolo Valley wastewater treatment plant and related collection system in Comal County, Texas, which was announced in late August. Bruce will provide updates on the Quadvest deal approval process and year-to-date connection growth as well as share more on the Cibolo Valley wastewater treatment plant acquisition later in the call. Overall, it's been a strong year thus far, both strategically and financially with more to come. With that, I will turn it over to Ann to walk through our financial results. Ann Kelly: Thanks, Andrew. Yesterday, after the market closed, we released our third quarter operating results. As Andrew mentioned, we are pleased to report diluted EPS and adjusted diluted EPS of $1.27 for the quarter. On a year-to-date basis, we earned adjusted EPS of $2.53 per share, a 14% increase over the 9 months ended September 2024. With these strong results, we are narrowing our 2025 guidance range of adjusted diluted earnings per share to $2.95 to $3. This represents the upper half of our original $2.90 to $3 range and demonstrate our team's commitment to delivering on our financial targets. We are also reaffirming H2O America's 5% to 7% EPS CAGR through 2029 with the continued expectation that we will deliver on the top half of the range. This excludes any impact from the pending Quadvest acquisition, which we expect to be accretive in 2028 and to our long-term growth rate. We are very pleased with our strong performance in 2025. As we look ahead, we remain focused on disciplined execution to meet our annual and long-term growth targets. The factors contributing to the 8% increase in third quarter earnings per share are shown on Slide 9. At a high level, increased revenue from rates and usage drove a $0.42 increase, while other income, which primarily reflects higher AFUDC equity and pension non-service credit added $0.13. These were partially offset by higher water production expense of $0.07, other operating expense of $0.18, $0.10 to an increase in the number of shares outstanding and an $0.11 delta due to the absence of the benefit from the third quarter 2024 tax accounting method change. Turning to the next slide, I will provide more detail on each of these areas. Our revenues increased 7% in the third quarter. Rate increases in the general rate case in California, along with increases from our infrastructure mechanisms in Connecticut, Maine and Texas, contributed $14.6 million to the revenue increase. $6.6 million is attributable to higher pass-through water cost from our wholesale suppliers as these costs continue to increase each year. Higher customer usage added another $700,000 of increased usage in Connecticut in Texas, more than offset a reduction in California. And these revenue increases were partially offset by a reduction in regulatory mechanisms and other factors. Water production expenses increased 3% in the quarter and was primarily driven by an increase in the average per unit cost for purchased water and groundwater extraction of $5.1 million that are largely offset in revenue and a $1.1 million increase in cost due to mix as there was a decrease in the availability of the lower-cost surface water. These increases were partially offset by lower production volume of $2.7 million as well as a $900,000 impact from regulatory adjustments. Turning to Slide 12. For the quarter, we reported an increase of 9% in other operating expenses. General and administrative expenses increased $5.6 million, primarily driven by pension costs, salaries and wages as well as other inflationary increases. Depreciation and amortization for new utility plant placed in service increased $1.3 million, and we experienced a small increase in property taxes and other non-income taxes. These increases were partially offset by lower maintenance costs in the quarter. The factors impacting the $0.32 earnings per share increase for the year-to-date period are shown on Slide 13. At a high level, increased revenue from general rate cases and infrastructure recovery mechanisms drove a revenue increase of $1.48. This includes the increase or pass-through water supply costs. The revenue increase was partially offset by higher water production expenses of $0.54. Operating expenses increased $0.46, primarily driven by higher A&G expenses as well as increased customer credit losses. As a reminder, during the second quarter of 2024, we received a onetime benefit from California's arrearage payment plan. The remaining drivers related to the share increase taxes and other are consistent with those in the quarterly variance discussed earlier. Breakdowns of revenue, water production expense and other operating expense for the first 9 months of 2025 are available in the appendix of our slide presentation. On the financing side, through the first 9 months, we took advantage of investor interest and raised approximately $108 million of equity through our ATM program. At the end of the quarter, we had $126 million drawn on our $370 million bank lines of credit, leaving $244 million available for short-term financing of utility plant additions and operating activities. For the first 9 months of 2025, the average borrowing rate for our line of credit advances has been approximately 5.42%, compared to 6.53% in the prior year. As for long-term debt, Texas Water issued a 30-year promissory note in September for a principal amount of $40 million at a fixed interest rate of 6.68%. And earlier today, Connecticut Water issued $60 million of 30-year debt at a fixed rate of 6.08%. With respect to taxes, our consolidated income tax rate was 14% on a year-to-date basis compared to 10% in the same period of 2024. This difference in rate was primarily due to higher pretax income in 2025 and the tax accounting method change in 2024. And with that, I will turn the call over to Bruce to provide updates on key state regulatory developments in the Quadvest and Cibolo Valley acquisitions. Bruce Hauk: Thank you, Ann. I am pleased to share that our constructive engagement with regulators continues to create value for our customers and the company. At Connecticut Water, our request for a $3.1 million revenue increase in WICA surcharge for capital invested in pipeline replacement was approved as submitted and on time with new rates effective October 1st. Progress is being made in Maine Water's rate unification proceeding. In September, we filed a rate design proposal that would bring our 10 different districts into a single tariff. The rate design proposal is revenue neutral. But if approved, it would feature our first affordability tariff in May. We expect a decision on rate unification in the first quarter of 2026. After the quarter closed, Texas Water filed for a $5.1 million increase in the system improvement charge for completed water and wastewater projects. We expect a decision on the application in the first half of 2026. As alluded to earlier, we have increased our planned 2025 capital spend to $486 million from $473 million. The increase primarily reflects the momentum of our successful advanced metering infrastructure deployment in California and our plans to accelerate the pace of implementation of the project. We will provide a holistic refresh of our 2026 and beyond CapEx budget in our year-end 2025 uptake in February when we roll forward our 5-year plan. We'll now turn to an update on our planned Texas acquisitions. The Quadvest deal approval process remains in the early stages. We expect to receive the fair market valuation determination, which will be the average of the 3 PUCT appointed appraiser valuations in December. Shortly after receipt, we will file the formal deal approval, known as the sales transfer merger application with the PUCT, and we expect to close the deal by mid-2026. While the FMV reports are not publicly disclosed, in the interest of transparency and to help the investment community more accurately model the deal's impact, we plan to disclose the determined FMV early next year. Meanwhile, we continue to see robust connection growth in the Quadvest system, which now has more than 52,400 active connections as of September 30, 2025. This represents an 11.5% increase since the end of 2024. And as Quadvest converts its under contract and pending development pipeline into active connections, it is worth noting that the pool of future connections continues to be replenished and win some. Of course, future connection growth will vary based on a number of conditions. So this is no guarantee of future growth rates. However, these results are in line with our range of expectations, and we believe solid growth will continue in the greater Houston area, which is the second fastest growing metropolitan area in the United States. Our other pending Texas deal, which we announced in late August is the acquisition of the Cibolo Valley wastewater treatment plant. The acquisition would bring approximately 1,500 active connections and the opportunity for more than 250 additional ones that are under contract and pending construction. The acquisition is in the heart of our existing service territory, and we already provide water service, wastewater billing and customer service to these customers on a contract basis. We have filed with the PUCT to use fair market value for the Cibolo deal, and we expect this transaction to close in the fourth quarter of 2026. Between Quadvest and Cibolo Valley, we're excited about our long-term growth potential in Texas. With that, I will turn it back over to Andrew. Andrew Walters: Thank you, Bruce. Just a couple of weeks ago, Newsweek notified us that H2O America has been selected for the second consecutive year as one of America's greenest companies. We are 1 of only 2 water utilities selected for this prestigious recognition. Only companies that meet the European Union stringent sustainability criteria considered to be the most advanced globally were eligible. This recognition reflects the passion and dedication of our people, who take our responsibility to our customers and the environment very seriously. This passion is also reflected in our 2024 sustainability report, which has been posted to our website. Among the highlights, we achieved a 43% reduction in Scope 1 and 2 emissions from the 2019 baseline, which is strong progress toward our 2030 goal of 50%. We increased solar generation by 73%, with 8 new solar projects, including the first in Texas, owning and solar generation lowered our operating cost for customers and provides a return for investors. Finally, we also achieved world-class customer satisfaction rate of 85.2% and expanded our flexible payment plans and rate assistance programs. Last, but certainly not least, Governor Lamont appointed 4 new commissioners to the Connecticut Public Utility Regulatory Authority. We extend a warm welcome to Thomas Wiehl, Janice Beecher, Holly Cheeseman, Everett Smith on their appointments. We look forward to working with the new commissioners to address the challenges facing water utilities, including the need to balance affordability with Connecticut's extensive investment requirements to replace aging infrastructure and treat emerging contaminants, all while providing high-quality water and reliable service. In closing, the third quarter was a strong quarter for H2O America, and we have even more to look forward to in the home stretch of 2025. We remain focused on driving shareholder and customer value through a disciplined approach to infrastructure investment and executing on our financial goals, advancing the Quadvest and Cibolo Valley acquisitions, deepening our strong partnerships with local stakeholders and our unrelenting pursuit of operational excellence and identifying creative and sustainable solutions to serve generations to come while maintaining a focus on affordability. And now I will turn the call back over to the operator for questions. Operator: [Operator Instructions] And our first question comes from Angie Storozynski of Seaport. Agnieszka Storozynski: Jonathan, congratulations. I can't wait to work with you on the other side. That's quite a change. Anyway, so let's start with Texas. So first, the Quadvest deal, I mean the fact that you guys are going to provide disclosures on the FMV only in January, you said or early the first quarter, why -- I mean just -- why such a long wait, so that's number one. Number two is on the back of the American Water Essential merger yesterday, you are gaining a big player in the Texas water market. I'm just wondering if it has any bearing on how you see the growth in that market. And then three, we're waiting for a PURA decision in Connecticut on the acquisition of Aquarion. I'm just wondering if you still have any appetite for this asset if it were to -- if the commission were to reject the current sale process. Andrew Walters: Right. So first, why don't you take us through the Quadvest and FMV and then we'll go from there to Aquarion. Bruce Hauk: Sure. Yes, thanks, Angie, for your question. And as it relates to the FMV process, I think we're still on the same time line that we disclosed when we first announced the deal. So the time line for those appraisals to come in is in December and then shortly thereafter, we'll file the STM. So that's why on schedule as expected. So it's the soonest that we'll have the information, we can disclose it. Agnieszka Storozynski: Okay. And so now you have absolutely no sense, right? Because the appraisals are still working, right? So they haven't basically submitted anything. Bruce Hauk: Correct. In order for the appraisers to complete their work, they need the resident engineering firm to perform the RC and LD, which is the most extensive process in creating the cost approach. So the net income and the market approach are pretty easy in terms of the process, but the most extensive process is the cost approach, which requires a full addressing of the assets by the engineer. And that's the process that we're in, that's not yet been completed. Agnieszka Storozynski: Okay. And then American Water acquiring a Texas utility? Bruce Hauk: Well, certainly, there's a lot of interest in Texas by a lot of our peers and competitors. But the beautiful thing about Texas, it's a big state, and there's a lot of opportunity in Texas. And our biggest opportunity is something that we're very focused on and keenly addressing, which is the Quadvest acquisition. We're excited about that, and that's our focus. Competition has always been in our industry, and we've shown that we can be a formidable competitor, and we'll continue to do deals that make sense for us to come our way as long as they meet our investment criteria in the settings that we've put in forth in place for us to move forward with in terms of tuck-ins or other opportunistic opportunities that come along. Andrew Walters: And I think -- Angie, I was just going to add to that. Like if you think about acquisitions in general, our company will meet its growth forecast without a single acquisition. And so as you think about that, that is on purpose, right? So we don't have to worry about this idea of using growth as a lever in order to meet our growth forecast. I think that put us in a really strong position, quite frankly. The other thing too, Essential is a very strong competitor all by themselves. And combined with America, are they more formable, absolutely. That being said, there's only a certain amount of financial formability that goes into any acquisition to start with. And if somebody can afford to pay more then that too -- that business belongs to be with. And we will not stretch beyond what we've already stated, which is we want to have our accretion goals, and we will not do so at the expense of our balance sheet. So I think those are the things we will continue and a very fair question, but I don't see our growth rate changing because of those 2 coming together. And quite frankly, I'm looking forward to having that strength actually benefit the industry. So I think it's good for the industry. I think it's good for both companies. And it also addresses affordability for the customers of those companies because as they continue to invest in their systems, they can do so where the customers are not paying the full cost. And I think that is a formula that works for every water company. Any other question on those two or just Aquarion? Agnieszka Storozynski: No, just Aquarion. Actually, Aquarion in both -- how you see acquisitions and the financing of them vis-a-vis your stock's performance? It seems like your stock is not really reacting to the strong results you're printing. Some of it could be the Aquarion overhang. But just if you could talk to us about given the stock price, and how you see accretion from both the Quadvest deal and any capacity you would have for additional transactions? Andrew Walters: Yes. Look, it's a great question. So first of all, I'll start with Aquarion. Would that make strategic sense for us, for our customers? The answer is yes. But we also are occupied fully with the Quadvest acquisition. We do not have additional capacity in the straight equity market. So if we were to do a deal, and I'm not -- first of all, like I said very early, so to speak, to say that the deal is not going to happen. Nobody that I'm around had said that the deal is not going to happen, but if it didn't happen, then it would have to meet -- Eversource would have to decide whether they want to sell it, they would have to decide whether they have alternative ways of raising the equity or whatever else they wanted to do with those proceeds. And that's obviously all for them. But for us, that leaves us with how would we do something like this. And I think that the way we've always talked about this, is there would be 3 areas that we would go for equity. One is straight equity, second place is hybrid/debt markets and the third place is partner equity. If I take the straight equity off that leaves us with hybrid debt as well as partner equity. But it doesn't change our accretion goals. It doesn't change our goals that we have from a balance sheet protection perspective. So for me, nothing changes. And quite frankly, what this allows us to do is to do the same thing that Essential and American are doing, which is in order to take cost out of the system, which allows us to invest in those systems where the customers do not have to pay the full cost of the bills. So it is a very good model to use as long as people don't get aggressive on the other side. Agnieszka Storozynski: Okay. Understood. And then one last question maybe for Ann. And maybe you have addressed it, and I wasn't paying full attention, what's the -- I mean, when I look at your narrowed guidance and year-to-date results that would imply really low earnings in the fourth quarter. Could you remind me what it is that weighs on those fourth quarter expectations to get to the midpoint of the narrow guidance? Ann Kelly: Sure, Angie, good question. There are a number of factors that are driving the $0.27 to $0.32 reduction in EPS quarter-over-quarter. For first, we have some timing of gross margin and the regulatory adjustments. I should also ask you to keep in mind that the Connecticut Water rate case went into effect in July of 2024, so we experienced that additional favorability year-over-year in the first half of this year, but we're not experiencing that currently because it was already in rates last year. Second, we expect continuation of higher expense items that we've been reporting on as well as some additional operating expenses to advance our strategic priorities. And lastly, we expect to see the continued trend of higher year-over-year depreciation, interest, taxes and also some dilution from additional shares. Agnieszka Storozynski: Okay. And what is this $0.20 of year-to-date other income? And again, I should have -- should have listened. Yes, it's about $0.20, I think, no? Ann Kelly: Let me take a look. Agnieszka Storozynski: Oh, I'm sorry, it's $0.12 or... Ann Kelly: $0.13. And that is primarily -- one of the biggest contributors there is AFUDC even some of our substantial investments primarily in Texas, where we have longer-term construction cycles. And so those investments are earning AFUDC for a longer period of time. Operator: [Operator Instructions] Our next question comes from Ian Rapp of Bank of America. Ian Rapp: Echo Angie's comments on adding Jonathan, obviously, a really good pickup for the team, looking forward to working with him again, congrats there. And then I think you hit on most of them, but I think maybe just to clarify, have you refreshed or roll forward the EPS guidance through '29 kind of at the high end of 5% to 7%. But I think if I heard you correctly, you're also going to refresh the full sort of CapEx schedule on 4Q. Would you say at this point that the EPS guidance fully bakes expectations for that CapEx refresh, or are you planning to sort of refresh that EPS guidance view on fourth quarter as well? Andrew Walters: You're talking about -- just to make sure I'm asking the right question or answering the right question. Ian, you're talking about the long-term guidance, right, and whether -- when we refresh the CapEx, whether that's that long-term guidance would be refreshed at that point as well? Ian Rapp: Correct. Yes. I see in the slides that you have the 5% to 7% anchored to the high end through 2029 in the slides. I just wanted to check if that was fully baked for expectations for the CapEx refresh? Andrew Walters: Look, I think our refresh on the long-term growth is going to be impacted by two factors. One will be our CapEx, but it will also be the view on where we'll come out from a Quadvest acquisition, right? So we will look at those areas as to what our future long-term growth rate is. And until we come out with that, then that's when everything will be refreshed all at one fell swoop. It's not going to be done incrementally. Ian Rapp: Got it. That makes sense. And then just maybe two quick ones on the fair market value process. So it sounds like that's kind of the primary date for determining financing needs to finance this acquisition? A, is that correct? And then b, does the fair market value process, or it's kind of structured, allow you to fully capture these customer connection growth rates that you're highlighting, or would that be something that would maybe be more reflected in a future rate case? Andrew Walters: Yes. So let me take the first one, Bruce. We've agreed to the $540 million. So that is not going to determine the financing cost of the transaction. The only thing that we will address or adjust is depending on the markets, right? It has nothing to do with FMV. We will address how much debt or how much equity we will do in the transaction. So that's the only thing that's going to be kind of adjusted, which is going to be market dependent. As it relates to the FMV, I'm going to have Bruce address the idea of kind of these new customers that are coming on, what the cutoff date are for those customers, and how that will be reflected in FMV today versus FMV in the future. Bruce Hauk: Yes. Thank you, Andrew. As it relates to the FMV, we've got all 3 appraisers signed up to the same time line in terms of the valuation of the assets. And so that's a terminus date of effective July 1, 2026, I believe. So that's that cutoff date in terms of the valuation of assets. So it's not really connections that make that number. It's really the actual assets that have been invested in and are available for valuation. So that's really the determining value or determining point of the fair market value. So it will be all those assets, including construction work in progress to that point. Ann Kelly: And if I can just follow up on what Andrew said. I mean it's absolutely correct. I mean the amount of equity that we will issue in connection with the transaction is not dependent on the fair market value what we alluded to was that we did feel that it was important for investors to understand the fair market value. So that they could adequately model the transaction going forward. And we think that will be helpful for us in the equity raise going forward. And so when we think about timing, we're getting the FMV at the end of this year, will then be in blackout for year-end. We'll have to work to pull together the necessary offering documentation in that same time frame. As Bruce mentioned, we'll be filing the STM or the sales transfer merger. So once that deemed administratively complete, that's when the clock starts ticking on that approval process. So once we have a better eye towards closing the transaction, that's when we'll look to that equity raise. Operator: I'm showing no further questions at this time. I'd like to turn it back to Andrew Walters for closing remarks. Andrew Walters: Thank you, operator. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Noble Corporation Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Ian MacPherson, Vice President, Investor Relations. Please go ahead. Ian MacPherson: Thank you, operator, and welcome, everyone, to Noble Corporation's Third Quarter 2025 Earnings Conference Call. You can find a copy of our earnings report, along with the supporting statements and schedules on our website at noblecorp.com. We will reference an earnings presentation that's posted on the Investor Relations page of our website. Today's call will feature prepared remarks from our President and CEO, Robert Eifler; as well as CFO, Richard Barker. We also have with us Blake Denton, Senior Vice President of Marketing and Contracts; and Joey Kawaja, Senior Vice President of Operations. During the course of this call, we may make certain forward-looking statements regarding various matters related to our business and companies that are not historical facts. Such statements are based upon current expectations and assumptions of management and therefore, are subject to certain risks and uncertainties. Many factors could cause actual results to differ materially from these forward-looking statements, and Noble does not assume any obligation to update these statements. Also note, we are referencing non-GAAP financial measures on the call today. You can find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation in our earnings report issued yesterday and filed with the SEC. Now I'll turn the call over to Robert Eifler, President and CEO of Noble. Robert Eifler: Thanks, Ian. Welcome, everyone, and thank you for joining us on the call today. I'll open with a brief summary of our Q3 highlights and recent contract awards, then provide some perspective on the market outlook. Richard will provide more detail on the financials before I wrap up with closing remarks and move on to Q&A. During the third quarter, we earned adjusted EBITDA of $254 million, generated free cash flow of $139 million and received an additional $87 million in net disposal proceeds. We again distributed $80 million to shareholders through our $0.50 quarterly dividend. And yesterday, our Board declared a $0.50 per share dividend for the fourth quarter, bringing total 2025 capital return to $340 million. The highly competitive cash yield on our stock continues to be a critical component of our story as we traverse this mid-cycle lull for our industry. Before we discuss the market, I'd like to commend and thank our crews and operating teams for achieving excellent operational uptime and HSE performance, aided by tools like our NORMS, Horizon56 and operations performance platforms. Our teams have continued to push the envelope in technically challenging well construction and completion activities. In Guyana, our drillships continue to post record-setting results within the Wells Alliance. We have now constructed over 200 wells in the basin, delivering 60% of the most recent 25 wells in under 35 days. In the U.S. Gulf, the Noble BlackHornet set a new benchmark in deepwater drilling operations, earning high praise from the customer for outstanding execution of MPD influx management on a complex exploration well. Nearby, the Noble BlackLion recently performed the longest step out yet for BP in the Gulf at over 12,500 feet, which was also delivered well ahead of AFE. Results like these continue to be a defining success story for the deepwater industry and are leading the way in bringing deepwater sharply down the cost curve and thereby structurally increasing the size of the prize. We've also had another solid quarter on the commercial front with backlog increasing to $7 billion currently on the back of several key contract awards. First, the Noble BlackLion and Noble BlackHornet have both been extended by an additional 2 years by BP in the U.S. Gulf, extending the rigs into September 2028 and February 2029, respectively. These extensions are valued at $310 million per rig, excluding MPD services and both come with an additional 1-year priced option. These contract extensions further amplify the merits of the Diamond acquisition, which has materially over delivered on our original accretion expectations as the legacy Diamond rigs continue to perform and recontract at very high levels. We are thrilled to continue the BlackLion and BlackHornet's long-term assignments, which will now be approaching 1 decade in tenure. These long-duration engagements demonstrate the power of the deeply collaborative service posture that we have been working hard to cultivate over the past several years in order to drive value for our customers and earn their repeat work through dependable performance. Next, the jackup Noble Resolute has been awarded a 1-year contract with Eni in the Dutch North Sea at a day rate of $125,000. This contract is expected to commence later this quarter. And the Noble Interceptor has booked a 5-month accommodation contract with Aker BP in Norway, which is scheduled to start next August. Lastly, the 6G Semi Noble Developer has had an option exercised by Petronas for an additional well early next year, and the drillship Noble Venture was awarded a 1-well contract from Amni in Ghana at a day rate of $450,000. This well is scheduled to follow in direct continuation of ongoing Tullow work in Ghana, which is expected to resume in its second phase within the next several days before the rig mobilizes to the U.S. Gulf for long-term work commencing in late 2027. Beyond these specific contract awards, the broader contracting and utilization trends in deepwater are showing gradual signs of stabilization and improvement. The committed UDW rig count of approximately 100 rigs and low 90% marketed utilization is, in fact, up slightly compared to recent quarters despite some lingering near-term availability across several units with longer-dated contract starts. Additionally, deepwater contracting momentum is on an uptrend with an average of 18 UDW rig years per quarter fixed in Q2, in Q3 this year, up 10% compared to the preceding 2 years. These are encouraging indicators and there remains a significant number of additional fixtures anticipated over the next few months. Noble's backlog picture as summarized on Page 5 of the earnings presentation slides, shows 57% contract coverage across our entire fleet in 2026. When zooming into our 15 high-spec drillships, we are now 70% booked for available days in 2026, excluding options. However, we have active conversations behind all of our available rigs in 2026, including the Gerry de Souza, Viking and BlackRhino, and while we are also tracking the number of contract opportunities across the balance of the fleet, both jackups and floaters. Securing additional work for these 3 drillships is a key priority, and our objective is to obtain 90% to 100% contract coverage across our 15 high-spec drillships by the second half of next year. On the jackup side, activity in the harsh environment Northern Europe market has been stable at 28 rigs and marketed utilization at 90%, flat with last quarter with leading-edge day rates for drilling programs in the Southern North Sea holding flattish. Although the contracting environment has remained relatively subdued, we do have line of sight towards several opportunities that we hope to be able to book relatively soon. With the Interceptor's pending reactivation, we now have improving contract coverage for all 5 of our ultra-harsh CJ70 jackups as we progress through next year. While our 6 harsh rigs presently have limited contract coverage in 2026, we do expect this picture to improve based on several bidding opportunities currently in process. So overall, we are encouraged by the shape of things and the opportunity set at hand, which includes a broad range of UDW requirements throughout the Golden Triangle, Asia Pacific, Mozambique, Mediterranean and the harsh environment basins. The pipeline for early 2026 jobs is still significantly more limited compared to late '26 and early '27. But at this point, we are not seeing indications of additional project or procurement deferrals. Assuming reasonably stable oil prices, the path toward a methodically tightening floater market with deeper backlog appears to be on track. Now I'll pass it over to Richard to discuss the financials. Richard Barker: Good morning or good afternoon all. In my prepared remarks today, I will review our third quarter results and then discuss our outlook for the remainder of the year as well as some additional high-level perspectives on 2026. Starting with our quarterly results. Contract Drilling Services revenue for the third quarter totaled $798 million, adjusted EBITDA was $254 million and adjusted EBITDA margin was 32%. As expected, Q3 revenue and adjusted EBITDA were sequentially lower, primarily due to a number of rigs rolling off contract during the third quarter. Free cash flow of $139 million in Q3 excluded an additional $87 million in disposal proceeds driven by the sale of the Pacific Meltem and Noble Highlander. Thus, we ended the quarter with a cash balance of $478 million, which is up $140 million compared to last quarter. Subsequently, in October, we have completed the sale of the Noble Reacher for alternative use outside the drilling market for $27.5 million. As a reminder, the Reacher has not worked in drilling mode for several years having recently completed a long-term and low-margin accommodation contract. The rig would have required a significant amount of capital to return to drilling mode again. And as such, the Reacher was an outlier within our group. As summarized on Page 5 of the earnings presentation slides, our total backlog as of October 27 stands at $7 billion, which includes approximately $0.5 billion that is scheduled for revenue conversion for the remaining 2-plus months of this year and $2.4 billion and $1.9 billion scheduled for conversion in 2026 and 2027, respectively. As a reminder, these figures exclude reimbursable revenue and revenues from ancillary services. Referring to Page 10 of the earnings slides, we are now in the range for our full year 2025 guidance for adjusted EBITDA to $1.1 billion to $1.125 billion. The midpoint of this range implies Q4 adjusted EBITDA that is marginally lower versus Q3. I would point out that the exact start date of the Globetrotter I contract in the Black Sea, which we currently estimate in mid-December, is the key sensitivity for Q4 revenue due to the relatively compressed duration of the full contract value, including mobilization. We are now guiding for full year 2025 CapEx net of customer reimbursables to a range of $425 million to $450 million. Reimbursable CapEx is expected to be approximately $25 million this year, including approximately $20 million year-to-date through Q3. We plan to provide 2026 guidance on next quarter's earnings call. In directional terms, I would say that the shape of our current fleet status report would indicate an EBITDA trough in the first half of 2026 that would be somewhat below second half 2025 levels as well as lower results on a full year basis for 2026 versus 2025. However, based on current and anticipated backlog, we are tracking toward a material inflection from late 2026 onwards, which we will look to define more sharply next quarter as the next slug of foundational contracts are expected to come into backlog. We continue to anticipate approximately $450 million in CapEx, net of customer reimbursables next year based on our current contract status. However, this estimate may be subject to an increase to the extent that additional contract supported opportunities arise with compelling accretion. The capital to reactivate the Noble Interceptor will be reimbursed through an upfront mobilization payment. Additionally, we are likely to incur additional outlays totaling up to approximately $135 million associated with the termination of the BOP service and lease contracts on the legacy Diamond Black ships. During the third quarter, we delivered a termination for convenience notice for the service agreements, and we are currently in discussions around the lease agreement. We expect an approximate $35 million of cash outlay during Q4 2025, which is expected to flow through OpEx and CapEx and then the remainder during 2026. These amounts are not included in the aforementioned guidance ranges. However, as a reminder, this cash outlay would be offset by annual savings of approximately $45 million across OpEx and lease payments on the agreements on a combined basis. We are focused on building cash here in the last quarter of this year in anticipation of next year's capital requirements, including the potential BOP-related payments. We are also committed to maintaining a robust return of capital program and a prudent balance sheet position. Based on existing backlog and current customer dialogue, we would expect a healthy EBITDA and cash flow inflection late next year. That concludes my remarks. And with that, I'll hand it back to Robert. Robert Eifler: Thanks, Richard. To wrap up, we're continuing to see a number of positive signs of increased deepwater activity after the anticipated trough over the next few quarters. This is essentially very similar to how we assess the outlook last quarter, albeit with additional backlog in our books today to help lay the path towards that outcome, but also with a bit more slippage with certain program start dates, which continues to bifurcate the 2026 versus 2027 picture. We still have some work to do with securing a few more key contracts in order to support our expectation for a meaningful free cash flow inflection by late next year, but the opportunity set there is highly encouraging and progressing well. We continue to watch our customers' budget announcements closely, which, of course, have an aggregate, been less than inspiring at a headline level and which remain the ultimate growth governor for our business. But the same time, it has also been highly encouraging to see the relative resiliency of rig contracting activity this year in the face of elevated macroeconomic noise, sluggish oil prices and upstream capital restraint. These divergent dynamics underscore the strategic long-term criticality of deepwater within the global upstream supply stack. We see this in the renewed emphasis and urgency surrounding upstream reserve replacement metrics. And in that same vein, on the ground here in Houston, there is a palpable growing sense of the capital imperative towards deepwater exploration in a way that feels different from anything over the past decade. So I would encourage investors to pay close attention to this important litmus indicator in the months and quarters ahead. Meanwhile, as we wait for these anticipated demand tailwinds to materialize, we continue to manage our costs and marketed capacity to optimize cash flow, and we remain committed to paying a competitive dividend and maintaining a strong balance sheet through the cycle. With that, let me hand it back to you, operator, to go to the Q&A section. Operator: [Operator Instructions] Your first question comes from Arun Jayaram from JPMorgan. Arun Jayaram: Robert, I wanted to maybe start with your thoughts on improving the utilization for your high spec floater fleet. You mentioned that you're 70% booked for 2026 with a target of getting to 90% to 100% by the second half of 2026. Talk to us about the opportunity set to get there, and kind of how long of a putt using a gulf analogy, would it take to get there? Robert Eifler: Thanks, Arun. So really it revolves around the Viking, the Gerry de Souza and the BlackRhino, and let's see. Continuing with the gulf analogy, I'd say it's really not a very long putt. I think we -- while we didn't have any real new news for you this quarter versus last, we are advancing conversations around all 3 of those rigs. And we hope to have some news for you here in the not-too-distant future. So we're -- those are all very technically capable rigs. We're bidding them and in the discussions around a couple of different areas, but we do have line of sight towards the work that we're hopeful to win. Arun Jayaram: Great. That's helpful. And maybe if you guys could maybe just elaborate on the Diamond Offshore -- BOP leases. I believe those are agreements on 8 of the rigs that you acquired. Can you just go through maybe the mechanics of that a little bit? It sounds like it's a pretty quick in terms of a cash return payoff given the savings and maybe just go through the numbers a little bit, just so we can tighten up our models? Richard Barker: Sure, Arun. So there's 2 components to it. There's the service agreement and the lease agreement. So we've now terminated the service agreement, and we'll have about a $35 million payment on that here in Q4. Okay. So that's $35 million of kind of cash out of the door during the fourth quarter of this year. On the lease agreement, we're still working through that. There is a cap on that agreement of $85 million, and that would be payable next year. Obviously, there's a few remaining lease payments as well. So if you sum that all up together, there's a maximum of $135 million of cash out of the door and then the kind of the annual cash savings, if you will, so that's about $45 million for that. So it's about 3x EBITDA multiple on that, if you will. Operator: Your next question comes from Greg Lewis with BTIG. Gregory Lewis: Robert, I was hoping for a little more color, and I guess you kind of touched on it with some of the comments to Arun. But like as we think about the first half of '26, the kind of the moderately down versus what we are going to do in the second half of '25. As we kind of look at those drillships, some of them all have idle time in the second half of '25. It looks like there's going to be some idle time in the first half of '26. Is that largely what's driving that? Or is there other costs? Is it maybe some idle time on the jackup fleet, just kind of -- if you could kind of help us maybe bridge why we're thinking it could be down? And what -- I mean, I'm assuming the answer to getting it higher would just be some spot work? Robert Eifler: Yes. It really is largely driven by the floaters. Last quarter, we mentioned trying to get to a run rate of $400 million to $500 million of cash flow here at the kind of back half of the year. And really, the driver there, are the 3 rigs I mentioned earlier. I think what -- I guess also I mentioned we just -- we're aiming to get back to effectively market utilization to low 90% to hit those numbers. And that translates to kind of 2 out of the 3 of those rigs working at any given time. And like I said, we have line of sight on different jobs. We're not going to win everything that's out there, but we feel pretty confident that as we work through things that the goal of having 2 out of those 3 is very achievable and hopefully can outperform by finding work for all 3 of them. The spot work -- you asked about spot work. I think right now, it's one of those times in the market. It's actually a more unique time, I think, than I've seen previously, where there is a fair amount of work on the horizon starting in '26 and '27, but there is a definitive gap in between, where it's quieter than we've seen in multiple years. I'm probably missing some piece of history as I reflect on that, but I find it somewhat similar in nature. And so I think the spot work, the gap filler work, so to speak, is going to be really separated from the rest of the work that's out there as it prices and as people think through it. So I anticipate that to be a dynamic that plays out through 2026. Gregory Lewis: Okay. Great. Super helpful. And then just the other question I had was around -- I know it's hard to look at snapshots in time, but just kind of trying to understand, I think we all see the work out there, whether it's West Africa or parts of Asia. But as we look at some of those term jobs that are out there, do we get a sense or are those dates kind of remaining firm, just given some of the macro out there, are jobs that maybe 3 to 6 months ago, we thought were going to be in the second half of '26 still lining up to be in the second half? I'm trying to understand if there's been any drift or slippage in some of this work that's -- that me and you and a lot of people are waiting to kind of start early? Robert Eifler: Yes, it's been a mixture. I think there's some that have held firm and then there are some that have moved to the right. We really haven't seen anything being pulled back forward. That's certainly not the feeling you get right now. But I'm just -- off the top of my head, I can think of a handful of jobs that are -- that have been pushed by, say, 6 months. And I can think of a handful of jobs that are right on schedule with our customers eager to start kind of in the middle or the beginning of the start window. So I think it's a mixture. Yes. Operator: Your next question comes from Eddie Kim with Barclays. Edward Kim: Just wanted to touch on your expectations for the first half and next year. So you mentioned you expect moderately lower earnings and cash flow compared to second half '25 levels. Consensus currently has you guys at around $440 million in EBITDA, which represents about a 10% decline versus what your guidance implies for second half of this year. So just curious if you could speak to your expectations for first half '26 relative to where consensus is that now? And what it would take maybe in terms of some incremental contracting and spot market from here to achieve that level of EBITDA or if that level might be a bit too optimistic at this point? Robert Eifler: Yes. So we haven't given out quarterly estimates. So let me think about how -- so that is standing true directionally that all that fits with kind of our narrative in the prepared remarks. And I think I would focus also on the fact that there's not a whole lot of work that we see in the first half of '26. There'll be a couple of announcements out there. There is some gap filler work that I mentioned earlier. There really, I don't think, is a lot of room for upside improvement in the first half of the year. That does change pretty dramatically in the second half of the year. Of course, some of that's known and contracted and announced for both us and our competitors. But there's other work out there as well that's being negotiated and hasn't been announced industry-wide. So I think we're really focused on the timing of that working. We've set everything up, as we've mentioned, to hit this cash flow inflection. And for us, the timing is a little less certain around that back half of the year, but we certainly see it coming. Edward Kim: Got it. Got it. Understood. And my follow-up is just on your expectation for that, you called it the deepwater utilization recovery by late '26, early '27. Could you just talk about your confidence level in this recovery? Is it based on the tenders that are out there currently or the tone of your conversations with customers or contracts that you already have in hand. So if you could just talk to your confidence level in that recovery? Robert Eifler: Sure. Yes. I mean, it's a mixture of both. We -- starting with the contracts in the U.S. and in Suriname, I think we've kind of baked in somewhat of a floor for ourselves starting in the back half of next year. And we really see a tightening of the market out there. Some of that's announced and out there. Some of it is rumors that we understand some of our competitors have won some work and some of it's stuff that we're working on ourselves. We're cautiously optimistic here that day rates have bottomed. And not to say that there won't be some lower day rates that get announced after I've made the statement, but we're cautiously optimistic that from here, the market is tightening to a point late '26 and '27 that we've bottomed here. So stay tuned. Operator: Your next question comes from Fredrik Stene with Clarksons Securities. Fredrik Stene: So I think you painted a relatively, I guess, optimistic picture of demand from the second half of '26 and beyond, then you've mentioned a handful of rigs by name, more specifically the Viking, Gerry de Souza and BlackRhino, which you seem to be relatively confident that you'll get some work on. But I was wondering, there is the Globetrotter I and there is the Deliverer, for example. Do you have any additional color on how we should think about those rigs specifically going into next year? And maybe even more so the Globetrotter I. Is that also going to be at some point a divestment candidate after this contract? Or do you think it can get more work? Robert Eifler: Yes. It's a good question. So in GT-I, we continue to chase intervention work, as we've mentioned, in that we continue to believe that, that is an interesting market for that asset. We also have said that it could be a divestment candidate. So it's a little too early for us to kind of give anything firm there. But I would say that both of those, frankly, are on the table. If we can't find work for the rig in the intervention market, then we'll make a decision there. On the Deliverer, so I would maybe group all of the D rigs together as a bundle and say that we see more work today than we've seen at any point since at least the Noble side has owned those rigs for the last few years. Our outlook does not require all 3 of those rigs to be working. So I think finding work for all 3 would be [indiscernible] for us. But we have -- we think we have a pretty good line of sight to at least 2 working and again, probably more increase than we've had at any point. Fredrik Stene: That's very, very helpful. And as a follow-up, just turning on the less spoken about assets also on the floater fleet and maybe more in the harsh environment side. You have the GreatWhite, the Apex and the Endeavor that's currently idle. And I guess there's a 2-part question here. One, on the GreatWhite is originally a U.K. type of rig, but have you thought anything more about potentially taking that rig into Norway, getting a proper AOC, and I'm sure that will come with a major CapEx payment, if you like to do something like that? And on the Apex and the Endeavor, how do you think about the fleet size in general? Or do you think that's maybe one too many rigs that are currently idle on the lower spec harsh environment side? Robert Eifler: Yes. So the GreatWhite, we're marketing in a number of different regions around the world. You're right, it was not built to a Norwegian spec, so there would be a capital cost to take it into Norway, if that were to become an option. So I think we're just a little too early right now to give guidance on where that rig might end up. There will be some white space on it and we're trying to find the best fit for it at any point in the future. There are several different jobs out there in different places around the world. The Apex and Endeavor likewise have opportunities. And like with all of our older rigs, we'll continue to have a very sharp pencil and look at opportunities closely. And for us any opportunity needs to stand on its own for those rigs, and that's pretty firm on our side. And so those are being marketed and hopefully have some update on direction there, perhaps next quarter. We'll see. Operator: Your next question comes from Doug Becker with Capital One. Doug Becker: Robert, I was hoping you would expand on the prospects for the BlackRhino specifically? Is this likely to be well-to-well work in U.S. Gulf? Or is it more likely to be term work in the U.S. Gulf or some other region? Just given that you've talked about line of sight to contracting that rig? Robert Eifler: That was the Rhino? Yes, sorry. Look, I think we're talking to customers of that book. And actually, we think we have opportunities both in the Gulf and outside the Gulf right now. So I wish I had more direction than that. But we're kind of -- honestly, we have opportunities that fit in all 3 of those categories, short-term U.S., long-term U.S. and long-term non-U.S. So we're going to have to just see what comes through for us here. Doug Becker: Fair enough. And then maybe circling back to Norway, it was kind of encouraging to see the reactivation of the Interceptor. Does this mean that there's a meaningful tightening in that market and really kind of thinking about some of the CJ70s that are working outside Norway, the potential of moving back in, in say, '27 or so? Robert Eifler: Yes. Look, I would say, I wish I could report that we saw a flood of work coming in Norway for the CJ70s. I can't claim that right now. We do have more opportunities today than we did 6 months ago and certainly a year or 2 ago, and that's driven us to look at reactivating the Interceptor there. I'd say that will be probably the most marketable rig in the region that doesn't have a contract as it rolls out of that accommodation work. So we like where it's positioned. And we're hopeful that perhaps rig demand picks up by one or if it's already picked up by one side, kind of maintain steady there. But it is a little too early to tell. And this contract I had stands on its own, and we're really happy to have it. Operator: Your next question comes from Noel Parks with Tuohy Brothers. Noel Parks: I just had a couple. Is it safe to say at this point that price sensitivity is not in the mix in a big way in customer decisions either from sort of a formal perspective, which would maybe urge them to commit sooner rather than later or sort of from a bargain hunting perspective. So is this sort of just what they want to do, being conservative on their budget commitments, the main driver that's at work these days? Robert Eifler: I wish I could say yes. I don't think so, Noel. I think our customers are as price sensitive as ever. The macro outlook is obviously variable and uncertain. There's some downward oil price beliefs. And we'll learn more as 2026 budgets start to get announced and become more clear. But we're -- I would say we're seeing the opposite. I'd say we're seeing extreme price sensitivity in our ongoing negotiations. Noel Parks: Okay. Okay. And you did mention sort of in the wrap-up of the prepared remarks that in Houston on the bound there, it feels different from how it has in terms of settlement towards the deepwater at any time in the past decade. I wondered if you could talk a little bit more about, I don't know if there's a sense of being like an inevitability that capital needs to head offshore relative to onshore opportunities. But just any sort of color or feel you can give for what you're hearing? Robert Eifler: Sure. I think here, it feels like it's well known that deepwater is going to be an important part of the supply mix going forward. That is obviously in the context of a slowing plateauing Permian, which eventually some day has to decline. Deepwater is obviously long cycle and requires forward thinking and investment. And those investments have to start at some point. To me, that's the most obvious connector between the malaise in the macro environment in a world where a lot of people are calling for perhaps lower oil prices in the near term with the '26 and -- the opportunity set that we see in 2026 and 2027. And so I think we see more activity than perhaps one would have predicted if just given the macro uncertainty out there today. And to me, that explanation is -- one possible explanation is the understanding that deepwater is an important part of the energy mix going forward. Noel Parks: Right, right. And if I could just... Robert Eifler: I'll just add, Noel. We mentioned exploration. I can't say today that we've seen any uptick in exploration wells. I have seen an analysis that shows that the higher explanation of the difference in rig count from last market cycle high in 2013, '14 to today is the difference between development work and exploration work. And so I think that's something we've watched very closely. I don't think it's right on the horizon as a driver for demand in our business, certainly not in 2026. But I do think that's an important litmus test, which is why we mentioned that because we're running at around 90% utilization today on the pretty heavy development load or put a different way on a pretty low total exploration load and so we watch that very closely. And we'll see what happens over the next couple of years here. Noel Parks: Great. And I just wanted to ask one more and that's about, I think last quarter, you were observing that in general, in West Africa, customers were a little slower to commit than compared to South America. So I just wondered if that's unchanged. And you're talking about oil sentiment. It has been surprising to me that there seems to be just a lack of attention to sustained geopolitical premium in the oil strip these days despite there being still quite a few hotspots out there to be sure. And I just wonder if there are -- if you saw the sort of concern about future oil prices or oversupply or whatever, if you saw it playing out more strongly in the thinking of customers in one region than another? Robert Eifler: Yes, sure. So first, just on West Africa, that's a long-cycle region, takes a lot of planning. I think last quarter, we mentioned -- but certainly in the past, we've mentioned that really a difference between where we, at one point, we're hopeful the demand picture would be around this time, and reality here is explained by a lack of West Africa demand. We see that starting to play out in a number of countries in West Africa. We mentioned Mozambique too. I think that comes online in the next couple of years. So if that corrects itself, I think that's a few units of demand that I think is going to really help in late '26 and '27 bring total utilization -- or excuse me, total demand back where we were predicting it to be. On the oil piece, I think there's a lot of negative sentiment. There's -- a lot of people hold a belief that it's likely to go down before it goes up. We struggle to predict, obviously. I will say, I guess, kind of repeat what I said around what we see on service demand, demand for our services, which is encouraging. And then I always point to kind of the middle part of the Brent curve which has moved so much less than spot pricing and then a very volatile sentiment. And if you're a deepwater operator, you're obviously having to take 5- and 10-year view. So it makes sense that with that middle part moving less, that we're seeing planning continue, perhaps beyond what the otherwise volatile macro would suggest. Operator: [Operator Instructions] Your next question comes from Josh, Daniel Energy Partners. Joshua Jayne: I just had one. I think it was at the end of the prepared remarks. You talked about the balance sheet and some cost rationalization. Maybe you could speak to the efforts you're taking on the cost side. And if you view those as sort of structural or if these are things that you're doing, assuming that we have a trough in the first half of next year before recovery. Maybe just go into more detail on the things that Noble is doing? Richard Barker: Sure. Yes. Obviously, the cost in the down markets is very important. And I think as you think about the Diamond transaction as an example, right? So in that deal, we've announced a $100 million of synergies. We achieved that, I guess, in Q2 of this year. And so we're well -- it was -- well, at an amount now obviously, that's materially higher than that. But it's hard to bifurcate what is the synergy versus the other kind of cost work that we're doing in the company. So we haven't put out a kind of an incremental cost savings target, but I think it's fair to say that we're realizing kind of the incremental cost savings, obviously, as activity slows here in the first half of next year. Operator: There are no further questions at this time. I will now turn the call back over to Ian MacPherson for closing remarks. Ian MacPherson: Thanks, everyone, for joining us today and for your interest in Noble. We look forward to speaking with you again next quarter. Have a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.
Operator: Good day, and welcome to Camden National Corporation's Third Quarter 2025 Earnings Conference Call. My name is Elliot, and I'll be your operator for today's call. [Operator Instructions] I'll now turn the call over to Renee Smyth, Executive Vice President, Chief Experience and Marketing Officer. Renée Smyth: Thank you, and good afternoon, and welcome to Camden National Corporation's conference call for the third quarter of 2025. Joining us this afternoon are members of Camden National Corporation's executive team, Simon Griffiths, President and Chief Executive Officer; and Mike Archer, Executive Vice President and Chief Financial Officer. Please note that today's presentation contains forward-looking statements, and actual results could differ materially from what is discussed on today's call. Cautionary language regarding these forward-looking statements is included in our third quarter 2025 earnings release issued this morning and in other reports we file with the SEC. All of these materials and public filings are available on our Investor Relations website at camdennational.bank. Camden National Corporation trades on NASDAQ under the symbol CAC. In addition, today's presentation includes a discussion of non-GAAP financial measures. Any references to non-GAAP financial measures are intended to provide meaningful insights and are reconciled with GAAP in our earnings release which is also available on our Investor Relations website. I am pleased to introduce our host, President and Chief Executive Officer, Simon Griffiths. Simon Griffiths: Good afternoon, everyone, and thank you, Renee. Today represents a pivotal moment in Camden National's continued growth and success. Earlier today, we announced record third quarter earnings of $21.2 million, setting a new high watermark for the organization. This achievement represents a 51% increase in earnings over the previous quarter. Equally important, pretax pre-provision income for the third quarter rose 19% over the prior quarter signaling the momentum across our franchise. This significant achievement underscores the strength of our successful execution of the Northway financial integration strategy. Following our acquisition Northway that we closed earlier this year on January 2 and the value of our expanded capabilities made possible by the dedication of our team and the continued trust of our customers and shareholders. Our strong quarterly earnings continue to support the rebuilding of capital levels following the Northway acquisition, while enhancing long-term shareholder value. This progress is reflected in our tangible common equity ratio which grew 32 basis points in the third quarter to 7.09% and a 6% increase in tangible book value in the quarter, reaching $28.42 per share as of September 30. We are well positioned for continued tangible book value accretion through core earnings and a disciplined capital deployment strategy focused on dividends. Several key performance indicators continued to trend positively this quarter. Our net interest margin expanded by 10 basis points to 3.16%. Our non-GAAP efficiency ratio improved to 52.5% and we reported a return on average tangible equity of 19.1% for the third quarter. These results reaffirm our commitment to delivering top-tier financial performance driven by sustainable growth and operational excellence. We delivered robust annualized loan growth of 4% this quarter, reflecting our continued commitment to profitable organic expansion and strategic investments and talent acquisition. Our scale, combined with deep local expertise in the communities we serve remains a key competitive advantage, enabling us to build lasting relationships and unlock new business opportunities. Our committed loan pipeline was robust as of September 30, totaling $116 million and our customers continue to demonstrate resilience despite broader economic uncertainties. In the third quarter, average core deposits grew 2%, reflecting the benefit of seasonal deposit inflows and continued customer confidence and franchise strength. During the third quarter, saving deposit balances grew 5%, continuing the momentum from recent quarters. This product continues to be a strong vehicle for development of new and growth of existing customer relationships. Credit trends remain strong, underscoring the quality of our underwriting and vigilant risk management approach. We continue to address issues swiftly and prudently as reflected in key credit metrics, including a 14 basis point decrease in nonperforming assets in the third quarter to just 12 basis points of total assets at September 30. Last quarter, we proactively disclosed and reserved $6 million for a syndicated loan participation, involving a telecommunication services company that entered bankruptcy. In the third quarter of 2025, we charged off $10.7 million of the $12.2 million carrying value of this loan. We remain confident in the overall health of our well-diversified loan portfolio. We sustained strong momentum in our noninterest income this quarter, with assets under management and administration reaching a record high of $2.4 billion. Fiduciary and brokerage fee income for the nine months ending September 30, 2025, grew organically by 16% year-over-year, reflecting strong client engagement and demand for our trusted advisory services. Summer mortgage activity was robust, contributing to another solid quarter of mortgage banking income. We continue to identify meaningful opportunities to deepen relationships within our existing customer base particularly as we focus on advice-driven engagement and expand treasury management services into the New Hampshire market. Our innovation agenda and strategic investments are focused on attracting and retaining a digitally engaged customer base. Since launching our enhanced digital account opening platform in January of this year, we have seen a 131% increase in consumer accounts originated digitally. We continue to introduce tools like Roundup savings and digital financial literacy resources, digital engagement among customers under 45 has grown 11% year-over-year, measured by monthly logins. We are also advancing automation across the enterprise to drive operational excellence and elevate service delivery. With over 143 bots in production we have processed more than 5 million items, saving over 74,000 cumulative hours since implementation, freeing up capacity to focus on high-value customer interactions. Our deep community routes continue to drive customer loyalty and long-term growth. To mark our 150th anniversary, we hosted a half-day community well-being day in September, closing offices to support volunteerism across the region. While the 600 employees contributed over 1,900 hours across 65 nonprofit organizations, in addition to their annual paid volunteer time. Our record-breaking third quarter performance energizes us as we look ahead. These outstanding results reflect the dedication of nearly 700 teammates and our unwavering commitment to serving our customers and executing our strategy. The momentum we have built positions us well to carry the success through the remainder of 2025 and beyond. With a strong foundation and a focused approach, we remain confident in our ability to deliver exceptional outcomes and create meaningful long-term value for our shareholders. And with that, I'd like to hand over to Mike to provide some financial highlights regarding the quarter. Michael Archer: Thank you, Simon, and good afternoon, everyone. We are very pleased with our third quarter 2025 financial results as they signify the earnings power, the future potential of Camden National. Having completed the acquisition of Northway Financial and successfully executed the integration and cost takeout plans. For the third quarter, we reported net income of $21.2 million, diluted earnings per share of $1.25 both representing increases of 51% over the second quarter of 2025. On a non-GAAP basis, pretax pre-provision income reached $29.5 million for the third quarter, an increase of 19% over the prior quarter. Strong revenue growth for the third quarter of 5% on a linked quarter basis, coupled with continued expense discipline and achievement of synergies from the Northway acquisition, resulted in improvement across several key financial metrics, including a return on average assets of 1.21% and a non-GAAP return on average tangible equity just over 19% for the quarter. Average loan growth of 1% and net interest margin expansion of 10 basis points during the third quarter -- or excuse me, expansion of 10 basis points, grew to 3.16% in the third quarter, fueled our net interest income growth of 4% between quarters. Our asset yield increased 4 basis points during the third quarter to 4.98% driven by steady repricing and origination of new assets and the current interest rate environment. At the same time, our funding costs improved by 6 basis points during the quarter to 1.9% driven by seasonal deposit market flows as average deposits increased 2% during the third quarter. relieving pressure on more costly borrowings. With a liability sensitive interest rate risk position, we are well positioned for future Fed rate cuts. We continue to see favorable momentum in noninterest income revenue reaching $14.1 million in the third quarter, an increase of 8% over the second quarter. Included within noninterest income this quarter was a net gain of $675,000 from the sale of two non-branch properties. Adjusting for this nonrecurring net gain, noninterest income grew 3% on a linked quarter basis totaled $13.5 million. Reported noninterest expense for the third quarter was $35.9 million. Our third quarter operating expenses reflect our expected cost savings and synergies from the Northway acquisition. As we look forward, we are estimating fourth quarter noninterest expense of $36 million to $36.5 million. For the third quarter of 2025, we reported a provision for credit losses of $3 million, down from $6.9 million in the previous quarter. As Simon noted in his comments, we recorded a charge-off of $10.7 million during the third quarter for the syndication loan we previously disclosed last quarter. At June 30, we carried a specific reserve of $6 million on this loan and upon charge-off, we recognized an additional provision expense of $4.7 million this quarter. This additional provision expense was partially offset by changes in our macroeconomic outlook and a decrease in our committed unfunded loan pipeline during the quarter. As of September 30, the allowance totaled $45.5 million and covered 5.5x total nonperforming loans. As shown in our earnings release, our credit quality metrics at quarter end remained solid. This concludes our comments. I will now open the call up for questions. Operator: [Operator Instructions] First question comes from Steve Moss with Raymond James. Stephen Moss: Maybe just start on loan growth here, Simon. Good quarter for commercial real estate growth, and I hear you, Simon, in terms of the pipeline being robust. Just kind of curious, where is loan pricing? And kind of are you seeing a pickup in activity and maybe more opportunities in your markets these days? Simon Griffiths: Yes. Thanks for the question, Steve. I'd say, overall, we have seen some nice momentum in a number of our businesses, commercial, certainly small business and home equity, which is up about 54% year-over-year. Certainly part of that story is coming out of the New Hampshire market, and that's something we've been talking about now. It's a tremendous market. We've got some great stakeholders, and we've made some recent hires in the market. On the pricing front, certainly been some softening in the last 60, 90 days. They're still holding up fairly strong. So I think this is a nice opportunity. We probably see a little bit of softening of loan volumes in the back fourth quarter compared to sort of what we saw in the third quarter, but still lots of good momentum and really pleased with some of those businesses and how they're performing. Stephen Moss: Okay. Great. And then in terms of the margin here, good step-up as expected, that is obviously cut in September here, probably getting another rate cut tomorrow. Just kind of curious as to how you guys are thinking about the margin going forward and some of the dynamics you have for assets repricing higher here? Michael Archer: Sure, Steve. Yes -- so we are well positioned certainly for the Fed rate cuts and in our base model, we do have that cut in tomorrow and one in for December, certainly from there, of course, depends on the yield curve kind of where we go. But I think in our base model, where we have margin expansion, up 5, 10 basis points next quarter, a lot of that coming from the cost of funds side of the house, would you think -- probably some of the -- on the asset side, the expansion probably will start to slow down on what we call a little more flattish as we continue to put new loans on at higher rates, but that's being offset a little bit by just the repricing down of some of the variable rate loans. So it's really, I think, for least amount of base model for now, we're thinking how all that benefits from the cost of funds. Stephen Moss: Okay. Appreciate that color. And so as we think about each rates, I kind of realize the one in December is kind of late and obviously the September 1 was late for this quarter. Is it roughly kind of like, I guess, 5 to 7 basis points per rate cut kind of how to think about it? Michael Archer: Yes, I think we had -- we were modeling somewhere around 3 to 4 annualized. But yes, I think that's kind of not hard. Stephen Moss: Got it. Okay. And then in terms of just the activity, Simon, you mentioned hiring in New Hampshire. Just kind of curious how many people you've hired? How you're thinking about investment? I realize that we're heading into the fourth quarter planning season for next year, but just color around that and kind of how you're thinking about expenses for next year. Simon Griffiths: Yes, thanks. And I think that's been a key message from us and a focus as a management team really just disciplined expense management. And obviously, they're very pleased with the efficiency ratio coming in at just under 55%. And I think reflects how we think about expenses and reinvesting and self-funding a lot of those investments. We have invested in a couple of commercial bankers, continue to build out the team, fill in key areas, also looking from a home equity perspective and a mortgage perspective to continue to make sure we cover the market and make investments where they make sense. And I think that continues in a steady pace next year. I think it's something that we just continue to want to keep building on, but be very strategic in those investments. And as I say, make sure we continue to be disciplined in our approach. Operator: We now turn to Damon DelMonte with KBW. Damon Del Monte: I hope you're doing well. Just wanted to circle back on the expense question. I think, Mike, you said your guide for next quarter is like $36 million to $36.5 million. Just kind of wondering what some of the dynamics are in the step-up on a quarter-over-quarter basis. And as you look across '26, do you think kind of the 3% to 4% annual growth rate is reasonable? Michael Archer: Yes. Thanks, Damon, for the question. Yes. So good question there. As we think about the fourth quarter, I think there's some stuff on the people side of the house just in terms of some incentives and how the year shakes out, Damon, that we're thinking that some of our operating expenses could tick up a notch. Also as part of just the acquisition of Northway, they just had a legacy contract with an individual there that there's some accounting for that has to be done at year-end. So I wouldn't call that necessarily a recurring expense per se is directly tied to the performance of the BOLI asset, which has done very well this year. And so there's some additional expense that we were anticipating could run through in the fourth quarter. So really, it's those two factors are the primary drivers for kind of our outlook currently for the fourth quarter. As we think about going into next year, I would just say we're still certainly in the planning phase, but as Simon just mentioned that, that efficiency ratio and paying particular attention to that, trying to manage to mid-50s-ish, something in that space is kind of where we want to be. So we'll continue to do that as we think about our outlook for expenses. Damon Del Monte: Got you. Great. I appreciate that color. And then with regards to the margin, I appreciate the commentary around the core margin there. As you think about like the fair value accretion that gets run through each quarter, do you see that kind of slowing down or tailing off here in the fourth quarter and as we go through '26? Or does it kind of stay elevated like we've seen in the last couple of quarters? Michael Archer: I mean I think it's pretty -- $4.5 million to $5 million is a pretty good number for us all in honestly. Certainly, for next quarter. I think if it becomes a bit of a refi boom or at the long end comes down a little bit more, we could see that potentially accelerate in '26. We're not certainly not baking that into our base model, if you will. But I think that $4.5 million to $5 million is a pretty solid run rate for us, at least for now. Damon Del Monte: Okay. Great. And then I guess just lastly, with the charge-off, obviously, you released some reserves there, you're down to 91 basis points. Just kind of wondering how you think about that level when you consider the outlook for growth and that kind of being offset by the healthy credit quality overall. I mean do you think you kind of keep it in this low 90 range? Or do you think you need to kind of build it back up a bit? Simon Griffiths: Yes. Thanks, Damon. We feel very comfortable about in that range. I think it represents our confidence in the underlying portfolio. And this is -- we've certainly felt very good about the overall credit this year in terms of the portfolio that we have and the -- we have a very strongly diversified portfolio. And I think that leads us to feeling good about the ACL and the current kind of guided range. Operator: We now turn to Matthew Breese with Stephens. Matthew Breese: Just a related question. It feels like you cleaned up the problem syndicated credit this quarter. And I guess I'm curious, is that provision that we saw more indicative of what you expect going forward? And are we back to more or less kind of normal course of business for Camden from a credit perspective overall from here? Michael Archer: Yes. I might answer that, Matt, just in terms of -- I think that low 90s, 91 knew kind of that space, plus or minus a basis point or two, I think it's a good spot for us. I think we feel comfortable there. So certainly, with loan growth, of course, more provision will be had. But I think overall, I mean, I think that's a good proxy of where it would be. That 91 basis points, if you were to go back and look at that compared to where we were at year-end pre-acquisition, a few basis points higher. I think it reflects a similar macroeconomic outlook for us right now and I would say, based on just kind of our current thinking, I think it's a pretty fair spot as we know the world can turn pretty fast. But I think right now, that's kind of what we're thinking. Matthew Breese: Got it. Okay. And then what is the blended rate, the blended loan yields on the pipeline? And I heard your comments, Mike, loud and clear on the NIM, but it feels like if we get a few more rate cuts which seems like it's on the table. It feels like there's structurally more tailwinds to the NIM beyond the next 6 to 9 days, it just feels like some positive loan yield repricing and then room to reprice deposits a bit lower. So I would feel net-net, like a year from now, the NIM is a bit higher, but I wanted to hear your thoughts on that. Michael Archer: Yes, I think that's fair, Matt. I mean I think for the 5 to 10 basis points for next quarter, I mean, I think that's a pretty good range for us. I mean, certainly, I think there's some opportunity there where we could outperform that as well. Thus far in the cycle, we've been pretty aggressive on pricing down some of the deposits and funding. I think as we even gear up for tomorrow, internal discussions around that are just changing. We want to be certainly thoughtful in terms of the customer base and trying to balance that with growth in deposits as well. So I think as we continue on this path and I want to say on the way up, we're a low 40s beta, I would say, on the way down, at least right now, we're probably inching a little bit higher than that. And I think we could settle in 35% to 40% when it's all said and done, is kind of how we're thinking about it. Yes. Really just trying to [indiscernible] that. I think from here, we probably -- maybe we don't move as staff, but certainly, our full expectation is to move and get that funding benefit. Matthew Breese: Got it. Okay. And then just two other ones for me. I was hoping you could help us out with kind of early reads on loan growth for 2026. And then within that, Simon, you pointed this out, but consumer and home equity, even though it's a smaller portfolio has been growing nicely. Maybe some thoughts there? And to what extent we might see that type of growth continue? Simon Griffiths: Yes. Thanks, Matt. I mean certainly, loan growth, as I talked about earlier. I think fourth quarter flat up to 2%, feels about the right sort of guide and then sort of mid-single digits, mid I think, is sort of where we're heading next year. Obviously, with a lot of that opportunity I talked about earlier, certainly in our New Hampshire market. And certainly, I said residential has been very strong for us as well as home equity, commercial, small business. They're certainly areas that have nice momentum. The home equity business, I think it's just a great relationship product for us. I think we really like the opportunity there to really connect and deepen relationships. We've also expanded the number of stakeholders that are able to originate home equities. That's been a big opening up of that door. So I certainly think this year has been exceptional growth, I mean up 54%, but it may not be as high as that. There's certainly, I think, forward momentum from here. And a lot of that growth actually on the home equity side is in the main market. So I think some of that opportunity next year could be in the New Hampshire market. And certainly, that would continue that forward trajectory. Matthew Breese: Great. And then just last one is on fee income for next year. It feels like we've hit an inflection point on a couple of areas, brokerage and insurance being one, but then also service charges have been up nicely. To what extent might we see some of these positive trends continue into next year? Simon Griffiths: Yes. We're really proud of the fee income growth, particularly in the CFC side of our business, the brokerage side of the business, I mean, up 15%. And certainly, overall, 11% organic growth in assets under management, which is great, and we talked about hitting $2.4 billion. So that momentum is really positive. We continue to invest in those businesses. I think it's just a tremendous opportunity. And also in the wealth business. We've mentioned, I think, on the last call, we've added a couple of folks into that business and there's opportunities down the road to potentially expand into the New Hampshire market as well on the wealth side. So we do have brokerage, coverage but not modest wealth coverage. So I think those are areas that I think make a lot of sense for us. and really connecting and partnering those businesses into the commercial business, the mortgage business and really creating that full relationship opportunity. So I think it's a business we're going just love the sort of current growth trajectory and just keep investing in it. But through that lens of self-funding and having that eye to our efficiency, which is, as you know, as a management team, really important to us. Operator: As we have no further questions, this concludes our question-and-answer session. I would now like to turn the conference back over to Simon Griffiths for any final remarks. Simon Griffiths: Thank you for your time today and continued interest in Canada National Corporation. We truly appreciate your support throughout the year and wish you a productive close to the year and a restful holiday season. Take care, everyone. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the WM Third Quarter Earnings Conference Call. [Operator Instructions] Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, Ed Egl, Vice President of Investor Relations. Please go ahead. Edward Egl: Thank you, Olivia. Good morning, everyone, and thank you for joining us for our third quarter 2025 earnings conference call. With me this morning are Jim Fish, Chief Executive Officer; John Morris, President and Chief Operating Officer; and Devina Rankin, Executive Vice President and Chief Financial Officer. You will hear prepared comments from each of them today. Jim will cover our high-level financials and provide a strategic update. John will cover an operating overview, and Devina will cover the details of the financials. Before we get started, please note that we have filed a Form 8-K that includes the earnings press release and is available on our website at www.wm.com. The Form 8-K, the press release and the schedules of the press release include important information. During the call, you will hear forward-looking statements, which are based on current expectations, projections or opinions about future periods. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties are discussed in today's press release and in our filings with the SEC, including our most recent Form 10-K and Form 10-Qs. John will discuss our results in the areas of yield and volume, which, unless stated otherwise, are more specifically references to internal revenue growth or IRG from yield or volume. During the call, Jim, John and Devina will discuss operating EBITDA, which is income from operations before depreciation and amortization. References to the WM legacy business are total WM results, excluding the WM Healthcare Solutions segment. Any comparisons, unless otherwise stated, will be with the prior year period. Net income, EPS, income from operations and margin, operating EBITDA and margin, operating expense and margin and SG&A expense and margin have been adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operations. These adjusted measures, in addition to free cash flow are non-GAAP measures. Please refer to the earnings press release and tables, which can be found on the company's website at www.wm.com for reconciliations to the most comparable GAAP measures and additional information about our use of non-GAAP measures. This call is being recorded and will be available 24 hours a day beginning approximately 1:00 p.m. Eastern Time today. To hear a replay of the call, access the WM website at www.investors.wm.com. Time-sensitive information provided during today's call, which is occurring on October 28, 2025, may no longer be accurate at the time of a replay. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of WM is prohibited. Now I'll turn the call over to WM's CEO, Jim Fish. James Fish: Okay. Thanks, Ed, and thank you all for joining us. Our team delivered another strong quarter of operational and financial performance. This led to third quarter operating EBITDA growth of more than 15% and free cash flow growth of nearly 33%. These strong results reflect the hard work of our teams, the resilience of our business model and the value of the intentional investments we've made across our business. Our collection and disposal business continues to be the engine behind our growth, contributing more than half of the year-over-year increase in operating EBITDA. The business drove strong organic revenue growth, and we're particularly pleased with our ability to attract robust disposal volumes to our network. MSW grew 5% in the quarter and special waste volumes grew 5.5%, driven by new event work. We also remain focused on maximizing customer lifetime value through our pricing strategies and leveraging technology to optimize our cost structure, and we continue to pursue tuck-in acquisition opportunities to extend our network and drive further internalization. Turning to WM Healthcare Solutions. The strategic value of the medical waste platform within WM's portfolio is more evident than ever. We've successfully integrated the people and operations of health care solutions into the existing management and operating structure of our 16 areas. This not only streamlines our operating model, but also allows us to apply our playbook, the WM Way across the acquired business, fostering a culture of customer focus, continuous improvement and accountability. This aligned structure accelerates collaboration and unlocks new opportunities for growth. As an example, one of our top hospital customers has increased their annual spend with us by over $5 million after choosing us as their single provider solution across their multistate network. This is precisely the type of cross-selling opportunity that gives us confidence in the long-term value of our combined offering. In our sustainability businesses, our solid performance is the direct result of success in managing contract structures and leveraging innovative technologies. Even as recycled commodity prices declined nearly 35% compared to last year, our recycling segment operating EBITDA grew by 18%, which is a phenomenal result. Our new renewable natural gas facilities drove higher year-over-year contributions from the Renewable Energy segment. Though growth was lower sequentially due to the timing of RIN sales, our full year growth expectations remain consistent with our initial outlook. I'm proud of the momentum we're building in this final stretch of '25 and even more excited about the opportunities ahead. These last several years, including this one, have been years of deliberate and disciplined investment in technology and automation in our fleet in new recycling and renewable energy, renewable natural gas facilities and in a premier medical waste platform. Each of these investments was made with intention and with a long-term view, positioning us to serve our customers better while structurally lowering our cost to serve. We're pleased to share that 2026 is setting up to be a year of harvesting the benefits of our investments, which will be partially evident in our free cash flow as our early view for next year suggests free cash flow approaching $3.8 billion. We remain thoughtful and disciplined in our capital allocation, and we fully expect to translate this performance into commensurate returns for our shareholders. In closing, WM is exceptionally well positioned for future success. Our long-term strategy is delivering and the investments we've made are paying off. As always, our results are a testament to the hard work and dedication of our people, and I sincerely appreciate the contributions of each and every team member. I'll now turn the call over to John to discuss our operational results. John Morris: Thanks, Jim, and good morning, everyone. In the third quarter, our team expanded margins by maintaining discipline on price-cost spread, leveraging advanced fleet and maintenance technology to reduce operating costs and realizing returns from our sustainability investments and strategic acquisitions. Our results affirm that our strategy is working and our disciplined organic and inorganic investments deliver long-term value. In the third quarter, we saw continued growth in our core collection and disposal business, increased contributions from our sustainability businesses and sequential margin growth and synergy capture from our Healthcare Solutions segment. In our collection and disposal business, we delivered strong performance in the third quarter with operating EBITDA margins expanding 100 basis points to a record 38.4% and operating EBITDA growing more than 7% with every line of business contributing to that growth. Both results are consistent with our operating EBITDA growth and margin expansion objectives and reflect the strength of our post-collection assets, increased landfill volumes and our disciplined focus on optimizing price-cost spread through customer lifetime value. We're also realizing the returns on strategic investments we've made to enhance efficiency and structurally drive costs lower. Looking at our top line, we delivered solid organic revenue growth in Q3, driven by disciplined pricing and improving volume trends in several lines of business. Core price was 6%, exceeding our plan with residential and disposal pricing leading the way. Collection and disposal yield came in at 3.8%, which was in line with expectations. Volume increased in the quarter with industrial up 1.2%, our first positive quarter since 2022. We remain focused on differentiating our services and maximizing customer lifetime value and our customers see the value of our service as churn remained right in the 9% range and service increases outpace service decreases. Additionally, landfill volumes rose 5.2% with broad strength across MSW, special waste and construction and demolition, mostly all unrelated to wildfire cleanup. As we mentioned at Investor Day, our strategic post-collection network continues to drive value both now and over the long term as we have seen both strong price and volume contributions. And our results keep us on track to meet our organic growth expectations for the full year. Turning to operating expenses. Q3 marked our second consecutive quarter with operating expenses below 60% of revenue. This improvement was driven primarily by our collection and disposal business, which contributed 90 basis points of margin expansion through lower maintenance and risk management costs. On the fleet side, investments in trucks and technology improved our maintenance processes, reduced repair and maintenance costs by 60 basis points. Additionally, our focus on retention and training and development contributed to a 7% year-to-date improvement in the total recordable incident rate, lowering our risk management costs as a percentage of revenue. The strategic investments we've made in our team, our fleet, cutting-edge technology and comprehensive training are showing meaningful results. Turnover improved by an impressive 300 basis points, bringing the combined rate for drivers and technicians down to a record low of 16.8%. These results underscore that when we invest in our people, we invest in the future of our business. These same investments in people, process and technology are showing up in the WM Healthcare Solutions business as well. Since the beginning of 2025, the team has improved turnover by 21% while also improving on-time service delivery to the highest level in over 4 years. As we close the third quarter, our results reflect not only strong execution, but also the innovative mindset that continues to set WM apart. From advancing operational efficiency to strengthening our customer relationships, our progress is driven by the ingenuity and commitment of our team. Thank you to all of our employees for the work you do every day to move us forward. And with that, I'll turn the call over to Devina to walk through our financial results in more detail. Devina Rankin: Thanks, John, and good morning. Total company operating EBITDA margin was 30.6% in the third quarter, which is the best quarterly result in our history, and that is despite the expected margin headwind from the acquisition of the Healthcare Solutions business. WM's legacy business achieved operating EBITDA margin of 32% in the quarter, meaningfully surpassing our long-standing ambition of sustained operating EBITDA margins above 30%. We achieved these results while overcoming a known 30 basis point headwind from the expiration of the alternative fuel tax credit. Our Legacy Business achieved 120 basis points of margin expansion in the quarter from 4 primary things: one, continued optimization of business mix with strong municipal solid waste volumes taking the place of low-margin residential volumes; two, our focus on operational efficiencies in our collection and disposal business; three, the scaling of our sustainability businesses; and four, our dedicated focus on reducing costs. The remaining 60 basis points of margin expansion was driven by lower recycled commodity prices in our brokerage business and a reduction in incentive compensation costs. As I mentioned, the Healthcare Solutions business created an expected headwind for our consolidated margins. Our focus on optimizing this business will lessen this pressure over time, and we can already see the benefits of the team's integration and optimization efforts on the margins of this segment, which have improved each quarter since we acquired the business and are now at 17.5%. The key takeaway from all of this is that WM's disciplined focus on driving efficiency and investing in high-return opportunities is benefiting our financial results. Our strong performance continues to translate into robust operating and free cash flow growth. Through the first 9 months of 2025, we generated $4.35 billion in cash from operations, an increase of 12% compared to the same period in 2024. This increase reflects our significant earnings growth, partially offset by higher cash interest due to the debt issued last year to fund the acquisition of Stericycle. Capital spending to support the business and our sustainability growth investments are both tracking according to plan, totaling $2.34 billion for the year-to-date period. Putting these pieces together, free cash flow has grown 13.5% to $2.11 billion. Notably, our operating EBITDA to free cash flow conversion approached 42% in the third quarter, reflecting that we have moved from peak investment levels in sustainability growth projects, landfill infrastructure and our fleet into a period where we will harvest strong returns on these investments. Through the first 3 quarters of 2025, we've returned $1 billion to our shareholders in dividends and allocated more than $400 million to solid waste acquisitions. Our leverage ratio at the end of the quarter was 3.3x, and we continue to track toward our target ratio of between 2.5x and 3x, which we expect to achieve by the middle of 2026. Turning to WM Healthcare Solutions. As Jim mentioned, we're as confident as ever in the strategic value of the acquisition, and we are committed to fully capturing its long-term potential. Revenue trends for this business reflect a more measured pace than our initial projections. This is because we are using a disciplined approach to customer engagement, which means we have offered credits and deferred planned price increases for some of our customers. All of this reflects our focus on maximizing customer lifetime value and building a strong foundation for sustainable long-term growth. Despite the moderation in the anticipated pace of revenue growth in the second half of 2025, we're on track to achieve the targeted operating EBITDA contributions from the acquisition across our total company results because synergy capture has exceeded our initial expectations, internalization of waste into our landfill network has been effective and cross-selling opportunities are proving to be strong. Turning to our total company outlook for the remainder of the year. We remain confident in our ability to deliver the operating EBITDA and free cash flow guidance we provided last quarter. Full year revenue is projected to be at the low end of our prior guidance range, reflecting incremental weakness in recycled commodity prices and our revised expectations for Healthcare Solutions. With our outstanding year-to-date operating EBITDA margin results and confidence in our continued execution as we close out the year, margin expectations have increased to between 29.6% and 30.2%. In short, we are well positioned to achieve another year of strong earnings, margin and cash flow growth in 2025 and to build on our success as we go into 2026. Finally, as many of you know, this is my final earnings call as CFO before my upcoming retirement from WM. Over the past 23 years, I've had the privilege of being part of this extraordinary team. Together, we work hard each day to care for each other and our communities and to deliver value to all of our stakeholders. In closing, I must say that my favorite thing about our business has always been the people. I want to thank the entire team for leading the way in service to our customers, the environment and to our shareholders. To our shareholders, thank you for your trust and support. I have complete confidence in the WM team and in David Reed, our incoming CFO, who knows this business deeply and has been instrumental in shaping our financial strategy. I know the future is bright, and I look forward to watching WM's continued success. With that, Olivia, let's open the line for questions. Operator: [Operator Instructions] First question coming from the line of Tyler Brown with Raymond James. Patrick Brown: Devina, I've got a couple of housekeeping items. But just year-to-date, how much have you guys benefited from the onetime cleanup work at the landfill? I just want to make sure I have that right for next year. And then secondly, can you go through a couple of the charges this quarter? Has that plastic film plant just been idled based on commodities? Or was that a technology issue? And then what was the genesis of the landfill closure and the charge in renewables? I'm sorry, I know that's a lot, but I appreciate it. Devina Rankin: Yes. Let me take them in pieces. So first, with respect to the wildfire volumes, I think it's important to first highlight what John mentioned in his prepared remarks that there was virtually no impact of that in the third quarter. That really was mostly a Q2 item. There was some in Q1. Total revenues for that were around $115 million for the year. And as we've talked about, the flow-through on that revenue is higher than our portfolio flow-through on incremental volume, which tends to be in the 45-ish percent range. As you can imagine, landfill volumes and special event volume tends to be at the higher end. So you have to extrapolate that in order to think about total EBITDA impact. But I want to reiterate that the strength of Q3 solid waste results really indicate that we accomplished about $145 million in EBITDA growth in that segment without any meaningful impacts from the wildfires. With regard to the charges, I'm going to let Tara address the Natura activities because she'll do that better than I could. But with regard to the landfill impairment that we took in the quarter, that was a really long-term pursuit of expansion at hazardous waste landfill in the Northeast. And we had some news this quarter that indicated that our pursuit would no longer be worth moving forward with and both recorded an impairment of the existing net book value of that and then also reported the impact of an acceleration from former estimates in the expected closure and post-closure costs for the site. Tara Hemmer: So on Natura, it is absolutely market conditions. We built this plant and demonstrated that we could produce a high-quality pellet that customers would buy. But with virgin prices being at all-time lows and some of the minimum content legislation being a bit delayed, the buyers were just not there for the product that we were producing. So we made the decision to temporarily close the operations. We could start it back up, but we're going to monitor what happens with those market conditions going forward. Patrick Brown: Okay. Okay. Very, very helpful. Appreciate that. And then, Jim, I very much appreciate the early look on the '26 free cash. But can you give us any help on some of the pieces to get there? I mean, would a mid- to call it, mid-high single-digit improvement in EBITDA, which I think is pretty consistent with the Analyst Day makes sense? And then will part of the improvement in free cash be a sizable drop in green CapEx? Just any broad strokes there? James Fish: Yes. So it's coming from a number of different places, Tyler. I mean if you think about the wind down of the sustainability investments and then a ramp-up in the related EBITDA, that's a big piece of it. You'll see the normal strong performance of our legacy business, which tends to perform year in and year out. And so you'll see that as well, and we'll give you kind of the exact number when we get to next quarter. In addition, we've bought -- I think, John, correct me if I'm wrong here, about 6,000 trucks over the last 3 years. And that's above our normal spend on fleet. So we'll ratchet back to more of a normal-looking year with about 1,500 trucks. So you'll see maintenance capital be a piece of that. You'll also see, and I can talk about this, too, Healthcare Solutions. There's a number of reasons why Healthcare Solutions is going to be a nice contributor to free cash flow next year, not the least of which is reducing the cost of integration, which has been substantial this year. You'll see some -- a fair amount of carryover from synergies that we were collecting throughout the year this year that we'll get the full year of next year. You'll see some additional synergies in that business next year. So there's a number of reasons why Healthcare Solutions will be a nice contributor to free cash flow. So there's quite a bit going into that. I don't know that, that helped you kind of fill out the model. But I think you'll be able to -- when you hear us in January, be able to recognize that this is not just one thing that's causing us to be bullish on free cash flow. Patrick Brown: Yes. No, I totally get there's a lot of pieces. And just if I can squeeze one last one. So I think at the beginning of the year, you guys said that sustainability EBITDA would be up, call it, $280 million at the midpoint this year. It does appear year-to-date on my math, again, this is my math, but it is tracking pretty well below that. I assume there's going to be a step-up in Q4. And then I thought, Jim, I heard you say that you are expecting to hit that target for '25. Is that right? And then two, and Tara, this is my bigger picture question. But with where commodity prices are, where RINs are, do you still have that full confidence in achieving that near $800 million of total incremental by '27? Or should we start thinking about maybe haircutting that a little bit or pushing it out a little bit further? Appreciate it. Tara Hemmer: So let me take this in pieces. And first, I'll start with the renewable energy business. So we're making great progress on our projects, as Jim mentioned. You might have noticed that our earnings might have looked a little muted in the quarter, but that really is because we made the decision to defer really selling some of our RINs in Q4 because we saw pricing uptick -- upticking a bit. And on the volume side in 2025, just to give you a little bit of color, we're on track through the first 9 months of the year where we doubled the amount of RNG production. So we're seeing the benefits flow through from those plants. As far as what we guided in 2025, we're expecting our renewable energy business to be on track. What's lagging is the recycling business, which is primarily commodity price driven. We've made a lot of great strides on our automation investments. And if you look at what Jim mentioned that commodity prices were down nearly 35% and EBITDA was up 18%. That is a testament to the benefit that we're driving out of these investments in labor costs and operating expenses and our EBITDA margins are more than doubling at those automation plants. So what you might see going forward into '26 and '27 on the recycling side, you'll recall, we gave you a range of between $75 a ton and $150 a ton for what we might expect out of the recycling business. And so for the automation investments, we expect roughly a $10 change to equate to about $8 million. And then you would have to add to that for our base business, a $10 change is about $20 million. So all in, somewhere between $25 million and $30 million would be our new $10 change. But we're -- we remain very confident on where we're headed. We're looking at renewable energy pricing and what's happening in the RINs market, and we're seeing prices for 2026 in that $2.20 to $2.30 range. So still within our investment thesis. Patrick Brown: And Devina, again congrats. Operator: Our next question coming from the line of Noah Kaye with Oppenheimer. Noah Kaye: I'll add the congratulations to Devina for a long career at WM. Thanks for all the dialogue over the years, and we wish you well on the retirement. Devina Rankin: Thanks, Noah. Noah Kaye: So now that we know that landfill volume didn't benefit from wildfire in 3Q, can we double-click on the strength in MSW as well as what drove the positive inflection in industrial volumes? James Fish: Yes. So volume was a good picture for us this quarter. When you think about industrial, it's been negative for several years now. And so the fact that it ticked up was encouraging. It was pretty evenly spread geographically. Part of that industrial pickup was the conversion of WM Healthcare Solutions hospital customers that moved from other companies to us. So that was a piece of it. I guess you could call that cross-selling, I don't know, but it certainly is a benefit of acquiring the business. Temp roll-off was slightly stronger across a couple of geographies as well. So that contributed. And then you didn't ask about resi, but resi is -- has been negative for a number of years. And I think, John, we've talked about it kind of starting to flatten out at the back half of next year, but the volume -- the margins have certainly been strong there. John Morris: Yes. I mean if you look at quarter-to-date, year-to-date, the revenue despite the volume headwinds is up in the quarter and the date. And I think for the quarter, we were still up $10 million in revenue and about 155 basis points. So that math is still working. But to your point, Jim, about the outsized volume impact. If you remember last quarter, we talked about one big franchise, it's affecting about 250 basis points of that negative landfill -- excuse me, residential print, and it's about 50 to 60 basis points on the commercial side because that will be another question is that franchise business. So we should lap that at the end of Q4. To your point, we've said we think we'll see continued improvement in trends in residential and probably get sub-3 by the first quarter of next year and continue to improve from there. James Fish: And then Noah, on landfill volumes, not only was MSW positive, really all waste streams showed nice positive movement. And MSW in particular, I think, is reflecting the strength of our network really more than anything else. It wasn't kind of similar to the industrial line of business. It wasn't something you could point to specifically in one place. It was pretty universal. And so we're pleased with it. But it certainly wasn't a case of us trading price for volume because if you look at the price numbers, they were very strong as well, particularly MSW, I think, was at 6.7% yield. So we're pleased with it. I wish I could give you a better answer on -- other than just the network is very strong and why it's coming to us. The pipeline on special waste, we just heard from our area leaders last week is it continues to look good. So overall, we're pleased with volume numbers. Noah Kaye: Okay. Nice to see the margin guide raised for the year. There's still, I think, a fairly sizable range there for 1 quarter implied. So just broad thoughts on what would take you to the low end versus the high end of that margin guide. Devina Rankin: Yes, it's a good question. And what I could tell you is we're optimistic about the margin outcomes. I think that what you're left with is recognizing that with softness on the revenue line, there had to be outperformance in our execution, particularly in the collection and disposal business on margin, and that's what lifts our confidence in the top end of that range. I don't anticipate much that would drive us to underperform on that range. So I do think you're looking at midpoint to the upper end being the most likely outcome for the fourth quarter. With respect to what gives us that confidence, I really think it's important to reiterate that when you look at the 32% collection and disposal margin in the quarter, it's the result of the retention benefits that we've talked about, driving efficiency and safety. It's the fleet investment. It's improved price-cost spread and it's improved mix, which Jim just gave you color on, particularly with those landfill volumes being so strong. So that's what gives us confidence, combined with the fact that, as Tara mentioned, Q4 will be a strong quarter of RIN sales, and those are effectively 100% accretive to margins. So really expect the fourth quarter to be another strong quarter of margin performance. Operator: Our next question coming from the line of Trevor Romeo with William Blair. Trevor Romeo: First one I had was just on the Healthcare Solutions business. If you could maybe just touch a little more on the deferral of the pricing increases. Just maybe like what kind of customers are pushing back and why? And then just in terms of maybe the long-term pricing power of that business, what's your confidence in the ability to eventually get those price increases and achieve the kind of mid-single-digit revenue growth you expect for that business? James Fish: Yes, Trevor, apologies for kind of a long answer coming here, but I'll touch on the price increase piece. But let me give a little bit of perspective for everybody here on Stericycle after 12 months of owning the business. First of all, and we talked about this in our prepared remarks, but strategically, we view this as being even better than the original business case. It's hard to -- the secular trends absolutely support this. It's hard to read an article these days about the next 10 years of kind of 10-plus years of economic growth in the U.S. without reading something about lower birth rates or an aging population here. And all of that supports this business. We know that what happens as we get older is that there's demand for -- higher demand for health care services. And the market position of this business, too, is incredible. They're -- I'm not sure we realize that coming in how strong their market position is geographically. I think regarding pricing, and it's really related to the ERP implementation itself, Devina can comment on this as well. But overall, as a comment about the ERP, I mean, it's moving along well. I think it's worth mentioning every single company that's ever implemented an ERP, including ourselves, by the way, has measured this in years, not in months, and there are always some challenges with it. And this one in particular, our ERP rolled out a few years ago off of a well-run system. This was not a well-run system. And so we had some challenges, I think, coming in. What we saw with the top line really was that it was affected by a couple of things. You mentioned one of them, which is deferred price increases. The other was credits given to customers as we're trying to clear up this AR. By the way, we've cleared up 1/3 of the past due accounts receivable just over the last 3 months about -- some of that is coming in the form of cash collection. Some of it is coming in the form of credits. The good news there is that those credits are, for the most part, are going to be one-timers. It's not as if we'll never give another credit, but a lot of those are onetime credits that we're giving to customers. And then we're seeing a bit of churn as well. It's not excessive churn, but we are seeing some churn. So it's really those 3 things. It's deferred price increases. It's some credits we're giving to customers to clear up old AR and it's some churn with the business and a bit of volume as well there. But overall, look, we're -- we think that we talked about the synergies outperforming. Devina mentioned that in her script. Those are outperforming for us. And by the way, this ERP, I mean, we absolutely have the right team on it right now. We have a super strong team on it. They are focusing on a whole bunch of different work streams. We're doing things like rolling out a new invoice to customers shortly. The systems are now finally talking to each other. So SAP and Salesforce are talking to each other. I'm not sure that was the case before. And so this becomes not an if anymore. This is a win. And I think the win is still well into '26. And -- but what we can say is that this quickly becomes transparent to our customers. It's all internal work that's being done. Things like the new invoice, those aren't transparent to the customer. They'll see that and they like it. But again, long answer to your short question there, but we do feel really good about this. I know a lot of you wrote about it in your earlier remarks. But strategically, it's a great business, and we're making a ton of progress on all fronts. Devina Rankin: And Trevor, I'd just like to underscore one thing, I think, to address your question very directly. And that's that this was not a step that we took as a reaction to pushback from customers, quite the opposite. It was a step that we took because WM does the right thing for our customers. And so whether it's the credits or the customer-centric evaluation of service and contract that was necessary for us to ensure that we're taking the right steps with price increase, those were things that we did because we do things the right way. And you'll just see effectively a restabilization of revenue as we get into 2026 outlook. But I think this housekeeping that you're seeing in the third quarter was necessary for us to focus on customer lifetime value and a long-term growth portfolio that we know exists because this is the best platform in the business for regulated waste service, particularly in North America. John Morris: And maybe, Trevor, one -- again, to add to Jim's long answer, I'll extend it just a minute. I mean, listen, at the end of the day, the strategic value of the health care business, Jim and Devina have spoke to in their comments. The other thing I would tell you is when you look at it, it's about 10% of our business when the dust settles. And if you look at the Legacy Business or the core solid waste business with margins over 38%, SG&A and kind of a soft revenue quarter at 9%. There's a lot of strength in the Legacy and core business, and we think that, that's going to continue to perform well through the balance of the year and next year. And again, we're going to get the tailwind, if you will, of all the improvements that the team is working on with regard to this health care business. So that's another reason why we feel so good about, in particular, what our free cash flow is going to look like for next year. Trevor Romeo: All right. That was really helpful. And then, John, I guess that's a good segue into a follow-up question I had, which is maybe the -- looking at your price/cost spread into next year, it sounds like things are kind of tracking well now. If you look at your pricing, maybe the yield is tracking maybe toward the low end of what you expected this year, but still pretty solid on costs. It sounds like your turnover and incident rates are improving. So you see potential maybe for wage inflation to go down further next year. Just kind of how are you thinking about both pieces of that spread into -- beyond this year? John Morris: It's a good point there, Trevor. I spent a good bit of time looking. I looked at it a few different ways. If you look at sort of the yield for the traditional solid waste business for the quarter, it's 4.1%. If you look at core price at 6%, and you compare that to sort of CPI, CPI for at least our math is right around 2.9%, 3%. So I think we continue to see a good spread between core price yield and operating expense pressure. And I think as I mentioned in my prepared remarks, another quarter under 60% with a little momentum on a year-to-date perspective. So we feel good about the cost/price spread. And I think the other thing we've talked about for the last number of quarters is that our commercial and industrial pricing has always been solid and consistent, but you're seeing continued improvement and consistent levels of pricing across our landfills, across our entire post-collection network and still in our residential business. So I think the fact that we've syndicated sort of our pricing strategy in a more effective way gives us a lot of confidence going into next year on that spread you mentioned. James Fish: You might mention, John, driver turnover because that's been an incredibly good story for us. John Morris: Yes, that's worth noting. I mean, if you look at our risk cost, our safety metrics, there's a number of metrics. Our labor ratios are all benefiting from the fact that we, as a team, have worked really hard over the last couple of years, really post-pandemic to get that number, a, under control; and b, to make it -- to improve it quarter in and quarter out. As I mentioned, the driver and technician turnover is at an all-time company low, and that shows up in a bunch of different metrics, as I mentioned in my prepared remarks. Trevor Romeo: And Devina, my congratulations to you as well. Operator: Our next question coming from the line of Toni Kaplan with Morgan Stanley. Toni Kaplan: I was hoping you could talk a little bit more on what's going on with yield and also just in the quarter, but also looking into 2026, how your conversations with customers have been going at the end of the year here? James Fish: Well, I would say yield is -- what we talked about with yield, and I mentioned a couple of them earlier, MSW was very strong at 6.7%, commercial at 4.7%, resi 6.5%. So we're happy with yield and core price. We tend to focus on both. And I think the primary focus with respect to pricing is to cover our cost and then tack on some margin over and above that. And I think that what we're showing, whether you look at -- when you look at our margin results, even with some of the headwinds that we faced, I believe that's really kind of showing up there. So I don't know that, that answers your question. But right now, we're -- we don't just focus on the kind of the absolute number. As our cost comes down, we've said all along that our yield will tick down slightly. So -- but we just want to make sure we maintain that delta between cost and price. Toni Kaplan: Got it. Yes. I was sort of curious on the industrial yield. I think it was like the lowest since COVID. And I think you've talked about mix and temporary roll-off being a little bit weak in past quarters. I know you said it was a little bit better this quarter. But were those still similar drivers? Or is -- like, I guess, on the industrial one, was there a reason why 2.3% was -- we saw lower. John Morris: I think you picked it off, Toni. I think a few things are affecting it. One, in terms of -- we mentioned that some of the volume increase is coming from the health care side as we internalize some of that. But to your point, the temporary business has actually rebounded a little bit is less negative. And historically, that's lower priced than permanent work, but that doesn't mean it's not as profitable. So that's one I would certainly point to. And I think the other thing we saw is a little uptick in our permanent hauls, too, from some of our permanent customers, not meaningfully, but it was an uptick. But that is what's affecting the yield. But I think, as Jim mentioned, when you look at our core price at 5.7% for industrial and the overall margin in our collection and disposal business at 38.4%, I think that the math puts out pretty well. James Fish: It may also be a bit of a mix issue with respect to national accounts when you look at yield. So -- and that's why core price is an important metric for us to look at also. Toni Kaplan: Okay. Great. And then just as a follow-up, when you think about the M&A pipeline, how is that looking? How are valuations looking? And should we expect '26 to be sort of a bigger year or still digesting the health care business? Just where are we on sort of M&A strategy? John Morris: Well, I think you heard a good bit of color from Jim and Devina on what we're doing in health care and where we are sort of in the integration there. We made a big step. The business is now fully integrated into our 16 areas. So we feel good about the momentum there. Separately, on the traditional solid waste side, I think we've closed about $450 million year-to-date, and we said that number could be as big as $500 million by the end of the year. And it could still be. We've got a handful of transactions that are out there that could close in Q4 or could roll into next year. But I think with regard to '26, sitting here today, I think probably somewhere in the normal $100 million to $200 million is what we're looking at now. But as we've demonstrated over the last couple of years, when the right strategic solid waste asset pops up, we've certainly got the capacity to do that. We're going to take the same approach into next year. James Fish: Yes. And I think, John, maybe one last add there. When you think about M&A for next year, it really kind of brings into the conversation of capital allocation and what does capital allocation look like next year. We'll give you some specifics on it when we get to January. But at $3.8 billion in free cash flow as we really harvest the cash from these sustainability businesses and the Healthcare Solutions and then continue to drive good strong cash from our Legacy Business, it probably indicates that you're going to see -- obviously, the dividend will be -- come out of that first, but there could be some M&A and very likely will be a substantial share repurchase next year. We'll figure out exactly what that number is going to be when we get to July. Operator: And our next question coming from the line of Jim Schumm with TD Cowen. James Schumm: I was wondering on the WM Healthcare, would you be able to give us a sense of how the medical waste is performing and how the document destruction businesses are performing? John Morris: Well, 2 things there. First of all, addressing a little bit of the remarks that Devina made earlier regarding some of the credits we've issued to the customers. Those credits have been primarily on the regulated medical waste side of the business. A lot of that is acknowledging frustration over the years with the ERP implementation. It has been sort of maintaining our customer-first focus there and making sure that we establish a firm foundation from which to grow. We have experienced a little bit of churn there on the hospital side of the business. However, addition of customers continues to be pretty strong. I will say, I think it's worth noting that we've renewed nearly $200 million worth of business on our large customers there, and that average PI has been in the low double digits. So I think we have a good runway there. And as we stabilize that side of the business and we have a firm foundation to grow, you'll see those PIs begin to realize towards the back half of 2026. On the auto shred side, the purge business gave us a little bit of challenge at the beginning of the year. That was mostly having to do with disconnects between commercial and operations. We fixed those and we've seen us bringing that high-margin business back in line. And the auto shred, actually, this is the place where we've implemented our sales coverage optimization the soonest, the fastest, and we're seeing a lot of productivity in terms of pipeline, rate of closure -- and we like what we're seeing there. Quite frankly, the whole melting ice cube concern -- is not that much of a concern for us anymore. James Schumm: Okay. And on the positive side, you noticed -- you noted like basically Legacy, Stericycle volumes going into your landfills. Are there any -- is there any way you could quantify that benefit for us? Devina Rankin: So basically, when we think about how we outlined synergy value, we talked about $80 million to $100 million in 2025 of synergy value. You can think of it being about 1/5 of the synergy realization to the year. James Schumm: Okay. Okay. And then just last one for me. On the hazardous waste landfill, like I just want to make sure I understand correctly. You were pursuing an incremental hazardous waste landfill. Is that right that didn't come to fruition? Or are you closing an existing hazardous waste landfill? And then can you just -- I forget how many -- you guys have 4 or 5 hazardous landfills? Where do you stand there? John Morris: Yes. So the answer to the question is that the site that we're referencing that was shuttered has actually not been operational. We've kept it on life support, if you will, while, as Devina mentioned, we were pursuing a permit expansion. So it's not a loss from our existing portfolio. It hasn't been operating in a meaningful way in a number of years. Devina Rankin: But it is in the count. We've always disclosed that we have 5 hazardous waste landfills. We will now disclose that we have 4. Operator: Our next question coming from the line of Rob Wertheimer with Melius Research. Robert Wertheimer: I just had a quick clarification on an earlier comment with respect to Healthcare Solutions doing more traditional waste. I think you said, I guess you could call it cross-selling. It sound a whole lot like cross-selling. So I was wondering if I missed the subtlety there. And then just more generally, how does your cross-selling kind of sales effort ramp up over time? James Fish: Yes. You're probably referring to the comment I made about our industrial volumes and how we were taking volumes from what would have been under the old company going to a competitor and then internalizing them into us. So that's really what that is, our solid waste volumes coming to us in the industrial line of business through internalization of that volume. Robert Wertheimer: Okay. Perfect. And then just in general, your progress along cross-selling on health care? Devina Rankin: It's been very strong. And there are some great examples where we've had exactly what we've talked about where the national accounts business platform for WM has been a long success story for us. But the health care sector was one of those where we were underrepresented relative to our share in other important segments of our customer base. And we've seen great success in leveraging, I would say, the WMHS customer base in order to extend traditional solid waste performance across that national accounts platform. And then we've also seen success the other way, where we've taken Legacy WM customers and thought about shred opportunities or even using the Healthcare Solutions platform in order to deepen the customer relationship. I think what's really important there is that when you become that single source provider for a customer, that customer relationship will be longer and provide incremental value. So that's another leg of that focus on customer lifetime value that we've been talking about. John Morris: Maybe, Rob, one more finer point there. Jim referenced in his script one particular customer that has increased their annual spend by about $5 million across their multistate network. But That's certainly an evidence of cross-sell there. By the way, there are several customers that have increased their spend in the 7-figure annual revenue range with us. But maybe what's even more exciting is that we're also seeing cross-sell in our independent RMW shred-it small and medium-sized customers. We've actually completed cross-sales for over 7,000 customers. Now those are small customers, but those end up becoming the backbone. And what we've seen is that customer split is basically 50-50 between WM and Stericycle original books of business. Operator: And our next question coming from the line of Faiza Alwy with Deutsche Bank. Faiza Alwy: I wanted to follow up on the same topic. It seems like you're talking about success around cross-selling, but at the same time, you're also talking about higher churn on the health care side. So I'm just curious if you could give us a bit more color on what type of -- is there a specific type of customer, maybe a region? Or like where are you seeing better strength with cross-selling versus where you're seeing higher churn? Rafael Carrasco: Well, the success -- Faiza, if I understood your question correctly, the success that we're seeing on cross-sell is across all of the channels. I just mentioned 7,000 customers that we've cross-sell. Those are small and medium-sized customers. We've also had some success with some of the larger, more complex hospital networks. The churn that we've seen in the hospital side really relates to those customers that have experienced the most frustration over the last couple of years. They were the ones that maybe weren't getting their bills correctly earlier in the Monarch, which is what they used to call their project implementation back in late 2023 and early '24. And so we've seen some uptick there. But we've also seen our addition of customers on the hospital side remain pretty healthy. James Fish: I think, too, Rafa, it's worth mentioning that -- okay, so yes, we've seen some churn here. But I mentioned in kind of in my long answer there that this network that Stericycle has is unsurpassed. Nobody is close to this network. So while we may have seen a bit of churn, it's not extraordinary churn by any stretch. And so once we get this ERP kind of ironed out, once we really kind of bring this entire business under us, which we've done now, John mentioned bringing it into our operational structure in our 16 areas, I think you can expect to see all those numbers that you've been focused on, that we've been focusing on as well, which is 5% to 6% revenue growth and the synergies really showing up as opposed to being a little bit obscured by the top line, all of that will begin to show. And then I guess, John's point is an important one, too, which is, again, this is 10% of our business. The 90% is killing it. So we're overall pleased with the way things have progressed. John Morris: I think the only thing I'd add to that, Jim, and I mentioned earlier, it's worth highlighting here is the service is good. I mean when we look at the health care portfolio of services, Rafa and the entire team have done a nice job, as I mentioned, on improving one KPI, which is on-time delivery. So service, if it were a challenge is the harder one is hard to fix. In this case, we have the benefit of providing solid service. James Fish: I think their numbers end up being better than our own numbers on the Legacy side. Rafael Carrasco: And by the way, that churn number is also better on that segment than on the Legacy side anyway. Faiza Alwy: Understood. Very helpful. And then just maybe pivoting to the core business. You mentioned lower maintenance, lower risk management costs. So how much more runway do you think you have in this as we look ahead to 2026 and beyond? John Morris: So I would tell you, it wasn't that many handful of years ago, we were at the 63-plus percent range. And gradually and systematically, we've worked our way down under 62%, 61% and now under 60%. And we think that's obviously a pretty big accomplishment for us. To answer your question, is there room to run there? Absolutely. I think you've seen the momentum from above 60% to below 60%. We have some numbers aspirationally over the next handful of years that we'd like to achieve that are better than the 59.4% that we printed this quarter. James Fish: But I think it's going to require, John, to your point, it's going to require a different way of doing business. And that -- and so John has a team that's working on this. So it's not just run faster, jump higher. It's doing things differently than we've done them. So if all we're doing is just doing -- kind of trying to squeeze dollars out of the existing business the same way, then I would argue, yes, we've probably squeezed a lot of those SG&A dollars out and the OpEx dollars out. But in order to get to those aspirational figures that John's referred to, I think you'll see us doing things a bit differently. That means using technology to supplement our operations and using AI, which every company is talking about these days to replace labor that leaves us. Operator: And our next question coming from the line of Tami Zakaria with JPMorgan. Tami Zakaria: One follow-up question on the topic of churn. I found your comments quite interesting. Could you comment on where these customers that are churning are going to? The reason I asked that question, and like you mentioned earlier, Stericycle had very strong market share. Hence, I'm curious, are they churning for price, network, something else? And related to that, would you expect to win some of these customers back once the ERP is in a good spot? Or are these customers not profitable enough to go after? Rafael Carrasco: Well, there's a lot in that question. I'm going to try to give you some nuggets that you can take away here. But first and foremost, we're having exit interviews with those customers. And by the way, a lot of times, what we're losing is not the entire customer, but a piece of the customer. And the reason for that is that there's no other competitor out there that can actually handle the entire network of hospitals that is associated with the customer. And so when you ask the question, do we have the ability to go back and gain that customer? The answer is absolutely yes because they're going to want to gravitate back to a single provider. Operator: And our next question coming from the line of Konark Gupta with Scotia Capital. Konark Gupta: I want to kind of address the same 10% business, Jim, you talked about it's kind of like important in the grand scheme of things. But your SG&A intensity at Healthcare, if I look at the gap versus the Legacy Business, I think it stood at 10 points in Q3, you were 12% or 12 points in Q2, 14 points in Q1. I mean it's been coming down sequentially the gap versus Legacy. And I think at this clip, I mean, you might hit your target -- underlying target for synergy in the next few quarters perhaps. So I just wanted to get the sense of are we thinking it correctly that the SG&A intensity is coming down quite nicely here and it's kind of going to hit your target soon enough? Or is there something else in the mix that has helped the SG&A intensity much faster in the first 3 quarters? Rafael Carrasco: Yes. Well, I would say to that, I mean, just to frame it maybe in a more pointed fashion, I think what you've seen is since Q3 of last year, you've seen that SG&A go down by essentially 700 basis points, which is a pretty dramatic shift down. Now there were some parts of that business that were clearly low-hanging fruit. We are now taking a much more surgical approach to how we do that. So particularly so we can do 2 things: one, maintain the improvement and the fixes that we are doing on the ERP one, change a little bit of the customer care level approach that we're using with that larger complex customer base and then facilitate more collaboration across the sales and the operations side of the business. So we saw a really good improvement in 2025. We're going to see that improve in 2026 and then taper down. But I think what we've said is over the -- we see over the 3-year horizon, we are intended to take that down to 17%. We think we're going to end up there, and there's opportunities for more. James Fish: By the way, one add there is that, that SG&A performance is even more impressive than Rafa gives a credit there because of the softness on the top line. So -- and we're measuring it as a percent of revenue there. So Rafa and his team have made huge progress on the cost side of this. And as we have discussed with the top line, there's been some things that -- some of them are one-timers, some of them are recoverable. But as we see top line really start to tick back up, that improves SG&A as a percent of revenue as well. Konark Gupta: I appreciate the color on that. And if I can follow up on the recycled commodities. I think you guys noted 35% decline in Q3. What are you seeing now based on the book that you are left with? What kind of basket of commodity prices you're looking at heading into Q4 and early '26? Tara Hemmer: Well, as you all saw, commodity prices have dipped and a couple of reasons for that. If you're looking at OCC prices, we've seen some mills closed down domestically, about 10% of capacity has been taken out, and we're seeing weaker box demand. So certainly, if the economy picks back up and we see more consumer spending, we would see an uptick in OCC prices. And you heard my previous comments related to plastics. Plastics are at all-time lows. But when you look at commodity price trends, typically from peak to trough, roughly 12 to 24 months. So we would expect a bit of a bounce back sometime in 2026. We're not expecting that in Q4 of 2025. We're expecting commodity prices to remain around that $65 to $68 a ton basket, and that's what has been included in our recent update. But overall, still feel very optimistic about the investments we've made. We've been taking out labor out of our facilities, which is good in any commodity price environment and certainly creating cleaner material, which we can sell at a higher price point. Operator: Our next question coming from the line of Kevin Chiang with CIBC. Kevin Chiang: Echoing the congratulations, Devina, best of luck in your future endeavors. Maybe just on RNG. I think at the Investor Day, you had mentioned that, I guess, in 2026, you had secured about 30% of the volume at a fixed price. RIN prices have moved up a little bit here in Q4. Just wondering if that ratio has changed as we think about the fixed versus variable into next year. Tara Hemmer: So for 2026, we've presold about 45% of our offtake. So it's up from our last update. And just to give you a balance, what we're anticipating is a little less than half of that will be sold in the transportation market and a little more than 50% will be sold in the voluntary market. 2026 will be the year where we will fully allocate the -- our fleet to WM's RNG production. We're seeing RIN prices for 2026 in that, again, $220 to $230 range and still seeing some buyers on the voluntary market, and we're making some headway there. Kevin Chiang: Okay. That's super helpful in the update. And just -- I know you've had a lot of questions on health care here. Maybe if I just ask a bigger picture question. When you look at the price elasticity of this business as you try to put through price increases and pursue your revenue strategy, is it in line with what you would have thought a year ago? And maybe how does it compare to solid waste as you've kind of had this under your belt? Just interested from a higher-level perspective, just how you view kind of the pricing and demand dynamics just having owned this for almost a year now. Rafael Carrasco: Well, lots has happened in that year. I think what I would say is we start maybe with our long-term vision and then move backwards. We've talked about that maybe aspiration of 5% to 6% growth overall being realizable long term. What we found is that, as Devina mentioned, we're taking a slower, more deliberate approach with that, particularly in the price increase because the last thing you want to do is put a PI through to a customer, particularly a large complex customer that has been going through a tremendous amount of frustration with their billing or their reporting over the last couple of years. That said, once we have offered that credit and baseline that customer better, we don't see any reason to doubt that we're going to be able to put in the particular PIs increase that we are entitled to. And I would just point you once again to the example I gave earlier about some of the renewals we've had of about $200 million worth of that business that we've been able to renew with an average low double-digit PI. Devina Rankin: I would just double down on that and say there's some really important fundamentals there. One is the secular trends that we've discussed. So from a supply and demand perspective, the demand for our business is just going to continue to grow. Two is the quality of the customer service, the quality of the customer service, our on-time delivery, all of that is strong. That's really supported by a best-in-class Net Promoter Score for that part of the business. And then three, I just think of it in terms of the strong execution, data-driven approach that WM has established and that we show quarter in and quarter out for the collection and disposal business, we're going to be able to leverage that know-how for this business segment. We're just going through this period of housekeeping, I would call it, that is appropriate and doing the right thing for our customers. So I think those things bolster our confidence in that long-term price outlook for the business. And I think we're more confident in that today than we were a year ago. Kevin Chiang: And again, congrats Devina. Operator: Our next question coming from the line of Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: I wanted to talk a little bit about the industrial volumes turning up. And if you kind of exclude the internalization of the Healthcare Solutions, are we starting to see an uptick just in general? Do you feel like we're just kind of bouncing around a little bit off the bottom? It's certainly notable that it's the first positive number in 3 years. I want to see what you think that is indicative of just in general in your customer base. John Morris: So I think if you look at that industrial, I think you hit on the key point, which is the first quarter in many that we've seen a positive uptick. And if you discount out the health care service volume, it's about 50 basis points of the increase. So net of that, we've still seen an increase in our volume. And I mentioned it's a little bit of a less of a drag from the temporary business. And Jim mentioned, we're seeing some of that flow through to our landfills on the construction side. And we've also seen an uptick in some of the business our permanent customers are doing. So think about the same customer falling a little bit more per week per month than they were before. Those are the 2 contributing factors net of the health care. And like I said, that's about half of the improvement. Shlomo Rosenbaum: So it feels like the underlying business, just to be clear, the underlying business is getting better. It's just not just a kind of a bouncing around off of finally hitting the bottom. I'm just trying to put a little finer point on that. John Morris: I think you got it. Like I said, half of it is health care and half of it is unrelated to that. And as I mentioned, part of the yield push was the fact that the temp business is profitable, but it doesn't bring the same top line revenue. So it does put a little pressure on yield. But as you think about our margins in the collection business or collection and disposal business, I think those speak for themselves. James Fish: I think it would be interesting to see how the housing market does. I mean every homebuilder you talk to would tell you that we're short houses, unlike 12 years ago during the Great Recession, where we had too many and so hence, the big crash. Now we've kind of gone to 180 degrees. And so it will be interesting to see how -- what the homebuilders do, how that affects our business because it is a piece of our business for sure, and it will affect our roll-off volumes, too. Shlomo Rosenbaum: Okay. Great. I just want to follow up just a little bit more on the ERP impacts on the health care business. Where do you feel you are in terms of stabilizing that whole system so that we're kind of clean, the customers are seeing what they would expect to see and we can kind of baseline off of there? I mean, is it another few quarters that we need to go? I'm just trying to understand kind of timing-wise, where -- how long we should think about this kind of interim period before you get back to being able to implement the normal kind of pricing you would expect? And then just a housekeeping for Devina. Is there a difference between issuing credits for past dues and write-offs? Or is it just semantics there? Devina Rankin: Yes, it's a great question. So I'm going to take that easy one first. So a customer credit has to be recognized as a reduction to the revenue rather than a write-off, which is recognized as incremental SG&A cost. And so our write-offs actually were pretty well in hand in the quarter for the health care business. It was more direct steps that we took to credit for the top line with our customers in the quarter where we saw an outsized impact. With respect to where we are in the ERP journey, I think Jim's comments about the fact that these implementations and journeys are measured in years, not months is the right way to think about it. But I think to put a finer point on that, what's really exciting about where we are and kudos to the team that's working diligently on this each and every day in order for us to get there. But we're calling the current environment, and you actually used the word in asking the question, our stabilization period. And we expect to be through our stabilization period by the end of the first quarter. We're then going to move into a scalable and growth period, and we think that scalable and growth period starts with Q2. So we're really optimistic that we've got the right people working on this. We've got the right plan, and we are seeing really good traction on the work streams that are in place. And while there may be a quarter bump or bump in the road with regard to the revenue that we provided, we know that, that bump in the road is temporary, and we're going to be on a stronger foundation going forward for the growth of the business long term. Shlomo Rosenbaum: Great. If you don't mind me sneaking in one more. Just if you renewed $200 million at low double-digit PIs, how do I think about that in terms of kind of the flow-through of the business? Is that kind of -- you take that divided by revenue and assume that the rest of it is flat and then you're in kind of the 3% to 4% range? Or so you're already kind of narrowing in on your 5% to 6%? Or how should I take that in the context of what's going on? Rafael Carrasco: Yes. I think it's early to kind of think about that in the context of the 4% to 6%. I think those numbers are the aggregation of annualized revenue renewals and terms of contract that might extend well into 2 and 3 years. So it's just -- take it for what it is an indication that there is price to go get out there in this large complex network of customers. Operator: And our next question coming from the line of Bryan Burgmeier with Citi. Bryan Burgmeier: I just had one question, maybe for Tara. I appreciate the details on Natura PCR earlier in the call. Maybe just kind of zooming out, it seems like nobody has really cracked the code on flexible plastic recycling yet. What do you think maybe it takes to make flexible plastic recycling work at scale? Do you think we need EPR legislation? Is it kind of about the consumer packaged goods companies? And maybe what is the best way for WM to try to take advantage of that as Natura PCR is kind of on the sidelines right now? Tara Hemmer: So I just want to clarify, we did crack the code on making a quality product. What we were not able to crack the code on is getting customers to divorce their expectations for the price of that product from virgin. And that is absolutely what has to happen in order for this to be a broader sustainable business model. So there's a couple of ways that, that could happen. It could happen through minimum content legislation. That is one, and that exists in certain markets, but not across the whole country, and there needs to be broader enforcement and penalties and teeth to that. And then two, the companies that would buy PCR, if their customers are expecting products that are put on shelves to be made from PCR, they're going to have to buy it at a higher price. If you think about our recycling business, our traditional recycling business is a fee-for-service model. And we're manufacturing a product in the Natura PCR plant, and we have to get an appropriate margin on that product, and that's independent of virgin pricing. That's just the reality of where we are in that space. Operator: Our next question coming from the line of Stephanie Moore with Jefferies. Stephanie Benjamin Moore: Maybe just circling back on the M&A piece. I appreciate the commentary in terms of just all the work and integration behind the health care deal and also your commentary about the traditional solid waste deals completed or planned to be completed this year. I wanted to get a gauge of your appetite as you think about 2026 and even 2027 about looking at deals or opportunities outside of the traditional solid waste space. James Fish: I think we've always stayed pretty close to home on M&A. Probably the farthest we've ventured out would have been Stericycle, and we did, I think, make a pretty good case that that's very similar to our existing core business. So we -- don't expect us to buy a semiconductor company in a couple of years. I think we'll continue to do what we do best, which is operate within our core. Our core it includes solid waste, it includes hazardous waste. And for now, I think medical waste, I think we have enough on our plate to try and not do anything else in the near term. Operator: And there are no further questions in the queue at this time. I will now turn the call back over to Mr. Jim Fish, CEO, for any closing remarks. James Fish: All right. Well, thank you very much. Before I sign off, I just -- I want to express my gratitude to my friend, Devina Rankin here. Devina is 23 years with the company. That's amazing. She's got me by a couple 9 years. She and I have worked together more than 9 years. She and I have worked together since 2012 directly. And she's been an incredible not only friend, Diana and Devina to Tracy and me, but also a confident for these, I guess, it would be 13 years since 2012. Everybody at this company thinks so highly ever, and we're all going to miss her. But we know she'll do incredibly well in whatever she chooses to do following her retirement. But thank you, Devina, for all you've done for this company. Devina Rankin: Thank you, Jim. Thank you so much. James Fish: With that, I'll just say we'll see you next quarter. Thank you very much. Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good afternoon, and welcome to the Beta Bionics Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, please be advised that today's conference is being recorded. I would now like to hand the conference over to Blake Beber, Head of Investor Relations. Please go ahead. Blake Beber: Good afternoon, and thank you for tuning in to Beta Bionics Third Quarter 2025 Earnings Call. Joining me for today's call are Chief Executive Officer, Sean Saint; and Chief Financial Officer, Stephen Feider. Both the replay of this call and the press release discussing our third quarter 2025 results will be available on the Investor Relations section of our website. The replay will be available for approximately 1 year following the conclusion of this call. Information recorded on this call speaks only as of today, October 28, 2025. Therefore, if you are listening to any replay, any time-sensitive information may no longer be accurate. Also on our website is our supplemental third quarter 2025 earnings presentation and updated corporate presentation. We encourage you to refer to those documents for a summary of key metrics and business updates. Before we begin, we would like to remind you that today's discussion will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management's expectations about future events, our product pipeline, development timelines, financial performance and operating plans. Please refer to the cautionary statements in the press release we issued earlier today as well as our SEC filings, including our Form 10-Q filed today for a detailed explanation of the inherent limitations of such forward-looking statements. These documents contain and identify important factors that may cause actual results to differ materially from current expectations expressed or implied by our forward-looking statements. Please note that the forward-looking statements made during this call speak only as of today's date, and we undertake no obligation to update them to reflect subsequent events or circumstances, except to the extent required by law. Today's discussion will also include references to non-GAAP financial measures with respect to our performance, namely adjusted EBITDA. Non-GAAP financial measures are provided to give our investors information that we believe is indicative of our core operating performance and reflects our ongoing business operations. We believe these non-GAAP financial measures facilitate better comparisons of operating results across reporting periods. Any non-GAAP information presented should not be considered as a substitution independently or superior to results prepared in accordance with GAAP. Please refer to our earnings press release and supplemental earnings presentation on the Investor Relations section of our website for a reconciliation of non-GAAP measures to their most directly comparable GAAP financial measure. With that, I'd now like to turn the call over to Sean. Sean Saint: Thanks, Blake. Good afternoon, everyone, and thank you for joining. We're proud to share with you all today the details of our strong performance in the third quarter as well as discuss our updated annual projections for the full year 2025. Starting with our performance in the third quarter, we continue to make key advances across our business, both commercially and in our innovation pipeline. Demand for the iLet, both in existing practices as well as new practices continues to exceed our expectations. And in the third quarter, we saw a record number of both new patient starts as well as the percentage of those new patient starts going through the pharmacy channel. The iLet automation and adaptation continue to set a new standard for our industry, simplifying and alleviating the burden of managing diabetes for our users, their caregivers and their health care providers. but we're not stopping there. And we're continuing to push the envelope on key innovations to our pipeline that I believe will enable Beta Bionics to disrupt ourselves in the future and deliver even more life-changing solutions to people with diabetes and the community that supports them. During today's call, I'll begin by covering our Q3 results, which exceeded our expectations across the board. Stephen will then discuss our Q3 performance and updated full year 2025 guidance in more detail. Lastly, I'll share some exciting updates across our innovation pipeline, including iLet and some new features we recently rolled out; Mint, which is our patch pump in development; and lastly, our bihormonal system in development. Let's begin with an overview of our Q3 2025 performance. I'm pleased to share that we delivered $27.3 million in net sales, which grew 63% year-over-year. Q3 revenue growth was predominantly driven by 5,334 new patient starts in the quarter, which grew 68% year-over-year as well as our growing installed base of users accessing their monthly supplies for iLet through the pharmacy channel. In Q3, a low 30s percentage of our new patient starts were reimbursed through the pharmacy channel, which is significantly higher than the high single-digit percentage we saw in Q3 of the prior year and increasing sequentially compared to the high 20s percentage we saw in Q2 of this year. As of the end of Q3, Beta Bionics has greater than 80% of insured lives in the U.S. covered under formulary agreements with pharmacy benefit managers, or PBMs, including all the major PBMs that operate in the U.S. However, patients covered under those formulary agreements do not yet benefit from the pharmacy channel until the health plans that partner with those PBMs adopt the iLet for reimbursement under their pharmacy benefit. which is why the over 80% of covered lives under PBM agreements differs from the low 30s percent of our new patient starts that actually benefited from accessing iLet and its consumables through the pharmacy channel during the quarter. Driving adoption of the iLet as a pharmacy benefit at the health plan level remains a core focus of ours, and that is why we share the percentage of new patient starts going through the pharmacy as the right KPI to use to measure our progress in that channel, not just the PBM covered lives percentage, which does not account for pull-through at the health plan level. Shifting now to gross margin. Our gross margin in the quarter was 55.5%, up 212 basis points compared to 53.4% in Q3 of 2024 and up 167 basis points sequentially relative to 53.8% in Q2 of this year. Last quarter, we guided towards sequential gross margin expansion in Q3 of this year relative to the prior quarter. citing benefits of increased scale and manufacturing volume leverage, greater contribution of high-margin revenue from our growing pharmacy installed base and continued cost discipline. We delivered in all those areas in Q3 and expect that each of those factors will continue to provide a tailwind to gross margin in Q4, as Stephen will discuss in more detail shortly. Looking ahead, I'm confident in the direction this business is headed in. The iLet's highly differentiated, fully adaptive closed-loop algorithm is producing phenomenal real-world outcomes, and those outcomes are resonating with users, caregivers, providers and payers. We're expanding availability for the iLet in the pharmacy channel, enabling more people with diabetes to access insulin pump therapy with minimal to no upfront out-of-pocket costs. The 20 new territories we onboarded toward the end of Q1 of this year have hit the ground running, and they're validating our strategy to remain disciplined and highly selective in our sales force hiring as we look forward. With that, I'll hand the call over to Stephen to provide some additional color on our third quarter performance and full year 2025 guidance and later wrap up the call with some important updates on our pipeline. Stephen? Stephen Feider: Thanks, Sean. Approximately 70% of our 5,334 new patient starts in Q3 came from people with diabetes that used multiple daily injections prior to starting the iLet, which is an important representation of how much the iLet is expanding the market for insulin pumps and addressing an unmet need. We believe the iLet is a game changer given its unique simplicity and ease of use, powered by the most advanced adaptive algorithm available. Given its simplicity, we're able to reach a broader group of patients and providers that were previously inaccessible to existing automated insulin delivery players, and we're seeing that in our results. Turning to gross margin. The improvements we saw in our Q3 gross margin relative to the prior year and the prior quarter are driven by 2 primary factors: number one, growth in the pharmacy installed base, which generates high-margin recurring revenue and where we continue to see strong patient retention; and number two, lower cost per unit from higher manufacturing volumes, driven by growth in patient demand. Shifting to operating expenses. Total operating expenses in the third quarter were $32.2 million, an increase of 62% compared to $19.9 million in the third quarter of 2024. The increase in sales and marketing expenses relative to the prior year is driven by expansion of our field sales team, which still stands at 63 sales territories exiting Q3. The increase in R&D expenses relative to the prior year is driven by the Mint and bihormonal programs. The increase in G&A expenses relative to the prior year is driven by new costs related to operating as a public company. Let's discuss cash. As of September 30, 2025, we have approximately $274 million in cash, cash equivalents and short- and long-term investments. We are sufficiently capitalized to fund all of our key initiatives and positioned to begin generating free cash flow well ahead of historical diabetes peers. Turning to our updated full year 2025 guidance. We are raising guidance across the board. We project total revenue for the full year of 2025 will be greater than $96.5 million, up from our prior guidance of $88 million to $93 million. This means we project sales of at least $28.5 million in Q4 2025. For the full year 2025, we now expect 27% to 29% of our new patient starts to be reimbursed through the pharmacy channel versus our prior guidance of 25% to 28%. This implies that we project our pharmacy mix as a percentage of new patient starts in Q4 to be similar to the mix we saw in Q3. I want to point out a couple of factors that could create variability to the upside or downside in our pharmacy mix of new patient starts in Q4. On one hand, we continue to drive more adoption of the iLet under the pharmacy benefit at the health plan level, which pushes pharmacy mix higher. On the other hand, new patient starts in the DME channel tend to be strong in Q4 because many people have hit their out-of-pocket maximum and can receive their pump and supplies at no cost until year-end. Taking those dynamics together, we expect Q4 pharmacy mix as a percentage of new patient starts to be similar to Q3 but recognize there is potential for that mix to trend higher or lower based on those dynamics. Moving on to gross margin. We are raising our outlook to 54% to 55% gross margin for the full year 2025 versus our prior guidance of 52% to 55%. This means we project Q4 gross margin to be in line with or improve slightly relative to Q3. We are increasing guidance at the low end and midpoint of the range for a couple of reasons. Number one, embedded in our revenue guidance raise and pharmacy mix guidance raise is a raise in our expectations for new patient starts, and that increased scale should generate a lower per unit cost through manufacturing volume leverage. And number two, we expect to benefit from our growing pharmacy installed base, where the large number of new pharmacy users year-to-date, combined with the strong retention of those users, produces high margin recurring revenue in Q4 and beyond. We continue to contemplate the impact of existing and potential tariffs in our full year gross margin guidance. We are aware of recent initiatives focused on reevaluating the application of tariffs in our industry and do not have a reason at this time to believe that duty-free exemptions from custom components of the iLet and its consumables are in any jeopardy. With that, I'll hand the call back to Sean to discuss updates on our innovation pipeline. Sean? Sean Saint: Thanks, Stephen. As I've stated before, our goal with our pipeline programs is to disrupt the industry and disrupt ourselves. Let's start with an update on Mint, our patch pump in development. We've spoken at length in the past about the key advantages of Mint's 2-piece design architecture, where we believe we've chosen a design that creates an advantaged user experience relative to other patch pumps currently on the market and in development. Our design choices spanning from a patch change experience that doesn't require phone interaction to eliminating the need for recharging and to enabling firmware over-the-air updates are all in service of user experience. Add those advantages to our industry-leading algorithm, which has been shown to produce excellent clinical outcomes independent of user engagement, and we believe that Mint will be a true game changer when it commercializes. In Q3, we continued to execute according to plan on our Mint timelines and remain highly confident in our ability to gain 510(k) clearance for the product as well as manufactured at scale. Our goal remains to commercialize Mint with an unconstrained commercial launch by the end of 2027, meaning we expect to be able to fully support demand for the product by that time. Shifting to our bihormonal pump program. In September, we completed our pharmacokinetic, pharmacodynamic or PK/PD bridging trial for our glucagon asset. Full results from that trial are in line with our expectations, and we believe such results are supportive of the continued development of our glucagon asset for use in our biohormonal system and development. In Q4 of this year, we expect to initiate a feasibility trial of our biohormonal system to test it in humans for the first time with our glucagon asset before progressing the asset to any larger scale studies. As a reminder, the PK/PD study was the first-in-human trial for our glucagon asset, but the biohormonal system also includes our bihormonal pump and algorithm for insulin and glucagon dosing, and we're yet to test that system using our glucagon asset in humans such that we believe the best strategy is to run at least one biohormonal system feasibility trial before progressing to pivotal trials. There is no change to our expectations that we'll conduct concurrent pivotal trials to fulfill the requirements for a 505(b)(2) NDA with a chronic drug indication for glucagon and the ACE and IAGC 510(k)s for the pump and algorithm, respectively. We continue to be extremely excited by the biohormonal system's ability to transform clinical outcomes for people with diabetes, but more importantly, the ability to transform the way people experience their diabetes and shift their mindset from diabetes being a disease that they manage to simply a disease that they have. To highlight another recent win in our pipeline, on September 29, we received a special 510(k) clearance for certain feature updates for the iLet. These updates focused on improving the usability of the pump. We introduced an improved workflow for the cartridge change process to make it more seamless for the user and eliminated redundant low glucose alerts to ensure our users are focusing on the alerts that matter most, while reducing alert fatigue. These updates are illustrative of both the intent we have in listening to feedback from our users as well as the speed with which we operate in an effort to ensure our users' needs are consistently met every day. There's one more update that I'd like to discuss on the regulatory front. In late June, the FDA issued a Form 483 following an inspection. The Form 483 is primarily related to our customer complaint handling system and our criteria for reporting complaints to the FDA, which are ultimately reflected in the FDA's Manufacturer and User Facility Device Experience database, also known as the MAUDE database. The result of the FDA's inspection is not unusual in our industry as numerous precedents the agency has set for our peers at similar stages would suggest. We believe that in those instances, Beta Bionics and our peers likely develop similar definitions for what constitutes a reportable complaint prior to the FDA's feedback. And each company has successfully taken the steps required to align reporting with the FDA standards. We are no different, and our remediation efforts to the Form 483 are straightforward and well underway. Regarding the change to the criteria for reporting complaints to the FDA, we revised our definition of what complaints are reportable to better align with the broader industry standards. Our revised standard operating procedure for reportable complaints took effect in late July, which resulted in a notable increase in reportable complaints in August and September. To cite some examples of how our definition of reportable complaints has changed, prior to the 483, we were not reporting complaints such as the device screen cracking or a hypo or hypoglycemic event that did not require medical intervention. We now report these types of complaints to the FDA given they could result in an adverse event if ignored. I want to make something abundantly clear. While the number of complaints we have reported to the FDA increased, most notably in August and September after the new system went live, this is not the result of a change to the underlying complaint or adverse event rate relative to our installed base. In terms of what to expect going forward, since we received the Form 483 in June, we've submitted monthly progress reports to the agency. We're confident that our new complaint handling system and reporting system meets or exceeds the expectations laid out by the agency in their Form 43 observations. As part of this process, we will be applying the new reporting criteria to all historical complaints we have received since the iLet launched. That remedial filing process started very recently. As such, we expect to see the number of MAUDE entries relative to our installed base increase considerably from October to November and remain elevated until we have completed the remediation process as both current and historical complaints will layer on top of each other. We expect to complete the remediation process by the end of Q2 2026, at which time the number of MAUDE entries relative to our installed base will fall as historical reports are no longer being submitted. Shifting to the topic of type 2 diabetes. In Q3, we continued to see some health care providers prescribed iLet to their type 2 diabetes patients off label. We estimate that over 25% of our new patient starts in Q3 were from type 2, which is consistent with the prior quarter. While we're not committing to a specific timeline, we remain eager to pursue the type 2 diabetes label to the FDA. To conclude the prepared remarks portion of today's call, I want to highlight the key points that we hope you take away from our discussion. Number one, iLet's differentiation is resonating wider and deeper in the market. Number two, our commercial strategy is working, and we're continuing to execute relentlessly toward the goal of making iLet the new standard of care. Lastly, we're aiming to build the most innovative pipeline in the industry with the goal of disrupting the industry and ourselves, and we continue to make progress on each key pipeline initiative every day. This is a business that we believe is set up for sustainable success over the near, medium and long term, and we're excited to continue sharing updates with you all as we continue to execute. With that, thank you all for tuning in, and we'll now open the call for Q&A. Operator: [Operator Instruction] Our first question comes from Mike Kratky with Leerink Partners. Michael Kratky: The fact that you're creeping up on $100 million in revenue for the year and at a much higher rate of pharmacy mix than we've been expecting is super impressive. So, congrats on the ongoing execution. Just to that point, can you share some additional color on what's driving that momentum you're seeing? What factors really seem to be contributing to that demand? And can you talk about the cadence of new starts throughout the third quarter, specifically that's shaping your assumptions on the fourth quarter? Sean Saint: Yes, Mike, first of all, thanks a lot for that. Appreciate it. In terms of what's driving the quarter, I mean, frankly, I don't think it's anything different than it has been driving our success all along. We do see the iLet as a new category of device. And fundamentally, that takes a bit of time, right? We're not launching just another insulin pump here. We're launching an insulin pump that you have to think a little differently about -- and that takes time. And necessarily, we're going to see increased adoption as the world gets it more and more over time. And I think we just saw that continuing. But I don't think there's any particular initiative that I could point to uniquely in Q3 that really impacted the quarter. Stephen, can you comment further? Stephen Feider: Yes. Cadence in demand, I'll just address that briefly. It was generally consistent across the entire quarter. So, nothing, really to read into in terms of timing of demand and where it was relative to the upcoming quarter. Michael Kratky: Understood. And maybe just one quick follow-up. In terms of things that are out of your control, how does the government shutdown impact your assumptions on timing for the Mint launch, if at all? Sean Saint: I would say it doesn't currently have an impact on our expectations for timing. We reiterated those earlier in the call. Yes, I'll leave it at that. Operator: Our next question comes from David Roman with Goldman Sachs. David Roman: Maybe I'll just start with a further question on kind of what you're seeing in the underlying market dynamics. You talked about the 70% of patients coming from MDI converts. Can you maybe give us a flavor on the remaining 30% of the patients, whether that's coming from conversions of patients who are coming up for renewal. It looks to be a big bolus of renewal patients coming to market. Is that conversions from different pump therapy? Maybe just help us understand the balance of the growth drivers there and how you see that unfolding through the rest of '25 and into '26. Stephen Feider: Yes. Thanks, David. This is Stephen here. In terms of the remaining 30% that are coming to us from competitive pump systems, they're coming roughly 1/3, 1/3, 1/3 from the 3 primary competitors. And in terms of the outlook in the future, there's nothing that -- look, that bifurcation of our demand coming from 70% coming from injections and the other 30% coming from competitive pumps. That's been pretty consistent over the last 4 to 8 quarters. And there's nothing that we see in our business that would imply that the future will look any differently. I would say there's still a -- the market for insulin pumps in both -- in type 1 and type 2 is still very underpenetrated. I needs to remind you of those percentages. And so the large opportunity that still exists for a company like ours with a new and differentiated system remains in MDI, and I expect most of our demand will continue to come from there. David Roman: That's very helpful. And I appreciate you reiterating the timelines around the Mint full commercialization by the end of 2027. But can you maybe just remind us of the different steps that need to take place between now and then? For example, have you finished human factor testing? And what types of updates do you -- will you be able to provide us along the way? Sean Saint: Yes. I don't think we're going to provide any additional information on where we are at the moment. I mean, we would reiterate that generically, the 3 main steps that we need to look for here are 510(k) clearance followed by manufacturing readiness followed by launch. We've talked about those in the past. But I don't want to get into the details of exactly where our internal program is, less people read more or less into them than they deserve. So, for the moment, we'll reiterate our timelines, and we reserve the right, of course, at all times to update you as we know more. Operator: Our next question comes from Matt O'Brien with Piper Sandler. Matthew O'Brien: Can you hear me okay? I've had some technical issues. Sean Saint: Loud and clear. You got it, Matt? Matthew O'Brien: All right. Great. I appreciate the questions. Maybe just starting with those 20 new territories that you added in Q1. Maybe if you can just tease out the impact that those 20 territories are having here in Q3 because you don't typically see such a meaningful step-up here in the third quarter versus Q4 based on seasonality. So just maybe talk about how those reps are ramping and then kind of what's left for that group and that cohort as we think about maybe the next 18 months? Stephen Feider: Yes. All right. So, the territory -- the new territories that we added at the start of the year, are absolutely growing in their maturity and increasing in productivity, but the entire sales force on balance also is. So, if you looked at even just the quarter-over-quarter growth in new patient starts from Q2 to Q3, we saw an 8% uptick. And yes, that is driven in large part by the 20 new territories that we added in the start of the year, but the iLet is still new to almost every territory nationwide. And so we're continuing to see an uptick in new store sales, same-store sales across the entire country. Matthew O'Brien: Okay. And then maybe talk a little bit -- I wanted to ask a little bit more about Mint, but just maybe talk a little bit more about the 483 because that's a little bit of new information and how serious that is, your remediation efforts. It sounds like you're kind of on track already. So maybe just try to frame up the 483 for us, not that they're ever great to see, not that you take them for granted. but just how this one falls in terms of seriousness and then your ability to respond quickly. Sean Saint: Yes. Great question, Matt. I mean, it's tough to put a qualifier on something like that. I mean, obviously, the FDA issues 43 is when they find something to be important. But I think with the 43 as long as you're aggressive with dealing with the problem and you don't have a big problem, and we've certainly been that. We're very far along in our remediation efforts. New systems are fully in place at this time. And what we're seeing now, as we stated on the prepared remarks, is just the implementation of those systems and sort of remediating past complaints. But the new systems are in place at this time. And no, we don't foresee any ongoing challenges at all. Stephen, do you got anything to add to that? Stephen Feider: Sure. Yes. I think -- look, the FDA -- the interpretation of the rules for what's considered a reportable complaint and what's considered a nonreportable complaint actually leaves a lot of room for interpretation. And so we were interpreting -- before the 43 observation, we were interpreting the rules a particular way that we had a lot of confidence in, and we're not apologetic about. However, when the FDA did their observation, they disagreed with our interpretation, which is totally fine. They asked us to remediate the -- and use the new definition. And we, of course, complied. And to us, this is a very benign issue as long as we actually do what we say we're going to do. And so we're bringing it to your attention because we feel it's important to be transparent. There may be some misinformation out there about what -- why we've seen an uptake in reportable complaints in the MAD database. We don't see it as an issue at all, and it's kind of on brand for us to just answer the mail. And so hence, why we brought it up today. Operator: Our next question comes from Travis Steed with Bank of America Securities. Stephanie Piazzola: This is Stephanie Piazzola on for Travis. Congrats on a good quarter. Maybe just wanted to follow-up again on the increased complaints being reported. Maybe you can just elaborate more on the real-world performance and feedback and retention that you're seeing despite some of the complaints received. And if you could clarify, it sounds like you've made good progress on the remediation already, but some things will continue through Q2 of next year, if I heard that right. So maybe you can just clarify what's going to be outstanding through then. Sean Saint: Yes. First of all, I wouldn't read anything into the word complaint in this case. The insulin pump industry is -- if you look at the complaint rates that all insulin pump companies receive, it's somewhat shocking at some level. And the primary reason for that is that definition that Stephen alluded to earlier, where really anything, anybody calls in with a problem of your product or an experience issue and it gets reflected as a complaint, which is fine. Those are the rules. But I don't want anybody to hear, and I don't believe it's true that there's any complaint with the product that -- I don't know, the words here. Anyway, I wouldn't read too much into it. Second half of that question is -- I think -- I don't know. I think the kind of answered, Stephanie. Did we -- was there a part that we missed? Yes, I forgot the second half of your question. Stephanie Piazzola: It was just that you mentioned you made good progress on the remediation efforts that continue through next year. So... Sean Saint: Yes. Sorry, you want details on that, absolutely. So, what it is specifically, and I think we said this, but I'll give just a little more clarity. When -- over the time, we received calls, right? Everybody receives calls and you have to decide whether or not those get reflected as reportable complaints to the agency. So, what we're doing at this point is we're going back through all of those calls we've received since the dawn of time and reporting the ones that now qualify under the new definition as reportable events that did not prior. Does that make more sense? Stephanie Piazzola: Yes. Got it. Sean Saint: And we'll be done with that process by Q2 of next year. Stephanie Piazzola: Okay. Understood. Sean Saint: Again, the systems are now in place. The -- everything is working as it should at this point. We just have to go back and do all that catch-up work. That's all. Stephanie Piazzola: Okay. Got it. And then you talked about some of the positive growth drivers that you have this year and are going to continue into Q4. Maybe just thinking a little bit ahead to next year, how we can think about some of those continuing and then any headwinds that we should keep in mind for next year as well? Sean Saint: Yes. I'll start with that one, and then Stephen can add anything that he may want to. The primary growth driver that I listed was obviously additional understanding what iLet is. Again, I think there's -- when you look at data on adoption from health care providers, it really takes quite a number of years, in fact. So I think that we expect that tailwind to continue over time as people start to understand iLet better as we develop more and more of our own real-world evidence and get that get that evidence out there, showing the world how well iLet really is working in a real-world setting. So those continue, obviously. The other tailwind that I'll mention is obviously pharmacy adoption. There's a lot of reasons that pharmacy adoption is better for the business. It makes it easier to adopt iLet, easier to script iLet. Obviously, with the expansion of that, that's certainly going to be a tailwind, and we hope that the expansion of pharmacy adoption itself continues more into next year as well. Stephen Feider: And this year -- and by the way, thanks for the compliment, Stephanie, on the results. We're definitely happy with them. Sean Saint: Yes. Stephen Feider: The uptake that we've seen in pharmacy this particular year, meaning now in the low 30s percentage of our new patient starts, it's way exceeded even our internal expectations. And what it's really doing for next year's financials that's great is that we're retaining those patients at a very, very high level. And because of that, it's high-margin recurring revenue now that we have in this pharmacy installed base, which is the design of the whole program, and that's the intention of the whole program to move to a subscription-like revenue stream. And you're going to see that in our financials, and you've already been seeing that in even like the gross margin profile that we now, again, have this high-margin revenue that we've generated from our growing pharmacy installed base. Operator: Our next question comes from Michael Polark with Wolfe Research. Michael Polark: First topic for me was the 510(k) clearances you mentioned, a different cartridge change process and elimination of redundant low glucose alerts. I guess I'd just be curious the cartridge change process, what improved? How was it before? How is it now? And what kind of was the root cause, if you will, of too many low glucose alerts. Is that a software fix or another change? Sean Saint: Yes. So, on the first part, the cartridge change process, these are really just subtleties in the process, different screens and whatnot, user experience stuff. It's -- they're not huge, but we think meaningful. On the low glucose alerts though, I want to really make sure that one is really clear. With a system like an insulin pump, you can get, for example, an urgent low, a low, a very low. There's all different kinds of alerts and they can stack on top of one another and require you to clear each one individually and what have you, or you can look at it and take the most severe of those alerts and only deal with that one, for example. So, it's sort of related to that. It's just that you really have to clear 4 alerts at all in effect tell you you're low, that seems pointless, right? Does that make sense? Michael Polark: Yes, understood. The other one is just maybe kind of a look into '26 as well, a reminder on what's a good way to think about sales force expansion as you roll into next year? Any soft circle for number of territories that you would hope to add? Stephen Feider: Yes, of course. Good question, Mike. Yes, of course, we have our internal expectation of how many new sales territories we're going to expand and win next year, but I'm not going to talk about a forecast for 2026 that gives any indication as to what our revenue is going to look like. So unfortunately, I'm not going to share that number. Operator: Our next question comes from Frank Takkinen with Lake Street Capital Markets. Frank Takkinen: On a really, really solid quarter. Just a curiosity question versus my model, and I could be unique in how I modeled it this quarter, but it feels like the bigger portion of outperformance, you outperformed on both my DME and PBM expectations. A bigger portion for me was related to DME. Was this just a modeling discrepancy on my side? Or was DME maybe a little bit stronger than you anticipated? Any specifics on maybe where the pumps are placed, which geographies you maybe didn't have health plans set up or anything to kind of call out that maybe drove that DME being a little stronger than my expectations? Stephen Feider: Yes. Good question, Frank. The outperformance in DME, of course, is just mostly driven by new patient starts exceeding expectations, but there actually was some favorability from stocking dynamics. in Q3 relative to Q2. And that created favorability in DME revenue in Q3 relative to Q2. There actually -- and you didn't ask about this, but there's actually the inverse impact we saw in the pharmacy supply kit revenue. There was an unfavorable stocking dynamic or had an unfavorable impact on revenue in Q3 relative to Q2. And what I mean by this in the case of DME is that the DME customers ended their quarter with more inventory on their shelves in Q3 than they did in Q2, creating, again, what I would call a favorable stocking dynamic in Q3. Frank Takkinen: Got it. Okay. That's helpful. And then maybe on the bihormonal timeline? I know you guys are talking about the feasibility study, but how should we maybe think about when you guys might formalize a cleaner timeline kind of similar to how you've talked about patch end of 2027. Will you do that with the bihormonal pump in the near future? How should we think about that? Sean Saint: Yes, Frank, look, we'd love nothing more than to give you a solid timeline on the bihormonal product. But -- and we obviously have internal expectations on that, that we have not shared. However, given the complexity of that particular product being -- having to get both CDRH and Cedar on the same page in terms of what a pivotal clinical trial looks like and all the requirements around the drug and frankly, our own evolution into a drug company as well, I think it would be a little bit premature to start putting timelines out on that now because, frankly, they could evolve as we learn. And as we get the agency, both halves of the agency on the same page with what it is that we're doing here. So not just yet, but please be assured that we're working toward getting most importantly, the product out the door as soon as we possibly can. But of course, the next step will be to help you all understand the timelines on that as soon as we can. But in the meantime, hopefully, you do see that we continue to make progress on the product, including, as I said, the completion of PK/PD and the soon implementation of the new feasibility trial, which we're excited about. Operator: Our next question comes from Jeff Johnson with Baird. Jeffrey Johnson: So Sean, maybe on that -- on the bihormonal question there. Even if you can't put a timeline out there, which I understand, can you just remind us, we're so accustomed to 510(k) pathways here in the diabetes space. We know kind of 6-month review processes. We know these tend to be 13-, 26-week trials, things like that. Once you do start a pivotal, how long would a pivotal for a bihormonal run as far as from -- in a single patient? I know it takes a while to enroll in first patient in, last patient in and all that, we'd have to estimate. But I guess my question is more, how long would the study last on a per patient visit or per patient basis? And then how do we think about the review timeline once you do get that data and submit it to the agencies, how long a review process could last? Sean Saint: Yes. Great question, Jeff. The ICH guidelines dictate that for a chronic drug indication, we need a year's worth of data on an individual patient. So, to your point, plus enrollment, et cetera, but the trial itself will run at least a year on at least -- well, not at least one on a number of patients. And then timelines for enrollment, timelines to review of that data, early interactions with the agency, but then the actual NDA submission itself, I believe, is a year. Jeffrey Johnson: One year on that, too, yes. Okay. That helps. And not a pharma guy, so never as strong there. But also then, Stephen, maybe can you just maybe quantify for us the stocking headwind in pharmacy and the stocking tailwind in DME at all and how much of that was on supply side? Just as we look at the supply revenue this quarter on a per patient basis in the pharmacy channel, it came down about 10%, 12% or so sequentially, and we keep trying to wrestle with how much of that is attrition versus stocking dynamics and all that. So, just maybe help us quantify, especially in the pharmacy channel, maybe what that stocking headwind was in the quarter? Stephen Feider: Yes, of course. I have 2 parts to this answer. First part is that I'm not going to quantify the exact dollar amount of the stocking impact in DME versus pharmacy, but the 2 offset one another nearly dollar for dollar in the quarter. So net neutral stocking impact with, again, favorability in DME, unfavorability in pharmacy. And then on your point about attrition and retention, -- while I'm not going to share retention rate or attrition rate, even though I know we get asked about it consistently, and this is for reasons that I think we've been very clear about, most notably that the competition doesn't share attrition or retention rates. I do want to point to one output of your model, Jeff, and I guess, any investor or analyst that has a model that I would sort of maybe alleviate maybe your feeling on that question. So, if you look -- the metric that I want to point your attention to is the number of pharmacy supply kits per pharmacy patient per quarter. And so the math there, what you can do -- how to do the math to get to that metric is you'll take the pharmacy revenue -- pharmacy supply revenue, I should say, in a given quarter, divide that by the price of each pharmacy supply kit, which you know is roughly $450 because that's what we've said. And then divide that again by your belief of what the pharmacy installed base is. So that's again, it's pharmacy revenue in a given quarter, divided by the price, $450 and then divided again by the pharmacy installed base. And what you're going to find when you run that metric in this quarter and in all the most recent quarters is that, that metric is well over -- well in excess of 3. And that's regardless of what attrition rate or retention rate assumption you use in your model, no matter how low you choose the attrition rate to be. And what does that say? If it's above 3, well, remember that a patient only uses 1 pharmacy supply kit per month. And so you would use 3 per quarter. So, by very virtue of that number, which is again, an output in your model, by that being above 3, I think that illustrates why there's not a retention or attrition issue at the business. So, I guess hopefully, that was helpful. But again, I won't -- I'm not going to talk specifically about attrition and retention, the number for reasons that we've communicated in the past. Jeffrey Johnson: Yes. No, that math is helpful. That's exactly how we run it in our model. I guess it's just we're trying to understand the 40% decline we've seen in per patient per pharmacy over the last 2.5 quarters. Stephen Feider: So I think you -- I think the other thing to remember is that you're going to see like, again, big deviations in that metric from quarter-to-quarter. meaning, yes, you did see a downtick in it this quarter. You've also seen uptakes in the same metric if you looked over trending over quarter-to-quarter. And what that really points out is that there are fluctuations in pharmacy stocking, and it does have a material impact on our revenue in a given quarter. But really, the reason why there is so much fluctuation is just think about how much our pharmacy demand has changed. We've gone from our guidance being low teens or low double-digit percentage up to now, we're in the low 30s. And so, pharmacy customers don't really know how much to order to keep up with demand. And that's a part of why you're seeing big fluctuations. Operator: Our next question comes from Richard Newitter with Truist Securities. Richard Newitter: Congrats on the quarter. Maybe just on the pharmacy channel and the percentage here. So, you're obviously exceeding your expectations, our model and I think consensus too, exiting -- you're on track to exit at a low 30s percent. Could you help us just think through where this percentage could reasonably get to? Or where we should not be -- what threshold we shouldn't be exceeding before you potentially are on commercial with a patch? Is this something that could be 50% exiting 2026? Or what's the threshold that we should be thinking about or put some bookends around it as we fine-tune our models because clearly, you're exceeding where we all had you on the trajectory. Sean Saint: Yes. I appreciate the question. Frankly, the frustrating answer for us and you is that we don't know. We're doing something nobody has ever done before, and that's push a durable pump through the pharmacy channel. To your point, we've exceeded our own expectations on what we can do there. We hope that those exceedances continue and that we can get even farther than even we think we can. But it's very hard for us to make a prediction on that, and I don't think we're frankly in any better position to do it than anybody else. We're just forced with going out and actually doing the work. So, I'm sorry, we can't make that prediction. But what I will tell you is that we'll try and make that number as high as we absolutely can. Richard Newitter: Okay. Fair enough. And then just on type 2 indication, I think, Sean, you've talked in the past that it's not something that you necessarily -- it's precluding you from moving -- moving that percentage higher. It was a little flat this quarter. I'm just curious, anything you're seeing? We have multiple players out there with an official indication and data. And you mentioned you're not going to commit to precisely the strategy and timing of what you're going to do to ultimately secure an indication. But if you could elaborate on how you're thinking about that and what your options are? Sean Saint: Yes. The first thing I would say is that I wouldn't look at it as flat. The percentage was the same and our new patient start, obviously, base grew. I don't think there's any benefit to Beta Bionics to grow that 30% or roughly 30% to -- or roughly 25%, excuse me, to something much larger. I mean, we need to grow our total new patient starts -- and to your point, we're not really out selling it. So, it kind of is what it is on a percentage basis, and that's okay. There's some other things that go into the dynamic as to whether or not we would make the decision to invest in that or when we make the decision to invest in that is what I should say, that I probably just can't get into at this stage because they result -- they relate to some internal product pipeline stuff. But yes, I don't know, I would say that we're doing as well as anybody effectively in that channel, and we don't even have the indication. So yes, I'll leave it at that. Operator: Our next question comes from Jon Block with Stifel. Jonathan Block: Anything to call out regarding just the competitive landscape? There's really been a good amount of focus there with the new entrant, but your competitive wins as a percent of adds actually ticked up a bit Q-over-Q and obviously had a huge growth rate if we look at it year-over-year. So just any color you can provide there with the landscape may be changing or maybe not? Stephen Feider: Jeff, yes, I appreciate the question. Short answer is no. It is a highly competitive industry. It's competitive not only just for recruiting the right type of sales reps, but every account has a lot of different sales reps that are trying to sell and get the attention of the HCP at that given account. But we're confident in what we have. We have a highly differentiated product, the easiest system on the market, we believe, to use for doctors, for patients, a compelling solution with the pharmacy reimbursement. And so, I don't see the market or the competitive landscape as meaningfully different than it was semi recently, and we feel confident. Jonathan Block: Okay. Stephen…. Stephen Feider: Sorry, that was Jon, my bad. Jonathan Block: All good. All good. Stephen, maybe I'll stick with you. I'm struggling with the guidance from gross margins in a good way. And I know you gave some reasons that you sort of said, hey, it implies flattish to slightly up GMs Q-over-Q for 4Q. But your pharmacy mix is largely consistent with the assumption is with 3Q. And we've seen a lot of scale, right, throughout 2025 when you just look at your sequential gross margin improvement despite pharmacy ramping as an overall percentage. So, can you just tell me why like that improving scale dynamic wouldn't resonate as much if you would in 4Q '25? Or is this maybe just leaving a little bit of wiggle room considering you really don't know the percentage DME versus pharmacy because of the deductible metric you brought up earlier? Stephen Feider: Of course. On the high end of the range, the gross margin guidance for Q4 is actually in line with the increase or the increase that we're guiding to in Q4 revenue. So, the increase in scale and the benefit that we would get to gross margin is actually sort of in line again with the revenue increase quarter-over-quarter. But on the low end of the range, you're right, that may like seem a little surprising to you that we're guiding to that low. Really, it just comes down to lack of predictability around the pharmacy reimbursement channel. There is a world where in Q4, we outperformed our expectations in pharmacy, which actually creates in terms of new patient starts. And what would that do is it would create a short-term headwind to revenue and gross margin. And that's one reason. And the second is that cost of sales -- well, look, we like to set -- the guidance philosophy around here is for metrics like this, we like to set expectations at a level that we have a high degree of confidence in. And with cost of sales, there can at times be things that are semi-unpredictable that could come up and be a onetime charge. I'm not suggesting I see any of those in Q4, but that can happen. And so hence, we like to be, I guess, a little cautious with large uptakes in gross margin guidance for that reason. Operator: Our next question comes from Jeffrey Cohen with Ladenburg Thalmann & Company. Jeffrey Cohen: Congrats on a strong quarter. Just one for us. If you could maybe talk about your special 510(k). Was this software only and was uploaded to all the units out there? And does that help or would that help in Mint development? Or are some of those updates being embedded into Mint now? Sean Saint: Yes. The -- it's a software upgrade. And as with all of our software upgrades, that's something that all of our users get a chance to download and use. And in fact, we always like to push people to our newest software. The -- I would say that part of those software upgrades are related to Mint and some not. Some of the way we do the alarms and alerts and alarms certainly will be reflected in Mint. -- cartridge change process, of course, has nothing to do with Mint whatsoever. So yes and no. But as with anything, Beta Bionics considers ourselves to be primarily user innovation, user experience company, I should say. And to the extent that those user experience things are applicable to Mint, we'll absolutely reflect them in that. Operator: Our next question comes from David Roman with Goldman Sachs. David Roman: I appreciate your taking the follow-up. And I hate to focus on the 483, but the MAUDE dynamic has become such a distraction for investors intra-quarter. And as we think about the kind of remediation process here, that does have the potential just to create some noise for people out there counting up MAUDE reports, which is sort of like a meaningless metric, but it does get a lot of attention. So, can you maybe just help us frame like how we should think about those reports when we see them, how to interpret the remediation filings? And just maybe help us kind of calm the obsession with counting MAUDE entries. Sean Saint: Great question. Well, look, to -- from our perspective, this is something that every company in the diabetes space has gone through at one time or another. I think, as Stephen alluded to, the guidelines associated with what constitutes a complaint or a report, I should say, are unclear at best, and we've all had to align our understandings with that of the agency. For anybody who really wants to dig in, I guess I encourage you to. You can go to the MAUDE database. That's the whole point of the thing. And you can look what's being submitted in our case, the case of any other company out there. You can look at rates. We've been fairly transparent with what our installed base is, et cetera, and you can compare those things. And we think we compare favorably. But in terms of how to think through it beyond that, I'd say that's hard to say. We don't see an underlying problem in our data here. The 43 itself had nothing to do with the actual complaints being received or the number of them. It had to do solely with the definition of the reports being filed as complaints, and that's all. So hopefully, that's clear. Operator: I'm showing no further questions at this time. I'd like to turn the call back over to Sean for any closing remarks. Sean Saint: All right. Thanks, everyone. As usual, we enjoyed discussing a strong quarter with you today. We appreciate your work to understand our business. And I guess we look forward to seeing you all next quarter. Thank you. Stephen Feider: Yes. Thanks, everyone. Operator: Thank you for your participation. You may now disconnect. Good day.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Celestica Q3 2025 Financial Results Conference Call and 2025 Investor and Analyst Day. [Operator Instructions]. I will now hand the conference over to Matthew Pallotta, Head of Investor Relations. Please go ahead. Matthew P.: Good morning, and thank you for joining us on Celestica's Q3 2025 financial results and investor and analyst day conference call. On the agenda for today's call, we will begin with our third quarter financial results, followed by our 2025 Investor and Analyst Day. At the conclusion of the prepared remarks, we will open up the lines for Q&A. Joining us on today's call to provide prepared remarks will be Rob Mionis, President and Chief Executive Officer; Mandeep Chawla, Chief Financial Officer; Jason Phillips, President of our Connectivity and Cloud Solutions segment; and Todd Cooper, President of our Advanced Technology Solutions segment. They will also be joined by Steve Dorwart, Senior Vice President and General Manager of Hyperscalers for the Q&A portion of our call. Please note that during the course of this call, we will make forward-looking statements, including statements relating to the future performance of Celestica, business outlook and anticipated trends in our industry and their anticipated impact on our business, which are based on management's current expectations, forecasts and assumptions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. For identification and discussion of these material assumptions, risks and uncertainties, please refer to our public filings with the SEC on SEDAR+ as well as the Investor Relations section on our website. We undertake no obligation to update these forward-looking statements unless expressly required to do so by law. In addition, during this call, we will refer to various non-GAAP financial measures. We have included in our earnings release found in the Investor Relations section of our website, a discussion of those non-GAAP financial measures and a reconciliation to the most comparable GAAP measures. Unless otherwise specified, all references to dollars on this call are to U.S. dollars. All per share information is based on diluted shares outstanding and all references to comparative figures are a year-over-year comparison. Let me now turn the call over to Rob. Robert Mionis: Thank you, Matt, and good morning, everyone, and thank you for joining us on today's call. We are pleased to have the opportunity to speak with you today and to share some of the exciting developments in our business and our plans for the future. Before diving into the Investor and Analyst Day portion of our call, Mandeep will begin with a review of our third quarter results and provide our guidance for the fourth quarter. Mandeep, over to you. Mandeep Chawla: Thank you, Rob, and good morning, everyone. In the third quarter, we once again saw exceptionally strong demand in our CCS segment, which drove very strong overall performance across our key financial metrics. Revenue of $3.19 billion was up 28% and above the high end of our guidance range, driven by a very strong demand in our communications end market. Our non-GAAP operating margin was 7.6%, up 80 basis points, driven by higher margins across both of our segments. This once again represented the highest quarterly non-GAAP operating margin in the company's history. Our adjusted earnings per share for the quarter was $1.58, exceeding the high end of our guidance range and an increase of $0.54 or 52%. Moving on to some additional metrics. Adjusted gross margin was 11.7%, up 100 basis points, driven by higher volumes and improved mix in both segments. Our adjusted effective tax rate for the quarter was 20%. And finally, strong profitability and disciplined working capital management resulted in adjusted ROIC of 37.5%, up 850 basis points versus the prior year period. Moving on to our segment performance. Revenue in our ATS segment for the quarter was $781 million, down 4%, slightly lower than our guidance of a low single-digit percentage decline. The lower performance year-over-year was primarily driven by portfolio reshaping in our A&D business as discussed in past quarters. Our ATS segment accounted for 24% of total company revenue in the third quarter. Revenue in our CCS segment was $2.41 billion, up 43%, driven by very strong growth in our communications end market. The CCS segment accounted for 76% of total company revenue in the quarter. Our communications end market revenues increased by 82%, above our guidance of low 60s percentage growth. The growth was driven by very strong demand in data center networking, primarily for ramping 800G switch programs across our largest hyperscaler customers, complemented by solid demand in our optical programs. Revenue in our enterprise end market was lower by 24%, which was in line with our guidance of a mid-20s percentage decline due to a technology transition in an AI/ML compute program with a hyperscaler customer. Our HPS business generated revenues of $1.4 billion in the third quarter, representing growth of 79% and accounted for 44% of total company revenue. The very strong growth was driven by accelerating volumes in our ramping 800G switch programs. Moving on to segment margins. ATS segment margin in the quarter was 5.5%, up 60 basis points, primarily driven by improved profitability in our A&D business. CCS segment margin in the third quarter was 8.3%, an improvement of 70 basis points, driven by a higher mix of HPS revenues and benefits from operating leverage. During the quarter, we had 3 customers that each accounted for at least 10% of total revenue, representing 30%, 15% and 14% of revenue, respectively. Moving on to working capital. At the end of the third quarter, our inventory balance was $2.05 billion, a sequential increase of $129 million and a year-over-year increase of $226 million. Cash cycle days during the third quarter were 65, an improvement of 1 day versus the prior year and sequentially. Turning to cash flows. We generated $89 million of free cash flow in the third quarter, bringing our year-to-date free cash flow to $302 million. Capital expenditures for the third quarter were $37 million or 1.2% of revenue, while capital expenditures year-to-date were $107 million and also 1.2% of revenue. We anticipate capital expenditures to increase in the fourth quarter and for total annual CapEx to be approximately 1.5% of revenue. Turning to our balance sheet and capital allocation. At the end of the quarter, our cash balance was $306 million, while our gross debt was $728 million for a net debt position of $422 million. We had no draw outstanding on our revolver, leaving us with approximately $1.1 billion in available liquidity. Our gross debt to non-GAAP trailing 12-month adjusted EBITDA leverage ratio was 0.8 turns, an improvement of 0.1 turns sequentially and 0.3 turns versus the prior year period. As of September 30, we were in compliance with all financial covenants under our credit agreement. During the quarter, we did not repurchase any shares under our normal course issuer bid, and our year-to-date repurchases stand at $115 million. Looking forward, we will continue to be opportunistic towards share repurchases. And as such, we are in the process of renewing our NCIB program, which is set to expire on October 31. We expect to receive the necessary regulatory approval and to commence the new program in November. Now moving on to our guidance for the fourth quarter. Similar to last quarter, we highlight that our guidance figures assume no material changes in tariff or trade restrictions compared to what is in effect as of October 27, as any changes to these policies and their potential impact on our results cannot be reliably predicted at this time. Fourth quarter revenue is projected to be between $3.325 billion and $3.575 billion, representing growth of 36% at the midpoint. Adjusted earnings per share are anticipated to be between $1.65 and $1.81, representing an increase of $0.62 at the midpoint or 56%. Assuming the achievement of the midpoint of our revenue and adjusted EPS guidance ranges, our non-GAAP operating margin would be 7.6%, an increase of 80 basis points year-over-year. We expect our adjusted effective tax rate for the fourth quarter to be approximately 20%. Finally, let's review our end market outlook for the fourth quarter. In our ATS segment, we anticipate revenue to be down in the low single-digit percentage range as growth in our Industrial and HealthTech businesses are being offset by lower volumes due to portfolio reshaping in our A&D business and market-related softness in our capital equipment business. In our CCS segment, we anticipate revenue in our communications end market to grow in the high 60s percentage range, supported by continued strong demand for our data center networking switches, including ongoing ramps in multiple 800G programs. In our enterprise end market, we expect to resume growth in the fourth quarter with a low 20s percentage increase in revenue, driven by the ramping of a next-generation program for hyperscaler application in AI/ML compute. Based on our guidance for the fourth quarter and strong year-to-date performance, our latest 2025 financial outlook now calls for revenue of $12.2 billion, up from $11.55 billion previously, reflecting year-over-year growth of 26%. Our adjusted EPS outlook has increased from $5.50 per share previously to $5.90 per share, implying growth of 52%. Our non-GAAP operating margin of 7.4% remains unchanged. We are also increasing our free cash flow outlook for 2025 from $400 million to $425 million. And with that, I'll turn the call back over to Rob to begin our 2025 Investor and Analyst Day. Rob, over to you. Robert Mionis: Thank you, Mandeep. In the rest of our time this morning, we would like to provide you with a view of where our business stands today and the strategy that got us here. Importantly, we'll then share our view on where we are headed as a company, including our significant market opportunities and the investments we are making in our operations and technology road maps. Celestica is our global technology platform solutions company. As our fundamental value proposition, we leverage vertically integrated capabilities and provide customized solutions enabling our customers to deploy leading technologies at scale, achieving rapid speed to market. Our goal is clear: to lead and accelerate market advancements in our focused technologies. We achieved this by proactively investing in next-generation technology road maps and the advanced capabilities required to deliver those technologies to market. Celestica leverages our comprehensive vertically integrated capabilities to deliver leading technology platform solutions. We offer complete end-to-end capabilities, starting with design and engineering through manufacturing and supply chain management to software and aftermarket services. The depth of our system-level capabilities and expertise is best reflected in our technology solutions for the data center across networking and AI/ML compute. However, we leverage a set of competencies and strengths across a range of markets and technologies. Customers have the flexibility to leverage all or any combination of our capabilities to build tailored platform solutions for their entire product life cycle. So let's look at where we stand today. As Mandeep shared, we are currently delivering the strongest financial performance in the company's history. We will dive deeper into both of our segments shortly to discuss the fundamental factors driving our performance and our plans for the years ahead. However, first, I would like to take a brief look back at how we arrived here. When I took the CEO role in late 2015, my first action was to solidify the core leadership team. However, the real inflection came in 2018 when we began executing a comprehensive transformation to reshape our business. This was a fundamental shift. We aggressively ramped our investment in design engineering and technology road maps for the data center, while we deliberately disengaged from low-margin, low complexity programs that offered limited opportunity for differentiation and value add. By 2020, we introduced our 400G switch, marking a pivotal moment in our HPS business, establishing our presence in the high-performance Ethernet switch market. Since then, we have rapidly grown our hyperscaler portfolio, reshaped the margin profile of our business and entrenched our position as a technology leader and key enabler of AI infrastructure solutions for the world's largest data center customers. Yet the changes made to date may seem modest in comparison to the opportunities that lie ahead. We are currently navigating the most rapid period of change in our company's history, and the pace of that change continues to accelerate, driven by the massive investments in AI infrastructure by our customers. Celestica's culture is rooted in the pursuit of progress, and we are incredibly excited and motivated by the opportunities in front of us. During this period, we have seen accelerating momentum in the growth of our business, and we are capitalizing on this strength. Based on our 2025 outlook, we are on track to deliver our strongest performance on record. There are a number of key drivers supporting the sustained improvement in our performance. The first driver is capturing share in high-growth markets with the cornerstone being our presence in AI data centers. Next, demand for our HPS product offerings are rapidly shifting our entire portfolio toward higher complexity engagements, where our design collaboration and value add are critical to our customers' success. In addition, growing volumes are fueling improved operating leverage, and we relentlessly drive productivity and efficiency across our global network with a strong focus on operational excellence. Our global network operating across 16 countries is essential part of our value proposition. Our customer-centric network strategy provides a reliable and consistent supply chain solution, allowing our partners to derisk their geographic exposure, a capability that's essential in the current climate of geopolitical and trade uncertainty. We have been and continue to make significant expansions and upgrades to our network funded by operational cash flow to support the growing demand and program ramps with our AI data center customers. Demand for North American capacity remains strong, especially within the United States. To accommodate this, we are continuing to deepen our footprint in Texas. We're expanding square footage and increasing our power envelope at our Richardson site with capabilities to support the production of thousands of additional advanced AI racks annually. We are adding to our global design engineering network with a new hub in Austin for closer customer collaboration. We are also in the process of finalizing plans for an additional large-scale manufacturing site in the state to support continuing growth with one of our largest customers. We are equally committed to supporting our customers by investing for growth in Asia, where we continue to make significant additions to our largest campus in Thailand. We are seeing incredibly strong demand from hyperscaler and digital native customers for tight capacity with significant production ramps planned to commence through 2027 and into 2028 across networking and compute. This proactive and regionalized investment strategy ensures we retain a flexible and reliable network positioned to meet our customers' evolving needs and accommodate the significant growth in demand from our customers. Operational excellence is ingrained in our company's DNA and an integral pillar of our competitive differentiation and value proposition. The Celestica operating system is our standardized framework that ensures unmatched consistency in quality, reliability and on-time delivery across every one of our global sites as we deliver hundreds of highly complex programs simultaneously. One of the core components is our culture of accountability, emphasizing execution and safety. This is reflected by our performance in these areas, tracking well above industry benchmarks, including 0 critical excursions to customers. We pride ourselves on our customer-first mindset, evidenced by our history of deeply entrenched collaboration in design and engineering, where we have positioned ourselves to act as an extension of our customers' teams. Another operational priority is our continuous investment in our advanced manufacturing capabilities, including automation and testing, which are critical to enabling product road map development and speed to market in deploying new technologies. Next, I want to briefly detail a case study that will help bring to life our competitive differentiation enabled by our core success drivers. In this instance, a hyperscaler customer approached us to collaborate on the design of our first of its kind rack-scale liquid cool 1.6T networking solution needed in order to accommodate the increased density and power requirements of the latest generation AI networking platforms. This highly customized design was intended to be integrated into the new state-of-the-art data center architecture. The customer required an accelerated road map to allow the solution to be early to market, leveraging Broadcom's Tomahawk 6 SC silicon, making speed to market a key consideration. In addition, the customer required multi-node manufacturing capabilities in Asia and the U.S. to support the delivery of the program. As with many of our key engagements, managing complexity was a defining factor. Celestica was awarded the program earlier this year based on a strong working relationship with the customer and their confidence in our industry-leading design engineering. They also valued our advanced manufacturing capabilities, specifically our ability to operationalize highly complex production lines for liquid cooled racks at scale and to do this faster and more seamlessly than other potential partners. After receiving initial Tomahawk 6 samples earlier this year, we quickly stood up an operational prototype for the 1.6T switch and believe we were the first team anywhere to have done so. The program is scheduled to begin mass production next year. As this example and our discussions today will illustrate, Celestica's success is driven by the unique combination of 3 core factors. First, we occupy industry-leading positions in markets with strong structural tailwinds and higher barriers to entry, supporting multiyear runways for growth. Our largest and fastest-growing market presence is within AI data centers, supporting high-performance networking and custom ASIC AI/ML compute platforms. Second, with these focused markets, we seek to accelerate market advancements through technology leadership. Our early-stage investments in R&D and next-generation product road maps support our ability to remain at the leading edge of technology transitions and enable our customers' speed to market in deploying new technologies. We separate ourselves by helping our customers address complexity and by solving the hardest challenges effectively. Third, we are steadfastly focused on maintaining best-in-class operational execution. Our global footprint, combined with the rigorous processes of the Celestica Operating System, ensures we can manufacture and deliver the highest complexity products without compromising quality and reliability. Fundamentally, these 3 factors serve as a foundation of our success and our unwavering confidence in the opportunities ahead. I'd like to now turn the call over to Jason to walk us through our CCS segment. Jason, over to you. Jason Phillips: Thank you, Rob. It's great to be here with you this morning. The past several years have seen our business on an incredible growth trajectory. In the midst of what is potentially the most significant secular investment cycle in a generation, we are in the incredible position of supporting the world's largest data center customers in their massive infrastructure buildouts to enable the growth in applications of artificial intelligence. This year, we are tracking towards $9 billion of revenue, more than doubling the size of our business from just 3 years ago. Alongside this growth, our business mix has shifted towards higher complexity customized programs within our HPS portfolio, helping drive strong profitability. Double-clicking on our HPS portfolio, we are expecting to deliver approximately $5 billion in revenue for 2025, an incredible 80% growth, which speaks to the tremendous uptake from customers for our offerings. We take a long-term view towards our investments and product road maps, investing early to help customers accelerate deployment of leading technologies. We have consistently grown our investments in R&D over the years. We increased our spend more than 50% this year, and we expect at least a 50% increase in 2026 in support of new program wins that will ramp beginning over the next 2 years. Our design engineering talent is an important differentiator for our business. We have scaled our team today to more than 1,100 dedicated design engineers, supporting both hardware and software solutions across 7 global design sites and growing, and we expect to add several hundred additional resources in the immediate future. Our recognized leadership in design has been critical to winning the many new programs, which are driving our growth. Next, we'll take a look at some of the key technology developments and design challenges we are seeing in the data center and where our team is making investments to address those opportunities. Importantly, as a platform solutions company, we are aiming to address these challenges at the systems level. In AI/ML compute, we are making investments in our rack-scale capabilities to support applications for both training and inferencing workloads, which we will touch on more shortly. To stay ahead of the latest advances in liquid cooling, Celestica is building proof of concepts for our next generation of solutions, which includes innovations in single-phase, dual phase and emerging liquid metal technologies. The rapid advances in switching silicon bring with it increasing complexity in designing the latest networking platforms, particularly challenges in addressing power density and signal integrity. Celestica is addressing these by driving innovations in our switch designs for 200-gig SerDes solutions to support 1.6T platforms and are planning early-stage investments for 400-gig SerDes to support 3.2T platforms. We're also staying close to the advances in optical technologies that will increasingly be utilized in high-performance networking such as linear pluggable optics, co-packaged optics alongside other interconnect technologies such as co-packaged copper. As an example, our latest 800-gig and 1.6T switch designs support LPO for optimized power efficiency. And we are in the early stages of our product road maps for our future generations of switching solutions that will accommodate CPO technology. We also see scale-up networking, which supports high-speed direct connectivity between accelerators as an emerging multibillion-dollar new market opportunity that is being unlocked in large part by the move towards open standards, supported by industry initiatives like UALink and Ethernet for scale-up networking. We are already on the path through recent program wins towards productizing our first solutions for scale-up Ethernet, which will leverage Broadcom's Tomahawk 6 silicon. We look ahead at emerging technologies by proactively investing and collaborating with our ecosystem partners to define future product road maps. This enables speed to market and establishes Celestica as an essential partner for our customers' next-generation deployments. As noted, Celestica looks to address technology leads at the system level. And accordingly, we have invested in developing capabilities to support full platform solutions. Our customers engage with us to support a wide array of programs and technologies and leverage the depth of our capabilities to varying degrees. However, we have increasingly observed our hyperscaler and digital native customers seeking bespoke solutions for rack-scale systems, making our full suite of capabilities across multiple technologies increasingly essential. Critically, we are seeing this demand in both networking and AI/ML compute, where customers are seeking solutions for both custom ASIC and emerging merchant silicon platforms. Beyond designing the hardware for base technologies in networking, compute and storage, our engineering teams are supporting customers in orchestrating, testing and optimizing their rack-scale solutions, including the customization of software platforms as well as aftermarket services. Our ability to deliver system-level solutions of this kind requires our breadth and depth of capabilities in all of these areas with the ability to integrate them into a seamless solution for the customer. Software is an increasingly critical component of our comprehensive solutions. To support this, we are making focused investments in our capabilities, having grown our global team to nearly 400 dedicated software engineers. We believe that open-source network operating systems, namely SONiC, are positioned for continued market adoption driven by the desire for vendor diversity, cost effectiveness and sustained improvement and innovation. We have a long history of working with SONiC and our proficiency with this platform is well respected in the industry. Our Celestica solutions for SONiC customizes and hardens SONiC features, providing customers bespoke solutions with an open-source base as well as related support services. But our software capabilities go beyond SONiC too, as we offer customers the optionality to leverage third-party solutions. And for hyperscalers using a proprietary network operating system, our software knowledge allows us to provide critical support with switch abstraction interfaces, ensuring silicon interoperability across the fabric and to assist with network operating system debugging and testing of customized hardware. Our ability to deliver a diverse range of leading solutions is significantly enhanced by our ecosystem of partners across both silicon and software. Leveraging these relationships, we work closely and proactively with our technology partners, aligning years ahead of time on next-generation product roadmaps, enabling us to be early to market and deploying leading-edge solutions for our customers. And our technology partners attest to the critical part we play in productizing and delivering these leading-edge solutions to the market. Broadcom's President and CEO, Hock Tan, highlights the significance of our capabilities and execution by recognizing Celestica as their preferred provider for the most technically demanding data center platform solutions. The strategic relationships between Celestica and industry leaders like Broadcom are a powerful testament to the importance of our role in enabling these critical technologies. Now let's take a deeper dive into our market opportunities. As mentioned, we are witnessing a generational secular investment cycle in data center infrastructure, driven by artificial intelligence and cloud adoption. Many of the indicators from the companies leading this investment across silicon designers, hyperscalers and the emerging leaders in large language models point towards a multiyear runway of continued growth in data center CapEx. Annual data center CapEx is forecasted to surpass $1 trillion by 2028, with commentary from leading voices in the industry suggesting this could prove to be conservative. These companies regularly highlight constraints in compute capacity driven by the increasing demands from both training and inference. All of these companies have signaled their commitments to continue to grow their investments in AI infrastructure, which aligns with the forecasts and planning discussions we are having with our customers. Within our portfolio, hyperscaler customers have continued to be the primary driver of our revenue growth over the past several years. Demand remains incredibly strong and is supported by solid visibility based on program awards that are expected to begin ramping over the next 2 years. Furthermore, we're unlocking the next wave of expansion with our digital native customer portfolio, which is poised to ramp meaningfully starting in 2027 with the delivery of our first HPS rack-scale custom AI system, which we initially announced in January. Our broad portfolio exposure to AI-driven investments from the largest and most established players in the sector ensures our business is exceptionally well positioned to capitalize on this opportunity. Moving on, we'll discuss the opportunities across our markets. Our communications portfolio is anticipated to generate $7 billion in revenue in 2025, an exceptional 78% growth. Our portfolio is anchored by our networking solutions with our 800-gig switch programs comprising the largest share and our most significant growth driver in 2025. We anticipate that continued growth in 800-gig and multiple ramps in 1.6T beginning in 2026, including strong engagement in scale-up Ethernet, support a robust multiyear growth outlook for our networking business with our existing customer base alone. In addition, we also have a growing funnel of opportunities for both scale-up and scale-out applications across a diverse set of new and existing customers. We believe that our technical expertise and recognition as a market leader in networking places us in a solid position to continue to grow our portfolio. At the Open Compute Project Global Summit earlier this month, we announced the latest additions to our growing family of high-performance Ethernet switches as part of our HPS portfolio, the DS6000 and DS6001. The DS6000 series utilize Broadcom's Tomahawk 6 silicon and are designed to support port speeds of up to 1.6T with routing optimized for AI/ML workloads across both scale-up and scale-out networking. Notably, the DS6001 incorporates direct-to-chip liquid cooling technology. We anticipate availability later in 2026. These latest designs are a testament to our continuous innovation and our commitment to accelerating market advancements through technology leadership. We believe our optimism regarding our networking business is well founded. Our market share leading portfolio is supported by a number of company-specific and market-level tailwinds, which position us to continue to succeed in this fast-growing market. The latest forecast suggest that the TAM for high-bandwidth Ethernet networking is projected to reach $50 billion by 2029. Within this market, the 800-gig and higher segments are projected to grow even faster than the overall market at an impressive 54% CAGR driven by upgrade cycles led by hyperscalers and leading large language models' providers to keep pace with the demands of the latest AI workloads. Based on the engagement we've seen already, we think that the adoption of scale-up Ethernet is going to be a really meaningful opportunity and additive to the growing overall Ethernet TAM. In our case study earlier, we highlighted the increasing technical challenges with each successive new generation of networking technology, which we have proven highly capable of navigating. However, there are a number of additional highly favorable dynamics that we believe make this market an incredibly important opportunity. We'll touch on a couple of those now. One of the core challenges in building AI data centers is scaling of the infrastructure. While the increasing computational power of accelerators or nodes is driving requirements for greater bandwidth, a critical compounding dynamic is the nonlinear growth in connectivity required as the number of accelerators within a cluster scales. The largest fully operational cluster today is believed to consist of roughly 200,000 accelerators. However, commentary from leading silicon companies suggests that multiple hyperscalers plan to deploy clusters consisting of up to 1 million accelerators within the next couple of years. This rapid scaling in compute capacity required to support leading AI models requires huge increases in networking infrastructure, including high-bandwidth Ethernet switches, which comprise the majority of our communications portfolio. The build-out of AI data centers is fundamentally shifting the share of spend towards back-end networking, which is expected to grow more than twice as fast as front-end spending. Back-end networking connects the compute clusters used for training models, while front-end connects the network to the external world, primarily for inference traffic. The unique demands of back end align with our competitive strengths, in particular, more intense performance requirements where factors like high bandwidth, low latency and sustained high utilization are an absolute necessity. The back end also necessitates shorter refresh cycles required for the network to keep pace with the increases in computational power. Since our switch revenues are predominantly comprised of back-end shipments, we have meaningful exposure to the highest growth segment of the market. Our customers tend to be early adopters, and we help them accelerate their deployments of the newest switching platforms early on in upgrade cycles. This is reflected in our leading market share on the highest bandwidth and Ethernet switching for the data center across each of 200-gig, 400-gig and 800-gig platforms. Today, our cumulative market share across all of these speeds as measured by total ports shipped is 41%, more than double the next largest competitor's volume. As the technical complexity rises with each generation of the technology, designing high-performance switches becomes increasingly challenging and fewer and fewer competitors can do it effectively. Managing this complexity and helping customers achieve speed to market with new technologies are what we really excel at, allowing us to secure the strongest share in the earliest stages of every new upgrade cycle. We see custom solutions for high-performance AI networking platforms being widely adopted by our leading hyperscaler customers. This model offers the benefits of vendor diversity, cost effectiveness and highly tailored solutions, which become more pronounced as their infrastructure deployments scale. Consequently, we believe hyperscalers and increasingly large digital native customers will continue to leverage these solutions. In this segment of the overall market, Celestica's share leadership is even more pronounced as we account for the majority of the total spend, 55%, having grown our share meaningfully over the last couple of years. Securing mandates and consistently executing on high complexity customized solutions for the largest customers in the industry reflects our competitive advantage and continues to validate our market strategy. Moving on to our enterprise market, which includes our AI/ML compute and storage businesses. Our portfolio revenue is projected to be about $2 billion in 2025, and we expect to see meaningful growth in 2026, significantly exceeding our previous peak revenues from 2024, as we ramp the next-generation AI/ML compute program. Looking further ahead, 2027 is expected to be another transformative year as we plan to ramp production for the rack-scale custom AI system with a digital native customer. The design work for this program is well underway, and we expect to receive initial XPU deliveries in the second half of 2026 to support early test deployments with full-scale production expected to commence in 2027. The scale and scope of the custom solution, including design, manufacturing, orchestration and deployment for a leading-edge system of this nature is incredibly complex. But as we've highlighted, these are the kinds of challenging engagements where Celestica truly thrives. We anticipate this program will serve as a landmark proof point, showcasing our full suite of system-level capabilities. Shifting to the market outlook, the TAM for accelerated compute is expected to grow to nearly $500 billion by 2029. Some of the tailwinds driving this growth are particularly favorable for our business. Given that our compute business is focused almost exclusively on solutions supporting custom ASIC platforms, we are positioned to benefit from the highest growth segment of the AI server market. Overall, the constraints on capacity we spoke about earlier, currently being experienced at the largest hyperscaler and digital native customers continue to highlight the clear requirement for more compute infrastructure and the strong demand in this market. As mentioned, Celestica's market strategy is focused almost exclusively on the custom ASIC segment, which is forecasted to grow roughly sixfold over the next several years. An increasing number of the largest data center players in the market continue to pursue development of custom ASIC platforms, and we are seeing this trend within our own customer base. The architectures of these chips are designed to be optimized to support a customer's specific workloads with the intention to deliver lower hardware cost, power savings and overall better price to performance than a general-purpose GPU. As AI models become more highly specialized, custom silicon architectures will also be an increasingly important means to enable differentiation and performance between models. And as compute infrastructures grow and scale, the benefits to deploying a custom ASIC platform successfully are magnified. Because custom ASICs also require highly tailored bespoke systems to be designed around the silicon, customers often require greater support from solutions providers, presenting us with better opportunities for value-added engagement on engineering and design. We believe this fast-growing segment of the market better lends itself to our competitive strengths in customization and managing complexity and that there are fewer players that have our track record in supporting these kinds of platforms at scale. We are exceptionally optimistic about the future of our CCS business. We have confidence in our outlook, supported by visibility to upgrade cycles, strong customer demand forecasts and a robust pipeline of potential new opportunities. And we feel that we are in a prime position to capture the incredible market opportunities in front of us. With that, I would now like to hand the call over to Todd, who will take you through the latest in our ATS segment. Todd Cooper: Thank you, Jason. It is great to be with all of you this morning. Since we spoke last year, we've been focused on strategically remodeling the ATS portfolio for higher sustained profitability and higher mid- to long-term growth. Specifically, our previously discussed reshaping activities in A&D are offsetting otherwise solid base demand across the segment, leading us to expect revenues in 2025 to be approximately flat year-over-year. We have already seen the significant benefits of these actions on our profitability. After exiting 2024 with a segment margin of 4.6%, we have already improved to 5.5% in the third quarter of 2025 and expect to achieve 70 basis points of full year margin expansion. Looking ahead to 2026, we anticipate revenue to be approximately flat to mid-single-digit percentage growth. We are seeing strong growth in our Industrial and HealthTech businesses. However, this demand will be partially offset by further selective reshaping across some of our markets. Over the medium to long term, our objective is to grow our portfolio at or above the growth rates of our underlying markets on a consistent basis, while balancing growth with sustainably higher profitability. Our target financial framework for this segment is supported by our engineering-led strategy and our focus on deepening our long-standing relationships with the leading customers in our markets. Over the past number of years, our ATS business has made investments to deepen our engineering base by developing market-focused teams with specialized expertise in their respective industries technologies. Today, our team constitutes a global network of highly talented engineers along with labs and advanced manufacturing sites to support our customers across regions and markets. Engaging customers early in the product life cycle strengthens our relationships by allowing us to offer a more holistic vertically integrated solution. This approach more fully leverages our core competency as an organization, helping our customers navigate complexity and solve hard problems, while having the added benefit of reinforcing our value as a highly capable partner and driving higher margins for the portfolio. Today, about 1/3 of our more than 100 customers engage with our teams on engineering services, relying on us for support in testing, design as well as in accelerating their time to market on new product development. We believe this presents an excellent opportunity to deepen our engagements within our existing customer base. And lastly, as discussed earlier, we are also continuously assessing and actively managing our customer portfolio. Our commercial strategy is focused on deepening our long-standing relationships with the leading Tier 1 OEMs in our markets. In pursuit of growth, we are intensely focused on maintaining the quality of our customer base and having a strong margin profile for our portfolio. Now I'd like to briefly walk through each of our businesses, starting with Industrial and Smart Energy. In our industrial and smart energy portfolio, we anticipate growth in 2026, driven by demand recovery in our macro-sensitive end markets. Longer term, we are engaged on exciting new opportunities in robotics and automation as well as in on-vehicle technologies such as telematics and battery energy storage for heavy industries. We are also pursuing programs in the growing data center power infrastructure market, including power distribution, conversion and control equipment, leveraging some of our hyperscaler relationships. While it is still early days, we are encouraged by the traction we are seeing. Next, let's move to Aerospace and Defense, which as a U.S. military veteran is near and dear to me. Our 2026 outlook sees base demand remaining healthy, supported by the ramping of new program wins, although we expect that growth will be offset by tougher comps from the first half of this year, driven by our reshaping activities. Longer term, we project healthy demand from U.S. and European defense spending, which we expect will become a greater share of the portfolio. And in our commercial aerospace business, we expect to see growth aided by program ramps with new and existing customers. Moving on now to semiconductor capital equipment. In semiconductor capital equipment, we saw strong growth in the first half of 2025, although we are seeing a moderation of demand in the second half, consistent with the broader sector. We expect this to continue into at least the first half of next year as our customer conversations indicate foundries are holding off on adding more capacity until there is greater clarity on tariffs and trade restrictions. To obtain greater efficiencies in our network, we are taking this opportunity to consolidate demand across some of our sites. At the same time, we are continuing to ramp new high-complexity programs in lithography and advanced semiconductor packaging. Long term, we believe the significant push for the near shoring of wafer fab capabilities in the U.S., Europe and China, driven by geopolitical factors is expected to support healthy demand for new capacity. We have exceptional capabilities and proof points in the semiconductor capital equipment market and anticipate this demand to serve as a tailwind for our business starting in the second half of 2026. Finally, in our HealthTech business, overall demand remains robust, and we continue to make a concentrated effort towards driving higher portfolio exposure to this market. Last year, we discussed our investments in advanced manufacturing, automation and testing capabilities to support new wins in diabetes care, which are expected to ramp in 2026. Now as we approach the beginning of those ramps, we are anticipating more than $100 million of growth in our HealthTech business in the coming year. In closing, our focus remains on driving high-quality, sustainable growth. We are successfully executing strategic commercial decisions to reshape our portfolio, which is already yielding significant improvements in profitability. Our portfolio is supported by healthy underlying near-term demand, along with solid long-term fundamentals. We remain confident that our thoughtful approach in each of our markets will position us to drive sustainable and profitable growth for the ATS segment. With that, I would now like to turn the floor back over to Mandeep, who will discuss our financial outlook and capital allocation priorities. Mandeep Chawla: Thank you, Todd. The outlook for the financial performance of the business in 2026 continues to be very strong. We anticipate revenue of $16.0 billion, representing 31% growth compared to our 2025 outlook. At the segment level, CCS revenue is expected to grow by approximately 40%, driven by strong market tailwinds and program ramps in both our enterprise and communications end markets. Our outlook assumes continued strength in networking, supported by 800G demand growth and the ramps of our earliest 1.6T programs in the second half of the year. In AI/ML compute, we anticipate very strong growth as we reach full volume production of our next-generation custom ASIC program for hyperscaler applications. In ATS, as noted, revenue is projected to be flat to up in the mid-single-digit percentage range, as healthy base demand and new program ramps are partially offset by our reshaping activities to drive higher profitability. We expect non-GAAP operating margin to expand by 40 basis points to 7.8%, driven by favorable mix and productivity improvements. Our non-GAAP adjusted EPS is projected to be $8.20, which would represent a 39% increase year-over-year. We are targeting non-GAAP free cash flow of $500 million. This model represents our preliminary high confidence outlook for the coming year, and we will continue to update you on our forecast as the year progresses. Importantly, our confidence extends beyond 2026. First, AI-related demand for data center technologies in our CCS business remains very healthy, and we are seeing many signals that suggest these secular dynamics have a multiyear runway ahead. Second, we have solid visibility to the ramping of significant new programs with start dates out to 2027. Our view for 2027 assumes multiple ramps with hyperscaler customers with new programs supporting the 1.6T upgrade cycle, including scale-up solutions and a next-generation custom ASIC compute platform. We also anticipate the commencement of mass production of our rack-scale custom AI system program with the digital native customer. As a result, we expect these strong growth dynamics to persist. And in support of this, we are aligning our capacity with our customers, assuming that this trajectory continues into 2027. As we continue to manage our financial priorities through this period of high growth, we intend to maintain a steadfast focus on maximizing shareholder value. We aim to achieve this by compounding our adjusted earnings per share in a sustainable manner over the long-term. This requires us to remain thoughtful and measured in our approach to pursuing earnings growth by assessing current and potential new business through the lenses of margin sustainability, alignment with our long-term strategy, our competitive advantages and return on invested capital. These guideposts help us to maintain discipline in managing our growth and evaluating our commercial opportunities. Our consistent execution and disciplined approach to financial management has delivered improvements in each successive year across each of our key metrics. Based on our 2026 outlook, we expect revenues to more than double relative to 2022 and to lead to a more than fourfold growth in adjusted EPS over the same period, driven by the sustained expansion of our non-GAAP operating margin. We believe there is still room for additional operating leverage in our business beyond 2026. We anticipate maintaining our solid trajectory and compounding our adjusted earnings per share, which we believe will continue to translate into strong return for shareholders. Taking a closer look at free cash flow. We have managed to consistently generate free cash flow on a quarterly basis going back many years, enabled by our strong working capital management and operational discipline. We also continue to grow our free cash flow, while simultaneously funding the rapid expansion of our business. Next year, capital expenditures are expected to rise to between 2.0% and 2.5% of revenue, funded by operational cash flow as we invest in our network to support the growth we anticipate over the coming years. We will maintain a disciplined approach to CapEx and working capital management as we ramp these investments. While the primary aim of our investments is towards driving compounding of our adjusted EPS over the long-term, adjusted ROIC remains an important measure that we use to assess the quality of our investments. This has been reflected in our strong earnings growth directly translating into meaningfully higher returns on capital, which now sits at 35% year-to-date in 2025, having nearly doubled since 2022. This rigorous focus on capital efficiency seeks to ensure that our growth is high quality and that we continue to direct our resources towards its best and highest return use. Our capital allocation strategy is built on 2 core principles: discipline to ensure we pursue the highest returns and best use of capital and strategic flexibility to maintain optionality to execute on new opportunities as they arise. Today, our highest priority for capital is to reinvest in the business to support long-term growth and the significant organic opportunities we see over the next several years. We also continue to assess M&A opportunities in a disciplined and selective manner, where acquisitions can serve as a complement to our organic growth and help accelerate our strategic road maps. Our CCS funnel is primarily focused on adding or enhancing our capabilities in areas such as services and design engineering. And in ATS, we are looking to balance our portfolio by adding exposure to or scale in desirable markets that possess strong fundamentals. And finally, we will continue to return capital through share buybacks on an opportunistic basis. Over the past 3 years, our share price performance has significantly outpaced the broader indices and the majority of our peer group. Our stock price reflects the very strong trajectory of adjusted earnings growth we've delivered over the last few years. We are confident that this strong earnings compounding will continue as demonstrated by the 39% adjusted earnings per share growth implied by our 2026 financial outlook. We believe that our valuation is supported by this strong track record and our anticipation of future growth. With that, I'll now turn the call back over to Rob for his closing remarks. Robert Mionis: Thank you, Mandeep. Before we close out, let me briefly reiterate the 3 key drivers that are the foundation for our confidence in our continued success. We are very optimistic about the future of our business. As I stated earlier, we are navigating a period of rapid but positive changes and the pace of those changes only continues to accelerate. We believe the next several years present a truly remarkable opportunity for our company. We hope that all of you leave our call today with a richer understanding of our unique combination of capabilities and the strategic approach that enables our success. We provided perspective on our long-term vision, highlighted by the proactive investments we're making today to capture the opportunities we've discussed. We have the utmost confidence in our organization's talent, our commitment to excellence in delivering for our customers and our ability to execute on our strategy. Thank you for your time and continued support. I will now turn the call back over to the operator to begin our Q&A period. Operator: [Operator Instructions] And your first question comes from the line of Mike Ng with Goldman Sachs. Michael Ng: I guess, first, just on the investments that you're making in R&D, the 50% growth next year and the capacity expansions through 2028. I was just wondering if you could talk a little bit more about some of the key products that are supporting your visibility into these investments and are most of the investments grounded by expansions in customers that are new or existing? And then just as a quick follow-up, I noticed you talked about the new storage platform win with the hyperscaler in 2026. Is that with your current hyperscale AI/ML compute customer, or is that somebody else? How would you size the opportunity in hyperscale storage? Jason Phillips: Mike, this is Jason, and welcome, and we're glad you're covering us. So as we look at our R&D spend and investments year-over-year, we've been making significant increases now for quite some time, and they are directed at where we are focusing our strategy and our opportunities largely around networking, AI/ML, and I would say, storage, rack level solutions and then everything you need to bring that total rack level, fully orchestrated rack level solution together, inclusive of software, liquid cooling, power, et cetera. So that's where we've been focusing our R&D spend. And we've also been making significant, I'd say, advancements and investments in our engineering network. We've now moved up to over 1,100 engineers, 400 of those are in software. We've moved to 7 design centers of excellence. And we're also looking at increasing that in places like Taiwan as well. Stephen Dorwart: Yes. And with regard to the specific customer that you inquired about, it is an existing customer. We have a long-standing relationship with this company, and we've continued to evolve the relationship from providing single system level solutions up to fully integrated rack solutions, of which this engagement is. And that's part of our normal process to go and evolve with our customers. With regard to storage, we have a few different opportunities where we're engaged in storage. It's less prominent than we would see in networking or our ability to extend some of our networking capabilities into the AI/ML compute space. Operator: Your next question comes from the line of Karl Ackerman with BNP Paribas. Karl Ackerman: You noted that Thailand and Texas could see a doubling of capacity from 2024 to 2027, yet CapEx will only be 2% to 2.5% of sales. Could you speak to what assurances your largest customers are giving you to support this capacity growth, whether that is in the form of multiyear volume commitments and/or combined investment in tool CapEx? Mandeep Chawla: Yes. Karl, it's Mandeep here. Thanks for the question. So we've been very disciplined on our capital expenditures for many, many years. We're tracking towards 1.5% right now for this year. And as the revenue continues to grow, the dollars obviously are growing as well. So we're on track on just under $200 million of CapEx this year. We're anticipating right now somewhere between $300 million and $400 million of CapEx next year. And these are investments that are tied to customer programs. We don't have a built-in and they will come approach. It's always tied back to customer engagement. And so we have very good visibility on the demand profile going out multiple years. So it gives us confidence to be able to invest in these types of areas. The only other thing I'll mention, and then I can have Steve ask a little bit or comment a little bit on the customer engagement on our expansion. But I just want to make a note that only about 40 basis points of our CapEx spend is maintenance. And so if we're going to spend 2% next year, then that means 1.6% is all on growth, and that gives us a tremendous amount of discretion on where we put those dollars. And so we think that right now, that's sufficient. Stephen Dorwart: This is Steve again. With regard to visibility to forecast and customer demand, we currently have about 12 to 15 months of real solid forecast inputs and demand inputs from our customers, largely around their 2026 budgeting and spend commit processes. But in many cases, we have visibility beyond that. In some cases, for specific customers, specific programs. There's a certain amount of ASICs, for example, that they may have committed to, and it gives us some assurance as to the longevity and the size of the overall program. So we do get extended visibility through being similar to that. Karl Ackerman: Understood. And if I could for a follow-up quickly. Your growth in CCS is notable, which appears driven by your networking switch opportunity in HPS. Could you speak to the relative mix you have today on 800-gig switch ports? And I suppose as you think about the trajectory of 1.6 next year, could you speak to the opportunity you have in liquid-cooled-based switches, which appear to be a growing opportunity for you, both in '26 and '27? Stephen Dorwart: Yes. Karl, from a number perspective, why don't we start, we've been seeing tremendous growth in 800G this year to the point where we'll end 2025 with roughly a 50% split between 800G and 400G in terms of the products that we're delivering. As we look into 2026, we're seeing the 800G demand, in particular, accelerating. There are going to be projects where 400G continues to be used. We've been given some examples by our customers where 400G is expected to be used for many years still. But the growth is primarily going to come from 800G. On the 1.6T program, we won a number of them. And we have one customer right now where we have visibility to that ramping towards the back end of next year. And so one of our customers will be really taking up their 1.6T awards, but then we anticipate further 1.6T ramps as we go into 2027. And so the portfolio is shifting to the higher-end technologies as we would have expected. Jason can add on that. Jason Phillips: Karl, I would say when you look at where we carved out this industry-leading position in networking, it started in 400-gig, and we were able to translate all of those engagements into 800-gig. And those engagements have been expanding incrementally to new opportunities, and we fully plan to translate all of our 800-gig engagements into 1.6T as well, and we're on track to do that. And liquid cooling plays a key role in those solutions, particularly on 800-gig and 1.6T. Operator: Your next question comes from the line of Samik Chatterjee with JPMorgan. Samik Chatterjee: And maybe if I can start with the digital native customer that you're expecting to ramp in 2027. And we've seen multiple sort of announcements from some of your partners around sort of the sizing here. But trying to sort of think about how should we think about the magnitude of the implications for you starting in 2027. Maybe if you can give us something to point us in the right direction of sizing relative to your enterprise business today? And do you have -- what are you thinking in terms of capacity to then sort of cater to that magnitude of the digital native customer ramp? And I have a quick follow-up. Mandeep Chawla: Yes. Samik, it's Mandeep here. Thanks for the question. So we're very excited still about the engagement we have with this digital native customer. We are very actively engaged with them on the design cycle and that's going to continue as we go through next year. Our plan of record right now is that we would not see mass production begin in 2027. And so when we've given an outlook of $16 billion for next year, that does not include any meaningful level of revenue coming from this digital native opportunities. The gate to that is really in terms of timing is really going to be around silicon availability. And so if silicon is available sooner for mass production, then we may be able to produce sooner. Right now, our assumption is that we will receive samples in the middle of '26 and then again, go towards mass production in '27. From a capacity perspective, we are working with the customer very closely on where -- how we can support them both in Asia as well as in North America. When we are talking about 2% to 2.5% of CapEx for next year, that's inclusive of the capacity that we're going to need to deliver what we're already seeing in 2027. Jason can add a little bit more. Jason Phillips: Yes, Samik, I would say, with all the growth we're seeing across the portfolio, we're also excited about what I call a healthy competition on who will be our largest customer in the next 2 to 3 years. Stephen Dorwart: So the way to think about it right now, Samik, is going to be that we believe it will be at least a few billion dollars in the first year, multiple billions of dollars, I'll say. One of the areas, of course, that we still need to line up on is the treatment of the silicon isn't included or not included and we're still having those conversations with our customer and our providers. Samik Chatterjee: Okay. Got it. And a quick sort of follow-up on 2027 outlook. I know you're saying the growth momentum continues into 2027. And I didn't hear you explicitly say that -- so just wanted to confirm from everything you're telling us in terms of new program ramps in 2027, the growth acceleration in 2027 should be higher [ rated ] to the growth that you're forecasting for 2026, just with the digital native customer, the 1.6T ramps. Is that a fair statement? Stephen Dorwart: Yes, of course. So I'll give you a framework on how to think about 2027. Obviously, we're not going to be giving numbers at this point. It's just too far out. But we are very confident right now on the demand profile that we're seeing and the awards that we've been receiving over the last 12 months or so, in many cases, don't have programs that even ramp until 2027. That being said, it's probably 12 months too early to talk to you about what 2027 really is going to look like. The way I would just think about it right now is our CCS business grew by about 40% in 2024. It's on track to grow about 40% right now in 2025. And our outlook or guidance for next year is essentially implying about 40% growth again in CCS in 2026. And so at this point, I think it's fair to continue to extrapolate that as you bring it forward. We do have many opportunities that could be -- that could accelerate that and could go above. So to your point, it could be through the digital native win that we're ramping as well as other really strong programs that we've won with some of our largest hyperscalers. But right now, we think at least 40% into 2027 is what we're -- we have visibility to. And then just on the ATS side, ATS this year is going to be approximately flat or we said going into 2026, it's going to be low single digits. The growth should resume at a higher level as you go into 2027. And I think the way to think about that right now is high single digit. Operator: Your next question comes from the line of Ruben Roy with Stifel. Ruben Roy: Sorry about that I was on mute. Mandeep, maybe to follow-up on that just last topic. You talked about potential additional operating leverage beyond '26. I'm just wondering, how you're measuring the potential for operating leverage relative to this really strong revenue growth that you guys are seeing, especially as we went through some of the new design activity, kind of increasing design activity with your customers, rack levels, designs, et cetera. Just do you have some thoughts on longer-term operating leverage? Mandeep Chawla: Yes. Thanks for the question. So we continue to see the benefits of both operating leverage as well as positive mix in our numbers, on track for about 7.4% operating margin at the company level for 2025, and we're guiding that, that can expand now going into 2026. We do continue to believe that there's opportunities for even more margin expansion. But again, I'm not giving formal numbers for '27 at this point. When you look at our ATS business, the business has done very well on doing some selective pruning in order to really focus on the highest value engagement. And so we're really happy with the margin expansion that we've seen in ATS already. And we think that there's opportunities to continue to expand and get it above 6%, hopefully in the near to medium term. On the CCS side, which is operating in the low 8s right now, what's working to our favor is the fact that we will continue to be seeing growth in networking, which are primarily our HPS products. And our HPS products are accretive to the company and accretive to CCS. And so as we see growth in that area, we will continue to see some margin upside. That being said, we do continue to evaluate how we can support our customers on multiple areas such as doing complex rack integration work. And so sometimes that will be margin dilutive. And so we're always managing mix, but we think that there's a lot of opportunities for expansion. Ruben Roy: Thanks for that detail, Mandeep. And if I could ask a question -- a follow-up question for Jason. A lot of discussion around scale up networking just in recent weeks, with a new standard announced, et cetera. You talked about a multibillion-dollar new market opportunity for Celestica, specific to scale up. And I'm wondering if you can maybe hash out a little bit around that opportunity relative to scale out. Do you have some sort of advantage as you discuss scale up with your customers, given how well you're doing on the scale-out switch side? And maybe just a little bit around the competitive environment, how you see that playing out over the next several years as you think about your scale-up opportunity. Jason Phillips: Yes. Ruben, yes, I would say we're well positioned for the scale of opportunity, and that comes from incumbency, and I would say, capability. When you look at, as you mentioned, a lot of where we carved out this industry-leading position in 400G, it started largely and I would say, scale out. And now it's starting that capability, and that value proposition is very much applicable to scale up. We've talked about a large digital native where we provided a fully orchestrated rack and solution. I mean that's a great example of a great -- a significant scale-up opportunity. So I would say that we have a large and growing funnel of opportunities, and we're going to be very mindful about where we have our most strategic engagements as we continue to grow and look at taking share. Operator: Your next question comes from the line of Tim Long from Barclays. Timothy Long: Yes, Two, if I could as well. First one on kind of HPS. I think this digital native is a good AI/ML win for digital native. So curious about the pipeline that you're talking about for other kind of compute-related opportunities. Could you just talk about that funnel and how we should think about new opportunities being HPS or not, number one? And then number two, just back to that -- the networking piece. As you look at new customers outside your large [indiscernible], should we assume those are mostly SONiC related? Or do you see opportunities for other Neo clouds or others to maybe develop their own switching stack where -- and what are the competitive differentiations for you with SONiC versus other proprietary NOS? Jason Phillips: Tim, Jason here. So on AI/ML compute, I mean you commented on it, I think digital native win that we've talked about would be a great example of where we've deployed our entire value proposition into a fully orchestrated solution, driving an AI/ML solution. We talked last year a bit about POCs that we're doing with silicon providers, and we talked about the AMD MI355 example, and that POC has garnered a lot of attention, I would say, in the industry. And so we have a large and growing funnel of opportunities in AI/ML. But we're going to be very, I'd say, very focused on where we have the strongest strategic alignment and where we believe the program will be successful in the AI architecture and ecosystem. So growing funnel of opportunities, but we're going to be careful about where we engage and where we believe the adoption rates will be higher. Unknown Executive: Yes. With regard to these opportunities, I think one of the things to consider is just the strong position that we have in networking and its applicability to these AI compute kind of opportunities. So there's a lot of things that transfer over the network connectivity, the signal performance, power, density, design, all those things are also very applicable and relevant in the AI space. So we continue to leverage our networking strength to win in new opportunities in the compute space. With regards to software, most of our hyperscale customers drive their own NOS, but they rely on us to provide the key layers in the stack and have full testing and qualification capabilities of their software on our system. There's also more comprehensive choices that are emerging now, and our customers are evaluating those. We still have a full -- fully capable and broad software engineering team, and we're working to support many of our customers with these new software technologies. And we continue to support them at the firmware level in most of the networking and compute systems that we do today. Operator: Your next question comes from the line of David Vogt with UBS. David Vogt: So maybe for Rob or Mandeep, I want to unpack the CCS business for a second. Obviously, switching has been sort of the driver of the business the last 2 to 3 years. And you kind of talked about over the next several years, switching growth or maybe data center CapEx growth being kind of in the mid-20s. Are you sort of inferring that ultimately, the bigger driver over the next 3 years plus will be sort of the compute opportunity along with ancillary opportunities like optical as we think about '27 and '28? Just trying to get a sense for how you're thinking about the composition of product within broadly defined CCS going forward. And then I have a follow-up. Unknown Executive: David, I'll start, and I'll ask Jason to chime in. We have a very strong position with the hyperscalers on networking across the board, given that position, we're looking to grow our share of wallet into other areas. And one of them, in particular, we do AI/ML compute. And with others, we're in several advanced conversations to expand our solutions to them, especially on the HPS front where we're not just build it, but we actually have some engineering and design content in supporting them. Jason elaborated on a couple of those opportunities, and I'll turn it over to him for additional color. Jason Phillips: David, so thinking about the CCS business overall, I mean, we've got a lot of strength in our hyperscaler digital native portfolio in networking, AI/ML, specifically on the custom side, there's incremental opportunities we've talked about at scale up as well as merchant AI/ML solutions. So there's a lot of growth, a lot of potential, a lot of funnel of opportunity there. When you look at the value proposition that got us where we are, there's a lot of opportunity to take that and pivot into the very large enterprise space. And we're going to do that in a very disciplined way. I've talked about that in the past. We have a portfolio solutions business today where we have branded product. We have SONiC, we have Celestica SONiC offering that's enabling that. We have a growing services capability that's rounding out the capability that will allow us to play more effectively in enterprise as well as hyperscaler. So we're effectively doubling down on our enterprise efforts. I recently just brought in Ganesha Rasiah. He's our Senior Vice President and General Manager of our Enterprise line of business, and he will be leading the charge as we chart our course on where and how we're going to double down in enterprise. And it's going to be underpinned by all of this value, the scale, this capability that we've established in our hyperscaler space and applying it to specific markets within enterprise to be successful. Thomas Ingham: Great. No, that's helpful. And maybe just maybe one more for Jason then. On the enterprise portfolio since you're talking about expanding capabilities and bringing in new talent looking for new opportunities, you did reference, I think, in the deck an opportunity for a new hyperscaler application in storage for '26. Can you kind of expand upon that, kind of what that actually is and maybe share what the customer is looking for and what you're bringing to that solution going forward? Jason Phillips: Yes. Maybe I'll start, David, and then I'll ask Steve to weigh in as well. I mean we do think storage is -- it's going to be an opportunity with AI. There's more and more data that is out there. And we're seeing it specifically, we've got some traction in the hyperscaler space on a specific program where there's a specific use case, I would say, that's being adopted, but we also think there's more opportunity for storage and enterprise as well. We've had a solid high-end storage business in enterprise for a long time. We're well positioned with the market leaders there. And I think storage is an opportunity as AI continues to deploy. Stephen Dorwart: Yes. And this is Steve. I will just add to that, that we have had some success, as noted here with hyperscalers and providing custom storage solutions to them. We're being very selective about where we engage and finding areas where we think we can differentiate and bring value to our customers. And so it's a narrower scope today for us, but there are opportunities, and we intend to continue to build on the success that we've had there. Operator: Your next question comes from the line of Thanos Moschopoulos with BMO Capital Markets. Thanos Moschopoulos: Can you provide some color with respect to the growth that you're expecting in CCS outside of hyperscalers and digital natives, so like OEMs and other types of customers, what would your outlook be for that in '26 and beyond? Mandeep Chawla: Yes, in terms of the incremental growth opportunities, we've talked about scale up is a very large market where we're getting a lot of traction. I would say, while our AI/ML business has been largely underpinned by the custom level solutions, there is a growing set of opportunities. We're getting a lot of traction in merchant-based AI/ML systems that represents a number of opportunities for us. And then I'd say fully orchestrated rack level solutions continues to be an opportunity as well as the services that we were wrapping around our solutions as well. Thanos Moschopoulos: Specifically in terms of, I guess, OEM type customers and maybe enterprise campus type opportunities or other beyond hyperscalers, digital natives. Is that forecast to grow meaningfully in '26, or is the growth in '26 primarily driven by your core hyperscalers? Unknown Executive: The growth is underpinned by our hyperscalers. They are leaning heavily into both switching as well as compute. But the rest of the portfolio is still growing as well. We have a large optical program that goes beyond the hyperscalers. We're seeing very nice growth in that area, and that product be used directly into data centers. We've announced that we are building a 1.6T switch with an OEM on their behalf. And so that's going to see some growth. But we do -- there is a very high level of growth coming from hyperscalers versus the others. Operator: Your next question comes from the line of Steven Fox with Fox Advisors. Steven Fox: Just one question on the HPS business. I know you don't give margin -- specific margins on the business. But I was wondering, given all the programs you see in the future and how you may be vertically integrating more, sometimes, I guess, additive, sometimes dilutive to margins. How do you see the direction of HPS -- just the HPS business going and why? And of course, that would be excluding any kind of changes in your consignment activities like with the new program. Mandeep Chawla: Yes. So we're very excited about what's happening in the HPS portfolio. We're on track this year to spend probably about $120 million on R&D. Next year, we're going to be increasing that by at least 50%. It could be as high as $200 million. And that's just reflective of the engagement that we're tied to. Today, this year is probably going to be about a $5 billion portfolio. That $5 billion is the vast majority of it is switching. And in the switching scenario, it actually does include the silicon, as you know, so it's turnkey. And yet, we still make very good margins in this area, margins that are accretive to ATS right now, which is 8.3%. I know the question sometimes comes what's the exact number, but what we just say is it's accretive. As we look at the portfolio going forward, we continue to see very strong growth on the networking side, but now we're starting to see compute come in as well. And so as compute comes in, especially as you think about this large digital native win, we've got to think through still on how sort of things can be provided. But today, our compute programs [indiscernible] to us. But overall, we are getting paid for the value that we're bringing forward on the engineering side. Operator: Your next question comes from the line of Paul Treiber with RBC Capital Markets. Paul has actually lowered his hand. So we will move on -- and your next question comes from the line of Robert Young with Canaccord Genuity. Robert Young: The 40 basis points of margin expansion -- operating margin expansion in the 2026 guidance, just against all of the big jump in scale and some of the shift to higher-end networking technology and the software mix. It just seems a little bit conservative. And so relative to some of your networking peers, margins are lower. And so I was wondering, is pricing a strategic advantage for you? Or are there any headwinds to note? I think you already mentioned the fact that the full rack solution isn't ramping until 2027. But are there any other headwinds there to note to better put that 40 basis points expansion in the context? Mandeep Chawla: Yes. So I'll start and then I'll let Jason or Steve talk about the commercial environment and our ability to capture share with price. But essentially, what's happening right now is that when you look at the 7.8% next year, and again, you're putting 40% growth on the CCS business, maintaining the margins that CCS has and maintaining the margin that ATS has will yield that 40 basis points improvement. We are working towards expanding margins in both businesses, and we do believe that, that is an opportunity. It's early on in the year, and so this isn't that different than the approach that we've taken in previous years, which is we will guide margins in terms of where we are today, knowing that we are working on various levers to expand that. But I would say more to come as we go through 2026. Jason Phillips: Rob, and I would just comment on where we're seeing the values where we're driving the differentiation from our competitors. It's largely a technology leadership, customization for optimization and then our advanced manufacturing processes and execution. I mean we've pivoted now that we're into platform solutions, we pivoted from a technology partner to a technology leader. We believe we were the first with a fully functioning 800-gig switch. We believe the same on 1.6T. Those are examples of technology leadership that our customers are relying on. Secondly, the ability to optimize -- to customize these solutions for our customers' specific architectures for optimization in those workloads in those large language models, that continues to be a strong area of differentiation for us. And then the last piece would be the advanced manufacturing processes and capabilities, which I believe is often underestimated and undervalued. It's very difficult to take these very complex designs and put them through the new product development process and then ramp at scale into production, it's not easy to do. And those continue to be areas that our customers value. Stephen Dorwart: This is Steve. I would just build on what Jason had said there. When we deliver this differentiated value, and we do it reliably and consistently over several different platforms or iterations of -- new iterations of same platforms, there's a lot of strengthening of our incumbency and our customers start to recognize the value of our solutions and we're less compelled to compete on price. And so that's a key part of sustaining and maintaining the margin trajectory that we have. And it's also a function of the opportunities that we choose to pursue. So we have a tremendous amount of opportunities in front of us. We're moving away from the more transactional engagements and focusing on those operations -- those opportunities where we can really differentiate, as Jason said. Unknown Executive: And Rob, I would just add to that. There's -- in the -- every now and then, we'll see a competitor will -- I mean the competition is stiff and there's a lot of competitors coming in and we'll lead with price. And every now and then we'll see someone will chase a program on price only that 3 to 6 months later haven't come back due to challenges with execution and delivery. Robert Young: That sounds great. Second question for me would be just on the shorter refresh cycle you noted in networking and maybe the quicker move to 1.6 to 3.2. Does that make it harder for new entrants? I would assume that in existing data center deployments, it's very hard to dislodge Celestica. But maybe if you could talk about that as it relates to greenfield and new build, and I'll pass. Jason Phillips: Yes. Maybe, Rob, I'll start, and then I'll hand it over to Steve. So as you -- first of all, technology, the generations are getting quicker and it's getting faster. So if you're behind, they're going to have a harder time keeping up. So we saw a lot of folks struggle in 400 as we went into 800. As you go in from 800 to 1.6, it's getting faster and it's getting harder. So if you weren't optimized around 800, you're going to really struggle to get into 1.6T and the same applies to 3.2, et cetera, et cetera. So we're well up the curve. We're a technology leader in the space. We've been making significant investments. We've been building talent for many years to get to where we are, and we don't plan on slowing down. Stephen Dorwart: Yes. This is Steve. Just to build on what Jason has said there, our recent experience with 1.6T is that we've had demonstrated very strong performance here in delivering solutions from the initial receipt of silicon to complete functional power on the systems. We've done it in days. And I think Broadcom knows would acknowledge that typically with some of our OEM and ODM competitors, they measure that achievement in terms of weeks. And so I think that what we've talked about, the carryover from one iteration to the next is just proven to be true for us as we support our customers. Operator: Your next question comes from the line of Paul Treiber with RBC Capital Markets. Paul Treiber: Just a question on the long-term visibility that you're getting from customers at this point. Are you seeing it reflected in the program wins? Are there either explicit volume commitments? Or are there other commitments or the nature of the contracts that allow you to have that longer-term visibility that maybe you didn't have several years ago? Stephen Dorwart: This is Steve. Yes, I think it's a good question. I think that we'd like to have as much visibility as we can to the future of these programs. But we do have some comfort in that we continue to see awards come to us for the duration of the program and the follow-on next generation of those programs tend to be awarded to us as well. So -- so we do have longer-term visibility of the programs we currently have and what's coming next down the funnel. So overall, very good. Mandeep Chawla: Yes. Just maybe as an example on the compute program that we have right now, which is going to be very healthy in 2026, and it's ramping very nicely right now. That is already in -- we've already won the follow-on programs for that program to the point where the silicon hasn't even been finalized yet because it's going to be on the next-generation silicon. And so we see those ramping into 2027. And then we've talked about the digital native win as well, which is a program award that will be ramping in '27. And then our R&D efforts continue to be working on the next generation of products as well, which we know will get adopted eventually by the market. We're already working on 3.2T. And while we don't expect it to be mass production until maybe 2028, we would anticipate that when that migration happens from 1.6 to 3.2, that we're going to be in a full position to win that share. Unknown Executive: Yes. And Paul, I would just add to that. Steve mentioned forecast visibility between 12 and 15 months and in some cases, beyond. I mean there are certain programs that have very specific capability requirements where we're talking even beyond that. So as we look at the power requirements, the capacity that will be required beyond what I'd call an extended forecast outlook, we're in deep conversations with capacity planning, power planning well beyond, I'd say, the '26, '27 time frame that we're accounting for as we make our investments and our expansion plans. Paul Treiber: And a follow-up question. The -- to what degree are you shaping -- proactively shaping the portfolio, either disengaging on less strategic programs? And then on the strategic programs. Are there any metrics you can share in terms of like win rates or success on rebidding the next generation of those contracts? Todd Cooper: Paul, thanks for the question. This is Todd within ATS. Yes, I would say we are just conducting a comprehensive review really on an ongoing basis of our portfolio doubling down, as I said in my comments, on the larger Tier 1 customers and then using this opportunity really to take out or exit reshape, if you will, margin-dilutive customers. That's why you're seeing the improvement in margin in ATS this year. And then we've had a number of smaller customers where candidly, the climb is not worth the view in terms of just the effort to support their businesses. They're nonstrategic. In some cases, they're tied to our smart energy portfolio, which given the one big beautiful bill and the loss of tax incentives and the change in dynamics around clean energy are impacting their end demand. So we're using this opportunity then to disengage and exit from those smaller customers, nonstrategic customers, margin-dilutive customers really to strengthen the ATS portfolio and to improve our overall margin profile as well as our growth going forward. Unknown Executive: Paul. From a CCS perspective, we are, from a hyperscaler digital native perspective in a great spot strategically. We feel very good about that. And then enterprise, largely the same. There is a smaller customer where we are no longer strategically aligned, but it's not material to the overall business. And I'd say overall, from a CCS perspective, we feel great about where the portfolio is. Operator: Your next question comes from the line of Todd Coupland with CIBC. Thomas Ingham: Great. I had a question on the switching business. I'm wondering with your largest customers, are you single sourced or are there dual source suppliers in any of those? Stephen Dorwart: This is Steve. With the majority of our largest customers, we tend to be the preferred supplier when it comes to new technology. And so we're often exclusive for some period of time through the development of the product through NPI and then to ramp. As Jason mentioned earlier, we do have excursions from time to time where our customers will look at dual sourcing or multi-sourcing maybe for business continuity purposes or maybe to chase a lower price for some period of time. But we tend to see a lot of those come back to us. While we maintain the preferred position on new products, we see some of the next-generation products come back to us as well for an exclusive period again through the development and through NPI and RAN. So that's been a pattern that we've seen repeat with most of our hyperscale customers over the various product transitions. Thomas Ingham: And I just wanted to circle back to the 1.6. You were quoting some market share stats earlier in the presentation. Can you just remind us what that win rate implies for ports, I guess, through '26 and '27 on the 1.6? Unknown Executive: Yes. What I would say, Todd, is, as I mentioned earlier, where we've had our engagements in 800-gig, we're on track to have those engagements in 1.6T, and there's incremental opportunity beyond that in the scale-ups market in particular. And as I noted, we have a healthy funnel. We're excited about it, and we believe it's going to be a big growth driver for us. Mandeep Chawla: Yes. I mean, Todd, we're winning our disproportionate amount of share as the technologies become more advanced. And so some of the materials in the slide we were highlighting when you look at the Ethernet switch market share, we're above 50% this year. And last year, it was 40%. As there is further deployment of 800G switches and as 1.6 starts to get delivered, we would anticipate that, that will continue to be positive for us. But we are -- we do continue to win the funnel of programs, which is what we're [indiscernible]. Stephen Dorwart: This is Steve. I can't give you 4 counts, but I can tell you, we have 10 programs currently underway and 1.6T. And we've had a significant share win with a number of customers on 1.6T. Operator: Your final question comes from the line of Jesse Pytlak with Cormark Securities. Jesse Pytlak: Just on your optical programs, can you speak to the breadth of customers that you're engaged with on these? And are these programs commonly becoming bundled with switching programs at all? Jason Phillips: Yes, Jesse, so we have a few primary optical customers where we have deep engagements and we're making POCs and investments in that space. And there is a strong correlation between optical and networking. And we think when you look at things like CPO technology as an example, we think we'll start to see some deployments in 1.6T, and we really think we'll start to see more CPO ramp in 3.2T as an example. Stephen Dorwart: Yes. This is Steve. I would just add, as Jason mentioned, the co-package optic outlook. We still -- we do see that it's going to be a dual existence for some period of time. So pluggables won't go away, but there will be a hybrid deployment of different strategies around co-packaged optics. And many of the optical capabilities that we're developing today will be very applicable when it comes to embedded or co-packaged optics in the future, which designs. Operator: And there are no further questions at this time. I will turn the call back over to Rob Mionis, CEO, for closing remarks. Robert Mionis: Thank you, and thank you all for your continued support. We're pleased with the results to date and our continued momentum into Q4 and into 2026 and beyond. We're also looking forward to seeing you later on this afternoon at our events luncheon. Thank you again, and have a wonderful day. Operator: And that does conclude today's call. Thank you all for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Celestica Q3 2025 Financial Results Conference Call and 2025 Investor and Analyst Day. [Operator Instructions]. I will now hand the conference over to Matthew Pallotta, Head of Investor Relations. Please go ahead. Matthew P.: Good morning, and thank you for joining us on Celestica's Q3 2025 financial results and investor and analyst day conference call. On the agenda for today's call, we will begin with our third quarter financial results, followed by our 2025 Investor and Analyst Day. At the conclusion of the prepared remarks, we will open up the lines for Q&A. Joining us on today's call to provide prepared remarks will be Rob Mionis, President and Chief Executive Officer; Mandeep Chawla, Chief Financial Officer; Jason Phillips, President of our Connectivity and Cloud Solutions segment; and Todd Cooper, President of our Advanced Technology Solutions segment. They will also be joined by Steve Dorwart, Senior Vice President and General Manager of Hyperscalers for the Q&A portion of our call. Please note that during the course of this call, we will make forward-looking statements, including statements relating to the future performance of Celestica, business outlook and anticipated trends in our industry and their anticipated impact on our business, which are based on management's current expectations, forecasts and assumptions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. For identification and discussion of these material assumptions, risks and uncertainties, please refer to our public filings with the SEC on SEDAR+ as well as the Investor Relations section on our website. We undertake no obligation to update these forward-looking statements unless expressly required to do so by law. In addition, during this call, we will refer to various non-GAAP financial measures. We have included in our earnings release found in the Investor Relations section of our website, a discussion of those non-GAAP financial measures and a reconciliation to the most comparable GAAP measures. Unless otherwise specified, all references to dollars on this call are to U.S. dollars. All per share information is based on diluted shares outstanding and all references to comparative figures are a year-over-year comparison. Let me now turn the call over to Rob. Robert Mionis: Thank you, Matt, and good morning, everyone, and thank you for joining us on today's call. We are pleased to have the opportunity to speak with you today and to share some of the exciting developments in our business and our plans for the future. Before diving into the Investor and Analyst Day portion of our call, Mandeep will begin with a review of our third quarter results and provide our guidance for the fourth quarter. Mandeep, over to you. Mandeep Chawla: Thank you, Rob, and good morning, everyone. In the third quarter, we once again saw exceptionally strong demand in our CCS segment, which drove very strong overall performance across our key financial metrics. Revenue of $3.19 billion was up 28% and above the high end of our guidance range, driven by a very strong demand in our communications end market. Our non-GAAP operating margin was 7.6%, up 80 basis points, driven by higher margins across both of our segments. This once again represented the highest quarterly non-GAAP operating margin in the company's history. Our adjusted earnings per share for the quarter was $1.58, exceeding the high end of our guidance range and an increase of $0.54 or 52%. Moving on to some additional metrics. Adjusted gross margin was 11.7%, up 100 basis points, driven by higher volumes and improved mix in both segments. Our adjusted effective tax rate for the quarter was 20%. And finally, strong profitability and disciplined working capital management resulted in adjusted ROIC of 37.5%, up 850 basis points versus the prior year period. Moving on to our segment performance. Revenue in our ATS segment for the quarter was $781 million, down 4%, slightly lower than our guidance of a low single-digit percentage decline. The lower performance year-over-year was primarily driven by portfolio reshaping in our A&D business as discussed in past quarters. Our ATS segment accounted for 24% of total company revenue in the third quarter. Revenue in our CCS segment was $2.41 billion, up 43%, driven by very strong growth in our communications end market. The CCS segment accounted for 76% of total company revenue in the quarter. Our communications end market revenues increased by 82%, above our guidance of low 60s percentage growth. The growth was driven by very strong demand in data center networking, primarily for ramping 800G switch programs across our largest hyperscaler customers, complemented by solid demand in our optical programs. Revenue in our enterprise end market was lower by 24%, which was in line with our guidance of a mid-20s percentage decline due to a technology transition in an AI/ML compute program with a hyperscaler customer. Our HPS business generated revenues of $1.4 billion in the third quarter, representing growth of 79% and accounted for 44% of total company revenue. The very strong growth was driven by accelerating volumes in our ramping 800G switch programs. Moving on to segment margins. ATS segment margin in the quarter was 5.5%, up 60 basis points, primarily driven by improved profitability in our A&D business. CCS segment margin in the third quarter was 8.3%, an improvement of 70 basis points, driven by a higher mix of HPS revenues and benefits from operating leverage. During the quarter, we had 3 customers that each accounted for at least 10% of total revenue, representing 30%, 15% and 14% of revenue, respectively. Moving on to working capital. At the end of the third quarter, our inventory balance was $2.05 billion, a sequential increase of $129 million and a year-over-year increase of $226 million. Cash cycle days during the third quarter were 65, an improvement of 1 day versus the prior year and sequentially. Turning to cash flows. We generated $89 million of free cash flow in the third quarter, bringing our year-to-date free cash flow to $302 million. Capital expenditures for the third quarter were $37 million or 1.2% of revenue, while capital expenditures year-to-date were $107 million and also 1.2% of revenue. We anticipate capital expenditures to increase in the fourth quarter and for total annual CapEx to be approximately 1.5% of revenue. Turning to our balance sheet and capital allocation. At the end of the quarter, our cash balance was $306 million, while our gross debt was $728 million for a net debt position of $422 million. We had no draw outstanding on our revolver, leaving us with approximately $1.1 billion in available liquidity. Our gross debt to non-GAAP trailing 12-month adjusted EBITDA leverage ratio was 0.8 turns, an improvement of 0.1 turns sequentially and 0.3 turns versus the prior year period. As of September 30, we were in compliance with all financial covenants under our credit agreement. During the quarter, we did not repurchase any shares under our normal course issuer bid, and our year-to-date repurchases stand at $115 million. Looking forward, we will continue to be opportunistic towards share repurchases. And as such, we are in the process of renewing our NCIB program, which is set to expire on October 31. We expect to receive the necessary regulatory approval and to commence the new program in November. Now moving on to our guidance for the fourth quarter. Similar to last quarter, we highlight that our guidance figures assume no material changes in tariff or trade restrictions compared to what is in effect as of October 27, as any changes to these policies and their potential impact on our results cannot be reliably predicted at this time. Fourth quarter revenue is projected to be between $3.325 billion and $3.575 billion, representing growth of 36% at the midpoint. Adjusted earnings per share are anticipated to be between $1.65 and $1.81, representing an increase of $0.62 at the midpoint or 56%. Assuming the achievement of the midpoint of our revenue and adjusted EPS guidance ranges, our non-GAAP operating margin would be 7.6%, an increase of 80 basis points year-over-year. We expect our adjusted effective tax rate for the fourth quarter to be approximately 20%. Finally, let's review our end market outlook for the fourth quarter. In our ATS segment, we anticipate revenue to be down in the low single-digit percentage range as growth in our Industrial and HealthTech businesses are being offset by lower volumes due to portfolio reshaping in our A&D business and market-related softness in our capital equipment business. In our CCS segment, we anticipate revenue in our communications end market to grow in the high 60s percentage range, supported by continued strong demand for our data center networking switches, including ongoing ramps in multiple 800G programs. In our enterprise end market, we expect to resume growth in the fourth quarter with a low 20s percentage increase in revenue, driven by the ramping of a next-generation program for hyperscaler application in AI/ML compute. Based on our guidance for the fourth quarter and strong year-to-date performance, our latest 2025 financial outlook now calls for revenue of $12.2 billion, up from $11.55 billion previously, reflecting year-over-year growth of 26%. Our adjusted EPS outlook has increased from $5.50 per share previously to $5.90 per share, implying growth of 52%. Our non-GAAP operating margin of 7.4% remains unchanged. We are also increasing our free cash flow outlook for 2025 from $400 million to $425 million. And with that, I'll turn the call back over to Rob to begin our 2025 Investor and Analyst Day. Rob, over to you. Robert Mionis: Thank you, Mandeep. In the rest of our time this morning, we would like to provide you with a view of where our business stands today and the strategy that got us here. Importantly, we'll then share our view on where we are headed as a company, including our significant market opportunities and the investments we are making in our operations and technology road maps. Celestica is our global technology platform solutions company. As our fundamental value proposition, we leverage vertically integrated capabilities and provide customized solutions enabling our customers to deploy leading technologies at scale, achieving rapid speed to market. Our goal is clear: to lead and accelerate market advancements in our focused technologies. We achieved this by proactively investing in next-generation technology road maps and the advanced capabilities required to deliver those technologies to market. Celestica leverages our comprehensive vertically integrated capabilities to deliver leading technology platform solutions. We offer complete end-to-end capabilities, starting with design and engineering through manufacturing and supply chain management to software and aftermarket services. The depth of our system-level capabilities and expertise is best reflected in our technology solutions for the data center across networking and AI/ML compute. However, we leverage a set of competencies and strengths across a range of markets and technologies. Customers have the flexibility to leverage all or any combination of our capabilities to build tailored platform solutions for their entire product life cycle. So let's look at where we stand today. As Mandeep shared, we are currently delivering the strongest financial performance in the company's history. We will dive deeper into both of our segments shortly to discuss the fundamental factors driving our performance and our plans for the years ahead. However, first, I would like to take a brief look back at how we arrived here. When I took the CEO role in late 2015, my first action was to solidify the core leadership team. However, the real inflection came in 2018 when we began executing a comprehensive transformation to reshape our business. This was a fundamental shift. We aggressively ramped our investment in design engineering and technology road maps for the data center, while we deliberately disengaged from low-margin, low complexity programs that offered limited opportunity for differentiation and value add. By 2020, we introduced our 400G switch, marking a pivotal moment in our HPS business, establishing our presence in the high-performance Ethernet switch market. Since then, we have rapidly grown our hyperscaler portfolio, reshaped the margin profile of our business and entrenched our position as a technology leader and key enabler of AI infrastructure solutions for the world's largest data center customers. Yet the changes made to date may seem modest in comparison to the opportunities that lie ahead. We are currently navigating the most rapid period of change in our company's history, and the pace of that change continues to accelerate, driven by the massive investments in AI infrastructure by our customers. Celestica's culture is rooted in the pursuit of progress, and we are incredibly excited and motivated by the opportunities in front of us. During this period, we have seen accelerating momentum in the growth of our business, and we are capitalizing on this strength. Based on our 2025 outlook, we are on track to deliver our strongest performance on record. There are a number of key drivers supporting the sustained improvement in our performance. The first driver is capturing share in high-growth markets with the cornerstone being our presence in AI data centers. Next, demand for our HPS product offerings are rapidly shifting our entire portfolio toward higher complexity engagements, where our design collaboration and value add are critical to our customers' success. In addition, growing volumes are fueling improved operating leverage, and we relentlessly drive productivity and efficiency across our global network with a strong focus on operational excellence. Our global network operating across 16 countries is essential part of our value proposition. Our customer-centric network strategy provides a reliable and consistent supply chain solution, allowing our partners to derisk their geographic exposure, a capability that's essential in the current climate of geopolitical and trade uncertainty. We have been and continue to make significant expansions and upgrades to our network funded by operational cash flow to support the growing demand and program ramps with our AI data center customers. Demand for North American capacity remains strong, especially within the United States. To accommodate this, we are continuing to deepen our footprint in Texas. We're expanding square footage and increasing our power envelope at our Richardson site with capabilities to support the production of thousands of additional advanced AI racks annually. We are adding to our global design engineering network with a new hub in Austin for closer customer collaboration. We are also in the process of finalizing plans for an additional large-scale manufacturing site in the state to support continuing growth with one of our largest customers. We are equally committed to supporting our customers by investing for growth in Asia, where we continue to make significant additions to our largest campus in Thailand. We are seeing incredibly strong demand from hyperscaler and digital native customers for tight capacity with significant production ramps planned to commence through 2027 and into 2028 across networking and compute. This proactive and regionalized investment strategy ensures we retain a flexible and reliable network positioned to meet our customers' evolving needs and accommodate the significant growth in demand from our customers. Operational excellence is ingrained in our company's DNA and an integral pillar of our competitive differentiation and value proposition. The Celestica operating system is our standardized framework that ensures unmatched consistency in quality, reliability and on-time delivery across every one of our global sites as we deliver hundreds of highly complex programs simultaneously. One of the core components is our culture of accountability, emphasizing execution and safety. This is reflected by our performance in these areas, tracking well above industry benchmarks, including 0 critical excursions to customers. We pride ourselves on our customer-first mindset, evidenced by our history of deeply entrenched collaboration in design and engineering, where we have positioned ourselves to act as an extension of our customers' teams. Another operational priority is our continuous investment in our advanced manufacturing capabilities, including automation and testing, which are critical to enabling product road map development and speed to market in deploying new technologies. Next, I want to briefly detail a case study that will help bring to life our competitive differentiation enabled by our core success drivers. In this instance, a hyperscaler customer approached us to collaborate on the design of our first of its kind rack-scale liquid cool 1.6T networking solution needed in order to accommodate the increased density and power requirements of the latest generation AI networking platforms. This highly customized design was intended to be integrated into the new state-of-the-art data center architecture. The customer required an accelerated road map to allow the solution to be early to market, leveraging Broadcom's Tomahawk 6 SC silicon, making speed to market a key consideration. In addition, the customer required multi-node manufacturing capabilities in Asia and the U.S. to support the delivery of the program. As with many of our key engagements, managing complexity was a defining factor. Celestica was awarded the program earlier this year based on a strong working relationship with the customer and their confidence in our industry-leading design engineering. They also valued our advanced manufacturing capabilities, specifically our ability to operationalize highly complex production lines for liquid cooled racks at scale and to do this faster and more seamlessly than other potential partners. After receiving initial Tomahawk 6 samples earlier this year, we quickly stood up an operational prototype for the 1.6T switch and believe we were the first team anywhere to have done so. The program is scheduled to begin mass production next year. As this example and our discussions today will illustrate, Celestica's success is driven by the unique combination of 3 core factors. First, we occupy industry-leading positions in markets with strong structural tailwinds and higher barriers to entry, supporting multiyear runways for growth. Our largest and fastest-growing market presence is within AI data centers, supporting high-performance networking and custom ASIC AI/ML compute platforms. Second, with these focused markets, we seek to accelerate market advancements through technology leadership. Our early-stage investments in R&D and next-generation product road maps support our ability to remain at the leading edge of technology transitions and enable our customers' speed to market in deploying new technologies. We separate ourselves by helping our customers address complexity and by solving the hardest challenges effectively. Third, we are steadfastly focused on maintaining best-in-class operational execution. Our global footprint, combined with the rigorous processes of the Celestica Operating System, ensures we can manufacture and deliver the highest complexity products without compromising quality and reliability. Fundamentally, these 3 factors serve as a foundation of our success and our unwavering confidence in the opportunities ahead. I'd like to now turn the call over to Jason to walk us through our CCS segment. Jason, over to you. Jason Phillips: Thank you, Rob. It's great to be here with you this morning. The past several years have seen our business on an incredible growth trajectory. In the midst of what is potentially the most significant secular investment cycle in a generation, we are in the incredible position of supporting the world's largest data center customers in their massive infrastructure buildouts to enable the growth in applications of artificial intelligence. This year, we are tracking towards $9 billion of revenue, more than doubling the size of our business from just 3 years ago. Alongside this growth, our business mix has shifted towards higher complexity customized programs within our HPS portfolio, helping drive strong profitability. Double-clicking on our HPS portfolio, we are expecting to deliver approximately $5 billion in revenue for 2025, an incredible 80% growth, which speaks to the tremendous uptake from customers for our offerings. We take a long-term view towards our investments and product road maps, investing early to help customers accelerate deployment of leading technologies. We have consistently grown our investments in R&D over the years. We increased our spend more than 50% this year, and we expect at least a 50% increase in 2026 in support of new program wins that will ramp beginning over the next 2 years. Our design engineering talent is an important differentiator for our business. We have scaled our team today to more than 1,100 dedicated design engineers, supporting both hardware and software solutions across 7 global design sites and growing, and we expect to add several hundred additional resources in the immediate future. Our recognized leadership in design has been critical to winning the many new programs, which are driving our growth. Next, we'll take a look at some of the key technology developments and design challenges we are seeing in the data center and where our team is making investments to address those opportunities. Importantly, as a platform solutions company, we are aiming to address these challenges at the systems level. In AI/ML compute, we are making investments in our rack-scale capabilities to support applications for both training and inferencing workloads, which we will touch on more shortly. To stay ahead of the latest advances in liquid cooling, Celestica is building proof of concepts for our next generation of solutions, which includes innovations in single-phase, dual phase and emerging liquid metal technologies. The rapid advances in switching silicon bring with it increasing complexity in designing the latest networking platforms, particularly challenges in addressing power density and signal integrity. Celestica is addressing these by driving innovations in our switch designs for 200-gig SerDes solutions to support 1.6T platforms and are planning early-stage investments for 400-gig SerDes to support 3.2T platforms. We're also staying close to the advances in optical technologies that will increasingly be utilized in high-performance networking such as linear pluggable optics, co-packaged optics alongside other interconnect technologies such as co-packaged copper. As an example, our latest 800-gig and 1.6T switch designs support LPO for optimized power efficiency. And we are in the early stages of our product road maps for our future generations of switching solutions that will accommodate CPO technology. We also see scale-up networking, which supports high-speed direct connectivity between accelerators as an emerging multibillion-dollar new market opportunity that is being unlocked in large part by the move towards open standards, supported by industry initiatives like UALink and Ethernet for scale-up networking. We are already on the path through recent program wins towards productizing our first solutions for scale-up Ethernet, which will leverage Broadcom's Tomahawk 6 silicon. We look ahead at emerging technologies by proactively investing and collaborating with our ecosystem partners to define future product road maps. This enables speed to market and establishes Celestica as an essential partner for our customers' next-generation deployments. As noted, Celestica looks to address technology leads at the system level. And accordingly, we have invested in developing capabilities to support full platform solutions. Our customers engage with us to support a wide array of programs and technologies and leverage the depth of our capabilities to varying degrees. However, we have increasingly observed our hyperscaler and digital native customers seeking bespoke solutions for rack-scale systems, making our full suite of capabilities across multiple technologies increasingly essential. Critically, we are seeing this demand in both networking and AI/ML compute, where customers are seeking solutions for both custom ASIC and emerging merchant silicon platforms. Beyond designing the hardware for base technologies in networking, compute and storage, our engineering teams are supporting customers in orchestrating, testing and optimizing their rack-scale solutions, including the customization of software platforms as well as aftermarket services. Our ability to deliver system-level solutions of this kind requires our breadth and depth of capabilities in all of these areas with the ability to integrate them into a seamless solution for the customer. Software is an increasingly critical component of our comprehensive solutions. To support this, we are making focused investments in our capabilities, having grown our global team to nearly 400 dedicated software engineers. We believe that open-source network operating systems, namely SONiC, are positioned for continued market adoption driven by the desire for vendor diversity, cost effectiveness and sustained improvement and innovation. We have a long history of working with SONiC and our proficiency with this platform is well respected in the industry. Our Celestica solutions for SONiC customizes and hardens SONiC features, providing customers bespoke solutions with an open-source base as well as related support services. But our software capabilities go beyond SONiC too, as we offer customers the optionality to leverage third-party solutions. And for hyperscalers using a proprietary network operating system, our software knowledge allows us to provide critical support with switch abstraction interfaces, ensuring silicon interoperability across the fabric and to assist with network operating system debugging and testing of customized hardware. Our ability to deliver a diverse range of leading solutions is significantly enhanced by our ecosystem of partners across both silicon and software. Leveraging these relationships, we work closely and proactively with our technology partners, aligning years ahead of time on next-generation product roadmaps, enabling us to be early to market and deploying leading-edge solutions for our customers. And our technology partners attest to the critical part we play in productizing and delivering these leading-edge solutions to the market. Broadcom's President and CEO, Hock Tan, highlights the significance of our capabilities and execution by recognizing Celestica as their preferred provider for the most technically demanding data center platform solutions. The strategic relationships between Celestica and industry leaders like Broadcom are a powerful testament to the importance of our role in enabling these critical technologies. Now let's take a deeper dive into our market opportunities. As mentioned, we are witnessing a generational secular investment cycle in data center infrastructure, driven by artificial intelligence and cloud adoption. Many of the indicators from the companies leading this investment across silicon designers, hyperscalers and the emerging leaders in large language models point towards a multiyear runway of continued growth in data center CapEx. Annual data center CapEx is forecasted to surpass $1 trillion by 2028, with commentary from leading voices in the industry suggesting this could prove to be conservative. These companies regularly highlight constraints in compute capacity driven by the increasing demands from both training and inference. All of these companies have signaled their commitments to continue to grow their investments in AI infrastructure, which aligns with the forecasts and planning discussions we are having with our customers. Within our portfolio, hyperscaler customers have continued to be the primary driver of our revenue growth over the past several years. Demand remains incredibly strong and is supported by solid visibility based on program awards that are expected to begin ramping over the next 2 years. Furthermore, we're unlocking the next wave of expansion with our digital native customer portfolio, which is poised to ramp meaningfully starting in 2027 with the delivery of our first HPS rack-scale custom AI system, which we initially announced in January. Our broad portfolio exposure to AI-driven investments from the largest and most established players in the sector ensures our business is exceptionally well positioned to capitalize on this opportunity. Moving on, we'll discuss the opportunities across our markets. Our communications portfolio is anticipated to generate $7 billion in revenue in 2025, an exceptional 78% growth. Our portfolio is anchored by our networking solutions with our 800-gig switch programs comprising the largest share and our most significant growth driver in 2025. We anticipate that continued growth in 800-gig and multiple ramps in 1.6T beginning in 2026, including strong engagement in scale-up Ethernet, support a robust multiyear growth outlook for our networking business with our existing customer base alone. In addition, we also have a growing funnel of opportunities for both scale-up and scale-out applications across a diverse set of new and existing customers. We believe that our technical expertise and recognition as a market leader in networking places us in a solid position to continue to grow our portfolio. At the Open Compute Project Global Summit earlier this month, we announced the latest additions to our growing family of high-performance Ethernet switches as part of our HPS portfolio, the DS6000 and DS6001. The DS6000 series utilize Broadcom's Tomahawk 6 silicon and are designed to support port speeds of up to 1.6T with routing optimized for AI/ML workloads across both scale-up and scale-out networking. Notably, the DS6001 incorporates direct-to-chip liquid cooling technology. We anticipate availability later in 2026. These latest designs are a testament to our continuous innovation and our commitment to accelerating market advancements through technology leadership. We believe our optimism regarding our networking business is well founded. Our market share leading portfolio is supported by a number of company-specific and market-level tailwinds, which position us to continue to succeed in this fast-growing market. The latest forecast suggest that the TAM for high-bandwidth Ethernet networking is projected to reach $50 billion by 2029. Within this market, the 800-gig and higher segments are projected to grow even faster than the overall market at an impressive 54% CAGR driven by upgrade cycles led by hyperscalers and leading large language models' providers to keep pace with the demands of the latest AI workloads. Based on the engagement we've seen already, we think that the adoption of scale-up Ethernet is going to be a really meaningful opportunity and additive to the growing overall Ethernet TAM. In our case study earlier, we highlighted the increasing technical challenges with each successive new generation of networking technology, which we have proven highly capable of navigating. However, there are a number of additional highly favorable dynamics that we believe make this market an incredibly important opportunity. We'll touch on a couple of those now. One of the core challenges in building AI data centers is scaling of the infrastructure. While the increasing computational power of accelerators or nodes is driving requirements for greater bandwidth, a critical compounding dynamic is the nonlinear growth in connectivity required as the number of accelerators within a cluster scales. The largest fully operational cluster today is believed to consist of roughly 200,000 accelerators. However, commentary from leading silicon companies suggests that multiple hyperscalers plan to deploy clusters consisting of up to 1 million accelerators within the next couple of years. This rapid scaling in compute capacity required to support leading AI models requires huge increases in networking infrastructure, including high-bandwidth Ethernet switches, which comprise the majority of our communications portfolio. The build-out of AI data centers is fundamentally shifting the share of spend towards back-end networking, which is expected to grow more than twice as fast as front-end spending. Back-end networking connects the compute clusters used for training models, while front-end connects the network to the external world, primarily for inference traffic. The unique demands of back end align with our competitive strengths, in particular, more intense performance requirements where factors like high bandwidth, low latency and sustained high utilization are an absolute necessity. The back end also necessitates shorter refresh cycles required for the network to keep pace with the increases in computational power. Since our switch revenues are predominantly comprised of back-end shipments, we have meaningful exposure to the highest growth segment of the market. Our customers tend to be early adopters, and we help them accelerate their deployments of the newest switching platforms early on in upgrade cycles. This is reflected in our leading market share on the highest bandwidth and Ethernet switching for the data center across each of 200-gig, 400-gig and 800-gig platforms. Today, our cumulative market share across all of these speeds as measured by total ports shipped is 41%, more than double the next largest competitor's volume. As the technical complexity rises with each generation of the technology, designing high-performance switches becomes increasingly challenging and fewer and fewer competitors can do it effectively. Managing this complexity and helping customers achieve speed to market with new technologies are what we really excel at, allowing us to secure the strongest share in the earliest stages of every new upgrade cycle. We see custom solutions for high-performance AI networking platforms being widely adopted by our leading hyperscaler customers. This model offers the benefits of vendor diversity, cost effectiveness and highly tailored solutions, which become more pronounced as their infrastructure deployments scale. Consequently, we believe hyperscalers and increasingly large digital native customers will continue to leverage these solutions. In this segment of the overall market, Celestica's share leadership is even more pronounced as we account for the majority of the total spend, 55%, having grown our share meaningfully over the last couple of years. Securing mandates and consistently executing on high complexity customized solutions for the largest customers in the industry reflects our competitive advantage and continues to validate our market strategy. Moving on to our enterprise market, which includes our AI/ML compute and storage businesses. Our portfolio revenue is projected to be about $2 billion in 2025, and we expect to see meaningful growth in 2026, significantly exceeding our previous peak revenues from 2024, as we ramp the next-generation AI/ML compute program. Looking further ahead, 2027 is expected to be another transformative year as we plan to ramp production for the rack-scale custom AI system with a digital native customer. The design work for this program is well underway, and we expect to receive initial XPU deliveries in the second half of 2026 to support early test deployments with full-scale production expected to commence in 2027. The scale and scope of the custom solution, including design, manufacturing, orchestration and deployment for a leading-edge system of this nature is incredibly complex. But as we've highlighted, these are the kinds of challenging engagements where Celestica truly thrives. We anticipate this program will serve as a landmark proof point, showcasing our full suite of system-level capabilities. Shifting to the market outlook, the TAM for accelerated compute is expected to grow to nearly $500 billion by 2029. Some of the tailwinds driving this growth are particularly favorable for our business. Given that our compute business is focused almost exclusively on solutions supporting custom ASIC platforms, we are positioned to benefit from the highest growth segment of the AI server market. Overall, the constraints on capacity we spoke about earlier, currently being experienced at the largest hyperscaler and digital native customers continue to highlight the clear requirement for more compute infrastructure and the strong demand in this market. As mentioned, Celestica's market strategy is focused almost exclusively on the custom ASIC segment, which is forecasted to grow roughly sixfold over the next several years. An increasing number of the largest data center players in the market continue to pursue development of custom ASIC platforms, and we are seeing this trend within our own customer base. The architectures of these chips are designed to be optimized to support a customer's specific workloads with the intention to deliver lower hardware cost, power savings and overall better price to performance than a general-purpose GPU. As AI models become more highly specialized, custom silicon architectures will also be an increasingly important means to enable differentiation and performance between models. And as compute infrastructures grow and scale, the benefits to deploying a custom ASIC platform successfully are magnified. Because custom ASICs also require highly tailored bespoke systems to be designed around the silicon, customers often require greater support from solutions providers, presenting us with better opportunities for value-added engagement on engineering and design. We believe this fast-growing segment of the market better lends itself to our competitive strengths in customization and managing complexity and that there are fewer players that have our track record in supporting these kinds of platforms at scale. We are exceptionally optimistic about the future of our CCS business. We have confidence in our outlook, supported by visibility to upgrade cycles, strong customer demand forecasts and a robust pipeline of potential new opportunities. And we feel that we are in a prime position to capture the incredible market opportunities in front of us. With that, I would now like to hand the call over to Todd, who will take you through the latest in our ATS segment. Todd Cooper: Thank you, Jason. It is great to be with all of you this morning. Since we spoke last year, we've been focused on strategically remodeling the ATS portfolio for higher sustained profitability and higher mid- to long-term growth. Specifically, our previously discussed reshaping activities in A&D are offsetting otherwise solid base demand across the segment, leading us to expect revenues in 2025 to be approximately flat year-over-year. We have already seen the significant benefits of these actions on our profitability. After exiting 2024 with a segment margin of 4.6%, we have already improved to 5.5% in the third quarter of 2025 and expect to achieve 70 basis points of full year margin expansion. Looking ahead to 2026, we anticipate revenue to be approximately flat to mid-single-digit percentage growth. We are seeing strong growth in our Industrial and HealthTech businesses. However, this demand will be partially offset by further selective reshaping across some of our markets. Over the medium to long term, our objective is to grow our portfolio at or above the growth rates of our underlying markets on a consistent basis, while balancing growth with sustainably higher profitability. Our target financial framework for this segment is supported by our engineering-led strategy and our focus on deepening our long-standing relationships with the leading customers in our markets. Over the past number of years, our ATS business has made investments to deepen our engineering base by developing market-focused teams with specialized expertise in their respective industries technologies. Today, our team constitutes a global network of highly talented engineers along with labs and advanced manufacturing sites to support our customers across regions and markets. Engaging customers early in the product life cycle strengthens our relationships by allowing us to offer a more holistic vertically integrated solution. This approach more fully leverages our core competency as an organization, helping our customers navigate complexity and solve hard problems, while having the added benefit of reinforcing our value as a highly capable partner and driving higher margins for the portfolio. Today, about 1/3 of our more than 100 customers engage with our teams on engineering services, relying on us for support in testing, design as well as in accelerating their time to market on new product development. We believe this presents an excellent opportunity to deepen our engagements within our existing customer base. And lastly, as discussed earlier, we are also continuously assessing and actively managing our customer portfolio. Our commercial strategy is focused on deepening our long-standing relationships with the leading Tier 1 OEMs in our markets. In pursuit of growth, we are intensely focused on maintaining the quality of our customer base and having a strong margin profile for our portfolio. Now I'd like to briefly walk through each of our businesses, starting with Industrial and Smart Energy. In our industrial and smart energy portfolio, we anticipate growth in 2026, driven by demand recovery in our macro-sensitive end markets. Longer term, we are engaged on exciting new opportunities in robotics and automation as well as in on-vehicle technologies such as telematics and battery energy storage for heavy industries. We are also pursuing programs in the growing data center power infrastructure market, including power distribution, conversion and control equipment, leveraging some of our hyperscaler relationships. While it is still early days, we are encouraged by the traction we are seeing. Next, let's move to Aerospace and Defense, which as a U.S. military veteran is near and dear to me. Our 2026 outlook sees base demand remaining healthy, supported by the ramping of new program wins, although we expect that growth will be offset by tougher comps from the first half of this year, driven by our reshaping activities. Longer term, we project healthy demand from U.S. and European defense spending, which we expect will become a greater share of the portfolio. And in our commercial aerospace business, we expect to see growth aided by program ramps with new and existing customers. Moving on now to semiconductor capital equipment. In semiconductor capital equipment, we saw strong growth in the first half of 2025, although we are seeing a moderation of demand in the second half, consistent with the broader sector. We expect this to continue into at least the first half of next year as our customer conversations indicate foundries are holding off on adding more capacity until there is greater clarity on tariffs and trade restrictions. To obtain greater efficiencies in our network, we are taking this opportunity to consolidate demand across some of our sites. At the same time, we are continuing to ramp new high-complexity programs in lithography and advanced semiconductor packaging. Long term, we believe the significant push for the near shoring of wafer fab capabilities in the U.S., Europe and China, driven by geopolitical factors is expected to support healthy demand for new capacity. We have exceptional capabilities and proof points in the semiconductor capital equipment market and anticipate this demand to serve as a tailwind for our business starting in the second half of 2026. Finally, in our HealthTech business, overall demand remains robust, and we continue to make a concentrated effort towards driving higher portfolio exposure to this market. Last year, we discussed our investments in advanced manufacturing, automation and testing capabilities to support new wins in diabetes care, which are expected to ramp in 2026. Now as we approach the beginning of those ramps, we are anticipating more than $100 million of growth in our HealthTech business in the coming year. In closing, our focus remains on driving high-quality, sustainable growth. We are successfully executing strategic commercial decisions to reshape our portfolio, which is already yielding significant improvements in profitability. Our portfolio is supported by healthy underlying near-term demand, along with solid long-term fundamentals. We remain confident that our thoughtful approach in each of our markets will position us to drive sustainable and profitable growth for the ATS segment. With that, I would now like to turn the floor back over to Mandeep, who will discuss our financial outlook and capital allocation priorities. Mandeep Chawla: Thank you, Todd. The outlook for the financial performance of the business in 2026 continues to be very strong. We anticipate revenue of $16.0 billion, representing 31% growth compared to our 2025 outlook. At the segment level, CCS revenue is expected to grow by approximately 40%, driven by strong market tailwinds and program ramps in both our enterprise and communications end markets. Our outlook assumes continued strength in networking, supported by 800G demand growth and the ramps of our earliest 1.6T programs in the second half of the year. In AI/ML compute, we anticipate very strong growth as we reach full volume production of our next-generation custom ASIC program for hyperscaler applications. In ATS, as noted, revenue is projected to be flat to up in the mid-single-digit percentage range, as healthy base demand and new program ramps are partially offset by our reshaping activities to drive higher profitability. We expect non-GAAP operating margin to expand by 40 basis points to 7.8%, driven by favorable mix and productivity improvements. Our non-GAAP adjusted EPS is projected to be $8.20, which would represent a 39% increase year-over-year. We are targeting non-GAAP free cash flow of $500 million. This model represents our preliminary high confidence outlook for the coming year, and we will continue to update you on our forecast as the year progresses. Importantly, our confidence extends beyond 2026. First, AI-related demand for data center technologies in our CCS business remains very healthy, and we are seeing many signals that suggest these secular dynamics have a multiyear runway ahead. Second, we have solid visibility to the ramping of significant new programs with start dates out to 2027. Our view for 2027 assumes multiple ramps with hyperscaler customers with new programs supporting the 1.6T upgrade cycle, including scale-up solutions and a next-generation custom ASIC compute platform. We also anticipate the commencement of mass production of our rack-scale custom AI system program with the digital native customer. As a result, we expect these strong growth dynamics to persist. And in support of this, we are aligning our capacity with our customers, assuming that this trajectory continues into 2027. As we continue to manage our financial priorities through this period of high growth, we intend to maintain a steadfast focus on maximizing shareholder value. We aim to achieve this by compounding our adjusted earnings per share in a sustainable manner over the long-term. This requires us to remain thoughtful and measured in our approach to pursuing earnings growth by assessing current and potential new business through the lenses of margin sustainability, alignment with our long-term strategy, our competitive advantages and return on invested capital. These guideposts help us to maintain discipline in managing our growth and evaluating our commercial opportunities. Our consistent execution and disciplined approach to financial management has delivered improvements in each successive year across each of our key metrics. Based on our 2026 outlook, we expect revenues to more than double relative to 2022 and to lead to a more than fourfold growth in adjusted EPS over the same period, driven by the sustained expansion of our non-GAAP operating margin. We believe there is still room for additional operating leverage in our business beyond 2026. We anticipate maintaining our solid trajectory and compounding our adjusted earnings per share, which we believe will continue to translate into strong return for shareholders. Taking a closer look at free cash flow. We have managed to consistently generate free cash flow on a quarterly basis going back many years, enabled by our strong working capital management and operational discipline. We also continue to grow our free cash flow, while simultaneously funding the rapid expansion of our business. Next year, capital expenditures are expected to rise to between 2.0% and 2.5% of revenue, funded by operational cash flow as we invest in our network to support the growth we anticipate over the coming years. We will maintain a disciplined approach to CapEx and working capital management as we ramp these investments. While the primary aim of our investments is towards driving compounding of our adjusted EPS over the long-term, adjusted ROIC remains an important measure that we use to assess the quality of our investments. This has been reflected in our strong earnings growth directly translating into meaningfully higher returns on capital, which now sits at 35% year-to-date in 2025, having nearly doubled since 2022. This rigorous focus on capital efficiency seeks to ensure that our growth is high quality and that we continue to direct our resources towards its best and highest return use. Our capital allocation strategy is built on 2 core principles: discipline to ensure we pursue the highest returns and best use of capital and strategic flexibility to maintain optionality to execute on new opportunities as they arise. Today, our highest priority for capital is to reinvest in the business to support long-term growth and the significant organic opportunities we see over the next several years. We also continue to assess M&A opportunities in a disciplined and selective manner, where acquisitions can serve as a complement to our organic growth and help accelerate our strategic road maps. Our CCS funnel is primarily focused on adding or enhancing our capabilities in areas such as services and design engineering. And in ATS, we are looking to balance our portfolio by adding exposure to or scale in desirable markets that possess strong fundamentals. And finally, we will continue to return capital through share buybacks on an opportunistic basis. Over the past 3 years, our share price performance has significantly outpaced the broader indices and the majority of our peer group. Our stock price reflects the very strong trajectory of adjusted earnings growth we've delivered over the last few years. We are confident that this strong earnings compounding will continue as demonstrated by the 39% adjusted earnings per share growth implied by our 2026 financial outlook. We believe that our valuation is supported by this strong track record and our anticipation of future growth. With that, I'll now turn the call back over to Rob for his closing remarks. Robert Mionis: Thank you, Mandeep. Before we close out, let me briefly reiterate the 3 key drivers that are the foundation for our confidence in our continued success. We are very optimistic about the future of our business. As I stated earlier, we are navigating a period of rapid but positive changes and the pace of those changes only continues to accelerate. We believe the next several years present a truly remarkable opportunity for our company. We hope that all of you leave our call today with a richer understanding of our unique combination of capabilities and the strategic approach that enables our success. We provided perspective on our long-term vision, highlighted by the proactive investments we're making today to capture the opportunities we've discussed. We have the utmost confidence in our organization's talent, our commitment to excellence in delivering for our customers and our ability to execute on our strategy. Thank you for your time and continued support. I will now turn the call back over to the operator to begin our Q&A period. Operator: [Operator Instructions] And your first question comes from the line of Mike Ng with Goldman Sachs. Michael Ng: I guess, first, just on the investments that you're making in R&D, the 50% growth next year and the capacity expansions through 2028. I was just wondering if you could talk a little bit more about some of the key products that are supporting your visibility into these investments and are most of the investments grounded by expansions in customers that are new or existing? And then just as a quick follow-up, I noticed you talked about the new storage platform win with the hyperscaler in 2026. Is that with your current hyperscale AI/ML compute customer, or is that somebody else? How would you size the opportunity in hyperscale storage? Jason Phillips: Mike, this is Jason, and welcome, and we're glad you're covering us. So as we look at our R&D spend and investments year-over-year, we've been making significant increases now for quite some time, and they are directed at where we are focusing our strategy and our opportunities largely around networking, AI/ML, and I would say, storage, rack level solutions and then everything you need to bring that total rack level, fully orchestrated rack level solution together, inclusive of software, liquid cooling, power, et cetera. So that's where we've been focusing our R&D spend. And we've also been making significant, I'd say, advancements and investments in our engineering network. We've now moved up to over 1,100 engineers, 400 of those are in software. We've moved to 7 design centers of excellence. And we're also looking at increasing that in places like Taiwan as well. Stephen Dorwart: Yes. And with regard to the specific customer that you inquired about, it is an existing customer. We have a long-standing relationship with this company, and we've continued to evolve the relationship from providing single system level solutions up to fully integrated rack solutions, of which this engagement is. And that's part of our normal process to go and evolve with our customers. With regard to storage, we have a few different opportunities where we're engaged in storage. It's less prominent than we would see in networking or our ability to extend some of our networking capabilities into the AI/ML compute space. Operator: Your next question comes from the line of Karl Ackerman with BNP Paribas. Karl Ackerman: You noted that Thailand and Texas could see a doubling of capacity from 2024 to 2027, yet CapEx will only be 2% to 2.5% of sales. Could you speak to what assurances your largest customers are giving you to support this capacity growth, whether that is in the form of multiyear volume commitments and/or combined investment in tool CapEx? Mandeep Chawla: Yes. Karl, it's Mandeep here. Thanks for the question. So we've been very disciplined on our capital expenditures for many, many years. We're tracking towards 1.5% right now for this year. And as the revenue continues to grow, the dollars obviously are growing as well. So we're on track on just under $200 million of CapEx this year. We're anticipating right now somewhere between $300 million and $400 million of CapEx next year. And these are investments that are tied to customer programs. We don't have a built-in and they will come approach. It's always tied back to customer engagement. And so we have very good visibility on the demand profile going out multiple years. So it gives us confidence to be able to invest in these types of areas. The only other thing I'll mention, and then I can have Steve ask a little bit or comment a little bit on the customer engagement on our expansion. But I just want to make a note that only about 40 basis points of our CapEx spend is maintenance. And so if we're going to spend 2% next year, then that means 1.6% is all on growth, and that gives us a tremendous amount of discretion on where we put those dollars. And so we think that right now, that's sufficient. Stephen Dorwart: This is Steve again. With regard to visibility to forecast and customer demand, we currently have about 12 to 15 months of real solid forecast inputs and demand inputs from our customers, largely around their 2026 budgeting and spend commit processes. But in many cases, we have visibility beyond that. In some cases, for specific customers, specific programs. There's a certain amount of ASICs, for example, that they may have committed to, and it gives us some assurance as to the longevity and the size of the overall program. So we do get extended visibility through being similar to that. Karl Ackerman: Understood. And if I could for a follow-up quickly. Your growth in CCS is notable, which appears driven by your networking switch opportunity in HPS. Could you speak to the relative mix you have today on 800-gig switch ports? And I suppose as you think about the trajectory of 1.6 next year, could you speak to the opportunity you have in liquid-cooled-based switches, which appear to be a growing opportunity for you, both in '26 and '27? Stephen Dorwart: Yes. Karl, from a number perspective, why don't we start, we've been seeing tremendous growth in 800G this year to the point where we'll end 2025 with roughly a 50% split between 800G and 400G in terms of the products that we're delivering. As we look into 2026, we're seeing the 800G demand, in particular, accelerating. There are going to be projects where 400G continues to be used. We've been given some examples by our customers where 400G is expected to be used for many years still. But the growth is primarily going to come from 800G. On the 1.6T program, we won a number of them. And we have one customer right now where we have visibility to that ramping towards the back end of next year. And so one of our customers will be really taking up their 1.6T awards, but then we anticipate further 1.6T ramps as we go into 2027. And so the portfolio is shifting to the higher-end technologies as we would have expected. Jason can add on that. Jason Phillips: Karl, I would say when you look at where we carved out this industry-leading position in networking, it started in 400-gig, and we were able to translate all of those engagements into 800-gig. And those engagements have been expanding incrementally to new opportunities, and we fully plan to translate all of our 800-gig engagements into 1.6T as well, and we're on track to do that. And liquid cooling plays a key role in those solutions, particularly on 800-gig and 1.6T. Operator: Your next question comes from the line of Samik Chatterjee with JPMorgan. Samik Chatterjee: And maybe if I can start with the digital native customer that you're expecting to ramp in 2027. And we've seen multiple sort of announcements from some of your partners around sort of the sizing here. But trying to sort of think about how should we think about the magnitude of the implications for you starting in 2027. Maybe if you can give us something to point us in the right direction of sizing relative to your enterprise business today? And do you have -- what are you thinking in terms of capacity to then sort of cater to that magnitude of the digital native customer ramp? And I have a quick follow-up. Mandeep Chawla: Yes. Samik, it's Mandeep here. Thanks for the question. So we're very excited still about the engagement we have with this digital native customer. We are very actively engaged with them on the design cycle and that's going to continue as we go through next year. Our plan of record right now is that we would not see mass production begin in 2027. And so when we've given an outlook of $16 billion for next year, that does not include any meaningful level of revenue coming from this digital native opportunities. The gate to that is really in terms of timing is really going to be around silicon availability. And so if silicon is available sooner for mass production, then we may be able to produce sooner. Right now, our assumption is that we will receive samples in the middle of '26 and then again, go towards mass production in '27. From a capacity perspective, we are working with the customer very closely on where -- how we can support them both in Asia as well as in North America. When we are talking about 2% to 2.5% of CapEx for next year, that's inclusive of the capacity that we're going to need to deliver what we're already seeing in 2027. Jason can add a little bit more. Jason Phillips: Yes, Samik, I would say, with all the growth we're seeing across the portfolio, we're also excited about what I call a healthy competition on who will be our largest customer in the next 2 to 3 years. Stephen Dorwart: So the way to think about it right now, Samik, is going to be that we believe it will be at least a few billion dollars in the first year, multiple billions of dollars, I'll say. One of the areas, of course, that we still need to line up on is the treatment of the silicon isn't included or not included and we're still having those conversations with our customer and our providers. Samik Chatterjee: Okay. Got it. And a quick sort of follow-up on 2027 outlook. I know you're saying the growth momentum continues into 2027. And I didn't hear you explicitly say that -- so just wanted to confirm from everything you're telling us in terms of new program ramps in 2027, the growth acceleration in 2027 should be higher [ rated ] to the growth that you're forecasting for 2026, just with the digital native customer, the 1.6T ramps. Is that a fair statement? Stephen Dorwart: Yes, of course. So I'll give you a framework on how to think about 2027. Obviously, we're not going to be giving numbers at this point. It's just too far out. But we are very confident right now on the demand profile that we're seeing and the awards that we've been receiving over the last 12 months or so, in many cases, don't have programs that even ramp until 2027. That being said, it's probably 12 months too early to talk to you about what 2027 really is going to look like. The way I would just think about it right now is our CCS business grew by about 40% in 2024. It's on track to grow about 40% right now in 2025. And our outlook or guidance for next year is essentially implying about 40% growth again in CCS in 2026. And so at this point, I think it's fair to continue to extrapolate that as you bring it forward. We do have many opportunities that could be -- that could accelerate that and could go above. So to your point, it could be through the digital native win that we're ramping as well as other really strong programs that we've won with some of our largest hyperscalers. But right now, we think at least 40% into 2027 is what we're -- we have visibility to. And then just on the ATS side, ATS this year is going to be approximately flat or we said going into 2026, it's going to be low single digits. The growth should resume at a higher level as you go into 2027. And I think the way to think about that right now is high single digit. Operator: Your next question comes from the line of Ruben Roy with Stifel. Ruben Roy: Sorry about that I was on mute. Mandeep, maybe to follow-up on that just last topic. You talked about potential additional operating leverage beyond '26. I'm just wondering, how you're measuring the potential for operating leverage relative to this really strong revenue growth that you guys are seeing, especially as we went through some of the new design activity, kind of increasing design activity with your customers, rack levels, designs, et cetera. Just do you have some thoughts on longer-term operating leverage? Mandeep Chawla: Yes. Thanks for the question. So we continue to see the benefits of both operating leverage as well as positive mix in our numbers, on track for about 7.4% operating margin at the company level for 2025, and we're guiding that, that can expand now going into 2026. We do continue to believe that there's opportunities for even more margin expansion. But again, I'm not giving formal numbers for '27 at this point. When you look at our ATS business, the business has done very well on doing some selective pruning in order to really focus on the highest value engagement. And so we're really happy with the margin expansion that we've seen in ATS already. And we think that there's opportunities to continue to expand and get it above 6%, hopefully in the near to medium term. On the CCS side, which is operating in the low 8s right now, what's working to our favor is the fact that we will continue to be seeing growth in networking, which are primarily our HPS products. And our HPS products are accretive to the company and accretive to CCS. And so as we see growth in that area, we will continue to see some margin upside. That being said, we do continue to evaluate how we can support our customers on multiple areas such as doing complex rack integration work. And so sometimes that will be margin dilutive. And so we're always managing mix, but we think that there's a lot of opportunities for expansion. Ruben Roy: Thanks for that detail, Mandeep. And if I could ask a question -- a follow-up question for Jason. A lot of discussion around scale up networking just in recent weeks, with a new standard announced, et cetera. You talked about a multibillion-dollar new market opportunity for Celestica, specific to scale up. And I'm wondering if you can maybe hash out a little bit around that opportunity relative to scale out. Do you have some sort of advantage as you discuss scale up with your customers, given how well you're doing on the scale-out switch side? And maybe just a little bit around the competitive environment, how you see that playing out over the next several years as you think about your scale-up opportunity. Jason Phillips: Yes. Ruben, yes, I would say we're well positioned for the scale of opportunity, and that comes from incumbency, and I would say, capability. When you look at, as you mentioned, a lot of where we carved out this industry-leading position in 400G, it started largely and I would say, scale out. And now it's starting that capability, and that value proposition is very much applicable to scale up. We've talked about a large digital native where we provided a fully orchestrated rack and solution. I mean that's a great example of a great -- a significant scale-up opportunity. So I would say that we have a large and growing funnel of opportunities, and we're going to be very mindful about where we have our most strategic engagements as we continue to grow and look at taking share. Operator: Your next question comes from the line of Tim Long from Barclays. Timothy Long: Yes, Two, if I could as well. First one on kind of HPS. I think this digital native is a good AI/ML win for digital native. So curious about the pipeline that you're talking about for other kind of compute-related opportunities. Could you just talk about that funnel and how we should think about new opportunities being HPS or not, number one? And then number two, just back to that -- the networking piece. As you look at new customers outside your large [indiscernible], should we assume those are mostly SONiC related? Or do you see opportunities for other Neo clouds or others to maybe develop their own switching stack where -- and what are the competitive differentiations for you with SONiC versus other proprietary NOS? Jason Phillips: Tim, Jason here. So on AI/ML compute, I mean you commented on it, I think digital native win that we've talked about would be a great example of where we've deployed our entire value proposition into a fully orchestrated solution, driving an AI/ML solution. We talked last year a bit about POCs that we're doing with silicon providers, and we talked about the AMD MI355 example, and that POC has garnered a lot of attention, I would say, in the industry. And so we have a large and growing funnel of opportunities in AI/ML. But we're going to be very, I'd say, very focused on where we have the strongest strategic alignment and where we believe the program will be successful in the AI architecture and ecosystem. So growing funnel of opportunities, but we're going to be careful about where we engage and where we believe the adoption rates will be higher. Unknown Executive: Yes. With regard to these opportunities, I think one of the things to consider is just the strong position that we have in networking and its applicability to these AI compute kind of opportunities. So there's a lot of things that transfer over the network connectivity, the signal performance, power, density, design, all those things are also very applicable and relevant in the AI space. So we continue to leverage our networking strength to win in new opportunities in the compute space. With regards to software, most of our hyperscale customers drive their own NOS, but they rely on us to provide the key layers in the stack and have full testing and qualification capabilities of their software on our system. There's also more comprehensive choices that are emerging now, and our customers are evaluating those. We still have a full -- fully capable and broad software engineering team, and we're working to support many of our customers with these new software technologies. And we continue to support them at the firmware level in most of the networking and compute systems that we do today. Operator: Your next question comes from the line of David Vogt with UBS. David Vogt: So maybe for Rob or Mandeep, I want to unpack the CCS business for a second. Obviously, switching has been sort of the driver of the business the last 2 to 3 years. And you kind of talked about over the next several years, switching growth or maybe data center CapEx growth being kind of in the mid-20s. Are you sort of inferring that ultimately, the bigger driver over the next 3 years plus will be sort of the compute opportunity along with ancillary opportunities like optical as we think about '27 and '28? Just trying to get a sense for how you're thinking about the composition of product within broadly defined CCS going forward. And then I have a follow-up. Unknown Executive: David, I'll start, and I'll ask Jason to chime in. We have a very strong position with the hyperscalers on networking across the board, given that position, we're looking to grow our share of wallet into other areas. And one of them, in particular, we do AI/ML compute. And with others, we're in several advanced conversations to expand our solutions to them, especially on the HPS front where we're not just build it, but we actually have some engineering and design content in supporting them. Jason elaborated on a couple of those opportunities, and I'll turn it over to him for additional color. Jason Phillips: David, so thinking about the CCS business overall, I mean, we've got a lot of strength in our hyperscaler digital native portfolio in networking, AI/ML, specifically on the custom side, there's incremental opportunities we've talked about at scale up as well as merchant AI/ML solutions. So there's a lot of growth, a lot of potential, a lot of funnel of opportunity there. When you look at the value proposition that got us where we are, there's a lot of opportunity to take that and pivot into the very large enterprise space. And we're going to do that in a very disciplined way. I've talked about that in the past. We have a portfolio solutions business today where we have branded product. We have SONiC, we have Celestica SONiC offering that's enabling that. We have a growing services capability that's rounding out the capability that will allow us to play more effectively in enterprise as well as hyperscaler. So we're effectively doubling down on our enterprise efforts. I recently just brought in Ganesha Rasiah. He's our Senior Vice President and General Manager of our Enterprise line of business, and he will be leading the charge as we chart our course on where and how we're going to double down in enterprise. And it's going to be underpinned by all of this value, the scale, this capability that we've established in our hyperscaler space and applying it to specific markets within enterprise to be successful. Thomas Ingham: Great. No, that's helpful. And maybe just maybe one more for Jason then. On the enterprise portfolio since you're talking about expanding capabilities and bringing in new talent looking for new opportunities, you did reference, I think, in the deck an opportunity for a new hyperscaler application in storage for '26. Can you kind of expand upon that, kind of what that actually is and maybe share what the customer is looking for and what you're bringing to that solution going forward? Jason Phillips: Yes. Maybe I'll start, David, and then I'll ask Steve to weigh in as well. I mean we do think storage is -- it's going to be an opportunity with AI. There's more and more data that is out there. And we're seeing it specifically, we've got some traction in the hyperscaler space on a specific program where there's a specific use case, I would say, that's being adopted, but we also think there's more opportunity for storage and enterprise as well. We've had a solid high-end storage business in enterprise for a long time. We're well positioned with the market leaders there. And I think storage is an opportunity as AI continues to deploy. Stephen Dorwart: Yes. And this is Steve. I will just add to that, that we have had some success, as noted here with hyperscalers and providing custom storage solutions to them. We're being very selective about where we engage and finding areas where we think we can differentiate and bring value to our customers. And so it's a narrower scope today for us, but there are opportunities, and we intend to continue to build on the success that we've had there. Operator: Your next question comes from the line of Thanos Moschopoulos with BMO Capital Markets. Thanos Moschopoulos: Can you provide some color with respect to the growth that you're expecting in CCS outside of hyperscalers and digital natives, so like OEMs and other types of customers, what would your outlook be for that in '26 and beyond? Mandeep Chawla: Yes, in terms of the incremental growth opportunities, we've talked about scale up is a very large market where we're getting a lot of traction. I would say, while our AI/ML business has been largely underpinned by the custom level solutions, there is a growing set of opportunities. We're getting a lot of traction in merchant-based AI/ML systems that represents a number of opportunities for us. And then I'd say fully orchestrated rack level solutions continues to be an opportunity as well as the services that we were wrapping around our solutions as well. Thanos Moschopoulos: Specifically in terms of, I guess, OEM type customers and maybe enterprise campus type opportunities or other beyond hyperscalers, digital natives. Is that forecast to grow meaningfully in '26, or is the growth in '26 primarily driven by your core hyperscalers? Unknown Executive: The growth is underpinned by our hyperscalers. They are leaning heavily into both switching as well as compute. But the rest of the portfolio is still growing as well. We have a large optical program that goes beyond the hyperscalers. We're seeing very nice growth in that area, and that product be used directly into data centers. We've announced that we are building a 1.6T switch with an OEM on their behalf. And so that's going to see some growth. But we do -- there is a very high level of growth coming from hyperscalers versus the others. Operator: Your next question comes from the line of Steven Fox with Fox Advisors. Steven Fox: Just one question on the HPS business. I know you don't give margin -- specific margins on the business. But I was wondering, given all the programs you see in the future and how you may be vertically integrating more, sometimes, I guess, additive, sometimes dilutive to margins. How do you see the direction of HPS -- just the HPS business going and why? And of course, that would be excluding any kind of changes in your consignment activities like with the new program. Mandeep Chawla: Yes. So we're very excited about what's happening in the HPS portfolio. We're on track this year to spend probably about $120 million on R&D. Next year, we're going to be increasing that by at least 50%. It could be as high as $200 million. And that's just reflective of the engagement that we're tied to. Today, this year is probably going to be about a $5 billion portfolio. That $5 billion is the vast majority of it is switching. And in the switching scenario, it actually does include the silicon, as you know, so it's turnkey. And yet, we still make very good margins in this area, margins that are accretive to ATS right now, which is 8.3%. I know the question sometimes comes what's the exact number, but what we just say is it's accretive. As we look at the portfolio going forward, we continue to see very strong growth on the networking side, but now we're starting to see compute come in as well. And so as compute comes in, especially as you think about this large digital native win, we've got to think through still on how sort of things can be provided. But today, our compute programs [indiscernible] to us. But overall, we are getting paid for the value that we're bringing forward on the engineering side. Operator: Your next question comes from the line of Paul Treiber with RBC Capital Markets. Paul has actually lowered his hand. So we will move on -- and your next question comes from the line of Robert Young with Canaccord Genuity. Robert Young: The 40 basis points of margin expansion -- operating margin expansion in the 2026 guidance, just against all of the big jump in scale and some of the shift to higher-end networking technology and the software mix. It just seems a little bit conservative. And so relative to some of your networking peers, margins are lower. And so I was wondering, is pricing a strategic advantage for you? Or are there any headwinds to note? I think you already mentioned the fact that the full rack solution isn't ramping until 2027. But are there any other headwinds there to note to better put that 40 basis points expansion in the context? Mandeep Chawla: Yes. So I'll start and then I'll let Jason or Steve talk about the commercial environment and our ability to capture share with price. But essentially, what's happening right now is that when you look at the 7.8% next year, and again, you're putting 40% growth on the CCS business, maintaining the margins that CCS has and maintaining the margin that ATS has will yield that 40 basis points improvement. We are working towards expanding margins in both businesses, and we do believe that, that is an opportunity. It's early on in the year, and so this isn't that different than the approach that we've taken in previous years, which is we will guide margins in terms of where we are today, knowing that we are working on various levers to expand that. But I would say more to come as we go through 2026. Jason Phillips: Rob, and I would just comment on where we're seeing the values where we're driving the differentiation from our competitors. It's largely a technology leadership, customization for optimization and then our advanced manufacturing processes and execution. I mean we've pivoted now that we're into platform solutions, we pivoted from a technology partner to a technology leader. We believe we were the first with a fully functioning 800-gig switch. We believe the same on 1.6T. Those are examples of technology leadership that our customers are relying on. Secondly, the ability to optimize -- to customize these solutions for our customers' specific architectures for optimization in those workloads in those large language models, that continues to be a strong area of differentiation for us. And then the last piece would be the advanced manufacturing processes and capabilities, which I believe is often underestimated and undervalued. It's very difficult to take these very complex designs and put them through the new product development process and then ramp at scale into production, it's not easy to do. And those continue to be areas that our customers value. Stephen Dorwart: This is Steve. I would just build on what Jason had said there. When we deliver this differentiated value, and we do it reliably and consistently over several different platforms or iterations of -- new iterations of same platforms, there's a lot of strengthening of our incumbency and our customers start to recognize the value of our solutions and we're less compelled to compete on price. And so that's a key part of sustaining and maintaining the margin trajectory that we have. And it's also a function of the opportunities that we choose to pursue. So we have a tremendous amount of opportunities in front of us. We're moving away from the more transactional engagements and focusing on those operations -- those opportunities where we can really differentiate, as Jason said. Unknown Executive: And Rob, I would just add to that. There's -- in the -- every now and then, we'll see a competitor will -- I mean the competition is stiff and there's a lot of competitors coming in and we'll lead with price. And every now and then we'll see someone will chase a program on price only that 3 to 6 months later haven't come back due to challenges with execution and delivery. Robert Young: That sounds great. Second question for me would be just on the shorter refresh cycle you noted in networking and maybe the quicker move to 1.6 to 3.2. Does that make it harder for new entrants? I would assume that in existing data center deployments, it's very hard to dislodge Celestica. But maybe if you could talk about that as it relates to greenfield and new build, and I'll pass. Jason Phillips: Yes. Maybe, Rob, I'll start, and then I'll hand it over to Steve. So as you -- first of all, technology, the generations are getting quicker and it's getting faster. So if you're behind, they're going to have a harder time keeping up. So we saw a lot of folks struggle in 400 as we went into 800. As you go in from 800 to 1.6, it's getting faster and it's getting harder. So if you weren't optimized around 800, you're going to really struggle to get into 1.6T and the same applies to 3.2, et cetera, et cetera. So we're well up the curve. We're a technology leader in the space. We've been making significant investments. We've been building talent for many years to get to where we are, and we don't plan on slowing down. Stephen Dorwart: Yes. This is Steve. Just to build on what Jason has said there, our recent experience with 1.6T is that we've had demonstrated very strong performance here in delivering solutions from the initial receipt of silicon to complete functional power on the systems. We've done it in days. And I think Broadcom knows would acknowledge that typically with some of our OEM and ODM competitors, they measure that achievement in terms of weeks. And so I think that what we've talked about, the carryover from one iteration to the next is just proven to be true for us as we support our customers. Operator: Your next question comes from the line of Paul Treiber with RBC Capital Markets. Paul Treiber: Just a question on the long-term visibility that you're getting from customers at this point. Are you seeing it reflected in the program wins? Are there either explicit volume commitments? Or are there other commitments or the nature of the contracts that allow you to have that longer-term visibility that maybe you didn't have several years ago? Stephen Dorwart: This is Steve. Yes, I think it's a good question. I think that we'd like to have as much visibility as we can to the future of these programs. But we do have some comfort in that we continue to see awards come to us for the duration of the program and the follow-on next generation of those programs tend to be awarded to us as well. So -- so we do have longer-term visibility of the programs we currently have and what's coming next down the funnel. So overall, very good. Mandeep Chawla: Yes. Just maybe as an example on the compute program that we have right now, which is going to be very healthy in 2026, and it's ramping very nicely right now. That is already in -- we've already won the follow-on programs for that program to the point where the silicon hasn't even been finalized yet because it's going to be on the next-generation silicon. And so we see those ramping into 2027. And then we've talked about the digital native win as well, which is a program award that will be ramping in '27. And then our R&D efforts continue to be working on the next generation of products as well, which we know will get adopted eventually by the market. We're already working on 3.2T. And while we don't expect it to be mass production until maybe 2028, we would anticipate that when that migration happens from 1.6 to 3.2, that we're going to be in a full position to win that share. Unknown Executive: Yes. And Paul, I would just add to that. Steve mentioned forecast visibility between 12 and 15 months and in some cases, beyond. I mean there are certain programs that have very specific capability requirements where we're talking even beyond that. So as we look at the power requirements, the capacity that will be required beyond what I'd call an extended forecast outlook, we're in deep conversations with capacity planning, power planning well beyond, I'd say, the '26, '27 time frame that we're accounting for as we make our investments and our expansion plans. Paul Treiber: And a follow-up question. The -- to what degree are you shaping -- proactively shaping the portfolio, either disengaging on less strategic programs? And then on the strategic programs. Are there any metrics you can share in terms of like win rates or success on rebidding the next generation of those contracts? Todd Cooper: Paul, thanks for the question. This is Todd within ATS. Yes, I would say we are just conducting a comprehensive review really on an ongoing basis of our portfolio doubling down, as I said in my comments, on the larger Tier 1 customers and then using this opportunity really to take out or exit reshape, if you will, margin-dilutive customers. That's why you're seeing the improvement in margin in ATS this year. And then we've had a number of smaller customers where candidly, the climb is not worth the view in terms of just the effort to support their businesses. They're nonstrategic. In some cases, they're tied to our smart energy portfolio, which given the one big beautiful bill and the loss of tax incentives and the change in dynamics around clean energy are impacting their end demand. So we're using this opportunity then to disengage and exit from those smaller customers, nonstrategic customers, margin-dilutive customers really to strengthen the ATS portfolio and to improve our overall margin profile as well as our growth going forward. Unknown Executive: Paul. From a CCS perspective, we are, from a hyperscaler digital native perspective in a great spot strategically. We feel very good about that. And then enterprise, largely the same. There is a smaller customer where we are no longer strategically aligned, but it's not material to the overall business. And I'd say overall, from a CCS perspective, we feel great about where the portfolio is. Operator: Your next question comes from the line of Todd Coupland with CIBC. Thomas Ingham: Great. I had a question on the switching business. I'm wondering with your largest customers, are you single sourced or are there dual source suppliers in any of those? Stephen Dorwart: This is Steve. With the majority of our largest customers, we tend to be the preferred supplier when it comes to new technology. And so we're often exclusive for some period of time through the development of the product through NPI and then to ramp. As Jason mentioned earlier, we do have excursions from time to time where our customers will look at dual sourcing or multi-sourcing maybe for business continuity purposes or maybe to chase a lower price for some period of time. But we tend to see a lot of those come back to us. While we maintain the preferred position on new products, we see some of the next-generation products come back to us as well for an exclusive period again through the development and through NPI and RAN. So that's been a pattern that we've seen repeat with most of our hyperscale customers over the various product transitions. Thomas Ingham: And I just wanted to circle back to the 1.6. You were quoting some market share stats earlier in the presentation. Can you just remind us what that win rate implies for ports, I guess, through '26 and '27 on the 1.6? Unknown Executive: Yes. What I would say, Todd, is, as I mentioned earlier, where we've had our engagements in 800-gig, we're on track to have those engagements in 1.6T, and there's incremental opportunity beyond that in the scale-ups market in particular. And as I noted, we have a healthy funnel. We're excited about it, and we believe it's going to be a big growth driver for us. Mandeep Chawla: Yes. I mean, Todd, we're winning our disproportionate amount of share as the technologies become more advanced. And so some of the materials in the slide we were highlighting when you look at the Ethernet switch market share, we're above 50% this year. And last year, it was 40%. As there is further deployment of 800G switches and as 1.6 starts to get delivered, we would anticipate that, that will continue to be positive for us. But we are -- we do continue to win the funnel of programs, which is what we're [indiscernible]. Stephen Dorwart: This is Steve. I can't give you 4 counts, but I can tell you, we have 10 programs currently underway and 1.6T. And we've had a significant share win with a number of customers on 1.6T. Operator: Your final question comes from the line of Jesse Pytlak with Cormark Securities. Jesse Pytlak: Just on your optical programs, can you speak to the breadth of customers that you're engaged with on these? And are these programs commonly becoming bundled with switching programs at all? Jason Phillips: Yes, Jesse, so we have a few primary optical customers where we have deep engagements and we're making POCs and investments in that space. And there is a strong correlation between optical and networking. And we think when you look at things like CPO technology as an example, we think we'll start to see some deployments in 1.6T, and we really think we'll start to see more CPO ramp in 3.2T as an example. Stephen Dorwart: Yes. This is Steve. I would just add, as Jason mentioned, the co-package optic outlook. We still -- we do see that it's going to be a dual existence for some period of time. So pluggables won't go away, but there will be a hybrid deployment of different strategies around co-packaged optics. And many of the optical capabilities that we're developing today will be very applicable when it comes to embedded or co-packaged optics in the future, which designs. Operator: And there are no further questions at this time. I will turn the call back over to Rob Mionis, CEO, for closing remarks. Robert Mionis: Thank you, and thank you all for your continued support. We're pleased with the results to date and our continued momentum into Q4 and into 2026 and beyond. We're also looking forward to seeing you later on this afternoon at our events luncheon. Thank you again, and have a wonderful day. Operator: And that does conclude today's call. Thank you all for attending. You may now disconnect.