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Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Millrose Properties Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions]. I will now turn the call over to Jesse Ross, Millrose's Head of Financial Planning and Analysis. Jesse, you may begin. Jesse Ross: Good morning. Thank you for joining us. With us today to discuss our third quarter 2025 results are Darren Richman, our Chief Executive Officer and President; Robert Nitkin, our Chief Operating Officer; Garett Rosenblum, our Chief Financial Officer; Adil Pasha, our Chief Technology Officer; and [ Steven Hensley ], our senior market risk analysts. Before we begin, I'd like to remind everyone that this call may include forward-looking statements and discuss non-GAAP financial measures. Please refer to our third quarter 2025 financial and operational results announcement as well as the third quarter and investor presentation, we released and posted on our website under the Investor Relations heading for a discussion of these matters. With that, I'll turn the call over to Darren. Darren Richman: Thank you, Jesse, and good morning, everyone. I'm pleased to report that Millrose delivered another strong quarter, demonstrating the effectiveness of our disciplined capital deployment strategy, and the growing demand for our homesite option platform. Our approach centers on recycling homesite sale proceeds and investing newly raised capital to maximize returns for our shareholders. This quarter, we generated $852 million in net cash proceeds from homesite sales, including $766 million from Lennar and redeployed $858 million in new land acquisitions and development funding with Lennar. We also saw $770 million in funding outside the Lennar Master Program Agreement, which underscores the broad-based market demand and scalability of our platform. As we continue to expand our homebuilder relationships, we now partner with 12 distinct counterparties. Our invested capital outside Lennar reached $1.8 billion with homesite inventory and other related assets totaling $2 billion at a weighted average yield of 11.3%. Our portfolio now spans approximately 139,000 homesites across 876 communities in 30 states, reflecting our national reach and operational excellence. A key differentiator for Millrose is our proprietary technology platform. This strategic asset enables us to manage nearly 140,000 homesites, automate transaction management and leverage AI for unique market insights and operational efficiency. Our technology allows us to scale faster, integrate acquisitions seamlessly and deliver unmatched agility to our builder partners. It also provides early warning indicators in real time when we see pace and price failing to meet underwriting expectations. This allows us to constantly recalibrate our due diligence monitors using real-time information. We have Adil Pasha, our CTO on hand to profile our systems and the strategic moat that it represents. Our disciplined underwriting and risk management are essential to our business model. By structuring transactions with meaningful deposits and cross-termination pooling mechanisms, we continue to mitigate risk and maintain prudent standards even as we grow. We further strengthened our balance sheet this quarter by completing $2 billion in senior note offerings, replacing short-term bridge capital with long-term debt at favorable rates. With approximately $1.6 billion in total liquidity and a conservative debt to capitalization ratio of 25%, Millrose is well positioned for continued growth and capital efficiency. Millrose is pioneering a new era in institutional end banking, offering a scalable, asset-light capital solution for homebuilders. As the only national public platform dedicated solely to residential homesite capital, we provide certainty and reliability that private capital sources cannot match. Our partners consistently tell us that this certainty is a key reason they choose Millrose. Despite ongoing market challenges, our business model resilience and risk mitigation features have enabled us to deliver strong performance and expand our partnerships. We maintain high conviction in the long-term housing market and are confident that Millrose is exceptionally well positioned to capture accelerated demand as conditions improve. Our platform is helping builders navigate affordability pressures and inventory challenges, providing flexible capital solutions that support their growth and operational efficiency. It is important to highlight that we are quickly approaching the point of terminal velocity where shareholders will benefit from the optimization of our balance sheet for an entire fiscal period. As our capital structure reaches its most efficient state, we anticipate that shareholders will increasingly realize the benefits of our scale and disciplined approach, enabling us to reinvest in higher return opportunities and maintain robust liquidity, all while supporting our competitive position in the sector. With these advantages, we are confident that we can continue to deliver value for our partners and stakeholders as we pioneer new solutions in institutional land banking and further solidify our leadership in the market. Our strong operational results enabled us to increase our quarterly dividend to $0.73 per share, representing an 8.2% dividend yield based on our book value. Based on our momentum, we are raising our guidance for year-end AFFO run rate to $0.74 to $0.76 per share and increasing our full year 2025 new transaction funding target under Other Agreements to $2.2 billion. We are pleased to note that this target is above our reach goal of $2 billion. We remain committed to distributing 100% of our AFFO to shareholders, reinforcing our alignment with shareholder interests. In closing, our third quarter results demonstrate that our capital redeployment strategy is working effectively across all aspects of our business. We look forward to continuing this momentum and sharing our progress next quarter. Thank you for your continued support. And with that, I'll hand the call over to Rob. Robert Nitkin: Thank you, Darren, and good morning, everyone. I'm pleased to report on the operational progress we achieved in the third quarter and to share how we believe these initiatives position Millrose for continued success. Q3 was an active and productive quarter for Millrose. We deployed capital at scale, expanded partnerships with new counterparties and reinforced underwriting discipline as our national team continued to leverage the Millrose technology platform to rigorously evaluate each transaction. We also strengthened our balance sheet, raising $2 billion of long-term debt at highly accretive rates. As Darren noted, our performance was fueled by accelerating transaction volumes and growing industry-wide adoption of our platform. Millrose was founded on the vision that a scaled national publicly traded homesite capital solution could be an all-weather solution to deliver homesites on a just-in-time basis, and that vision is now being realized. Today, Millrose transact with 12 distinct counterparties. And as we engage with our growing roster of homebuilder partners, we increasingly hear them highlight Millrose's advantages over other private capital players. With unmatched scale, a national team of industry experts and a portfolio spanning 30 states and 876 communities, we can execute the broadest range of transactions with speed and deep sector expertise. As a permanent capital solution dedicated to serving as the industry solution for residential home site capital, our partners avoid the constraints of private fund life cycle and the uncertainty of opaque capital sources. Builders consistently tell us that certainty and reliability of capital often matters more than cost. With $2 billion raised in the quarter and $1.6 billion of publicly disclosed liquidity today, we deliver that certainty. Finally, as you'll hear from our Chief Technology Officer, Adil Pasha, our technology platform reduces the operational burden on counterparties land planning and finance team by automating homesite purchase coordination and processing. At the same time, it captures transaction data that provides unique market insights to strengthen our underwriting. We believe that these structural advantages make Millrose the partner of choice for leading homebuilders. This is exemplified by large programmatic partnerships, such as our collaboration with Taylor Morrison's Yardly build-to-rent brand as well as our demonstrated experience as the first call for capital-efficient M&A. The strength of our platform is evident in our transaction terms and portfolio performance. We continue to generate compelling returns with a weighted average yield outside the Lennar Master Program Agreement of 11.3% as of quarter end. We grew investments in this category by $770 million in acquisitions and development funding, bringing our invested capital to approximately $1.8 billion as of September 30. Including Lennar, our portfolio weighted average annualized yield rose to 9.1%, up 20 basis points from the prior quarter. While growth is important, we remain laser-focused on underwriting discipline. And as our portfolio expands, we continue to enhance our risk monitoring systems. Each transaction is evaluated against real-time sales and pricing trends within our portfolio with overlaid local market insights from our asset management team. Our asset managers are constantly engaging with counterparties across the country, interfacing directly with the individual local builder divisions of our homebuilder partners. Through these channels, we've been able to capture unique quantitative and qualitative insights about the operating environment across markets and leverage these insights to maintain prudent underwriting standards and monitor risk. We also continue to structure transactions to mitigate risk, securing meaningful deposits as a share of total project costs and employing cross-termination pooling mechanisms. Importantly, given the demand we have observed, we also have the ability to remain selective in our partnerships, avoiding builders who view land banking as a tool for risk mitigation rather than capital and operating efficiency. This has helped to buttress our portfolio during the recent market stress. We are proud of our third quarter performance and grateful for the significant contributions of the entire Millrose team in driving our continued growth. With the strength of our pipeline, capital capacity and competitive position, we remain highly optimistic going forward. With that, I'll turn it over to Adil to share more on the Millrose technology platform. Adil Pasha: Thanks, Rob. I want to highlight a core component of our strategy, the proprietary technology platform that complements the operational excellence of our servicing and investment teams. We are not simply building a tool, but a strategic moat that enables us to manage the scale and complexity unmatched in the land banking industry. To put our operations into perspective, we manage a portfolio of nearly 140,000 homesites. We recycle approximately 1/3 of our book value annually, which means we are in a constant cycle of redeploying capital with speed and precision. Our transactions typically range from $10 million to $30 million each. We serve 12 distinct customers with more than 800 assets across diverse geographies and product types. Managing this business on spreadsheets would be impossible. Our technology platform provides 3 distinct strategic advantages. First, high velocity transaction processing. In the third quarter alone, we averaged 138 homesite takedowns per business day and processed over 3,500 land and development transactions. Land banking relies on seamless technological and operational alignment with our builders. Our platform allows us to provide our builder partners with the operational flexibility they need to meet their goals. A level of agility that is simply unachievable with traditional systems and spreadsheets. Enhancing and expanding these integrations is a key priority, which we believe will unlock further growth and strengthen these critical partnerships. Second, a powerful data advantage. The sheer volume of our deal flow, transaction data and builder sales reports have created a rich proprietary data set. This data moat gives us unique insights in underwriting transactions and monitoring market risk. We are also beginning to leverage AI to drive novel insights from this data set and further automate internal processes. Finally, unmatched M&A execution. We demonstrated this with the Millrose spin-off and the acquisition of Rausch and supporting New Home in its acquisition of Landsea. Our ability to partner with builders to rapidly underwrite and integrate hundreds of communities is a direct result of our proprietary data platform, which automates the ingestion and management of all aspects of land banking data. Our capacity to close deals and provide immediate operational readiness for our builders is an unmatched capability in this market. Our technology is a core strategic asset. It allows us to scale faster, integrate acquisitions seamlessly and operate with greater agility. We are confident this platform provides a durable competitive advantage that our competitors cannot easily replicate. We look forward to releasing a set of features to extend these efficiencies directly to our builder partners. We are excited to continue developing this platform to drive the future growth of Millrose. With that, I'll hand it over to Garett to talk through our quarterly financial overview. Garett Rosenblum: Thank you, Adil, and good morning, everyone. I'm pleased to walk you through our third quarter 2025 financial performance, which demonstrates the cash-generating power of our business model and our disciplined approach to capital allocation. For the third quarter, we reported net income attributable to Millrose's common shareholders of $105.1 million or $0.63 per share, driven by $179 million in option fees and development loan income. Our net income this quarter was negatively impacted by onetime expenses associated with our debt financing activities. These nonrecurring expenses related to our debt transactions impacted our GAAP net income. These are onetime items incurred in connection with our business reaching scale and don't affect the underlying cash-generating capacity of our business. Adjusted funds from operations, or AFFO, was $122.5 million or $0.74 per share, which provides the basis of our distributable earnings by adjusting for these onetime costs and other noncash items. As we discussed last quarter, AFFO offers enhanced transparency into the recurring distributable earnings power of our business. Our book value per share at the end of the quarter stood at $35.29. Our management fee expense was $25.9 million, which is calculated transparently at 1.25% of gross tangible assets. Interest expense was $43.7 million and income tax expense was $5.9 million. On September 22, we declared a quarterly dividend of $121.2 million or $0.73 per share, representing an 8.2% dividend yield based on book value per share that demonstrates our strong profitability and commitment to shareholder value. Millrose is committed to distributing 100% of our earnings to shareholders. Turning to our balance sheet and capitalization. We significantly strengthened our financial position this quarter through a strategic debt raise. We successfully completed $2 billion in senior note offerings, including $1.25 billion of 6.38% Senior Notes due 2030 and $750 million of 6.25% Senior Notes due 2032, both upsized due to strong investor demand. We used the proceeds to repay our $1 billion 1-year term loan and reduced outstanding borrowings under our revolving credit facility by $450 million. These transactions eliminated near-term refinancing risk while securing attractive long-term financing and combined with our $1.3 billion revolving credit facility provide us with approximately $1.6 billion in total liquidity as of quarter end, which provides ample financial resources to continue to grow the business. As of September 30, we reported total assets of approximately $9 billion and total debt of $2 billion with a debt-to-capitalization ratio of approximately 25%. We continue to expect to adhere to a conservative maximum debt to capitalization ratio of 33%, underscoring our disciplined approach to capital management. Based on our strong performance and continued momentum in other agreements, we are raising our guidance for full year 2025 new transaction funding under other agreements to $2.2 billion, up from previous guidance. Accordingly, we are also raising our year-end AFFO quarterly run rate guidance to a range of $0.74 to $0.76 per share. We remain focused on delivering value to shareholders through consistent earnings growth, prudent capital allocation and maintaining our conservative balance sheet while capitalizing on the significant opportunities ahead. With that, I'll turn the call back to Darren. Darren Richman: To close, our third quarter results demonstrate that our capital redeployment strategy is working effectively across all aspects of our business. From an organic growth and other agreements to optimizing our capital structure and increasing shareholder returns, we continue to execute on our mission to redefine how capital flows to meet housing demand. Our business model's resilience through challenging market conditions, combined with our strong liquidity position and growing pipeline of opportunities gives us confidence in our ability to continue delivering attractive returns to shareholders, while serving as an essential capital partner to the homebuilding industry. We look forward to continuing this momentum and sharing our progress next quarter. Thank you again for your continued support. And with that, operator, let's open the call up to Q&A. Operator: [Operator Instructions] Your first question comes from Julien Blouin with Goldman Sachs. Julien Blouin: So your new deployment guidance of $2.2 billion implies just another $200 million of deployment in the fourth quarter, which is quite a bit below your year-to-date run rate. I guess, is that a reflection of a pullback in activity you're seeing from homebuilders? Or is there some sort of like normal seasonality or activity dips in the fourth quarter? Is it driven by conservatism? How should we sort of think about that? Robert Nitkin: Yes, sure. Thanks for the question, Julien. So just 1 quick correction. So as of the end of the third quarter, our invested capital in this category outside of Lennar Master Program Agreement is $1.8 billion. So originally, our stretched target was $2 billion. It's $1.8 billion as of the end of the third quarter. And so our revised target is $2.2 billion, meaning that it's not a $200 million increase. We're guiding towards the $400 million increase. And that's our best guess based on still a very strong continued set of demand from the builders, certainly no slowdown, but that's our best guess based on where we are today. Does that make sense? Julien Blouin: Yes. Okay. I see. So it's $2 billion of homesite inventory funded. Okay. That makes sense. And then I guess just as we think about where the stock trades today and how you're thinking about equity issuance going forward, I mean, how should we think about that? Is it something where you would consider issuing equity as and when you trade at book value? Is it maybe something more like you could wait and see if the market describes some premium to book value? And then how do you balance those considerations against the risk of running out of deployable debt capacity as you're starting to push up against this 33% self-imposed debt-to-cap limit, and potentially being stuck if you're still trading below book value? Darren Richman: Yes, Julien, it's Darren. We have ample runway. We -- as we said in our prepared remarks, we have about $1.6 billion of firepower, which includes cash and room under the revolver. I think we've communicated in the past, and I'll reiterate it today, is our goal is really to optimize the balance sheet first before we pivot to equity issuances. We've had a couple of new equity initiations that are well above book value. And just as an editorial note, we buy into it. We definitely buy into the story beyond book value. And as we had kind of communicated with you and others in the past, the goal isn't just to get to book value and declare victory. We think that the ultimate returns that investors would expect and demand could result in the stock trading well above book value. And so to answer your question, it really is about optimizing the balance sheet, using our debt capacity and then seeing where we are as a company and where the stock is to then think about equity issuances. Operator: Your next question comes from Eric Wolfe with Citigroup. Eric Wolfe: I know you've had very little, if any, credit loss since you launched the business. But is there a way that you internally think about long-term credit loss? So if you're getting, say, 11% to 12% on option rate, maybe that's more like 10% to 11% after some assumption around terminations and your ability to recover value from that collateral. I'm just trying to understand internally how you think about sort of the total return profile of the business after credit loss? Darren Richman: Yes. This is Darren. I mean, I'll start, and then Rob can jump in. We -- in the history of our land banking experience, we haven't had a homebuilder walkway. We haven't had a homebuilder look to renegotiate a contract. It's not to say that it won't happen or it can happen, but I can only say, looking as using history as a guide, it hasn't happened yet. And I would argue that it really comes down to our underwriting standards, the use of technology that Adil spoke about, the due diligence screening that we do as part of our overlay is really the glue that holds this all together. And on top of that, we're also looking for a counterparty that is really a partner, and we're looking for counterparties that are looking to do business for capital efficiency, not risk mitigation. And we know that because these are counterparties that are willing to sign up upfront to pooling agreements. Again, even the pooling agreements, investors, homebuilders could walk away from those. So I don't want to suggests that even with pooling that folks couldn't walk away, but it really does become a self-selection opportunity for us to know what type of relationship the homebuilder is looking for. I don't know, Rob, if there's something you want to add? Robert Nitkin: Yes. I would just add that to come up with something like that would require ascribing some probability to not just the option termination, but an actual loss in the recovery value of the land that we own, fee simple have underwritten net of the deposit we hold against it, which is obviously as a result of our work, it's not a scenario we think it's likely. Again, not to say it won't happen, but there's no clear methodology that would make sense to us to use for that. Eric Wolfe: Got it. And I know it's only $340,000, so not much, but there's a small provision for credit loss expense on the income statement, it looks like maybe on development loan receivables. I guess what is that? And sort of how did you estimate that? Garett Rosenblum: Eric, it's Garett. That's a GAAP required adjustment under what's called CECL or as far as the credit loss pronouncement, which basically requires us to basically estimate potential credit losses. It can't be zero. We basically estimated it, and that could change as we go forward. But again, this is merely a GAAP required estimate and not an indication of what we actually expect. Eric Wolfe: Got it. And then for the $770 million that you deployed outside of Lennar, were those all with existing relationships? Or were there some new relationships in there? I think you said 12, and I can't remember what you said on last quarter's call, but just curious if there's some new relationships that were entered into the quarter and if they're public homebuilders, regional builders, just the profile of the new relationships that's your forming? Robert Nitkin: Yes. So last quarter, we mentioned we had 11 distinct counterparties. We added 1 this quarter. So we have 12 distinct counterparties. So we did add that counterparty, but really, a lot of this is -- most of that increase you mentioned is driven by just further penetration in the partnerships that we've set up. We've had a lot of success, just continuing to integrate operationally and continue to do more business with our really high-quality builder counterparties. Eric Wolfe: Got it. And then just last question for me. There have been a lot of headlines from the government tweets about wanting to sort of improve housing affordability. I guess, are there any policies that you're hoping for? Do you think it could spur more construction or would be good for your business? Just curious if there are certain things that you've seen that have been proposed that you think could help your business? Darren Richman: So few things. One, we all know affordability is a real challenge. And so the fact that the administration is focused on making housing more available and more affordable certainly makes sense to us. All of the headlines and the articles we've read would suggest that more -- it relates to more production. More production is obviously good for our business. It creates more certainty around the land that we own and gives us more confidence in the land that we own. Outside of that, I know that there are a lot of kind of conversations that are happening behind the scenes in the industry, and the industry is definitely working to do their part to come up with creative solutions to the challenges. Operator: Your next question comes from Craig Kucera with Lucid Capital Markets. Craig Kucera: Can you give us a breakout on how much of the third-party investment in the third quarter was affiliated with Yardly? Robert Nitkin: Yes. We haven't disclosed the specific volume by counterparty, but I will say that we have had a lot of success. There is a decent portion of that number, that is the penetration with Yardly, and that has ramped up and been a great successful partnership with the folks over at the Yardly team at Taylor Morrison. So it's going really well. It has started to close, and we're feeling really excited about it. But beyond that, we haven't given any disclosure at this point. Craig Kucera: Okay. Fair enough. You did have a breakout of the development loan receivables and income this quarter. Were those formally wrapped up in inventory and reported differently? Or are those all sort of originated here in the third quarter? Garett Rosenblum: Craig, it's Garett. They were grouped in with inventory at the beginning, and we felt it prudent to break it out going forward as it continues to be a significant part of our business. Darren Richman: And it's not a new line of business for us as being a -- trying to serve the interest of our builder clients. This is how certain of our clients want to access our land banking capital is through developer partnerships. This has always been part of our strategy and our product offering. It's just as Garett said, it got to a point where it's now big enough and scaled enough that the accounts have asked us to break it out separately, but it doesn't represent a new strategy for us. Craig Kucera: Got it. And I think in the Q, there's a reference that that's actually paid in kind interest. Is that the case here in the third quarter? Garett Rosenblum: Yes, just to give you a short answer there. Craig Kucera: Okay. Changing gears. Some of the commentary from Lennar on their third quarter earnings call referenced slowing down some of their volume and taking a pause to adjust to market conditions. Did that translate at all to Lennar executing any of their pause periods with Millrose? Darren Richman: Not outside of the contractual provisions that they're allowed to. So if you're asking about the pause periods where they're declaring a 6-month pause, absolutely not. But there are always adjustments, regardless of the period related to certain communities. And all of these -- anything that was done was done within the contractual allowances for them and for others. Craig Kucera: Okay. That makes sense. Just a couple more for me. You booked some rating agencies expenses this quarter. Can you give a sense of the time frame of what you might think you might get a rating and what it might mean to your debt cost relative to what you currently have, whether that's what you issued in the quarter or the spread on your revolver? Darren Richman: We're already rated. So just to clear that up. And so we're rated by Fitch, S&P and Moody's. Robert Nitkin: Yes. It's worth reiterating actually one of the big achievements we're quite proud of in the quarter is that going from a company without ratings to 3 ratings from those organizations, including an investment-grade rating from one of them, and being able to access the deepest public credit markets to raise $2 billion of bonds at an interest rate that we think that is highly accretive to our business has been a big win for us to strengthen our balance sheet, and that's part of what's really opened up the $1.6 billion of liquidity that we have today heading into the fourth quarter that really makes us optimistic about our ability to sort of attack the opportunity in front of us and becomes a really strong competitive advantage versus other players that we can just speak to that publicly available $1.6 billion of liquidity and the strength of our balance sheet. Craig Kucera: Got it. Just one more for me. A lot of the call, you referenced risk monitoring. I know you closed $770 million of deals this quarter with third parties. But can you talk about the total dollar value of deals you underwrote and may be elected not to move forward with? Robert Nitkin: Yes. We haven't disclosed the past portion, but there is certainly a substantial amount of past deals. I mean, part of our risk underwriting is that we're always, as we said, always evaluating a homebuilder's assumptions around price and pace and ultimately, the gross margin they project on those communities. And we, in this quarter, just as all in other quarters, turned down a substantial amount of deals because we didn't think they were set up for success in that -- our own unique independent data sources were not necessarily consistent with the builders underwriting. Anything to add, Darren? Darren Richman: Yes. No, the only other thing I'd add is it's a good question and it's a good point in the sense that there are counterparties that we have decided not to do business with because they've historically used land banking for risk mitigation. We know that. They know that. And again, it's -- we'd rather pass on those relationships than try to eke out a little bit more spread but taking a lot more risk in times like we've experienced in the last year. Operator: [Operator Instructions] Your next question comes from Aaron Hecht with Citizens Bank. Aaron Hecht: Just wondering, in terms of the contracts that you currently have in place, how much more capital or how many more partners, clients, can you sign up, given the schedule that they've provided and your assumptions underlying the cash inflows and outflows. I'm just trying to get a sense of how many more deals you can do or how the balance of your capital outstanding will trend just based on what's expected to come in your contracts today? Robert Nitkin: Yes. I would just say it's part of our cash flow planning every day that we track our peak capital, including all the development funding against all of our commitments. And so we're comfortable based on all the liquidity we have today and our capital pipeline that we can serve everything and there does remain additional capacity to bring on new customers. Darren Richman: Yes, ample. I mean, that's really the reason why we keep highlighting the $1.6 billion is because almost all of that is really meant for new third-party business. And that's exactly why we highlighted Adil and the work that he's done is because given the scale and complexity of the business that we have, and the fact that we do give up about 1/3 of our book value every year, this constant recycling and planning is so important and vital to making sure that our balance sheet is optimized at all times, and we're not sitting on cash. And we have, on the other side, over committed cash and are not able to fund. Aaron Hecht: Yes. I guess that's what I was trying to get at. Is there -- the inflows and outflows sound like they could get so complicated that there could be big fluctuations just based on the commitments that you have already. Second question around your data sets and the technology platform that you guys talked about. Is there any way to monetize that without giving up proprietary information for the Millrose shareholder, like data sets that you can provide to the general public on homebuilding or whatnot? Just kind of wondering any way to monetize that? Unknown Executive: Yes. It's a great question. It's not something that we're focused on right now. We're really looking to use that data set to drive our operational underwriting efficiencies, and we're always evaluating kind of strategic partnerships in the homebuilding space where we could create a value chain that really complements our capital solution. Darren Richman: But it is, look, the data is so important using it in our ecosystem to make real-time judgments. I mean there was a question asked earlier about deals we've passed on. Remember, every deal we pass on in addition to the deals we do, we're capturing all that data real time. And we're ingesting it and using it to make informed judgments as part of our due diligence. And we have [ Steve Hensley ] here who oversees that analytics, again, making sure that we're underinvesting in hot areas that are not performing well, and finding ways to put money to work in areas that are performing well and will continue to perform well where there's a shortage of housing relative to job growth. Operator: Your next question comes from Julien Blouin with Goldman Sachs. Julien Blouin: So you're clearly a really valuable partner to the builders. And I'm just wondering, in terms of the current environment, is one of the ways you're providing value to them is by sort of providing accommodations or allowing them to sort of pause or slow down their takedowns per the agreement you have with them? Darren Richman: Look, we haven't really had to do so outside of what the builders are contractually entitled to. But I've said this before, Julien, and you've definitely heard me say it, if a builder came to us in the ordinary course and said, "Hey, we were taking down 4 homes per community per month, the contract says we need to take down 3, we'd like to take down 2. And we don't have additional needs for that capital. It probably means we're going to slow down development as well. And we'd rather the capital working for as long as we can keep it. And so we're always thinking through accommodating any client request as long as we don't have an additional need for that capital. And why would we cause somebody to buy back a homesite at a time when it doesn't work for them. All we're doing is losing book value on which we would earn our option rate. So to answer the question very specifically, we haven't had to make accommodations outside of what our builder counterparties are entitled to, but we would definitely be open if asked, making sure that we have the capital to do it. Julien Blouin: Understood. And I guess in terms of what they're contractually entitled to, what is the sort of the flexibility they have within their current contractual agreements and sort of how much are they exercising that flexibility maybe to currently sort of slow down their pace? Robert Nitkin: Yes, you can see. The Lennar option agreement is publicly available. So you can see some examples of a finite amount of quarterly takedown extension such that the final takedown cannot be extended. And so that's an example of that kind of flexibility. And one of the many reasons that builders look at this kind of capital partnership better than debt, which is less flexible for a variety of reasons. But generally speaking, even above that, the benefit is that we've individually underwritten every asset. And so we have the ability and our team really can make a judgment call around pace and the right takedowns, particularly in the context of a business that had over $800 million of homesite sale proceeds just in the quarter. So we have such ample liquidity. And by that number, you can see the builders are still taking down their homesites largely on schedule. But that would be one example to answer your question. Darren Richman: But I just want to go to the point, maybe the heart of it is we really haven't seen any change in our business. And I think that's what people are pulsing around like what are we seeing from builders? And we really haven't seen any change, any real change in their behavior that causes us any concern. We would highlight it, and we just haven't seen it. It really has been sort of business as usual for us, which has been great. And it's not like we haven't seen what's going on in the backdrop. But you got to remember, we've underwritten all these assets. These are mission-critical assets. These are irreplaceable assets, by and large, and we would expect that the builders would continue to take them down almost regardless of what is going on in the backdrop. So I just want to make sure that we're making the point that it really has been and continues to be business as usual for us. Operator: At this time, there are no further questions. I'll now turn the call back over to Darren Richman for closing remarks. Darren Richman: Thank you. Look, I just want to thank everybody once again for joining us today for following the story. We're all available should have -- should anybody have follow-up questions. Thank you again, and we wish you a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.
Henrik Sjölund: Good morning, and welcome to the interim report presentation for the Holmen Group. Today, it's me, Henrik Sjölund and Stefan Loréhn. We will go through the presentation, and then we're happy to take any questions you might have. I know it's a busy day for you, so a special thank you for taking the time also to discuss with us. Well, the third quarter, challenging market conditions, a bit the same message as we actually had after the second quarter, this quarter, well, low demand for wood products. We also have -- despite low utilization rate and very expensive wood, we have, again, a very good result from wood and paper. All in all, a bit over SEK 700 million, a decent result when it comes to Holmen. If you look at our industry, not only wood products, but also wood and paper together, so far this year, during the first 9 months, we've been able to deliver 15% return on capital employed. And if we look at our financial position and what we have done, Stefan, we have distributed a bit over SEK 3 billion in dividend and buybacks during January to September. And if you look at 5-year period, we have roughly the same debt-to-equity ratio today as we had 5 years ago. We have distributed SEK 13 billion in total during the 5 years. Changing subject to forest and wood market. This time, we do see that pulpwood prices start to decline due to lower activities from the mills. We don't see that sawlog prices still or have started to come down. On this chart, it looks like they have. But in our case, it's because we -- there are also big differences in price still between southern parts of Sweden and northern parts of Sweden. And when we buy less in South and a bit more in North, then it has an effect on the graph, which is what we mean by mix effect wood cost. Pulpwood, on the other hand, the prices are going down. In our case, it's a lag before lower cost reaches our industry and our P&L sheets. Prices are high, Stefan? Stefan Lorehn: Yes, they are. And the result from the Forest division was SEK 538 million during the third quarter. That is an increase by some SEK 20 million compared to second quarter and some SEK 50 million compared to the first quarter this year. The gradual higher profit is due to price increases during the year. Looking at the harvesting levels, we harvested 660,000 cubic meters during the third quarter this year. That is approximately 100,000 cubic meters higher than the corresponding period last year. Year-to-date, the harvesting levels is still 100,000 cubic meters lower than what we saw last year at this point in time, but we anticipate that we will be on par with last year when we closed the books for 2025. Henrik Sjölund: So back on track soon. Stefan Lorehn: Hopefully. Henrik Sjölund: All right. Changing to renewable energy. A very special situation or we've had this situation for quite some time now where we see that prices in northern parts of Sweden, where we have not all, but almost all our production of electricity, well, prices are simply very, very low. And it's not easy to make money when prices are that low. And I think we can just -- well, we know that electricity is locked in, in the northern parts of Sweden, and there is a lack of transmission capacity. How long it will be like that? That's difficult to answer. There are so many things affecting whether the price should go up or if it will stay where it is, tables to, for example, Finland, Norway, et cetera. Stefan, we have said that we have produced with premium to market price. Does it help? Stefan Lorehn: Not that much when we have these low prices in the northern part of Sweden, as you mentioned, Henrik, but still we got some premium above the market price. Maybe we can also comment on the wind power production that we have curtailed during the third quarter, and that is due to the low prices that we see and also the high risk for imbalancing costs. So when we add up the financials, we are still loss-making in this segment, and it's, of course, due to these low prices that Henrik mentioned. Can also comment on the hydropower station in Junsterforsen that is now back into production after the rebuild that we have done there. Henrik Sjölund: Yes. Thank you. Okay. Moving on to Wood Products. I said in the beginning, weak demand, and that's obvious when we look at some charts. If you look at U.S., it's not picking up. It's quite weak. China, very clear, even going down, I would say. And if you look on the production side, well, especially Western Canada, producing less, Eastern Canada, more or less on the same level. Germany coming down quite a lot after we have the spruce bark beetle infestation that had an effect on how much that was produced a couple of years ago, but now on quite low levels. It's only one place where people seem to run the sawmills more or less full still, and that's in Sweden or in the Nordics, but especially in Sweden, but not in the southern parts of Sweden where we have our sawmills, we have curtailed production, especially at the Braviken sawmill. And I think that part of Sweden has also been the most affected by, well, the drought we had and also later on, the infestation from bark beetles. Tough situation for sawmills in south of Sweden, and I think especially where we are. Price-wise, well, in the beginning of the year, as it normally happens, prices went up a bit during spring time. And now when we came into the third quarter, we see that there is price pressure and prices are down some 5% to 10%, depending on which market you look at. And as we speak, it's still some price pressure on wood products prices. A lot of negative things, Stefan. Stefan Lorehn: Yes. And it can also be seen in the result, which deteriorated to SEK -91 million during the third quarter. That is due to the lower selling prices that Henrik mentioned. They are down 5% to 10% quarter-over-quarter. That also meant that we needed to adjust the value of our finished good stocks, which had an impact on the result by some SEK -30 million during the third quarter. Henrik Sjölund: Thank you. Clear. Changing to Board and Paper. Finally, something positive to talk about, Stefan. Now to be honest, if you look at demand, it's not so rosy. We are hovering on a level where we are quite far below actually where we were during the pandemic, and we are still below where we were before the pandemic. And also at the same time, we know that there is more capacity in the market. So it's quite challenging when it comes to board. In this case, it's board. We take paper afterwards. When it comes to prices, well, they are always stable, at least in our segment, we used to say, of course, there are changes over time, but it takes time to change the price. In this case, prices are stable. But when you look for marginal volumes to fill up your order books, then there is quite a lot of price pressure. In our case, our order books are -- they are okay, but not even we are running absolutely full. We take some market-related downtime and in line with most players in the market right now. And as I said in the beginning, cautious consumers not spending to fill up order books in the industry. Paper, we have been used to a low utilization ratios. They are really low in board now with all the new capacity. But here, we have been more -- we talked about it for so long. Capacity has been partly closed and converted, but still also here, it's quite a lot of overcapacity. We have been doing well in this market for a long time. Also now we are doing, I would say, really well. We are not running full. The idea is not to run totally full either, but maybe 80%, 85% suits us better given the situation with very volatile electricity prices we think we use to our favor as well. Prices also here, roughly the same, fairly stable. But when you look for marginal volumes, there is a lot of competition for the volumes and some price pressure in the market. Stefan? Stefan Lorehn: Yes. The result for the third quarter were on par with what we reported in the second quarter. In Q3, we had the annual maintenance shut in the Iggesund mill that took a toll on the result by some SEK 150 million. Despite a small increase in energy cost, our energy cost in the division is still very much lower than normal this quarter, and that is due to our ability to adjust to the volatility in the electricity market, as Henrik mentioned. We also had some tailwind from seasonally lower personnel costs in Q3. Henrik Sjölund: And given the circumstances, a really good result, I must say. All right. Just remember what kind of a company we are. We are a forest-owning company or land-owning company, and we do everything we can in order to extract as much value as possible from the land we own in different ways. Thank you. And by that, we are happy to take on any questions you have. Operator: [Operator Instructions] The first question comes from the line of Charlie Muir-Sands with BNP. Charlie Muir-Sands: I had a few short ones. Firstly, on the timing of the pulpwood costs coming down, can you just clarify, was that a -- that was clearly a headwind to profitability of the Forest segment. Was that already simultaneously a tailwind to profitability in the consumption segments like board and paper? Or does that come through with a lag? And can you give any sort of quantification for what you're seeing kind of right now on a kind of year-on-year basis, for example? And then secondly, you mentioned on board and paper, lower energy costs. Can you just clarify, were you talking both year-on-year and quarter-on-quarter? And then just finally, on the tax ruling, can you clarify, would that create a cash inflow? Or does that just release a provision for you? Henrik Sjölund: I think it's all questions for you [indiscernible]. But maybe the first one, yes, there is a lag when pulpwood prices come down. It takes like 6 months before it reaches the industry. Stefan Lorehn: Yes. And if we take the other one when it comes to our lower electricity cost, it's approximately in Q3, SEK 250 million lower than normal. In Q2, we had even lower electricity cost than we had in Q3, but still much lower than normal in Q3. Regarding the tax item, we anticipate that, that will turn into cash flow during the fourth quarter. Charlie Muir-Sands: Okay. Great. Sorry, just going back to the first one. So you said a lag when prices come down on pulpwood but you already face that headwind in the forest segment? Or there's a lag -- further lag and those further headwinds come in the forest segment and further tailwind in the industrial segment? Stefan Lorehn: The prices are moving quite slowly in the forest segment as it does for the industry, as Henrik mentioned. So we have not seen that kind of headwind yet in the forest. How it will turn out, we'll see going forward. Charlie Muir-Sands: Okay. And yes, is there any quantification you can put around the scale of the movements you've seen so far? Henrik Sjölund: Maintenance? Stefan Lorehn: No, I think it's too early -- the wood cost. I think it's too early to comment on and quantify the effects going forward. We've just seen that the pulpwood prices are starting to come down, and we need to come back on the quantification in the next quarter, I think. Henrik Sjölund: But there is quite a big difference how you -- how the market feels when it comes to pulpwood and sawlogs where it's still quite a lot of competition, as you saw on the slide for sawlogs in Sweden. But pulpwood definitely on its way down. Operator: Mr. Linus Larsson with SEB, can you hear us? Linus Larsson: I can hear you now. Could you please dissect the Wood Products result in the third quarter that you already mentioned the SEK 30 million of impairment? And also what to expect in the fourth quarter in terms of product price and sawlog cost delta and other moving parts, please? Henrik Sjölund: Can you take... Stefan Lorehn: The first one with the write-down of the stock, maybe didn't catch you right there, Linus. But we did a write-down of SEK 30 million in the third quarter, and that is due to the lower prices that we've seen in the market. Then we needed to adjust the stock value. So it's as simple as that. Henrik Sjölund: And when it comes to the pulpwood prices and the sawlog price, as I said before, pulpwood prices, well, they are on the way down. But remember, it takes some time before we get a lower cost in our industry. And we buy roughly half of what we make use of comes from our own forest. But also remember, we have a lot more forest up in the north where prices are, especially for sawlogs, they are lower than in the south of Sweden. But also when it comes to sawlogs, still a lot of competition. And so far, prices have not come down, at least not as we see it. Linus Larsson: Okay. So I mean, in terms of direction for the fourth quarter compared to the third quarter, are you still expecting higher sawlog costs and lower finished product prices? Or what's the direction, if you don't want to quantify what's the direction of the both? Henrik Sjölund: Sawlog prices are more or less flat from where we are now. Stefan Lorehn: And selling price is hard to comment, but the market is quite soft. So we need to see where things are going when we sum up the fourth quarter, Linus. Henrik Sjölund: Wood Products in general, still, Linus, it's -- I'd say it's price pressure in the market. Linus Larsson: Right, right. Okay. And maybe a similar question for Board and Paper, what you're seeing in terms of delta Q4 and Q3 in terms of price and cost, at least directionally? Stefan Lorehn: It's -- we don't comment that often going forward, Linus. What we had in Q3 that is exceptional is, of course, the maintenance shut in the Iggesund mill and as always, lower personnel cost during Q3 that will increase then quarter-over-quarter when we look into Q4. But comment on pricing and other cost factors we did. Henrik Sjölund: It's always more difficult to fill up the order books at the end of the year when the new contracts are being negotiated at the same time. Normally, demand is a bit lower, but that you know from before. Linus Larsson: And any initial thoughts on price negotiations going into next year? Stefan Lorehn: No. We don't comment on that, Linus. But as I said before, both when it comes to Board and Paper, our prices are fairly stable. But when you look for new volumes that you don't have a contract with right now, then also now we feel a bit of price pressure. It's not easy to get marginal volumes. Regarding discussions for next year, it's too early. We'll see what happens. Linus Larsson: And maybe just one final on the market dynamics and pricing and like we've now been discussing geopolitics and tariffs for the past couple of quarters. What's the latest on that in your market segments? And how are you seeing that? And how are you feeling that? Henrik Sjölund: If you take the tariff question, I think you already know. But for wood products now, there is a 10% tariff on wood products going into the U.S. And for Board and Paper, it's 15%. We don't have that much volumes going to the U.S. And of course, it's also an ongoing discussion who should take the cost, the one selling into the market or the one importing to the market. And right now, in board, it's roughly 50-50 and paper roughly the same. It's something that's ongoing. Linus Larsson: Got it. And also like dynamically in terms of trade flows, et cetera, are you seeing that whole discussion impacting supply-demand balances in your various segments? Henrik Sjölund: If you look at indirect effects, for example, Chinese board coming into Europe, we cannot see it yet. Might happen, but so far, we don't see any drastic or big volumes coming into Europe. Operator: The next question comes from the line of Ioannis Masvoulas with Morgan Stanley. Ioannis Masvoulas: Three questions left from my side. The first, when it comes to the graphic paper segment, we've seen several curtailments across the industry in Europe year-to-date, but mostly on the mechanical grades, less so on chemical grades. Can you talk about the dynamic? What do you think is driving that? Is it more of a different demand dynamics between the 2? And also, can you talk about how you see that materializing, whether we're going to see more capacity cuts in the coming months or majority of what you expect in the short term is already announced? And then secondly, again, on Wood Products, which was, I guess, the main weakness on the results today, you've only trimmed deliveries by 2% quarter-over-quarter. Is that a function of potentially destocking and production is actually lower? And how should we think about deliveries going into Q4 and early '26? And lastly, you mentioned curtailments on the wind side, given the challenging margin dynamics. Can you give an indication on maybe the yield that your wind mills are running at or maybe a mix between wind and hydro generation and how that's evolved over the past 12 months? Henrik Sjölund: So let me start with paper and graphic papers. We are in the mechanical segment, but we also compete with wood-free paper with some of our products. So we see everything from newsprint to wood-free uncoated more or less as one market when we look into the business we do. It's overcapacity. Demand is dropping. You are absolutely right. There are some capacity taken out. Whether there will be more taken out in the future, we don't know. We only look at what has been officially stopped, taken out or at least announced. And to have a good balance, we need to do, but the market need to take out a lot more capacity, a couple of more million tonnes, to be honest. But on the other hand, it's also -- as we have -- we are quite flexible and we have learned to also operate in an environment where you can't run absolutely full. Nobody can run absolutely full. You have to be a bit more flexible today. So I think the rules of the game have changed a bit as well. But we need to take out more to have a good balance. That's clear. And we are fairly happy with our operating rates, slightly higher than average in the market at least. Stefan, next one... Stefan Lorehn: Trying to remember them. I think it was about the delivery volumes from the Wood Products segment in Q3. Yes, there is a destocking, but that is mainly due to seasonality, lower production in Q3 during vacation periods. If we look at production volumes so far this year compared to last year, we are down some 10%, which partly is explained by the rebuild in the Iggesund sawmill that we did in the first quarter. But also, as Henrik mentioned, we've taken down production in the southern part of Sweden due to the high log cost that we see there. Then I think it was curtailment on wind towers. We have used our wind power turbines to approximately 50% during the third quarter, and that is due to both low prices in combination with high risk for imbalancing cost when you run the wind farms. Hydropower stations, we run as normal, try to maximize the profit we can get from them producing when the prices are as high as they can be for the moment and reduce production when prices are low. Henrik Sjölund: Which wasn't very high. Which wasn't very high. No. Stefan Lorehn: No, I think it was -- hopefully, Ioannis. Did we catch it all? Ioannis Masvoulas: Yes. That was very clear. Maybe a quick follow-up on the graphic paper side. So you mentioned the SEK 250 million, again, gain from better electricity management and therefore, lower power costs. If we were to add it to assume that you didn't have that gain, can you talk about profitability in the graphic paper segment for Q3, like leaving boards aside, just looking at graphic, would it be EBIT positive? And would it be EBITDA positive? Just to get a sense on the underlying profit trends. Henrik Sjölund: Yes, it's -- the underlying business is EBIT profit, even if you extract the effect from the electricity. Stefan Lorehn: Maybe we would have been running it slightly different, but yes. For sure, profit. Operator: The next question comes from the line of Lars Kjellberg with Stifel. Lars Kjellberg: Most of them have been answered, but I just have a couple of follow-ups. On China specifically, of course, we have a significant excess supply, and I appreciate your comments about not reaching European shores. But we did see, for example, Brazil now asking for tariff protection from China. So I guess, directly for the European perspective, how are you seeing the Asian markets in general as an export destination? You do have some volumes going into that market. And I can only assume it's not great. So are you seeing sort of repatriation of tonnes back to Europe and equally so, given the tariff situation and weak demand in the U.S., is that an issue with, again, repatriation of tonnes that normally would have been exported from Europe? Is that a topic that you're seeing in your business and in general for the industry? The last point is really on sawlog pricing. You've commented many quarters now, of course, that they're insanely high relative to the underlying demand trends and pricing for wood products and the pressure is pretty acute as we can tell from your numbers. So what does it take for this market to give on the log price side? Henrik Sjölund: So we start with geopolitics and how it affects our business. You almost answered the questions, I think. Yes, it's much more difficult to sell into Asia, especially for marginal business to find add-on business, so to say, because it's a lot of competition. If you compare to a number of years ago, we have had capacity in China for a long time, but they are both good, and it's more now than before. And the market is not picking up, as we have said. So that's more difficult. When it comes to how much of the volumes that will come into Europe, according to statistics I see and when I speak to our people, I don't see a big change, at least not yet. But you're right, there is a risk, of course, that it could be shifts in volumes between different parts of the world. And then with U.S., you are right again, yes, we are a bit dependent as Europeans on exporting not only to Asia, but also to the U.S. to have a decent supply-demand balance. Roughly 20% when it comes to board should be sold somewhere else than in Europe. That's kind of the European business idea. Second? Lars Kjellberg: And on the specifics around European volumes returning, you can't sell it abroad. Does that put incremental pressure on Europe? I can only assume that the pricing still is better in Europe than it would be overseas. Henrik Sjölund: So far, not much has happened, but there is a risk that, that could be the case, absolutely. But we haven't really seen it yet, to be honest. I think the big issue here is whether we can export as much as we need to export to different parts of the world because the total capacity in Europe is simply too big for Europe. It needs to be shipped both to the U.S. and to Asia in different ways. We ship more to Asia than -- let's say, we do the business in the U.S., for example, but we've shipped the volumes to Asia to be converted, et cetera. So it's different kind of business also in Asia. Not all of them are up to competition with the Chinese producers. Stefan Lorehn: Second question about the sawlogs and the dynamics, I think it was what needs to be -- to happen to the sawlog prices to come down. Well, we have done what we can do so far. We have taken down production in the southern part of Sweden, where the log costs are simply too high for us to get the financials in line with our expectations. How other people will treat their sawmills, we will see going forward. Not much we can do about it in the short term. Henrik Sjölund: Normally, the sawmills when they -- you need to come down quite a lot in profitability also to variable cost more or less before they stop. That's what has happened in the history. And then the wood market changes, sawlogs become cheaper. But obviously, right now, they are simply too expensive and prices for wood products is under pressure. So very tough situation. Different though in northern parts of Sweden, where sawlogs are cheaper. Lars Kjellberg: There's no downward pressure on logs today at all. Henrik Sjölund: Of course, all of us try to get it down. But so far, we haven't seen it happening, to be honest. That's what we had to. That's where we are right now. And in our case, to take down production if it's too expensive, that's the first thing you do. Operator: The next question comes from the line of Christian Kopfer with Handelsbanken. Christian Kopfer: Just 2 questions from my side. Firstly, you talked a little bit about the power prices, the big differences in the North versus the South and maybe it has been even more substantial differences in the last couple of quarters. From your perspective, I mean, you are active in both areas, especially in the North and maybe [ Area 3 ], right? So the big differences, are those only driven by the bottlenecking in transmission? Or what do you see? Henrik Sjölund: That's the main cause. But also, we have seen quite a lot of water in the system up in the north that have put pressure to produce hydropower during the first 9 months of this year. Now the situation is a bit more normal when we look at the levels in our reservoirs at least. Stefan Lorehn: Yes. But if you look at third quarter, I think you answered the question more or less because if there would have been sufficient transmission capacity, situation would have been different as well with lower prices in SE3 and higher in SE2 and 1. That's clear. Christian Kopfer: Has it been bigger differences with the new flow base, you think? Stefan Lorehn: It's quite a short period of time, and it's a combination of factors when it comes to cables being out of operation, lots of water in the system. So it's quite early to say that it's the flow base that has created this situation. Also, when you have revision of nuclear, you have to take down the transmission capacity a bit, which has had an influence, that's clear. But exactly, there are so many different factors now to understand how things are going to be. So let's wait and see a bit. Christian Kopfer: And then we heard from another paper producer or packaging business this morning mentioned that they start to see some, call it, light in the end of the tunnel when it comes to customer behavior, not exactly for Q4, but maybe a little bit better on the demand side going into next year. Is that something that you start to see on your customer base as well? Henrik Sjölund: You mean consumption in general for forest industry products? Christian Kopfer: Yes, demand from your customers -- starting to be a little bit better or how do you see it? Henrik Sjölund: It could be. But if you look at the statistics so far, what has happened and also if I look into our order books, I can't really say that things have changed. I'd say that we have more overcapacity, especially in board than what we have been used to for many years. So demand really needs to pick up quite a lot before we get a healthy demand -- supply-demand balance again. I think it will take some time. Operator: The next question comes from the line of Cole Hathorn with Jefferies. Cole Hathorn: Just a follow-up on the pricing commentary being stable. I mean we're seeing a lot of the folding boxboard price indices and graphic paper price indices decline. So I'm just wondering how Holmen sits within that. Could you talk a little bit around on the paper side, the book paper business, which I imagine is kind of longer contracts and slightly different to the index pricing? And then on your folding carton business, could you just remind us how much is more premium longer-term contract versus traditional folding carton of your business? And when you look into 2026, you talked about spot pressures, but should we be assuming that some of the annual contracts, there will be a little bit of pressure on those into 2026? Henrik Sjölund: Would you like to start? Stefan Lorehn: I leave that to you, Henrik. Henrik Sjölund: First of all, when it comes to negotiations for next year, we don't want to comment that. We are starting to negotiate soon. But -- and when it comes to prices in Europe in board, as I said, especially you mentioned folding boxboard, and we are a lot -- we have bigger volumes in solid bleach board where you are even more into a niche where prices tend to be very stable over time. They do change, but it takes time. And that's the case also right now for us that most of our business, they are stable when it comes to board, slightly more pressure in general in folding boxboard than a solid bleached board. The challenge is more when you need marginal volumes to take on new business, then there is price pressure. What that means for next year, it's too early to say. And then it was how many of our contracts are longer term for 2, 3 years, et cetera? Stefan Lorehn: It's a mixture. Some shorter ones, some 1- to 2-year tenders. Henrik Sjölund: We have some slightly longer contracts, but not that many. And when it comes to paper, we don't have any long-term contracts, maximum 1 year. It's gone the other way, some contracts quarterly or half year as well. Book paper is a good segment where we've been extremely -- we have done well, and we are doing well. Prices have been a bit more stable than graphic paper in general. But also there, a lot of contracts will be renegotiated from 1st of January and second quarter, et cetera. It's no big difference in that sense, but a more stable segment, both when it comes to demand development and also pricing and fewer producers, of course. Cole Hathorn: And then maybe just a follow-up on the Canadian producers in wood products. They're under a lot of pressure considering the duties that have impacted them, and you've showed some good charts on wood staff, particularly around British Columbia sawmills coming down. Are you starting to see better ability to compete with the Canadians in the U.S.? Or any commentary you can provide on the Canadian sawmill side and how that's impacting your business? Henrik Sjölund: Normally in the U.S., they consume like 100 million cubic meters. 20 of those come from Canada and roughly 5 from Europe. And now when the Canadians have 35%, 40%, 45%, well, they have a different wood cost as a base. So it's not really comparable to tariffs we have with 10% in Europe. But normally, when you have increased tariffs and you have that much of import into U.S., you would see prices going up in the U.S. But so far, we haven't seen much of that. And if you look at the future prices, well, they go up and down quite a lot week-to-week almost. Right now, if I would say something, I would say, well, they are up 5% something, but that's last week, et cetera. So, so far, demand and the balance in the U.S. has not made prices come up to cover for the tariff cost, not for the Canadians, not for the Europeans, not to be fully compensated. No, it hasn't happened yet. Cole Hathorn: Fair enough. So in absence of housing demand, is it really kind of sawmill closures in Canada, which might be the supply trigger? Henrik Sjölund: Supply is down, but not enough. Demand is even lower as it looks right now. Operator: The next question comes from the line of Pallav Mittal with Barclays. Pallav Mittal: Most of my questions have been answered. A couple of follow-ups. So firstly, can you comment on the number of transactions in the Swedish forest and how our transaction pricing looking this year because last couple of years, it has been flat to down. So any comment on that would be helpful. And then secondly, can you just talk about the profit split for the Board and Paper business? Is it still broadly 50-50? Stefan Lorehn: Well, if we start with the forest transaction market, most of the transactions are being done during the second half of the year. There's also a lag in the system when they are to be registered, et cetera. So it's quite limited of transactions so far this year as we can see. So it's hard to draw the conclusions for the full year already now. But what we have seen so far is no major changes in the property prices in Sweden. The next question is the split of profitability between Board and Paper. Well, board is heavily affected by the maintenance shuts that we have had both in Q2 and Q3. So it's hard to comment on the exact numbers in Q3. Henrik Sjölund: But both profitable. Stefan Lorehn: Both profitable, of course, yes. Operator: [Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to management for any closing remarks. Henrik Sjölund: Thank you very much for good questions, good discussion. Look forward to see you soon again. Thank you.
Operator: Ladies and gentlemen, welcome to the DSV A/S Q3 2025 Interim Financial Report Conference Call. I am Hillie, 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 Jens Lund, Group CEO. Please go ahead. Jens Lund: Good morning, everybody, and welcome to our Q3 results call. We look forward to a good session where we go through the presentation. We will -- the format will be the same as usual. Michael and I will say something in the beginning, and then we will do the Q&A session. We will quickly go to the forward-looking statements. Please take your time to read it. It gets longer and longer. We will soon need 2 slides for that one we've been discussing. But I'll skip that one and move on to the agenda, which is the same agenda as we normally use. And also, therefore, I will quickly move on to the next slide and talk a little bit about the highlights of the quarter. So I think it's very clear that we are basically seeing good momentum on the Schenker integration. It's, of course, the most important topic that we have right now. It is to ensure that the integration continues to gain momentum. And I think that's also what we see. I'm particularly fond of the fact that we've sort of done really well in relation to the customers. So I think the feedback that we've received on the integration is very positive. And we've seen that there's been very little attrition. So that's definitely an outcome that we're very pleased with. On the financial performance, I think the numbers, they speak for themselves. Of course, it's now with a full quarter of Schenker numbers in there as well. There's still a lot of ground to cover, but I think we are off to a really good start when it comes to the combination of the company and the financial performance. On the deleveraging, yes, I think we've now started to reduce our debt and just shows that we generate cash flow, and that means that there's substance in what we are doing. And then, of course, our guidance, we now have narrowed our guidance. Michael will talk a little bit more about it. But I think it's basically good to see that we stay within the range that we guided at the beginning of the year. And then lastly, I would just say on the execution of the synergies. I'll come on to that on the next slide. But of course, at the end of Q1, we saw that we had a plan, and we presented also a time line we had a lot of uncertainties in this plan. We've managed to reduce the number of uncertainties and also basically then been able to update the plan so that you can see there are new time lines. And I think I would just like to mention that we said we would be done with 15% at the last call. Now we say we will have 30% done before the end of the year. And also the next column is increased from 50% to 70%. Not all plans are finalized yet. So as a consequence, we might -- this is what we know. This is what we have confidence in. We, of course, are working on doing it faster, and that might be the case. But this is what we know for now. So we're very comfortable showing you this as well. I think if we look at the integration itself, I talked about that we set the organization. It's very, very stable, the organization. We are pleased with that. I think, as I said, the customer dialogue, it's something that is really rewarding because it's something that we put extra effort into this integration. I think if we measure the previous integrations, we saw that we needed extra focus on this. And then I think the Country go-lives, they are progressing really well. We are live now in 13 countries. This is where we physically move the people in together that we -- both in the offices, but also in the operational side. So it's a lot of work that needs to get done. It's actually steered by Michael, who is doing a wonderful job on this together with the team. And then, of course, I think the back office functions, here, we also consolidate the functions. It's going really well. And then, of course, we can see that on the white collar side, we've reduced more than 3,000 headcounts as a result of the sort of the combination as well. I'd just also like to mention that we expect to go live in Germany on the 1st of January, as we stated also the last time. And I'm really proud about the work that is being done by the team there, both on the DSV side, but also the Schenker side and the constructive approach from the employee representatives, where we basically have an ongoing, of course, what can I say, open dialogue, but still in a constructive way so that we find results. Yes. I think the finance figures you could probably read yourself and the transaction costs and the expected synergies, they remain unchanged. I think if we look at the financial highlights here, we see the GP is up. I mean, at the end of the day, this is really what it's all about that we produce some more GP. We see that the EBITDA is down, and it is because the productivity, what can I say, needs to increase as well. There's one thing that I would like to say, and I'll also point that out when I come to some of the divisions. The transaction size that we are handling, it gets smaller when the economy has a difficult time. So the volumes sort of that are shrinking a little bit when we are down trading, it doesn't necessarily mean that there's fewer shipments. So we need more shipments to flow through the system, and we have a certain number of transactions per person per day. So on the productivity side, we're actually doing fairly okay, I would say. So it's just a little bit complex to see through some of those numbers here. But when we look at it on the management side, it's under control. We're doing a great job. And I'm very confident that we will see when the synergies start to kick in that we will also see progress on the EBIT side. If we move to the next slide, we come to the Air & Sea division. Here, I think we've always said it's GP that matters. we need to produce some gross profit here. And that's also what our focus has been in this quarter. If we look at it, we can see that the GP is up. The EBIT is down. And here, if I look at both air freight and ocean freight, we produce more shipments than we did last year even if the volumes have evolved as they have. And of course, it puts a little bit of pressure on the conversion ratio as well as the lower productivity we see out of the Schenker organization. Not that we're not going to get the Schenker productivity up, but it's just when you combine, it takes a little bit of time before we get there. And that, of course, has a consequence for the operating margin as well. But once then the conversion gets up, the productivity gets up, of course, the margin will adjust itself. If we look at the air freight, I think we are actually pretty pleased with the developments in the GP. It's really been solid for us. It's the last quarter where we can separate the DSV and the Schenker volumes because, as I said, we are now live in 13 countries, and it means that we cannot separate the hot and the cold water anymore when we do the reporting. So we give you these numbers, and you can see we've had the yield discussion many times, and it's actually holding up pretty well. One of the reasons why it's also holding up is, of course, as I mentioned, and say, you do more shipments in order to achieve, what can I say, the tonnage that we are talking about here. And we all have to remember that, let's say, you do an air freight shipment of 400 kilos or one of 800 kilos. It's the same work that the forwarder needs to do. So really on the productivity side, I think actually, if we measure on the KPIs internally, we can then have aspirations that we need to drive the productivity even higher, which we also have. But I'm very satisfied with the productivity measures that we have. And we're monitoring these all the time. If the market develops differently, of course, we will need to react on it. On the ocean freight, of course, that's the toughest market that we're in right now. It's crunch time. We see that basically GP is down. Of course, there's some FX impact in that as well, which goes for all our numbers. Michael will come back to that, but there's quite a bit of headwind on that. Also here, we've had the yield discussion many times. We've been discussing the value-added services that we produce on a shipment. And I think it speaks for itself that now we do more transactions per TEU. We've also had a lot of focus on the LCL market now for years as well in order to protect what can I say, our GP and have a value proposition where we are in control of the infrastructure. So I think this is very clear in the numbers as well. When you look at it, that this is now what is playing out as well. Then we come to Road. And of course, it's nice to see that in absolute figures, we are making progress. Schenker's road organization is a really good road organization, strong footprint in the Asia Pacific and also a solid footprint, a very strong footprint in Europe here, we are the market leader. So if we sit and look at this, then of course, there's a lot more to come, but we are on the right way. If you look at these numbers, they include both July and August, which if you have a large scoopage network means that you will have a lot of fixed cost and not as much income generated in each month. So delivering a result of there to round it up to DKK 800 million, it's actually quite an achievement from the road organization that I'm very happy about as well. On the shipment side, also here, we are flat. It's flat neutral, what we are seeing here as well. So it's really also well done, I would say. Then we come to CL. And here, we have produced almost DKK 1.1 billion. So definitely quite a bit up compared to what we've seen before. Here, we see that the Schenker contribution is impressive as well. Actually, we've been doing fairly well on the EBIT side on the DSV anyway previously, as you can also see from the comparable figure, which only includes DSV. But the Schenker is definitely also contributing with both footprint, with skills, with competence. And in combination, we have a really solid value proposition. And then we have the problem that which is something that we have a ton of focus on, we need to increase the return on the capital that we deploy because, of course, it benefits the other divisions that we hold cargo that is being moved in our air freight network, our ocean freight network or our road network. But we need to generate, what can I say, a higher return. We simply -- it's unacceptable where we are right now. But the division is really taking this into consideration when doing the integration, and I feel very confident that they are doing something about it that soon also will be visible in the numbers. So with that said, I would really like to hand over to you, Michael, so you can give a little bit of details to some of the numbers as well. Michael Ebbe: Thank you very much, Jens. And then if we look at the Page #12, which some highlights of our P&L. Like Jens mentioned, we have a stable performance in the quarter. And of course, Schenker contribution positively. It's also -- if you look at our -- the net result is, of course, impacted by our special items of DKK 1.1 billion. This is, as we've announced also related to the Schenker integration. Then I know that we have been talking with some of you guys at earlier occasions. We have, you can say, moved our Road activities, legacy Schenker that we have acquired that was moved to discontinued operations for the ones that are really into details in the spreadsheets. Another thing that Jens mentioned, and I will also touch upon that in the next couple of pages, maybe it's the FX headwind, which is, of course, impacting predominantly in our Air & Sea business. Next is also worth mentioning is that our tax rate is very high these days, which is due to the integration of Schenker. It's a little bit higher than what we have anticipated previously is because as we can see with the synergies and so forth, we move a little bit faster than what we did last time. So we are really picking up in pace, and that's reflected in the tax rate. Our diluted EPS is stable as compared to last year. But if you look at compared to last quarter, it's actually kind of picking up. And if you then even there to see if you can adjust for the tax rate, then we would actually already be in a positive mode on that one. It's clear that the ratios is, like Jens also mentioned, it's impacted by the dilution impact of the acquisition of Schenker, but we are working on getting that improved. Once again, on the next page, on the cash flow. Once again, we have actually a strong cash flow, more than DKK 4 billion, cash conversion ratio of 96%. We're very pleased to see that. Our net working capital has improved quite a bit as well. It's below 2%. I cannot promise you guys. Of course, I will do whatever I can to maintain that low level. But as we said earlier, it might be, you can say, to calculate around 2% in anything. We've also been able to reduce the debt by the strong cash flow that we have. So we have reduced our debt with DKK 4 billion. So that also seems to be nice. It is nice and that we are on the right track, as you can see. So that is great as well. Then the next page, 14, is on the guidance, we are very happy that we are able to keep guidance and, of course, lowering the upper range of our guidance. So now we will expect that we will land in DKK 19.5% to DKK 20.5% for the full year. Jens started out by saying that in this number, of course, we have to bear in mind that we have sale -- headwind, sorry, for the FX of around DKK 500 million as a headwind on that one. We also increased our expected synergies for the full year to around DKK 800 million from previous DKK 500 million to DKK 600 million. That's a change in there as well. And also given the pace that we have also means that we increase our expectations of special item costs in our P&L. And again, reflecting the pace on integration, the tax rate will be a little bit higher. It's because, yes, there are tax consequences when we do these kind of integrations. So long term, for the tax rate, we expect that we will be back in 24% area next year, hopefully. Then for the -- you can say the market outlook, it's still impacted by the macroeconomic and geopolitical landscape. So we still expect that uncertainty to persist for the next quarter. So we expect to see, you can say, growth below GDP for the next quarter. That's what we have embedded into this guidance that we have. But overall, again, we are very pleased that we are able to keep our guidance in the way that we have. And then, of course, on the Road and on the Contract Logistics, as Jens already said, it's a stable performance that we expect to continue for the remaining part of the year and hopefully also in the next couple of years, even better. And then back to you, Jens. Jens Lund: Yes. As Michael said, on the key takeaways, I think one of the things is when we take the Schenker integration, it's really all the experience that we have, all the support that we get from the various parts of the organization. They know what they need to do. It's really well done what is in there. But I think it's also a playbook that we've now done many times that everybody feels comfortable with and also to you, investors that have support us, thank you for that. That's really what comes out of it. At the end of the day, this momentum that we now see on the integration, it's really good to see. Then, of course, as an investor at the end of the day, what you get is earnings per share. That's our focus. Right now, of course, we are driving the earnings per share up. And of course, at a certain point in time, when we also delever the company, we'll probably also use the normal tools on the capital allocation to support that thing. This is our core focus that we drive the EPS up. And I think we are looking into a very interesting period when it comes to EPS development. Then, of course, the guidance, I think Michael talked enough about that, so we should quickly go to the Q&A session because I hope that you have many good questions for it. So please go ahead with that. Operator: [Operator Instructions] The first question comes from the line of Dan Togo Jensen. Dan Jensen: Congrats with this report here. Maybe if you can elaborate a bit on your expectations here for Q4, especially the low end of the guidance range of DKK 19.5 billion I mean you need to make DKK 5.5 billion in the fourth quarter on my math, and you made DKK 3.9 billion last year. So that's a bridge of DKK 1.6 billion. Schenker contributed DKK 1.3 billion in Q3. Probably this will be more in Q4 and due to seasonality. And then you have synergies on top, which you have just lifted. So in my mind, this alludes to a somewhat negative contribution from the organic business in Q4 for DSV. And bearing that in mind, I seem to remember you have quite easy comps, at least in the Contract Logistics and in the Road business. So there must be something weighing significantly down in Q4 for you to maintain the DKK 19.5 billion. Just to understand your thinking of the low end. Jens Lund: Yes. It's basically volume, isn't it, on what can I say in particular within Air & Ocean that we are talking about. That is -- I think the yield will be okay. You've seen that we are a little bit down on volume, I don't see that trend really change. So compared to the original guidance, we probably had anticipated that we would have a growth in volume now we have a decline. I think that's the major contributor, I would say, Dan. The other things that you're talking about that we are doing well on -- yes, of course, the FX side is big as well. I think that's important to mention. But on the CL on Road, we're doing okay. And I think basically, if you say volume and FX, that's sort of the main explanation when we look at it. Yes. Michael Ebbe: And lastly, for -- sorry, then for the -- yes, I fully agree, of course. But last year also, we need to take the seasonality of the legacy Schenker into consideration. Dan Jensen: Yes. But shouldn't that pick up a bit in Q4 given the Road business, I mean, where Q3 usually is. Jens Lund: That's one thing you have to remember that they have big group network. So there are many days where there's no production in December. And that's -- I can tell you, we are also learning something new about fixed cost when it comes to that. So we're really trying to figure out how we can organize this in the best possible way in how many days we produce, et cetera, and what's the optimal outcome on that. We're putting significant effort into that. It's going to be less than what we've seen before, but it will probably take a couple of quarters before we really get that structured in the right way. So it is on the Road side, it's a hard one, I would say. It's going to be good in Road here in October and November, really good. And then we're going to get a tough December. But whether we -- the range is the range then. It's from DKK 19.5 billion to DKK 20.5 billion. So if you are a little bit more optimistic than the people that are -- there's a middle of the range as well, if you know what I mean. And I think I won't say more than that. Dan Jensen: Understood. And if I'm allowed, just maybe another question here, digging into the verticals. Could you maybe elaborate a bit which are the strong verticals for you here? Is it firm the growth you see, for instance, in technology, in pharma, maybe aerospace, defense and are yields holding up in these verticals? Jens Lund: I would say that yields are definitely holding up in the verticals you're talking about. It's probably also some of these verticals that do the best. You would perhaps have more, what can I say, we are a big player in Europe. So of course, automotive is a tough one for us also knowing that Schenker is a German company as well, very involved with those companies as well. That's, of course, something that is a little bit tough these days and also some of the industrial areas, the capital goods also a little bit under pressure. I would say. So -- but the verticals, of course, are tech vertical, very strong vertical out of Schenker. We had focused on it as well. But in combination, it's -- we have the broadest service offering of all the players in the market. So of course, we are making good progress there. And it's really good to see. It's helping us a lot when we then see troubles in other verticals. Operator: The next question comes from the line of Patrick Creuset from Goldman Sachs. Patrick Creuset: Congrats on the strong front also from me. Just a couple of questions. The first, just on synergies. I mean, it seems like you're harvesting the DKK 9 billion ahead of schedule. And perhaps can you talk a little bit about some other sources of opportunity, let's say, that you see within the DSV business? I mean, updated thoughts on procurement synergies, for example, and also the latest thinking on Star and Tango IT system rollouts. And then, Michael, you mentioned the strong cash flow leverage reducing. I think you previously talked about bringing the buyback back perhaps in H1 '27 and I appreciate it's early to talk about it, but any thoughts there, updated thoughts on time line on when you might be in a position to return capital again depending on how you continue to progress? Jens Lund: Good. I think I'll take the first couple of questions. Michael, he will talk a little bit about the buyback as well. So I think if we look at the synergies right now, I think what you are alluding to, Patrick, is basically when we do an integration, then we make an initial plan like we're doing now, then we combine the companies. Then once you have it combined, and I think this is what you're thinking about, then you're thinking there's actually a little bit of things we should adjust on top of that. These are not sort of in the plan, but they will come sort of once we've done the other work. I think it's a little bit too early days to say something about that. But let's say, 2 quarters down the road, we should have a much better view on how the combined DSV will look because then we will have done, as you can also see from the plan, quite a bit of the work combining the countries as well. So I think that's what we can say on that. But of course, we really working hard just to obtain the synergies we get right now, and then there's going to be a next step. If we take the Star or the Tango CargoWise One debate, I think the plan is that we now to harvest the synergies roll a lot of countries onto the CargoWise One, but also keep some volume on Tango. Basically, we can backfill both systems with data from each other. So we're not necessarily losing a lot of productivity on that. Then, of course, we have then to have a debate which direction are we going in. And I think we will have to come to a conclusion on that as we go along. So -- but so far, we're producing the volume and we are shifting. We have a data platform where we can exchange data between the platforms seamlessly. So it's not a lot of productivity that we are losing. It also helps us a lot on the customer integrations actually that we can do them, what can I say, in a more what kind of plannable way I would call it. Yes. Then Michael, short term. Michael Ebbe: Yes. Thank you, Jens. And Patrick, also thank you for the question from my side. Of course, the cash flow and how we can return into share buyback area is something that we follow up very, very closely. Believe me, I also want to go there as soon as I can. We have to look at the next couple of quarters. And of course, if we continue the strong cash flow as well, then we will, of course, like we always do, take a look at it quarter-on-quarter and then see how is our gearing ratio, how is the rating agencies consider it. And then we will have to take a relook hopefully, within a couple of quarters. Operator: We have now a question from the line of James Hollins from BNP Paribas. James Hollins: Michael, if I could start with you, if I could just get some, if possible, clarity on the synergies within 2026. I know a lot of investors are crying out for it. If we do some basic math on 30% integration end of this year, 70% end of next year. We took the midpoint, that will be something like DKK 4.5 billion of the DKK 9 billion. I was wondering if you could just give us your thoughts on synergies within 2026 that will impact full year '26 EBIT? And secondly, Jens, you talked about very little attrition in your customer or basically customer retention is strong. Is it sort of better than expected? Is it as thought? And I know you talked previously about you've done the top 275 customers. Maybe to run us through how that's going with the, I guess, smaller customers in terms of attrition? And if I may, are you planning at Capital Markets Day anytime soon? Michael Ebbe: Yes, I will take the first one, and then Jens will take the second one. In terms of the synergies, what I think that you can expect is that like we also have written for the phasing, if you do some math and try to predict it, you would see that 2026 should be around DKK 4 billion, you can say, in synergies that will have an impact on that one. Jens Lund: Yes. Then I can talk a little bit about what can I say, the customers. I would say that, yes, it's correct that, let's say, on the last call in -- after Q2, we sort of initially focused on the larger customers. Of course, that's cascaded down now into the organization so that there's basically a focus, what can I say on what we call A, B, C and D customers where we go and basically have a conversation with all those customers depending on their size and service requirements, et cetera, explain them what is -- the customers, they want to know what does this mean for us. Do we get new rates? Do we need a new contract? Do we need a new integration? Who's my new contract person? What does the team look like? Where is the office, all these questions we have to answer for the customer. If you are proactive and do this, then very soon, we can start to explain them what is it that the combined company can do for them. And this is, of course, where we are much stronger than we were before being now the global market leader. Of course, we have a strong offering to present to them. And actually, we've seen that they've responded very well on that, that we have a very structured approach on this. And I think it's also visible in our numbers that you see that in reality, we've managed to keep the customers, yes. We are down trading because the shipment size, what can I say, on volume in TEUs or tons because the shipment size has decreased. But apart from that, I think we've really stood our ground on this integration. And I think it's thanks to the efforts, what can I say, of the whole organization that wanted to prove to the market that we could up our game a little bit on this one. So I think that's all been very good. If we look at the Capital Markets Day, yes, there's going to be a Capital Markets Day. We need to come out and explain better what it is that we're doing, what's our strategy, what's our plan, what's our thinking, both on generative AI, for example, which is a big topic, what's our thinking on the integration and the strategies for the divisions. So we're really looking forward to that. And I know that our IR team, they are already working hard on planning it so that we will have a very good agenda for you. Operator: The next question comes from the line of Alex Irving from Bernstein. Alexander Irving: Two from me, please, both on Road. First of all, you pointed out the implementation of uniform digital platform. What is it specifically that Star can do for you that Roadway Forward could not? Second, you suggested at one point, it might have been last quarter that if you really excel in Road, a double-digit EBIT margin might be achievable. Is that still achievable? And if so, what would be the path to that? We're talking just structural cost reduction? Does it require a change in the business mix, say, more groupage? Jens Lund: If we take Road and Star, I think when you have to create a system like this, it's very much -- it's not a technical problem. It's a governance problem. How do you want to operate your business? I think Schenker has been on that journey on the groupage side and also managed to divide their business perhaps sooner than we did, whether it's a system freight, groupage, as we also call it in Europe. But let's say, shipments between 30 kilos and 2.5 ton or 2 tons or something like this, so larger than a parcel, but not, let's say, a real LTL shipment where you go direct to the customer. You will then also have the FTL business, which is like the full truckload. We call that direct. Schenker had separated that harder than we had in DSV. So we try to solve both products in the same structure, whereas Schenker really focused on the groupage. And that's really how Star came about. And then they have done a lot of change management in the countries where they're rolling it out because there's a lot of local habits that we have to weed out so that we basically work on one platform. Then you will have what we call, it's like for Air & Sea, you will have a single file system where you don't have, what can I say, different systems with different types of data. at both end different conventions for data and then you need human intervention. And then all of a sudden, what can I say you produce fewer shipments per person per day. It also gets harder to plan. And there are many things that are very difficult, the more complex system landscape you have. So this drives lower productivity. We replicate the same process over and over again. So we have also to say that Schenker, they have done better than separating these 2 things. Actually, we can also do the other stuff on the Star platform as well, the direct business, but it's perhaps supported a little bit less than on DSV, but it's still workable compared to what we have. And of course, if you have these things, then you can actually go to the next stage as well where you start to consolidate some of the efforts so that you go to a more domain-driven approach where you will say, listen, there's a quoting domain. There's a booking area where we handle this kind of could be called customer service. You could also then go to the Westmark cargo events, whatever you want to call it also customer service at the end of the day because now you'll have all this data in one system. And then, of course, on top of this, with a new technology, which was not what I was sort of factoring in at that stage. But of course, here, that will drive a ton of productivity to go into domains. But on top of that, you can probably put more agents in than we are using today. So that can drive the productivity even further. So it's really the technology is there. It's how much change can we impose on the company. This is the limitation. So it's a governance issue like it always is, there's nobody within our industry that has access basically to technology that the other people don't have. So it's how you run your company that decides what the financial outcome will be. Operator: We now have a question from the line of Alexia Dogani from JPMorgan. Alexia Dogani: If we start just on the synergies, you talked about DKK 300 million of impact in the third quarter. Can you just confirm it's all cost and there's no dis-synergies based on your customer attrition point? And then subsequent to that, at what point will you have more certainty that the dis-synergies that are within the DKK 9 billion are no longer valid, and we could be looking kind of at a better outcome? And then if Michael could just clarify, when you talk about -- you mentioned DKK 4 billion of synergies in 2026. Is that right? Because before we've talked about the midpoint of the exit rate, 30% in '25, 70% in '26, midpoint is 50% of 9% is 4.5%. So I don't know if you were thinking year-over-year or absolute. I think that's worth clarifying. And then my second question is on Road. Can you discuss a little bit more fundamentally the operating leverage in this business? Clearly, you're taking a lot of cost out at the moment as we have seen through the D&A reduction you've reported. And how will that kind of improve operating leverage when volumes start to recover and pricing starts to go through? And yes, giving us a little bit of color of the actions you've actually taken to really reshape the cost base of that business or I guess you're starting to make. That's it for me. Michael Ebbe: I can start with the synergies. Maybe just to be clear, you said, it's right that we say 30% for end of year. That means for the full year next year, we'll have DKK 3 billion. Then that's -- you can say that one. And then we have the synergies that we already have right now, which is DKK 800 million-ish. And that you can say, DKK 3.8 billion. And then you have -- you're right about the midrange. I though I would say that the synergies that we harvest the first might be the easiest. So I don't think necessarily you can take a linear approach on that one. But I can't promise you that we will deliver at least the DKK 4 billion, and we will work whatever we can to make that faster and higher, of course. Jens Lund: Yes. Then we talked about the dis-synergies. I think we will really know through the tender season, how that is all playing out. Normally, we've seen actually quite some attrition right now in a normal integration, which we are not seeing. And then, of course, it's the tender season. It's the second test, if we want to call it like that. So I think if we look at it right now, we are off to a good start, and I actually think we have to have the aspiration that we also make it through the tender season and then we can really start to focus on the growth. So of course, all the competition is focusing on us. Right now, we are the market leader. We also did that when we were chasing. So I think -- but I'm comfortable, as you can hear. Then I think the operating leverage on Road. if you look at, let's say, the road network, it's both a physical network, but also a back office thing that we're seeing. And as an example, Schenker, they can produce basically all DSV volume in most countries in their network. So of course, there was too much capacity available. There might even be areas where we still have too much capacity even if we've combined entities. So we are rightsizing that right now. Then, of course, we are looking at whether we need to produce all 100% of the volume in our own network or whether there might be some areas at very remote destinations where we could ask somebody else to do that. That would then limit the physical infrastructure quite a bit. In the offices, we also need to operate at plus index 90 on the capacity side, even if we are where we are right now. And then when we get price increases, I think there's only so much volume we will be able to produce. We might then need to might need to -- what can I say? We might need to say that we can grow a little bit less because we need to take some of those fluctuations out of it and then just increase the prices a bit more because today, we've actually had way too much capacity, so we could handle the peaks, but it's way too expensive in the troughs. So that's in reality what we are focusing on right now on the Road side. Operator: The next question comes from the line of Ulrik Bak from Danske Bank. Ulrik Bak: So in terms of the synergies and the integration process, what is it specifically that has progressed faster than planned? And have you identified other areas where we could potentially see a further acceleration of this synergy harvesting? And then also the DKK 300 million in synergies in Q3, DKK 800 million for the full year as well as '26. If you can provide some guidance on how this is split among divisions, that would be great. Michael Ebbe: Yes. I think if you look at the speed of the integrations, I think if you see what we have moved last time, we said 15% end of this year, and you can say 50% end of next year. Now we have increased to 30% this year and 70% next year. I think it's not that unusual. Remember the size of Schenker that we have acquired. I don't think it's that unusual that you need to kind of get a little bit of a grip on what it is that you have acquired and how you can plan for it. It's a complex thing to migrate 85,000 people in more than 80 countries into our infrastructure. legally as well as organizational and IT as well. So it takes a little bit of a time. That's also maybe why you said last time that it was progressing slower than at least for some of you guys have anticipated. I think what we have found out now, we know what we are dealing with. We have identified all the different scenarios from a system perspective, organizational perspective. So now we have put that into a plan that we are executing on, and this is where we are doing fairly well in execution in DSV. So that is why we are moving faster than what we initially thought through actually. And then in terms of finding, I think Jens already touched upon that in whether there are more synergies elsewhere to come. Right now, we stick to the plan that we have promised to deliver the DKK 9 billion in yearly savings, and we are very committed to deliver that. And of course, to be there as fast as we can. Operator: We now have a question from the line of Kristian Godiksen from SEB. Kristian Godiksen: A couple of questions from my side as well. So first of all, maybe could you comment on the stabilization you've seen in growth that you comment on in terms of what to expect going forward, both in terms of margin progression and maybe also in terms of which kind of price increases you expect to -- you in the market to implement in this quarter? And then secondly, just a household question. Wondering if you could comment a bit on why the legacy Schenker yields are down more, both in terms of sea and air freight than the legacy DSV yields? Jens Lund: If you take the yield question, I think Schenker had, what can I say, a tradition where they were a little bit longer on the procurement side. In certain markets, it had benefited them. And as you can remember, last year, perhaps that was a situation like this. Now if you are longer in this market, of course, then it's -- when the rates are going the other direction, then it's perhaps a different scenario. So I think that will be the explanation to that. I think on the operational side, it's fairly similar volume that we are producing. Then I think if we look at the road side, I think we need to think we don't want too much capacity. We want to have the capacity that is required in the market. This is a journey where you have a ton of infrastructure that you have to rightsize so that you get there. It's part of also certainly, it's also part of me having said that on group, we need to make much more money. Then I think the price increases that we go out with today, perhaps DSV stand-alone, Schenker stand-alone had an aspiration that we need more and more volume. Actually, we got sufficient volume now to have a European network. So we can sit and then look at what's the service, what's the quality of our product. And then, of course, we can then go out to the customers and say, listen, this is a quality product. And this is the SLA that we can deliver to you, and it comes at this price. So we've been out now to our customers basically because also there's pressure from the subcontractors, they want more money. So that with the service catalog, this is a service you get. This is what the price is. And it's, of course, always market driven by the subcontractors at the end of the day. But this in combination then is what we present to the customer. Then I think on the smaller account, if we sit and look at it, of course, we can present that because we don't necessarily have a long-term agreement. But on the customers that we have a longer-term agreement with, it's going to come when we have, what can I say, the freight negotiations basically for the renewal of the contracts. And that's typically happening into the new year. So there's still some bound to cover. But we are off to a good start, and I can see Michael has something he will add. Michael Ebbe: I think also one thing that I don't think that you should underestimate when we talk about stabilization. Remember that legacy Schenker has a huge road organization. And like we also touched upon last time, we have now set the management team, both globally, regionally clusters in the countries. And the team has also worked dedicated to find some of the recovery plans as we call them. So I think that's where we can see that now we are getting hold and grip of these kind of things that also pays into the frame of why we can say that it is stabilized. Kristian Godiksen: Okay. That makes good sense. And just a very quick follow-up on the impact from the longer procurement of volumes from the legacy Schenker. When will we see that impact fade away? Jens Lund: I don't know. It's hard to quantify. I think basically that it's an ongoing exercise that we're talking about. So I don't necessarily -- I don't think we're going to move backwards on the profitability on the road side. We're going to move -- make progress, consolidate and take idle capacity out that is not needed. I think that's -- on the procurement side, we're going to drive, of course, that very efficiently as we've always done and make sure what can I say, we have wholly procurement, let's say, the terminology that was used and think it was wholly management. I mean these 2 words, they are quite different, aren't they? Because it is a procurement exercise for us. We have to deliver the right cost to the customer as well. Michael Ebbe: And of course, it will follow the normal, you can say, renewal of the contracts. So... Operator: The next question comes from the line of Muneeba Kayani from Bank of America. Muneeba Kayani: Firstly, I just wanted to ask around yield mix at Schenker. So Jens, in the past, you've kind of given us a breakdown of the value-add mix for your -- for DSV stand-alone ocean and air yields. How does that look like in Schenker? And kind of along the lines of the previous question on Schenker yields, kind of how do we think about that mix and movements with freight rates going forward? So that's the first one on yield. Secondly, around cost cutting. So your competitor today announced a cost-cutting program. I think what you've said is you need to -- you're looking at it, but haven't really kind of pushed that kind of on top of what you're already doing with the Schenker integration. So what do you need to see to do more of that? And kind of how are you thinking about that? And just a quick one on real estate sales. You've talked about that in the past. Where are you in that process? Can you give us a sense of the time line and potential amount from Schenker real estate sales? Jens Lund: I think if we look at the Schenker yield, it was lower. I don't necessarily think that Schenker had the same focus on selling, what can I say, upselling the services than we had. They had perhaps more an approach where they were also a little bit long short in the market depending on their expectations. We have a clear way forward where we basically don't take positions as a company. And you've seen this play out in the industry as well. That also then leads to some companies then having, what can I say, to make certain decisions on capacity as well when you perhaps have some focus on the yield side that drives what can I say, financial outcomes that are not desired. If we look at our company, we rightsize the company all the time. There's natural attrition. And right now, we can stick to that. We have our performance KPIs, as I talked about when we run the company. So how many shipments, how many transactions per person per day. This is something that our organization, they look at all the time. And we can see what we do on the Schenker integration and with our expectations for the number of shipments we have to produce and the productivity expectations that we have that we don't need to do anything else on top of this right now, which is great. Our staff, they know exactly what we're doing. We're focusing on the Schenker integration and then the normal course of business. We then -- if there's an area here or there where we need more or less capacity, this is adjusted as a normal part of operation. And Michael will talk a little bit perhaps also about this, but also about the real estate as well. Michael Ebbe: I think just a last comment on the -- you say the cost cutting. Now you referred also to one of our competitors. I think you also maybe need to look at the starting point from a conversion ratio perspective and then see what that brings. And like you said, Jens, we are actually looking into, of course, the measures that we normally would take on that one. And for the Schenker real estate, it's correct that we -- that they have been a little bit more asset heavy than what we have. So we are, of course, looking into getting that to fit into our asset-light model and hence, there will be some divestment of real estate. Remember, this is not something that we have, you can say, taken into our business case. So we are looking into that. And, yes, I think we have also mentioned that in the earlier case, it could be around DKK 1.5 billion that we're looking into. And for timing and stuff like that, we need to go in and find a plan for that one before we can say more about it. Operator: We now have a question from the line of Lars Heindorff from Nordea. Lars Heindorff: The first one is on the logistics part of the business. Very strong revenue growth in the third quarter, apparently, a sale of a terminal property. I don't know exactly where and the timing of that. So maybe if you could just give a bit of detail how much impact that has on the top line and also on the gross profit in the organic business? That's the first one. And then secondly, I'm sorry, coming back on the yield questions here. I clearly understand your answer for some of the previous questions on the sequential decline in yields when rates go down in sea freight and how -- depending on how Schenker has been sourcing their capacity. However, in air freight, where we've seen a very, very significant decline in Sinker on a stand-alone basis, we haven't seen a similar decline in rates. So maybe just an explanation why we see that both in sea and in air. And also, I don't know if you can go that far and maybe give us an indication where you think that yields will continue to decline combined into the fourth quarter compared to the third quarter? And then the last one is just a housekeeping question on USA Trucking, the Q2 EBIT impact now that I'm looking for that, now that you've taken it out as a discontinued business. Jens Lund: Good. I think Michael will start, what can I say by answering some of the questions. Michael Ebbe: Yes. If we go to the Contract Logistics side, it is, as always, Lars, and you are aware that we have had some property projects, which we also have talked about in connection with our net working capital and so forth. And we have realized one here. And as always, it doesn't really have an impact on our EBIT and our GP, to be honest with you guys. So that's on that one. For the U.S.A. truck, it's also household, like I said, it's correct that we have now, you can say, classified it as divestment, noncontinued business. We said DKK 90 million on a quarterly. That's the net result, as you most likely know and can see. I think for EBIT impact, it was around DKK 60 million in the quarter. Jens Lund: And then you talked about the yields in ocean freight and air freight as well. I think if you look at the market, what can I say, rates, it's also very different for the 2 products, isn't it? Where it's been declining quite a bit on ocean freight and where it's quite stable, at least the way we see it on the air freight is, of course, declining, but not necessarily at the same pace. So I think this is what drives the difference in outcome, Lars. I think that was basically -- we are at the end of the session. So I would like to thank you all for your interest and look forward to have some conversations bilaterally after this call. But most of all, I would actually like to thank our employees that are listening in on the call for all their hard work, all their efforts and their dedication. We would never ever have been able to pull this off at this pace and with these results if it hadn't been for all your hard work and all your efforts you've overachieved and just continue that. It's really great fun to be at the company right now. Thank you very much. Bye-bye.
Operator: Welcome to the FTI Consulting Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Mollie Hawkes, Head of Investor Relations. Please go ahead. Mollie Hawkes: Good morning. Welcome to the FTI Consulting conference call to discuss the company's third quarter 2025 earnings results as reported this morning. Management will begin with formal remarks, after which they will take your questions. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including the company's outlook and expectations for the full year 2025 based on management's current beliefs and expectations. These forward-looking statements involve many risks and uncertainties, assumptions and estimates and other factors that could cause actual results to differ materially from such statements. For a discussion of risks and other factors that may cause actual results or events to differ from those contemplated by forward-looking statements, investors should review the safe harbor statement in the earnings press release issued this morning, a copy of which is available on our website at www.fticonsulting.com as well as other disclosures under the heading of Risk Factors and forward-looking Information in our annual report on Form 10-K for the year ended December 31, 2024, our quarterly reports on Form 10-Q and in our other SEC filings. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this earnings call and will not be updated. FTI Consulting assumes no obligation to update these forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law. During the call, we will discuss certain non-GAAP financial measures, the discussion of any non-GAAP financial measures addressed on this call and reconciliations to the most directly comparable GAAP measures are included in the press release and accompanying financial tables that we issued this morning. Lastly, there are two items that have been posted to the Investor Relations section of our website for your reference. These include a quarterly earnings presentation and an Excel and PDF of our historical financial and operating data, which have been updated to include our third quarter 2025 results. With these formalities out of the way, I'm joined today by Steve Gunby, our CEO and Chairman; and Paul Linton, our Interim Chief Financial Officer and Chief Strategy and Transformation Officer. At this time, I'll turn the call over to our CEO and Chairman, Steve Gunby. Steve Gunby: Thank you, Mollie. Welcome, everyone, and thank you all for joining us today. As I hope you've seen this morning, this morning, we reported once again, record results, with EPS and adjusted EPS of $2.60 per share, which is up over 40% over a year ago. As always, there are onetime factors that influence these numbers, and this quarter, they overall did happen to cut positively. So as we always say, during good quarters and in not-so-good quarters, one should never take one of our quarters and multiply it by 4. But even normalizing for the onetime factors, this was a record quarter, a quarter I would call spectacular and a set of results that to me was particularly gratifying given that we delivered these results in the face of major headwinds in two of our businesses and while continuing to invest in all of our businesses. So there are different ways that one can tell the story of this quarter. One is to go business by business to talk about the terrific performances we had in Corp Fin and FLC and Strat Com and how those performances more than overcame these areas of shortfall, and Paul will review the business in that way. With your permission, I'd like to see if I can put a higher-level lens on the quarter, a bit of a more holistic, integrated lens and try to tie the results of this quarter, some of the topics that we have talked about over the years, some of the underlying philosophies, the set of strategies that our teams have been driving not only business by business but as a whole, and not only quarter-by-quarter but now for close to a decade. Over the years, you've heard us talk a lot about organic growth, about focusing on high-valued areas where we believe we have a right to win. The problem with those words is that they could just be slogans. What we have tried to do in this company is to turn them into much more than slogans. What we've tried to do is to turn them into core philosophies, into approaches and approaches that have teeth, teeth that require actions in times that are sometimes comfortable but also operate in times when adhering to those values might not be so comfortable. For example, when adhering to those values might hurt the earnings for a particular business in a particular quarter. This goal of ours for organic growth reflects several core beliefs that we are committed to, that are tied to what we believe is necessary to deliver for all three of the critical stakeholders, the stakeholders that matter in our business. One is making a fundamental difference for our clients. The second is building a place where great people want to be at where great people can build great fulfilling careers. And doing both of those while, at the same time, delivering real value for you, our shareholders. There are a number of tenets underlying them. Let me summarize the key one. The first one is the easy one. It's the most obvious one. We are a client service business, which means at our core, we have to target being the best at helping our clients. That's a general statement for professional services. In our case, it means helping clients in key matters in high-stake situations. Aspiring to be the best in times of crisis or urgency requires us to make sure we have the right leading expertise. And it's important to define leading expertise right. It's not only defined as people who intellectually know what could be done or intellectually know what needs to be done, but people who have been on the front line of major crises and opportunities have actually been able to help clients deliver in those situations. The third point is maybe less obvious, but it's a consequence of those first two points, which is the core determinant of our growth and our experience is rarely whether there's a market out there. It almost always is. The challenge almost always is much more around eliminating supply side constraints which, in turn, means continually committing, continually in good quarters and bad quarters, committing to enhancing our team, supporting the growth and promotion of core committed professionals and making ourselves over time increasingly the most attractive place for terrific folks outside the firm. And of course, it requires not only getting the folks in or promoting the folks, but making sure when you do that, they feel supported, investing behind them as they have conviction about where they can double down on our core business or where they see they can find new adjacencies they can believe they can win in or where they find geographies they think they can seize. These principles, as we've discussed, are far from rocket science and they are easy to mouth. They're also easy to commit to when businesses are soaring. The rubber hits the road is what you do when the businesses are not soaring, when a business is down in a quarter or struggling. Let me take those principles and see if I can give some insight into what I think drove the quarter, first, for the businesses that soared this quarter and then for the two businesses that had some challenges. When you look at the results this quarter for Corp Fin, FLC or Strat Com, you can talk about the great things that happened in the quarter, the jobs won, the market conditions that helped and, of course, there are those. What that sort of short-term lens misses is just how much the current quarter reflects the activities and, I believe, the courage that was shown by key leaders in those segments and subsegments, not only this quarter or this year but last year and 2, 3 and 4 years ago, in quarters where certain businesses weren't soaring, but where the leaders and the individuals involved had conviction about the propositions we are driving and had confidence in the teams leading those efforts. Let me see if I can illustrate that first with Corp Fin. Corp Fin had another record quarter with multiple sub-businesses delivering double-digit growth year-over-year, and those results obviously reflect some things that happened this year. But importantly, at its core, my belief is that Corp Fin's powerful results, first, primarily reflect major convictions and did decisions made in quarters past, bold bets that the leaders bet behind in businesses that weren't performing at that time or on adjacent businesses that, at that point in time, we're unproven. There are so many examples of that in Corp Fin I can't possibly do them all justice, but let me touch on a few. In the U.K., we've always had a great Creditor Rights business, and we always support that business. But the team there also had a set of people there who believed they could add an adjacent business, a leader insolvency business. And they bet on that team, a set of bets that has turned out to be a great growth engine for us this quarter and, we believe, going forward. In Germany, it was around committing to and supporting and building on a terrific team in Andersch, which as you may remember, shortly after they came, faced significant headwinds when the German government launched the moratorium on bankruptcy during COVID. That confidence is being rewarded right now, yes, in terms of the terrific restructuring results in the quarter, but also with Germany now becoming a platform for a broader set of businesses that we can grow behind. We've talked about Australia a number of times, the transformation that happened there because we had confidence on the quality of the people on the ground and the vision they had, a vision that saw a way to get us from a distant player in restructuring to the #1 or 2 player in restructuring, but also that they saw that was a way to turn FTI as a whole into a destination of choice across segments for great professionals, a vision that I believe is fully underway to being fulfilled. These bets are in adjacencies and businesses that were struggling, the quarter's results also reflect the bets we've made in the last several years to continue to invest in businesses where we've always been strong. The teams have avoided the risk of being complacent or sitting on their laurels. They've doubled down in core businesses like restructuring, adding talent in verticals where we thought we could even be stronger like health care or airlines, all of which has led us to winning some of the biggest jobs in both of those industries over the last few years. There are so many other examples I could go to, but let me just pick one last one for Corp Fin, which is the key bets we've made in transactions, which were bets behind a terrific leadership team, and a belief that the quality of that team would allow us to gain significant market share in a market where we weren't as well-known as we thought we should be. As a result, that business has not only grown significantly over the last 4 or 5 years, it even grew in the first half of this year when transaction volumes generally in the markets were down. A point I think is important. None of those businesses, decisions in those businesses was automatically profitable. In the quarter, they were made. Most of those decisions actually cost us money initially. They were, of course, not decisions made lightly. We have disciplined teams that were made with discipline, with focus on questions like, do we have the right proposition? Do we actually have the right team that will take accountability and be able to deliver on those propositions? But where we had those teams and the right proposition, our leadership had the courage to bet and support those bets, yes, in good quarters, but also in the quarters that were not so good. The results we are showing this quarter reflect those commitments. And in my mind, they celebrate the commitments that these folks made. Let me talk about some analogous moves that the FLC leadership team has made. Some of you will remember that FLC's adjusted EBITDA was essentially flat for a while or rather it was zigzagging around a relatively flat line for a fair number of years. And during those years, we often talked on calls like this about investments we are making, overseas in certain businesses and in the United States. And during many of those years, it was hard to see the effect of those investments on bottom line performance. The reality was that within those investments were some investments that didn't work, and we had to take corrective action. What I think it was harder to see, however, was that within those investments were also powerful investments that were working, that were building on the historical strengths of FLC and helping liberate and make more visible to the market some of the underlying power of what we have always had in FLC, for example, the buildup of a much more prominent and much more well-known financial services practice, which today is not only winning some of the biggest jobs in the market but is now also a key destination for leading people who want to join us, including 15 new SMDs and MDs this year. We're continuing to build on our cybersecurity practice, not only in the U.S., but now also overseas and to broaden it into adjacencies where we believe we have the right to win such as the national security practice. We're building our risk and investigations practice more generally, not only by investing in great promotions and terrific lateral hires to enhance our capabilities, but also by figuring out ever better ways to link our deep R&I experts with our experts in financial services and other regulated industries and leverage one of our most critical assets, our core data and analytics team that has always been on the leading edge for core data and analytics services and increasingly is on the leading edge with respect to AI. Year-to-date, FLC's revenues are up double digit, and adjusted segment EBITDA is up more than 60%. Some of that is due to great things that happened in the quarter. Most of it, to me, is due to the vision, the power and the courage of the investments that FLC has made not just this year or last year but in the last 2, 3 and 4 years. Turning to Strat Com. Strat Com, as some of you may remember, was the first business that we had to turn around a decade ago. And the team, if you want to -- if you don't remember, it turned it around almost immediately. And it has been a great growth story since. But of course, just because it's a great growth story doesn't mean there haven't been zigs and zags. And Mark and the team will note we've had a lot of zigs and zags over these 10 years, including a slow period in '24. This year, Strat Com's revenue is up also double digit and its segment EBITDA is up 34%. Some of this year's results have to do with disciplined action Strat Com took in areas where it didn't think it had all the ingredients to win. But a huge amount of the growth has to do with the team's multiyear commitment to increasing our power in the core areas that aspires to win at high stakes areas like public affairs or corporate reputation, places like crisis communications or cyber communications. Strat Com has had multiple ways it's invested behind that vision over the last few years. But the primary one has been to add talent wherever it is founded a bit from the outside but actually a lot inside committing to promote that talent. When the talent was ready, even if that happened to be in a quarter that was slow. If you look at the SMD headcount in Strat Com today, 2/3 of the SMDs are new within the last 5 years, promoted during good times but also with conviction during slow periods. It is that sort of conviction that has allowed us through the various flat periods and the zags to always return this business to its powerful growth trajectory and why we have so much conviction in it going forward. Let me try to take the same principles and apply them to the businesses that have faced challenges this year. As you know, Tech is having a tough year and the Compass Lexecon business and E Con has been hit substantially this year on the top line but even more on the bottom line. The questions we look at always when we have base businesses like that or two. First, do we have confidence in the team? Do we have confidence in the propositions that, that team is driving? And then second, depending on the first one, what did we do? And when Andersch was struggling in Germany, we looked at it. And we ended up saying, wow, this is a great team. Yes, okay, there's moratoria in bankruptcy. This is a great team. So we move to second question which is, okay, how do we support this great team and get it back on the growth trajectory that it deserves? And we have the same sort of discussions and questions when we looked at Australia and many of these other situations I talked about. So we applied those lenses to these businesses. When you look at the Tech business and you apply that lens, you say, wow, we've had the fastest organic growth in the industry in the last 5 years. You find a team that for a long time has been an early adopter of the most advanced technologies, machine learning and AI technologies, topics that are critical for the future. When you talk to our clients, particularly our most prominent clients, you hear people and they see us ever more as their go-to partner for the highest stakes, most complicated investigations, litigation, M&A-related second requests. I walk away from those thoughts and those conversations with the sense that this is a business that even if a quarter is slow, we should be not only investing in but be excited to invest in. When you look at Compass Lexecon, you see, yes, we look lots of rainmakers this year. But you also say that Compass Lexecon is still by far the leading brand in the industry. I think just 3 weeks ago or 4 weeks ago, we had 66 Compass Lexecon professionals named to Lexology's 2025 competition guide, of course, once again, by far the most of any firm. We see that no firm has the global scale that we have, not only in the U.S. and Europe but in Latin America and China. And when I talk with Dan Fischel in the European and American and Asian leadership teams, people acknowledge, yes, we've lost some rainmakers. I think collectively, the belief is that today, we have the best set of experts that this firm has ever had. We believe we do, by the way, we need to get out there and introduce some of these experts to the market, something Compass Lexecon has never been that focused on. But I think everyone in Compass Lexecon is extraordinarily excited about the talent we've been able to attract to the firm and its prospects. And so when we looked at these two businesses, we come to the conclusion that these are businesses, these are teams of propositions that are worth investing in. And so then you have to figure out what those investments look like. In the Tech business, it's meant first that we continue to go after talent. A number of our competitors in this industry are stressed and that always creates a good opportunity to go after talent, and use that talent to support geographical expansion or further movements into AI topics or other relevant business expansions. But in this case, at this point in time, it is clearly also meant continuing to make sure we are investing in Tech's leadership position in AI. And so this year, we've done those sorts of investments. We are on the course of the year, and we will continue to do so. In Compass Lexecon, the most important initial investment was in retaining our staff in the face of competitive pressures. More recently, what we found is a lot of terrific people wanted to join us. And so in addition to retaining the bulk of our staff, we've announced 28 new senior hires in Compass Lexecon this year, by far a record for Compass Lexecon. And a move that, of course, is a very positive thing for the medium term, but we also all know how that works out in the near term, which is the cost comes first and the revenue comes later. the set of results that you clearly see reflected in this quarter's P&L. We make these sorts of investments in Tech and Compass Lexecon and previously in Corp Fin and FLC and Strat Com for multiple reasons. We have three core constituents we have to make sure we'll keep in our minds. And so we make these investments for all three. First of all, it's important for our clients. Our brand position is to be the leaders serving our clients. So we have to continue to invest behind leading experts in leading-edge technologies. So we make our investments for clients. We also do it because it's important that our best professionals who are killing themselves in the market, know that we're willing to support them not only when the quarters are good, but during quarters that are challenging. We also do it with a view towards our shareholders, where we believe we have fabulous businesses or sub-businesses, where making these sorts of investments will allow them over time to resume what they've been in the past, great businesses who do have zigs and zags, but have zigs and zags around fundamentally upward sloping lines. Paul is eager to do his first CFO report, so let me close in a minute here. And let me close by coming back to the quarter if I can. $2.60 of EPS. $2.60 in the face of all the investments we are making and all those headwinds I talked about. Guidance for the year that suggests notwithstanding all those investments, notwithstanding all those headwinds, unless something goes unexpectedly wrong in the fourth quarter, this team will deliver the 11th year in a row of adjusted EPS growth. It's, of course, great to have a great quarter and it's nice to have another up year. As nice as those results are. And they're nice in and of themselves, of course, right? To me, what's far more significant is when you think about what we just discussed, the mechanisms that allowed us to get here. Because the power of those mechanisms that we've now seen across all of those segments, and not just this year but across all of those years and across multiple geographies, to me, suggests more than a good quarter or a year. They suggest resilience. They suggest underlying power and they suggest lasting power and extendability. To me, they leave me ever more convinced and, probably I didn't need that much convincing, but ever more convinced about the incredible potential of this enterprise going forward. It leaves me, and I hope, you believing that we are so much closer to the beginning of this journey that the company can be on than we are to the end. With that, let me turn this over to Paul. Paul? Paul Linton: Thank you, Steve. Good morning, everybody. I am pleased to take you all through a record quarterly performance during my first earnings call as interim CFO. But before I do that, before I turn to our results and updated guidance, I want to take a moment to thank my talented colleagues across the globe for their tremendous efforts that contributed to the quarter. And I also want to thank our strong finance team for their support and for making my transition quite smooth. As Steve said, we delivered spectacular results, record results on the top and bottom line at the company level with record performance in Corp Fin and FLC and solid -- as well as solid revenue growth in Strat Com, which more than offset year-over-year declines in E Con and Tech. You may recall in February when we shared our initial revenue guidance, we said that to meet the midpoint of our range, we would need to have strong revenue growth in each of our four other business segments because of the headwinds we expected in E Con. This quarter, we delivered on that. We reported double-digit year-over-year organic revenue growth when you combine revenue across Corp Fin, FLC, Tech and Strat Com. Year-to-date, we have delivered record top and bottom line performance in Corp Fin, FLC and Strat Com. And despite the headwinds Steve described in E Con and Tech, our adjusted EPS and adjusted EBITDA are up 9% and 8.3%, respectively, year-to-date, demonstrating the breadth and resiliency of our platform. Turning to our third quarter results in more detail. Revenue of $956.2 million increased 3.3% compared to the prior year quarter. Earnings per share of $2.60 increased 41% compared to the prior year quarter. Net income of $82.8 million increased 25% compared to the prior year quarter. SG&A of $199.5 million compared to SG&A of $206 million in Q3 of 2024, the decrease was primarily due to lower compensation and the gain related to a legal settlement, which was partially offset by higher bad debt. Year-to-date, our SG&A has fluctuated quarter-to-quarter due to some onetime benefits, particularly in the first quarter of 2025 and to a lesser extent this quarter. We currently expect our Q4 SG&A to be more in line with Q2 2025 level. Third quarter 2025 adjusted EBITDA of $130.6 million or 13.7% of revenue, compared to $102.9 million or 11.1% of revenue in the prior year quarter. Our third quarter effective tax rate of 25.9% compared to 25.1% in Q3 of 2024. For the full year, we expect our effective tax rate to be between 22% and 24%. Weighted average shares outstanding, or WASO, for the third quarter ended September 30, 2025 of 31.8 million shares compared to 35.9 million shares in the prior year quarter. Billable headcount decreased 3%, and non-billable headcount decreased 0.8% compared to the prior year quarter reflecting, in part, headcount actions we took in the fourth quarter of 2024 and the first quarter of this year. Sequentially, billable headcount increased 4%, which included 331 new joiners from university campuses, our largest class ever. Now I'll share some insights at the segment level. In Corp Fin, revenue of $404.9 million increased 18.6% compared to the prior year quarter. The increase was primarily due to higher demand for restructuring and transaction services and higher realized bill rates for our transformation and strategy services. We delivered double-digit revenue growth across all three of Corp Fin's core businesses with restructuring up 18%, transactions up 30% and transformation and strategy up 10% compared to Q3 2024. Adjusted segment EBITDA of $96.4 million, or 23.8% of segment revenue, compared to $57.9 million or 17% of segment revenue in the prior year quarter. This increase was primarily due to higher revenue, which was partially offset by an increase in variable compensation and SG&A expenses. In the third quarter, restructuring represented 46%, transformation and strategy represented 27%, and transactions represented 27% of segment revenue. This compares to 47% for restructuring, 28% for transformation and strategy and 25% for transactions in Q3 of 2024. Sequentially, Corp Fin revenue increased 6.8% driven by double-digit top line growth in transactions and transformation and strategy, while restructuring revenue was up 1%. Adjusted segment EBITDA increased by 18.1%, primarily due to higher revenue, which was partially offset by an increase in variable compensation and SG&A. Notably, year-to-date, our restructuring revenue is up 11% as our long-term commitment to investing behind the best professionals has allowed us to extend our position as a global leader. We are winning major mandates in key geographies, including the U.S., U.K., Germany, Spain, France and Australia, among others. We're also seeing increased activity with commercial banks and other types of lenders as some recent alleged fraud has created pockets of stress. These are situations where our strong restructuring relationships and leading investigation position in FLC mean that our experts get more than our fair share of calls for the largest, most complex mandates. Equally important, our transactions revenue was up 16% year-to-date, even though transaction volumes globally are down slightly. And because of the investments we've made over the last 5 years, we have broadened our services, and we are seeing, on average, much larger engagements than we had even a couple of years ago. Turning to FLC. Revenue of $194.7 million increased 15.4%, compared to the prior year quarter. This increase was primarily due to higher realized bill rates for risk and investigations, data and analytics and construction solutions services and a higher demand for risk and investigation services, which includes particularly strong growth in our EMEA region. Adjusted segment EBITDA of $42.6 million, or 21.9% of segment revenue, compared to $20 million, or 11.8% of segment revenue, in the prior year quarter. The increase was due to higher revenue primarily driven by higher realized bill rates and lower SG&A expenses, which was partially offset by an increase in variable compensation. Sequentially, revenue increased 4.4% primarily due to an increase in risk and investigation revenue. Adjusted segment EBITDA increased 36.6%, primarily due to higher revenue and lower SG&A. Year-to-date, FLC revenue is up 11% and adjusted EBITDA is up 62%. This improvement has been driven by leadership team efforts to bring a broader set of product offerings, including our ability to analyze complex data sets for our clients' most pressing problem. This is a leadership team that is committed to investing behind the best people, a team with an incentive structure, which you may recall we introduced last year that's closely aligned with driving profitability and, most important, a team that is partnering side-by-side with our clients as they navigate major disruptions that are often found on the front page. Our E Con segment revenue of $173.1 million decreased 22% compared to the prior year quarter. The decrease was primarily due to lower demand for non-M&A-related antitrust and M&A-related antitrust services, which was partially offset by higher realized bill rates for non-M&A-related antitrust services and higher demand for financial economic services. Adjusted segment EBITDA loss of $4.6 million compared to an adjusted segment EBITDA of $35.2 million, or 15.9% of segment revenue, in the prior year quarter. The decrease in adjusted segment EBITDA was primarily due to lower revenue and an increase in forgivable loan amortization, which was partially offset by lower variable compensation and salaries, which includes an 8.2% decline in billable headcount. Sequentially, revenue decreased 9.7%, primarily due to lower M&A-related to antitrust, international arbitration and non-M&A-related antitrust revenue. Adjusted segment EBITDA decreased $18.7 million, primarily due to lower revenue. We issued $18 million in forgivable loans net of repayments this quarter following $72 million and $162 million in forgivable loans to existing and new employees and affiliates net of repayments in Q2 and Q1, respectively. The majority of these loans are in our E Con segment. Forgivable loan amortization generally ranges from 3 to 6 years. As Steve said, our E Con business has faced significant headwinds this year. And 9 months into the year, the headwinds have been even more challenging than we expected at the start of the year for several reasons. First, the cost to retain professionals was even more competitive than we anticipated. Second, we attracted even more great professionals, which had a larger cost impact than we expected. Third, the antitrust market has been weaker than we expected this year, particularly in EMEA, where we have had some large jobs continue to wind down, but we have not been impacted by competitive pressures. And fourth, we have legacy revenue that continues to ramp down at a time when revenue from new professionals is ramping up more slowly. From a cost perspective, we believe we have stabilized the business as the cost of retaining and attracting new professionals is now reflected in our P&L. In Tech, revenue of $94.1 million decreased 14.8% compared to the prior year quarter. The decrease was primarily due to lower demand for M&A-related second request and information governance, privacy and security services. Adjusted segment EBITDA of $13.6 million, or 14.5% of segment revenue, compared to $16.5 million, or 14.9% of segment revenue, in the prior year quarter. The decrease was primarily due to lower revenue, which was partially offset by a decrease in compensation, which includes lower as-needed consultant costs, as well as lower SG&A expenses. Sequentially, revenue increased 12.5% as we saw an uptick in demand for M&A-related second request services. Adjusted segment EBITDA increased $8.4 million, primarily due to higher revenue and lower SG&A expenses, which was partially offset by an increase in compensation. Worth noting, nearly all of the revenue decline year-to-date in our Tech segment has been driven by lower demand for M&A-related second request services. As a reminder, we delivered record second request services in the first 3 quarters of 2024 before we saw a sharp drop-off of activity in Q4 2024. Revenue in our Strat Com segment of $89.4 million increased 7.4% compared to the prior year quarter. The increase was primarily due to higher demand for corporate reputation services with particular strength in our crisis, people and transformation and cyber services, reflecting increased demand for our expertise during these times of disruption and pain. Adjusted segment EBITDA of $16.9 million, or 18.9% of segment revenue, compared to $12.1 million, or 14.6% of segment revenue, in the prior year quarter. The increase was primarily due to higher revenue and lower SG&A expenses, which was partially offset by an increase in variable compensation. Sequentially, revenue in Strat Com decreased 12.9%, primarily due to an $8.3 million decline in pass-through revenue and lower financial communications and public affairs revenue. Notably, adjusted segment EBITDA only declined $1.6 million as the decline in revenue was largely driven by lower margin pass-through revenue. This was partially offset by lower compensation and SG&A expenses. Year-to-date, Strat Com has delivered record revenue and adjusted EBITDA. Let me now discuss key cash flow and balance sheet items. Net cash provided by operating activities of $201.9 million for the quarter compared to $219.4 million for the prior year quarter. The year-over-year decrease in net cash provided by operating activities was primarily due to lower cash collections and an increase in income tax payment, which was partially offset by lower operating cost expenses. During the quarter, we repurchased 1.426 million shares at an average price per share of $164.18 for a total cost of $234.1 million. After quarter end, we repurchased 469,610 shares at an average price per share of $160.23. As you may have seen in our earnings press release, our Board of Directors authorized an additional $500 million for share repurchases. Cash and cash equivalents of $146 million at September 30, 2020 compared to $386.3 million at September 30, 2024 and $152.8 million at June 30, 2025. Total debt, net of cash, of $364 million at September 30, 2025 compared to $317.2 million at June 30, 2025. The sequential increase in total debt, net of cash, was primarily due to share repurchases. Now turning to our guidance. Given the stronger-than-expected performance in the third quarter, we're updating our full year 2025 guidance for revenue and EPS as follows. We now estimate revenue will range between $3.685 billion and $3.735 billion, which compares to our previous range between $3.66 billion and $3.76 billion. We now estimate EPS will range between $7.62 and $8.12. And we now expect adjusted EPS will range between $8.20 and $8.70, which compares to our previous range of $7.80 to $8.40. The variance between EPS and adjusted EPS is related to the special charge in the first quarter of 2025. Our guidance is shaped by several key considerations. Fourth quarter is typically a weaker quarter for us because of a seasonal business slowdown as our clients and professionals may take time off during the holidays, especially after such a busy year in many of our segments, particularly Corp Fin and FLC. Second, while we believe we have stabilized our E Con business from a cost perspective and we expect a gradual return to revenue growth over the next several quarters, the timing of this improvement is not yet certain. Third, we continue to welcome top-notch senior professionals, and we expect to build teams behind them. Year-to-date, we have announced 79 SMD and affiliate hires, which compares to 33 and 39 announced hires in 2024 and 2023 over the same time period, respectively. And finally, our assumptions define a midpoint and the range of guidance around that midpoint. We recognize that actual results can be beyond that range. Before I close, I want to reiterate four key themes that I believe continue to underscore the strength of our company. First, as the result this quarter demonstrate, we have a set of businesses that are uniquely diverse and resilient. Despite the major headwinds we've had this year in E Con and Tech, our company as a whole delivered not just strong but record performance this quarter. Second, we believe that the deep expertise of our professionals is what sets us apart. The expertise of our people allows them to be ever more in demand by our clients as they navigate complex and ever-increasing dislocation globally. Third, we remain committed to attracting the best people when they are available, irrespective of short-term headwinds. These key senior hires span across the company including antitrust, transactions, financial services, cybersecurity, risk and investigations and corporate reputation. And fourth, our balance sheet remains strong. We have the ability to boost shareholder value, first and foremost, through organic growth, as we have shown, through acquisitions when we find the right fit and, of course, by repurchasing shares as we have done this year. With that, let me turn it back over to Steve. Steve Gunby: Thank you, Paul. Before we go to the questions, just in case some folks on the call don't know Paul. Paul has been here for 11 years. He's been a key member of the Executive Committee, one of my right-hand folks. We hired him in 11 years ago, shortly after I joined, I guess, as the Head of Strategy, and he's been a key contributor in 11 years since as this company has soared. I was so pleased that he volunteered to serve as Interim CFO, although he does claim I voluntold him. But either way, Paul thank you for taking on the role. Let me also take one moment to thank Ajay Sabherwal for 9 years of real dedication here at FTI. He has contributed a lot and his commitment to this firm and helping it reach its potential was always evident. I'm looking forward to seeing him tonight and seeing him going forward, and all of us wish him best in his next endeavors. With that, let me open the floor for questions. Operator: [Operator Instructions] Today's first question comes from Andrew Nicholas with William Blair. Andrew Nicholas: I wanted to start on Economic Consulting, and I apologize, a multi-parter here. I guess trying to understand if you could unpack how much of the top line performance in the quarter was maybe market-driven versus some of the talent dynamics that you mentioned. Also with costs having now stabilized, is there still conviction in EBITDA for that segment bottoming in the second half of this year? And then lastly, any impact that you expect from the U.S. government shutdown? Steve Gunby: Okay. Let me -- got the U.S. government shutdown, EBITDA bottoming. Remind me the first one there, Andrew, by the time I wrote it... Andrew Nicholas: Yes. How much of the revenue kind of decline you'd attribute to just broader market conditions versus some of the talent transition going on this year? Steve Gunby: Yes. If I had to guess on the first one, it'd probably be, I'm guessing, 2/3 to the talent transition and 1/3 towards market conditions, but that's a guess. We can -- if I'm way off, we'll correct that, but I think that's close enough to I guess in a different place, Paul. U.S. government, very hard to say. We are getting in our businesses still leads for things. I think whether that is because people believe that government will not be shut down long or whether -- so if there's an extended shutdown, you have to believe it starts to affect things. But so far, we haven't seen much effect is what I would say. Has the EBITDA bottomed out? I think you correctly got a sense that the bulk of the costs are now reflected in this. I think what we have is a war going on between the runoff of the legacy work and how fast we can generate new work and how fast the markets that were slow come back. I would say I'm cautious about that. I don't think we can commit to this having been a bottoming out yet. I think we've done a great job of adding talent. It turns out that Compass Lexecon has never really marketed itself before. And so we're finally starting an effort to make sure that the market knows all the talent is out there. And then the market has to know that the talent is with us now and then you have to get the initial lead and then there's senior time, and then eventually you get the big work with the junior time that you make a lot of money on. And so that's a multi-quarter type of thing to get the realization on all the new people. I would say a lot of the legacy work has run off, but there's still stuff to run off. And so the war between those two, I'm not quite sure. It could be trumped by whether the markets come back faster or slower than us. So I think you don't want to count on an immediate turnaround in EBITDA, although there's always fourth quarter effects also in Compass Lexecon because the law firms collect at the end of the year and we get collections and so forth. So there's a lot of noise in the fourth quarter. The way I'm thinking about this business is I am fundamentally really positive over it in the multiyear time frame. Now what the first half of next year looks like and how fast it starts to turn around is still a question where we're working through. Does that at least give you a sense, Andrew? Andrew Nicholas: Yes. No, that's helpful. I appreciate you handling or responding to all the different pieces of my question. Next one is just on the transactions practice. Could you unpack that strength a bit further? How much is market-driven versus some of the operational or execution momentum that you described in your remarks, because I think that's one of the higher quarters in that practice that certainly we've seen. So any more color there would be great. Steve Gunby: Yes. That one, and maybe Paul has better data than I do. My sense qualitatively is the bulk of that is our bloody team. I got to tell you, it's really fun to see. And certainly, the bulk of it over the last few years, when the markets weren't growing and we were is because of really good leadership and just leadership throughout the ranks of the team, not just the guy running it was terrific, but also throughout the ranks. Just it's a great team that has conviction in their propositions. They've been out in the market. And where we've gotten trial with people, people want to buy more. And then as I think Paul mentioned, what we have done is, as we first -- years ago, we had no credibility in this space. And then you build credibility. And as you have credibility, it gives you the opportunity to introduce other services. And so that's what's happened this year. I mean, I'm not sure whether the jobs are up as much as the size of the jobs because we're now credible with people, and we introduce other services. And people say, wow, you're good at that too. Look, there's going to be zig-zags in that business because it's driven by market, but I am fundamentally bullish about that over the next years. Andrew Nicholas: Great. And then maybe last one for me. Just on FLC, another really good quarter despite what I think are maybe some more challenging end market conditions. As I understand it, some of that is incentive driven and some of the changes that you made internally, also price realization. On the price piece specifically, is that something that you think can continue into next year or even multiple years from here? Or should we think about that kind of rate increase dynamic being more kind of specific to '25? Steve Gunby: Let me answer that two ways. I think, look, we have rate potential across our business, across every segment still there. I mean, if you look at the major law firms that we have been working with, they over the last 5 years have raised their rates way more than we have. And so we are engaging in catch-up. Having said that, I would say the FLC team this past year made a major catch-up. So I wouldn't want people to say, oh, that sort of catch-up is something that we can do every year. What we can do is to continue to build on it, but it would be more likely in a more modest way than it's shown up in the numbers this year. Does that help? Andrew Nicholas: Yes. Operator: And our next question today comes from James Yaro at Goldman Sachs. James Yaro: Steve, I wanted to touch a little bit on the impact of AI on your business. Perhaps you could just touch on which businesses are impacted. And then if you could possibly maybe differentiate between positive and negative impacts when you discuss the various businesses. Steve Gunby: Yes. Look, can I maybe frame that a little bit at a higher level and then come back to your question? Look, I've gotten into AI as any CEO has. And one of the most interesting quotations I ever saw was by Bill Gates about all new technologies. And what Bill said 30 years ago was that every new technology -- fundamental technology has followed the same pattern. It's ignored for a while, then there's immense hype. The hype is overhyped for a lot of people. It's going to change your life, James, and how you raise your children in the next 2 weeks. And then the disillusionment sets in 18 or 24 months later. And I think we're seeing that pattern with AI. Now the other point that he made is, and it's when the disillusionment sets in that the real revolution begin. And you saw that in the Internet when the initial Google and Facebook and Uber, these were not things in the first few years. These were things for people who persisted and rethought and rethought and rethought that created the world. It's a big -- I think this is what's happening with AI now, the disillusionment setting in. It's obviously been transformative for NVIDIA. But I think the standard statistic is for 80% of companies out there right now, they're not seeing any impact, positive or negative from their investments in AI. We are seeing impact and we're seeing positive impact. We haven't found much tremendous impact yet on our internal operations and cost out, that sort of stuff that people search. Where we're finding it is in our client work. And it's different types of things. We've developed some tools that are powerful tools that help enhance our position in large-scale investigations. These are tools that we call Ariadne and IQ.AI, and that's just really part and parcel of us being able to deliver on what we've historically been able to deliver and just do it in superior ways. We have started to get some major new work, some of it is small, but some of it is major new work, where we have been called on to help investigate where AI algorithms have potentially been used by major institutions in ways that violate regulatory stature. And I think we are leading edge in our ability to do that sort of work. And we've had some pretty big assignments in that. And then we are being called more smaller early-stage things to help do like either communications around AI strategies or early-stage assessments of what AI could do to the strategies of various businesses. It's not yet, I would say, cumulatively across the whole enterprise. It's not transformative as a part of these economics, but I think it is the prelude for transformative going forward. And we're pretty excited about our position in -- by making sure we're staying attached to it, but also as our Tech team has done really well of trying to position ourselves as the people who can demystify it and find the real applications, the real use cases that make a difference and avoid the pitfalls. And I think that's where we're trying to take it. Does that help, James? James Yaro: That's really helpful. Just maybe one clarifying question there as this is a question that I do receive a lot. So I think you walked through a lot of the positives that AI could potentially generate for the business over time. I just want to make sure that I understand and get your thoughts. So you're not seeing today or expect in the future much in the way of any sort of negative impact on billable hours across the business. Steve Gunby: Look, I think you would expect, of course, look, I think back in the day, and this is before your time but also before mine, James, when accountants were totaling up spreadsheets and then Excel was created, the number of accountants needed to total down the column and across went away. Any new technology changes the work required and changes some of the commodity elements of the work. And we are constantly monitoring that across our business. I will say that I would feel more worried about that if I had 25:1 leverage businesses with primarily junior people. Our business is experts in court testifying or experts doing like the Red Adair stuff, flying on a -- Doyle -- I think it was analogous to Red Adair, the guy who flew on oil derricks when they're on fire and put out the fire. That's not a commodity while maybe building an oil derrick is. And so I think we're going to be positioned really well. But of course, we're always looking for ways to substitute technology for hours and create efficiencies and figuring out ways to price those things for our clients. Does that address that part of the question, James? James Yaro: That's really helpful. Just one last one for me. Maybe just on the restructuring side of things. I think if I calculate it correctly, you reached another all-time high this quarter, which is obviously very positive. Maybe you could just help us think about the outlook for this business going forward. Bankruptcies have continued to tick up modestly off admittedly a low base and your business continues to grow. Paul Linton: Yes, maybe I'll take that one. So yes, quarter-over-quarter, we were up about 1%. So the business continues to be quite strong and we continue to see, as I said, strength in multiple geographies, which we think will continue to position us for some of the larger mandates, both creditor side as well as company side. So I think we think the market will continue to benefit us as we continue to maintain or grow share there. Operator: And our next question today comes from Tobey Sommer with Truist. Tyler Barishaw: This is Tyler Barishaw on for Tobey. I want to go back to Economic Consulting. How should we be thinking about the margin level for next year in that business? Steve Gunby: We should think about it hard. This is what I would say, Tyler. Look, there's so many dynamics of that business. I can't give a prediction next year. I mean, I don't think we typically give predictions at the segment level and certainly not now for next year. I think it's so much the right question. I think what I would say is I have a lot of confidence in the multiyear trajectory of that business. We wouldn't have been making all these investments this year. How quickly we turn it around is a real question. And I wouldn't get overly bullish. But I wouldn't be overly cautious about the multiyear trajectory for that business either. Does that at least help a little bit, Tyler? Tyler Barishaw: It does. What about headcount growth? Should we expect similar levels of headcount growth across the whole business for next year as well? Or maybe some trends you're seeing into fourth quarter would be helpful. Steve Gunby: Look, I think this year, the headcount growth year-over-year is lower than we have historically done. I mean, we are -- we have had the same strategy, but different years, different things happen. And if you remember here in the fourth quarter and the first quarter, we stressed some certain underperforming positions and so forth. And so I think our headcount growth year-over-year here is among the lowest since I've been here. We haven't changed our fundamental headcount growth story. I think if you heard my -- I hope you heard my opening and I hope you communicated a sense of conviction and bullishness about the future of this company. So we have to grow heads. Now how we differentiate that among segments and subsegments by geography depends a lot on individual circumstances and whether we're long in some headcount or short in some headcount. So I probably can't go into the individual subpoints. But if you wanted to go back to our longer-term history to project headcount growth for the majority of the world, that's probably a better prediction than using the last 12 months. Does that help, Tyler? Tyler Barishaw: It does. Steve Gunby: Let me say thank you all. I think we went over a couple of minutes. Thank you all for your continued attention, and we look forward to taking this company forward. Thank you. Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Operator: Welcome to the Icade 9-month Trading Update Conference Call. [Operator Instructions] Now I will hand the conference over to Nicolas Joly, CEO. Please go ahead. Nicolas Joly: Good morning, Nicolas Joly speaking. Thank you all for being here today on this call. Along with Bruno Valentin, we are delighted to present this morning Icade 2025 9-month update. This presentation will be, of course, followed by a Q&A session. Let's move to Slide 5 for an overview of the main messages. To date, Icade has completed or signed preliminary agreements for EUR 430 million in disposals. This includes a reduction of the group exposure to healthcare activities by circa EUR 210 million and the sale of mature or non-strategic assets for EUR 220 million. The investment division reported a very good rental activity with circa 166,000 square meters signed or renewed to date. This volume was boosted in October by the renewal of 41,000 square meter in EQHO Building with KPMG. For several months, the financial occupancy rate has improved, notably for well-positioned offices and light industrial assets. On the property development front, H1 trends are continuing into H2. By the end of September, Icade recorded stable order volumes with a total value decrease of minus 5%. Lastly, we reaffirm today our 2025 group net current cash flow guidance between EUR 3.40 and EUR 3.60 per share. On Slides 6 and 7, we focus on the good progress made on disposals. Early August, Icade signed an agreement with BNPP REIM to sell its stake in a diversified portfolio of 23 health care assets, accounting for circa 15% of its exposure to the healthcare real estate sector. This transaction with one of France's leading real estate investment management firms confirms the quality of healthcare portfolio in Italy. These sales represent circa EUR 173 million for Icade, in line with the asset values included in the group NAV as of June 30, 2025. The proceeds from the sale will repay the shareholder loan from Icade to Icade Healthcare Europe almost in full. The deal is scheduled to close at the end of the year. In addition, year-to-date, Icade reduced its exposure to Praemia Healthcare by EUR 36 million through 2 smaller transactions completed in the first half of 2025. The property investment division also secured EUR 220 million in disposal of nonstrategic or mature assets. Since the last year results, preliminary agreements were signed on additional assets for EUR 115 million, namely an office asset covering 1,800 square meters on Charles de Gaulle for EUR 17 million, the remainder of the B&B Hotel portfolio for circa EUR 30 million and the entire Mauvin business park in the north of Paris, representing 21,000 square meters for EUR 69 million. This successful transaction is the direct result of the hard work of our asset management teams who managed to bring the occupancy rate of this park up to 100% by the end of June. All of these transactions represented an average yield of about 6.1% and were completed at prices above the net asset value as of the end of December 2024. Let's look now at the performance of investment division on Slide 9. Over the first 9 months of the year, the rental market remained challenging with take-up in the Greater of Paris region down 8% year-on-year. The subdued economic environment and French political instability continue to weigh on corporate real estate decisions. As we observed in the previous month, there has been still in Q3 2025, a lack of new leases signed for spaces over 5,000 square meters. In this environment, Icade teams delivered a very solid performance with around 125,000 square meters signed or renewed by the end of September. These agreements represent an annual rental income of EUR 29 million with a WALB of 6.8 years. This achievement demonstrates our ability to secure large leases over 5,000 square meters and to support our clients over many years like Club Méd, who has been our tenant within Pont de Flandre for 30 years. It also shows our expertise in creating spaces tailored to our client needs as we have done with Sopra Steria in the Orly-Rungis business park. The total financial occupancy rate stood at 84% as of September 30, 2025. In the well-positioned office segment, the financial occupancy rate stood at 88.8%, up plus 0.8 points compared to the end of December 2024, following, in particular, the leases signed for more than 3,000 square meters in the Hyfive building and nearly 2,000 square meters in the EQHO Tower. After including the [indiscernible] in the first building scheduled to start in Q4 2025, the financial occupancy rate of well-positioned offices stood at over 90%. In the light industrial segment, the occupancy rate stood at 90.4%, plus 1.5 points versus December 2024, thanks to leases signed in November, Port de Paris business park. In addition to the 125,000 square meter, we are very pleased to announce that we renewed in October the lease with KPMG for approximately 41,000 square meters. This lease has a firm commitment until 2031. In total, Icade has signed or renewed more than 60,000 square meters since the beginning of 2025 in the La Défense and Péri-Défense area, which offers significantly lower rents than Paris CBD, while still being very well served by public transport. Let's now move on to the operational performance of the development business line on Slide 11. The trends have remained consistent with the first half of the year. The development division recorded a stable orders volume with 2,815 units totaling EUR 722 million, down by 5%. Activity in the individual segment declined by 11% in volume, in line with the overall market. This decline occurred in an unfavorable tax environment marked by the end of the P&L tax scheme, which led to a sharp contraction in individual investor activity, i.e., minus 43% year-on-year. The momentum was more positive for our owner-occupier orders, which increased by 14%, supported by favorable measures promoting homeownership. Bulk orders showed an 11% increase in volume, but a 6% decrease in value. This discrepancy between volume and value changes is explained by a temporary shift in the product mix. Institutional investors continue to support business activity as they accounted for 51% of orders in volume terms year-to-date. It is also worth noting that institutional investor activity has historically been stronger in the second half of the year with circa 60% of bulk orders made in Q4 in both 2023 and 2024. I'll now turn the floor over to Bruno to present the change in revenues. Bruno Valentin: Thank you, Nicolas. Let's move to Slide 13, which we present the trend in consolidated revenue as of September 13, 2025. Icade's total IFRS revenue is down by 9% due to lower revenue from both the property investment and the development divisions. Let's dive into the financial performance and property investment division in Slide 14. In line with the figures reported in the first half of the year, gross income decreased by 6% to EUR 253 million, mainly due to tenant departures last year and the gradual crystallization of negative reversion of renewals. These effects were partially offset by the positive impact of indexation, which has gradually moderated but still contributed plus 3.2% and by early termination fees mainly related to the to-be repositioned offices. Move to Slide 15. On property development side, economic revenue amounted to EUR 729 million as of September 13, 2025, down by 12% year-on-year. This decline results firstly, from a drop in commercial segment with revenue down by 42% year-on-year due to the completion of major projects at the end of 2024, coupled with the low volume of new contracts signed in 2025. And secondly, from the progressive decline in residential backlog. I will hand over to Nicolas for the conclusion. Nicolas Joly: Many thanks, Bruno. So, let's move on Slide 17 for the 2025 guidance. We reaffirm our 2025 guidance of a group net current cash flow of between EUR 3.40 and EUR 3.60 per share. This includes net current cash flow from nonstrategic operations of approximately EUR 0.67 per share, excluding the impact of disposals. As of September 2025, the income already recorded by Icade represented 92% of annual net current cash flow from nonstrategic activities. Let me remind you that the contribution from nonstrategic activities does not include the payment of a potential interim dividend from Praemia Healthcare in 2025. Well, to conclude, in an environment that remains complex and uncertain, Icade teams achieved a number of successes during the quarter as illustrated by the continued execution of our disposal plan and a very strong leasing performance. We remain focused on implementing our strategy with priorities that include improving the occupancy rate of our assets, diversifying our portfolio and rigorously managing our balance sheet. And with that, let's start the question-and-answer session. Operator: [Operator Instructions] The next question comes from Florent Laroche-Joubert from ODDO BHF. Florent Laroche-Joubert: So 3 questions for me, if I can. So, my first question would be in offices. So, you have said that improving the occupancy rate is a high priority. So maybe could we say some words on your next challenges in offices for notably for the end of 2025 and 2026. So, what shall we expect? Maybe second question on healthcare assets. So, have you any comments to make for the other assets to be still sold in healthcare? And maybe last question on the 2933 Charles de Gaulle comment on your intention to dispose or not at the end of this asset? Nicolas Joly: Thanks for your question. Well, maybe start with the financial occupancy rate. Well, you saw that there were some recent improvements indeed in the occupancy rate for well-positioned and light industrial segment. As I said, including the positive effect of Pulse by the end of 2025, the occupancy rate will be above 90% for the well-positioned. Light industrial 90.4%. Well, of course, there will be a slight negative impact to be expected post disposal of the Mauvin business Park, but thing is getting better month after month. Once again, this remains and shall remain the first priority for the teams as for the Investment division. Maybe to give you a bit some visibility on the -- what to expect in 2026 regarding the expiries. I would say it's globally the same trend as in 2025, of course, with some expiries to be expected concerning the to-be repositioned assets. As more than half of the expiries will occur in H1 2026, we shall be in a position to give you some good visibility for the full year 2025 result presentation. And on the second question on the healthcare portfolio, well, clearly, given the political environment in France, which does not help and could discourage some international investors, our first priority is to focus on the international side. We've shared some good news with the Italian portfolio that shall be closed at the end of the year. We are also focusing a lot on the Portuguese assets, which are, as you know, high-quality assets that can attract unsolicited interest. And we are also marketing the small remaining part of the Italian portfolio, which constitutes of 5 assets, representing roughly EUR 20 million. On France, once again, on [indiscernible], there's no major news to share given the French context, but we are still exploring some additional routes, sale of noncore assets, additional swaps as we've done during the H1. And on the Charles de Gaulle asset, of course, we won't comment specifically on the asset or the process, but will keep being consistent with our DNA, which is to capture the maximum of the value creation. And once again, for this asset, in our view, a large part of the value has been already created through the eviction of tenants and the obtaining of the permit. And there's a good window because they have very strong liquidity on the investment market for core plus and value-add assets in Paris CBD. We saw a lot of transaction there with loads of cash. So clearly, with those 2, an opportunistic approach in our view shall be considered. Once again, the key decision will be made on value creation. Operator: The next question comes from Stéphane Afonso from Jefferies. Stéphane Afonso: First, on the EQHO Tower, could you please share the reversion rate reflected in this renewal? Second, on Icade's promotion, should we expect additional provisions or impairments since market parameters have changed? And finally, on asset values, market data points to further yield expansion. So, what should we expect in terms of asset value decline in H2? Or at least what assumptions are you using in your business plan? Nicolas Joly: Thanks for your question. Well, starting on the EQHO Tower, maybe just before sharing thoughts on the economics, let's take a minute to celebrate, which is really good news rewarding the hard work of the team that have been working on this for several months now. As we shared with you, we try to anticipate as much as possible the large break options we are facing and we have some strong relationship with our major tenants. So, we were really happy to succeed in that. Of course, we cannot share the detailed figure but maybe highlight the one thing is that as put in the PR, the signature rent is in line with the RV as we usually do. Of course, this crystallized a significant negative reversion. It was the highest negative reversion potential in the portfolio. That shall be captured after the end of the actual lease from October 2027. But I'm sure that if you put some raw figures, you can be able to estimate this roughly. As for the incentive, they are slightly above the market trend, but in my view, remain fully consistent with the very large surface that is considered. We are talking here about circa 41,000 square meters. So, this to conclude on the EQHO Tower is, in my view, an emblematic transaction, testifying once again the good dynamics of the area in La Défense district and the strong relationship we have with our tenants. Stéphane Afonso: Maybe jump in on your -- I have in mind that the reversionary potential was minus 11%. So, taking into account this renewal, where does it stand now? Nicolas Joly: Yes. This accounts for roughly 2 points out of those 11 on the average portfolio. Yes. But this once again will be captured at the end of the actual lease in 2027, because until then we are still on the current rate, okay? Is that clear? Stéphane Afonso: Okay. Yes. Thank you. Nicolas Joly: Jumping on your second question on Icade promotion. Of course, the market trend is still very tough. As you saw on the residential business, we've been deeply impacted by the end of the P&L tax scheme that had a negative impact on orders of individual investors were roughly minus 43%. As shared, there's better dynamic for owner occupier. The bulk sales still represent more than half of the total orders with a historical volume very strong in the Q4 and of course, very low activity in the commercial division, and that shall be the case in the years to come. So, we are still very selective in our operations. There may be 1 or 2 operations identified will be more difficult than expected. We've done the job on the whole portfolio in June 2024. So, there is no thing that is expected once again on that. And I would say that for the global activity, there are no recovery, in my view, expected before 2027, especially due to the political agenda. As you know, next year will be the local election on the town. So, this is usually years with very low level of building permits. Stéphane Afonso: So in your view, the provision and impairment that you recorded maybe 2 years ago are conservative enough at this stage? Nicolas Joly: Yes, we went through the whole portfolio on that. As I said, given the context, there still can be some operation selectively that can have some issues. But once again, on the whole portfolio, the job has been done. And on the last question on the evolution of the asset value, where you saw in H1 that there was a small deceleration of the asset value decline of minus 2.8%, if I remember well, in like-for-like, both from negative impact of residual yield decompression and to a lesser extent, lower expectation for indexation, clearly. Light industrial were more resilient, of course. But if we focus on offices, while it's still difficult to confirm the timing of value stabilization as there are still very few transactions on the market to assess properly the target cap rate. And on top of that, there are still some persistently high sovereign yields. But nevertheless, as you saw, we had a strong divestment activity during the first 9 months of the year and the sale of core assets completed year-to-date confirm the level of our actual NAV. Operator: The next question comes from Celine Soo-Huynh from Barclays. Unknown Analyst: I got 2 questions, please. The first one is about the guidance. In the press release, you said that the disposal of the Italian healthcare portfolio could impact the NCCF depending on the closing date. So, could you please give us a number around this? And the second one is around your outlook. You sound very cautious. I would almost say quite negative on your outlook for 2026. And we know your S&P credit rating currently is negative. Are you expecting a credit downgrade coming? Nicolas Joly: Maybe quickly on the first one, well, globally, the impact of the disposal of the Italian portfolio will be nonsignificant on the cash flows because it's expected to occur at the very end of the Q4, so not significant. On the outlook, well, cautious clearly because 2026 globally will remain very tough, in my view, on market conditions. Well, you get this political agenda in France that will definitely have an impact on the pace of recovery. We are facing persistently high sovereign yields that won't help. And thirdly, there's a lower positive indexation to be expected in 2026. On top of those macro effects, more specifically on Icade side, well, as I said, on the property development, given the political agenda, there is no expectation in our view of recovery in 2026. And on the investment side, I was mentioning a lower positive impact on indexation that we expect roughly at 1%, so much lower than expected some months ago. And as you know, there are still some negative reversions to be crystallized in the cash flow. Of course, this is already, as you know, in the NAV, but still to be crystallized lease after lease in the cash flows. And there are still some departures, mainly on the to-be repositioned assets that will still while on the like-for-like clearly. So not negative, but clearly, cautiousness in our view on both businesses and the macro is necessary. And maybe Bruno, you want to. Bruno Valentin: Yes. So, we remain highly focused on SAP, of course, the 3 points. First one, the disposal achieved over the last 9 months helped to keep the LTV ratio under control. Secondly, we have a limited committed level of CapEx in the pipeline. But nevertheless, we remain subject to variation in asset valuation. Nicolas Joly: And Celine, you were mentioning, I though the outlook, but the current outlook is stable. Bruno Valentin: It's not negative. Unknown Analyst: Sorry, I thought your outlook was negative. Nicolas Joly: No, no. This is stable. BBB stable. Operator: The next question comes from Michael Finn from Green Street. Michael Finn: Yes. I was just curious given the change in the sources of funds. Since it seems slightly better than it was, I'm curious if there is any change in the uses of those funds as well. Should I assume that the strategy is in line with the Investor Day from Feb of '24? Nicolas Joly: Yes, Michael. Well, we are still bang in line with ReShapE. As I shared in my conclusion, we are focused on our existing portfolio and the occupancy rate. We are also focusing on diversifying our exposure to additional asset classes such as PBSA or data centers, for example. There were no major news to be shared during this Q3. But clearly, we intend to reallocate into relative developments, the cash that comes from the divestment, but we are still bang in line with the main guidelines of the ReShapE strategic plan that we've shared in February 2024. Operator: The next question comes from Samuel King from BNP Paribas Exane. Samuel King: Just one clarification question on earnings guidance, please, and specifically on the contribution from nonstrategic operations. I understand that it excludes a potential interim dividend from Praemia Healthcare. But am I right in thinking it also excludes a potential dividend from IHE, which last year was around EUR 10 million? And if so, what is the decision made if IHE pays a dividend? Because in theory, the disposal and repayment of shareholder loans should improve the financial position of IHE and therefore, its ability to pay a dividend this year? Nicolas Joly: Yes. Thanks, Samuel for your question. Well, indeed, there was no assumption of an interim dividend on Praemia Healthcare and no dividend on IHE, but we don't expect dividend on IHE, most of the cash flows were drawn through the shareholder loan. So, nothing to expect on this regarding IHE. And as for Praemia Healthcare, we'll see there is an interim dividend before the year-end. And if this is the case, of course, we will be telling the market that it's the case. But indeed, you were right on the current guidance, the EUR 0.67 does not include any interim dividend on Praemia or any dividend on IHE. Operator: The next question comes from Valerie Jacob from Bernstein. Valerie Jacob Guezi: I just wanted to ask a follow-up question on your rating with S&P. My understanding was that S&P had assumed approximately EUR 700 million in order for your outlook not to be downgraded. I mean I know your outlook is stable, but I'm talking about an outlook downgrade. So, I was wondering you've only done EUR 400 million so far. If you don't sell Charles de Gaulle in 2025, is there a risk that your outlook can be downgraded? Or maybe if you can share some discussion you're having with S&P. Nicolas Joly: Well, today, once again, we are consistent with the trajectory we've shared. We've demonstrated our ability to sell assets, even sell assets at the right price. We said it was above NAV. There is a few opportunities in the pipeline that make us confident in being able to secure the debt on debt plus equity threshold at 50%. So, at this stage, nothing specific to worth sharing. Valerie Jacob Guezi: So if you don't sell anything until the end of the year, there is no risk in your view that your outlook is going to be downgraded. Is it what you're saying or? Nicolas Joly: Well, it's not for me to say. I mean it's S&P to say. But clearly, today, we've demonstrated that we are able to secure our debt on debt plus equity trajectory. And on top of that, the additional 2 KPIs are very comfortable headroom regarding the guidelines set by S&P. Operator: There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments. Nicolas Joly: Okay. Thank you very much. Happy to share this part of the morning with you. Looking forward to talking to you. Have a nice day. Bye-bye.
Operator: Good day, ladies and gentlemen, and welcome to ASUR's Third Quarter 2025 Results Conference Call. My name is Latanya, and I'll be your operator. [Operator Instructions] As a reminder, today's call is being recorded. Now I'd like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir. Adolfo Castro Rivas: Thank you, Latanya, and good morning, everyone. Before I begin discussing our results, let me remind you that certain statements made during the call today may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our company's control. Additional details about our third quarter 2025 results can be found in our press release, which was issued yesterday after market close and is available on our website in the Investor Relations section. Following my presentation, I will be available for Q&A. As usual, all comparisons discussed on this call may be -- will be year-on-year and figures are expressed in Mexican pesos, unless specified otherwise. Before discussing our results, I would like to begin today's call with an important strategic development. As recently announced, we entered into a definitive agreement to acquire URW Airports for an enterprise value of $295 million. This transaction marks a significant step forward in ASUR's international expansion strategy, building our established presence in the U.S., which began with the operation of San Juan Puerto Rico Airport in 2030. URW airports managed commercial programs are 3 most iconic and high-traffic airports in the United States. URW airports manage commercial programs at 3 of the terminals -- 3 of the airports in the United States, Los Angeles International Airport with 6 terminals, Chicago O'Hare International Airport at Terminal 5. And in the case of John F. Kennedy International Airport covering terminals 8 and the upcoming new terminal 1. Together, these terminals process around 14 million enplanements annually. This acquisition provides ASUR with a strategic foothold in the 3 of the largest U.S. air travel markets and strengthens our position in the high-growth nonregulated commercial segment in the U.S. airport industry. The acquisition will be financed by JPMorgan Chase. As with all our strategic decisions, we are approaching this opportunity with a financial discipline and operational rigor that has long defined ASUR's execution. Closing is expecting during the second half of the 2025. Subject to customary regulatory approvals, we look forward to keeping you updated on our progress in the quarters ahead. Now turning to our third quarter performance. We serve over 17 million passengers across our airports, with traffic remaining practically flat as continued growth in Colombia and Puerto Rico helping to offset persistent headwinds in Mexico. Starting with Colombia, passenger traffic rose 3% to close to 5 million, supported by a solid 11% increase in international traffic and a modest growth just under 1% in domestic volumes. In Puerto Rico, total traffic was up 1%, reaching over 3 million passengers. Growth was driven by international passengers, which increased nearly 12% year-on-year, offsetting the 0.5% decrease in domestic traffic. In Mexico, traffic declined 1% to nearly 10 million passengers for the quarter. The decrease reflects softer demand, domestic traffic, which was down nearly 2% and international which saw a slight contraction of 0.3%. Passenger volumes from the United States, our largest international source market decreased just 0.2%, while South America contracted 7.2%. On the positive note, Canada and Europe increased 9.3% and 1.3%, respectively. Looking ahead, we anticipate a more balanced operating environment across our portfolio. In Mexico, we expect traffic to gradually stabilize over the next year as aircraft ability improves. In Puerto Rico and Colombia, we expect continuous positive momentum supported by the healthy international demand and improving productivity. Now turning to review our financial results. As a reminder, all figures exclude construction revenues and costs, unless otherwise noted. Comparisons are all year-on-year unless otherwise noted. Total revenues increased in the mid-single digits, reaching over MXN 7 billion, driven by growth in Puerto Rico and Colombia. Mexico at 70% of total revenues posted a slight low single-digit decline with aeronautical revenues practically flat and non-aeronautical revenues down in the mid-single digits. Revenue growth was limited by softer passenger volumes and the stronger peso, which continues to weigh on the U.S. linked revenue streams. Puerto Rico at nearly 18% of total revenues reported revenue growth in the high single digit driven by increases in 5% in aeronautical revenues and 10% in non-aeronautical revenues. This performance reflects positive passenger traffic trends and sustained demand across commercial activities. Colombia, which accounted for a total of [ 30% ] of the total revenues, delivered revenue growth in the high single digits, reflecting a mid-single digit increase in aeronautical revenues while non-aeronautical revenues were up in the high teens. This good performance was supported by passenger traffic growth and solid -- partially offset by the strong Mexican peso. Continue our ongoing focus on commercial development. We added 45 new commercial spaces across our airports over the last 12 months, including 31 in Colombia, 8 in Puerto Rico and 6 in Mexico. This supported a low single-digit increase in commercial revenues as solid growth in Puerto Rico and Colombia was partially offset by a weaker performance in Mexico. On a per passenger basis, commercial revenue rose 1% to MXN 126. By region, Colombia led a 14% increase followed by Puerto Rico, up 10%, while Mexico posted a 4% decline, reaching MXN 144 per passenger. Turning to costs. Total expenses were up nearly 17% year-on-year. By region, Mexico posted a 4% increase, largely due to higher maximum -- minimum wages and service costs. Puerto Rico reported expense increase of nearly 8%, reflecting inflationary pressures and higher operating activity. While Colombia cost increased 76%, mainly driven by an adjustment in amortization method of the concession. Without this increase would have been 5.4%. Lastly, in Puerto Rico and Colombia cost benefited from depreciation of Mexican peso against the U.S. dollar. On the profitability front, consolidated EBITDA declined just over 1% year-on-year to MXN 4.6 billion in the quarter. Puerto Rico and Colombia delivered EBITDA growth of nearly 5% and 10%, respectively, while EBITDA in Mexico declined close to 4%, mainly reflecting lower traffic and higher operating costs. The adjusted EBITDA margin, which excludes construction related revenues and costs under IFRIC 12 declined by 157 basis points to 66.7%. This reflects lower margin contribution from the Mexican and Puerto Rico operations, where the margin contracted 152 and 151 basis points, respectively. In contrast, Colombia reported an 81 basis points margin expansion. On our bottom line, this quarter was negatively impacted by depreciation of the Mexican peso against the U.S. dollar, which resulted in a foreign exchange loss of nearly MXN 1 billion compared to the reverse effect during the third quarter of last year. Profitability was also affected by the MXN 333 million adjustment in the concession amortization method in Colombia that I just explained. Now moving to our balance sheet. We closed the quarter with a solid cash position of MXN 16 billion, down 19% from December 31, 2024, primarily reflecting dividend payments made during the period. Our net debt-to-EBITDA ratio remained at healthy 0.2x. In terms of capital deployment, in September, we paid an extraordinary dividend of MXN 15 per share funded from retained earnings. Note that in November, we will be paying an additional dividend of MXN15 per share. Lastly, we invested close to MXN 1.9 billion during the quarter, primarily directed to projects our Mexican airports, including the reconstruction and expansion of Terminal 1 at Cancun Airport, and the terminal expansion in [indiscernible]. In Puerto Rico, we are progressing on the new pedestrian bridge for Terminal A, while in Colombia, we invested in maintenance CapEx. In closing, our third quarter results reflect the resilience of multi-country platform and the value of our disciplined execution amid a more tempered demand environment. While traffic in Mexico continued to face near-term headwinds, we are encouraged by the ongoing momentum in Puerto Rico and Colombia. We remain focused on advancing on our commercial strategy, investing in infrastructure and maintaining a strong financial profile. These conclude my prepared remarks. Latanya, please open the floor for questions. Operator: [Operator Instructions]. The first question comes from Rodolfo Ramos with Bradesco BBI. Rodolfo Ramos: I have a couple, if I may. The first one is in regards to the URW acquisition. Can you shed a bit of light on the economics, revenue per pax, how much EBITDA contribution you're expecting from these assets on an annualized basis? And the second is on Colombia. Can you elaborate on this adjustment to the concession amortization method that we saw during the quarter, was this a one-off? Or should it be a new level going forward? I don't know if it has to do something with the economics of your concession title there? Adolfo Castro Rivas: Thank you for your questions. In the case of URW, I cannot yet share numbers with you until [indiscernible]. In the case of Colombia, basically, what we have done is to change amortization method because in accordance with our estimates, during 2027, we will not receive regulated revenues anymore, and the concession should be over by 2032. So we are aligning amortization in accordance with revenue generation there. And it's going to be not one-off. It's going to be from now the same level. Operator: The next question comes from Emst Mortenkotter with GBM. Ernst Mortenkotter: I wanted to follow up a little bit on URW. I understand you cannot discuss the financials. But leaving that aside, it seems like a great way to gain some strategic insight into the consumer that goes from your airports to the U.S. I just was wondering if you could discuss a little bit what kind of synergies do you see? Or what is the strategic rationale behind this acquisition? Adolfo Castro Rivas: Thank you, Anton. Well, basically, the most important for us is to get -- to put a foot in the U.S. market. The U.S. market represents 22% of the aviation market of the world. And these terminals are extremely important for the U.S. market. So pulling our name there is extremely important, and this should be the platform for future growth in the United States, probably in the same kind of contracts that we are entering right now. That is the most important thing. Operator: Our next question comes from Andressa Varotto with UBS. Andressa Varotto: I have 2 here on my side. The first one is about Motiva Airports that are for sale. We've been seeing the news source that ASUR is [indiscernible] interested in this airport. So just wondering if you could provide some more information, if you're looking, for example, at all of the airports are just a subside of them. And how would the company finance this? And my next question is regarding the traffic trends that you've been seeing for Mexico. We've been seen recently on news as well that Tulum airport has been facing some cancellations. And if you think that this could help Cancun airport in the near future. These are my 2 questions. Adolfo Castro Rivas: In the case of Motiva, I cannot comment. In the case of the traffic trends, what I see today, it's a slow recuperation in the domestic market because of Pratt & Whitney engines, something that should improve in my opinion during the next year. For the moment, the traffic is really weak and the demand is weak in the case of the region. If we see Cancun and Tulum together for the first 8 months of the year, and I'm saying that months because that is the latest public figure or the case of the airport of Tulum. The traffic for the region is a decrease of 3.1%. If we go to the latest month that has been published for the case of the airport of Tulum which is the month of August this year. August versus August last year, the traffic of the region was a decrease of 5.1%. So the traffic is soft. Nevertheless, what you are saying in terms of the recent cancellations to the airport of Tulum. Operator: [Operator Instructions] Our next question comes from... Adolfo Castro Rivas: Sorry, could you repeat? Operator: Our next question comes from Pablo Ricalde. The next question comes from Pablo Ricalde with Itau. Pablo Ricalde Martinez: My question is related to the [indiscernible] Cancun? Is it still expected to be open around Q3 2026 or there are delays on that construction of that one? Adolfo Castro Rivas: What we are expecting is to open this new facility during the third quarter 2025 -- 2026, sorry. Pablo Ricalde Martinez: Okay. So as expected. Operator: The next question comes from Gabriel [indiscernible] with Deutsche Bank. Unknown Analyst: [indiscernible] Just 2 questions. First, is there any way or some how that capacity allocation from carriers has been shifting from Cancun? And the second one is the decrease in traffic could somehow make the pace of writing the tariffs towards the maximum tariff faster for either this year or next year? Adolfo Castro Rivas: Well, in terms of capacity, we are not -- we're not seeing a shift in capacity. What we are seeing basically is a weak demand, as I said, from the domestic resulted from Pratt & Whitney and some other elements. And in the case of the U.S., the numbers for the quarter is 0.2% decrease, which is small, but it's the largest market we have. Let's see how the winter comes. And I hope that the winter will be very strong in the north part of the Americas, and then they come. Positive side is the case of Canada, which is up for the quarter, and I thought that it will be up during the fourth quarter as well. Unknown Analyst: And in the case of the traffic that has somehow decreased, that could accelerate the pace on which tariffs are increased up to the maximum tariff? Adolfo Castro Rivas: No. I don't see that. Our maximum tax compliance this year should be similar of what it was last year, so more than 99%. Operator: [Operator Instructions] At this time, we'll turn the call back over to Mr. Adolfo Castro for closing comments. Adolfo Castro Rivas: Thank you, Latanya, and thank you all of you again for joining us on our conference call for the third quarter 2025. We wish you a good day, and goodbye. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Kristopher Doyle: Good morning. I'm Kris Doyle, Vice President of Investor Relations and FP&A. Welcome to our earnings call for the third quarter of 2025. Before we begin this morning's call, I'd like to remind you that today's presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to various risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed. Please refer to the page titled Forward-Looking Information in our earnings material for more detail. Presentation materials for today's call were posted this morning on the Investors section of Visteon's website. You can download them at investors.visteon.com if you haven't already done so. Joining us today are Sachin Lawande, President and Chief Executive Officer; and Jerome Rouquet, Senior Vice President and Chief Financial Officer. We scheduled the call for 1 hour, and we'll open the lines for questions after Sachin's and Jerome's prepared remarks. [Operator Instructions] Thank you again for joining us. Now I'll turn the call over to Sachin. Sachin Lawande: Thank you, Kris, and good morning, everyone. Thank you for joining our third quarter 2025 earnings call. Visteon delivered another quarter of strong operating and financial performance, demonstrating the strength of our business while continuing to execute on our long-term strategy. Sales for the third quarter were $917 million, coming in slightly below our expectations, primarily due to the impact of the unplanned production shutdown at JLR. Excluding this impact, sales were broadly in line with our forecast. We had good visibility into customer production schedules going into the quarter, and while there were some minor puts and takes across programs, they largely offset each other. Year-over-year, we continue to see strong momentum in our cockpit electronics business with solid growth in Europe and in the Americas. This was offset by lower sales in China and for BMS in the U.S. due to the anticipated headwinds from the challenging macro environment for global OEMs in China and for electric vehicles in the U.S. Adjusted EBITDA was $119 million, representing a margin of 13%, and adjusted free cash flow for the quarter was $110 million. We are maintaining our full year guidance, which Jerome will walk you through in more detail shortly. On the sales side, we're trending below the midpoint of guidance as a result of several temporary industry headwinds. Importantly, despite these headwinds, our adjusted EBITDA and free cash flow are forecasted to remain strong, supported by continued operating discipline, commercial execution and the impact of our cost reduction initiatives. From an operational viewpoint, the team delivered very well. We launched 28 new products, improved our profit margin through productivity measures and secured $1.8 billion in new business during the quarter. We continued to build momentum with our product portfolio, winning multiple large display programs and adding another high-performance SmartCore customer in China, strengthening our position in the emerging AI-based cockpit systems trend in the industry. We also resumed capital returns to shareholders with the payment of our newly initiated quarterly dividend with more capital returns planned in the fourth quarter. Turning to Page 3. Our Q3 sales came largely in line with our expectations, excluding the temporary production shutdown at 1 customer in Europe. In North America, cockpit electronics continued to perform well and came in ahead of expectations. The impact of tariffs on customer demand remained minimal, and we benefited from the ramp-up of several recently launched programs with OEMs, including Ford. BMS sales were down significantly year-over-year with GM and Stellantis, reflecting the very different environment for EVs in 2025 compared to 2024. Our retail EV demand surged ahead of the expiration of the $7,500 tax credit. Production levels remained steady as OEMs work through the elevated dealer inventory. Sequentially, BMS sales came in modestly higher. Overall, in the Americas, strength in cockpit electronics helped partially offset the year-over-year decline in BMS sales. In Europe, our sales were flat year-over-year. We saw solid gains in cockpit electronics and ICE hybrid as well as battery electric vehicles across multiple customers, including Mercedes EQ and Renault R4 and R5 EVs, the Puma Transit and transporter vehicles from Ford and the Peugeot 208 and 2008 vehicle models that offer a choice of powertrains. Our sales in Europe also benefited from our recent engineering services acquisition, partially offsetting some of this strength was the production downtime at JLR, where operations were halted for the entire month of September, due to a cyberattack impacting our Q3 sales by approximately $12 million. In the rest of Asia, excluding China, we continue to make progress on our strategic initiatives to diversify our customer base and expand into the 2-wheeler market. In Q3, sales benefited from ongoing traction in the 2-wheeler market and from the recent launch of our digital cluster program across multiple car lines with Mitsubishi. Offsetting these were declines in vehicle production at a few of our customers in the region. In China, third quarter sales declined year-over-year as expected, primarily driven by negative vehicle mix with Geely and the ongoing market share loss of global OEMs, partially offset by new product launches. On a sequential basis, however, sales remained stable, supported by key programs, including the new Buick GL8 with GM, Toyota Corolla, and the cockpit domain controller with Geely. We believe this performance represents a baseline level for our China business, from which we expect to return to growth in the coming years. Turning to Page 4. We launched 28 new products across 10 different OEMs in the third quarter, underscoring the market fit of our product and technology portfolio as well as our program execution capabilities. These launches spanned a broad range of vehicle segments and geographies and were featured on several flagship vehicle models, reinforcing the trust our customers place in our ability to execute and deliver these complex systems. Some key highlights include an audio infotainment system on the Ford Super Duty and a multi-display system for the Chevy Corvette at GM. Large displays are becoming key requirements in all regions. We launched a new dual display system on the Renault Boreal, which is a C-segment SUV based on the Dacia Bixter for markets outside of Europe with first launch in Brazil. In 2-wheelers, we launched digital clusters across 3 models with TVS in India, our first with this OEM. TVS is the third largest 2-wheeler manufacturer in India, with annual sales of about 3 million vehicles. This is also the first introduction of an all-digital cluster by this OEM, highlighting the growing trend of digitalization in the 2-wheeler market. In Commercial Vehicles, we introduced a SmartCore-based cockpit system for off-road construction equipment with Volvo that enables advanced features, such as dig assist for excavators and load assist for wheel loaders that delivers high excavation accuracy in a fraction of the time compared to conventional methods. These systems use multiple sensors and highly accurate GPS technology to run sophisticated software algorithms on our proven SmartCore platform. Lastly, we launched an upgraded SmartCore cockpit domain controller on the refresh Zeekr 001 luxury electric vehicle. The 001 has been a successful vehicle for Geely with over 300,000 sold since its introduction in 2021, and the latest version will be offered in 6 countries in Europe besides China. New product launches with customers such as Geely and Cherry remain central to our strategy for returning to growth in China. Our Q3 launches illustrate the fit of our products for not only the passenger car market, but also 2-wheeler and commercial vehicle markets. Year-to-date, we have now introduced 65 new products, reflecting our continued focus on innovation, and disciplined program execution. Turning to Page 5. Q3 was another strong quarter for new business wins, and we now expect to close the year at greater than $7 billion, higher than our initial target of $6 billion. Year-to-date, we have secured $5.7 billion in new business awards, which is up from $4.9 billion in the same period last year, with wins across 21 unique OEM customers. The product mix is led by displays, which represent more than half of our total awards so far this year, as carmakers seek to refresh and differentiate the cockpit experience, even on existing vehicle platforms. Importantly, we also secured $2.3 billion in new SmartCore digital cluster and infotainment programs despite a relatively slow quoting environment, as carmakers adjust to rapidly changing market dynamics. The strong performance reflects the strength of our product and technology portfolio, which continues to lead the auto industry and help us in expanding into two-wheeler and commercial vehicle markets. On the right side of the slide, you can see a few examples of notable wins this quarter. We won a panoramic display with a European OEM covering both hybrid and battery-electric models launching in mid-2028. This is our first win with this brand and the display will initially debut in the European market with later expansion into other major markets. Another significant win is for a large dual driver and passenger display for a premium luxury brand. Our product integrates to OLED panels under a single cover glass, featuring switchable privacy for their display. Our competitiveness on technology and cost supported by our in-house design and manufacturing capabilities were critical factors in securing this business. In Asia, we continue to expand with the world's largest OEM, winning a digital cluster program for an affordable performance model, another step in deepening our relationship with this key customer. And in China, we secured a SmartCore high-performance computer program with Cherry, which will enable AI capabilities to enhance the cockpit user experience. Cherry is one of China's leading domestic OEMs and also a leading exporter of vehicles. The product will initially launch in their plug-in hybrid SUV models, followed by the next generation of battery electric vehicles. This represents our second HPC win in China, the first was with Zeekr. And when these 2 programs launched in the second half of 2026, they will be the most advanced systems globally, setting a new benchmark for next-generation cockpit products. Turning to Page 6. Just a few years ago, electric vehicles and China were seen as the 2 most significant growth drivers for the industry. However, that has changed quite rapidly over the past couple of years, and the industry reality is very different today. EV adoption outside of China has progressed more gradually than many had anticipated, and recent policy changes in the U.S. present additional challenges. In China, the large number of car brands operating in that market has triggered a fierce price war that has raised on for the past couple of years and resulted in notable changes in OEM market share. On the technology front, artificial intelligence has overtaken SDV as the most exciting technology trend with Chinese OEMs leading the industry in early adoption of this technology. In response, we have taken deliberate steps to broaden our strategic initiatives to address the air pockets in our growth trajectory created by these industry dynamics. I would like to take a few minutes to share how we are thinking about these evolving industry trends and the progress we are making on our broader growth initiatives. Carmakers outside of China are launching new vehicle models that offer a choice of powertrain, ICE, hybrid and battery electric and with larger displays and advanced cockpit electronics. This is especially the case in Europe as carmakers prepared to compete against Chinese imports. We are seeing strong interest in our large displays and latest SmartCore technology for these new vehicles. In the third quarter alone, we launched 5 new cockpit electronics programs for OEMs in Europe and China and have 5 additional SmartCore systems under active development with OEMs in Europe and Asia, with launches starting in Q4 of 2025. We are also making progress with Cherry, where we will launch our first display program in early 2026 for the European market. This initial program served as a strategic entry point, enabling us to expand our relationship with Cherry during the third quarter in the China market with another new business win. Artificial intelligence has the potential to significantly enhance the user experience delivered by cockpit systems. AI-enabled cockpit is an emerging technology trend, and Visteon has positioned itself well with the introduction of the high-performance version of SmartCore and cognitoAI framework, the first of its kind in the industry. In Q3, we secured our second high-performance compute win, this time with Cherry, joining Zeekr as key initial customers for this exciting new technology. We have discussed previously our initiatives to broaden our opportunities by focusing on underrepresented car OEMs in Asia, while expanding into adjacent transportation markets of 2-wheelers and commercial vehicle OEMs. We are also expanding our product portfolio with new in-house developed products, such as the App Store and cameras for ADAS applications. In the third quarter, we made solid progress. We launched an app store with Maruti Suzuki in India, our first launch of this product, which now supports over 100 apps that are available for download. We are also working with 2 additional OEMs for the launch of this app store in their vehicles in 2026. We also launched multiple products in the 2-wheeler and commercial vehicle markets, which have already highlighted earlier in the call. Year-to-date, roughly 25% of our new business wins are tied to our strategic growth initiatives, a key reason we now expect to exceed our original new business win target by at least $1 billion. Overall, we remain confident in the long-term prospects for the business. In addition to our top line opportunities, we continue to expand margins, generate strong cash flow and deliver best-in-class returns on invested capital. With that, I'll hand it over to Jerome, who will walk you through the financials in more detail. Jerome? Jerome Rouquet: Thank you, Sachin, and good morning, everyone. Consistent with recent quarters, we again delivered a strong operational and cost performance as well as a robust cash generation despite sales being slightly lower than originally expected. For the quarter, sales were $917 million, a 6% decline from the prior year. We continue to see strong growth in cockpit electronics across the Americas and Europe, along with higher engineering services revenue on a year-over-year basis. As expected, this was more than offset by lower battery management system sales in the Americas and reduced sales in China. However, what we did not expect was the negative impact of JLR unplanned shutdown for the entire month of September, which represented a little over a point of sales. Adjusted EBITDA for the quarter came in at $119 million underscoring our continued focus on operational execution and disciplined cost control. Adjusted EBITDA margin was 13%, benefited from our ongoing efforts in product costing and productivity. We did have net positive nonrecurring items this quarter, which contributed approximately 0.5 point to the margin. Adjusted free cash flow was $110 million, driven by a robust EBITDA performance as well as favorable timing of cash flows. During the quarter, we paid our first quarterly dividend, marking an important step in continuing to return capital to shareholders and reinforcing our commitment to a balanced capital allocation strategy. We closed the quarter with $459 million in net cash, giving us the flexibility to continue investing in the business, pursuing technology accretive acquisitions while delivering shareholder returns. Turning to Page 9. Sales for the quarter were $917 million, down $63 million year-over-year. Customer production volumes remained essentially flat, while growth versus market was negative 5% for the period. Growth over market came in below our expectations this quarter, driven by a combination of factors. First, production mix was a headwind. Several of our key customers, including Geely and others saw increases in overall production volumes, but not on a specific vehicle lines where we have content. This diluted our growth over market performance. Second, as we have discussed, JLR was another headwind. Sales with JLR were on track to outpace the customer's production before the shutdown, which impacted the contribution to growth over market. Customer recoveries, primarily tied to prior semiconductor cost increases, reduced sales by approximately 2% year-over-year, as those input costs continue to decline. Normal annual price reductions to customers were around 1%, consistent with our historical average. FX provided a modest benefit in the quarter. Adjusted EBITDA for the quarter was $119 million, flat compared to the prior year. However, adjusted EBITDA margin improved by 90 basis points, reflecting strong performance in product costing and productivity, the benefit of onetime items as well as contribution from M&A. These gains were offset by the flow-through impact of lower sales. Net engineering as a percentage of sales was 6.3% for the quarter and includes the recent engineering services acquisitions we have made over the last 12 months. Excluding the acquisitions, our net engineering expense remains in the 5% range, slightly lower than our original expectations for the quarter. We continue to leverage our platform approach and best cost footprint while advancing multiple initiatives to improve engineering productivity. At the same time, we are investing in strategic engineering capabilities, including AI applications to support our upcoming high-performance compute launches in China and the development of cognitoAI. Adjusted SG&A was 4.9% of sales, reflecting a healthy balance between ongoing cost controls and targeted investment in key teams and technologies to support future growth. Our normalized margins remained in the mid-12% range, and Q3 provides another data point illustrating the run rate of the business. The sustainable margin performance continues to be driven by the cost initiatives we have undertaken, including product costing, engineering productivity, platform-based product development, and AI-driven process improvements while continuing to invest in the business. Turning to Page 10. Visteon generated $215 million of adjusted free cash flow through the first 3 quarters of the year. We continue to benefit from a robust level of adjusted EBITDA, converting EBITDA to cash at a 56% rate, still above our 40% target when excluding the working capital inflow. Trade working capital was a net inflow, reflecting lower sales and strong collections, partially offset by higher inventory levels associated with the unplanned shutdown at JLR. Cash taxes were higher compared to last year, driven by continued improvement in profitability across most jurisdictions as well as the timing of cash payments. Net interest remained a positive contributor as interest income earned on our cash exceeded the interest expense paid on our debt. We also had an outflow this year related to our 2024 annual incentive program, which was paid in 2025 and at higher levels than the prior year, reflecting the strong financial and operational performance in 2024. In addition to this payout in the first quarter, other changes this year, including U.S. pension contributions and the timing of various other cash flows. Capital expenditures were $88 million, representing 3.1% of sales and were slightly below our full year expected run rate. In the first 3 quarters of the year, in addition to ongoing investments supporting customer programs, we continue to invest in several vertical integration initiatives, as I have mentioned on previous calls. These initiatives allow us not only to improve our product costs, but as well to derisk our supply chain while controlling more of the technology that goes into our products. In the quarter, we paid our first quarterly dividend approximately $8 million. We ended the quarter with $765 million of cash and a net cash balance of $459 million. In the fourth quarter, we plan to increase our capital allocation to shareholders. In addition to our recurring quarterly dividend of $0.275 per share, we will return additional capital through share repurchases. We currently have approximately $125 million of authorization remaining under our existing program and anticipate retiring between $20 million and $30 million of shares during the quarter. We may go beyond that range on an opportunistic basis, depending on market conditions. This puts us on track to complete the program by the end of next year, consistent with the plan we laid out during our 2023 Investor Day. Turning to Page 11. Our current outlook remains within the range of our previous guidance. On sales, we are now tracking below the midpoint of the range, closer to approximately $3.75 billion, reflecting the latest customer schedules. First, we are incorporating a reduction in battery management system sales following the elimination of the 7,500 EV tax credits in the U.S. We expect this headwind to persist into 2026. Second, we have incorporated some continued level of production disruptions at JLR throughout mid-November. Under normal conditions, JLR contributes approximately $10 million to $13 million in monthly sales. Finally, we are also adjusting our outlook for our largest customer, Ford, due to some scheduled downtime resulting from their aluminum supplier plant fire. We believe the JLR shutdown and scheduled downtime at Ford with an estimated impact of $30 million to $40 million are temporary in nature and do not reflect the underlying run rate of our business. Focusing on Q4, we anticipate a modest sequential increase compared to Q3. We expect to benefit from new program launches and higher customer production volumes, which we believe should more than offset the incremental headwinds from the aluminum supply disruption and lower BMS sales. The impact from JLR is expected to be similar in both quarters. For growth of the market, we anticipate improvement in the fourth quarter compared to Q3 despite some of the near-term headwinds. For the full year, we currently estimate growth of the market will land in the low single digits. This is below our previous expectations, largely due to the factors I've outlined already, namely production mix where customer volumes have increased, but not necessarily on the platforms we support, a decline in battery management system volumes in Q4 and temporary headwinds from JLR and the disruption caused by the aluminum supplier fire. Our adjusted EBITDA is trending towards the high end of the guidance range. We anticipate Q4 EBITDA margins to be in the mid-12% range, consistent with the run rate we have delivered for the last 3 quarters. Adjusted free cash flow is also trending towards the high end of our range, if not slightly higher. CapEx is trending closer to $140 million, slightly lower than originally anticipated, despite our ongoing investment in the business in sourcing activities and the expected purchase of land for a second manufacturing location in India to support our growing business there. We continue to actively pursue vertical integration opportunities, and our CapEx includes investments this year in several areas, including magnesium injections, display manufacturing and camera assembly. Our outlook illustrates the operational and commercial discipline we continue to deliver on with adjusted EBITDA and adjusted free cash flow, well above our expectations coming into the year despite more modest sales performance than expected. The work we've been doing to win new businesses, expand margins, vertically integrate and generate more cash provides a great foundation for the long term. Finally, I would like to flag a developing risk for both Visteon and the entire automotive industry related to recent trade restrictions imposed by the Chinese government on Nexperia, a supplier of transistors, diodes and other discrete semiconductors to Visteon and the entire automotive industry. The trade restrictions prohibits Nexperia from exporting components outside of China is limiting sales within China and could disrupt production similar to what we experienced in 2021. We understand that Nexperia is currently working to obtain an export license, which has historically taken approximately 45 business days, although details remain uncertain. We hold approximately 30 days of inventory for most affected parts and are actively working to mitigate direct risk to Visteon by qualifying and procuring compatible parts through brokers and distributors. The indirect exposure is hard to estimate as Nexperia components are widely used across the industry and could materially impact customer production schedules. At this stage, it is uncertain whether this risk will materialize or what the impact would be, and accordingly, this risk is not factored into our guidance for all 3 metrics. Turning to Page 12. Visteon remains a compelling long-term investment opportunity. We expect to benefit from higher demand for more digital content in the cockpit regardless of powertrain. Visteon is well positioned for long-term top line growth, margin expansion and free cash flow generation, while our strong balance sheet provides us with significant flexibility to pursue our capital allocation priorities. Thank you for your time today. I would like now to open the call for your questions. Operator: [Operator Instructions] Your first question comes from the line of Luke Junk of Baird.. Luke Junk: Sachin, maybe to start with the forward-looking question. You mentioned in the script, your expectation of returning to a cadence of growth in China. I'm just wondering, how should we think about that into '26, especially through the year and especially thinking about the materiality of the CDC wins into the back half of 2026. Sachin Lawande: Yes, Luke. So if you think about our business in China, right, it has, as we discussed, stabilized in Q3, and we expect that to continue into Q4, and there are launches in China in starting Q4, but also more into 2026. I think we have about 20 new model launches happening next year, but it is predominantly back half loaded, especially with those 2 high-performance compute SmartCore launches, which have also very high value. We expect to be able to outperform customer vehicle production in China next year. Now today, as we stand, I think S&P Global is forecasting customer production volume in China to be lower next year, but I believe it's still too early to call that. And I think there will be some changes. I'll no more be in China next month, and we'll have much better visibility into it. But overall, our expectations are that we would be returning to a growth over market performance back in China next year. Luke Junk: Got it. And then for my follow-up, just circling back to Nexperia, Jerome, I appreciate your comments on the direct impacts. What about the indirect and just latest intel on what your customers are telling you what their production-related risk might be? Sachin Lawande: Yes. Luke, I'll take this and maybe just provide some more context. Jerome already discussed a bit in his prepared remarks, but I think this is a question that might be on everyone's mind. So let me just take this opportunity and give you more context. So Nexperia is NXP standard parts division, right? It used to be part of NXP. And, therefore, in automotive, was widely used given how NXP was prevalent in automotive, got sold to Chinese investors in 2017 and then eventually, this company, Fintech Semi, acquired it in 2019. And I would say about 60% of their business is in auto, and they make very, I would say, inconsequential, but very needed components, things like transistors, MOSFETs, diodes, right? And virtually, every single automotive electronics component has one or more of these parts in use. So that's the usage situation. Now what happened was on account of this issue between Nexperia, the Chinese owners and the Dutch government and the actions that were taken on September 30 by the Dutch government, that has kind of resulted into this escalation between the governments now it's become a little more of a diplomatic role. The short of it is from October 4 onwards, supply from Nexperia China essentially stopped. And that's going into all of these automotive components that I mentioned. Now as Jerome mentioned, they've taken this -- or applied for an export permit, but I think this will require more of a government level intervention and resolution, which could happen any moment. I know that -- and this is also, I think, public information that the Commerce ministers of both sides are in talks to try to find a solution. So we're hopeful that this is imminent and gets resolved. Now specifically about the impact of most suppliers tend to hold anywhere between 2 to 3 weeks of parts inventory on hand and maybe another week in transit and at the OEMs. So we're already into the third week now. And therefore, the criticality of this with every passing day will become higher. Now Visteon has had, since the last semiconductor crisis, a higher level of semiconductor parts inventory, just learning from our experience. And I would say that we probably have a little more cushion than our peers in the industry. At the same time, we are looking for alternate parts and also redesigning some of our products to be able to accept parts that are not strictly pin-to-pin compatible. However, all those things do take some time and that cannot be turned very quickly like what we might be required to do, if within the next week or 10 days, the supply does not resume. So we are hopeful that this thing will be resolved in that time frame, and we will not be required to impact our customers' production. But I believe, regardless that Visteon is probably not going to be the first 1 to impact our customers, given where we stand with our inventory and our ability to find alternate parts. Hopefully, it just gives you a little more context. And this is a developing story. So we will have to just watch this space very closely. Operator: Your next question comes from the line of Itay Michaeli with TD Cowen. Itay Michaeli: Just curious if you can comment on just how some of the shifts in revenue and some maybe slipping into 2026, others maybe being more kind of onetime in nature is maybe influencing your thinking on the 5% CAGR target through 2027 as well, how we should think about BMS directionally into 2026. Sachin Lawande: Yes. Let me take this first, And then I'll invite Jerome to add anything that I might have missed. But when we think about 2026, although it is too early to really be specific, let me share some of the puts and takes as we see right now. First of all, S&P Global is forecasting vehicle production at our customers to be down next year, 3% to 4%, mainly in North America and China, but I do expect that to be revised as many of our customers that have been impacted by all of these things that we have discussed on the call will likely try to recover that cost production next year. So we will have to, again, wait and watch how this develops, but my expectation is that it won't be as negative as S&P Global has the outlook today. Now when it comes to the 2 main headwinds we have faced this year, namely China and BMS, they will play out differently as we go forward. So first, China, as we discussed also in our prepared remarks, we'll start to come back to growth, based on the launches that we discussed, including the high-performance compute launches. And this growth will continue going forward into 2027, as we have additional launches coming in on top of the ones that I just mentioned. Now with BMS, we will have to still wait and see how this develops, but at least in 2026, our expectation is that given the headwinds that EVs faced, especially in the U.S., I expect our BMS revenue to continue to see some decline next year. and then maybe stabilize from that point. And we will have, at that point, also better comps as we go into 2027, and we expect that to be on the path for modest growth, and later in 2028, we also have our first power electronics products that launch. So our strategy for BMS and our electrification in general is to track with the market. We expect the market to increasingly outside of China, take a multi-energy approach when it comes to vehicle powertrains. And yes, the growth expectations have been calibrated significantly lower compared to where we were a couple of years ago. We still do believe that after this lapping that the locker hopefully by 2027, we expect electrification to also continue on a modest growth trajectory. Now as we think about '26 and '27, the other big factor, the 1 that we have discussed previously is our launches with Toyota, and we have several launches more than a dozen launches that are sort of split between 2026 and 2027. And therefore, the full year impact will be most felt in 2027. And that's where we see that step growth occur in our revenue as we go forward. We'll be talking a lot more about this on our fourth quarter call as we usually do, but I thought I would share with you some of the things that we see as we stand today. Itay Michaeli: No, that's super helpful. As a quick follow-up, congrats on the new business booking momentum this year. Is $7 billion sustainable, Sachin, next year and beyond? Or maybe there's some onetime [ ones ] in there this year? Sachin Lawande: No. So let me first explain how -- what's the reason behind it so that there's a better appreciation for what we are seeing and how and why we think that higher levels would be sustained. So the main driver of our wins, even last year, and certainly this year, has been our success with displays, and the investments that we've been making since 2018 have continued to put us in a very strong position when it comes to more complex, larger displays for automotive. Now this has helped us win new business, especially in U.S. and Europe, at a time when coating activity has been lower than normal, especially for electronics. And the reason for that is that the OEMs in these regions have been adjusting or have been forced to adjust their new vehicle launch plans in response to the sudden in their outlook of EVs. Now in Asia, the OEMs there don't have this situation. And therefore, we are seeing opportunity for our full suite of products, including the cockpit electronics products. And therefore, we are winning SmartCore and SmartCore HPC are currently in Asia. Now I expect these OEMs in Europe and U.S. to resume sourcing activity for the electronics are very soon as well, because otherwise, they will be noncompetitive, especially against the Chinese counterparts. So -- and that's what's reflected in our wins this year. If you look at Q3 year-to-date, about 40% of the wins were Europe or 25% in the Americas and then Asia made 33%. And on top of that, and this is really what is the reason why I think this is going to be sustainable, our initiatives with commercial vehicles and 2-wheelers have also contributed to a higher new business win growth. In fact, this year, I think we have more than doubled our new business wins in absolute dollar value over last year. And prior to that, it was a very small portion of our overall business. So all of these, I think, are sustainable. And as we have demonstrated this year in an environment that is pretty challenging, we seem to be able to win more than our fair share of the opportunities out there, it just speaks to the strength of our product portfolio and our cost competitiveness. Operator: Your next question comes from the line of Dan Levy, Barclays. Dan Levy: Jerome, I wanted to start with a question on the margins. And maybe you could just talk about the one-timers. And when we just add up everything for the year, how much is it -- what's the right jumping off point when we're going to start to do our bridges into '26? And then the other thing that I think that's relevant here is we know there's been a number of EV programs that have been delayed, canceled, and there's going to be some OEM recovery payments to suppliers. Maybe what is the magnitude of potential recoveries down the road? Jerome Rouquet: Yes. Thanks for your question. The margins, I would say, have been very strong throughout the year. We've pretty much always exceeded our -- or let's say, the consensus or our guidance from a margin percentage standpoint, Q3 was no different. We were at 13%, even when you normalize this, we were at 12.5%, so slightly above what we had indicated in previous quarters. I think the strength of the margin is coming from all the initiatives that we've been working on for the last few quarters. And it is largely around product costing. We spent a lot of time making sure that our products are competitive in the market from a cost standpoint that includes 1 theme that we've talked a lot about, which is vertical integration. We've also spent a lot of time on productivity in manufacturing, but as well in engineering, especially with AI, which has recently helped us as well to be pretty efficient on the engineering side. So if you step back and look at our margin, we'll be able to finish the year with margins that are slightly over the midpoint of our guidance. And in fact, we'll be close to $0.5 billion in EBITDA for the full year, that includes about $30 million of one-timers. We've had about 25 in the first half of the year and 5, so it was lower, 5 in this quarter. These recoveries are generally related to, as you mentioned, lower program volumes that we've seen or various recoveries on, for example, inventories that we had in excess because of, again, a volume being lowered -- program being lower term volume. So that is kind of the main reason. So I would definitely back that out as we would go into 2026. Now equally, there's always some level of recoveries from -- in that nature as we go into any year. Sachin Lawande: Yes. Maybe I can help also provide more context because our exposure and to EVs is very different than many of our peers because we are essentially, for now at least, really focused on electronics. And the CapEx and other requirements for EMS is significantly different as compared to, say, a traction inverter or something that is very specific to NAV. So in the grand scheme of things, our investments and, therefore, recovery are much smaller as compared to what you might hear from some of our other competitors or peers. Dan Levy: Great. As a follow-up, I wanted to ask about your Toyota exposure. And I know this is a question that's come up in past calls, and I think the number is something like 10% of revenue potentially in '27 or '28, whatever that maybe? Jerome Rouquet: '28. Dan Levy: Yes. Maybe you could just talk about the launch cadence ahead and the line of sight and the confidence that this will ultimately start to become a dominant piece of the revenue that could offset maybe any continued mix headwinds, which may linger? Jerome Rouquet: Yes. No, I'll take that one. So you're absolutely right. We've been obviously very successful with Toyota in terms of business wins recently. And we have a pretty gradual set of launches as we go into '27, and it's going to increase, obviously, numbers as well in dollar terms. So for '25, we'll launch 2 programs overall; in '26, 5; and then in '27, 7 programs. So that shows you a little bit the acceleration that we have as we go into '27. And that's the reason why we've been talking about 10% of our sales going into '28. So it's a fairly significant ramp based on what we've won recently. I think the good news as well with Toyota is that we keep on getting very good engagement with this customer, and there are still opportunities. So obviously, that would go beyond '28 and further, but it's been a very successful story for us. Sachin Lawande: I think we need to maybe just give you more context on the opportunities even beyond this. And having said that, with these launches, 2028, we expect as we said earlier, about 10% of revenue, but these are essentially 2 product lines that we currently are engaged on, right? It's the cluster and displays. And we have opportunities even within those 2 product lines to get on other vehicles. This is still less than 50% of their vehicle platforms and models. So there's still plenty of opportunity for growth. On top of that, we are engaged with them on discussions regarding electronics, right? And given my prior comments about how we see the industry rapidly evolving to use of more and more advanced software-driven features, and AI becoming a very dominant theme or a trend, I think we are very well positioned to support this customer, this OEM in their ambitions with respect to addressing some of the gaps that they have in their portfolio. So for us, this represents much more than just the immediate the 2028 sort of horizon opportunity that we have discussed. So we will continue to explore more opportunities as we go forward. Operator: Your next question comes from the line of Mark Delaney of Goldman Sachs. Mark Delaney: Thanks for the comments on the various product opportunities and your thoughts on the market environment. I'm hoping you can help better contextualize what that all means for consolidated growth in the coming years as you consider share gains with certain Asia ex-OEMs, Axia ex-China OEMs. You were working through the backlog, given the booking strength you're seeing, executing on some of these AI opportunities, but then also some of these headwinds like in BMS and customer mix. And as you put that all together, how is the company tracking relative to the $4.15 billion revenue target you previously discussed for 2027? Sachin Lawande: Yes. Again, I think we will not necessarily specifically comment on '27. We will do that beginning of next year, primarily because we need to get a better handle on the underlying volume assumptions, as we discussed there's a lot of moving parts there. But having said that, we are making really good progress with all the initiatives that I have mentioned on this call and previously as well, starting with Toyota. As Jerome just mentioned, we have these launches. We really have to execute these launches well, which I have no reason to doubt that we would be doing anything otherwise. But the other 1 that I would like to highlight that also really contributes to our growth in 2027 is the launch in '26 with Honda. This is the 2-wheeler opportunity that we have previously mentioned fairly significant. And then on commercial vehicles, we have there's opportunities that are with TRATON, which is the commercial vehicle group constitutes MAN, Scandia and the sub in the U.S. as well as Volvo trucks, which are launching in 2027. So we have, in '27, the situation where China starts to grow. We have this BMS headwind kind of just lapped at that point. So the comparison should be good. And then all these new launches that are kicking in. So we would expect to be in a good position, but we -- I do want to just caveat investing this volume expectations, we need to get a much better handle on, and that's what we will be focused on between now and end of the year. Mark Delaney: Helpful context. And my second question was on BMS and thanks for all the commentary and discussion you already provided there. I did want to understand profit implications for Visteon in that product area over the next couple of years. And given what you articulated around volumes in relation to what customers are now planning for their EVs, how is Visteon operating that business? And is this something that can remain profitable even if BMS sales are at low levels in '26, and maybe in '27 as well? Jerome Rouquet: Yes, I'll take that, Mark. BMS still represents about 5% of our sales. So it's still a significant contribution in terms of product line. Margins are similar to other product lines. So there's not a major difference. Obviously, the more volume we have, the better. But it's not going to be, let's say, a mix impact that we'll see as we go forward. Operator: Your next question comes from the line of Joe Spak of UBS. Joseph Spak: I just -- maybe just to quickly follow up off the last point because it was headed down a similar path. So that suggests BMS is like, again, you said, I think, 5%, so call it roughly $200 million. So just in terms -- so investors could get properly calibrated, like do we think like it's a couple of point headwind and is where sort of things bottom out for '26? And I know it's sort of highly fluid, but like what's your sort of preliminary thinking there? And then related to the -- another topic which came up, which is receiving payments for volume, should we expect that you receive some payments for these BMS shortfalls as well? Or have those already started? Sachin Lawande: Yes. So I think maybe answer the second question first. So for the BMS shortfall, we do anticipate recoveries that, that would be either part of the product piece price or as lump sum as we go forward. Some of that has been reflected in the price already, by the way. So we will continue to monitor the volume and adjust and go back as necessary. And so in terms of the volume itself, we're still looking at the latest information that's coming in from GM, and you have also seen what they have publicly stated. So we believe that it's probably somewhere between 10% to 15% or maybe even up to 20% down sequentially. So we'll have to see whether it recovers in the second half, but in the first half, we do expect to see a drop. And then it will depend on how the underlying demand really holds, right? Because we will be in an environment where for the first time, there are no incentives to drive the behavior. I mean, at the same time, we all know that OEMs will continue to offer their own, but to what extent is yet to be seen. So our expectation in what we would tend to model would be somewhere around 20% to be a little conservative. Joseph Spak: 20% down in '26 versus '25. Sachin Lawande: Correct, correct. Joseph Spak: Okay. And then, Sachin, the second question, a little bit bigger picture, but I recently saw you posted about, I think, what you called the intelligence era versus sort of the software era. And I'm just curious to get your thoughts about how your customers are thinking about AI, maybe by region and how Visteon is positioning themselves for that to benefit? And what type of time frame are we really talking about here? Because some of your customers have to put it bluntly, history been fairly slow to adopt some of these technology changes. Sachin Lawande: And you are starting to see this really kind of become more distinct when you look at China and then the rest. So the way we see, and we are already very deeply engaged with the Chinese is that AI is coming in, in 2 ways, right? So end-to-end ADAS are AI-driven. Today, most of the ADAS uses AI, but it's not end-to-end AI. So that's one big change. The second is AI as a smart assistant for the cockpit. That's the one that we are initially more focused on, and the two wins that we have talked about, one with Zeekr, the other is now with Cherry are for this SmartCore HPC that will bring this AI-based smart assistant for the cockpit. And if you may remember, we talked about our cognitoAI. It was also featured in our CES earlier this year, is the first framework, software framework of its kind that enables you to run AI -- Gen AI models in the car, not in the cloud. And you see many references today to having whether it is Gemini, Google, Gemini AI or something else, but these are essentially cloud applications that limit how extensive that AI-driven functionality can be offered. But in China, we see that already happening. In fact, the 2 launches that I mentioned earlier, next year will feature these AI models, probably from DeepSeek initially. And then on the -- with respect to the rest of the regions, we are seeing a lot of interest in Europe, as you can imagine. But for Europe, the difference that we're seeing is sort of redoing the whole cockpit system to be able to be built on top of AI, they're thinking of AI as an accelerator. So imagine an ECU that you bring in with minimal changes to existing cockpit domain controllers, that would enable them to offer some level of AI-enabled features. So it's not as expensive as what the Chinese would be able to offer, but it is still better than nothing. And that is seen as a stepping stone towards a full-blown AI-driven cockpit. So we are really focused on both those opportunities. One minor thing that is still very relevant that I would like to highlight, it's interesting to note that when you look at the entire cockpit and what the programs in China are doing, they tend to use Qualcomm silicon. But for the AI box as an accelerator that tends to be more NVIDIA. And so we are in the process of really developing solutions for both those architectures, which is kind of unique. I do not expect much activity in that regard from all competitors, especially outside of China, and that should position us well to take advantage of this emerging trend. Operator: Your last question comes from the line of Colin Langan of Wells Fargo. Colin Langan: Just to follow up, trying to get all the puts and takes on the -- some of the commentary going forward. I mean if I think about you mentioned sort of battery management will be a drag into next year. It sounds like that could be about 1 point. I assume that there's good news from the reversal of maybe some of the volumes from JLR and the aluminum disruption, any way to frame maybe the 2-wheeler and commercial market help, and I guess the biggest factor as we look year-over-year, you commented that China will turn positive. Is that going to be the biggest sort of help to improving growth over market as that reverses? And any way to frame what kind of drag that was to this year's growth? Sachin Lawande: Yes. So the 2 big tailwinds we face next year; one is China, obviously; the other launches, by the way, in the rest of the markets, primarily commercial vehicles and 2-wheelers. So these are kind of net new programs that we will be introducing. So in terms of the growth of our market, we expect China to be positive, and we expect rest of the market to also be positive as a result. Jerome Rouquet: And in terms of headwinds this year that will reverse into next year, largely because of JLR and nonetheless, we've assumed so far in this year, a revised outlook $30 million to $40 million of impact. So you would expect that to be a positive as we go into next year. Colin Langan: And how bad has the China drag been on this year's growth though? Jerome Rouquet: We generally are estimating that it's about a 5 percentage point impact. So again, it highlights the fact that excluding China and I would say as well, excluding BMS, our cockpit business has been pretty strong in -- mostly in Europe and the Americas. Colin Langan: Got it. That's very helpful. And then as we think about margins into 2026, you did note that the $30 million of recoveries is high. What is the normal level that we should be thinking about? Is that -- is half of that normal? And then what other drivers outside of the higher volume? Or is it really margin expansion is going to be volume driven, or are there any other cost cutting that we should be thinking about into next year? Jerome Rouquet: Yes. So in terms of the -- your first question, I would say half of that is probably a normal run rate. And it's generally balanced with potentially negative one-timers as well that we may have. But I would say 50% is probably a good ballpark number. In terms of margin drivers, so we've constantly improved margins as we move forward, even with volumes that were slightly down year-over-year. So we'll continue to do so. I think some of my previous comments in terms of why we've achieved good margins in '25 will still be valid as we go into '26. So volume is definitely going to help, but it's our cost. It's our constant focus on productivity, being engineering, manufacturing as well as product costing. And we will start to see pretty significant positive as well as we go into '26, but as well '27 from vertical integration as we are accelerating these initiatives. Kristopher Doyle: Thanks for participating in today's call. I'd like to quickly point your attention to Slide 24, in which we highlight several Investor Relations activities for the fourth quarter. If you are interested in learning more, please contact our Investor Relations team. Thank you. Operator: This concludes Visteon's Third Quarter 2025 Results Earnings Call. You may now disconnect.
Leszek Iwaszko: Good morning. Thank you for standing by and let me welcome you to Orange Polska Q3 2025 Results Conference Call. My name is Leszek Iwaszko, and I'm in charge of Investor Relations. The format of the call will be a presentation by the management team followed by a Q&A session. Unfortunately, our CEO, Liudmila Climoc, couldn't join us today due to urgent private matters. So, the sole speaker will be Jacek Kunicki, CFO. So, I'm passing now the floor to Jacek. Jacek Kunicki: Good morning. I'm pleased to say that the third quarter was very successful for Orange Polska. The success is rooted in our strong operating performance. We've achieved very good commercial growth, especially on the consumer market, where both the customer bases and the ARPOs have increased at a healthy pace. Our wholesale line of business has delivered more revenues and more margins. This comes as a result of new business, that is, monetizing our fiber infrastructure. It will generate more value over the course of the next few years, allowing us to compensate some large wholesale contracts that are due to end in 2026. This should remind us that wholesale is our strategic asset, complementing our retail operations and reducing our risk profile. Successful commercial activity is the anchor of the Lead the Future strategy and our value creation. After 9 months of 2025, we are pleased with the developments in this area as they lay a solid foundation for the strategy going forward. This performance has translated into strong financial results, and let's take a look at that -- these on the next slide. I'm pleased with the financial results of Q3. We have increased revenues, profit and cash generation. Revenues were up by a steep 9.3% year-over-year, including a spike in IT&IS sales and also a strong consistent contribution from the core telecom services business. This solid expansion of the core business, combined with cost discipline, drove the Q3 EBITDA almost 3% up year-over-year despite a demanding comparable base. We're really happy with this result. Our eCapEx has amounted to just over PLN 1.1 billion year-to-date. It is at a comparable level to the same period of last year, and it is in line with our full year plans. This quarterly evolution reflects different timing of CapEx between the 2 years. Following a stronger Q3, the year-to-date level of organic cash flows is also stable year-over-year. This reflects higher cash from operating activities, driven by the EBITDA expansion, which compensated for less proceeds from real estate disposal. My takeaway from this is that robust Q3 results give solid support to our full year prospects. After 9 months of the year, we're confident to deliver on our 2025 objectives and to create further value for shareholders. Let's now look -- take a look at the commercial activity in more detail on the next slide. It came very solid across all core telecom services. What particularly stands out this quarter is Mobile. The net customer additions have exceeded 100,000 and were at the highest in more than 4 years. As you may recall, our B2C strategy is focused on reaching new households not yet using Orange Polska services, in order to unlock the growth potential for the future. We're pleased that it is bearing fruit, and we are enlarging our customer footprint. The robust growth of the customer base was coupled with an increase of the Mobile ARPO, a slight improvement versus the trend observed a quarter ago. This comes due to a strong ARPO development in the main consumer brand, partly diluted by an increasing share of the B-brand customers in the overall customer base. Growth in convergence and fiber was solid, consistent with previous quarters and in line with our strategy. It was a combination of 5% and 13% growth of the respective customer bases and a solid 3% to 4% uplift of the average revenue per offer. In spite of fierce competition in fiber, we are successfully competing in the local battles and growing well by addressing our customers' need for higher speeds and for more content. Commercial growth is essential for future value creation, and these results demonstrate that we have the right commercial strategy to prevail in the core telecom offering. Let's now take a look at how these translated into revenues. Our Q3 top line dynamic was exceptional, above 9% growth year-over-year. It reflects 3 main developments: first, an exceptional hike of the IT&IS sales; second, a consistent growth of the core telecom services revenues. And 3 -- third, the accelerated dynamics of wholesale. Let's now review them one by one in a little bit more detail. The IT&IS revenues went up by an extraordinary 47% in quarter 3. The key driver of this performance was resale of software licenses. It is a tool to create future upsell potential. Hence, despite the large top line, its immediate contribution to profits was negligible. Nonetheless, looking at this development and also at other wins in our pipeline, we are now more optimistic about the future prospects for the growth in IT&IS revenues and profits. What is most important in our top line performance this quarter is that revenues from core telecom services grew by 6.5% year-over-year, repeating their strong and consistent dynamics. You've seen the drivers of this growth: robust increase of our customer bases and solid ARPO development. Finally, the third factor, wholesale. Its growth has accelerated on the back of fast revenues coming from the new fiber optics backhaul business that I mentioned earlier on. It is a multiyear business development, and it gives us a solid baseline also for 2026 and beyond. We anticipate to further grow the value of our wholesale line of business activity in the future. To sum up on revenues, after 9 months of the year, the top line growth exceeds 4%. Revenues from core telecom services are delivering a rock-solid performance this year, supported by robust net customer additions and ARPOs. And three, the new business in wholesale significantly boosts its future prospects, once again demonstrating the value-add of this activity to Orange Polska. Obviously, the profitable revenue growth is the main driver of the higher EBITDA. Let's look at the latter on Slide 7. EBITDA for Q3 has increased by almost 3% year-over-year. It benefited both from growth of the direct margin and from less indirect costs. Direct margin grew by PLN 21 million year-over-year and its underlying increase was even greater. Please note that last year's results included a positive one-off related to capitalization of PLN 53 million customer connectivity costs. Obviously, excluding this one-off, our direct margin for Q3 would have grown by 4% year-over-year. This outstanding growth was driven by high margin from core telecom services and by an increased contribution from wholesale. Indirect costs were PLN 4 million lower versus the third quarter of last year. We benefited from increased efficiency of network operations, including savings in field maintenance. The transformation of the network activity is an important part of our strategy, and we're pleased that we can already report its first tangible results. Q3 indirect costs have also reflected lower growth of labor costs and less advertising expenses versus the previous quarters. To sum up on EBITDA, we are very happy with its growth in quarter 3. It stems from a healthy combination of high margin from core business and cost discipline. And obviously, this is our main recipe to deliver consistent and sustainable EBITDA growth throughout the Lead the Future strategy period. With 3.4% growth for the 9 months of this year, for the year-to-date, we are obviously well on track to deliver on the full year objective in this area. Let's now turn to cash flow on Slide 8. Year-to-date, we generated nearly PLN 670 million of organic cash flow. This is almost exactly the same level as last year, helped by a very solid quarter 3. The OCF benefited primarily from a very healthy growth of cash from operating activity. It increased by almost PLN 200 million year-over-year due to a higher EBITDA and also due to less -- lower working capital requirement. It was offset by higher cash CapEx and also by PLN 80 million less proceeds from real estate disposal than in the comparable period of last year. We're satisfied with cash generation so far and with robust sources of growth coming from the operating activity. We plan for a peak of property sales in Q4, and we anticipate a solid organic cash flow in the last quarter of the year. Our leverage has increased very slightly following the acquisition of the 5G spectrum license and a payment of the dividend in July. However, our balance sheet structure remains very sound. Let's now summarize Q3 on the next slide. So, for us, the underlying message is our commercial and financial results in Q3 were very solid. We're pleased with the performance to date and in particular, with the commercial developments. We have a well-performing core telecom services business. The prospects for wholesale operations have improved substantially, and we see initial signs of recovery on the business market. These demonstrate our strong fundamentals. We're confident to achieve our 2025 objectives and also to create further shareholder value by implementing the Lead the Future strategy in subsequent years. That's all for me and we are now ready for your questions. Leszek Iwaszko: [Operator Instructions] First question is coming from the line of Marcin Nowak. Marcin Nowak: Three questions on -- rather, issues for me. The first one, regarding this new wholesale deal, could you provide more details regarding how much it contributed in the first quarter to both the top line and EBITDA, for how many years this contract is signed, and if you believe that there are similar deals possible in the future with other parties? The second issue, could you provide maybe an update on those provisions for significant risk that Orange has created last quarter? And the third issue, could you provide more detailed plans about the marketing spending and how -- by how it has been lower than in previous quarters? And what are the plans for the following quarters, especially with this lower spending, the commercial performance has been quite good. Jacek Kunicki: Thank you very much, Marcin. I guess I will start with your last question. For the marketing or for the advertising and promotion spend that we were mentioning. When I look at quarter 3, the spending was roughly PLN 8 million lower than in the quarter 3 of the – of last year. And that is -- well, it is much different if we compare to the second quarter where advertising and promotional expenses have actually grown by PLN 12 million year-over-year. So, the difference to the Q1 was not that great. But obviously, quarter 3 was with a different timing of advertising campaigns and spendings versus last year. So that is regarding the costs. On the efficiency of those marketing spendings, I think it's fair to say we're very happy with those. Looking at the level of our net additions, both in postpaid and prepaid as well as in the convergence and fiber, we are very happy with the direction of the -- both advertising and overall the efficiency of the commercial period that we had for the back-to-school activity. And that is -- that has really delivered on our plans. So, we're now focusing definitely on the peak commercial season of Q4 and especially the second part of November and December to make sure that we are able to replicate a successful commercial activity. Then regarding your second question, well, I will not be able to help you much. We have created a provision for risks, claims and litigations of PLN 45 million in the second quarter of this year. And obviously, we've described as much as we can in the notes to the financial statements, but we are unable to provide you with the exact detail as this is commercially sensitive. We do not want to prejudice the outcome of any activities that are covered by the provision. And then regarding wholesale, well, it is a multiyear deal. Again, I will not be mentioning the specific commercial conditions because that is commercially sensitive. But definitely, we did see a much greater contribution of wholesale to the margin creation this quarter versus what we've seen in the previous quarters. I would say it's fair to say some of it was already -- so that was more than PLN 20 million better than in the previous quarters. Some of it was helped by the particular development that I have mentioned, and part was simply due to other business reasons because we do need to remind ourselves that wholesale is an important part of our activity, and it's not driven just by this one deal. And this is something that -- well, we've tried flagging for quite a long time. It enables us to monetize our infrastructure by selling data transmission, by selling FTTH access, by being an active player on all the interconnect market in Poland. It also enables us to decrease the risk profile of our retail activities because we are able to grasp some of the profits on the wholesale market. Getting back to this particular business development, it's obviously a long-term business development that we have, such as they usually are in wholesale. I would guess that the peak of the value will be the next 4 years. And I think we will see a more visible contribution of wholesale or of this business development already in quarter 4. And what I mentioned is when we take a look at 2026, we were aware, and we are aware that some important wholesale contracts are coming to an end and this particular business development should help us to offset the impact of those contracts ending. So, we're back to the state where we expect the contribution of wholesale towards our [ EBIT ] to actually be able to grow year after year. I think that is what I would mention regarding this particular activity. Thanks. Leszek Iwaszko: Our next question is coming from the line of Nora Nagy from Erste Bank. Nora Nagy: Two questions from my side, please. Firstly, could you give us, please, more update on the B2B segment? And what is your outlook for the coming period? And secondly, approximately when shall we expect the next Social Plan to be released? Jacek Kunicki: Thank you very much, Nora. Very relevant questions. So, on the B2B line of business, I think it's fair to say that while this line of business has been extremely successful for us in the past, and the success of the previous strategy was -- B2B was a significant contributor towards that success, we did see the B2B under a greater pressure this year, both from the connectivity business and also from the slowdown on the IT&IS market. Some of it results from a very high comparable base of last year, where we benefited from some specific activity on the wholesale SMSs. Some of it results basically from a slower -- a softer IT market. I think it's fair to say that while we are not back to robust growth yet, so, the B2B trends, I would say, remain relatively fragile. If I'm comparing what we're seeing right now in terms of the amount of deals that we are able to win and the profit margins on the deals that we're able to win, we're getting, I would say, the first signals that could lead us to believe that we could be going back to growth in the next 2 or 3 quarters. That would be my outlook for the B2B. And that is something that we really need. You know that the Lead the Future strategy and generally, the value creation in Orange Polska, it starts with the top line and with a profitable top line, so with a direct margin. And we need the 3 engines of commercial activity to be delivering results. We see the B2C engine really going ahead full steam. We do see an acceleration in wholesale and improved prospects versus the ending contracts of 2026. So, between the last quarter and this quarter, we are more confident about the level of wholesale activity next year. And then I think the next step is we need B2B to get back to solid, consistent growth as it used to deliver in the past. And this is when we will be really happy with our ability to grow the EBITDA, to grow the cash flows on the back of a profitable expansion in the commercial activity. And then getting to your second question, before the year-end I would expect we will close the discussions with the social partners for the next round of Social Plan, which I anticipate it will cover 2026, 2027, and we should come back to you before the year-end with a current report whenever we do finalize it. And then probably this current report will also include some early estimate of the provisions that you would see in the income statement for the fourth quarter. Obviously, the final ones might be -- will be reported when we will report the quarter 4, but stay tuned for the next few months, and I'm sure that we will get back to you with the news on the Social Plan before the year-end. Leszek Iwaszko: Thank you. We have no more voice questions. Two questions that came online. First question, they cover topics we've already discussed, but maybe in a slightly different angle. So, a question from Pawel Puchalski from Santander. Wholesale segment, are you pleased with Q3 2025 Wholesale segment growth pace? And should we expect its further acceleration in coming quarters, years? What are wholesale margins? What is wholesale’s cash conversion? May we consider Q3 '25 wholesale pickup to represent likely driver of 2026 DPS increase? Jacek Kunicki: So, thank you, Pawel, for your questions. And you've rightly spotted wholesale as a point of focus. I think it's very relevant. Yes, we are pleased with the wholesale acceleration in Q3, definitely pleased. I do expect that we will have good value contribution from wholesale also in quarter 4. So that is something that will help us before the year-end, and it makes us even more confident in our ability to post a nice EBITDA growth this year. I think that is definitely a big help. When it comes to the next years, well, you are aware that we were previously anticipating that due to some contracts ending in 2026, wholesale might be under pressure in that year. I think that situation is much easier now, and we would be looking at ourselves actually getting a positive contribution from wholesale year-over-year because of this new business development. So that is definitely improving the prospects for wholesale going forward. And then in terms of margin and cash conversion, what I would say, it really depends on the level -- the margins really depend on the level of -- on the revenue line of wholesale because if you take some interconnect, the margin might be thin when we are looking at the interconnect coming in and going out, like some transit activities. But overall, the relation of revenues to margin is extremely high on those services where we are monetizing the existing infrastructure. And likewise, when we look at the cash conversion ratio, because we are treating wholesale as a way to monetize mostly existing infrastructure, then yes, the conversion of revenues to cash is extremely high, much, much higher than on the retail activity. It is because we are using and monetizing whatever infrastructure already exists. So obviously, wholesale has its limit when it comes to the size because by nature, it is filling up the needs of our competitors in this area. But the -- our ability to extract margin and cash from whatever revenues we get is extremely high. And that's why wholesale is a very important contributor to our results. On the DPS, I think it's -- stay tuned and we will talk about that in February because that is the moment that we make the decisions, and we are in a position to make some recommendations. What I keep on repeating throughout this year is that our primary focus with all the months except February, is to create conditions to allow us to be generating more profits and to be in a position to share more value creation with our stockholders, shareholders. And so, I do believe that the growth of profit and cash generation in quarter 3 is an important step in the direction of further value creation for the shareholders of Orange Polska. Leszek Iwaszko: We have another voice question coming from the line of Dawid Górzynski from PKO BP. Dawid Gorzynski: I have 2 questions actually. First on net customer additions in Mobile segment. It was particularly strong in the third quarter. And I wonder if there were some particular large clients that entered the base this quarter or it was like just a successful marketing activity from your side? So, this is the first question. And the second question is about organic cash flow outlook. Right now, we are flat after 9 months of the year, we are flattish, like organic cash flow is flat year-on-year. Last year was particularly strong. And I think that the expectation was that this year, CapEx -- sorry, organic cash flow should be lower. I wonder if you still think this is the true or maybe you see some upside potential? And you think that like exceeding PLN 1.1 billion of organic cash flow this year is at hand? Jacek Kunicki: Thank you very much for your questions. I think starting from the net additions, yes, we did have a support of 2 large accounts in the Q3 numbers. And so, this was -- this is something that we are quite happy about. You could have read in the press that we took over 15,000 sim cards from the Polish Post. But this -- even if you were to take out those larger deals, it's still the best quarterly result in the last 3 years. So, I think -- I'm looking at the data right now for B2B, for B2C, for all the brands of both B2B and B2C, and it's -- across the board, we are very, very happy with all the results. If I take a look at the main Orange brands, the best results in a few years, new brands, new mobile, very good results, flex brands, very good results. It's across the board, good performance. And I would say both in postpaid and prepaid. So, this is particularly strengthening. And it reflects a good offering that we've had. It was supported by the family offer that we launched. It was supported by, I think, quite good advertising and a straightforward messaging for this commercial period. So, I know that my colleagues in marketing were happy with the results. And also, throughout this year, we do see simultaneously a good increase of the prepaid base. And when we take a look at, again, at the actions of this, it's about the quality of the promotions and the advertising. It is about us strengthening the position in some of the key distribution channels that we have had. And it enabled us to have a volume growth despite the fact that we've significantly increased the ARPO in prepaid and that we've gained a substantial amount of revenues and margin from prepaid as a result of that. So generally, mobile activity, very good in quarter 3, and I would not say it's a one-off driven activity. Obviously, everyone is now focused on the key period of November, December, where we need to be smart about the level of retentions that we make. But equally, we want to get as much as we can from the market when the availability comes in. So that is on the net additions. For the organic cash flow, I believe the PLN 1.1 billion that you mentioned was 2023. And last year was PLN 980-something million. I do agree this was quite a strong comparable base, which is something that we had mentioned. We are stable after 3 quarters. We are heading into quarter 3 with quite good operating performance dynamics, quite good from the perspective of the EBITDA and the ability to convert the EBITDA on to operating cash flow. So that is definitely supporting quarter 4. I think the main unknown today is how much real estate will we sell in Q4. Obviously, we're planning for a peak of real estate sales. That is directly helping our cash position. And so that remains, I think, the main uncertainty. But we are relatively confident about posting a good result, both in Q4 and for the full year. Leszek Iwaszko: And we have one more text question from Piotr Raciborski from Wood & Co. Congratulations on strong Q3 2024 results. Could you please again comment on strong ICT sales growth? Do you expect similar growth trends in the upcoming quarters? Do you see an increased demand on IT services from public institutions? Jacek Kunicki: Okay. Thanks a lot. Well, we don't expect that 47% year-over-year in quarter 4. It was quite an exceptional event. And I did mention it's -- it was driven by resale of licenses with a small margin. But it is important that we conduct these deals for the sake of the future upsell that we are able to do on the back of these deals. So, I would really not disregard the resale of licenses and our ability to then monetize on them over the next 4, 5 or 6 quarters. That is definitely worth doing, and we will continue doing that. Then regarding the future prospects, I think for us, it's not only a matter of Q4, but it's a matter of getting the right momentum to grow the revenues and margins from IT&IS or from ICT over the next years. I think when we take a look at the long-term potential, we are very optimistic. There is growth that is there to be had over the next years, both for revenues and for margin creation. And that is definitely the case. When it comes to IT, yes, it includes IT. I think that the IT market, while it was relatively soft this year, I do believe that it has still a lot of growth potential. And so, we definitely count on ICT revenues and margin growth in the next periods to come to help us to increase the EBITDA, increase cash generation and deliver value for shareholders. Leszek Iwaszko: Thank you. It appears we have no further questions. Thank you very much for participation. Please let us know if you'd like to meet us and then talk to you in February. Thank you. Jacek Kunicki: Thank you very much. Bye-bye.
Operator: Good morning. Welcome to Sonic Automotive Third Quarter 2025 Earnings Conference Call. This conference call is being recorded today, Thursday, October 23, 2025. Presentation materials, which accompany management's discussion on the conference call can be accessed on the company's website at ir.sonicautomotive.com. At this time, I would like to refer to the safe harbor statement under the Private Securities Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company's products or market or otherwise make statements about the future. Such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables in the company's current report on Form 8-K filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference. David Smith: Thank you very much, and good morning, everyone. As she said, welcome to the Sonic Automotive Third Quarter 2025 Earnings Call. Again, I'm David Smith, the company's Chairman and CEO. Joining me on today's call is our President, Jeff Dyke; our CFO, Heath Byrd; our EchoPark Chief Operating Officer, Tim Keen; and our Vice President of Investor Relations, Danny Wieland. I would like to open the call by sincerely thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. We believe our strong relationships with our teammates, guests and manufacturer and lending partners are key to future success. And as always, I would like to thank them all for their continued support and loyalty to the Sonic Automotive team. Turning now to our third quarter results. Reported GAAP EPS was $1.33 per share. Excluding the effect of certain items as detailed in our press release this morning, adjusted EPS for the third quarter was $1.41 per share, a 12% increase year-over-year. Consolidated total revenues were an all-time quarterly record of $4 billion, up 14% year-over-year, all-time record quarterly consolidated gross profit grew 13% and consolidated adjusted EBITDA increased 11%. Our third quarter earnings were negatively affected by a significant increase in medical expenses and a higher-than-expected effective income tax rate, which partially offset the strength of our operating performance. Moving now to our Franchised Dealerships segment results. We generated all-time record quarterly franchise revenues of $3.4 billion, up 17% year-over-year and up 11% on a same-store basis. This revenue growth was driven by a 7% increase in same-store new retail volume, a 3% increase in same-store used retail volume and a 6% increase in same-store fixed operations revenues. Third quarter new vehicle volume benefited from an increase in consumer demand for electric vehicles ahead of the expiration of the federal tax credit, which increased our retail sales volume and average selling price, but pressured new vehicle and F&I gross profit per unit. Our fixed operations gross profit and F&I gross profit set all-time quarterly records, up 8% and 13% year-over-year, respectively, on a same-store basis. These 2 high-margin business lines continue to increase their share of our total gross profit pool, eclipsing 75% of total gross profit for the third quarter, mitigating the potential tariff impact on vehicle pricing and margin to our overall profitability, while also leveraging our SG&A expenses more efficiently than incremental vehicle-related gross profit. Same-store new vehicle GPU was $2,852, down 7% year-over-year and 16% sequentially due to a surge in pre-tariff consumer demand that drove an increase in GPU in the second quarter of 2025. Additionally, a higher mix of electric vehicle sales in the third quarter reduced our franchise average new vehicle GPUs by approximately $300 per unit. On the used vehicle side of the franchise business, same-store used volume increased 3% year-over-year and same-store used GPU increased 10% year-over-year and decreased 4% sequentially from the second quarter to $1,530 per unit. Our F&I performance continues to be a strength with third quarter record franchise F&I GPU of $2,597 per unit, up 11% year-over-year and down 5% sequentially due in part to the elevated electric vehicle sales mix in the third quarter, which reduced average F&I GPU by approximately $100 per unit. Absent the transitory third quarter EV headwinds, continued strength in F&I per unit supports our view that F&I will remain structurally higher than pre-pandemic levels even in a challenging consumer affordability environment as we continue to fine-tune our F&I product offerings and cost structure. Our parts and service or fixed operations business remains very strong with an 8% increase in same-store fixed operations gross profit in the third quarter. Same-store warranty gross profit continued to be a tailwind in the third quarter, up 13% year-over-year despite strong warranty performance in the prior year period, and same-store customer pay gross profit grew 6% year-over-year. We believe this continued strength in customer pay revenue is attributable to the increase in technician headcount we achieved in 2024 and our efforts to not only retain these technicians, but to continue to grow our technician capacity in 2025. Turning now to the EchoPark segment. Third quarter adjusted segment income was $2.7 million and adjusted EBITDA was $8.2 million, down 8% year-over-year. For the third quarter, we reported EchoPark revenues of $523 million, down 4% year-over-year and gross profit of $54 million, down 1% year-over-year. EchoPark segment retail unit sales volume for the quarter decreased 8% year-over-year, and EchoPark segment total GPU was a third quarter record of $3,359 per unit, up 8% per unit year-over-year, but down 10% sequentially from the second quarter. While we expected EchoPark used GPU pressure in the third quarter, our ability to acquire quality used vehicle inventory at attractive prices was challenged by unexpected off-rental supply headwinds, contributing to approximately 2,000 fewer retail unit sales than we forecast in our July guidance. While these headwinds persisted through September, we remain focused on increasing our mix of non-auction sourced inventory going forward to benefit consumer affordability and retail sales volume. When combined with the strategic adjustments we have made to our EchoPark business model, we believe we are well positioned to resume a disciplined store opening cadence for EchoPark in 2026, assuming the used vehicle market conditions sufficiently improve. Turning now to our Powersports segment. We generated all-time record quarterly revenues of $84 million, up 42% year-over-year and all-time record quarterly gross profit of $23 million, up 32% year-over-year. Powersports segment adjusted EBITDA was an all-time record -- quarterly record of $10.1 million, up 74% year-over-year, driven by record sales volume at this year's 85th Sturgis Motorcycle Rally. We are beginning to see the benefits of our investment in modernizing the Powersports business, and we remain focused on identifying operational synergies within our current network before deploying capital to further expand our Powersports footprint. Finally, turning to our balance sheet. We ended the quarter with $815 million in available liquidity, including $264 million in combined cash and floor plan deposits on hand. Our focus on maintaining a strong balance sheet and liquidity position allowed us to complete the acquisition of Jaguar Land Rover, Santa Monica in the third quarter, following our previously announced acquisition of 4 Jaguar Land Rover dealerships in California at the end of the second quarter, cementing Sonic Automotive as the largest Jaguar Land Rover retailer in the U.S. and further enhancing our luxury brand portfolio. Going forward, we remain focused on deploying capital by a diversified growth strategy across our Franchised Dealerships, EchoPark and Powersports segments to grow our revenue base and enhance shareholder returns. In addition, I'm pleased to report today that our Board of Directors approved a quarterly cash dividend of $0.38 per share payable on January 15, 2026, to all stockholders of record on December 15, 2025. We continue to work closely with our manufacturer partners to understand the potential impact of tariffs on manufacturer production and pricing decisions and the resulting impact tariffs may have on vehicle affordability and consumer demand going forward. To date, we have not seen a material impact on vehicle pricing as a result of tariffs, but our team remains focused on executing our strategy and adapting to ongoing changes in the automotive retail environment and macroeconomic backdrop, while making strategic decisions to maximize long-term returns. Furthermore, we remain confident that we have the right strategy and the right people and the right culture to continue to grow our business and create long-term value for our shareholders. This concludes our opening remarks, and we look forward to answering any questions you have. Operator: [Operator Instructions] Our first question is from Jeff Lick with Stephens. Jeffrey Lick: You guys have an interesting little used car market test tube in your business model with given the franchise business and EchoPark. It looks like you kind of outperformed your peers and did pretty well in the franchise and then EchoPark had some issues. Obviously, you mentioned the rental supply headwinds. I was just wondering if you could elaborate even more, just kind of what's this saying about where the used car market is in general? And any specifics you could give? Frank Dyke: This is Jeff. From a franchise perspective, obviously, we trade for a lot more cars on the franchise side because of the new car business. And so we have really focused on dropping our average cost of sales. So we're trading, we're being more aggressive on our trades. I think our average cost of sales moved from $37,000 over the last 4 or 5 months down into the $33,000 range, $34,000. That makes a big difference. We're focused on bringing it even down further. We'd like to get below $30,000. A little harder to do on the EchoPark side because we're acquiring most of those vehicles out of the auctions, although we've been focused on buying more cars off the street. And as you said, the rental car company issue, that David talked about in his opening comments, it dried up for us. That cost us about 2,000 units during the quarter. A little bit of a surprise to us. We're offsetting that, working with our new car franchises and our buying team, buying -- getting more aggressive on buying vehicles really for EchoPark under the $24,000 price target. And you'll see us improve that as we move through the fourth quarter. Heath R. Byrd: And this is Heath. I'll add one more thing. We started an initiative with the franchise of really focusing on a good process and putting in technology for buying off the service lane. So that's really helped that side of the business as well. Jeffrey Lick: And then just a quick follow-up. On the $31 million in incremental comp, which I think a good chunk of that was medical expenses. Could you just elaborate where does that stand going forward? Heath R. Byrd: Yes, sure. This is Heath. First of all, we're guiding, as you know, for the full year in the low 70s. If you look at medical, which was driving that, it was $0.05 worse sequentially from Q2 to Q3, $0.10 worse year-over-year. We expect medical to be flat from Q3 to Q4. So total SG&A for Q4 is expected to be the $72.8. But it is driven by the medical and that is utilization as well as increased cost. We are self-insured. And so obviously, everyone is getting an increase in medical premiums going forward. And so we're addressing it as every other company. We'll be increasing the premiums collected, which should handle that issue that we saw in Q3 and expect it to be similar in Q4. Operator: Our next question is from Michael Ward with Citi Research. Michael Ward: I wonder if you can provide any color on a walk in the franchise gross from Q3 to Q4 and then into 2026? Because it sounds like you had $100 impact from BEVs, and it sounds like there are some other unusual events. So how do we look out? It sounds like 4Q is higher and then maybe even relatively flat on a variable gross basis for over a year. Is that what we're looking at like kind of more consistency, ups and downs, but kind of moving to the same range? Frank Dyke: This is Jeff. I think with the increase in the BEV volume at the end of the quarter, that really drove -- I think it was $100 down in front PUR and $50 in back-end PUR sequentially. But I expect to return to normal margins and maybe even improving margins as we move into the fourth quarter. We're seeing that already because of the lack of BEVs. We really pressed hard to move all our BEVs out. We're about 4% of our total inventory today are BEV units. I think that's about 800 units on the ground. We have significantly reduced our exposure to that product, which has been obviously a drag for everybody from a front PUR perspective. So I would expect fourth quarter margins to improve sequentially. And I would expect them to continue to improve as we move into 2026 or at least be flat with where we are in Q4. So a little hit at the end of the third quarter, but smart because we reduced our exposure to all those BEV units that we had on the ground, and that was just the right thing to do from our perspective. Heath R. Byrd: And this is Heath. Just a little bit more color. If you look at -- in total, the EV, we make less gross by $3,275. And the mix in Q3 went from 8.3% in Q2 to 11.9% in Q3. So that's what created the $100 headwind in front and a $50 headwind in F&I. Danny Wieland: And just rounding that out, this is Danny. I mean that's a 54% volume increase from Q2 to Q3, which is in line with what the industry saw from an EV penetration. But as you think about that, we sold 3,600 EVs in the third quarter, and we would expect that volume to be much lower in the fourth quarter now that the federal tax credit is not available. So the normal seasonality we would expect from a volume perspective may not hold where we typically see a 10% uptick from 3Q to 4Q in new vehicle volume. Last year was even more of an anomaly, closer to 20% because of the BMW stop sale issue we saw in the third quarter of last year, where we pushed sales into 4Q. But as we think about it, it could be more of a mid-single-digit volume growth sequentially from 3Q to 4Q because of the lack of EV. That should obviously benefit GPU given what Heath said about the relatively lower margins. But from a total volume perspective, it's something to be mindful of. Michael Ward: And as you look at the JLR business, is it fair to say that, that had a bigger impact on parts and service than it did on the new vehicle side? Frank Dyke: Yes. This is Jeff. We had plenty of new vehicle inventory supply. That wasn't an issue at all. And it is a drag on the parts and service business. But that's slowly going to get corrected and come back and -- but definitely, the drags in parts and service, not on the volume side. David Smith: But I will say -- this is David. I will say that we've benefited from scale in our -- being the largest dealer now for JLR has been really fantastic. We've had inventory when others haven't. And I think going forward, I think that those acquisitions are going to prove to be some of our best because those are -- you mentioned your previous question, the GPU. Those are some of our greatest -- highest GPU stores in the company. Michael Ward: Makes sense. If I can sneak in one more, just on the Powersports side. You've had great performance there. And do you have any data that how big this industry is? And is there a better consolidation opportunity in Powersports than you would see in the new vehicle/used vehicle side? Frank Dyke: I don't know if there's better, but there is certainly a big opportunity. And we're learning how to operate the Powersports business. You can see we sold 1,105 million new and used motorcycles or Harley's during the rally. That beat the all-time record of 718 that was set years ago. And that's just training, technology, pricing, inventory management and bringing things in our skill sets that we have on the franchise side of the business and EchoPark of the business into Powersports. And as David said in his opening comments, we have great opportunity to continue to grow the footprint that we have, but there are certainly -- we're getting deals every day coming across our desk with great opportunities to buy. And as we get better and better at operating, I think you'll see us expand that footprint. Great money in it, great opportunity, great customer base. So bringing our technology and our processes is making a big difference. David Smith: And this is David. I'd just add that it's a real complement to our team that we're now the manufacturers are coming to us wanting us to buy more and coming to us with some opportunities. So that's -- and that's how we bought Sturgis, actually, those deals. And so it's great to see we're really proud of the progress our team has made. Heath R. Byrd: And just to see a little bit of color, we view it, it looks like 1990 retail automotive, very fragmented, not a lot of technology, not a lot of sophistication in marketing, understanding how you make money in used service. So we think there's a huge opportunity to create the same kind of formality in that industry as many have done in the automotive retail. Michael Ward: And as you pointed out, a lower multiple, right? Frank Dyke: Way lower. Yes. David Smith: We hear where you're going with that. Frank Dyke: You're right. David Smith: There's a great opportunity, which is why we got into it. And you got to remember the people who -- a lot of our customers are super passionate about the products that we sell. They'd rather have that than a car in many cases. So it's a great business to be in. Frank Dyke: There were over 800,000 guests at the Rally this year. So if you think about it, we sold 1,105, just think about the upside opportunity just at the Rally alone. That closing ratio is not where we want it to be. We can do a lot more. We need more motorcycles and more process and more technology, but we're slowly bringing that on, and it's starting to make a difference. And we've really increased the used vehicle -- the used side of the business, too. That business is up 70% or so for the year. And that's going to continue to grow. That's not something that, that industry has been focused on. Michael Ward: It sounds like a similar playbook. I really appreciate it. Operator: Our next question is from Rajat Gupta with JPMorgan Chase. Rajat Gupta: Great. Just had a couple of follow-ups on the GPU comments. I'm curious that in the third quarter, outside of the electric vehicle headwind to GPUs, was there anything that surprised you in the performance there, perhaps with respect to like how the OEMs are managing the dealer margin or the invoice margin? Automation talked about some different ways in which the OEM might tackle this, maybe in the form of lower back-end incentives or volume incentives, et cetera. Just curious if there was any change there that you observed? And if anything, was it onetime or would you expect that to continue? Relatedly, I was a little surprised by your comment that you would expect 2026 new vehicle GPUs to be similar to the fourth quarter. I mean our understanding is always that fourth quarter is seasonally higher due to the luxury mix. So are you taking into account like even a lower electric vehicle mix in 2026 versus the fourth quarter that's maybe driving that assumption? Just curious if you could tie those comments. Frank Dyke: Yes, that's exactly right. BEV is going to be way, way lower as a percentage of our overall volume than it has been over the last couple of years, which has driven the margin down. And then no real surprises, I don't think from ex BEV for the first 9 months of the year or for the quarter in terms of margin. I think that there are going to be some surprises as we move into the fourth quarter because there's been -- there's an inherent -- you look at October, October slowing, in particular, from a luxury perspective. And I think that the manufacturers are going to have to get super aggressive with incentives in order to move inventory. Our inventory is at the highest level from a new car perspective that it's been all year. And our competitors are the same as we watch it. And I think you're going to find that BMW, Mercedes, they're going to have to be super aggressive. Right now, we're seeing some double-digit decreases in those brands' volumes year-over-year. And we're not alone in that category. And so I do think you're going to start seeing some super aggressive pricing. It needs to come. Those brands need to step up and bring more incentives in order to engage the fourth quarter or it's going to be a more difficult fourth quarter from a luxury perspective than many are projecting. Rajat Gupta: Got it. Got it. Okay. That's helpful... Frank Dyke: That's something that I would encourage you to watch real closely is what's going on, on the luxury new vehicle side of the business. Exchanging a BMW for a Ford exchanges a lot of margin one way versus the other. And I think that's something that we all need to watch as the industry from a luxury perspective slows down in the fourth quarter. Usually, it speeds up. And so we're hopeful that the manufacturers will see that and bring -- start to get really aggressive on incentives. Rajat Gupta: Understood. Understood. We'll keep an eye on that. And a follow-up was on just the warranty penetration. It looks like it dropped from the second quarter by a couple of hundred basis points. I'm curious, was that just again like mix driven because of electric vehicles and those are leads? And your guide was like a further step down in fourth quarter. I'm just curious what's driving that? And what's like a normalized number we should assume when we head into '26? Frank Dyke: Yes, if it's BEV and ex that out, it would have been normal numbers. Danny Wieland: And to that point, that's with the sequential headwinds we saw in F&I, it's primarily the warranty penetration. You got a higher lease mix on BEV. And then again, as we go into the fourth quarter, typically, our fourth quarter F&I is actually a bit lower because of that higher luxury lease mix that we see in 4Q in normal years. But as we go forward, we talked about, I think it was the last call that 2,700 or so is an achievable, consistent run rate in a normalized powertrain mix and brand mix for us, particularly when you think about the benefits of the new JLR stores that we've added in their F&I performance. Operator: Our next question is from Bret Jordan with Jefferies. Patrick Buckley: This is Patrick Buckley on for Bret. Circling back on EchoPark, it sounds like there were some unique headwinds this quarter with the off-rental slowdown. Should we expect any of that to persist into next year? And I guess, should we still be thinking about an acceleration in EchoPark next year as well? Frank Dyke: I think it will -- no, I don't think it will persist into next year. And I think we'll find ways to overcome that by buying more cars off the street. And we're excited, as David talked about in his opening comments, we're going to start to grow EchoPark again next year. So how many stores we open, probably more tailored towards the end of the third and the fourth quarter next year. But with more off-lease vehicles coming back, inventory getting right, prices are going to continue to drop. That's going to be a big help. And so '26 should be a good year for EchoPark and then beyond. And we'll open a few stores next year, like I said, in the last 6 months and then really start growing in '27. David Smith: And this is David. I think it's really important to mention that we're building the EchoPark business just as we've built our core business, not quarter-to-quarter, but we are building it for the long haul. And so we're keeping that in mind, we're going to grow the EchoPark business just as soon as we can and grow it efficiently and smartly. Our team has gotten a lot better about where we build and how much we spend on building and our training processes and all of that. I'm just very excited about the future of EchoPark and what we can do once we really step on the gas of growth. So there's more to come in the future. Patrick Buckley: Got it. That's helpful. And then looking at the Q4 outlook for 10% to 11% growth in fixed operations gross profit. I guess, could you talk about the driver moving forward there, price versus volume? Is there any tariff inflation going on there? And maybe the warranty pipeline, how does that look from today? Frank Dyke: Warranty pipeline looks good. Lots going on. Look, what's driving this for us is our additional headcount and tech count. From March of '24, we really started focusing on growing our techs, training our techs, maturing our techs. That's making a big difference. We've got the stall count. We've got the headcount, and that's making a huge difference for us in delivering. And the thing is that the pipeline is long. There's just -- we see growth year after year after year. And I don't see it slowing down. I see it speeding up. And so we're very, very excited about the efforts we're putting in there to grow our share from a fixed operations perspective across all of our markets. David Smith: And I tell you -- this is David. I'd tell you that our team has just done an outstanding job retaining -- as I mentioned in my comments, retaining and growing those techs that we've really changed the game and changed the attitude of how we hire techs and retain them. Operator: Our next question is from Chris Pierce with Needham & Company. Christopher Pierce: On the franchise side of the business, I just want to make sure I'm following. Was there a demand pull forward in -- like maybe people switching powertrain choices in the third quarter, and that's leading to inventories being elevated in luxury in the fourth quarter? Or are those not related? And are we still expecting typical seasonality and we're expecting the OEMs to step up? Like how does that all sort of fit together if it fits together at all? Frank Dyke: It's definitely a pull forward from a BEV perspective because the incentives ended at least for most brands, and that definitely happened. And inventory is growing from a luxury perspective. We're at our highest inventory levels of the year. Incentives are going to have to grow in order to speed up the volume. And we are not seeing that in October. Like I said, BMW, Mercedes, those brands for us, and I was doing industry checks yesterday, we're talking 15%, 20% reduction so far in this calendar month. And I've seen that in some of our competitors as well. That's tough. The manufacturers need to step up or inventory is going to grow. I think you're going to see the same seasonality, but our growth is usually 10% third quarter to fourth quarter. This year, we're expecting that to be in the 5% range. And like Danny said earlier, last year, it was 20%. So you can do the math. The manufacturers are going to have to step up or inventories are going to grow and margins are going to start coming down. Not having BEVs is going to help margin, but inventory growth can pull margin back if they don't step up and put some incentives out there. And that's a real serious situation. I said it earlier, you got to watch that. Watch what happens in luxury during October, and then we'll see if that spills over into November and December. Christopher Pierce: And have we seen a situation like this where the OEMs wait and wait to pull the trigger on this? Or is it just the market is so kind of weird because of all the incentives that this is uncharted territory? Frank Dyke: Yes. I think the market is weird with the shutdown in -- of the government shutdown. There's some strange things going on here. The tariffs certainly are playing a role, but we -- it's a big -- pretty big dropoff in luxury volume in October year-over-year, in particular, around BMW and Mercedes. Land Rover is a little bit the same, too. Now our business is growing because we've got stores that we didn't have last year, but in our numbers. But -- the luxury business has slowed down in October. And the first 9 months of the year were weird, [ pillaheads, ] tariffs, all kinds of crazy news. This is just sort of a normal month, October and November. And we'll see what happens. Like I encouraged Rajat earlier, you need to watch that and watch what happens from a new car luxury perspective. That's an important mix changes bottom lines, right? And that's important to watch as we move through this quarter. Christopher Pierce: Okay. And then just one on EchoPark. Can you just sort of help me understand, is it typical industry seasonality that rental car companies bring cars to auction at a higher rate in the third quarter after summer travel and that sort of didn't happen this year? Or like is it something -- going back to industry weirdness, is it something that unexpected that happened? Or I just kind of want to flesh that out a little bit. Frank Dyke: Yes. Typically, they defleet. And so we pick up inventory. They did not do that this year. And I think it's just the unknown of the tariff and whether they were going to be able to buy new cars or not. And so we're seeing a little more inventory come in, but not at the levels that they normally do. We typically have 1,500, 1,000 vehicles in our mix from them. And I think I looked at the other day, we were down to 133 units on the ground. And so that's just not normal. And so we're having to replenish that. It did catch us a little off guard in the third quarter, but still nicely EBITDA positive, and we're very excited about the year for EchoPark. I mean it will be a great year in comparison to the last few, as you know, and then really excited about '26 and '27 and moving forward with our growth plans. Heath R. Byrd: Yes. I think to add to that, I think it is interesting that we can handle those kind of bumps now. We're built to be more efficient. So when you have something that comes like this, we've got the scale and we can handle it. When in the past, it was more difficult. Frank Dyke: It didn't blow up the P&L. Operator: [Operator Instructions] Our next question is from Mike Albanese with the Benchmark Company. Michael Albanese: I'm just going to squeeze in a quick one here as you think about, I guess, EchoPark, right? And this was built to kind of compete with the CarMax model. And coming out of the quarter, CarMax had hit a situation where depreciation essentially had picked up pretty significantly. I think kind of a follow of the pull forward in demand seen kind of in the first half of the year. And I'm just wondering if that heightened depreciation that I think hit over the course of like 6 to 8 weeks, it's like 2/3 of the typical annual depreciation curve. If that had an impact on your business, how you think about that and kind of what that impact was? David Smith: Yes. I think we felt the same thing. MMR increases in the second quarter, 106% to 107% drove our average cost of sale up. We tried to pivot to the rental sector. It wasn't available. And so we made the decision to cost us the 2,000 units in volume. So yes, we saw the same thing. Michael Albanese: Yes. Right. I guess the takeaway there being that generally, your sourcing mix being a little bit different kind of protects you against that situation a little bit. Does that make sense? Frank Dyke: Yes. Danny Wieland: And if you remember, Mike, we -- If you recall, we guided to back in July, we expected a little bit of front-end GPU compression, a couple of hundred dollars from 2Q to 3Q as a result of this kind of what we were seeing in the wholesale market and wholesale and retail pricing spreads. What really was the headwind for us that was unanticipated was the volume impact. We didn't have alternate sources, and that's what put pressure on the performance. If you think about those 2,000 units that are normal GPU, really, that's the shortfall in 3Q that caused us to pull down our full year EchoPark EBITDA guide. Frank Dyke: But smart not to go out and try to replenish that volume buying a bunch of cars at auction, they're going to bring the margin even down further. So good decisions made. We need to be more aggressive in buying cheaper cars off the street, and that's something we're focused on for the fourth quarter and moving forward. Operator: With no further questions, I would like to turn the conference back over to Mr. David Smith for some closing remarks. David Smith: Well, thank you very much. Thank you, everyone. We will speak to you next quarter. Have a great day. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you again for your participation.
Maria Caneman: Good morning, and thank you for dialing in this morning. I am Maria Caneman, Head of Investor Relations here at Swedbank. Welcome to our third quarter results presentation. With me today is our CEO, Jens Henriksson; and our CFO, Jon Lidefelt. Jens and Jon will start with the presentation, and then there will be an opportunity to ask questions. Jens, I hand over to you. Jens Henriksson: Thank you, Maria. Swedbank has once again delivered a strong result in uncertain times. The geopolitical situation, continued uncertainty about tariffs and trade and the increasing concerns about weak public finances across the world are slowing down global growth. Twice a year, the world's economic policy decision-makers meet at the IMF. The starting point for their discussions is the world economic outlook, which was published a week ago with the headline, "Global economy in flux, prospects remain dim." With that said, our four home markets have healthy fundamentals, strong public finances, low government debt, innovative companies, profitable banks and low interest rates. In Sweden, we see signs of improvement. Our economists forecast growth of 2% next year, while the Swedish government is more optimistic and projects 3%. In Estonia, economic development is still subdued, and we are seeing some recovery in Latvia and the development in Lithuania continues to be strong. In these uncertain times, Swedbank stands strong and is well positioned for sustainable growth and profitability. We can today report a return on equity of 16% and earnings per share of SEK 7.53 for the third quarter. During the quarter, income increased while cost decreased. Our cost-to-income ratio was 0.35. Strict cost control is producing results. We have a conservative and thorough lending process and, during the quarter, we saw credit impairment reversals. We have a robust ability to generate capital, and we have a very strong capital and liquidity position. During the quarter, Standard & Poor's upgraded Swedbank's credit rating. In their decision, they highlight the bank's improved governance, regulatory compliance and risk management. Furthermore, during the quarter, the U.S. authority, SEC, ended its investigation into the bank's historical shortcomings without enforcement. We are delivering according to our plan, Swedbank 15/27. And as you know, it focuses on three areas: strengthen customer interactions, grow volumes and increase efficiency. Our customer focus is producing results. We have further improved our availability during the quarter, and now 70% of incoming calls in Sweden are answered within 3 minutes, and we are thereby getting closer to our target of at least 80%. We consistently work to improve our digital offerings, and we see that more and more customers do their everyday banking through our app or the Internet bank. We have also increased our efficiency. Our employees can spend more time meeting customers and less time on administration using new AI tools, and the number of advisory sessions per employee has increased. During the quarter, we lowered mortgage rates due to lower policy and market rates. Mortgage loans increased by SEK 5.2 billion, and mortgages in Sweden distributed through our own channels accounted for SEK 4.2 billion. Deposits from private customers are stable, and we continue to be close to our customers and give them advice. Strengthening their financial health is an important task for the bank. Savings and pensions continued to develop positively. Swedbank Robur saw a net inflow of SEK 9 billion in our four home markets. As announced in August, we want to acquire the remaining part of Entercard, thereby, Swedbank will have the largest card business in the Nordic-Baltic region. This will develop our business and strengthen our customer offering. In Lithuania, the business climate remains strong. In Sweden, Estonia and Latvia, economic activity is improving, but from low levels. During the quarter, corporate lending increased by SEK 7 billion. Our customers are showing a high demand for sustainable investments. 36% of the bonds arranged by Swedbank during the quarter were classified as sustainable, and our Sustainable Asset Register has now surpassed SEK 150 billion. We now own 20% of the investment bank, SB1 Markets. And during the quarter, they started up in Sweden. It's an important step in further developing our offering to corporate customers. In addition, our customers will get access to an expanded range of equity research. In the Baltic market, we launched the card payment feature, Click to Pay, a secure and convenient service that simplify payments. Jon, it's your turn now to deep dive into the financials. Jon Lidefelt: Thank you, Jens. We delivered a strong result in the third quarter with volume growth across markets and increasing income. We have continued our work with focus on long-term shareholder value through business growth and cost efficiency. Cost-to-income ratio was 35% and return on equity, 16%. Lending volumes grew in the quarter and the increase came mainly from Baltic Banking, where we continue to see solid growth on both the private and corporate side. Mortgage volumes in Sweden sold through our own channels increased by SEK 4.2 billion, while the savings banks reduced their mortgage volumes on our balance sheet by SEK 1.6 billion. We see continued result of our increased efforts on customer interactions and availability as we're capturing a larger share of the market. In August, our front book market share through owned channels was 16.4%, still below the back book market share of 17.8%, but the development continued in the right direction. Also for the corporate business in Sweden, the positive development continued with increasing volumes, though somewhat offset by repayments related to a couple of larger exposures. Customer deposit volumes were stable in the quarter. In Sweden, private deposits decreased somewhat from a high level as the second quarter was impacted by seasonal inflow of tax returns. In Baltic Banking, deposit volumes were overall stable. Net interest income decreased by 0.9% compared to the previous quarter, driven mainly by lower mortgage rates. Lower deposit rates impacted NII in Q3 with a full quarter effect, while lower rates on the lending side were gradually rolled in during the quarter. Higher business volumes had a positive impact of SEK 94 million in the quarter. Wholesale funding costs continued to decrease in the quarter. Liquidity was, however, reallocated from the markets business increasing liability volumes, but also positively impacted Central Bank placements. and, hence, had an overall neutral NII effect. Day count and FX effects impacted NII positively in the quarter. The Swedish Central Bank cut policy rates effective as of the 1st of October and ECB cut rates effectively as of the 11th of June. Hence, there are further repricing dynamics in play. Reminding you that the positive effect on the funding side materialized ahead of the negative effect on the asset side, furthermore, that it takes approximately 3 months in Sweden for a rate cut to roll in and 6 months in the Baltics. We will continue with our pricing strategy on both sides of the balance sheet and maintain focus on the balance between volumes and long-term profitability. Net commission income increased in the quarter, driven mainly by strong asset management commissions. Mutual funds had a net inflow of SEK 9 billion and combined with the positive stock market performance, increased asset under management to SEK 2,471 billion. Card commissions were seasonally higher in the quarter following higher spending abroad during the summer months, while brokerage and corporate finance commissions were seasonally lower. In addition, we saw positive development in commissions from insurance products. Net gains and losses remained at a high level in the quarter and amounted to SEK 847 million. Income was strong, driven by high business activity, mainly within fixed income. Positive revaluations supported the treasury result. Other income increased by 2.7%. Net insurance decreased driven by both normalized levels of claims compared to the low levels we saw in the second quarter and the effects from revaluations of future cash flows. One-off transfer, in connection with the establishment of SB1 Markets on the 1st of September, also contributed. The results from partly owned companies supported as well as increased income from services to the savings banks. As a reminder, our collaboration with the savings banks include cost sharing for IT development and administrative services. The savings banks' share of the cost is included in Swedbank's total cost, and you can see the corresponding income as services to the savings banks here under other income. Total expenses were 1.4% lower. Fewer employees, together with seasonally lower staff costs, IT maintenance and consultancy costs contributed. As announced in conjunction to the Q2 presentation, a VAT recovery of SEK 197 million related to the year 2016 was received in the beginning of the third quarter. In line with previous patterns, costs will be seasonally higher towards the end of the year. Costs for the full year 2025 is expected to be around SEK 25.3 billion at current exchange rates. This includes the already received VAT recoveries related to the year 2016, '17 and '18 amounting to SEK 576 million. It also includes SEK 200 million lower temporary investments this year and an estimated SEK 300 million lower costs due to FX. Asset quality is solid. During the quarter, there were reversals of credit impairments amounting to SEK 398 million, which corresponds to an impairment ratio of minus 8 basis points. The reversals are mainly driven by improved macro scenarios, and we have continued to reduce the post-model adjustment, which now stand at SEK 364 million. Individual assessments resulted in a SEK 568 million increase, driven by a few larger corporate exposures. At the same time, repayments and reversals of previously written-off exposures resulted in a release of SEK 451 million. I feel comfortable with our strict origination standards and the solid collaterals that secure our lending. Our CET1 capital ratio was stable at 19.7%. In the 2025 SREP, our Pillar 2 requirement was lowered by 40 basis points, and our CET1 capital requirement now stands at 14.8%, meaning we have a buffer of around 480 basis points above the requirement. The reduction by the Swedish FSA stems from two parts. Firstly, 20 basis points are related to the new CRR3 risk weights for standardized credit risks. This has an impact on the Pillar 2 add-on that we shall hold until the new Swedish IRB models are approved. Thereby, approximately 20 basis points of the expected capital relief of at least 50 basis points from the new IRB models has now materialized. We continue to expect most of the remaining impact from the IRB model updates to materialize during next year. The Swedish FSA also approved parts of our nonmaturing deposit model, resulting in 20 basis points lower capital requirement for interest rate risk in the banking book. To conclude, we continue to focus on growth and efficiency. We deliver strong profitability while maintaining prudent underwriting standards, strong liquidity and capital positions. Back to you, Jens. Jens Henriksson: So let me now sum up the quarter. Swedbank once again delivered a strong result in uncertain times. Income increased, cost decreased, and we saw credit impairment reversals. Return on equity for the third quarter amounts to 16%, cost-to-income to 0.35. Our credit quality is solid and our capital buffer is very strong at 4.8 percentage points. Swedbank is well positioned for continued sustainable growth and profitability, and we continue to deliver according to our plan, Swedbank 15/27, with a focus on strengthening customer interactions, growing volumes and increasing efficiency. We create value for our customers and our shareholders, and our customers' future is our focus. With that said, back to you, Maria. Maria Caneman: Thank you both very much. We will now begin the Q&A session. A kind reminder to please limit yourself to two questions per turn. Operator, please go ahead. Operator: [Operator Instructions] We have the first question from Martin Ekstedt, Handelsbanken. Martin Ekstedt: Can you hear me? Jens Henriksson: Yes, we can. Martin Ekstedt: Excellent. So could you just give us a bit more on the SB1 Markets initiative? You mentioned it launched in Sweden in the quarter. Is it now fully staffed up on the Swedish side? And are all the business lines up and running? That's the first one. Jens Henriksson: To be honest, I don't know if it's really fully staffed up. A lot of persons have gone over and I think they're doing some great jobs. So I think they're fully running. And the key point is that this is a partnership that offer our corporate customers a strength and offer through access to a larger set of investment banking services and sector expertise. And both corporate and private customers can also benefit from access to a broader range of equity research. So this is great. Martin Ekstedt: Okay, okay. And then second question, if I may then. I'm looking at your NII sensitivity on Page 20 of the presentation deck. So in the past, the NII elasticity, so to speak, or rate shifts have been balanced around plus/minus side. But your calculation example is now tilted towards seeing a larger impact if rates come down than if they go up. And I just wanted to confirm, this is due to some deposit rates now having reached 0 and therefore, are not able -- at least commercially able to go any lower, right, i.e., it's the floor of 0% rates that you mentioned on the page coming into effect. Is that correct? Jon Lidefelt: You're perfectly correct, Martin. That is the reason. Operator: The next question from Magnus Andersson, ABG. Magnus Andersson: My first question is how you view the prospects of potentially being able to increase the thin household mortgage margins in Sweden now that short-term rates are no longer expected to fall? And related to that, what market growth rate you think is necessary for this household mortgage margin pressure to ease? And secondly, just how -- you have lending growth now 4% quarter-on-quarter in the Baltics FX adjusted. How you view the sustainability of lending growth in the Baltics now that the deleveraging that's been going on for nearly 20 years finally seems to be over? And related to that, how you tame the inflationary tendencies, the impact on the cost base there? Jens Henriksson: Thank you for that. Two good questions. First one is, let me say a few words of the overall situation in the mortgage market, and reminding you that we are the market leader in all four home markets. And first, just me repeat that in the Baltics, we see continued strong growth in mortgage volumes. In Sweden, we've seen that the housing market remains muted, although we see some gradual increasing mortgage market growth during 2025 and you see that we're now picking up some momentum. And the reason for that is that we are more active. We have shorter waiting times and quicker to resolve questions. There is a strong competition out there, and we want to grow. And when that competition abates, we do not know. I don't think the competition will go down. I think it will be continued competition there. Then when you move over to the Baltics, we have seen quite a large volume growth in that. Reminding you that these are steady and stable economies, and we now expect Estonia and Latvia to pick off as well, while Lithuania has been doing very good. Magnus Andersson: Okay. So are you saying that you think the household mortgage margins we have in Sweden currently are here to stay? My question was whether you think there will be a potential to increase them going forward and what the trigger would be able to drive how you would be able to achieve that. Because I think it's a concern to all of us. Jens Henriksson: Well, I won't do any forecast on that. There is a tough competition. But I think when you see higher volumes, I think that we can grow in that environment. Magnus Andersson: Okay. And the inflationary impact on costs, in the Baltics? Jon Lidefelt: Magnus, I think as we've talked about before, I mean, in the Baltic Banking, we have lived with higher inflation for many, many years, even before the inflationary shock. So that is something that we are constantly working with to make sure that we can increase our efficiency to mitigate that. If you look at the societies as a whole, then I mean, our concern, as we have been talking about, generally, it's very stable and healthy. But of course, if the salary inflation continues, then that will eventually lead to a problem since it's going to be hard to pick up on the productivity in line with the current salary levels', increased levels. Operator: The next question from Andreas Hakansson, SEB. Andreas Hakansson: So first question on costs. You mentioned the three VAT refunds you had during this year. Could you tell us how many years have we got outstanding? And just to confirm that you don't assume one of those reversals to appear in the fourth quarter. Jon Lidefelt: You're correct. We have assumed no VAT recovery in the SEK 25.3 billion guidance that I gave you. If that will come, it will come as a one-off extraordinary thing that we will not take into account when we run our ordinary business. So no further VAT in the SEK 25.3 billion. We have, as I think I mentioned in the previous quarterly presentation, requested VAT return recovery for year 2019 up until 2023. It's in the hands of the tax authorities, and I have no visibility in the numbers, and we'll not speculate if and when we would get anything more back there. Andreas Hakansson: Are the cases similar? Or I mean, it seems like you won three cases. So are the other cases different? Or wouldn't the outcome be likely to be the same or... Jon Lidefelt: Sorry, I said '19 to '23. I should have said '19 to '24. But it depends a lot on the interest rate levels since this is sort of depending on the turnover that we have in the parts of our business that is non-VAT related and the one that there is VAT, i.e., mainly the leasing business. So it depends a lot on the interest rate levels for the years, and that's why I don't want to speculate in any numbers or if we would get it back before we have the answer from the tax authorities. Andreas Hakansson: All right. That's fine. Then on the Baltic NII, I mean, you talked about the 6 months' time lag. But could you just confirm that when you talk about that NII should trough 6 months after the loss rate cut, that's with a static balance sheet. And we saw already that NII grew Q3 with Q2 on the back of very strong volume. So if volumes continue at the current pace and, if anything, it seems to be picking up. Is there any reason why the NII shouldn't continue to grow even though you have that underlying pressure driven by interest rates? Jon Lidefelt: First of all, yes, you're correct. When I talk about the 3 and 6 months, then I mean the same margins, the same volumes, and then you'll have to make your own assumptions on that as well as some further central bank rate cuts. When it comes to the NII development in the Baltics, it's impacted by FX in this quarter. So underlying, the NII in the Baltics is stable quarter-over-quarter. Andreas Hakansson: With 3% volume growth, right? So those are the two components there, margin pressure and the volume growth. That's up to 0 in this quarter. Jon Lidefelt: Yes. Operator: The next question is from Gulnara Saitkulova, Morgan Stanley. Gulnara Saitkulova: So on capital, given your solid capital buffer, could you remind us of your latest thinking on how to deploy the excess capital between ordinary dividends, special dividends, buybacks or potential M&A? And how should we think about your approach to excess capital in a theoretical scenario where the AML resolution is still delayed by several years? Would you still aim to be around the midpoint of your targeted management buffer range? Or would you adopt a more cautious stance in that case? And if you were to pursue M&A opportunities, which areas or markets would be of the greatest strategic interest for you for potential acquisitions? Jens Henriksson: Well, thank you for that question. Let me be very short here. And that is that we have a capital buffer range between 100 and 300 basis points. In our 15/27 plan, we target the middle of it, i.e., 200 basis points. We now have a buffer of 480 basis points with a dividend policy of 60% to 70%. And the timing of further capital release continues to be a judgment call depending on the many uncertainties, where the long-running U.S. investigations is the largest one. And we have no intention to hold more capital than necessary. When you look into M&A activity, reminding you that we've had seen quite a lot of M&A activity during the last quarter. We want to acquire Stabelo. We want to acquire the remaining part of Entercard, and both those two are still subject to approvals. And then we've gone into SB1 Markets, which was the first question. As a CEO, I always need to look out for new opportunities. Operator: The next question is from Markus Sandgren, Kepler. Markus Sandgren: I was just going to follow up on Gulnara's question when it comes to Entercard. Can you just give some more flavor of your thinking about the acquisition? And what do you think or what's your planning in terms of asset quality for that company? Jens Henriksson: Well, straightforward, we've had a business cooperation with Barclays, and we own roughly 50-50 each. And they wanted to sell it, and we wanted to acquire it. It's that simple. And the reason we want to do that is that we want to become the largest card business in the Nordic-Baltic region with scale benefits and, of course, benefits also from increased efficiency. And I think Jon will get back later when we have more information when that's fulfilled and tell you the effects on the bank at large. What we will do is we'll do a strategic overview. And when we look on Entercard, we've seen that we think that the risk level is a bit too high, and we wanted to reduce it a bit more to a more appropriate level for Swedbank. Markus Sandgren: And what does that reduction mean? Is it getting rid of loans? Or how do you plan to do it? Jens Henriksson: We -- let us get back to that when hopefully, this goes through all the sort of processes. Operator: The next question from Shrey Srivastava, Citi. Shrey Srivastava: It's actually on the 20 basis points benefit to your sort of capital requirements that you've got from being able to model the contractual maturity of nonmaturing deposits. My question is twofold. The first is, is this all we can expect to see in terms of benefit? And secondly, does this open up the possibility of you sort of investing these nonmaturing deposits in potentially sort of high-yielding, long-dated assets going forward? Jon Lidefelt: Thank you, Shrey. First of all, we have gotten a partial approval for our modeling of nonmaturing deposits. So all things equal, if we would get the full approval, that would be a little bit more to come. When it comes to our NII -- or sorry, non-NMD hedging, I have said in previous quarters on questions from you and your colleagues that we have had some hedges. It's been an important tool for us to have in the toolbox. So we wanted to test it and try it out. But it is and has been immaterial from an NII perspective so that you can discard the impact of the hedges that we have in place when you forecast our NII. The approval that we have gotten, it still means, to make it simple, that our liability side is still shorter than our asset side. So if we would add further hedges to prolong our asset side, which is what we want to do in order to smoothen out NII when the timing is right, it would still mean that our capital for IRRBB, our Pillar 2 charge, will go up even with this approval. It might go up a bit smaller than before, but there still will be an increase. We will come back should we do more or should our hedges be material to make sure that we are transparent should that be in the future. Shrey Srivastava: And a very brief follow-up. You said you received partial approval. Should you receive full approval, what sort of capital benefit can we expect there? Jon Lidefelt: Unfortunately, as long as the Swedish FSA do not change their view on this, even a full approval will lead to the same thing, that if we prolong our asset side, our capital charge will still go up. There is a difference between the Swedish FSA's view and the view that banks under ECB supervision have. They can do this hedging much more efficiently than we can do. Shrey Srivastava: And a final one for me. Have you noticed a sort of softening of the Swedish FSA's view? Because it seems sort of that way, looking at the partial approval you received. Or is that inaccurate? Jon Lidefelt: No, I have not. Operator: The next question from Namita Samtani, Barclays. Namita Samtani: My first one, I just wondered what measures you're taking in the Baltics to bulletproof your ROE of above 20%. I saw an announcement that Revolut is now offering mortgage loans or something similar to that in Lithuania. And in time, that will probably become a full offering. And clearly, the deposit rates they offer better than banks. So what initiatives is Swedbank taking to protect itself from competitive threats? And then secondly, I appreciate the 2025 updated cost guidance. But we're almost through 2025. Could you please qualitatively talk us through the main moving parts of costs going forward or what we should think about going into 2026? Jens Henriksson: Well, the key thing about Estonia, Latvia, Lithuania, these are growing economies, and when compared to Sweden, they will grow with, let's say, 1%, 1.5% more. So it's a very attractive market. And it's also a market that doesn't have the same financial inclusion as there is in Sweden. So that means that we see many possibilities. And I think we went through very much this when we had Swedbank 15/27. In the end, it's about being close to our customers. We are the most loved brand in the Baltic region for the seventh year in a row. We want to grow volumes, continue to grow with the countries. We want to increase financial inclusion. We want to be -- have more customer interactions and want to make sure that we keep costs contained and work in an efficient way. So in that sense, it's not different from the other markets. Is the competition tough? Yes, it is tough. Will it be tougher? Yes. But that's life. Keep on and be close to your customers. Do you want to say a few things about the costs? Jon Lidefelt: I think your question was about 2026 costs, and we will come back in conjunction to the Q4 presentation on that. But principally, we tried to explain how we work with cost efficiency with the headwind and investment and so forth when we had the 15/25 presentation. But more details, I'll come back with when we present the Q4 results. Operator: The next question is from Tarik El Mejjad, Bank of America. Tarik El Mejjad: Just quick two questions, please. First, on costs. I mean you had quite impressive, good cost control here with cost/income really at very low levels. I just questioning the strategy of sustained hiring freeze, which -- how long that you can be sustained and especially in the context of potentially a recovery of growth. But also, we just had a call with one of your competitors and the approach is this hiring freeze or control could be sustained as long as we invest in AI and technology and be able to question each time, can we replace or hire or invest in some technologies that would be more cost efficient? Where are you in this thinking and these investments in AI and technology? And the second question is on the U.S. on money laundering litigation. I mean I've been following those with the German, French banks and so on in the past with the OFAC. How the conclusion from the SEC, you think are correlated to what would come for DOJ? Or is it -- because usually it's bundled within one decision. How do you read that? Are you more optimistic about the outcome? Jens Henriksson: Well, thank you. Two important questions. The first one when it comes to the personnel, we steer the bank on costs, not on FTEs. But what happened a year ago was that we saw that FTEs increased too much due to change of churn. And what we did then was that we implemented an external hiring freeze but sort of possibility for people to make exceptions. I gave quite a few exceptions but it worked. And then last quarter, we decided to take that away. And we now have a process where Jon take that sort of those kind of decisions together with the Head of HR. So we do not have a hiring freeze anymore. That's the first thing to say. The other thing is to say that we see quite a lot of use of AI. We work it both on the individual level and on a structure level. We work with AI for a very long time. And what we want to do is we want to decrease administration so that we can see more time with our customers. So to give you an example is that right now, we are seeing that the waiting lines or sort of the time waiting, if you call into a Swedish customer center, it's much shorter than before. So we've reached 70% of the call answered within 3 minutes. Why? New technology. And then we can use call summary, so that means you can have more time to meet the customers rather to do the administration, and we can do more things like that. When it comes to the U.S. investigation, first thing to say is that when it came to OFAC, that was closed quite a while ago. And as I said in my introduction, during the quarter, SEC decided to close their investigation without any further actions. That said, still have two other investigations by U.S. authorities. And now I need to sort of repeat myself. But I've told you many times when I was new as CEO, I met and called around and talked with colleagues that have been in similar circumstances. And they told me that a process like this usually takes 3 to 5 years. Now more than 6 years have passed, but the time line is fully owned by the U.S. authorities. I can just repeat what I say, and that is I still do not know whether we will get any fines. And if we do get the fines, I cannot estimate the size of those. And we've been as transparent as possible during this long-running process. And when something material happens, we'll continue to adhere to that principle. Thank you. Operator: The next question is from Nicolas McBeath, DNB Carnegie. Nicolas McBeath: I had a question on the deposit volumes. So after the most recent rate cut in Sweden, your deposit rates on some of your most popular savings account like eSavings have been cut to 0. So I was wondering how are deposit volumes behaving on these accounts. Have you seen any increased tendency of withdrawals since the rates were introduced, either to your own Swedbank players or migrations to competitors' deposits with above 0 rates? That's my first question. Jon Lidefelt: Well, thank you, Nicolas. The volume or the mix has been stable in that sense. So we have not seen any mix shift. And over time, the deposit beta has been around 1 on accounts with interest rate and where the sort of distance to 0 has been enough to reduce it. So then as we have talked about before, sometimes, we have for business reasons, taking a little bit of time lag between doing different rate changes. But over time, it has been one, and we have not seen mix shifts lately. Nicolas McBeath: All right. And then I had a question on levies for next year. What's your expectation there? And could you confirm whether the cost for interest-free deposits at Riksbank, will those be taken on the levies line or reduced NII? Jens Henriksson: Well, let me start with saying that if you see overall loan demand in Sweden from both corporate and private customers is subdued. In the Baltic, demand is stronger. And just to be blunt here, but we have an appetite for healthy loan growth while sticking to our conservative lending standards and focusing on profitability. You want to follow up, Jon? Jon Lidefelt: On your question on the Swedish Riksbank, we will have to deposit SEK 6 billion for which we will not get an interest rate for now for 9 months, I think it is. I think the jury is still somewhat out on exactly how to account for that. But my assumption or belief is that, yes, it will be under the bank tax row. And then the discussion is will it be a one-off now in Q4 or will it be spread out for the period? But most likely under the bank tax rule. Yes, I think that was the answer, right? Nicolas McBeath: Yes. And then just also if you could comment what your expectations for bank taxes are for 2026? Jens Henriksson: Bank taxes, don't get me started. But let me say a few words. And then as always, I want you to remind you that banks are an important part of our societies. What we do is we channel our customers' hard-earned deposits to lending, thus empowering people and businesses to create a sustainable future. And to do that, we need to be profitable. And a sustainable bank is a profitable bank. And we are proud taxpayers that contribute to the financing of welfare and security in our home markets. What we do not like are sector-specific taxes, retroactive measures and an unpredictable regulatory environment. What we do like is equal treatment, a rule-based system and an investment climate that fosters growth, financial stability and sustainable transformation. With that said, I need to say that. Then let me do a quick tour across our four home markets. First, Estonia, general corporate taxes are increasing as we see, but there is a political debate on that. In Lithuania, corporate taxes are also up. And then remind you that on top of this, since 2020, there is a 5% extra tax on banks, and the extra investor tax on NII further on top will be phased out during the year. In Latvia, we will have 3 years with a similar investor tax. There are some discussions on excluding new lending from the tax. If that would materialize, it would be positive for the Latvian economy. In Sweden, the government has proposed a base deduction to the bank tax while delivering the same tax revenues. And the tax rate is therefore proposed to be raised from 6 to 7 basis points in 2026. And now there is a government inquiry of some kind that will look into the specifics. And then as Jon talked about, let's call it what it is, it's another tax on the banking system, is that the Riksbank has decided that credit institutions from the end of October this year will need to place an interest-free deposit with them. And as Jon said, it amounts to around SEK 6 billion that will earn 0 interest. Operator: The next question from Sofie Peterzens, Goldman Sachs. Sofie Caroline Peterzens: Here is Sofie from Goldman Sachs. So my first question would be on net interest income. When do you expect net interest income to trough? One of your competitors this morning said that it will be 3 to 6 months after the last rate cut? Do you think that's kind of fair? Or do you have a different view to this? And then my second question would be on the VAT refund that you continue to get. It was SEK 197 million now in third quarter and SEK 174 million, sorry, in the previous quarter. Like when should we expect these VAT refunds to come to an end? Or should we expect still some VAT recoveries in 2026? Jon Lidefelt: Thank you, Sofie. If I start with the NII, then if we assume no further rate cuts, to make it a bit simple, then ECB did their last one. It was effective on the 11th of June; and the Swedish Riksbank, it was effective as of 1st of October. And then if you take 3 months roughly in Sweden and 6 months roughly in the Baltics, that means that around year-end these rate cuts will be priced in, and the first quarter next year then will be the first quarter where you have a full quarter effect. Then as I've said before, you'll have to add your own assumptions on potential further rate cuts from the central banks, volume growth and margin development. When it comes to the VAT, then I don't know. There is a discussion from the Swedish government to change the VAT legislation. And everything around the VAT recoveries is due to that there has been a clash between the Swedish VAT law and the European regulation around that. So I would expect in a couple of years that there will be a new Swedish law in place. I don't know how fast or when it will come or what it will mean. So I don't -- we don't know. We'll have to see what happens. But we have so far then asked back for '19 to '23. Now it's clear '23, I've been a bit back and forth on it. But '19 to '23, we have asked recoveries for. And then let's see for the years after how things play out. Operator: [Operator Instructions] The next question from Riccardo Rovere, Mediobanca. Riccardo Rovere: Just a quick follow-up, again, on NII. Do you think that the pickup in lending volumes in general, and also deposits could somehow offset the last leg of pricing that you've just mentioned, 3 months in Sweden, 6 months in the Baltics. It should be visible by the end of the year, the same volumes can offset that? Jens Henriksson: We lost you. But thank you, Riccardo. Riccardo Rovere: Can you hear me? Jens Henriksson: Okay. Sorry. Now we can. Do you want to... Riccardo Rovere: Can you hear me now? Jon Lidefelt: Yes. Jens Henriksson: Yes. We hear you. Okay, please repeat. Riccardo Rovere: Okay, fine. Just wondering whether you think the volume growth, deposits and loans could somehow offset the last legacy repricing that you've just mentioned, 3 months in Sweden, 6 months in the Baltics, so to say that the last cuts done should be visible by the end of the year because that is the margin part of the equation in NII. I was wondering whether the volume side of the equation can somehow offset it. Jon Lidefelt: Thank you, Riccardo. Yes, I mean you're perfectly right, but I do not sort of forecast the NII. So I can leave that to you to do your own assumptions on volume growth, margin development and so forth. But of course, there is an offsetting effect on this. I said that in this quarter, higher volumes has had a positive impact of SEK 94 million on the NII. So of course, growth do offset. But I'll leave you to do your own assumptions on how that will develop going further. Operator: This was the last question. I would like to turn the conference back over to Maria Caneman for any closing remarks. Jens Henriksson: Well, I'll take that, Maria, if it's okay with you. So thank you for calling in, and thank you for always asking tough and knowledgeable questions. I now look forward to meeting you and many of your colleagues in our dialogue on Swedbank. Thank you for calling in. Bye.
Operator: Good day, and welcome to the Packaging Corporation of America Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Mark Kowlzan. Please go ahead. Mark Kowlzan: Thank you, Elissa. Good morning, everyone, and thank you for all of you for participating in Packaging Corporation of America's Third Quarter 2025 Earnings Release Conference Call. Again, I'm Mark Kowlzan, Chairman and CEO of PCA. And with me on the call today is Thomas Hassfurther, President; and Kent Pflederer, our Chief Financial Officer. I'll begin the call, as usual, with an overview of our third quarter results, and then I'll turn the call over to Tom and Kent, who will provide further details. And then after that, I'll wrap things up, and we'd be glad to take any questions. Yesterday, we reported third quarter net income of $227 million or $2.51 per share. Excluding the special items, third quarter 2025 net income was $247 million or $2.73 per share compared to the third quarter of 2024 net income of $239 million or $2.65 per share. Third quarter net sales were $2.3 billion in 2025 and $2.2 billion in 2024. Total company EBITDA for the third quarter, excluding special items, was $503 million in 2025 and $461 million in 2024. The third quarter net income included special items expense of $0.22 per share. The $0.22 were costs related to the acquisition of the Greif Containerboard business, including step-up of the acquired inventory, integration-related expenses and transaction expenses. Details of the special items for both the third quarter of 2025 and 2024 were included in the schedules that accompanied our earnings press release. We completed the acquisition of the Greif Containerboard business on September 2. Our results included 1 month of the acquired operations from Greif, which impacted earnings per share by $0.11 after special items. These include depreciation and amortization after preliminary purchase accounting and additional interest on new borrowing to finance the acquisition. Excluding the special items and the impact of the acquisition, our earnings increased by $0.19 per share compared to the third quarter of 2024. This increase was driven primarily by higher prices and mix in the Packaging segment for $0.73, lower fiber costs of $0.16, higher prices and mix in the Paper segment, $0.02 and a lower maintenance outage expense of $0.01. Partially offsetting the improvements were higher operating costs, $0.33; lower production and sales volume in the Packaging segment, $0.16; higher depreciation expense, $0.07; higher freight expense, $0.07; higher fixed and other expenses of $0.07 and higher interest expense, excluding the Greif acquisition debt of $0.02 and lower production volume in the Paper segment for $0.01. Because of the uncertainties of the Greif closing date, our third quarter guidance did not forecast any impact from the acquisition. Excluding special items and acquisition impact, the results were $0.04 above the third quarter guidance of $2.80 per share, primarily due to favorable price and mix in the Packaging segment and lower freight costs. Looking at our Packaging business and including the acquired business, EBITDA, excluding special items in the third quarter of 2025 of $492 million with sales of $2.1 billion resulted in a margin of 23.1% versus last year's EBITDA of $446 million and sales of $2 billion or a 22.2% margin. Corrugated volume was largely on plan and continued to reflect the cautious ordering patterns we've seen most of the year. We ran to demand during the quarter and produced 38,000 fewer tons of containerboard than the third quarter of 2024 and 59,000 more tons of containerboard than the second quarter of 2025. Our containerboard inventory in the legacy system increased by 15,000 tons during the quarter in preparation for the fourth quarter DeRidder outage. From the operational standpoint, we ran very well the entire quarter and with strong performance in terms of cost and production efficiency across the entire mill and corrugated system, which is a testament once again to the successful investments across our business. We continue to look every day at opportunities to take out cost and optimize production capabilities with the support of our considerable in-house technical and capital execution expertise. The acquired mills produced 47,000 tons during the month. Having closed the acquisition on September 2, we used the initial month of ownership to our advantage. While our activities impacted the September results, they will improve long-term productivity and efficiency. Massillon had a scheduled annual outage -- maintenance outage, which we extended to 5 weeks and completed earlier in October. We did a comprehensive refurbishment of the mill, including reliability improvements on the paper machines, the OCC plant and the power plant. All mill infrastructure and unit operations were cleaned and inspected. We took the 2 paper machines at the larger Riverville facility down for 5 days a piece to implement the first phase of our reliability improvements. We'll have additional work to do to implement our efforts and expect to have achieved the first phase by the end of the fourth quarter. We're already seeing the benefits of improved performance and quality with both mills running at higher performance. We'll continue to manage and invest in these facilities to achieve operating performance in line with the legacy PCA system. I'll now turn it over to Tom, who'll provide more details on the containerboard sales and corrugated business. Thomas Hassfurther: Thank you, Mark. The performance of the Packaging business was largely as we expected, and it was another strong quarter. Domestic containerboard and corrugated products prices and mix were $0.72 per share above the third quarter of 2024 and down $0.02 per share compared to the second quarter of 2025, which was all attributable to containerboard mix. Export containerboard prices were up $0.01 per share versus last year's third quarter and flat with the second quarter of 2025. As Mark mentioned, while customer ordering patterns have continued to reflect market conditions that have persisted throughout most of the year, corrugated demand improved as the quarter progressed. In the legacy business, shipments per day in our corrugated products plants were down 2.7% versus last year's record third quarter when per day shipments were up more than 11% over 2023. We will continue to see tough comparisons going into the first quarter of 2026. Total shipments were down 1.1% in the third quarter of 2025 versus last year, reflecting 1 more workday this year. For a little context, on a per workday basis, July shipments were about 6% down from last year, while August was less than 1% down and September was less than 2% down. Margin performance was very strong again with Packaging segment EBITDA margins improving to 23.1% versus 22.6% in the second quarter and 22.2% last year. Including the acquisition, shipments were up 3.7% over last year per day and 5.3% overall. The acquired plants had a strong September with volume growth and good price realization. We're working very hard to integrate the operations into the PCA corrugated system, and we like what we see so far. The culture is highly compatible with PCAs, and our new colleagues have gone beyond the call of duty to continue to develop strong customer relationships and serve those customers. Greif has historically carried relatively more inventory in its corrugated system than we do. With the acquired plants being part of a much larger integrated system, we can more efficiently and nimbly supply them now that they are part of PCA. We have the opportunity to bring inventory down to lower levels, and we'll manage our operations to do so over the next couple of quarters. As expected, export sales volume of containerboard was down 8,000 tons from the second quarter of 2025 and down 32,000 tons from the third quarter of 2024. I'll now turn it back to Mark. Mark Kowlzan: Thanks, Tom. Looking at the Paper segment, EBITDA, excluding special items in the third quarter was $40 million, with sales of $161 million or a 24.9% margin compared to the third quarter of 2024 EBITDA of $43 million and sales of $159 million or 27.1% margin. Sales volume was 1% below the third quarter of 2024 and 10% above the second quarter of 2025. Prices and mix were up 2.1% from the third quarter of 2024 and 0.5% from the second quarter of 2025. Performance reflected the seasonally stronger third quarter and sales volume was higher than expected. I'm now going to turn it over to Kent. Kent Pflederer: Thanks, Mark. Cash provided by operations was an all-time quarterly record of $469 million. And after $192 million of CapEx during the quarter, free cash flow was a record $277 million. In addition to CapEx and funding the Greif purchase price, the primary payments of cash during the quarter included dividends of $113 million and cash tax payments of $19 million. Our quarter end cash balance, including marketable securities, was $806 million with liquidity of approximately $1.4 billion. To update you on annual shutdown expenses, we now expect $0.45 in the fourth quarter for the legacy PCA system and $0.02 for the acquired business. The legacy system expense is expected to be $0.29 higher than the third quarter of '25 and $0.17 higher than the fourth quarter of '24. We are revising our capital forecast for the year to be approximately $800 million from our previous forecast of $840 million to $870 million. This is primarily as a result of timing of expenditures, and we have not changed our overall capital plan. This revision includes incremental expenditures for the acquired business. As part of the Greif acquisition purchase accounting, we are required to record the acquired assets on our books at fair value. Our valuation is preliminary and is subject to change over the 1-year period after the acquisition. Our preliminary evaluation in addition to working capital includes approximately $870 million of property, plant and equipment, $530 million of intangibles and $280 million of goodwill. We recorded $12 million of depreciation and amortization of the acquired assets during the third quarter, and we expect an annual run rate going forward of approximately $130 million. As a reminder, annual net interest expense is expected to increase by $95 million, and we recorded $8 million in additional interest during the third quarter. We were a significant containerboard supplier to Greif before the acquisition and shipments of containerboard that were recorded as third-party sales in the past are now integrated. This affects the timing of recognition as shipments are now recorded as inventory with sales and profit being recorded when that inventory is converted and sold to a customer. We estimate that this affected results by about $0.03 in the third quarter, which will not recur going forward. I will now turn it back over to Mark. Mark Kowlzan: Thanks, Kent. For the fourth quarter, we expect per day corrugated shipments to be higher than the third quarter with 3 less shipping days. Export containerboard sales will be higher than the third quarter, but relatively low when compared to traditional fourth quarter volume. Containerboard production in the legacy system will be slightly lower than the third quarter with the maintenance outage at the DeRidder mill, and we expect inventory levels in the legacy system at year-end to be similar to levels entering the fourth quarter. Outage expenses will be $0.29 higher than the third quarter. We expect prices and mix in the Packaging segment to be lower as a result of seasonally less rich mix. In the Paper segment, we expect seasonally lower production and sales volume and flat pricing. We also expect seasonally higher energy and fiber costs as well as slightly higher freight and other operating costs. We expect significant improvement in the results of operations from the acquired business. We will be impacted by lower production and higher maintenance expenses from the Massillon mill outage that did continue into October and seasonally lower volume and mix in the corrugated business. We will benefit from a full quarter of improved operations at the Riverville mill. We will be managing production to achieve lower inventories, as Tom mentioned. Considering these items, we expect fourth quarter earnings of $2.40 per share, excluding special items. And with that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constituted forward-looking statements. The statements were based on current estimates, expectations and projections of the company and do involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in our annual report on Form 10-K on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements. And with that, Elissa, I'd like to open the call up for any questions, please. Thank you. Operator: [Operator Instructions] First question is from George Staphos, Bank of America. George Staphos: I guess maybe the first question as it normally comes up during Q&A. Can you talk about bookings and billings as we're starting fourth quarter? Obviously, you have fewer shipping days, but what are you seeing on a per workday basis or however you want to frame it? And then we had some other questions. Thomas Hassfurther: George, this is Tom. Right now, kind of the blend of bookings and billings that we see so far is a little over 1% up. And again, I'll remind you, very tough comps. Okay? George Staphos: Got it. And you said the tough comps just factually will be difficult through 1Q, that was part of your script where we're done by the end of this quarter in terms of what you think tough comps are? And is any -- or [indiscernible] strength in any of the end markets that you would point us to or anything that's particularly challenging right now? Thomas Hassfurther: Actually, George, outside of a couple of end markets, our business has been very, very good. Those couple of markets that were -- that we've struggled -- it's not we've struggled. They've struggled in the marketplace. I mean, everybody has read about beef. That's a big segment for us. And the cattle herds are down to a 70-year low. So there's a lot of struggles going on there, and we even have the administration looking at other ways to solve that problem. And then the other area is the building materials. We all know what's happened with housing starts and where that stands. So those 2 segments have been a drag on us. Other than that, we've been very pleased with the results in all of our other sales segments. George Staphos: As regards to Greif, I know we'll get more color over time, but any big picture, any large sort of boulders you could tell us about in terms of what you're finding with Greif relative to the deal model? And is there any way at this juncture you can give us a view on what the maintenance might look like? So in that regard, again, is $300 million of EBITDA reasonable for the combined business? What does maintenance look like? And then I had 1 or 2 last follow-ons. That will be quick. Mark Kowlzan: Well, again, I think as we talked about this, the CorrChoice side of the business that we acquired, the converting side was very well capitalized in very good condition. The 2 mills, we've had -- from September 2, that day, we've had upwards of -- on any given day, 100 of our PCA personnel in the mills at Massillon and the same number of people in the mill at Riverville, assisting in doing what we do, and that's operational expertise. Tom, do you want to comment about the corrugated? Thomas Hassfurther: Yes. Let me just say in total, what we've -- I think the best way to summarize this, George, is probably that it is an organization that is very customer focused. And as I mentioned, the culture of the business fits very well with ours. That's a great bolt-on. Operationally, not nearly as strong as PCA and because we've had many, many more resources, and we've got this great team to address those issues. But in typical PCA fashion, we get on it right away, right upfront, not trying to manage to a quarter or anything like that. We're looking at the long haul. And I think given that organization and their focus on the customer and the end markets that they supply, this is going to be very, very accretive to our earnings going forward. Mark Kowlzan: One note, George. We took the machines down at Riverville for basically about a 5-day period, each machine in September. But during the time we ran in September, we improved operations. We were running like 97.2% for the month of September in Riverville, and that's up dramatically from prior to the acquisition. And so we've seen immediate improvements in both efficiency and quality. But the good news is we'll continue to see a lot more benefits as we work through things. And as far as your question about some of the accretive value, I think, Kent, you and I are talking this morning. Kent Pflederer: Yes. So George, going into the acquisition, historical Greif performance, $240 million was about a good annual run rate for the EBITDA -- our projection for synergies on a run rate basis after the second year was about $60 million. We're well on target for that. We're looking probably in about the 20-ish range by the second quarter of next year to give you a little bit more clarity on that on a run rate basis. George Staphos: Quickly, $0.20, maybe a sequential increase in D&A as part of the $2.40 is kind of rough math. And any way -- I know it's kind of tough on live mike, but any way to talk about what the inventory strategy quantify what the tons coming down might mean in the Greif system relative to where you've been? Mark Kowlzan: The comment about inventory, again, it was mentioned, we've got 10 mills now in the system. We've got incredible opportunity to take care of all of our box plants nationwide. So we will quickly incorporate that strategy into the CorrChoice operation. And it will take some time to work the inventory down. We've already started that. Thomas Hassfurther: Yes. Also, George, I'd just add that mix is a part of that equation also. So we've got to do both at the same time, but very good opportunities there. Mark Kowlzan: All right. With that, next question, please. Operator: [Operator Instructions] Next question is from Mike Roxland, Truist. Michael Roxland: Congrats on closing the acquisition. I just wanted to follow up, Kent, with you, one, on the numbers that you just mentioned in relation to George's question, the $240 million of EBITDA and the $60 million of synergies. Now that you've owned the assets for roughly 6 weeks, can you talk about any potential upside to those numbers that you foresee from those assets? Mark Kowlzan: Right now, again, I'd rather just let you know that we're -- every day, we're seeing positive results from the work we're doing. So again, I think a lot is going to depend on the marketplace in the future and what we can do to take advantage of the footprint on the converting side. The mills will continue to be improved upon and continue to deliver in much the same way that the Boise assets delivered over the last 10 years. So again, I think I'd rather just be conservative and say we're going to stick with the with the numbers that we've already given you and just say that there's always upside, but it does depend on what the market does. Michael Roxland: Got it, Mark. Any comments you can make in terms of the improvements, whether in terms of efficiency costs went out with respect to Massillon, you extended -- you mentioned in your comments and also in the press release that you extended the maintenance outage to 5 weeks. So can you talk about maybe some of the benefits that you're receiving from that extra work that you put into the mill? Mark Kowlzan: Yes. I mean it's quite remarkable that with the capability we have in PCA, we've got upwards of 200 people in our technology engineering organization. And again, from September 2 that morning at both mills, we were working simultaneously, and we had for at least a 6-week straight period of time at least 100 PCA personnel in Massillon working full time to assist the mill in improving their capability. I don't think there's anything in that mill that hasn't been touched. We undertook the first week of just cleaning the mills, inspecting, taking apart major equipment bearing changes all the way down to lubrication systems, hydraulic systems, role changes, power equipment, boilers, turbine generators. So I feel very good that comprehensively, we understand the opportunities we need to take advantage of going forward. Massillon as an example, we understand the limitations. We understand the upside. So some of it's going to be dependent on ordering some equipment and getting it delivered. The good news, I still feel though what we told you is that it's -- when we converted some of the Boise acquisition, we're spending $0.5 billion, i.e., DeRidder, Jackson, Wallula for these conversions. But I told you before, we expect to be -- the work at Massillon, the work at Riverville, it will be the tens of millions of dollars. So over the next couple of years, $10 million here, $10 million there for system improvements, upgrades and technology and capability. But the bones of the mills are good. We just need to update them and then, like I say, run these mills the way PCA looks at the business and takes care of the business. So I'm feeling very bullish on what we've seen just in 1.5 months. As an example, both mills, we saw -- we started at Massillon the week before last, and we saw at least a 50% improvement just in the quality of the profiles, moisture profiles, basis weight profiles, physical test profiles. So huge improvement there, and that translates into customer experience with the product through CorrChoice. So again, feeling very good about it. Michael Roxland: Got you. I appreciate the color there. And one last question before turning it over. Greif EBITDA for the 1 month you owned the assets came in a little lower than we expected given recent performance prior to your ownership. Was that all due to the outages, these will get Massillon and Riverville? Or was there any economic downtime that you took due to choppy backdrop or as you manage elevated inventories? And then any initial thoughts on 2026 CapEx? Kent Pflederer: Mike, I'll take that one. It was largely from the outages and the timing effects of the revenue and profit recognition that hit us by about $12 million during the quarter. So it was those. In terms of economic downtime, no, we didn't factor that in, the Greif results for September. No. Mark Kowlzan: The other part of your question about CapEx into next year, we'll update you in January for the plan for next year. But I think we're on track with taking advantage of our opportunities. I would like to say that just to remind everybody, the biggest pieces of capital spending this year right now are a couple of big projects on the converting side. We've got one big project going on in Ohio right now, and that's a new facility. And then in upstate New York, we're totally upgrading one of our facilities as a big CapEx project that will -- both those projects will finish into next year. But we're always taking advantage of these capabilities to insert new converting lines and upgrade converting operations. But we'll give you a better feel in January what we're looking at. We do have some very interesting energy opportunities that we'll give you more detail with next year in the January call. Operator: Next question is from Gabe Hajde, Wells Fargo. Gabe Hajde: I wanted to ask, I see this number, and I think you kind of strip out input costs. So it's -- I'm going to call it the frictional inflation treadmill, but running kind of around $1 year-to-date. So I think in this quarter, it was $0.33. So if I annualize that, we're looking at kind of $170 million. Is that something that's particularly elevated this year or kind of post pandemic when we think about labor inflation and insurance costs, things like that, that's a good run rate on a go-forward basis for maybe the combined entity or maybe legacy PCA? Mark Kowlzan: Let me -- one good piece of that, that we're dealing with, but everybody is dealing with it even at your household is energy costs, electricity rates. Just in the last year or 2, we've seen some of our facilities, electricity rates are up 50% to 75%. So that's one good example of what the world is dealing with, and we're part of that world. That's why I was alluding to the fact that we've got 3 significant projects that we're going to introduce into early next year that will take 3 of our mills essentially electricity independent within the next 2.5 years. Kent Pflederer: And then, Gabe, on the others, it's the usual. It's the labor inflation. It's chemicals. It's any kind of supplies, insurance, rent, those sorts of things that have been going up at a fairly healthy clip in the last few years. Gabe Hajde: Okay. But is that -- is it particularly elevated this year? Or is that something that sort of… Mark Kowlzan: Well, again, it's just I think the biggest factor was electricity rate increases nationwide. If I take one element of cost, it would be electricity. Gabe Hajde: All right, Mark. But when you're planning for next year and you're looking at that number, maybe it's down a little bit because we don't expect more energy price increases and maybe we do because we've got to build data centers. Mark Kowlzan: On the contrary, I don't see energy -- electricity cost flattening out with the demand from all of the data centers that's ongoing. The electricity rate increases, I just don't see that it's going to abate anytime soon. That's why we've taken upon ourselves that we've got the plans to -- I would say, 3 more of our mills. We've got a couple of our mills are in very good shape right now with electricity independence. But within 2.5 years, we'll take 3 more of our mills and essentially get them off the grid, and we'll be in good shape. Gabe Hajde: Mark, I feel like you've got me on the hook, so I have to ask. Are you referencing maybe some biogenic carbon capture opportunities? And I think we've read in some outside articles that, that could contribute up to $85 a ton that you produce. Mark Kowlzan: No, that's a separate issue. We're talking about essentially gas turbine technology. We've moved ahead, and we've got some great projects that we're going to be executing. We've got some facility -- I mean without getting into the details, Gabe, we've got some facilities that already burned a lot of natural gas and power boilers, but we're not getting the advantage of the downstream electricity generation. So on a combined cycle through efficiency, you're not getting all of the upside opportunity for each therm of gas that you burn. The gas turbines will give us that complete efficiency on the combined cycle from steam generation and electricity generation. -- and these will be projects, again, we'll introduce to you early next year. A lot of discussion on the January call, will give you a lot more details. Gabe Hajde: Yes, sir. Tom, one, we've read recently about, I'll call it, price elasticity on corrugate. I'm just curious in your conversations with customers, broadly speaking, how sensitive are customers in terms of potential price increases or trying to do more with less, whether it's lightweighting and how that's showing up maybe in your own volumes, not necessarily specific to price increases, but more thinking about lightweighting on that front? Thomas Hassfurther: Gabe, obviously, we don't talk about any forward pricing at all. So I'm going to pass on that one. But I will tell you that the -- again, you hear Mark talk about, as I indicated, that we expect our mills and acquired mills to run at a tremendously efficient rate, and we expect them to meet some very stringent specifications. And those specifications relate to a lot of the technology that we have put into our boards, proprietary technology that gives us lightweighting capabilities that we believe is unique to the marketplace. Those are solutions that we take to our customers. And given this inflationary environment we're in, given the fact that costs are constantly going up, we're doing everything we can to help ourselves and our customers to fight those. However, at the end of the day, I mean, it is an inflationary environment. But I think that's a real competitive advantage we have in terms of our offerings to the marketplace. Operator: Next question is from Mark Adam Weintraub, Seaport Research Partners. Mark Weintraub: First, I just wanted to just follow up on Greif, the big increase in D&A from purchase accounting. Just want to reconfirm in terms of CapEx related to those assets, I think you in the past talked about $50 million to $60 million. And with that type of spend, you can get them up to Packaging Corp efficiencies, et cetera. Is that still a reasonable number, which obviously would be a lot lower than the $130 million D&A you had talked about? Mark Kowlzan: Yes. I mean, after what we've seen with the efforts at Massillon and then the work at Riverville, it's that type of capital that we're going to spend. It's very similar to what we did at International Falls over the last 14 years. We did not have to spend massive amounts at [indiscernible]. We just had to improve the capability on a lot of little systems and taking care of some of the technology, but we're well on our way, but it is in that tens of millions of dollars, and it will happen over the next year or 2. So I'm really confident that, that number is still good. Thomas Hassfurther: Mark, this is Tom. I would also add that, as we indicated before, the sheet feeders and corrugated box plants are very well capitalized, and we're very pleased with that. And although we've got some maintenance costs and some other things that will take place there, we're not going to invest huge amounts of capital in those facilities. Mark Weintraub: Right. So obviously, cash earnings from Greif are much stronger than what the book earnings are going to be. But I'm also kind of curious whether or not -- is there much in the way of tax shield benefit that you're getting through accelerated depreciation? Or is that sort of not something to call out specifically? Kent Pflederer: Well, I think you saw it in our cash tax payment for the third quarter that we called out in the script. The allocation that we had to PP&E, we were able to take bonus depreciation on and reduce our cash taxes out pretty significantly this year. So yes, I think you see that in our cash for the third quarter. Mark Weintraub: Okay. And presumably, you'd see that next year as well. But -- so kind of shifting gears, if I could. Obviously, it's sort of been a pretty difficult environment industry-wise, box shipments, et cetera. In the past, you've been able to, through business wins, grow a lot faster than the industry and fill out these new box plants, et cetera, that you are building. Have you had business wins of late that you have visibility on that can give us confidence that you can continue to outperform on the volume side? Thomas Hassfurther: Mark, this is Tom. We haven't changed anything that we typically would do. Absolutely nothing. We've been -- as I mentioned, we've been hurt in our numbers from a couple of big segments of ours that we can do very little about. However, we continue to grow within existing accounts in a big way. And yes, we continue to have wins, but these are wins that we earn. They're not -- these aren't wins that you just go out and have something to offer that nobody else is doing necessarily, but we have to earn these wins. And we're just continuing to do the things we're doing. We're just not getting -- we're not getting a lot of lift, obviously, from the economy and the starts and stops that we've seen consistently go on throughout the year relative to tariffs and a bunch of other things certainly are impacting the business. Mark Weintraub: Great. And then lastly, we've had this extraordinary year in terms of magnitude of capacity closures in the North American containerboard business. And box demand hasn't been good. But are you actually feeling any more tightness because of the closures of containerboard capacity? Any color you could give would be appreciated there. Thomas Hassfurther: I think the containerboard capacity, I think you're seeing a consistent trend in this industry that it right sizes to demand and we run to demand. We do. That's what PCA does. And I think in addition, even on the corrugated side, we've closed some facilities. We've rationalized some poor assets, things like that, and we'll continue to do so. And again, it's -- we will run to the demand that we see out there. Mark Weintraub: Okay. Tom, just since you mentioned it, I apologize, I know I'm going a little long here. But I think you have 2 box plants, which not -- which you're going to be closing in the fourth quarter. Can you give us a little color around the decision to do that? Thomas Hassfurther: Well, they just happen to be box plants that are not -- that we can't -- capitalization isn't going to be the answer for those box plants, and they have to be in markets where we have other facilities and bigger facilities and better equipped facilities to handle those customers. It's not as if we're abandoning any of those customers. We're keeping all those customers, but it's just a matter of rightsizing to the demand we see in a particular market. Mark Kowlzan: I think people tend to forget, Mark, if you think about the last 16 years, we probably made 25 acquisitions. And during that period of time, we probably shut 20-some-odd plants. Thomas Hassfurther: 20-some-odd plants, yes. Mark Kowlzan: During that period of time, and we've built a number of new plants and essentially recapitalized the rest of our footprint. But as Tom said, we run to demand and we -- but people lose sight of the fact that we have gone ahead and closed a number of our older plants that just don't fit our needs anymore. Operator: Next question is from Anthony Pettinari, Citi. Anthony Pettinari: With Greif, your mix into recycled will increase. And I'm wondering if it's possible to say how many tons of OCC PCA might buy kind of with the Greif assets. And as you look at your end markets and talk to your customers, as you think about the next 3 to 5 years, is there any reason to think recycled demand will grow faster or maybe slower than kraftliner? Or do you not necessarily think about it that way? Mark Kowlzan: I look at it as an opportunity. Quite frankly, I look at Massillon and Riverville as an opportunity to make more medium, which we need. And our plans run very well on the recycled medium, but combining that with our high-performance liner grades, we get the best of both worlds. And so it's not on a total percentage basis. It's really just taking advantage of the opportunity, and we'll play into that in the marketplace. But the recycled medium work very well with us. Thomas Hassfurther: Yes, Mark, the key is that we do need the medium and 100% recycled medium is a good run rate in our facilities and stuff. And so trade for some of that and those sorts of things. But as far as end markets go, we attack every end market with whatever the best solution is. Anthony Pettinari: Okay. And any quantification of like OCC consumption tons or I'm not sure if you disclosed, but... Kent Pflederer: Anthony, we were flexible beforehand. We could flex the system a little bit, but we typically ran around 20 -- low 20 percentage furnish OCC. That's going to move up about 10% on the whole to 30-ish going forward, if that helps. Anthony Pettinari: Got it. Got it. That's very helpful. And then just a couple of quick questions on CapEx. I mean, understanding you'll give us more detail in February. But the box plant projects that you referenced, does the CapEx spend for that from '25 to '26, is it sort of directionally similar? Or does it sort of ramp down modestly or maybe ramp down more sharply? And then I guess second question, Mark, you've got us really interested in these energy projects. Are there currently PCA mills that are selling meaningful amounts of electricity back to the outside utility company? And could that be potentially an opportunity or part of the projects that you'll tell us more about next year? Mark Kowlzan: First part on your CapEx, we would expect as we finish up the 2 bigger projects, the one in Ohio and the one in New York State next year, CapEx will continue to be kind of flat in that range. We would probably take advantage of that opportunity. The good news is, and Tom has mentioned this and I've mentioned it, Greif gave us the opportunity with the CorrChoice converting side of their business. It's going to help us minimize what we have to do in some of these regions. We will avoid having to spend some major pieces of capital on any new plants for the next couple of years. So in that regard, we'll continue to do some converting installations as far as EO, [indiscernible] rotary die cutter type stuff, some corrugator opportunities. But as far as major plant projects, that will mitigate itself. And then I see the next couple of years, the big projects are going to be some of these energy projects. We'll take advantage of that. It's probably a 2.5-year process. We'll get into the details in January and the first part of next year. But these are projects that have 1.5 years payback type projects, very, very high-return projects. But as far as the level of CapEx, we'll be in a very comfortable range, the amount of cash we're generating. I think, quite frankly, people are going to be asking us, what are you doing with all the cash on hand? That's going to be the high-class problem we get into. And so I'm not worried about the CapEx. All of our capital that we've been spending over the years -- we've got a very good track record of return on our investment with this CapEx spending. So as far as what you're modeling, just I would just continue to model what our trend has been, and we'll update you next year. There was one part -- your part of the question on electricity. No, we're not wheeling power into the grid at any of our facilities. We are -- we do have one facility in particular that's essentially 100% independent, but we're not wheeling power into the grid. Operator: Next question is from Philip Ng, Jefferies. Philip Ng: Appreciate all the great color. So Mark, you talked about potentially some of these energy projects in the next few years. And then obviously, you're going to do some great work at these Greif mills kind of get it up to PKG levels. And then you called out some of the inventory where it's a bit more elevated at Greif. So curious, when we think about '26, does that translate to more downtime than we should kind of be appreciative, which could potentially mute some of the EBITDA contribution from Greif. I think Kent gave a number in that $240 million range plus synergies. So I just want to be mindful just because it was extra noise in the back half of this year. Is there a friction that we need to be thoughtful of that could be impactful next year? Mark Kowlzan: I think, again, the work we just did at Massillon for approximately 6 weeks really gave us a comprehensive look at the mill because we literally touched everything in that mill from the ceilings down to the U-drain sewers, everything was clean, touched, inspected, new lighting. And so in doing so, we understand what it is in terms of components, motors, pumps, rolls, systems on paper machines that we want to upgrade to the PCA standards. So we've already got our plan in place. But these changes will take place on monthly outages. It's not the 3-week outages required. It's the 24-hour outage and the annual outage for 5 or 6 days a week type of thing. So no, we'll be in good shape next year. Riverville is in a similar situation. We've got to just continue to take care of the mills, and we'll invest appropriately. And -- but no, I'm bullish on the -- what we've got facing us for the next few years. No major -- we went through a 40-some-odd day outage at Jackson a few years ago, and we don't see any of that type of situation. So we'll be in good shape. Philip Ng: So it sounds like you would largely be able to do the work that you want to do, whether it's energy projects and then, I guess, even taking down the inventory at Greif within the scope of your normal managed outage. It shouldn't be an outside year next year. Mark Kowlzan: Yes. No, I mean the inventory management, that will happen over the next couple of quarters as we work our way down. And like I say, that's just future upside for the business. Philip Ng: Okay. Helpful. And then a question for Tom. You called out building math and beef being more problematic. Tom, can you size up how much of that of your box business is tied to those end markets? Are trends in those end markets getting worse, it's kind of bouncing along the bottom in the other categories, are you seeing order patterns pick up a bit? And how do you kind of envision your customers managing inventory to kind of close out the year? Thomas Hassfurther: Okay. Philip, number one is, I'm not going to give you what -- how much these segments are. I'm just -- I just told you they're relatively large segments for us, and those are the ones that are impacting us the most in beef and building products being down. But beef is more of a long-term thing. So it's going to take a little while. As I told you, the herds are down to 70-year lows, and these things take 2 to 3 years to rebuild, and we're only a year into the process. So that's going to take a little while. Building products, very reliant on what happens with interest rates and they're coming down and what the cost of materials are and how quickly things can be approved and those sorts of things in the nation. And the remodeling bottoming has begun to go the other way. So that's a good thing. The other segments that we're in have been pretty steady and steadily growing. And the -- our customers are pretty bullish on things going forward. So I think overall, I mean, our portfolio is in really good shape. Philip Ng: I mean I'm hearing from many of your customers that they have desires to kind of work down inventory to close out the year... Thomas Hassfurther: Yes. Yes, Philip, I forgot that part of your question. But our customers are already operating at very low inventory levels, and I think they would tell you that across the board. So that inventory is about -- is peeled down about as far as they can do it because, again, it goes back to all these things that have taken place during the year and the bumpy road we've been on with tariffs and all these other sorts of things. So I think our customers have been very cautious. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Mark Kowlzan for any closing remarks. Mark Kowlzan: I'd like to thank everybody for joining us today and appreciate it and look forward to talking with you all at the end of January. We're very, very pleased with where we are today with the acquisition and looking forward to having a good conversation with you in January. With that, have a good day, and have a great holiday period. Take care. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello everyone, and thank you for joining us today for the Southern Missouri Bancorp Earnings Conference Call. My name is Sammy and I'll be coordinating your call today. [Operator Instructions]. I would now like to hand over to your host, Stefan Chkautovich, Executive Vice President and CFO, to begin. Please go ahead, Stefan. Stefan Chkautovich: Thank you, Sammy. Good morning, everyone. This is Stefan Chkautovich, CFO of Southern Missouri Bancorp. Thank you for joining us today. The purpose of this call is to review the information and data presented in our quarterly earnings release dated Wednesday, October 22, 2025 and to take your questions. We may make certain forward-looking statements during today's call, and we refer you to our cautionary statement regarding forward-looking statements contained in the press release. I'm joined on the call today by Greg Steffens, our Chairman and CEO; and Matt Funke, President and Chief Administrative Officer. Matt will lead off our conversation today with some highlights from our most recent quarter. Matthew Funke: Thanks, Stefan. Good morning, everyone. This is Matt Funke. I'll start off with some highlights on our financial results for the September quarter, which is the first quarter of our fiscal year. Compared to the June linked quarter, we had relatively stable earnings and profitability with solid growth in net interest income, which stemmed from loan growth and further net interest margin expansion and the decline in operating expenses. These improvements were offset by a larger provision for credit losses and a decrease in fee income. The larger provision was attributable to the evolving economic environment, additions to individually renewed loans and loan growth. We feel we have good momentum on pre-provision net revenue to start the year, and we're optimistic about how we'll perform in the new fiscal year. The diluted EPS figure for the current quarter was $1.38, down $0.01 from the linked June '25 quarter but up $0.28 from the September quarter a year ago. During the quarter, we continued working with the consultant to complete the renegotiation of a significant contract. We have recognized some expenses on this renegotiation in the linked quarter. But because this was on a contingency basis and because the renegotiation worked out well for us, we had additional expense to recognize in the current quarter. These totaled $572,000, reducing after-tax net income by $444,000 or $0.04 per fully diluted common share. Between the linked quarter and the current quarter, we have recognized right at $1 million in consulting expenses related to the contract renegotiation. But with the expected increase in revenues, which will flow through bank card interchange income, we estimate a less than 18-month earn back of the expense. Reported noninterest income was down by 9.7% or $707,000 compared to the linked quarter, but was more than offset by lower noninterest expense of $925,000 or a 3.6% decrease quarter-over-quarter. Stefan will give some more color on these drivers in a bit. Net interest margin for the quarter was 3.57%, up from 3.47% and for the fourth quarter of fiscal '25, the linked quarter and from 3.34% in the year ago quarter. Net interest income was up 5.2% quarter-over-quarter due to the NIM expansion and loan growth. As we indicated last quarter, we have updated our quarterly NIM calculation to annualized results for the actual day count, which should reduce volatility in the reported NIM due to differences in quarterly day counts. Under the old methodology, the current quarter's NIM would have been reported at 3.60%, but we're reporting at 3.57% due to the September quarter having 92 days. By contrast, the June quarter is reported at 347 under the new methodology, but under the old methodology was 91 days, it was originally reported at $346 and we've carried this updated annualization method over to all our profitability ratios for the current and historical periods in the earnings release. On the balance sheet, gross loan balances increased by $91 million or 2.2% during this first quarter, which would be 8.8% annualized. Loan balances increased by $225 million or 5.7% over the last 12 months. Growth in the quarter was led by nonowner-occupied CRE, 1-4 family residential, C&I and multifamily loans. We experienced strong growth in our East region where we have much of our ag activity and our South region was just behind with good growth in those markets. Even with solid loan growth for the last 2 quarters, our loan pipeline anticipated to fund in the next 90 days remain strong, totaling about $195 million at September 30. The September quarter is historically our strongest period of loan growth, and we would expect to see this pace slow next quarter as we start receiving ag line paydowns and a general slowing in new projects in the winter months. That said, we had a great quarter of loan growth and feel optimistic about achieving mid-single-digit loan growth in the fiscal year. Deposit balances were relatively flat compared to the linked quarter, but up $240 million or 5.9% over the last 12 months. Due to good deposit growth over the last year, we've been able to be less aggressive on promotional deposit pricing, and we've called some higher-priced brokered CDs prior to maturity. Looking at our core deposit base, excluding broker, we had an increase of about $14 million this quarter, driven mainly by savings account growth. We have $20 million in additional brokerage CDs maturing by the end of the calendar year and about $18 million in brokered money market deposits expected to move out in October at the beginning of this new quarter. We'd expect to replace that with seasonal inflow of funds from ag customers and public units in the second quarter. Tangible book value was $43.35 per share and increased by $5.9 or 13.3% over the last 12 months. This was mostly attributed to earnings retention, while improvement in the bank's unrealized loss in the investment portfolio from the decrease in market interest rates contributed a little less than $0.20 of that year-over-year improvement. Additionally, in the current quarter, we've repurchased just over 8,000 shares at an average price of just under $55 for a total of $447,000. The average purchase price was 127% of tangible book value at September 30. I'll hand it over now to Greg for some additional discussion. Greg Steffens: Thank you, Matt, and good morning, everyone. I'm going to start off with credit quality. Overall, problem asset levels have increased slightly since last quarter but remain at modest levels with adversely classified loans at $55 million or 1.3% of total loans, up $5 million or 0.1% since last quarter. Nonperforming loans were $26 million at September 30 and totaled 0.62% of gross loans, an increase of $3 million or 6 basis points compared to last quarter. This was primarily attributed to 1 commercial relationship consisting of 2 loans collateralized by owner-occupied commercial real estate and equipment as well as 3 unrelated loans secured by 1 to 4 family residential properties, all of which were placed on nonaccrual status during the first quarter of our fiscal year. Nonperforming assets were about $27 million and increased about $3.4 million quarter-over-quarter, which most of the increase due to the increase in nonperforming loans. As reported last quarter, we are continuing to work with the borrowers on the 2 specific purpose, nonowner-occupied CRE properties in different states with guarantors and common and originally leased to a single tenant who has since become installed. As of June 30, the balances on those loans totaled $6.2 million, but are now down to $2.8 million at September 30 after charging off the collateral shortfall with the appraisal on the other parcel of CRE this quarter. As we indicated last quarter, we had provisioned for these anticipated charge-offs on the relationship. And during this quarter, they accounted for roughly 75% of our total of $3.7 million in net charge-offs. Another item of note is one of these properties was recently leased at a higher rate than what was assumed in the appraise loans past due 30 to 89 days were about $12 million, up $6 million from June and 30 basis points on gross loans. This is an increase of 15 basis points compared to the linked quarter. Overall, total delinquent loans were $29 million, up $4 million from the June quarter. The increase in the 30- to 89-day past due bucket was due to an increase in past due loans under 60 days, primarily in our owner-occupied CRE and C&I loan segments. In the owner-occupied segment, the largest loan, 30 to 59 days totals $3.6 million. And then C&I, the largest is $2.1 million. These 2 loans are the relationship discussed earlier that went to nonperforming status during the quarter. Despite the increase in problem loans experienced over the last 2 quarters, these issues remain at modest levels, and our asset quality has moved to be more in line with industry averages. In combination with strong underwriting and adequate reserves, we feel comfortable with our ability to work through our problem credits and any potential wider deterioration that could occur as a byproduct from the general economic conditions. So I don't want to give the impression that we're accepting of these trends, and we have been focusing on improving our credit quality. Our agricultural update, from June 30, our ag real estate balances were up about $11 million over the quarter and up $16 million compared to the same quarter a year ago. While production loan balances increased $23 million for the quarter and are up $29 million year-over-year, we have seen a general increase in ag production line utilization due to increased input cost. Our agricultural customers experienced a mixed growing season in 2025. Early planting was possible as a result of favorable weather but heavy rains in several markets delayed progress on crops such as cotton and soybeans. As the summer turned dry, growing conditions improved for early planted crops, though irrigation costs rose adding to an already expensive production year. Harvest has progressed well with most corn and rice acres complete and significant progress on soybeans and cotton. Yields have generally been above to -- have been average to above average on most of our ground, especially on the irrigated ground. The dryer fall has allowed our farmers to begin field work early in preparation for the 2026 crop season. Our overall crop mix for consisted of roughly 30% soybeans, 30% corn, 20% cotton, 15% rice and 5% specialty crops. Commodity prices, however, remained a headwind across most sectors. Lower future pricing for soybeans, corn, rice and cotton, combined with elevated input and interest costs, has pressured producers' margins despite generally strong yields. Many farmers are relying on storage strategies, which could lead to some reduction in what might have normally been paid down in the current quarter on credit lines and USDA programs such as CCC loans to bridge cash flow gaps, make required payments on credit lines. At present, we are hoping for government support payments to help provide needed relief later in the year. Land values are currently stable while equipment values have softened slightly as producers scale back on capital purchases. Our ag lenders are working proactively with borrowers to assess their current positions, plan for restructuring where necessary and utilize FSA and USDA programs to mitigate risk and maintain strong long-term relationships with our farm customers as they plan for '26. Due to our stringent underwriting, including stress commodity pricing and assumed higher operating costs. We anticipate that our borrowers were generally be able to navigate this challenging year and should ensure satisfactory performance of these credits over the near term. In addition, due to prolonged weakness in the agricultural segment, we started to increase reserves for watch list ag borrowers in the March '25 quarter in our calculation for our allowance for credit losses. I'll pass things on to Stefan to add more color on our results. Stefan Chkautovich: Thanks, Greg. Going into a little more detail on the income statement. Looking at this quarter's net interest margin of 3.57%, that's up 10 basis points quarter-over-quarter and included about 7 basis points of fair value discount accretion on acquired loan portfolios and premium amortization on assumed liabilities. That impact is up compared to the linked June quarter of 5 basis points and down from 9 basis points in the prior year September quarter. As stated in prior quarters, we would expect to see the level of fair value accretion decline over time. The current quarter's bump resulted from a payoff of a relationship that had a larger amount of accretable yield. The net interest margin expanded over the linked quarter as the yield on interest-earning assets increased 8 basis points, primarily due to loan yield expansion, while the cost of interest-bearing liabilities declined 1 basis point. In addition, the net interest margin benefited from an increase in the loan-to-deposit ratio. Although our spread has improved meaningfully over the last 2 years, we still see some room for incremental improvement as over the next 12 months, we have about $550 million of fixed rate loans maturing with an average rate of about 6.5% compared to our origination rates for the month of about 70%. On the deposit side, we have almost 1.2 billion CDs maturing next 12 months with an average rate of $4.10 compared to our average new and renewed CD rate of about $3.90. With the improvement in the margin, growth of our earning asset base and the market outlook for further rate cuts, we expect to see continued net interest income growth through the year. That said, I do want to remind our audience that starting in the December quarter and peaking in the March quarter, we historically see a slowdown in loan growth and an increase in deposits that will weigh on the margin, but we still expect to see positive improvement in net interest income overall. Our average loan-to-deposit ratio for the March 2025 quarter was 94.2% for some perspective. Also with this, our balance sheet becomes more neutral from an interest rate risk perspective in these quarters due to the increase in interest-bearing cash. But overall, through the seasonal cycle, we expect to remain liability sensitive and a net beneficiary of rate cuts over a full year period. Noninterest income was down $707,000 or 9.7% compared to the linked quarter, driven by lower other loan fees and bank card interchange income. The prior quarter included $537,000 of annual card network [indiscernible]. Excluding that item, noninterest income would have been down about 2.5%. Other loan fees declined $723,000, primarily reflecting a refinement in our fee recognition under ASC 310-20 with a greater portion of loan fees now recognized in interest income over the life of loan. In total, for the first quarter of fiscal 2026, about $1.6 million of additional fee income is being deferred, but is more than offset by $1.9 million of deferred expenses, which drove a decline in compensation and benefits. Overall, we saw a decrease of $925,000 or 3.6% in noninterest expense quarter-over-quarter. The net expense that was deferred had a negative impact in interest income of $176,000 or a 1 basis point drag on the net interest margin. In total, these changes had a limited impact of recognizing 55,000 in additional net income in the quarter as we deferred more expenses than fee income, which will be realized through interest income over the life of a loan. With these changes, year-over-year comparisons are not truly comparable, but our first quarter results should serve as a baseline starting point for noninterest income and expenses. The allowance for credit losses at September 30, 2025, totaled $52.1 million, representing 124 gross loans and 200% of nonperforming loans, as compared to an ACL of $51.6 million, which represented $126 million of gross loans and 224% of nonperforming loans at our June 30, 2025 fiscal year-end. Net charge-offs in the first quarter were 36 basis points annualized compared to the linked quarter of 53 basis points. Both quarters experienced elevated net charge-offs, primarily due to the special purpose CRE relationship mentioned previously. The current quarter's charge-off on this relationship was previously reserved for in the prior fiscal year with no additional provision for credit loss attributed to it in the first quarter of fiscal 2026. Our provision for credit loss was $4.5 million in the quarter ended September 30, 2025, as compared to a PCL of $2.2 million in the same period of the prior fiscal year and $2.5 million in the linked June quarter. The increase in the provision this quarter, as Matt mentioned earlier, was due to our outlook on the current macro environment, as well as to provide for individually reserved loans, loan growth and a slightly higher reserve required for pool loans. Due to the charge-offs realized on a special purpose CRE relationship attributable to individually reviewed loans decreased compared to the linked quarter. Our non-owner CRE concentration at the bank level as defined by regulatory guidance decreased by just over 6 percentage points quarter-over-quarter to $2.96 of our regulatory capital. Although our CRE balances grew compared to the linked quarter and was surpassed by greater growth of Tier 1 capital reserves. On a consolidated basis, our CRE ratio was 285% at September 30. To wrap up, despite some carryover cleanup of problem loan relationship from the prior fiscal year, our strong pre-provision earnings led by expanding net interest margin and disciplined expense management have driven improved core profitability and we remain optimistic about sustaining this positive momentum and delivering earnings growth through the remainder of fiscal year 2026. Greg, any closing thoughts? Greg Steffens: Thanks, Stefan. I would like to highlight that we delivered another strong quarter of earnings, reflecting the strength and consistency of our core operations. While charge-offs and nonperforming loans have remained elevated over the last 2 quarters off of very low levels. Our level of nonperforming loans remains comparable to national averages for banks under $10 million. Our underlying earnings momentum remains solid and that strength has allowed us to prudently reserve for potential problems in the future quarters. We will remain diligent in monitoring and measuring risk, ensuring sound underwriting practices across the portfolio to support strong risk adjusted returns for our shareholders. Also, since last quarter, we've seen a modest uptick in M&A discussions, while market conditions have stabilized somewhat. We remain optimistic about the potential for attractive opportunities and with our solid capital base and proven financial performance, I believe we are well positioned to act when the right partner is ready. Notably, there are approximately 50 banks headquartered in Missouri and 24 in Arkansas with assets between $500 million and $2 billion, along with another meaningful number of others in adjacent markets, providing a broad landscape for potential partnerships. Lastly, with the profitability and earnings improvement over the last 2 years, we have continued to build capital in the absence of M&A activity. We were able to repurchase a modest number of shares in the first quarter of our fiscal year with a reasonable earn-back period. And with the recent market sell-off in bank stock prices, it has created a positive environment for us to potentially be able to repurchase additional shares. Thanks. Stefan Chkautovich: Thanks, Greg. At this time, Sammy, we're ready to take questions from our participants. So if you would, please remind folks how they may queue for questions at this time. Operator: [Operator Instructions]. Our first question comes from Matt Olney from Stephens. Matt Olney: I want to start on credit. And we saw some migration this quarter that you noted and that, of course, comes after some migration the previous quarter. So when you take a step back on credit, it feels like we're just seeing some broader deterioration. What color would you give us as far as an outlook for provision expense charge-offs from here? Should we just anticipate these metrics could remain a little higher the next few quarters, likely what we saw in the last 2 quarters? Any color would be appreciated. Greg Steffens: We would be surprised if charge-off activity remained at the level of the last 2 quarters. We would expect that to drop. We have seen rising trends in delinquent loans back to our current delinquency levels are running similar to what they did in 2018, 2019. And so I think we've basically trended back to more of a historical range on delinquencies. Charge-offs are just hard to totally predict. Would expect them to be down from what they were in the last 2 quarters Economically, we're just -- we're not certain what holds in the future. But we definitely hope for better charge-off ratios and would not anticipate based on what we know today, charge-off or provisioning to be as high as it was this quarter. Matt Olney: Okay. I appreciate that, Greg. And then I guess, shifting over towards the margin, Stefan, some really nice expansion that you noted this quarter. It sounds like there's a tailwind there from the repricing dynamics that you mentioned. Any other color you can provide as far as the bank's rate sensitivity. It sounds like you're still liability-sensitive, but can be volatile quarter-to-quarter. Just we're trying to size what the impact of additional Fed cuts, what that could mean for the margin at the bank. Stefan Chkautovich: Yes. Overall, as I stated earlier, we should still be overall liability sensitive. That could change a little bit with the positioning of our balance sheet. So given the influx that we're expecting in deposits, which will add to our Fed funds essentially. That will make us a little bit more neutral for a quarter or 2. But overall, we'll still be a net beneficiary of, call it, 1% to 3% net interest income per 100 basis points of rate cuts. Matt Olney: Okay. Perfect. So it sounds like for the margin, there's still the repricing dynamic tailwinds with flat rates. And if we want to assume additional rate cuts, that would be I guess, incremental from that dynamic? Stefan Chkautovich: Yes, sir. Matt Olney: Okay. And then I guess just lastly, Stefan, you hit on expenses briefly, really good just overall cost controls this quarter. And it sounds like this is a good run rate to go off of. Any more color on just what the drivers of the cost controls were in the third quarter? Stefan Chkautovich: Yes. The ASC 310-20 changes that we made were the main driver there for expenses. So this is a good baseline to use. We will see a little bit of a step-up come our 3Q with merit increases, but this is a good baseline to start from. Operator: Our next question comes from Nathan Race from Piper Sandler. Nathan Race: Curious just to get an update, and I apologize if you already touched on this as I hopped on late, but just an update just in terms of where the pipeline stands coming out of the quarter and just how you're thinking about kind of net loan growth and if you have any visibility if you're expecting any increase in payoffs as rates continue to come down in the short end at least over the next handful of quarters? Matthew Funke: Pay down? Yes, Nathan, we've got a pretty consistent pipeline September compared to where we've been in the last few quarters. We would expect things to slow down just seasonally into the December quarter, probably trailing into the March quarter as well, but still feeling good at that mid-single-digit growth for the fiscal year. And then as far as any payoff potential due to additional rate cuts, I wouldn't really see anything material on that generally, the stuff that we have that at a lower rate not as eager to pay us off. It's not going to be affected by 25, 50 basis points. Greg Steffens: The biggest unknown we have in potential payoff activity would be from the ag portfolio. We really don't know what's going to happen with ag prices and how soon farmers will market their crops. So that could have a $10 million, $20 million impact on loan growth one way or the other. Nathan Race: Got you. Okay. And then just given loan deposit ratio around 96%, 97% coming out of the quarter. Matt, is the expectation that deposit gathering can largely keep pace with that kind of mid-single-digit loan growth outlook for this fiscal year? Just curious to maybe get your thoughts on kind of opportunities to increase on the right side of the balance sheet from a deposit gathering perspective. Matthew Funke: Yes, I think we feel pretty good about our opportunity to maintain loan-to-deposit ratios where they've been over the last couple of years, seasonally adjusted, but we do look to reduce our broker reliance a little bit. We've worked on that so far, and we expect that to continue into the new year. Nathan Race: Okay. Great. And then is there any additional appetite on the buyback front, at least over the near term, it sounds like you're having a nice pickup in M&A discussions but just curious how you're thinking about allocating excess capital. Obviously, organic growth remains a priority, but I would love to just hear any updated thoughts on how you're thinking about the buyback over the next quarter or 2? And Greg, I would appreciate any commentary in terms of the size of potential deals you're considering and what that potential timing looks like. Greg Steffens: Buyback activity, we would anticipate to be more active given current pricing. We kind of target earnback on buying shares back of around that 3-year horizon, with current pricing, we would be within that 3-year earn-back period or a little less than that. So I would anticipate us being more aggressive buying shares back. We still have -- Stefan? Stefan Chkautovich: 200,000. Greg Steffens: 200,000 roughly of shares authorized for repurchase. So we would anticipate buying back some of those shares based on current pricing and earn back. Generally, on the M&A front, our ideal size would be more in that $1 billion asset range. And that's where we're most interested. And we are talking with some people, but I'm not anticipating anything to be immediately forthcoming. Nathan Race: And then I apologize if I could ask one more. I appreciate you guys cleaned up some of the commercial real estate loans that have been discussed over the last handful of quarters. So are those loans marked at a level coming out of the quarter where you don't see additional charge-offs? I believe you had mentioned earlier that you're expecting charge-offs to decline going forward, closer to your historical well below average levels, but just want to make sure I'm thinking about the future charge-off trajectory early in light of those 2 commercial loans. Greg Steffens: I mean we expect that the trajectory on charge-offs to move lower, absent any unforeseen circumstances. And we don't have -- we don't have anything that we know that's a problem coming up, but you never know. Matthew Funke: And specifically with those 2 loans, Nathan, those charge-offs have been fully realized as far as we know. Operator: We currently have no further questions. So at this time, I'd like to hand back to Matt for some closing remarks. Matthew Funke: Thanks, Sammy. Thank you all for joining us. I appreciate your interest, and we'll speak again in about 3 months. Have a good day. Operator: This concludes today's call. We thank everyone for joining. You may now disconnect your lines.
Operator: Good day, ladies and gentlemen, and welcome to ASUR's Third Quarter 2025 Results Conference Call. My name is Latanya, and I'll be your operator. [Operator Instructions] As a reminder, today's call is being recorded. Now I'd like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir. Adolfo Castro Rivas: Thank you, Latanya, and good morning, everyone. Before I begin discussing our results, let me remind you that certain statements made during the call today may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our company's control. Additional details about our third quarter 2025 results can be found in our press release, which was issued yesterday after market close and is available on our website in the Investor Relations section. Following my presentation, I will be available for Q&A. As usual, all comparisons discussed on this call may be -- will be year-on-year and figures are expressed in Mexican pesos, unless specified otherwise. Before discussing our results, I would like to begin today's call with an important strategic development. As recently announced, we entered into a definitive agreement to acquire URW Airports for an enterprise value of $295 million. This transaction marks a significant step forward in ASUR's international expansion strategy, building our established presence in the U.S., which began with the operation of San Juan Puerto Rico Airport in 2030. URW airports managed commercial programs are 3 most iconic and high-traffic airports in the United States. URW airports manage commercial programs at 3 of the terminals -- 3 of the airports in the United States, Los Angeles International Airport with 6 terminals, Chicago O'Hare International Airport at Terminal 5. And in the case of John F. Kennedy International Airport covering terminals 8 and the upcoming new terminal 1. Together, these terminals process around 14 million enplanements annually. This acquisition provides ASUR with a strategic foothold in the 3 of the largest U.S. air travel markets and strengthens our position in the high-growth nonregulated commercial segment in the U.S. airport industry. The acquisition will be financed by JPMorgan Chase. As with all our strategic decisions, we are approaching this opportunity with a financial discipline and operational rigor that has long defined ASUR's execution. Closing is expecting during the second half of the 2025. Subject to customary regulatory approvals, we look forward to keeping you updated on our progress in the quarters ahead. Now turning to our third quarter performance. We serve over 17 million passengers across our airports, with traffic remaining practically flat as continued growth in Colombia and Puerto Rico helping to offset persistent headwinds in Mexico. Starting with Colombia, passenger traffic rose 3% to close to 5 million, supported by a solid 11% increase in international traffic and a modest growth just under 1% in domestic volumes. In Puerto Rico, total traffic was up 1%, reaching over 3 million passengers. Growth was driven by international passengers, which increased nearly 12% year-on-year, offsetting the 0.5% decrease in domestic traffic. In Mexico, traffic declined 1% to nearly 10 million passengers for the quarter. The decrease reflects softer demand, domestic traffic, which was down nearly 2% and international which saw a slight contraction of 0.3%. Passenger volumes from the United States, our largest international source market decreased just 0.2%, while South America contracted 7.2%. On the positive note, Canada and Europe increased 9.3% and 1.3%, respectively. Looking ahead, we anticipate a more balanced operating environment across our portfolio. In Mexico, we expect traffic to gradually stabilize over the next year as aircraft ability improves. In Puerto Rico and Colombia, we expect continuous positive momentum supported by the healthy international demand and improving productivity. Now turning to review our financial results. As a reminder, all figures exclude construction revenues and costs, unless otherwise noted. Comparisons are all year-on-year unless otherwise noted. Total revenues increased in the mid-single digits, reaching over MXN 7 billion, driven by growth in Puerto Rico and Colombia. Mexico at 70% of total revenues posted a slight low single-digit decline with aeronautical revenues practically flat and non-aeronautical revenues down in the mid-single digits. Revenue growth was limited by softer passenger volumes and the stronger peso, which continues to weigh on the U.S. linked revenue streams. Puerto Rico at nearly 18% of total revenues reported revenue growth in the high single digit driven by increases in 5% in aeronautical revenues and 10% in non-aeronautical revenues. This performance reflects positive passenger traffic trends and sustained demand across commercial activities. Colombia, which accounted for a total of [ 30% ] of the total revenues, delivered revenue growth in the high single digits, reflecting a mid-single digit increase in aeronautical revenues while non-aeronautical revenues were up in the high teens. This good performance was supported by passenger traffic growth and solid -- partially offset by the strong Mexican peso. Continue our ongoing focus on commercial development. We added 45 new commercial spaces across our airports over the last 12 months, including 31 in Colombia, 8 in Puerto Rico and 6 in Mexico. This supported a low single-digit increase in commercial revenues as solid growth in Puerto Rico and Colombia was partially offset by a weaker performance in Mexico. On a per passenger basis, commercial revenue rose 1% to MXN 126. By region, Colombia led a 14% increase followed by Puerto Rico, up 10%, while Mexico posted a 4% decline, reaching MXN 144 per passenger. Turning to costs. Total expenses were up nearly 17% year-on-year. By region, Mexico posted a 4% increase, largely due to higher maximum -- minimum wages and service costs. Puerto Rico reported expense increase of nearly 8%, reflecting inflationary pressures and higher operating activity. While Colombia cost increased 76%, mainly driven by an adjustment in amortization method of the concession. Without this increase would have been 5.4%. Lastly, in Puerto Rico and Colombia cost benefited from depreciation of Mexican peso against the U.S. dollar. On the profitability front, consolidated EBITDA declined just over 1% year-on-year to MXN 4.6 billion in the quarter. Puerto Rico and Colombia delivered EBITDA growth of nearly 5% and 10%, respectively, while EBITDA in Mexico declined close to 4%, mainly reflecting lower traffic and higher operating costs. The adjusted EBITDA margin, which excludes construction related revenues and costs under IFRIC 12 declined by 157 basis points to 66.7%. This reflects lower margin contribution from the Mexican and Puerto Rico operations, where the margin contracted 152 and 151 basis points, respectively. In contrast, Colombia reported an 81 basis points margin expansion. On our bottom line, this quarter was negatively impacted by depreciation of the Mexican peso against the U.S. dollar, which resulted in a foreign exchange loss of nearly MXN 1 billion compared to the reverse effect during the third quarter of last year. Profitability was also affected by the MXN 333 million adjustment in the concession amortization method in Colombia that I just explained. Now moving to our balance sheet. We closed the quarter with a solid cash position of MXN 16 billion, down 19% from December 31, 2024, primarily reflecting dividend payments made during the period. Our net debt-to-EBITDA ratio remained at healthy 0.2x. In terms of capital deployment, in September, we paid an extraordinary dividend of MXN 15 per share funded from retained earnings. Note that in November, we will be paying an additional dividend of MXN15 per share. Lastly, we invested close to MXN 1.9 billion during the quarter, primarily directed to projects our Mexican airports, including the reconstruction and expansion of Terminal 1 at Cancun Airport, and the terminal expansion in [indiscernible]. In Puerto Rico, we are progressing on the new pedestrian bridge for Terminal A, while in Colombia, we invested in maintenance CapEx. In closing, our third quarter results reflect the resilience of multi-country platform and the value of our disciplined execution amid a more tempered demand environment. While traffic in Mexico continued to face near-term headwinds, we are encouraged by the ongoing momentum in Puerto Rico and Colombia. We remain focused on advancing on our commercial strategy, investing in infrastructure and maintaining a strong financial profile. These conclude my prepared remarks. Latanya, please open the floor for questions. Operator: [Operator Instructions]. The first question comes from Rodolfo Ramos with Bradesco BBI. Rodolfo Ramos: I have a couple, if I may. The first one is in regards to the URW acquisition. Can you shed a bit of light on the economics, revenue per pax, how much EBITDA contribution you're expecting from these assets on an annualized basis? And the second is on Colombia. Can you elaborate on this adjustment to the concession amortization method that we saw during the quarter, was this a one-off? Or should it be a new level going forward? I don't know if it has to do something with the economics of your concession title there? Adolfo Castro Rivas: Thank you for your questions. In the case of URW, I cannot yet share numbers with you until [indiscernible]. In the case of Colombia, basically, what we have done is to change amortization method because in accordance with our estimates, during 2027, we will not receive regulated revenues anymore, and the concession should be over by 2032. So we are aligning amortization in accordance with revenue generation there. And it's going to be not one-off. It's going to be from now the same level. Operator: The next question comes from Emst Mortenkotter with GBM. Ernst Mortenkotter: I wanted to follow up a little bit on URW. I understand you cannot discuss the financials. But leaving that aside, it seems like a great way to gain some strategic insight into the consumer that goes from your airports to the U.S. I just was wondering if you could discuss a little bit what kind of synergies do you see? Or what is the strategic rationale behind this acquisition? Adolfo Castro Rivas: Thank you, Anton. Well, basically, the most important for us is to get -- to put a foot in the U.S. market. The U.S. market represents 22% of the aviation market of the world. And these terminals are extremely important for the U.S. market. So pulling our name there is extremely important, and this should be the platform for future growth in the United States, probably in the same kind of contracts that we are entering right now. That is the most important thing. Operator: Our next question comes from Andressa Varotto with UBS. Andressa Varotto: I have 2 here on my side. The first one is about Motiva Airports that are for sale. We've been seeing the news source that ASUR is [indiscernible] interested in this airport. So just wondering if you could provide some more information, if you're looking, for example, at all of the airports are just a subside of them. And how would the company finance this? And my next question is regarding the traffic trends that you've been seeing for Mexico. We've been seen recently on news as well that Tulum airport has been facing some cancellations. And if you think that this could help Cancun airport in the near future. These are my 2 questions. Adolfo Castro Rivas: In the case of Motiva, I cannot comment. In the case of the traffic trends, what I see today, it's a slow recuperation in the domestic market because of Pratt & Whitney engines, something that should improve in my opinion during the next year. For the moment, the traffic is really weak and the demand is weak in the case of the region. If we see Cancun and Tulum together for the first 8 months of the year, and I'm saying that months because that is the latest public figure or the case of the airport of Tulum. The traffic for the region is a decrease of 3.1%. If we go to the latest month that has been published for the case of the airport of Tulum which is the month of August this year. August versus August last year, the traffic of the region was a decrease of 5.1%. So the traffic is soft. Nevertheless, what you are saying in terms of the recent cancellations to the airport of Tulum. Operator: [Operator Instructions] Our next question comes from... Adolfo Castro Rivas: Sorry, could you repeat? Operator: Our next question comes from Pablo Ricalde. The next question comes from Pablo Ricalde with Itau. Pablo Ricalde Martinez: My question is related to the [indiscernible] Cancun? Is it still expected to be open around Q3 2026 or there are delays on that construction of that one? Adolfo Castro Rivas: What we are expecting is to open this new facility during the third quarter 2025 -- 2026, sorry. Pablo Ricalde Martinez: Okay. So as expected. Operator: The next question comes from Gabriel [indiscernible] with Deutsche Bank. Unknown Analyst: [indiscernible] Just 2 questions. First, is there any way or some how that capacity allocation from carriers has been shifting from Cancun? And the second one is the decrease in traffic could somehow make the pace of writing the tariffs towards the maximum tariff faster for either this year or next year? Adolfo Castro Rivas: Well, in terms of capacity, we are not -- we're not seeing a shift in capacity. What we are seeing basically is a weak demand, as I said, from the domestic resulted from Pratt & Whitney and some other elements. And in the case of the U.S., the numbers for the quarter is 0.2% decrease, which is small, but it's the largest market we have. Let's see how the winter comes. And I hope that the winter will be very strong in the north part of the Americas, and then they come. Positive side is the case of Canada, which is up for the quarter, and I thought that it will be up during the fourth quarter as well. Unknown Analyst: And in the case of the traffic that has somehow decreased, that could accelerate the pace on which tariffs are increased up to the maximum tariff? Adolfo Castro Rivas: No. I don't see that. Our maximum tax compliance this year should be similar of what it was last year, so more than 99%. Operator: [Operator Instructions] At this time, we'll turn the call back over to Mr. Adolfo Castro for closing comments. Adolfo Castro Rivas: Thank you, Latanya, and thank you all of you again for joining us on our conference call for the third quarter 2025. We wish you a good day, and goodbye. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Martin Carlesund: Good morning, everyone. Welcome to the presentation of Evolution's report for the third quarter of 2025. My name is Martin Carlesund, and I'm the CEO of Evolution. With me, I have our CFO, Joakim Andersson. As always, we will start with some comments on our performance in the quarter and then I will hand over to Joakim for a closer look at our financials. After that, I will conclude with an outlook and then we will open up for your questions. Next slide, please. So let's start with the financial and operational highlights in the quarter. And I would like to start by taking the bull by the horns and address the bad performance in Asia. This has been a recurring theme over the past quarters. But unfortunately, this time, it looks a bit worse. We were, as you remember, very cautiously optimistic about the remainder of the year in the last report. And there's really nothing that doesn't say that Q4 could be better. However, we are experiencing a lot of volatility, which makes the near-term performance hard to predict. At this stage, we want to be realistic and keep expectations low. So what are the main reasons behind the Asian development. First is the cybercrime activity that continues to hurt us. Every day and around the clock, we do everything that we can to mitigate the issues. However, some measures do impact also the end users, and this is what makes it tricky. At the point in time, within the quarter, we did too much, causing loss in revenue. On the other hand, if we do too little, we lose to the pilots. Towards the end of the quarter, we found a better balance, but it's still volatile. And we are -- we do constant security updates to our core to increase protection. We will continue to adapt the changes that are working, and to fine-tune the methods that are working well and explore completely new actions as well. I ask for continued patience on this, but rest assured that is a top priority. Additionally, in Asia, the newly regulated markets, Philippines is volatile, which often is the case when operators and players adapt to the new framework. There are also other markets, such as India, that show signs of moving towards regulation, which creates a higher level of uncertainty than before. And to clarify, with showing signs, I mean that the current heated debate and quick and not widely acknowledged political decisions is something that we often see in the very beginning of potential regulation. Over a longer period of time, it will likely not be noticeable, but on a quarterly basis, it will cause variations like the one we see now. With the context of Asia in mind, let's look at the overall numbers. Net revenue came in at EUR 507.1 million, corresponding to a year-on-year decline of 2.4%. EBITDA amounted to EUR 336.9 million, and the EBITDA margin came in at 66.4%, which is within the range of our full year margin target of 66% to 68%. What stands out as positive in the quarter is the performance in Europe, which is back to growth quarter-on-quarter compared to the first half of the year. We saw the full effect of our protective ring fencing measures in the second quarter, and this provided a new foundation for growth. Worth mentioning is also that we got recognition for our ring fencing from one of the largest regulators in Europe, where we were pointed out as one of the best B2B suppliers. I'm happy with the progress in Europe in this quarter. North America also performed decently, and Latin America is stronger than what we have seen earlier this year. Our Live revenue declined by 3.4% to EUR 431.7 million, while RNG increased by [ 4.2% ] to EUR 75.5 million. It is actually the first time that RNG outperformed Live in terms of growth. Our studios have worked hard and especially Nolimit City has performed great in this quarter. To further strengthen our portfolio, we have launched a completely new brand, Sneaky Slots from scratch, and it will be very exciting to follow that progress going forward. On Live, growth is held back by Asia, but we continue to see good growth in the rest of the world. In both North America and Latin America, Live is still in early days and gains considerable attention from operators and players alike. The opening of our new studio in Brazil has been a true success. On the game side, our highly anticipated Ice Fishing title has finally seen the light, and reception has been great across our market. It is mirroring the trend of faster and shorter forms of entertainment that are widely consumer channels like TikTok and Reels. And it is needed -- is indeed a much faster experience than, for example, Crazy Time. Another great thing is that expansion of Ice Fishing to other studios will be fast compared to the more massive games like Lightning Storm. With its success, we will definitely explore more opportunities in the speed game show arena going forward. To conclude the quarter, overall revenue is not where I want it to be. But when opening the lead, it's clear that the development comes from 1 out of 4 regions. The development in Europe, North America and Latin America is overall good and also supports the margin together with our clear focus on cost efficiency. Next slide, please. If we then move to our operational KPIs, consisting of head count and game round index. On head count, we are growing 4.2% on a year-on-year basis, but we have actually decreased 2.7% quarter-on-quarter. The slowdown is, to some extent, reflected in the revenue. We don't hire unless we grow, but looking at recruitment base within full year, there are sometimes fluctuation based on temporarily slower high pace in recruitment. As we plan for more studio expansion over the next years, the long-term trend is that we will see continued increase in the number of Evolutioneers. The game round index can be seen as a general indicator of activity throughout the network over time, as you know. And for an individual quarter, it can be -- can vary quite a lot and does not always correlate with the revenue development. However, as you also can see this quarter, this actually shows a decrease. Next slide, please. Innovation and quality will always be our signature when it comes to our game portfolio. And I am ever so proud of the continued delivery on our product road map for 2025. During the quarter, we released Ice Fishing, which I have already talked about, and also Dragon Tiger Phoenix, SuperSpeed Dragon Tiger, both the latter are based on a popular Dragon Tiger, a straightforward car game that now has been elevated with the new excitement. Rules are simple and gameplay is quick. In Dragon Tiger Phoenix, the Phoenix is introduced as the third legendary car and the players simply bet on which car that will win or if it will be a tie. Another very exciting release is the Sneaky Slots brand, which joins our portfolio that already includes Nolimit City, Red Tiger, NetEnt, and Big Time Gaming. We have created Sneaky Slots from scratch, leveraging all our know-how that we have within RNG and using our one-stop shop and global sales network to further boost its launch. Sneaky Slots will fill a gap between Nolimit City and NetEnt in terms of game style. And selected releases will use ex mechanics from Nolimit City that we know that the players love. First title was released -- was NetEnt, which will be followed by the new title every month until year-end. Among upcoming releases, we have Red Baron, a mix of Live and RNG where the goal is to cash out before the Red Baron flies away. The longer you wait, the higher the potential. Another release is Insurance Baccarat, which is an exciting variation of the classic Baccarat that adds a unique insurance feature to protect the space. While summarizing the year, we look back at over 110 releases, which is a truly great achievement. And as time flies, there's now only 3 months left until [ Ice ] where we, as always, will showcase the most exciting titles for 2026. I can promise that Todd and his team are ready to take entertainment to yet another level. Next slide, please. Okay. Let's look at the geographical breakdown. As already highlighted, I'm pleased to see that Europe growth quarter-on-quarter, with revenue amounted to EUR 182.2 million. We have talked a lot about ring fencing this year, and you probably remember that the effects on revenues were a bit larger than we had anticipated. It is a price that we have to pay to stay ahead of the regulatory curve. But with that said, we have a new base to grow from. And despite the summer without any major sports event, development has been overall good. I should also mention the dialogue with the U.K. Gaming Commission, which continued, and we are yet to receive the conclusion of its review. What I believe is important to note is that we have been very cooperative and also responsive to various requirements that the Gaming Commission has put upon us. We still have to wait for the outcome, but I truly believe that we have the most sophisticated compliance framework among all providers targeting the U.K. Moving on to Asia, where I have already provided the context for the bad development and revenue decline of 9.6% quarter-on-quarter. Even though the market in Philippines has been volatile, our newly opened studio has been off to a great start. A while ago, there were some media noise on our studio partner losing its B2C license, but it has nothing to do with us or our studio. Everything is working as it should. We did, however, suffer some building damage in the 6.9 magnitude earthquake that struck Cebu in the beginning of October, but to our great relief, no employee was hurt and operations continued, even though that is secondary when people's lives are on the line. Next slide, please. On the contrary from Asia, North America is, thanks to its regulation, more predictable and stable. Quarter-on-quarter growth is modest, but on the positive side, it is -- on the positive side, the operators continue to invest heavily in Live casino solutions and environment. Year-on-year growth is 14.5%. To meet the demand, we have launched our second Live studio brand, Ezugi, just around the end of the quarter, and we are planning to open a second studio in Michigan during the first half of 2026. I would also like to highlight that we, after the quarter, have launched Crazy Time in Connecticut. Great. Very, very good. Also, while speaking on North America, I would like to mention something on Sweepstakes as it has been a topic of discussion during the quarter. Sweepstakes is a popular product in the U.S., and we offer it in states where it's not prohibited or in any way under regulatory scrutiny. Sweepstakes is a very small part of our total revenue, but we believe it has some potential. And as you know, as the market leader, we'll want to offer a great variety of content. In the quarter, a city attorney in Los Angeles made a personal interpretation of the California law, and as our strategy is that we don't offer Sweepstakes where there are regulatory uncertainties, we pulled it from the market, simple as that. I'm also quite certain that you will ask us about the completion of the Galaxy Gaming acquisition. We are still awaiting some regulatory approvals, but believe me, we will be able to -- but we believe we'll be able to close the transaction before year-end. However, it's a regulatory process. It's not completely in our hands. Moving on to Latin America, where growth is picking up with 6.4% year-on-year and 5.9% quarter-on-quarter. The new regulation in Brazil seems to be done with its initial [ teething ] problems, and operator and players are becoming more active. Our new studio in Sao Paulo, Brazil has developed nicely during the quarter and will expand as we move forward. Now I will hand over to Joakim for a closer look at our financials. Next slide, please. Joakim Andersson: Great. Thank you, Martin, and good morning. As usual, I will now zoom in on some of the financial highlights this quarter. Let's start on Slide 7, where we have the financial development of the last 14 quarters. For the ones that are following us and are used to our format, you will note that we have added the revenue split by regulated and unregulated on this slide. Let's start there. As you can see on the line, regulated revenue is up to 46% of the total this quarter. And even if this will fluctuate between quarters as revenue mix shifts, the longer trend is clear. The portion of regulated revenue will continue to go up. To the left, as mentioned by Martin earlier, we had net revenue of EUR 507.1 million this quarter, and EBITDA margin of 66.4%. What is not shown on this graph is that we, now year-to-date, are at 66.7% in EBITDA margin, making it within the expected range of 66% to 68% for the full year. As you can see from the chart, our growth has clearly tapered off and even become negative, and this is not something we are happy about, and we can assure you that we are doing whatever we can to reverse that trend. Let's go to the next slide. And here, we had our profit and loss statement. A lot of numbers on this slide, so I have highlighted the key takeaways, and I will comment on them one by one. So firstly, again, we had net revenues of EUR 507.1 million, which is down 2.4% year-on-year and down by 3.3% quarter-on-quarter. Secondly, total operating expenses amounted to EUR 210.5 million, which is 5% higher than last -- higher than Q3 last year, but more importantly, down 3.4% from last quarter, which is good evidence of our efforts adjusting the cost base to the weaker revenue momentum. We are not only trying to work smarter and be more efficient optimizing how we use our studios and tables, but we are also taking some broad-based cost-cutting measures, which will continue for the rest of the year and into 2026. Thirdly, our operating profit amounted to EUR 296.6 million in the third quarter. And finally, EPS after dilution amounted to EUR 1.25. To be noted, the profit for 2024 includes EUR 59.7 million of other operating revenue related to reversal of earn-out liability. And so to make it comparable with this year, you should probably adjust for that. Let's move on to the next slide, where I'm going to show you the development of our cash flow. First, to the right, our capital expenditures. And as can be seen in the graph, we are down quarter-on-quarter, the total CapEx related to tangible and intangible assets of EUR 29.8 million. With that, we are likely going to be slightly lower than the full year forecast of EUR 140 million that we announced in the beginning of the year. If we then look left, our operating cash flow after investments amounted to EUR 342.1 million in the quarter, which corresponds to a cash conversion of 83%. With that, we are back on track after a seasonally and unusually weak second quarter. The change in working capital was positive EUR 35.2 million this quarter, meaning a swing back from the weaker number last quarter, which is good and in line with our expectations. Then finally for me, some brief comments on our financial position on the next page. On this page, you will find our summary of the balance sheet for the third quarter compared to what it looked like at the end of last year. The main items that I usually highlight, which are all signs of our financial strength, are the value of the bond portfolio of EUR 103.2 million, our total cash balance that amounted to EUR 656.4 million and the equity position at the end of the quarter, which amounts to EUR 3.8 billion. We have continued with the buybacks in the third quarter. And in total, we invested EUR 187 million and bought back 2.5 million shares. In total, we have now used EUR 406.5 million of this year's mandate from the Board of EUR 500 million. And following the release of the Q3 report today, we'll be back in the market with an aim to use the full mandate before the year ends. With that, I will hand back to Martin for his closing remarks. Martin Carlesund: Thank you, Joakim. So let's summarize the quarter and then move to the Q&A. Performance in Asia was bad and left a negative impact on the group revenues as a total. But with that said, the rest of the world is doing decent to good, and we are determined to get Asia back on track. I understand that it causes some frustration, especially since we actually saw some signs of improvement in the second quarter. And believe me, I'm frustrated, too. I can only repeat that it requires patience while being a top priority. I'm happy to see that the margin has improved compared to the first half of the year, and we don't see any reason why -- for it not to stay within our target range of 66% to 68% for the remainder of the year. Cost efficiency is something that I feel strong about as it's part of our roots as an entrepreneurial company. We never spend a penny unless it provides value to the business in terms of growth. This presentation is about the financial performance in Q3. We don't have a separate slide on the movement in the ongoing deformation litigation in the U.S. We have -- where we have for 4 years finally received information on who was behind the [ false ] report. This process will continue in court, and I will not make any comments about its future development. What I can say is that we believe in fair competition, where innovation and excellent operations count. When a competitor decides not to play by these rules, it hurts not -- it hurts not only us, but the industry as a whole. With that said, with a little bit more than 2 months left of 2025, we will continue to run, adapt and improve. When we summarize the year from a financial perspective, it will have been a bumpy ride, but from an operational perspective, a very strong and important period for Evolution. With that, we'll open up for questions. Next slide. Operator: [Operator Instructions] The next question comes from Martin Arnell from DNB Carnegie. Martin Arnell: My first question is on -- if we could discuss the Asia situation just a little bit more. I think you mentioned it remains volatile and you, of course, the ambition is to get it back on track. And my question would be, are there any signs that it has bottomed out because the counter measurements, that's in your control, right? So if you have been too stringent, you can adapt. But the regulatory situation and the effect from that is more -- is not in your hands. Is that a correct interpretation? Martin Carlesund: We are doing everything we can with the countermeasures. And as I said, we did a little bit too much, and we have to do a little bit less, and we'll find the balance. And I think that we are on to it and we're doing the right things. And it's also natural that there will be a situation where you do a little bit too much because otherwise, you won't know where the borders are. When it comes to the dynamic and the regulatory situation in the region, there's a lot of countries. And right now, there's volatility in some of the regions, some of the countries and that affects us as well. I can't predict much more than that. Martin Arnell: And my second question would be, first on Europe, return to growth quarter-on-quarter there. Is that because players finding their way back after the ring fencing through regulated alternatives, do you think? Martin Carlesund: That's a very good question. And I -- yes, I believe that players in some markets find their way back and want to play a regulated and good compound. So that's probably part of it. And we see good development in total. And I'm actually happy with the development in Europe. Martin Arnell: Okay. And final question is just on investments. I mean is there any investment that you could accelerate to improve this current situation in Asia? You've always commented that you will prio growth over margins. Martin Carlesund: It's -- there is no -- it's not -- if I could throw more money at the problem and I would get a quicker solution, I would do that. I don't see that it's a money issue. We invest and we put the resources -- topnotch resources in the world to do whatever we can. And there is actually -- but don't quote me on that, please, but there is no limitation when it comes to that money. We put revenue and market share before cost, but we also need to adapt to the situation we have. So that's what we're doing right now. Operator: The next question comes from Ed Young from Morgan Stanley. Edward Young: My first question is on North America. It's showing the best growth across your geographies, but it's still behind market growth. Could you give us an update on the drivers there? What's going well? What's going less well? And do you expect any material change in the growth rate into next year? The second is on Asia. It sounds like it's a reasonable conclusion from your comments around countermeasures, Martin, you may never be able to fully deal with these issues. So put another way, should we be rebasing fundamentally our Asia revenue and growth expectations? Or on what sort of time line do you have optimism over market growth and market share gains in Asia? And then finally, I'll ask it. I appreciate giving your very final comment. You may not want to answer, but what are you looking for as an outcome from your legal action? Are you seeking maximum financial damages? You expecting regulators to review your competitors' license suitability? What are you looking for? And what sort of time line do you expect this to play out? Martin Carlesund: Thanks. I got it. So when it comes to growth in U.S., Live is doing really well. We have a couple of fluctuations, maybe we didn't have the best quarter when it comes to RNG. There are a little bit fluctuations over the quarters, I'm happy with the development. I look forward to the future in U.S. That's the situation in the U.S. When it comes to Asia, to address this problem, it's technically difficult. It's very advanced, and we're doing it. And we're tuning and we're finding. My belief is over time, that we will find the right balance and the right solutions and continuously enhance and protect our product to make it even better. So in the longer perspective, I look at a very good situation in the Asian market. Now I don't have any -- I can't share any sort of time frame on that right now. I'm a bit more cautious with that. When it comes to the outcome of the litigation process in U.S., I mean I look for fairness, justice. I think that it's horrible to do what has happened to us. Someone is hiding between layers of companies and hiding the true identity and writing false -- a number of false statements in the report to us. It's unfair. We are protecting the shareholder value of Evolution. The company, as such, defending ourselves from our employees. And the first thing that we look for is some kind of justice, I would say. Operator: The next question comes from Ben Shelley from UBS. Benjamin Shelley: I've just -- I've got 3, if that's okay. On Asia, could you talk a bit more about the developments in India in more detail? What exactly is happening on the ground? And how should we expect this to develop over the coming quarters? My second question is on North America. Could you talk more about your Sweepstake exposure in the U.S. and how meaningful that is versus your North American revenues? And three, I was wondering if you could -- if you had any early thoughts on capital allocation for 2026? Do you think EUR 500 million is the right starting point for share buyback expectations for next year? Martin Carlesund: So the situation on the market in Asia, is a lot of different countries. We point out, Philippines is very volatile right now. There's things happening in India, but there's also other countries that are fluctuating and things are happening there as well. India is a large country. There are regions that have portions regulated when it comes to sports. There's a desire in some regions to regulate. Now there are suggestions on a sort of federal level to take a few steps towards blocking online gaming. These type of movements we often see, when there is talks and happenings about regulation, it opens up for different routes forward. It could go into regulation, it could settle down or it could go to somewhere else. We can't speculate on that. We just see that it's affecting us to a certain level right now. North America, I think that you asked about Sweepstakes, and Sweepstakes is -- we provide to the Sweepstakes market, where there are no regulatory problems or any legal problems. And we are very lean. We talked to regulators. And if there would be a letter or someone, a regulator or an authority stating, don't do it here, we would immediately go away. U.S. had the history of river boats that, from the beginning, travel on the river, down to only shore and they have to have the engine running and then they didn't have them, and then it was [indiscernible]. These type of movements have been -- prediction gaming could be one of these. But these type of movements have been there. And we want to supply to them as long as there is no regulatory or authorities saying no. So we did that. In the case of California, it's a state attorney in Los Angeles that made a personal lawsuit, and that's okay. And immediately when that happen, we withdraw from that. So that we -- okay, if that's what you want, then we will withdraw from that. So that's the Sweepstakes situation. Capital allocation, I don't want to comment on that. It's, in the end of the day, an AGM decision and a Board proposal. We are acting on the capital allocation that we have. And you also have the capital policy that we published last year, and I'm sure that the Board will continue following that. Operator: The next question comes from Pravin Gondhale from Barclays. Pravin Gondhale: Firstly, on Asia cyber attacks, so yes, we are seeing that. It sort of continues to be a drag on your performance. But do you see any risk of spreading these cyber attacks to your other markets like Latin America, where black market continues to be big? And then in Europe, can you just give us a sense that between Live and RNG, which have been the key drivers of your European growth on a sequential basis, and any sort of steer on how do you expect European revenues to grow from here? Martin Carlesund: The protection measures that we add to our core is valid for the whole core, meaning supply to all parts of the world. So one of the upsides in doing what we're doing now with advanced technology and AI and everything is that it also protects our core in other markets and all over the world. So I would almost say that it becomes a competitive advantage where we increase the gap to competition. And eventually, we make it so hard to steal our products. So if you want to steal the product, you have to go to someone else. So it's protecting everything. So any measure we take in Asia will be accommodated in all of the core. So that's that. And when it comes to the split in the growth, I mean, we're doing very well right now, momentarily very well, maybe not even showing in the figures in the right way. But when it comes to RNG, we're happy with the development. Nolimit City is delivering great games. And of course, it's contributing in a good way to the total revenue in Europe. Now it's still a smaller part. So Live is the big part. So don't forget that. I mean, it doesn't matter if it does tremendously well. It doesn't affect the figures that much. Operator: The next question comes from Monique Pollard from Citi. Monique Pollard: Three from me, if I can, as well. The first was just on the regulated revenue increase we saw in the quarter. And you talk about the sort of direction of travel. Just trying to understand whether that increase in the regulated revenues is driven by the fact that North America and regulated territories performing better than Asia or whether there were some new markets that regulated in the quarter that also added to that progression? The second question was just on the U.K. Gambling Commission review. You mentioned in the presentation that there's no new news, but also in the report, you say you're expecting a conclusion by the end of the year. So I just wondered what gives you confidence in that time line of end of year, please? And then the final question is in relation to the news we had a couple of days ago on Playtech Black Cube. I appreciate you don't want to get into the details of the types of damages being sought, et cetera. But it would be really helpful if you could give us some indication of how you look to assess the damages. So is the starting point for assessing damages based on market cap movement on the day that these bits of news became public? Or are there other sort of processes you use when you're thinking about the damages that have been caused by these reports? Martin Carlesund: The regulatory percentage, 46% in the quarter, good development. We're moving in that direction. That's nice. That comes out of, of course, that the regulated markets are outperforming the nonregulated, and it's affected, of course, by the situation in Asia. So more and more gets to be regulated. And I might remind you that as soon as it tips over to 50% and if the revenue grows equally, it will continue to increase more and more. So we're in a good position with that. When it comes to the U.K. Gaming Commission time line, unfortunately, I don't have any other information than what -- it's in the hands of the regulator, and we have been -- our estimation is that it will be by the end of this year. I have no further information. That's what it is. For me, when it comes to the Playtech situation, I mean -- I will say about the same things all over again, but -- when someone behaves in that way, [ hypes ] in -- during 4 years doing this type of action with that type of company that the Black Cube using, Juda as a PR company, it takes a bit away from my belief in humanity and fair play and in ethics and moral. Exactly how we will assess the damages, that's a later question, but it's a severe amount. Operator: The next question comes from Adrien de Saint Hilaire from Bank of America. Adrien de Saint Hilaire: So first of all, on Asia, again, it's been a volatile region now for a while. I'm just curious, high level, if there is a point where you might draw a line in your commitment towards that region and refocus towards other markets? Secondly, you touched on this, but cost of employee was down quarter-on-quarter. Can you explain a bit what's going on there and the sustainability of that? And then, sorry, this is a bit like technical perhaps, but there's been quite a switch between current liabilities and other noncurrent liabilities in the quarter. Can you explain a bit what's going on there, please? Martin Carlesund: Okay. I will start with the first 2, and then I will, with warmth, hand over the last one to Joakim. So we look forward and we are engaged, and we actually think it's intriguing, even if it's tough, to find a solution to protect our product in Asia. But I think it will become more and more important also for other markets if we look in a longer time perspective. So we don't have any line that we will draw against Asia. We'll continue to fight that. And as I stated before, it's not about money. It's not a cost that is the problem. It's to find real good solutions on the level for that. When it comes to cost per employee and the cost base, we have talked about all since actually July 2024, where we have the strike in Georgia in that situation and the cost mix and we had to shift a little bit. So we had an unfavorable cost mix. Now we're starting to be able to shift that, which is what we have talked about during the quarters that we need to have a better and favorable cost mix. It's not like we're cutting delivery right now. It's -- we are putting the delivery in the studios, which are good. So that's the reason why we come to that. And then I will hand over to you, Joakim. Joakim Andersson: Of course, the balance sheet question. It's simply a reclassification of earn-out bilities that we have moved from long -- being long term to short term in this quarter as they indeed are shorter than a year. I think that's the one that you are referring to. Well spotted, by the way. Operator: The next question comes from Raymond Ke from Nordea. Raymond Ke: A couple of questions from me. I'll take them one by one, starting with no surprise maybe at Asia as well. Compared to, say, Q2, how much of the decline here that we saw in Q3, which is due to cyber attacks, and how much is from regulations and changes in geographies like Philippines and India, would you estimate? Martin Carlesund: I don't split that out. There are sort of 3 components in the situation. One is cyber attacks, and the cyber attacks is, of course, the constant level of it, but also our action that was a little bit too tough and then we had to retract. And then there is unstability in the region when it comes to regulatory situation. And here, we point out India and Philippines as 2 of those, but there are also others. So unfortunately, I don't want to go into exactly where in detail, and it's also very hard to see that. Raymond Ke: Got it. And then regarding sort of the regulatory situation in not just Philippines and India, I understand it. But how many months of impact would you estimate that we have seen here in Q3? If we compare it sort of to ring fencing back in Q1, do we have the full effect? How much should we expect ahead? It would be really helpful to understand. Martin Carlesund: No, I understand. I assume that you're talking about Asia, right? Raymond Ke: Yes, that's right. Martin Carlesund: So I think that there is a difference between the situation in Europe and Asia, so to speak, but the ring fencing has a little bit of a tail. I think that in Asia, the situation is more momentarily, okay, this is where we are right now, and we need to take it from there. And then we need to see that we do the right things in the coming quarter and see to find the balance. Raymond Ke: Got it. And then on North America, your sequential sales growth was flat here in Q3. You had momentum going into Q2 where it added EUR 2 million on top line. How much of the trend here in Q3 would you say is due to withdrawing from California stake? Is it the majority here? Or is there other explanations? Martin Carlesund: I wouldn't say that, that affects significantly. Raymond Ke: And finally, just one more, if I may. Could you maybe help us get a better understanding of how you intend to reach your margin target with the revenue we see here in Q2? How much should come from, say, revenue growth? How much should come from additional cost savings? Is it sort of equal, equal? Or how should we think about that? Joakim Andersson: No. If I jump in and take that. I mean in Q3, clearly, we are within, right? It has a separate quarter, 66.4% this quarter. And also, as we said, year-to-date, 66.0%. So if we just repeat what we now delivered in Q3, we are there, right? So it doesn't take a lot to make it for the full year, and we are quite confident that we will make it for the full year. Operator: The next question comes from Rasmus Engberg from Kepler Cheuvreux. Rasmus Engberg: Cheuvreux that is. Do you anticipate that India could potentially have an impact also in the fourth quarter? So that's the first question. Martin Carlesund: I can't comment on that. I don't -- I look at Asia right now, and I'm cautious when I make any predictions due to the situation that it's so volatile. Rasmus Engberg: Fair enough. Can you explain the next step in your legal battle with regards to Playtech? What happens next? And could you also perhaps give us an indication of what the run rate of costs that you're incurring, if possible? Martin Carlesund: The first question I can answer. It's like -- the thing that happened this week is actually a non -- it's not an action that affects Evolution in any way. When we initiated the litigation, it was with a fake name, [ Joe Roe ], and that was Playtech, but we just didn't know that it was Playtech. So right now, that is just exchanged for Playtech because we finally got the name. So that's what happened. That's -- and then we gave you, to the market, all the information we had relating to that, and that's it. So from our perspective, and the next thing is that there are a number of depositions and potential information that should be shared, and the legal process will continue just like it had been. When it is -- when it relates to the cost, it's naturally very expensive to do this type of exercises. We do it to protect the shareholders. We do the value for the shareholders. We do to protect the company. We think it's unfair. It's unheard of. It's a behavior that we just don't understand. Now we won't split it out right now, maybe in the future to come, we will look into it. But right now, we don't comment on the exact cost. Operator: The next question comes from Jack Cummings from Berenberg. Jack Cummings: Two questions, please. The first is just on the ring fencing in Europe. Is there any more that you still have to do? Or is all of the European ring fencing now completed? And then just on my second question, I appreciate it's a little bit early than when you normally talk about full year '26. Based upon your comments on cost shift and cost mix, would you expect to see EBITDA margins expand in full year '26 or full year '25? Martin Carlesund: When I look at ring fencing, I think that we are in a very good position right now in Europe. Things can happen in both directions, but I don't know any other actions that are ahead of us right now. When it comes to EBITDA margin, we have full focus on 2025 to deliver the 66% to 68%. And we look forward to do that. And then I assume somewhere on a release to Q1 report -- the Q4 report, sorry for that, I'm a little bit ahead of the curve, then we will guide you for 2026. [indiscernible] is positive. Operator: The next question comes from Karan Puri from JPMorgan. Karan Puri: Most of my questions are actually answered. Just one on Europe, I guess, wondering how should we be thinking about a more normalized growth profile in '26 onwards once you sort of lapped the ring fencing adjustments. If you could share a bit on that, would be great. Martin Carlesund: The answer to that -- I don't guide on the future, but historically, over the time, Europe is the most mature market, and we had a pace of growing 9%, 10%, quite consistently over a number of years. That's the best knowledge we have of the situation. And right now, we are ring-fenced, and we are starting to see a little bit of growth from that. Operator: The next question comes from Andrew Tam from Rothschild & Co Redburn. Andrew Tam: Just one question from me. Can I just clarify just your position on India. You talk about the regulatory volatility there. I just wanted to just fully understand what that means. Obviously, you've seen in recent weeks, one of your largest customers globally, decide to exit that market entirely with the real money gambling band. Are you saying that, that is a market that you would look to ring fence as well, should you get some more regulatory clarity going the other way against you? Martin Carlesund: Ring fencing has to be done in relation to regulation and what is there. We are watching it closely right now, and there are volatility in India, as you understand. At the time, if there would be a ring fencing, that will be later down the road. Andrew Tam: Okay. So no plans to ring fence in future in India? Martin Carlesund: We're watching it carefully right now and see what will be there. Operator: The next question comes from Martin Arnell from DNB Carnegie. Martin Arnell: Yes, I just had a follow-up question on RNG, actually because I saw that you had growth improvement there. And could you just say, is it because Nolimit City has a strong edge in the market? Or do you see the market for RNG has improved? Martin Carlesund: We are doing better and better, slowly, bit by bit when it comes to our RNG offering. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Martin Carlesund: Thank you very much for participating, listening to us. I really look forward to seeing you in a quarter. Thank you.
Operator: Thank you for standing by, and welcome to the First Merchants Corporation Third Quarter 2025 Earnings Conference Call. Before we begin, management would like to remind you that today's call contains forward-looking statements with respect to the future performance and financial condition of First Merchants Corporation that involve risks and uncertainties. Further information is contained within the press release, which we encourage you to review. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains financial and other quantitative information to be discussed today as well as a reconciliation of GAAP to non-GAAP measures. As a reminder, today's call is being recorded. I will now turn the conference over to Mr. Mark Hardwick, CEO. Mr. Hardwick, you may begin. Mark Hardwick: Good morning, and welcome to First Merchants Third Quarter 2025 Conference Call. Thanks for the introduction and for covering the forward-looking statement on Page 2. We released our earnings yesterday after the market closed, and you can access today's slides by following the link on the third page of our earnings release. On Page 3 of our slides, you will see today's presenters and our bios, including President, Mike Stewart; Chief Credit Officer, John Martin; and Chief Financial Officer, Michele Kawiecki. Slide 4 has a map with all 111 banking centers, a few awards that we've received recently and some Q3 financial highlights, including a 1.22% return on assets for the 9 months ended September 30, 2025. On Slide 5, our strong balance sheet and earnings performance reflects strength and resilience of our business model. We delivered another 9% loan growth quarter and $0.98 of earnings per share. ROA totaled 1.22%, the same as our year-to-date number I mentioned previously, and the efficiency ratio was 55%, which is consistent with the high performance we strive for. As you all know, we announced the acquisition of First Savings Financial Group on September 25, adding approximately $2.4 billion in assets and expanding our presence into Southern Indiana, which is part of the Louisville MSA. We are confident in our ability and excited about building on their meaningful deposit franchise to create a true community bank in Southern Indiana, much like we've done in previous acquisitions. [indiscernible] Bank in the Northwest part of Indiana and IEB in Fort Wayne are 2 great examples of acquisitions where we saw potential and successfully built them into high-performing parts of the First Merchants franchise over time. We also believe the verticals will prove beneficial by enhancing fee income through their originate and sell models for SBA loans and first lien HELOCs by adding an additional loan growth and liquidity lever through their triple net leasing business, and we will now have an SBA product offering available throughout our current footprint. You may know that we have completed $8 million of SBA originations so far in 2025, while First Savings has originated over $100 million. Our commercial and small business teams are excited to finally have a more robust offering for our communities. Larry Myers will be joining our Board of Directors upon the close of the acquisition, and Tony Shane will stay on Board to lead their verticals and enhance the financial expertise of our commercial team. We anticipate a mid-first quarter closing, a mid-second quarter integration and are confident in achieving the announced 3-year earn-back. On Slide 6, year-to-date net income totaled $167.5 million, an increase of $31.9 million or 23.5% from the 9 months ended 2024, while earnings per share totaled $2.90, an increase of $0.59 or 25.5% during the same period. Michele will discuss our capital position to include our tangible common equity of 9.18%, which provides meaningful capital flexibility. And John will discuss nonperforming asset data to include our 90 -- our NPA plus 90 days past due to total loans of just 0.51%, down from 0.62% a year ago. Now Mike Stewart will discuss our line of business moment. Michael Stewart: Thank you, Mark, and good morning to all. Allow me to share some context for my portion of this call. I'm calling in today from Charleston, South Carolina, where the First Savings Bank, SBL team is gathered. SBL stands for Small Business Lending and represents First Savings Bank's dedicated 45-person team that has a national footprint delivering SBA loans. They gather once a year in person to review their accomplishments and prepare for their upcoming year, and I am pleased to be able to meet this team later this morning as an early bridge to the integration with First Merchants. So back to our earnings call. The business strategy summarized on Slide 7 remains unchanged. We are a commercially focused organization across all these business segments and our primary markets of Indiana, Michigan and Ohio. So turning to Slide 8. As Mark stated earlier, this was another great quarter of loan growth across all segments and across all markets. It is very pleasing to see our Midwest economies continue to expand, our clients' businesses continue to grow and see our bankers continuing to win new relationships. $268 million in commercial loan growth for the quarter, over 10% annualized. $699 million of loan growth year-to-date, over 9% annualized. CapEx financing, increased usage of revolvers, M&A financings and new business conversion are the drivers of this growth. Another encouraging bullet point on this page is the quarter ending pipeline, which is consistent with prior quarter end and gives me optimism that we will be able to maintain our loan growth and increasing market share activities into the fourth quarter. The Consumer segment also shared in the balance sheet growth with residential mortgage, HELOC and private banking relationships driving the $21 million of loan growth for the quarter. Pipelines for these segments also ended at consistent levels to June. So we can turn to Slide 9, deposits. I will start with the Consumer segment on the bottom page, which was the driver of our deposit growth during the quarter, $96 million in total. The mix is particularly pleasing with the non-maturity categories growing at nearly 5% annualized. Maturity categories also grew by $27 million. The primary driver of the nonmaturity balance increase is market share and household growth. Note the last 2 bullet points on this page. Maturity deposit balances have decreased $198 million year-to-date with nonmaturity deposit balances increasing by $178 million. Commercial Business segment on the top of this page has a similar story. While total deposits declined by $23 million in aggregate, core relationship or operating account balances grew by 4.9% or $56 million. Improving the mix of all deposit categories has been the focus of our teams for the past year and has been accomplished by focusing on primary core accounts and deposit cost. Overall, I'm gratified with the active engagement our teams are having with their clients. We have continued our pricing discipline, specifically maturity deposits and public funds and remain hyper focused on relationships and converting single product users into a broader bank relationship. So before I turn the call over to Michele, one last comment regarding First Savings Bank. I'm excited to be working directly with them. Larry, his executive team and his Board have been welcoming and supportive of building their market presence in Southern Indiana with First Merchants as a partner. I have already spent time with their teams, visiting banking centers and meeting their clients. They have a strong reputation within Jeffersonville, New Albany and their Southern Indiana footprint. Their community bank model and reputation are well established. Continuing their growth within this community will be our priority as their branch network and commercial capabilities are well positioned. Being able to meet their SBL team and other verticals is also a priority for me as these businesses drive a solid fee-generating revenue stream for the bank. So Michele, I'll let you take it from here. Michele Kawiecki: Thanks, Mike, and good morning, everybody. Slide 10 covers our third quarter performance, which reflects positive trends in all categories. Total revenues in Q3 were strong with meaningful growth in both net interest income of $0.7 million and noninterest income of $1.2 million. This resulted in overall pretax pre-provision earnings of $70.5 million. Tangible book value increased 4% linked quarter and 9% when compared to the same period in the prior year. Slide 11 shows our year-to-date results. The first 3 lines highlight continued balance sheet growth alongside an improved earning asset mix. Over the past 12 months, we reduced the lower-yielding bond portfolio by $280 million and increased higher-yielding loans by $927 million. Reviewing lines 11 through 14, total revenue increased by 4.5% when comparing year-to-date 2025 with the corresponding period in 2024, while expenses remain unchanged, demonstrating positive operating leverage. Adjusted pretax pre-provision earnings increased by 4.7% and totaled $208.6 million year-to-date 2025. Slide 12 shows details of our investment portfolio. Expected cash flows from scheduled principal and interest payments and bond maturities over the next 12 months totaled $283 million with a roll-off yield of approximately 2.18%. We plan to continue to use this cash flow to fund higher-yielding loan growth in the near term. Slide 13 covers our loan portfolio. The total loan portfolio yield continued to expand, increasing 8 basis points from the prior quarter to 6.4%. This increase was primarily driven by loan originations and refis during the quarter at an average yield of 6.84%. The allowance for credit losses is shown on Slide 14. This quarter, we had net charge-offs of $5.1 million and recorded a $4.3 million provision. The reserve at quarter end was $194.5 million and the coverage ratio of 1.43% remained robust. In addition to the ACL, we have $14.4 million of remaining fair value marks on acquired loans. When including those marks, our coverage ratio is 1.54%. Slide 15 shows details of our deposit portfolio. The total cost of deposits increased 14 basis points to 2.44% this quarter, reflecting the competitive deposit dynamics in our markets. We expect the rate paid on deposits to decline as a result of the September rate cut and plan to reduce rates more, assuming there are cuts in October and December. On Slide 16, net interest income on a fully tax equivalent basis of $139.9 million increased $0.7 million linked quarter and was up $2.9 million from the same period in prior year. Our quarterly net interest margin of 3.24% was stable linked quarter and continues to be resilient. Next, Slide 17 shows the details of noninterest income. Noninterest income totaled $32.5 million with customer-related fees of $29.3 million. Customer-related fees were strong in all categories, reflecting continued momentum. Moving to Slide 18. Noninterest expense for the quarter totaled $96.6 million and included $0.9 million of severance and acquisition costs. When excluding those onetime charges, core expenses were $95.7 million and in line with our guidance from last quarter. The core efficiency ratio remains low at 54.56% for the quarter. Slide 19 shows our capital ratios. The tangible common equity ratio benefited from strong earnings and AOCI recapture, increasing 26 basis points to 9.18% while returning capital to shareholders through share repurchases and dividends. During the quarter, we repurchased 162,474 shares totaling $6.5 million, bringing total share repurchases year-to-date to 939,271, totaling $36.5 million. We remain well capitalized with a common equity Tier 1 ratio at 11.34% and are well positioned to support continued balance sheet growth. That concludes my remarks, and I will now turn it over to our Chief Credit Officer, John Martin, to discuss asset quality. John Martin: Thanks, Michele, and good morning, everyone. I'll begin with an overview of our loan portfolio on Slide 20. In Q3, we saw robust loan growth across the portfolio with a $289 million increase in total balances quarter-over-quarter or 8.7% annualized. C&I lending grew by $169 million this quarter, continuing its strong momentum from last quarter. Commercial real estate added $87 million, reflecting steady demand and disciplined execution. We continue to be well below the CRE regulatory concentration guidance. And with the pending FSB merger, we have ample room for new originations in the portfolio. Our Midwest footprint remains the core of our portfolio with 82% of borrowers located in our 4-state region. Turning to Slide 21. Our sponsor finance portfolio continues to perform well with $911 million in outstandings across 100 companies in diverse industries. The credit metrics in this portfolio remains solid with 85% of the borrowers having a senior leverage under 3x and 63% maintaining a fixed charge coverage ratio above 1.5x. Losses have remained nominal over the life of the portfolio with only $15.1 million in losses over a 10-year history with nearly $2 billion in funded loans. We also continue to manage our shared national credit exposure prudently with $1.1 billion across 94 borrowers, primarily in Wholesale Trade, Agriculture and Manufacturing. Underwriting and credit quality remains strong across consumer and residential mortgage portfolios with over 96% of our $727 million in consumer loans and more than 91% of $1.9 billion in residential mortgage loans originated with credit scores above 669. Turning to Slide 22. Our investment real estate portfolio now stands at roughly $3.1 billion, as shown above, with the more significant concentrations highlighted here on Slide 22. Within non-owner occupied office, we continue to monitor our exposures with the top 10 loans representing 53% of total office exposure with a weighted average LTV of 62.8% at origination. The largest individual office loan is $25 million, secured by a single-tenant mixed-use property at 67.2% loan-to-value. The second largest is a $24.1 million medical office facility. Turning to Slide 23. Asset quality remains solid with nonperforming loans declining 3 basis points from $72 million to $68.9 million. Our nonaccrual loans tend to be small and granular, with the largest being $12.9 million to a multifamily secured loan. Classified loans finished the quarter lower with improvements across the C&I portfolio. Our charge-off -- our net charge-offs for the quarter were 15 basis points of average annualized loans. Performance was strong coming out of the second quarter and resulted in a solid performance for the portfolio in the third quarter. Then turning to Slide 24. Closing out the nonperforming asset roll forward highlights the strong performance just mentioned. We added $15.5 million on Line 3 and various nonaccrual loans. The largest was a $4.3 million contractor. We resolved the $6.8 million brewery relationship from last quarter, which is included in the $9.4 million on Line 3. With a $6.5 million -- or with $6.5 million in gross charge-offs at Line 5. We added $1.3 million in OREO from the mortgage portfolio and had a $2.5 million decline in 90 days past due. Overall, our credit portfolio continues to perform well as we continue to use consistent underwriting and proactive credit risk management. I appreciate your attention, and I'll now turn the call back over to Mark Hardwick. Mark Hardwick: Thanks, John. Turning to Slide 25. The compound annual growth rate of tangible book value per share on the bottom left continues to grow at a healthy 7% level post dividends, post buybacks and post acquisitions. When adjusted for the AFS AOCI volatility, which is now at $2.72 the combined annual growth rate is actually 8.5%. And then differential back in 2002 was nearly $4 per share. So we've made up some ground as the portfolio has matured and as rates have changed slightly. Slide 26 represents our total asset CAGR of 11.5% during the last 10 years and highlights how acquisitions have improved our footprint and helped fuel our growth. As we look forward to the last couple of months in 2025, we expect more of the same strong performance. Thank you for your attention and your investment in First Merchants. And at this point, we're happy to take questions. Operator: [Operator Instructions] Our first question comes from Damon DelMonte with KBW. Damon Del Monte: Just wanted to start off with kind of the expense outlook. I know going into '26, it gets a little confusing because of the merger closing at the beginning part of the year. But just kind of wondering, Michele, your thoughts on kind of core expenses here in the fourth quarter and kind of what you anticipate for core growth as we look through '26? Michele Kawiecki: Yes. Well, I'll start with the fourth quarter. We would expect Q4 to be relatively in line with Q3. And that is, I would say, after you back out those onetime expenses. And so really looking at Q3 core expenses. We always use Q4 to true up with incentive accruals and such, but not expecting any meaningful increase. So we should have a pretty disciplined finish to the year. and we're going through our planning process for '26 right now. And so we'll be more prepared to give guidance, I think, on our next call for 2026. Damon Del Monte: Got it. Okay. And then with regards to the margin, nice to see it hold up pretty steady quarter-over-quarter. Can you help us think a little bit about the impact if we do have 2 rate cuts here in the fourth quarter and kind of remind us how the margins kind of position for future cuts? Michele Kawiecki: Yes. I mean, assuming we get rate cuts in October and December, I would expect to see a few basis points of margin compression in Q4. As I've shared before, if there are rate cuts, our ALCO model predicts that for each 25 basis point cut, our margin declines about 2 basis points. And of course, that's because 2/3 of our loan portfolio is variable rate. So it will -- the loan yields will decline. But we're actively moving rates paid on deposits down in response. And if you look back at last year, we were really successful in doing so at that time. And so we'll have to see what the deposit dynamics in the market are like, but we're hopeful that we'll be able to try to minimize the compression as much as we can. Damon Del Monte: Okay. And just kind of along those lines, it looks like the deposit costs were up this quarter. Any color on kind of what occurred during the quarter? Michele Kawiecki: Yes. We really had to juice up some of our specials in order to stay competitive. And so I feel like that's the primary driver. Damon Del Monte: Okay, that's all that I had for now. So... Mark Hardwick: Damon, I would just add we had such strong loan growth that we needed to make sure that we had the funding on the other side and decided that it was worth being a little more aggressive with specials this quarter. Operator: Our next question comes from Nathan Race with Piper Sandler. Nathan Race: Just going back to the deposit pricing and cost increase in the quarter. Just curious if you're seeing any rationality or improvement from a competitive pricing perspective these days now that we have the Fed cut from last month and likely 1 or 2 more in the fourth quarter. And just can you remind us how much in the way of kind of managed or exception rate deposits you guys have that can reprice following those cuts in the future as well? Michele Kawiecki: Yes. With the September rate cut, we've been watching the market closely. And I wish I could tell you that we see some of our competitors backing off of rate. But I got to tell you, it still feels pretty high. So we're hopeful that with this next one, we'll start to see the competition get a little more rational. We have probably about $2.5 billion in deposits that are indexed. But as Mike Stewart covered in his remarks, even on our consumer portfolio, we're a little more variable than we were even at this time last year. And so we'll be able to -- we'll have the ability to move pricing on a pretty good chunk of deposits down. We already have with the September rate cut, and we think we'll have the ability to do more over the next 2, assuming we get those before the end of the year. Nathan Race: Okay. That's helpful. And then just thinking about the impact from First Savings. I believe you're picking up around a $700 million or $800 million portfolio of kind of lower yielding single-tenant lease finance loans. So just curious how you feel about that asset class. Is that a portfolio you want to grow in the future? Or do you think there's an optionality to maybe sell that book just to maybe reduce kind of the rate accretion that would be associated with marking that portfolio to market upon closing? And just any other thoughts on maybe repositioning part of the legacy First Merchant securities portfolio with the cover of the deal closing in 1Q? Mark Hardwick: Yes, Nate, good question. I think what I love about the triple net lease portfolio is we have optionality. So if we continue to feel bullish about loan growth in the core bank or in the legacy bank, First Merchants, at a 6.84% kind of yield like we had this quarter. And if there are rate cuts, obviously, that will come down. But the triple net lease portfolio is marked to about 6.25% and it's fixed rate. So it kind of just depends what our loan growth looks like in the variable rate portfolio and the yield differential. And we know that we have outlets if we wanted to sell a portion of it. And yes, we're always looking at the rest of our balance sheet. We have some mortgage loans that are yielding a little over 4.5% and some public finance loans that are in the same place and then the bond book. And so we're always just trying to look for opportunities to take advantage of shifting that liquidity into a higher-yielding asset. Nathan Race: Got it. And it seemed like a pretty opportunistic addition to add first savings. But maybe, Mark, just curious if you can touch on future M&A ambitions into next year. Are you seeing more opportunities to maybe consolidate some subscale banks across your footprint? Or are you just going to be more focused on kind of the organic runway that you have in front of yourselves? Mark Hardwick: Yes, I would say we're busy. I mean when I look at the talent that I have within our organization and just performing organically, and then throwing on top of that, the acquisition that will require time and energy to do it right and the opportunity that exists still in our Detroit MSA as well as now the Louisville MSA. I don't feel like M&A is a priority. We're in a position where we have the one we were looking for and the one we were most interested in. We love our geographies. And at least for now, that's 100% of our focus. And I would just add, the Comerica, Fifth Third announcement is an opportunity for us, and we're actively looking at how we take advantage of that. And so I know every time we have an acquisition, competitors do the same thing in the markets that we're moving into. But we're very aware of the 50-plus commercial bankers in that marketplace. We're very aware of the 24 locations that are within a mile where there's overlap and would love to find a way to turn First Merchants into a more meaningful franchise than it already is in the Detroit MSA as Fifth Third and Comerica come together. Nathan Race: Yes. To my follow-up question on Detroit specifically, and it seems like you're really well positioned there, particularly given that I think a lot of the Level 1 commercial bankers came out of Comerica way back when. So I appreciate all the color. Mark Hardwick: Yes, it's interesting. I was talking to Pat Ferring, who is the CEO of Level 1, and he said his phone has been ringing off the hook. And so he's been helpful in helping us figure out the best way to approach the disruption. So thank you. Operator: Our next question comes from Daniel Tamayo with Raymond James. Daniel Tamayo: Let's see. The loan growth was very strong this quarter. You've talked about it, particularly on the C&I side. You've had significant momentum there over the last few quarters. I think you said pipelines are pretty stable. Does this feel like -- I mean, I'm looking at 14% loan growth on a year-over-year basis in the C&I space. Does this feel relatively sustainable to you guys for the next few quarters? Is there anything that is unusual about the strength of the pipelines? Michael Stewart: I'll jump in on this, if you don't mind. I do think it's just good normal activity. I don't think there's anything unique about it. Businesses in the Midwest, like I referenced before, still have good outlooks themselves. They've taken a deep breath on what this tariff mean, so to speak, and they're navigating that. We've got a really focused segmented group of bankers that have great reputations in the market. And we haven't even got into that disruption that Mark talked about potentially in Michigan. I think that will add to the potential there. So what I'm saying is it is just core bread and butter, if you will, C&I activity that we really like. And then in the investment real estate side, which I think we stay to our knitting there, but lower interest rates, capital stacks, understanding of cap rates, those have become better understood. So developers are able to push projects to a faster pace and the way we underwrite fits that really well, too. So I do feel good about the fourth quarter. And there's nothing -- typically at the end of the fourth quarter, there's like something with taxes or year-end closing. There's not any crazy activity like that. This is just -- I feel like normal run rate. We'll see what happens with rate cuts and how businesses want to start out 2026. John Martin: I might add, contributing to what I agree with everything Stewart just said, with the asset-based lending team coming online actually gives even more optionality and momentum to the C&I team. Michael Stewart: John, I'm glad you brought that up. That's so true. Absolutely. Daniel Tamayo: Terrific color guys. And I apologize if I missed it, but did you give the impact that paydowns had on the CRE book? You did have significant growth in the non-owner occupied bucket in the quarter and kind of across the industry, we saw pretty sizable paydowns. Mark Hardwick: Did you say CRE book or... Daniel Tamayo: Yes. I want to make... John Martin: Yes. I mean our non-owner occupied for the quarter was, as I mentioned earlier, was up $87 million. So what we're booking primarily, we've got a concentration, as you can see in the real estate slide is in multifamily. And then obviously, we've got -- we continue to look at opportunities there. And what we're seeing this year is largely driven by the commitments, particularly in the construction side by what we booked last year [Technical Difficulty]. Operator: Please standby. Daniel Tamayo: Can you guys hear me now? Michael Stewart: John, we lost you when you were talking a little bit about last year's production in IRE multifamily and how the construction draws are funding out through this summer. So and then we lost you. John Martin: Okay. Thanks for getting in there. And so what we're seeing, obviously, last year yield itself into this year, produces what we're seeing this year. But there's no question that higher rates. I was just ending with what higher rates obviously have reduced the rate at which that portfolio has grown. So I still feel good about it, but it's not 2 years ago, 3 years ago. Daniel Tamayo: Yes. No, I appreciate that color. I recognize it grew significantly. I guess it was I was more curious kind of how that was able to happen despite paydowns. So that's terrific. And then I guess last one, just maybe for John on the credit side. Classified loans came down in the quarter, which was nice to see. Just curious pace of that -- those balances going forward, if you have any color. John Martin: Yes. When I look at classified loans in the quarter, we've been able to address in the -- really it was in the commercial real estate side when rates jumped, we had interest reserves that needed to be addressed, and we've done that really over the last 1.5 years, which we're on the grading. And so that will drive -- potentially drive those higher. We've addressed a lot of those issues. We've resolved some nonperformers, which has helped as well. But as I look forward, we're kind of -- I feel like we're in a place right now where we're kind of just trading dollars in the classified buckets to maybe seeing some improvement. There are a couple of segments that are maybe a little bit more challenged than others, but we're kind of just, I'd say, trading dollars at this point. Operator: Our next question comes from Brian Martin with Janney. Brian Martin: Just maybe, Michele, just maybe one for you or 2 on the margin. Just can you remind us the fixed rate loan repricing that you kind of got coming up here? And then also, I think just on the securities portfolio, I think someone asked about optimization and/or just runoff in that portfolio to fund loan growth. I guess, how are you thinking about that kind of the legacy First Merchants bond book? Is there more room to use cash flows to redeploy the loans? Or is some optimization possible? Michele Kawiecki: Okay. Well, I'll start with your first question on fixed rate loans. And so in the fourth quarter, we have about $130 million of fixed rate loans that will mature, and those are sitting at about a yield at about 5%. If we look into 2026, we've got about $350 million that have a yield of about 4.50% million that will mature in 2026. And so hopefully, that answers your first question. On the securities portfolio, our plan is to continue to use that roll-off, the cash flow to fund loans on a go-forward basis. And as Mark said, particularly when we close with First Savings, we'll continue to evaluate options to optimize our earning asset mix, looking at their portfolios, our portfolios, et cetera. In the First Savings deal, we did assume that we would sell their bond portfolio, which had about $240 million, but we'll also continue to evaluate our own. Brian Martin: Got you. And the roll-off of the securities portfolio, if you don't do anything with the legacy book, Michele, what does that look like in the next 12 months? Michele Kawiecki: We have about $280 million of cash flow that will be generated from the bond portfolio over the next 12 months. Now that includes interest. And so about $100 million of that will have -- will be interest. And so -- and then the rest is paydowns and maturities, and that will be rolling off at a 2.18% yield. Brian Martin: 2.18%, okay. Perfect. And then just on the sensitivity, how does First Savings impact your asset sensitivity, I guess, as you kind of look at once we get the combined company... Michele Kawiecki: It actually reduces our asset sensitivity a bit. So we actually land in a really nice place. We're still going to be a little asset sensitive, but less so than we were on a stand-alone basis. Brian Martin: Got you. Okay. And then you talked about -- I'm not sure if it was you or somebody else, just on the competition on the deposit side, are you seeing similar competition on the loan side in terms of where new yields are coming on, given, I guess, some of the repricing we've got to look at in terms of the fixed rate. But what does competition on the loan side look like today? Unknown Executive: Pumping down a little bit. Go ahead. Mark Hardwick: If I go back to Danny's comment just about loan growth, what we're having fun with now because we're growing at a pretty strong clip is just looking at the yield of everything we put on the balance sheet and trying to make sure that we're prioritizing the highest yielding products given the credit constraints as well. But it's been fun for us to have this kind of growth success to feel like we're winning despite competition in the marketplace and then just being smart about which loans we're putting on the books and at what yield, which is -- it's a good place to be. I'd rather be here than the alternative. Brian Martin: Yes. Okay. And then last one, Mark, I guess you -- just the opportunity. It sounds like the loan growth, I think maybe one of the other people mentioned just the strong loan growth you've had, particularly on the C&I side. But is some of that -- I know you've talked recently about maybe a couple of quarters ago about some pretty good hires you had brought on Board and kind of if they're contributing. And just it sounds like that's something you're thinking about with the -- if you're not looking at M&A next year, do you see opportunities to kind of lift out some more talent to kind of sustain the good momentum you've got here? Mark Hardwick: Yes. That is the reason that you saw a little uptick in our noninterest expense, and it was in the salaries. It's the talent that we've added to the team. And I would think next year, there's going to be an opportunity, especially in the Detroit marketplace to take advantage of some additional recruiting that just strengthens our franchise. Operator: Our next question comes from Terry McEvoy with Stephens. Terence McEvoy: Maybe just to start with a question for you, Michele. Were deposit costs at the end of the quarter below that 2.44% average? And what are your thoughts on where that could go in the fourth quarter? I know you talked about a decline, but just to frame some expectations, where do you see that trending in Q4? Michele Kawiecki: Yes. Good question. Yes, we did see them come down a few basis points at the end of the quarter, and that was just because we were anticipating that September rate cut and made some adjustments really quickly that we were able to get pushed in even before the end of the quarter. And so with anticipated rate cuts in October and December, we're going to keep pushing those rates down. Terence McEvoy: And then just a small question when I look at the First Savings presentation, and I think Mike Stewart was with that group today. The SBA lending, those that are on the balance sheet, are those guaranteed or unguaranteed loans? And then what are your thoughts on managing that business going forward in terms of retaining some of the unguaranteed portion, which has a higher risk profile than the rest of your commercial portfolio, I would assume. Michael Stewart: Yes, I do think the -- go ahead, Mark. Sorry, I can't see you. Mark Hardwick: Yes, we're in different locations. The unguaranteed portion is what is on the balance sheet. And the spread is about 2.75% over prime. And so it's a pretty high-yielding portfolio. And we're really excited about just putting that entire team on top of our current footprint. And Mike, maybe you want to talk about the volume we think we can add just within the First Merchants franchise. And I know that's where you are today. Michael Stewart: Yes. One last comment on the team, as I'm learning, self-contained within their SBA group, is a dedicated, I'll call it, workout team, and they've had a really good track record of low losses in that portfolio. They understand the process. They have a really nice documentation and relationship to the SBA flow. So they manage that portfolio, I think, in a very positive manner. And then to Mark's point, what's on the balance sheet is their unguaranteed piece. Getting my arms around and working with the team is they've built a model and built an infrastructure that they feel really comfortable that generates about $150-ish million of SBA volume a year. You heard Mark say they probably did around $110 million or so last year. Their fiscal year is in September. Their earnings release is next week, so you can pick up some of that information. And then juxtapose that to what Mark said earlier, First Merchants originated $8 million of SBA volume, [indiscernible], and that's what they do really well. So when you think about Indiana, Michigan and our Ohio footprint and having an outlet, if you want to call it that, or an opportunity for our business banking teams or community banking teams to have a place to send SBA volume. I think it becomes really easy for us to fill in their capacity in a meaningful way and just use it as another wonderful fee opportunity and be more relevant in our local communities. So that's how I feel like the strategic fit is in place. Mark Hardwick: And you may already know -- Terry, you may already know all this, but the SBA program loans can't exceed $5 million, which means the unguaranteed portion can't exceed $1.25 million or $1.25 million. And then if you originate $150 million and we kept all of the unguaranteed, it'd be $37.5 million for the year. And obviously, you have runoff as well. So it's a portfolio that has some higher risk. That's why the ACLs are higher and especially what we purchased will come on at more like 4% or 5%. And -- but the yields are really nice, like I said, with a spread of about 2.75% over prime or yield of 2.75% over prime. Operator: Our next question comes from Brendan Nosal with Hovde Group. Brendan Nosal: Maybe just starting off here on capital. TCE ratio back above 9% for the first time since late 2021. I know that you'll deploy some here with First Savings soon, but ratios remain healthy pro forma even for the deal and you'll be building pretty healthily off that base. Can you just walk us how you think about capital generation and uses of excess capital, particularly considering the near-term lack of interest in additional M&A? Mark Hardwick: Yes. I mean we'll continue to use 1/3 or more for our asset generation. It's been requiring a little bit more than that recently, 1/3 for dividends. And the remaining amount, we're just going to continue to look at ways to either take advantage of our current multiples. Pretty interesting if you just look at buybacks and this is -- if I think about next year, I think we're trading at $1.16 of our adjusted book value if you make the adjustment for AOCI back in or $1.27 of stated book value. And if we make $4 a share, just where we are effectively today, we're trading at 9x earnings and 9.25x. And so I feel like it's smart to be active in the share buyback space. And then we're also just looking at ways we can optimize our balance sheet, like I think Nate was asking us about earlier and whether or not it's smart use of the capital to optimize some of those loan categories that are underpriced where we don't have a deposit relationship or maybe a little bit of our bond restructuring. But I've looked at a couple of -- actually, last night, I was going through the releases of Horizon Bank and Simmons Bank and their major bond restructurings. And I would just tell you that's not happening here. We're not interested in anything that would require a tangible common equity raise. If we were to do something smaller that might require a piece of sub debt, then that is interesting to us. But we're performing at a level despite some of those underyielding assets that we're really proud of, and we think we have the ability to just make incremental improvements. Brendan Nosal: Okay. Great. Thank you for the definitive answer on a wholesale restructuring there. Maybe turning to asset quality and the reserve. I'm just kind of curious why you're still carrying such a large reserve at 143 of loans like before you even factor in remaining fair value marks. Like credit has been really healthy this year, and you're something like, I don't know, 20 or 30 basis points above your peer group when it comes to ACL coverage. Michele Kawiecki: Yes. I mean it has come down over the last couple of years. And some of it is just the methodology that you select when you build your model and ours, the quantitative model produces a higher, more conservative number. The good news is we had really positive credit migration this quarter. When you think about -- and so we always consider loan growth first and how much provision we want to take and we had really strong loan growth this quarter, but really positive credit migration. And then even looking at the macroeconomic scenarios, some of the changes in a couple of the macroeconomic variables moved in a direction such that we were -- it actually lowered the amount of provision that we required. And so despite the high loan growth, that kind of landed us at the $4.3 million provision. Mark Hardwick: And I would just add, that's the perfect GAAP answer, and it's the right answer. I would say if we tried to be more aggressive and put more in earnings, I don't have confidence that we would get paid for it. Brendan Nosal: Yes. Yes. No, that's totally fair. Better to have more than enough. Final one for me. Just thinking about like the progression of NII dollars from here, even if we get the rate cuts that are forecasted, which I think is 2 this quarter and then maybe 2 more in 2026, do you think you can continue to grow dollars of NII even as the Fed is cutting rates as expected? Michele Kawiecki: Yes, we do. And I say that because we've got confidence in our ability to manage deposit costs down, as I talked about earlier. And then even just if you look specifically at this quarter, our end-of-period loans is really quite a bit higher than our average for the quarter, average loans for the quarter. And so I think that will produce some good interest income coming into Q4 as well. Operator: Our next question comes from Nathan Race with Piper Sandler. Nathan Race: Just want to clarify on the buyback appetite. It sounds like there's still interest there just given the valuation disconnect that you discussed, Mark. And then I just want to confirm that with FSG pending, you guys aren't precluded from additional share repurchases. Mark Hardwick: Yes. That's -- thanks for the clarification. I wouldn't anticipate anything between now and closing. Just when you think about capital deployment, if we stay at these higher levels and our price continues to be where it is, we would be active. Nathan Race: Okay. But you're not necessarily precluded with the deal announcement pending? Mark Hardwick: We're not intending to do anything between now and close. Operator: I would now like to turn the call back over to Mark Hardwick for any closing remarks. Mark Hardwick: Well, thanks, everyone, for the great questions. It was an exciting quarter for us. We're really proud of the performance, the core organic performance of the company. We're excited about our M&A, announced M&A opportunity that we have. And as I mentioned, we're really kind of thrilled with the markets that we're in and the future that it can provide for our company. So just thank you for your investment, and it was a fun call. Thanks. Have a great quarter. Operator: Thank you. This concludes today's conference. Thank you for your participation, and have a great day. You may now disconnect.
Alexis Bonte: Good morning, and welcome to the Stillfront Q3 presentation. I am Alexis Bonte, the CEO of Stillfront, and I will be joined later by Tim Holland, our Interim CFO. I would like to start with a slight focus on Europe. As you can see, we had solid progress in Europe. We said a few quarters ago that we were in an investment phase in Europe in the first half of the year and that we would start reaping some of those rewards towards the later part of the year. As you can see, Europe returned to growth for the first time since Q1 of 2024, so in Q3, where the growth was just under 1%. What is important to say here, this is before the launch of the main new games that will happen in Q4. Those big new games, as a reminder, will be Big Farm: Homestead, that will launch towards the end of the year and will be within the Big franchise, and we'll build on the success that we had with Sunshine Island. Another big game that we announced previously that will launch in Q4 is Warhammer 40,000, which is a big important new launch on the Supremacy franchise with a major IP. And we also soft launched with a narrative franchise, the Unfolded: Webtoon Stories game with the Webtoon IP, and that soft launch is having some encouraging results. The marketing efforts also that we'll have in what we call Q5, which is right after Christmas. It's a good time to basically start scaling game. We'll see most of that revenue come into next year. Obviously, and that will impact the margins in Europe in Q4. But I just want to show that we say that we were going to basically really work on building up Europe in the first part of the year. And so I'm very happy to see that, and to be able to share that we are now reaping some of the results with the existing franchises, which are kind of showing the results in terms of live operations and how that is really performing. And also obviously excited about the new launches in our core business area of Europe. If we go into the KPIs that we have in Europe, so that resulted in a net revenue of SEK 643 million. That's up 0.6% year-on-year. UAC was at SEK 207 million, relatively stable. We were able to apply quite a lot of UA, especially in Supremacy at the beginning of the quarter. Then towards the end of the quarter, it was a bit harder to put more UA. But overall, I think we're with a healthy level in UA for Europe. And as you know, every quarter, it varies a lot whether we're able to place UA or not place UA. So that's something that we're always very, very attentive to. Adjusted EBITDAC was solid at SEK 154 million, which is a margin of 24%. Our key franchises in Europe grew by 0.4%, good performance. I was very happy, in particular, with Albion Online, who started doing a lot of investments in product marketing. I told you that I wanted the company to be less dependent on performance marketing and Albion Online's is a great game to be doing more product marketing and they had a really strong effort in product marketing, which actually has borne fruit and has been successful, and that gives me a lot of confidence for that franchise going forward. The smaller franchises actually grew faster in Europe. That was mostly due to -- from our Playa studio, a smaller franchise called Shakes & Fidget, which performed well year-on-year, and also had a small new launch called Mobile Dungeon, which helped that franchise scale a little bit. So that's Europe, very happy with the results in Europe. Continuing on to North America, as you know, and as we said from the beginning, North America has been our turnaround case. It's been really our problem side. It's the only business area that has negative growth. It is the business area that's actually dragging us down overall in terms of organic growth. Without North America, we would have very healthy growth across the group since both Europe and MENA and APAC are growing business areas. But that being said, we're continuing our turnaround efforts in North America, and we're -- and we are deliberately focusing on profitability. That's really what we want to do. We want to find the right level. We've made some very serious cost cutting in North America. I think we have a much healthier base now in that area. We also took some very hard decisions moving games to other business areas. And I would say that a lot of that work is done now. We ended up with basically SEK 246 million of revenues. That's 32.9% down year-on-year. So that's what is dragging down the organic growth. UAC was SEK 110 million. As I said before, we are extremely disciplined about UAC and what games it goes to, and we've really increased the discipline in North America around that. And that obviously has an impact on the net revenue profile of the business area. But then it also resulted in a large increase in our adjusted EBITDAC, which was SEK 36 million, which is a 15% margin. I think most of you will recall that North America was barely profitable a few quarters ago. And that obviously is a big change that now North America is a net positive contributor to our EBITDAC margin. And I think this is just a much more healthy base to work from. Both key franchises and other franchises were down in North America. Now the challenge for North America is going to be to work from that base. I do expect the decline to continue into Q4 as we're continuing with our discipline, but I do also expect North America to continue to be a net positive contributor in terms of EBITDAC as we work on improving things there. MENA and APAC, continued solid growth. Actually, growth has slightly increased quarter-on-quarter. Very happy with MENA and APAC. We have -- if you look at our key franchises, they grew by more than 18%. That's -- and going into even more detail, both Jawaker and the Board Ludo franchise from Moonfrog had very healthy double-digit growth. Very, very solid situation in MENA and APAC. Small level of UAC. There's very little dependency on UAC, EMEA and APAC. I think actually, we do have an opportunity there to boost a little bit the growth in the future and more likely in 2026, particularly for the Board franchise if we're able to place a bit more UAC there, but that's something that we're going to do carefully and slowly, and just basically the -- and with discipline as we've been very disciplined all the time. And adjusted EBITDAC as a result has continued to increase significantly with SEK 276 million, which is a 57% margin. So that's basically the main things on this side. I will now pass on to our interim CFO, Tim, for -- to talk a little bit about finance. Tim Holland: Thank you, Alexis, and good morning, everyone. On a group level, revenues declined by 7.8% organically, coupled with a 6% foreign exchange headwind. Our net revenue declined from SEK 1,595 million, down to SEK 1,373 million. And that was driven by a few different things, but primarily, it was driven by BA North America and specifically Word and HGM franchises. And as Alexis noted, we are much more focused on the profitability of those titles. So we did decrease user acquisition on a year-over-year basis. However, when you do decrease UA, that's obviously going to increase profitability, but it is going to decrease net revenue. But that was partly offset by strong performance in BA Europe. As Alexis noted, we're almost at 1 percentage point of organic growth for BA Europe, and that was driven by strong performance for Big, for Albion Online and for Supremacy as well. And we also had strong performance from BA MENA APAC, where we got to almost 3 percentage points of organic growth, and that was driven again by Jawaker and Board franchises. Looking at UAC. UAC came down year-over-year from SEK 462 million down to SEK 336 million, and that was driven primarily by year-over-year declines in UA spend for HGM and for Word. Looking at adjusted EBITDAC, that's up year-over-year from SEK 385 million up to SEK 436 million. I should note that's a 13% point increase on an absolute basis year-over-year, and our net revenue obviously declined by 14%, but we are showing strong margin resilience even with that net revenue decline. Adjusted EBITDA came in at 32% in terms of margin. Again, that's up 8 percentage points compared to Q3 of 2024. Again, that's primarily driven by decreased UAC as a percentage of net revenue. But one thing to point out as well is that our gross margin has improved on a year-over-year basis from 80 to 83 percentage points, and that's due to the continued success of our Web shop rollout, where we've improved our direct-to-consumer share of revenue year-over-year from 33% up to 44 percentage points in Q3 of 2025. Looking at our LTM free cash flow, that's down slightly year-over-year. Last time we spoke, we reported SEK 1,089 million in terms of LTM free cash flow. That's down to SEK 974 million, but that change is primarily related to working capital adjustments, which is a natural part of our business. So you are going to see that fluctuation from positive to negative in terms of our working capital adjustments. Next slide, please. Digging a bit further into our cash flow generation. Cash flow before changes in net working capital came in at SEK 357 million, of which is SEK 77 million in paid financial expenses. That is down year-over-year from SEK 101 million, down to SEK 77 million. The decrease that you're seeing there is due to two things. That's primarily due to a reduced interest rate environment, and then also a reduction in our interest-bearing debt. Of that cash flow from operations before changes in net working capital, there is taxes paid of SEK 90 million. That's up year-over-year from SEK 42 million, up to SEK 90 million. The reason for the increase is primarily due to Jawaker, where we're paying taxes for Jawaker in the UAE now under that new legislation where you have to pay 9% of your corporate tax -- taxable income there. I should note that we are under CFC taxation in Sweden, so we will be getting a credit back for that amount. So the SEK 42 million to SEK 50 million amount is more of a normalized basis for our taxes paid. Net working capital came in at SEK 47 million, negative SEK 47 million, and that is due to negative SEK 98 million in terms of liabilities. That negative movement for liabilities is due to a reduction in our UAC, but that was partly offset by a positive impact of SEK 51 million for our receivables, and that's primarily due to reduced net revenue. Looking at cash flow from investment activities, that came in at SEK 119 million, and that was primarily driven by SEK 116 million in terms of product development. I should note that, that's about 8.5% of our net revenue spent on product development. Last year, it was 9.4%. So we are spending less in terms of product development. However, we are taking a much more targeted approach in terms of product development by specifically spending more in Europe, spending more in MENA and APAC. We were spending less in terms of BA North America. Looking at our cash flow from financing activities that came in at SEK 326 million. That was primarily driven by SEK 335 million that was used to pay down our RCF. That's up year-over-year, and that shows our continued focus on deleveraging this business. Turning now to our free cash flow. You can see our free cash flow for the LTM basis was SEK 974 million. That is up year-over-year from SEK 835 million. And the difference between the two values primarily comes from reduced financing charges, reduced product development, and it's partly offset by taxes paid. And this table on the right primarily shows what we've done with that free cash flow. So we had, obviously, the cash portion of our earn-outs at SEK 618 million. And we also reduced our borrowings by SEK 268 million. Again, that's up year-over-year. And then we had our share buybacks for SEK 142 million over an LTM basis. And I will note, and as you probably saw from the press release this morning, we have announced a new program that will begin tomorrow. Next slide, please. Looking at our financial position, our financial position, total net debt decreased from SEK 5.9 billion last year in Q3 of 2024, all the way down to SEK 5.1 billion. That's a reduction of almost SEK 800 million, again, showing our focus on deleveraging this business. The middle table shows our maturity profile. The maturity profile remains strong. As you know, we don't have any major maturities until 2027. That large bar there of SEK 2.9 billion represents SEK 1 billion for a bond that's due in 2027, the RCF drawn of SEK 1.2 billion and SEK 0.7 billion in terms of our SEK term loan. Then we have a bond due in 2028, and a bond due in 2029. Looking at the right table, that's our net debt to EBITDA. We came in at 2.06x for our leverage ratio. That's obviously above where we want to be for our 2x leverage ratio target. However, we are down sequentially from Q2 2025. We are down from 2.18, down to 2.06. And then on a year-over-year basis, we're down from 2.08 to 2.06. I should note, excluding earn-outs, we are at 1.87x. And then we'll flip to the next slide here. Then this is the last slide before I'll pass it back to Alexis. But as we've noted in our report this morning, we are announcing the conclusion of our cost optimization program, which has been driven by fixed cost savings and direct cost savings. And this has been announced 1 quarter early. We view this program as being a fantastic success. As I noted, we saved a significant amount of costs, specifically with fixed cost in North America, and we've been very successful with our direct cost savings with the rollout of the Web shop, improving our gross margin. Going forward, we're, of course, going to continue to focus on cost savings and direct cost improvements. However, we want to take a balanced approach to invest in our key franchises and invest in the future of Stillfront. And with that, I'll hand it back to Alexis. Thank you. Alexis Bonte: Thank you, Tim. So basically, to conclude, we are starting to deliver on what we set ourselves to deliver a year ago. We have concluded the cost optimization program a quarter in advance at the maximum level that we had set. We are advancing very decisively with the turnaround in North America and making sure that it's got a healthier base and healthier profitability. We are returning Europe to a more healthy level of organic growth while still having solid margins, and a very interesting pipeline of new games coming in. And we have MENA and APAC that is continuing to go from strength to strength. And we're also leveraging some of the talent there to move some of the games that we had in North America into that region. So we are still very much at the beginning of what we would like to deliver, but we are definitely seeing the first signs that our strategy is working, which gives me a lot of confidence, but also makes me extremely thankful to all the teams at Stillfront. In terms of our key focus going forward, we're going to continue to focus relentlessly our investments on the key franchises. That is something that we will do more and more and more. We obviously -- we're a games company. So we will continue focusing on successfully launching new games. But as you can see from our CapEx with a lot more disciplined approach, but at the same time, I want to make sure that we have the right level of ambition. We will continue to -- with our discipline of delivering on strong margins and cash flow. And obviously, we are continuing to execute on the strategic review. You've seen that we've done some game closures this past quarter. We've also announced that we'll likely do some extra game closures, and we're also looking at, still, very carefully at some potential divestments. So with that, I think we are ready to take your questions, and thank you very much for your attention. Operator: [Operator Instructions] The next question comes from Erik Larsson from SEB. Erik Larsson: I have two questions. First off, I appreciate the outlook comments here on Q4. And as I understand it, your wording on Europe as we will potentially see weaker organic growth rates in Q4 versus what we saw here in Q3. But are you still confident on the ability to grow sequentially here, just to sort of get a feeling on the magnitude? Alexis Bonte: Yes. Maybe I can take that question first, and then Tim, you can build up. So yes, as we've indicated, we do believe that Europe might potentially be a little weaker in Q4, but still, it will be a completely different level to what you saw in Q1 and Q2. The reason why it's very difficult for us to really know where Europe will be is a lot of it depends on the year that we're able to allocate for Supremacy. And also most of the impact of the new games will be in the later part of the year and also towards next year, and it's very difficult to basically balance what will happen there. But it's definitely on another level going forward, and we're very confident that we've kind of found a new rhythm for Europe now. Tim, I don't know if you want to... Tim Holland: Yes. I mean, just as Alexis said, there's going to be variability from quarter-to-quarter, but we do believe in the long-term improvement in Europe. And then as Alexis mentioned as well, that's going to be heavily influenced by the new games. Erik Larsson: Okay. Then second and final question. Looking at your debt structure, it's start to look at some refinancing next year. So I just wanted to hear some thoughts how you think about the capital allocation. I guess you have reducing the absolute debt, giving better earn-outs, et cetera. So any thoughts there would be interesting to hear? Tim Holland: Yes. I mean we're going to get back to that. I think that our debt structure is strong. We have our maturity profile. Everything is primarily due in 2027 onwards. And that's a good timing as well because our earn-outs will be finalized in 2027 as well. So what we'll do with the extra cash could be amortizing much more on our RCF. We can also potentially do dividends. We could do acquisitions, but we'll get back to that at the appropriate time. Operator: [Operator Instructions] The next question comes from Rasmus Engberg from Kepler Cheuvreux. Rasmus Engberg: Warhammer Supremacy, when is that the game supposed to be out? Alexis Bonte: Rasmus, good to hear from you. So basically, we are having an initial launch, I think, around the end of this month, which will be a soft launch. And then we expect to basically scale the launch during the year to have, basically, a larger launch towards the end of the year. So Q4, but later part of Q4. Rasmus Engberg: Okay. And would you dare to say anything about Europe for next year? Do you think it's going to be largely stable then? Or you've taken some measures with launches and improvement of titles? Is Europe stable from these levels going forward? Or how do you think about it? Alexis Bonte: Yes. I mean the way we're thinking about it is we did a lot of work that was necessary to be done in Europe. We're really focusing our investments, focusing on the key franchises, making sure that we have a proper pipeline going forward. We're seeing the results, I think, basically more or less when we expected them, which is good. And that gives me very solid confidence for next year. Rasmus Engberg: And these new measures, you talked about closing some further games in North America, or potentially lowering them. That sounds like though there are more fixed cost savings sort of outside of the program? Or how should we think about that? Or is that going to be reinvested in something or? Alexis Bonte: Yes. I think there's a time to be doing cost savings and there's a time to go on the offensive. I think we've done what we had to do in terms of cost savings. And any further savings that we might receive from other game closures and all that, it is very much our intention to reinvest and to go on the offensive and to strengthen our pipeline. I think we have a strong base to do that. I think the cleanup that we had to do has mostly been done. And now it's about really being more aggressive going forward. Rasmus Engberg: Would it be possible to talk about sort of the better part of North America? Is that a stable part? How much is it? Is it possible to give any indication on that? Alexis Bonte: I mean we don't do breakdowns of business areas, obviously. I mean, I'll let Tim to build up. But obviously, we have some key franchise in North America. Those -- some of those key franchises, I think, have really good potential, but they need to increase their performance. I think we we've really raised the bar in terms of what we consider as good performance. I think there is a few franchise in North America that could do well. Some can do well within North America. Others, clearly, we didn't have the team or the right resources to make them work in North America. For example, like Word. And that's why we moved out Word games to Moonfrog in India, where the team there, a lot of people are former Zynga people that worked actually on Word games. So it was a perfect match. So we'll be kind of very direct with that. But yes, there are some good elements in North America, but they're going to have to demonstrate over the next 3 to 6 months that they can deliver basically. Tim Holland: Yes, nothing further to add other than we have some very strong franchises in North America. Like BitLife, there's probably nothing like it globally in terms of that title. And so we have high hopes for that title. But of course, we do need to see some stronger performance in that region. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Alexis Bonte: Well, on behalf of Tim and myself, thank you very much for joining this call on the Q3 Stillfront results. As I just said, we're executing on what we said we were going to do. And we are happy to start seeing the first results of our strategy. And obviously, we aim to continue to deliver over this over the next quarters. Thank you very much for your time. Tim Holland: Thank you.
Operator: Good day, everyone, and welcome to the Arca Continental Third Quarter 2025 Conference Call. [Operator Instructions] Please note, this call is being recorded. I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Melanie Carpenter of IDEAL Advisors. Please go ahead. Melanie Carpenter: Thanks, Nicky. Good morning, everyone. Thanks for joining the senior management team of Arca Continental to review their results for the third quarter and the first 9 months of 2025. Their earnings release went out this morning, and it's available on the company website at arcacontal.com in the Investor Relations section. It's now my pleasure to introduce our speakers. Joining us from Monterrey is the CEO, Mr. Arturo Gutierrez; the CFO, Mr. Emilio Marcos; and the Executive Director of Planning, Mr. Jesus Garcia. They're going to be making some forward-looking statements, and we just ask that you refer to the disclaimer and the conditions surrounding those statements in the earnings release for guidance. And with that, I'm going to go ahead and turn the call over to the CEO, Mr. Arturo Gutierrez, who is going to begin the presentation. So please go ahead, Arturo. Arturo Hernandez: Thanks, Melanie. Good morning, everyone, and thank you for joining us today to review our results for the third quarter and to share some important recent developments. Let's begin with our consolidated results. I'm pleased to report another quarter of solid execution and sequential progress across our territories, even as the broader economic environment remains challenging. Our teams continue to navigate market headwinds with agility and discipline, driving robust profitability. Total consolidated volume declined 1.8% in the quarter, while consolidated revenues grew 0.5%, supported by effective portfolio mix and revenue management, partially offset by unfavorable FX impacts. Consolidated EBITDA grew 1.2% in the quarter, reaching a margin of 20.4%. This achievement marks a significant milestone with third quarter EBITDA margin at its strongest point since the acquisition of our U.S. operation in 2017. These results underscore our relentless execution, the strength of our portfolio and our continued focus on driving profitable growth. Let me expand on the results across our geographies. In Mexico, unit case volume, excluding jug water, declined 2.9%, largely reflecting the impact of heavy rains and below-average temperatures across much of our territory. Despite this temporary weather-related pressures, still beverages grew 2.2%, led by tea, juices and nectars and energy drinks, capitalizing on the positive momentum in the supermarket channel. Coca-Cola Zero continued to outperform delivering sequential double-digit growth, supported by the introduction of the new 450-milliliter format, which continues to resonate with consumers seeking convenient and affordable options. Santa Clara brand continues to deliver strong performance in Mexico, achieving double-digit volume growth rates, supported by robust momentum in flavored and specialized milk. We continue to gain value share in the value-added dairy category, reflecting the strength of our innovation and disciplined execution. Net sales grew 2.8%, with average price per case, excluding jug water, up 6.4%, underscoring our strong revenue management capabilities. EBITDA decreased 3% in the quarter, resulting in 23.9% margin, reflecting our disciplined commercial execution and solid revenue management capabilities in a softer demand environment. In South America, total volume declined 0.6% in the quarter, primarily due to softer performances in Ecuador and Argentina. This was partially offset by growth in Peru. Total revenue declined 13.6% and EBITDA was down 1% with a margin of 18%. This quarter reflects a steady though cautious progression of the recovery that began in the first half of the year with meaningful variation across countries. Collectively, our South American operations are advancing through a period of disciplined stabilization, setting the stage for more balanced and sustainable growth ahead. In Peru, total volume increased 2% in the quarter, supported by a stable economic environment and resilient consumer demand. Growth was broad-based across categories, led by sparkling up 1.7%, stills up 1.9% and water at 4.8%. Our core brands, Coca-Cola, Inca Kola and Sprite delivered strong growth, up 1.2%, 1.6% and 8%, respectively. Volume recovery remained consistent across channels with convenience stores leading the way up 22%. Supermarkets showed a sustained rebound while traditional trade maintained solid momentum, supported by our effective price pack and cross-category strategies, further enhanced by our digital capabilities. Turning to Ecuador. Volume declined 1.2%, reflecting softer market conditions and a fragile yet gradually improving macro environment. Even so, our team remained focused on executing our fundamentals and driving performance in the areas within our control. We sustained our value share in NARTD beverages, driven by continued growth momentum in still beverages, up 3.6%. In the sparkling category, Coca-Cola Zero once again delivered solid growth of 2.2%, while Fanta and Fioravanti grew 6.2% and 3.6%, respectively. The water segment rose 3%, showcasing the strength of our diversified portfolio. We also continue to refine our price pack and channel strategies, drive the adoption of returnable packages and invest in targeted market initiatives to strengthen our long-term position. Year-to-date, we have installed more than 17,000 cold drink units, further enhancing our market coverage and reinforcing execution at the point of sale. In Argentina, volume declined 5.6% in the quarter, reflecting the near-term effects of the country's economic adjustment. Nevertheless, we gained value share across NARTD categories, supported by our sparkling portfolio and our continued focus on affordability and returnable packaging initiatives. While volatility remains, our disciplined execution and agile commercial approach positions us well to capture growth as conditions normalize. Our beverage business in the United States delivered another strong quarter, sustaining solid momentum and achieving robust operating results. This marks our 30th consecutive quarter of EBITDA growth. Adding to this momentum, our U.S. team was recognized as the best Coca-Cola bottler in the world, receiving the prestigious Candler Cup. We are proud to be the only bottler to have earned this award twice, underscoring our operational excellence and market leadership. These impressive milestones reflect our team's consistent execution and the strength of our business model. Solid performance this quarter was driven by effective management of our price pack architecture, disciplined cost controls and continued focus on maximizing the value of our most profitable packages. Net revenues rose 3.5% this quarter, with the average price per case up 4.8%, supported by our strategic focus on boosting promotional efficiency through our trade promotion optimization digital platform. Volume for the quarter declined 1.3% and transactions grew 0.1%. Key performance highlights included a 5.9% increase in our low-calorie portfolio led by Coca-Cola Zero, Diet Coke and both Diet Dr. Pepper and Dr. Pepper Zero. In the stills portfolio, Monster, Fairlife, Core Power and Smartwater continued to post sequential growth, supported by robust brand execution. Notably, EBITDA increased an outstanding 9.7%, representing a margin of 17.2%. And an important update on our digital agenda, our e-commerce business continued to deliver strong results, driven by enhancement in our eB2B capabilities and outstanding execution in the e-retailer space. I'd like to close our U.S. update by sharing our excitement for the 2026 FIFA World Cup and our role as whole city supporters for the Dallas and Houston venues. Through this partnership with the World Cup Organizing Committee, we will actively support the city's legacy programs and showcase our brand through targeted initiatives that engage fans and local communities. Our Food and Snacks business delivered a resilient performance posting a low single-digit sales decline for the quarter. While facing top line challenges, our team remained focused on profitability through effective price management, portfolio optimization and operational efficiencies. In line with our broader sustainability objectives, we continue to advance the clean label initiative across our U.S. Snacks portfolio. This includes the removal of artificial colors, flavors and preservatives as well as the simplification of ingredients lists. These efforts exemplify our commitment to transparency, product integrity and long-term consumer trust. And with that, I will now turn the call over to Emilio. Please, Emilio? Emilio Marcos Charur: Thank you, Arturo. Good morning, everyone, and thank you for joining our call. As Arturo highlighted, the same factor that influenced our performance in the first half of the year continued to play a significant role in the third quarter. Macroeconomic environment remained challenging and weather conditions were still unfavorable. Even so, we have a sequential improvement in volume for most of our operations, demonstrating strong team performance despite challenges. The improvement in volume, together with our solid revenue growth management capabilities and disciplined approach to expense control resulted in an expansion of our consolidated EBITDA margin. Let me offer further insight into our financial results. In the third quarter, consolidated revenues increased 0.5%, reaching MXN 62.9 billion. Revenues for the 9 months of the year rose 6.6% to MXN 183.4 billion, mainly driven by an effective pricing strategy. On a currency-neutral basis, revenue rose 3.8% in the quarter and 3% year-to-date. During the quarter, SG&A expenses rose 1%, reaching MXN 19.4 billion. Despite the contraction in volume, SG&A to sales ratio was fairly in line with third quarter '24 at 30.8%, reflecting our continued commitment to operational discipline. In the quarter, gross profit increased 1.2% to MXN 29.5 billion, while gross margin expanded by 30 basis points due to a solid price pack architecture and solid hedging strategy. For the quarter, consolidated EBITDA increased 1.2% to MXN 12.8 billion with a 10 basis point margin expansion reaching 20.4%. In the 9-month period, EBITDA grew 6.1%, reaching MXN 36.6 billion, while EBITDA margin decreased by 10 basis points to 20%. On a currency-neutral basis, EBITDA rose 2.6% in the quarter and 2.2% as of September. Net income in the third quarter reached MXN 5.3 billion for an increase of 3.5%. Net profit margin increased 20 basis points to 8.4%. Now moving on to the balance sheet. As of September, cash and equivalents totaled MXN 32.3 billion, while total debt stood at MXN 63.9 billion, resulting in a net debt-to-EBITDA ratio of 0.62x. In our most recent Board meeting, it was approved to distribute an additional dividend of MXN 1 per share to be paid on November 5. Combined with the ordinary dividend of MXN 4.12 distributed in April and the extraordinary dividend of MXN 3.50 paid in June, we will reach a total dividend of MXN 8.62 per share. This reflects a payout ratio of 75% of retained earnings and a dividend yield of 4.3%. Total CapEx reached MXN 11.8 billion, representing 6.4% of sales. Investments were primarily directed towards expanding our production capacity, ensuring that we are well positioned and sustained future growth. We also continue to enhance our distribution and commercial capabilities, which are key enablers for our long-term strategic plan. Looking ahead, we expect market volatility to continue throughout the rest of the year. We remain confident in our business strength and ability to create value despite challenging conditions. We will continue managing expenses carefully to drive profit and sustainable growth. That concludes my remarks. I will turn it back to Arturo. Please, Arturo. Arturo Hernandez: Thank you, Emilio. As we reflect on this quarter, our disciplined execution enabled us to protect volumes, sustain market share and maintain profitability even in challenging conditions. Furthermore, as we marked the third year of our collaboration agreement with the Coca-Cola Company, this partnership continues to deliver on its core objectives while unlocking new opportunities through a broader portfolio. At the same time, we are staying proactive on regulatory developments and pursuing strategic initiatives, ensuring our readiness to capture growth when market conditions improve. By balancing resilience with agility, we're positioned to deliver a strong and sustainable performance across cycles and continue creating long-term value for our shareholders. We are focused, ready and energized to capture the opportunities ahead. Thank you for your continued trust and support. Operator, please open the line for questions. Operator: [Operator Instructions] We'll take our first question from Ulises Argote with Santander. Ulises Argote Bolio: My question is related to the margins in the U.S., right? So another quarter with positive surprises there. I was just wondering if you could give us some color on what continued to be the main drivers there and the main levers despite that slowdown in top line that we're seeing. And maybe just to pick your brain on how sustainable do you think these trends are going forward? Arturo Hernandez: Thank you, Ulises. Well, first of all, we have to say that we're very satisfied with the profitability in our U.S. business, considering also that we faced many challenges in that market. As you know, third quarter, we grew EBITDA, in dollar terms, close to 10%. And our margin is above 17%, which we -- again, we're very pleased with that. The drivers behind it, as we've said before, our pricing capabilities and also the management of promotions. We're looking forward to combine this premiumization of our portfolio with also a price architecture that would cover all segments, considering, again, the economic dynamics. We've also worked on efficiency projects. And I would say that our OpEx ratio has shown this operational discipline. We expect that also to be sustained. There's some efficiency projects underway. And in fact, one of the most important ones will not be fully captured in '26, the Wild West project that we call, which is the restructuring of supply chain in some of our plants and warehouses in the U.S. We also are looking at input costs in '26. They're expected to rise due to inflation, but we do have also a strong hedging strategy. I will ask Emilio to expand on that part. But in general, I would say that we are very confident for '26 to sustain our current margins. Emilio, why don't you expand on our raw materials and hedging situation? Emilio Marcos Charur: Yes. Thank you for your question, Ulises. Yes, for this year, as we have mentioned, we have over 97% of our LME needs in U.S. and 48% Midwest premium portion for this year and 79% of high fructose needs. And we started to hedge for next year. For 2026, we have 95% of our LME needs next year and 20% of Midwest premium. So that will allow us to together with what Arturo already mentioned, to consolidate the levels -- the margin levels that we have this year, and we expect it to reach those levels -- at least those levels for next year. Operator: Our next question comes from Thiago Bortoluci with Goldman Sachs. Thiago Bortoluci: Arturo, question on you for Mexico, right? How should we read the combination of negative sparkling volumes with returnables losing participation in your mix? And if I may expand, the reason I'm asking this is because the big debate today in the space is clearly how much of the drag is structural versus temporary issues, namely comps, weather and another few. So it would be very helpful to hear your perceptions on how you're seeing underlying elasticity, affordability, price pack performance and overall performance by channel. And again, if we can read anything between your volume print and your packaging performance in the quarter, especially in the context where weather conditions didn't help. Arturo Hernandez: Thank you, Thiago. Let me start by giving the context of the consumer environment in the third quarter in Mexico. As you said, this is a combination of not very favorable weather, increased rainfall, cooler temperatures. It was very, very unusual. Rainfall was probably 40% higher than usual in the North of Mexico, even more than that, maybe in some cases, just doubled and tripled in the West regions for us. So temperature has also affected volumes and consumption and traffic throughout the quarter. There was also the economic dynamics where activity slowed down and any activity really was driven by exports rather than domestic demand. So internal consumption has been reduced and special retail activity and traffic weakened. I would like to think that, that is also temporary, not only weather, which would naturally be different as we think about next year. But in terms of the economic weakness, we believe that as we gain greater clarity around trade rules and tariffs and the relationship with Mexico and the bilateral trade with the U.S. that will enhance Mexico's competitiveness and will provide even formal job creation and with that, domestic consumption. If you look at returnable packages, well, the main reason is that supermarkets were basically the only channel that grew volume in the third quarter, and that was driven mostly by intensified promotion, considering the current situation. But we're going to be pursuing our strategy of affordability going forward in Mexico, which means entry-level packages, both returnable and nonreturnable packages. And the 235-milliliter, 12-ounce 250 ml one-way packages. The 450 milliliter that probably you've seen in the market, one-way, very important for us. The multi-server fillable format, what we call the universal model. All those strategies will continue to move forward as we face these challenges. So that is -- it's hard to isolate the effect of weather and the economic situation, but we are convinced that those are the main factors. Our execution in the market continues to improve and our leadership in the market as well, which we believe that's the most important part. Operator: Our next question comes from Ben Theurer with Barclays. Benjamin Theurer: I wanted to get a little bit of how you think about pricing going forward. I mean, obviously, we know about what's in the proposal in terms of taxes for the different categories. But as we think about raw material inflation you face and what you usually pass on, what is your strategy going to be towards the end of the year and then into next year? How should we think about pricing? How much is needed for the taxes? How much would you do on top of that? And what are kind of like the sensitivities you're looking at as it relates to your volume if you were to raise those prices? Arturo Hernandez: Yes. Thank you, Ben. First, let me talk in general about our pricing strategy, which really has not changed. And I think under this market conditions, it's demonstrated that these capabilities do work very effectively of increasing prices in line or above inflation in every business unit. This requires not only this very advanced pricing tools that we have designed jointly with the Coca-Cola Company, but also leveraging the trade promotion models, which operate at a local level. So I think, for years, we have demonstrated these capabilities, which, as I've said, if there is one fundamental capability that consumer goods companies need to get right now or the future is precisely revenue management. So for us, it's combining affordability and also a premiumization strategy, as I said before. We will continue to monitor those pricing dynamics and make sure that we are competitive in the marketplace. And then going specifically to your point about taxes and Mexico. Well, this tax that we are expecting to be implemented for '26 would require us to pass through the impact via prices. And as you know, we've done that before, actually 12 years ago. And we have estimated that, that increase would be in the range of 8% to 10% probably. And that we would have to add inflation after that, considering that we want to remain competitive in terms of margins in '26. So we don't know exactly what the elasticity would be, but there's certainly going to be an impact in volume for next year. We have some of the learnings of past elasticity patterns following similar adjustments in 2014. But at the same time, we have so many things that work in our favor in the Mexico market going forward. I mean there are reasons to believe that we're going to be able to mitigate part of that impact. And there are many factors. I mentioned before, the impact of unfavorable weather this year. We also face this difficult economic situation. We expect normalization next year, considering the challenges we faced with brand retaliation that you know about some product constraints in our supply chain, particularly Topo Chico in '25 and the opportunities to keep deploying our digital capabilities that are still going to be rolled out, some of the new features and very particularly, the incremental demand that would be driven by the major events in Mexico and the U.S., the FIFA World Cup. In Mexico, we're also going to have the 100th anniversary of Coca-Cola in Mexico. So there are so many things that will work in our favor considering that certainly, it's going to be a challenging volume situation as we pass along these -- the tax that has been imposed, but that's going to be imposed. Operator: Our next question comes from Felipe Ucros with Scotiabank. Felipe Ucros Nunez: A quick question on the taxes in Mexico. Of course, not great news getting this tax increase. I was wondering if you can comment on a couple of things. The first one is the differences between this tax and the one that we saw 12 years ago. No tax for beer were changed. So the gap between soft drinks and beer, I guess, is changing. And I'm wondering if you can comment on what type of impact you would expect through that differential. And whether it's material for us to monitor it or you think the occasions are so different that it's really not a concern. And then the second question related to this is, it looks like there's more serious incentives in place to move the consumer towards no-low options. So I'm wondering if you can talk about how this may change profitability and returns for the business in the long run, if at all. And I'm talking about there's differences on the price per unit of sweetening from sucralose and sugar, perhaps there's a margin differential between the different presentations and concentrating price -- concentrate pricing might also be different. So just wondering if there's going to be like a change on the profitability of the business in the future from the change to no-low categories. Arturo Hernandez: Thank you, Felipe. Well, to the first part, we really don't anticipate an impact from any difference in the tax treatment of other categories really. We're looking at the dynamics within our own industry for sure. And in this case, as you saw, we really have a commitment to reduce the calories in our portfolio going forward. And this is not something that is new or that is improvised by the system. We've been, for years, developing and promoting options with less sugar and with no sugar in Mexico and in other markets. So now what we intend to do is to offer more proactively our broader portfolio, a more balanced and lower-calorie portfolio. And those are part of the commitments we've made with the government as we discussed the implementation of the tax. So as part of that, we also want to promote competitive prices and affordable Coca-Cola Zero packages, particularly. This, as you know, has been a great innovation in our portfolio. Coca-Cola Zero continues to grow, and we will connect that also even to the FIFA World Cup next year. Coke Zero will take center stage in many of the campaigns connected to the World Cup. In terms of profitability, we don't think that, that will really affect overall profitability going forward. Felipe Ucros Nunez: Great. That's very clear. And if I can do a second one on sales in Mexico, they did very well. And it's another quarter with the same categories, tea, energy and juice doing very well. So I was wondering if you could talk a little bit about what you're doing there and why the category is behaving differently from others during adverse weather. Is it that the elasticity for this category is a little different? Or it's more a case of things that you're doing at the micro level? Arturo Hernandez: I think it shows the opportunity that we have to grow these categories. As I said before, energy and juices and sports drinks and tea, they're underdeveloped really in the Mexican market. So we have proved that we can be successful in those categories as well. I think that's very important as you look at the story of Powerade in the last 15 years. And now you see Santa Clara, which I mentioned, also, it's a great success story. Tea grew 22%. Juices grew 6%. Monster continues to grow. So I think it's interesting to see them grow even under very challenging conditions, which means the great opportunity that we have to increase the per capitas of these categories that they don't compare very favorably to more developed markets like our own U.S. market. So it's very promising to see them grow even under a more challenging conditions. So we're excited about those possibilities and especially that we can be leaders in those categories as well as we've also demonstrated. Operator: Our next question comes from Rodrigo Alcantara with UBS. Rodrigo Alcantara: Arturo, Emilio, nice to hear from you. I want to go deeper into some of the comments about the commitments regarding -- with the government, right, ahead of the tax discussion, right, in the conference, the government and the Coke system hosted a couple of days ago. As you mentioned, there were some commitments in relation to this trend of increasing low-carb categories, et cetera, et cetera, right, like namely the reduction of commitment to reduce by 30% caloric needs of your products in a period of, if I'm not mistaken, 1 year or something like that, right, in addition to other commitments, right? So the question here would be how much of a challenge or deal in your view is implementing this, right? How are you implementing this? And possibly linked to the previous question is as a result of implementing this, we may see some impact on margins or profitability, which I think you already said no, right? But I mean just to confirm that, that would be the main question. And the other one, just because this is the one that we're receiving from investors as we speak. We have seen macro numbers in Mexico at the margin not looking as good as we may decide, right? Retail sales in September quite weak. So I mean how would you think 4Q would be shaping up in terms of volumes looking from a consumer demand perspective in Mexico? That would be my question. Arturo Hernandez: Thank you, Rodrigo. Talking about the taxes and also the commitments, as I said, this is really not new for us in terms of the commitments that we made with the government, with Congress. This is part of this plan to strengthen our caloric reduction innovation. And this has been around for years. So plan builds on the calorie content that we've actually been testing in the market for a long time in the Coke portfolio. So here, what we're going to do is just continue the migration. So those commitments are actually part of our own strategy in the last few years and also part of the promotion of Coke Zero that has been our strategy as well. But I think the most important takeaway of those commitments is how we remain committed to be part of the solution and how we've been able to have a dialogue with the government and stakeholders and how this collaboration really highlights our ability to engage constructively with the government and adapt to the frameworks and advance really our journey towards a more sustainable and health-focused portfolio because we really share with the government the need to advance in reducing obesity rates in the country. So we want to be, again, part of that solution. So I think that's main takeaway that we are -- that all this story about tax implementation concluded with a very constructive dialogue and conversation with government. And then talking about volumes and profitability, there is -- our concern is not really that this transition to low-calorie or no-calorie version is going to impact our profitability. Obviously, the impact will come from the volume decline that will be the result of the elasticity in these categories. But again, as I mentioned, looking forward in 2026, we have many things to be positive about as we compare with '25, where we've had so many negative factors combined with -- for the performance that we are seeing so far and that we expect to continue to see throughout the end of the year. So that is why, aside from our ability to pass through the tax and pricing in a smarter way, promoting the packages that we believe are important to protect, I think also we have these mitigating effects that I mentioned before, including our promotional activities, the FIFA World Cup and also the uplift we've seen from the deployment of our capabilities that we've been talking about before. So all in all, I think we're good positioned to mitigate that impact. Operator: We will move next with Lucas Ferreira with JPMorgan. Lucas Ferreira: Sorry to insist on the [indiscernible] topic. And just comparing and contrasting 2014 with the situation guys you will face in 2026, what sort of the tools do you think the company has now enhanced to mitigate the impact and mainly talking about price pack architecture, but also the sort of more developed relationship with Coca-Cola company, better partnership, I would put it this way. And if you can speak about -- generally about your, let's say, market share expectations for next year. If you think this is a situation, obviously, a challenging situation, but at the end of the day, could help you even expand your share. So how to think about that? And also, if I may, a quick follow-up on the very short term, obviously, second quarter for Mexico was already better in -- sorry, third quarter better than second. If you expect to end the year at a better note, how sort of the latest news are coming regarding consumer demand and traffic on the floor, et cetera? Arturo Hernandez: Thank you, Lucas. Well, first of all, talking about the tax and the learnings from 2014, increased prices double digit at the time plus inflation. I guess it was around 12%. We had a 3% volume decline approx, a little less than 3% in 2014 and -- but the volume decline was sequentially better throughout the year. I mean we started with a strong decline in volume in first quarter. By the end of the year, there were -- volumes were pretty flat that year, which means there's kind of a psychological impact as well in that elasticity. Now I think to your point about how are we better prepared. I think we've developed our RGM capabilities in this last 12 years quite a lot. We have a stronger leadership in the marketplace. And as you mentioned, we have a stronger partnership with the Coca-Cola company to jointly navigate through this situation, which is not only about passing along the prices, but also what are we going to do in the market to sustain leadership and increase our presence. So what are the things that works in our favor is that the price -- the tax is designed as a peso per liter. So that means for more premium-priced products, it's going to be a less percentage increase as compared to, let's say, value products out there, brands in the market. And thinking about the fourth quarter, well, the environment will remain very challenging. Again, we are continuing to focus on things that we can control, which are basically 3 pillars: disciplined execution with very targeted campaigns. We have very well-designed campaigns to be implemented in this final part of the year. We're launching especially higher impact marketing campaigns for the Gen Z consumers and also Share a Coke and Christmas that kind of deepens the connection of our brands with consumers as well. We continue to double down on our affordability initiatives, as I mentioned before, with entry packages and with single-serve packages that also provide affordability. And we'll start also deploying all of our efficiency initiatives and playbook in this next quarter and throughout' '26, which means reducing cost to serve as we have redesigned new service models. And a number of other projects like lightweighting, improvement in distribution logistics as well. We have an organizational restructuring that mostly addresses agility and clarifying roles, but also it's going to bring more efficiency. So there are a number of things that will help us mitigate this adverse environment. Operator: Our next question comes from Álvaro Garcia with BTG Pactual. Alvaro Garcia: Arturo, I have a question on Texas. I was wondering if you can comment on potential changes to SNAP benefit in Texas and how that might impact demand for your products. And just general commentary on sort of Hispanic consumer and just the consumer environment in general into next year ex World Cup would be very helpful. Arturo Hernandez: Thank you, Álvaro. Yes. Well, we are currently assessing the potential implications of those SNAP benefit changes in our portfolio. It's not -- we don't anticipate a significant impact, but it's something that certainly we're monitoring and looking at consumer trends and consumer demands and especially paying attention to the segment that this is going to impact the most, which is mostly the take-home segment. So we -- at this point, on the impact, we don't have a specific number to provide. But we continue to believe that's important to give consumers the freedom to choose what groceries they want to purchase for the family with the SNAP benefits, but we're still assessing the implications. What I can tell you about the U.S. market dynamics is that we have seen a sentiment among low mid-income and Hispanic consumers that has declined this year. Rising cost of living or interest rates probably, that's been softening spending. If you look at, for example, our value channel in the U.S., that grew almost 4% year-over-year. It's gained some mix. And also that's related to some of the border tensions we've seen this year, fewer people crossing. And Hispanic traffic has declined more sharply in retailers, even in Walmart Hispanic outlets as compared to the non-Hispanic stores. So total retail traffic did fall in this third quarter convenience stores only. Again, club and value saw traffic growth. So that tells you about how the dynamics are playing out. So what we have adopted is, as I said before, this premium strategy -- this dual strategy of premiumization with brands like Topo Chico or Smartwater for some consumers, for the higher income consumers and the introduction of a packaging architecture that addresses the pressure in that middle and lower-income segments in the U.S. market. And for sure, we're going to capitalize the FIFA World Cup events that are going to start actually this year. These major events include the tournament itself next year, we're going to be hosting 24 of the 104 matches in our 4 cities in Mexico and the U.S. We're the Coke bottler with the highest of matches in the tournament and 16 of those are going to be in our U.S. market. So we'll capitalize on all the activities surrounding the World Cup and also the celebration of the 250 anniversary of the independence of the U.S., we're going to be part of that as well next year. Operator: We will move next with Alejandro Fuchs with Itaú. Alejandro Fuchs: I wanted to shift gears and ask you one about South America, especially Argentina and Ecuador. I know it's a very uncertain scenario, right, but I want to see what your expectations going forward, maybe in the next 12 months. We're seeing volumes coming down, but margins going up. So I want to see how you see the business on the ground talking to the teams and what would be kind of the expectations if we should continue to see volumes being pressured or maybe profitability normalizing a little bit. Arturo Hernandez: Yes. Thank you, Alejandro. Let me start with Argentina. As you've seen, we've been facing a very challenging macro environment in the third quarter, rising uncertainty and some of the indicators deteriorating. And that has impacted the lower income segments of consumers and those provinces with high public employment. Unfortunately, we're in a market with high public employment. So we saw the steepest impact of this situation with consumption falling between 6% and 7% in general as compared to the central regions, which were -- had a less significant impact. So our year-to-date performance was still ahead of last year. But certainly, the trend is not very favorable. What we're doing is we're balancing our pricing discipline and affordability and our operational efficiency to stay competitive in this highly dynamic market. What's been important for that are, again, our pricing tools, our promotional tools to align prices with inflation. Our affordability and our playbook for things like Tapipesos promotions, tactical pricing on nonreturnable formats as well. Returnable is very important in Argentina. As you know, it's the highest mix of returnable in all of our markets. And to protect margins, we've been implementing very strict cost control measures. We are also launching new products and continue to innovate in some of the stills category. So we expect Q4 to outperform the third quarter as we expect a gradual improvement. But certainly, we're going to continue to focus on efficiency initiatives to protect margins. If we look at the context for margins in Argentina, we're going to see some upward pressure in some of the expenses related to payroll, particularly, but we're going to have efficiency in other concepts that will offset these pressures. Raw materials, we expected them to rise, driven by inflation. But we had the acquisition of the second sugar mill in Tucumán that is going to mitigate the impact of input cost for us. And I think that's also going to be very important going forward. If we look at Ecuador, and the dynamics in that market, also a difficult environment, mostly challenged by rising insecurity. The economy actually grew in the third quarter in Ecuador, but declining oil production and increased costs have resulted in some new policies like the elimination of the subsidy on diesel fuel and things like that. So -- but retail remains active despite this complex environment in Ecuador. And I think it's important to see how our business, and this is the same case for, I would say, all of our markets in this very difficult third quarter have demonstrated very strong resilience, improving in the case of Ecuador, profitability in the third quarter and outperforming the industry's volume decline in the year. So here, affordability also is going to be important. The execution of our point of sale with new cold drink equipment. That's also a very important in Ecuador. And how we leverage our new service models to enhance customer experience and also to bring efficiency to our go-to-market strategy. So stills categories is an opportunity and deployment of digital as well in Ecuador. So under this challenging environment, again, we're able to effectively protect the profitability for '26 in Ecuador. We are expecting OpEx to grow above inflation, and this is mainly due to the increased depreciation and diesel costs that I mentioned. And -- but some of the pressures will be partially offset by the optimizations that we have planned for our service models, our go-to-market models and some other adjustments. So PET are expected to rise in '26 with freight cost. Sugar is expected to be in line with the '25. So there's going to be some margin pressure considering all these factors, basically the removal of the subsidy, but our focus will be to protect our '25 margin in '26. Operator: Our next question comes from Renata Cabral with Citi. Renata Fonseca Cabral Sturani: It's a follow-up about Mexico. I would like to ask you if you can give some color in terms of competitiveness and how the brand has been reacting to the current environment for volumes and the company has been sustaining shares? And if you can provide some color on the performance in the channel strategy, the traditional channel versus the modern trade if they are different in terms of one is better than the other in the current environment? Arturo Hernandez: Thank you, Renata. Well, in terms of channels, the traditional channel received part of the impact and the decline in consumption this quarter, also convenience store reduced traffic. The only channel that actually increased volume in the quarter was supermarkets. And as I mentioned, was mostly driven by intensified promotions and more competitive pricing. So I think that's a natural consequence of the economic dynamics. But most importantly, we are strengthening our leadership in the marketplace, even considering that we have a price gap versus our main competitor versus rebrands as well. We did have an impact on our share of market with the first half of the year as a result of the retaliation of our brand that you know about. But that really has been solved, and now we're back to the position of leadership that we've had before. Operator: We will move next with Henrique Morello with Morgan Stanley. Henrique Morello: So I would just like just to explore the margin performance in Mexico. As you saw another quarter of compression on a year-on-year basis and at higher levels if compared to the last quarter, right? So if you could dive deeper on the dynamics behind the margin decline this quarter, perhaps beyond the volume decline? And if anything changed from last quarter? And how do you expect the margin to behave in Mexico going forward when you look at your hedge positions right now? Arturo Hernandez: Thank you, Henrique. I will turn that over to Emilio to respond the question. Go ahead, Emilio, please? Emilio Marcos Charur: Yes. Thank you, Henrique, for your question. Yes. Well, in Mexico, basically, there's several factors that affected the margin -- EBITDA margin being the one, the decline in volume as we have explained already. But there are also some changes that Arturo already mentioned. One is the mix of channels. The traditional trade was more affected by the rainfalls during the quarter compared to supermarkets. So channel mix change and also presentations. The mix of single-serve also declined in the quarter. So that was basically the main impact for the margin -- EBITDA margin in Mexico. . For the rest of the year, we've been working on expense control. You also can see that throughout the year, we've been improving our sales -- OpEx to sales ratio every quarter. So internally, everything that we control, we are looking in every efficiency that we can implement in all the operations. So in Mexico, we've been able to mitigate part of the volume decline impact talking about the margin. So for the full year, we're expecting to maintain -- at least maintain the current levels of EBITDA margins for the region. Operator: We will move next with Axel Giesecke with Actinver. Axel Giesecke: Just a quick one. Given your healthy balance sheet position, are you considering further M&A opportunities? And if so, which regions are you looking forward into? Emilio Marcos Charur: Thank you for the question. Yes. Well, as you know, there's -- talking about capital allocation, that's one of our main priorities. Well, as we have mentioned, number one is investing in our operations, and then we just announced an additional dividend. But yes, M&A, as you know, we continue to evaluate, basically, opportunities in U.S. and Latin America. So we have a very strong balanced position in order to close any opportunities. But in the meantime, we've been able to find another avenues for inorganic growth that we are on line with our core business, such as the recent acquisition that we announced, the Imperial, the vending and micro market business in U.S. But we keep exploring opportunities, basically, within the Americas. Operator: We will move next with Fernando Olvera with Bank of America. Fernando Olvera Espinosa de los Monteros: I just have one, and it's related to Mexico. Arturo or Emilio, how are you thinking about CapEx next year and the potential tax increase? Any insight on this would be helpful. Emilio Marcos Charur: Thank you, Fernando, for your question. Yes, regarding CapEx, well, as I mentioned, as of September, we reached MXN 11.8 billion, representing 6.4% of sales. We were expecting to invest around 7%. That's what we mentioned at the beginning of the year. The [ 6% ] of those CapEx are in Mexico and U.S. But at the beginning of the year, when we saw a slowdown in volume, we have postponed some initiatives this year. So ratio OpEx -- CapEx ratio will be around the same level that we have right now, 6.4%, instead of 7%. So we just adjusted some of the CapEx that we were expecting for this year without compromising our long-term growth strategy. So we remain committed to the strategic investment that we have for our capabilities and expanding our capacity and distribution, but I would say in a slower pace than we expected at the beginning of the year. Fernando Olvera Espinosa de los Monteros: Okay, Emilio. And thinking -- I mean, considering that the increase of the excise tax was just announced, I mean, how do you expect CapEx to behave in Mexico next year? I mean, is it possible that you keep postponing some projects for 2027 or... Emilio Marcos Charur: There are some projects that we started and we need to continue in order to be ready for the volume in the next, let's say, 2, 3 years. So there's some of the CapEx that needed to keep going to be ready in 2, 3 years. But the short-term ones are the ones that we are just postponing and see how the volume behave and then we'll decide if we continue with those next year or if we go and move it to 2027. So we expect around 5% to 6% maybe in Mexico CapEx to sales. Operator: This concludes today's Q&A portion. I would like to now turn the conference back to Arturo Gutierrez for closing remarks. Arturo Hernandez: Thank you. We really appreciate your time today and especially your ongoing commitment for company. So please reach out to our investor relations team for any follow-up questions you might have. Look forward to speaking with you again next quarter. Have a great day. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Laurie Shepard Goodroe: Good morning to all, and thank you for joining this earnings call for the third quarter of 2025. Financial statements were posted with market authorities early this morning, and all materials can be found on our corporate website. Please refer to the disclaimer in this presentation and note that this call is being recorded. Today, we are joined by our Chief Executive Officer, Gloria Ortiz; and Chief Financial Officer, Jacobo Diaz. Gloria Portero: Thank you, Laurie. Good morning to all, and welcome to this third quarter 2025 results presentation. Since we last met in July, many things have happened. The tariff conflict between the European Union and the United States has been resolved. The Israel Gaza conflict seems for now to have reached its end. We learned the results of the BBVA Sabadell takeover bid last Thursday and interest rates have bottomed as the European Central Bank has ended rate cuts with inflation aligned with its targets. Additionally, the EBA stress tests were published on August 1, in which Bankinter is again the listed bank in Spain as well as in the Eurozone with the lowest capital depletion in the hypothetical case of a very adverse economic scenario. We continue to navigate an uncertain and volatile environment. And despite this, I would like to highlight that this quarter's results remain satisfactory following the trend of the previous quarter with very relevant growth and activity across all business and geographies. The third quarter has been another quarter with strong commercial activity translating into a post-tax result of EUR 812 million, 11% above the same period last year. These results are also accompanied by solid management ratios in terms of asset quality, efficiency, profitability and solvency. As reflected in the figures, we continue to report improving results in which, as usual, balanced and diversified growth is key. Credit and loans as well as retail deposits grew 5% with off-balance sheet balances up 20% year-on-year. Net interest income has continued to improve in the quarter. In the second quarter, we reported a contraction of 5% that has been reduced to 3.5% in September. In fact, in quarterly terms, it is the second quarter that we have grown over the previous quarter, reaching levels of the third quarter of 2024. This is thanks to the resilience of the customer margin, which remains at 2.7% this year. On the other hand, fees and commissions continue to perform exceptionally well, maintaining a growth rate of 10.6% despite the fact that each quarter, the comparison with the previous year is more demanding. All this growth has been achieved while keeping our risk appetite intact, which is reflected in the NPL ratio that stands at 2.05%, improving previous quarter ratio as well as the one reported 12 months ago, which was 17 basis points higher. Another key to our business model is efficiency, which stands at 36%, the best cost-to-income ratio in the sector. Diversified growth, asset quality and efficiency are the pillars on which the profitability of our business is based, maintaining a ROTE above 19%. As a result of intense commercial activity, we once again present strong diversified growth in business volumes this period. If we add credit and loans, retail deposits and off-balance sheet volumes, the volumes managed amount to EUR 234 billion at the end of September and grew by EUR 19 billion year-on-year. This is a remarkable growth rate of 9%. Going into detail, lending reached EUR 83 billion at the end of the quarter, which is EUR 5 billion more than in September 2024. Retail deposits closed the quarter at EUR 85 billion, a figure EUR 4 billion higher than in the same period of the previous year. And finally, we added EUR 11 billion to the off-balance sheet business, which stands at EUR 66 billion, showing a strong growth of 20% year-on-year. This year, we have seen a noticeable increase in new client acquisition, particularly through our digital channels. The integration of talent and technology from EVO Banco over the summer has assisted to further strengthen our digital strategy for the group. All geographies are growing at good pace. Spain, which accounts to 87% of business volumes grows 7%, while Portugal with 11% contribution to volumes grows by 12% and Ireland also stands out with 20% growth. New credit production also continues with improving trends as a result of the increased commercial activity. 16% in new mortgages, 6% growth in new business lending and a 3% drop in consumer credit due to the fact that we continue to reduce exposure to riskier segments. On Page 7, for the past 12 months, we have seen increasingly positive trends in sector growth across the geographies in which we operate with close to 3% market growth in Spain, 7% in Portugal and 2% in Ireland. In each of these markets, we continue to gain market share in each of our business lines. In our core markets, Spain, the retail banking loan book increased by 3.4%, 30 bps above the market and our business banking book outperformed by 180 bps, reaching a 4.3% growth rate. With both Bankinter Portugal and Ireland in expansion, we continue to gain significant market share, further diversifying our asset portfolio. Portugal grew 11%, 450 bps above the sector and Ireland, an exceptional 20% growth rate, well above market growth rates in both countries. In terms of revenues, there is a very notable performance of core revenues. This is the sum of net interest income and net fees and commissions, which has reached similar levels to those in the previous year. In quarterly terms, core revenues reached EUR 762 million, the largest in the series. And in fact, they are already growing both compared to the previous quarter by 1.3% and compared to the same quarter of 2024 by 2%. This sustained solid performance quarter after quarter of fees and commissions growing at 10.6% compensates for over 90% of net interest income compression in the year due to the negative impact from the reduction of yield curves. Net interest income fell on a cumulative basis, 3.5%. But in quarterly terms, the upward trend continues. We are already 3% above the last quarter of the previous year and 5% more than in the first quarter, and we also grew 1% over the previous quarter. Going now to the next page. I would like to talk about productivity. We have a scalable and efficient business that is reflected in productivity improvements. The volume of customers managed per employee expands year after year, while the cost per million euros of volumes managed decreases year-on-year. This is thanks to the investments made in technology and in particular, in artificial intelligence projects that are oriented to the improvement of personal activity, commercial efficiency, which relies mainly on algorithms, but also process efficiency and the improvement of the customer experience and the development also of new products. Bankinter culture of applying targeted innovation across products, services and processes continues to deliver measurable results, reinforcing our strategic positioning and driving ongoing improvements in operational scalability. I will now hand over to Jacobo, who will provide you with more additional detail and insights into our financial and commercial results. Jacobo Díaz: Thank you very much, Gloria. Good morning, everybody. We are pleased to share once again another quarter growth and increased revenues and profitability. In operating income, we have grown by 4.7%, thanks to increased volumes, continued strong fee growth and effective margin management. We continue to rebalance operating costs more evenly over quarters with a year-on-year increase declining each quarter to end the year within our guidance. Cost of risk and related provisions declined by 10% compared to the prior year, reflecting a continued positive trend in risk management. Net profit rose 11% to EUR 812 million, gaining momentum to well surpass our initial goal of EUR 1 billion in 2025. Let's move on to review additional details about each line in the following slides. So after the trough in the first quarter of this year, we continue to deliver quarter-on-quarter improvements in net interest income, now recovering levels of the third quarter of last year, reporting EUR 566 million, a 1% increase quarter-on-quarter. Asset yields continued to contract this quarter at 3.49%, down 22 basis points. This quarter reflects a typical low seasonality period where corporate banking activity is relatively lower compared to retail banking activity, which has influenced a bit of a mix change leading to a higher weight of repricing more in line with retail durations than the shorter corporate durations. Given these dynamics and a stable outlook for Euribor 12 months rates, we believe average quarterly asset yields should drop marginally in Q4 to reach stability in the first half of 2026. Average customer margin for the year remained resilient at our 270 basis points, continuing to demonstrate our ability to effectively manage margins. With cost of deposits now at 84 basis points, a material 14 basis points decrease from last quarter, we are optimistic to reach levels around 75 basis points by the end of the year. Our NIM also remains resilient, a direct result of the effective balance sheet management. After sharing the details of the NII results, we wanted to talk about the excellent results we have been seeing quarter-on-quarter related to our digital account strategy that we initiated last year as part of the new digital organization. This growing digital site account deposits in yellow in the graph on the left have aided in reducing and replacing typical long-term deposits with more granular and flexible shorter duration deposits. Between both digital site accounts and private banking or corporate treasury accounts, we now have a significant proportion of our deposits with less than a 3-month duration. This is less than half of the average duration of the term deposits. Not only does this provide us greater agility to adjust deposit rates in line with market rates, but it also has a great source of increased customer activity, either transactional or through AUMs activity, driving additional fee volumes with a scalable operational model at a marginal lower servicing cost base. As you can see on the chart on the right, we have increased our average deposit spread over the past 4 quarters, reaching now close to 130 basis points. We believe these deposit spreads levels are likely to remain quite resilient, possibly with some upside for the coming years given the favorable rate environment as well as a more flexible deposit structure and our deposit gathering capability from our excellent existing and new customer base. Bear in mind that 50% of new customers are acquired through our 100% digital channels. Fees continued to deliver sequential increases quarter-on-quarter even during the seasonally low summer months with an increase of 11% on a year-on-year basis, reaching EUR 196 million this quarter, up 2% on a quarter-on-quarter basis. This continued quarterly growth momentum is mainly attributable to the strong volume growth in fund management and brokerage services that we detail later in the presentation. We are quite optimistic to continue to maintain this growth momentum going forward, given our strong focus and strategy on affluent customer base and increasing flows from on-balance to off-balance sheet activity and customer-centric operating model. It is also quite remarkable the performance of these business lines delivering improved results, notably in the equity method and dividend lines, up 29% on a year-on-year basis. The diversification of sources of revenue is well represented here given our diversified business investment over the past years in areas like our insurance JV partnership, our JV in Portugal with Sonae to deliver consumer finance products as well as our successful strategy with the Bankinter investment franchise, delivering alternative investment vehicles, allowing our customers to invest in real assets. This business line will continue to develop and deliver increased results over the coming years, providing upside risk in nontraditional revenue lines. Regarding cost, we continue to reduce seasonality and balance our expenses over the year, increasing 3% when comparing average 25 quarterly cost to those in 2024. Although cost volumes may increase in Q4, they will be lower on a year-on-year basis when comparing to Q4 of 2024. cost-to-income ratio remains at an exceptionally low level of 36%, and will remain committed to maintaining positive operating jaws in the future. On Page 17, loan loss provisions continue to show improvements versus last year with a cost of risk of 33 basis points. Other provisions also remained under control and performing well at a stable 8 basis points with no signs of deterioration in the market of our portfolio and with a well-managed risk management across the bank, we are optimistic to maintain current levels for the coming quarters. Next page. Net profit achieved record levels once again, reaching EUR 812 million, an exceptional increase of 11% year-to-date. Credit quality, credit and asset quality indicators continue to improve with the group NPL ratio dropping to 2.05%, down 17 basis points from last year. Spain down to 2.3%, Portugal at 1.4% and Ireland at 0.3%, all well below sector average. Moving into capital. As Gloria mentioned, we are very pleased with our EBA's stress test results this quarter, resulting once again in the lowest level of capital depletion among all Spanish and Eurozone listed bank. Even under a severe economic adverse scenario, the potential capital depletion would only be 55 basis points. The prudent risk profile of our activity is differential. This has been a strong quarter for capital generation with the CET1 ratio at 12.94%, with a seasonal mix shift from corporate lending to increased retail lending, therefore, reducing RWA growth this quarter, which we review with the reverse in the following quarter with larger loan growth and density consumption and the annual operational risk capital consumption recorded in the fourth quarter. As we continue to invest in technology and strategic projects, we have also seen an increase in intangibles this quarter due to the software-based solution under deployment, for example, with the new banking IT platform for Ireland or the Portuguese digital transformation program. Moving into Page 22. Commercial activity and trends remain strong with customer volumes up 7% in Spain, 12% in Portugal and 20% in Ireland. Each region contributing at increased levels to the gross operating income of the bank. On Page 23, loan growth, again, strong, up 4% year-on-year, growing both in retail as well as business lending. Retail deposits continued to demonstrate solid growth, increasing by 4% with also strong performance in Wealth Management, reflecting a 19% increase in assets under management, contributing to fee income increases of 11%. Profit before tax, up 6%, reflecting solid contribution for our core Spanish business. On Portugal, continued exceptional performance in lending activity across both business segments, up 11%, strong deposit gathering up 5% as well as increased wealth management and brokerage balances rising 23% on a year-on-year basis. Moving into Ireland. Commercial momentum continues with mortgage loan growth up 23% as well as consumer finance loan growth by 11%. We have also launched our fully digital time deposit in the Irish market with an attractive value proposition that will surely grow deposit volumes over the coming quarters. Profit before tax contribution reached EUR 34 million with strong sequential increases in NII each quarter, up 16%. Moving into corporate and SME banking. Business lending continued to deliver strong performance even with a seasonally low quarter in terms of new loans. Customer lending increased by 5%, well above sector loan growth. International business segment continues to be a key growth catalyst contributing to 1/3 of new credit production with a growth rate at 9% year-on-year. Page 27, Retail Banking asset and deposit trends remain strong with increased new client acquisition driving core salary account balances up by 7%. New mortgage origination up 16% year-on-year with solid market share of new production in Portugal, Spain and Ireland at 6%. Our mortgage back book continues to grow by a strong 5% year-on-year, outperforming sector growth in every region. Regarding Wealth Management, our high-quality customer base typically brings annual net inflows between EUR 5 billion to EUR 7 billion into the bank. However, this year, we have already surpassed this historical range and now reset our ambition to achieve between EUR 8 billion to EUR 10 billion of net new money every year. When taking into consideration the market effect as well, incremental wealth of our customers increased by EUR 20 million or a 16% increase on a year-on-year basis. Moving into off-balance sheet volumes. We continue to grow in assets under management and assets under custody, reaching now EUR 150 billion with assets under management advisory or customer direct execution services in brokerage. Since our differentiation strategy centers around the client and how they prefer to interact with the bank rather than a product strategy, we indistinctively offer Bankinter products as well as third-party products to retain independence in terms of customer advisory services. With a full range of products as well as various servicing models based on customers' preference, we are able to consistently grow these off-balance sheet volumes, a key driver of continued fee growth quarter after quarter. And finally, let me recap our ambitions and targets. Given our solid third quarter financial results, a strong commercial momentum and volume growth trends and with a stable outlook for Euribor 12 months over the coming year around 220%, we remain optimistic in terms of future growth potential. In terms of our specific ambitions for this current year, loan volumes are expected to continue to grow at mid-single-digit rate, similar than deposits with assets under management commercial activity following the same strong performance than previous quarters. As market conditions become more favorable, we are committed to maintaining 2025 average customer margins around 270 basis points to support robust profitability that surpasses our cost of capital. In essence, we will not compromise margin integrity. Regarding NII, we anticipate that the final phase of retail repricing will take place mostly in Q4 and with much lower impact in the beginning of '26. Consequently, while some pressure on asset yields is expected to persist, it should moderate as our corporate portfolio has now been fully repriced in Q3. On the deposit side, we will continue to reduce and manage costs in a balanced manner to support ongoing customer and deposit growth, particularly in the digital site accounts. As a result, we expect a more modest reduction in deposit costs in Q4 compared to Q3 between the range of 5 to 10 basis points. Given these dynamics and our current commercial strategy, NII in Q4 will keep growing quarter-on-quarter again and growing year-on-year again, which may result anyway in a slight slippage in our flattish NII guidance in 2025 that will be compensated by a stronger fee growth. With upside risk in fees, we increased our targets of high single-digit growth target to reach now double-digit growth in fees. With respect to cost management, we continue to allocate and balance cost volumes over the quarters and remain on target for 2025 full year annual cost to grow mid-single digit. We also remain committed to delivering positive operating jaws in 2025, gross revenues above cost. As credit quality continues to improve, we are revising our targets with the expectation of cost of risk to fall below 35 basis points for the entire year. Although we do not provide guidance for the following year until the results presentation in January, we must say that as of today, with the current macro outlook for Spain, Portugal and Ireland, there is no reason why we should not expect similar levels of growth in our loan book as well as resilient client margin in our levels of cost of risk. Efficiency will also remain at the top of our agenda to ensure sustainable levels of return on equity in 2026 and so on. And capital levels are expected to stay strong in coming quarters despite profitable growth expectation. I believe that this has been another high-quality set of results with no surprises, one-offs or extraordinary items, quite predictable that make us feel to be on track to achieve another excellent year in 2026. Gloria, back to you for any closing comments. Gloria Portero: Thank you, Jacobo. Well, as you can see, the results of these first 9 months of the year have once again beaten records of previous years with an 11% growth in net profit, and all this is accompanied by an excellent level of operational efficiency and asset quality, both ratios improving compared to the previous year. All this allows us to continue improving returns on capital, which stands at 18.2%, 30 bps better than in 2024 and continues generating value for our shareholders, both in terms of dividend distribution and the book value of shares. To close the presentation of results for the first 9 months of the year, I would like to highlight that we are once again presenting solid results because of the recurring activity with our customers and the execution of a consistent long-term growth strategy. We are growing steadily in all the businesses and geographies in which we operate, keeping our risk appetite intact, even improving the risk profile of the loan portfolio as reflected in the NPL ratio and the increase in the coverage of the nonperforming loan portfolio. We continue to invest in projects and initiatives that allow us to keep pace with business growth. And despite this, we improved efficiency. All this results delivering a sustained return on the capital of the business, well above the cost of capital. For my part, this is all. Thank you again very much for your attention, and I will pass now on to Laurie. Laurie Shepard Goodroe: Thank you very much, Gloria. Thank you, Jacobo. Let's now move on to the live Q&A session, please. [Operator Instructions] Our first caller is Francisco Riquel from Alantra. Francisco Riquel Correa: My first question is about the fast growth in digital accounts. It's 4x bigger year-on-year. So I wonder if you can comment on the cost of these digital accounts compared to your total cost of deposits and the alternative of time deposits where you are switching. And I wonder if you can also elaborate on the commercial experience with these online customers and cross-selling ratios. You are not exceeding your traditional mid-single-digit growth in loans and deposits. You are growing faster in AUMs, but I wonder if this is coming from these online clients or from your traditional affluent and high net worth clients. And then my second question is about loan growth in Spain, which has slowed down year-on-year a bit, particularly in higher-margin corporates from 6% in Q2 to 4% in Q3. The sector has not. They're still growing by 3% in lower margin retail mortgages. So I wonder if you can comment on competition dynamics and update in terms of loan growth and also in the loan yield, where do you see the trough of this interest rate cycle? Jacobo Díaz: Regarding the loan growth, I think we had another, I think, good quarter comparing year-on-year in terms of the loan book. As I mentioned, the seasonality of the third quarter is -- I mean, typical in Spain, it has a negative seasonality. And the corporate banking activity has been lower as we normally expect. So we do not have any sign of slowing down in that perspective. It's just a matter of seasonality. In fact, we keep expecting similar levels of growth at the end of the year compared to, I don't know, previous quarters. So basically, we do not expect any changes. You mentioned competition. Of course, there is competition in the corporate banking as well in the mortgage activity, but this has been always the case. So there's nothing special to highlight. I would say that the loan growth will continue to show strong results. And regarding the digital accounts, definitely, digital accounts have been a quite relevant strategic commercial move for us in the past months and quarters. So we are delivering excellent results. We are capturing quite large volumes of deposits. We are cross-selling, of course, as you can imagine, plenty of different types of products. I wouldn't say that the largest volumes of AUMs are coming from the new digital accounts because it takes some time to transform and to cross-sell this type of accounts. But definitely, we are quite happy. You were mentioning about the cost. The thing is that these digital accounts have a quite short duration and for us is -- we have the agility and the capacity to change prices within a quarter. So for us, from a commercial strategy, we're quite happy. Gloria Portero: I will add 2 things. I mean the average cost of the digital accounts at present is around 1.6%. Actually, as Jacobo has said, the duration is around 2 months. So -- and we manage centrally, which is different to when it's products that are managed by the branch network, we manage centrally new prices. So it is quite easy and fast to reduce the cost. But on top of this, what I want to mention is that what we have been doing is a substitution effect. So basically, these deposits have been substituting higher tickets from enterprises and corporates. And there has been a reduction in the cost because we have been substituting higher costlier deposits. As Jacobo has said, I mean, looking forward, we expect the cost of funds to retail funds to continue reducing next quarter -- sorry, this quarter and in the order of 5 to 10 bps depending on where the Euribor stands. With respect to competition, here, yes, we have been growing quite nicely in mortgages in Spain so far. But I have to say that the competition is starting to be a little bit irrational, particularly in fixed rate mortgages of long term like 30 years. So you can expect us to be a little bit less active in that segment, although we think that we will continue to grow. Laurie Shepard Goodroe: Let's move on to our next question. Our next question comes from Borja Ramirez from Citi. Borja Ramirez Segura: I have 2. Firstly is on the NII, if I were to base the Q4 NII of this year and multiply by 4 and add the loan growth, would this make sense from a technical point of view to -- for estimating the 2026 NII? Or would there be any other moving parts? And then my second question would be in Ireland. I think you -- according to press, you launched a deposit of 2.6% rate, if I am correct. I would like to ask if you could provide some details on the growth strategy in Ireland in deposits. Gloria Portero: Regarding Ireland, I mean, what we are doing is just a test for the moment. So it's a friends and family. We are offering this deposit only to our clients and only a certain amount. I mean, initially, we are talking about EUR 50 million. So this is like a welcome deposit, and it's not going to have any impact at all in this year NII, and I don't think in next year either because we are controlling, as you can imagine, the growth in these deposits. With regard to NII, multiplying by 4. Well, it's a little simplistic. It could be near it could be near if Euribor rates stay completely stable around the year. It will be probably better than that than the mere multiplication by 4. Jacobo Díaz: Yes. I think our assumptions are we keep, as we mentioned, estimating that the average -- the client margin for coming quarters should be around 270 basis points and that we will continue to grow in similar -- the similar path that we've been growing in the past quarters. So that will be the main assumptions that you should take into consideration. As Gloria was mentioning, it's not just multiplying by 4. We definitely think it could be a little bit higher than that. Laurie Shepard Goodroe: Our next question comes from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: Just wanted to get a bit of a sense on the capital performance of the quarter, what you just -- Jacobo flagged about reverting the effect of the mix in the quarter in the coming quarters. I mean still 12.9% looks to me like a very high level. Is there any chance that the bank considers changing the 50% payout ratio with the current trend of capital? Second one is on costs. You said in the guidance, if I hear correctly, mid-single-digit growth. Should we expect a slightly more acceleration given the good performance of revenues that you front out a bit of cost for '26 in the fourth quarter beyond the natural seasonality that you have been trying to smooth this year? Or that would be -- or you're going to be very focused in keeping the costs on that limit to avoid slippage in '25? Jacobo Díaz: Ignacio, regarding the capital performance, as I mentioned, we present a quite strong capital ratio this quarter. And I did mention that there is some seasonality impact in this figure. So for the fourth quarter, we do expect a growth or much larger capital consumption from the growth, especially from the corporate banking activity that tends to be quite strong at the end of the year and of course, growth in the retail business and in other geographies as we have done. And additionally, I mentioned that there are some special recordings in the fourth quarter from capital consumption as the operational risk is fully recorded in the fourth quarter. So we do expect a figure probably lower than this one that we have shared today with you, although the results for the fourth quarter are going to be, again, very, very strong. To this means are we -- do we have in mind changing our dividend policy? I would say not for the time being. But of course, if we will see these trends in coming quarters, of course, we will -- we might think about doing whatever in terms of keeping our capital ratio in levels where we feel comfortable. Gloria Portero: Ignacio, with regard to cost, I mean, we are very comfortable with the low mid-single-digit growth, and we will stick to this. I mean we don't see any reason why we cannot meet our target. Laurie Shepard Goodroe: Our next question comes from Carlos Peixoto from CaixaBank BPI. Carlos Peixoto: Carlos Peixoto from CaixaBank here. A couple of follow-up questions actually as well. So mostly on NII. So if I understood correctly, you're expecting to see some pressure on asset yields coming through still in the fourth quarter through the repricing mechanism. Then you mentioned deposit costs maintaining roughly the spread to Euribor. And I guess that some volume growth, as you mentioned, fourth quarter tends to be much stronger. So putting all of this together, do you see enough support for NII in the fourth quarter to do materially better than in the third Q? And as you mentioned in the call, to see some -- well, basically that you won't be reaching the stable NII guidance, but I was just wondering whether we could be talking about a small single-digit decline in NII or closer to mid-single digit. Jacobo Díaz: Carlos, we did mention that the cost of deposit in the -- we are expecting next quarter to continue to decline, probably at a lower speed that we saw in previous quarter. And we mentioned somewhere between 5 to 10 basis points decline in the coming quarter. But we also -- we mentioned that we are -- we have come to a much lower speed of loan yield repricing, and we do expect some sort of stabilization or a slight reduction in the fourth quarter. That will mean that we do expect client margin to recover, and we are quite strong optimistic in terms of we will have a good -- at the end of the day, a good final quarter. But indeed, like you mentioned that -- and I did mention there might be a slight or minimum slippage in the overall flattish guidance. But again, it's going to be much more than compensated with fees. So we are good -- I mean, we are quite well optimistic about what's going to happen in the fourth quarter. So there is full repricing in corporate that has already been achieved in the third quarter. Euribor 12 months is behaving quite well around 220. There is a little bit more repricing from the mortgage book in the fourth quarter to come. But again, there is a strong seasonality that we believe will make a good fourth quarter to end up the year. As I mentioned, the fourth quarter is going to be again higher than the third quarter and much higher than the same quarter 1 year ago. So we think we are optimistic about the fourth quarter of this year. And of course, the coming quarters in 2026. We think this 270 client margin is something that we -- is definitely our ambition, and we are definitely managing everything in order to achieve that figure. Laurie Shepard Goodroe: Our next question comes from Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: I've got one on the international credit book, which is around 30%, 35% of the total corporate lending book and seems to be growing much faster basically than domestic. So if you can give us some information, some color basically of what is in there and what is the reason is growing faster and what kind of sustainability you see on that? And kind of related to this more on a system basis, from a mortgage growth point of view in Spain, obviously, housing prices going up very fast. It doesn't feel that the shortfall of housing is going to be corrected anytime soon. I mean, is there any risk that the demand actually ends up drying up faster because of, I mean, problems of affordability, I mean, difficulties from people to access housing, et cetera. Do you think actually the pickup of mortgage growth we are seeing in the last year or so has less or there's a risk actually that drives up into the next, say, 6 to 12 months? Gloria Portero: Ignacio, with regard to mortgages, we don't see changes in demand in the very -- in the short term, so this year or next year. It is true what you're saying that prices go up and up and that there could start to be -- particularly in medium salaries, there could be problems of affordability. There are measures like the ICO lines where we are being active. Obviously, we have a little bit more than our market share that basically are trying to tackle this problem because they cover up to 100% of the value of the property. So what we are seeing in mortgages rather is what I've mentioned, which is a competition that is not being very reasonable with regard to long-term fixed rates. And basically, we are not going to enter that war, particularly in those clients. Well, in our clients, we might do because if we know how profitable their relationship with them is okay, but it won't be a measure to acquire new clients definitely. I think that's for mortgages. Jacobo Díaz: Ignacio, I'll take your question on international credit book. I think basically, our corporate banking Spanish clients are much more international than they used to be. They're much more focused on going abroad. And we do provide a quite large menu of products and services with a good technology, et cetera. So we are developing more technology, more, I don't know, supply chain management products, working capital facilities, endorsements, et cetera. So since we have increased our range of products and services to this type of clients, then the volume of activity and the loans and off-balance sheet items are keep growing and growing. So this is some sort of sustainable. This is something that we do expect to keep growing at the same -- at similar levels. So no one-offs in here is quite recurrent. And this is for us a quite relevant source of revenues, in terms of NII, in terms of fees, and it's a quite profitable business. Laurie Shepard Goodroe: Our next question comes from Alvaro Serrano from Morgan Stanley. Alvaro de Tejada: I just wanted to follow up on the loan growth. I take the seasonality and one thing, I just was curious, I wanted to double-click on your comments around derisking and the consumer book being down, I think you said 3% quarter-on-quarter. Where are you derisking? What kind of product, what region? And is it a one-off thing? And what should we be looking for in consumer going forward from here in terms of volume growth? And then the second sort of follow-up question to the broader discussion in the call is, how do you think the pricing dynamics in the mortgage, in particular, is going to evolve over the next few quarters? Are you seeing the market being less bad? If it stays as competitive as it is, what's the end game for you in the mortgage market in Spain? Gloria Portero: Alvaro, with regard to the portfolios where we are derisking, it is mainly open market consumer credit in Spain. So we are basically reducing our exposure and reducing also the new production and being more selective. That is on one hand. This portfolio anyway is not very significant in our overall book. And we continue to grow in consumer credit, but in our own clients in Spain and also in Portugal and in open markets, both in Ireland and in Portugal with Universo, the JV we have with Sonae. With regard to mortgages, well, for the moment, we are not seeing any changes in the pricing dynamics. But hopefully, we will be getting to prices where we have some margin with respect to the swap curve. But for the moment, that is not the case. That is why I was mentioning that we will probably decelerate growth, not so much in mortgages with our clients, but rather in the acquisition of new clients with mortgages. Laurie Shepard Goodroe: Our next question comes from Maks Mishyn from JB Capital. Maksym Mishyn: Two questions from me, please. The first one is on your Wealth Management business. Press reported several hirings you did. What kind of AUM growth should we think of for Bankinter in the medium term? And does this mean that fees are also likely to grow above the mid-single digits we have seen historically? And the second question is on capital, a follow-up on what the comfortable level is for you? And if the growth is not there, how can we think of deploying this capital? Jacobo Díaz: Maks, I mean, definitely, the current levels of growth in the Wealth Management business is something that we believe are sustainable. Of course, there are market effects that are not controlled. And this is something we cannot control, neither estimate. But the capacity to keep bringing net new money to the bank, as we've mentioned in the call, is becoming higher and higher. So now our estimation has increased from EUR 5 billion to EUR 7 billion every year to EUR 8 billion to EUR 10 billion every year. And that, of course, means that has an impact on fees. So definitely, we don't know exactly what's going to be the level of fees in -- the recurrent level of fees in the future, but we definitely think it's going to be quite strong and probably stronger that your -- I think you mentioned mid-single digit. So for us, again, the combination of our strategy in commercial activity has a full link in the Wealth Management activity and, of course, in fees. So... Gloria Portero: With respect to capital, I mean, we feel comfortable with a level in the -- between 12 40, 12 60, something that can give us room to continue growing and that doesn't restrict that growth. So this is more or less the average level where we are comfortable. Laurie Shepard Goodroe: Our next question comes from Pablo de la Torre from RBC Capital Markets. Pablo de la Torre Cuevas: Just a follow-up on Ireland on previous comments from Jacobo, you've mentioned the fixed-term deposit proposition in the country. But can you please remind us on the broader ambitions? And what are the next steps in the product road map in the country? And I guess in particular, you mentioned today your new higher ambition around net new money growth. So I was wondering if you were planning to start offering wealth products in Ireland next year. Maybe if I can squeeze in another follow-up on capital. Given your excess capital position and given also current valuation levels, can you just kind of update us on your appetite for inorganic growth from now? Jacobo Díaz: Pablo, regarding Ireland, definitely, the first phase is through the launch of the term deposit that we've mentioned before. Our next ambition is going to be the launch of current accounts at the beginning of 2026. And I think this is going to be the great moment of funding the growth that we are expecting in Ireland with deposits from local in Ireland. So we are targeting to fund whatever growth we have in the loan book in Ireland with the deposit book in Ireland as well. So this is the ambition, and this is the next step. We are not considering for the time being to move into the Wealth Management business in Ireland. I think we have plenty of things to capture and to target before that business. Gloria Portero: And with respect to inorganic growth, well, our appetite is very, very low. As you can imagine, we are an organic grower. We have always grown organically in the different businesses and geographies where we have the capabilities, and this is what we are doing in Ireland, and this is what we will continue to do in the future. Laurie Shepard Goodroe: Our next question comes from Britta Schmidt from Autonomous. Britta Schmidt: I have a follow-up on the consumer exposure, the open market consumer exposure in Spain that you talked about. Could you share with us the volume of that book and what the driver was for the derisking? I mean, have you seen a material change in the cost of risk there? And if so, why? And then on the -- you mentioned the operational risk impact in Q4. I mean, would it be reasonable to assume that it could be up to 20 basis points? Or do you expect something less than that? Gloria Portero: I will answer the consumer credit exposure. This is a very small book. It's like around EUR 1.3 billion. Not all of it is being derisking. The reason mainly here is not the cost of risk, it's an ROE question. So basically, we think there are better businesses where we can allocate our capital, and this is why we have decided to reduce our exposure in this book. Jacobo Díaz: Britta, regarding the operational risk, of course, we don't know the figure right now. As you know, the rules have also changed with Basel IV. So it's probably a little bit ambition for me to give you a good estimation. But it could be somewhere between 10% and 30%. So probably your 20% might be in the middle. Laurie Shepard Goodroe: Our next question comes from Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: I wanted to ask you about fee growth. If you could give a bit more guidance. I think before your guidance didn't assume any performance fees, which you had a lot of them in Q4. So the new guidance of double-digit growth year-on-year, does that include performance fees as well or not? And the second question on the cost of risk. You've improved your guidance a few times this year. The guidance for this year is below what you did in the previous 2 years. And then if we have a bit of slowdown in resi mortgages, does that mean the cost of risk next year could be higher than this year? Your thoughts on that would be very helpful. Jacobo Díaz: Hugo, regarding the fee growth, I think we -- as of today, we are already at the double-digit growth. So just basically, we do expect to continue growing at a similar path that we've done in the past quarters. We don't know yet if there's going to be any success fee. That's why we are not included -- we are not including success fees in those estimations because honestly, we don't know it yet. And regarding cost of risk, I think what we mentioned is that we are expecting to end the year with a cost of risk below 35 basis points. We are currently around 33 basis points as we shared in the presentation. We don't think that next year is going to be a higher figure. There is no reason why we should say that because what we're seeing is that there is quite stable situation. So we are very comfortable with the current situation of cost of risk. We are not perceiving any changes in the levels of delinquency, et cetera. And in fact, as Gloria was mentioning, we are reducing the exposure to some businesses with higher level of risk. So for the next year, we do not expect an increase in the estimation of cost of risk. Laurie Shepard Goodroe: Our next question comes from Fernando Gil de Santivañes from Intesa. Fernando Gil de Santivañes d´Ornellas: Two quick follow-ups, please. Regarding fees, I mean, there has been one transaction in Q3 regarding the renewables, similar to the one you did in the past, but you have not accounted it in Q3. Can you please guide us when this transaction and if there is any potential positive one-off coming in Q4? And is that included in the guidance? This is one. The second one is on costs. In the second quarter, you have the headcount down marginally, but down. Has this anything to do with the growth profile that you have been flagging during this call? Gloria Portero: I will answer the fees. Yes, this quarter, we have made a transaction, the sale of a portfolio of renewables. And we have not accounted for the success fees of this transaction so far because obviously, the contract has to -- how to say -- we have to close the contract exactly. So anyway, the fees that we're talking about are not material. It will be less than EUR 10 million or even a little bit less. So it is not something that is going to move the arrow. With respect to costs and the headcount, we are reducing the headcount in Spain, and we are doing that for several reasons. The first is that we are investing quite heavily in artificial intelligence, and this is allowing us not to replace the employees that go from the bank either voluntarily mainly. And I remind you that we have absorbed EVO Banco this year, and this means that we have 200 more employees Bankinter Spain, and that was enough to absorb the growth in -- needed in the headcount for the year. But anyway, I think that with respect to the headcount, you can expect the headcount in Spain to remain very stable next year or even to reduce a little bit because of all these investments we are making in artificial intelligence. Laurie Shepard Goodroe: Thank you. That ends our Q&A session. I would like to thank you on behalf of the entire Bankinter team, and Felipe and I will be there to support you for any questions post the webcast. Thank you all, and have a wonderful day.
Operator: Good morning all, and thank you for joining us for the Expro Q3 2025 Earnings Presentation. My name is Carly, and I'll be coordinating the call today. [Operator Instructions] I'd now like to hand over to our host, Sergio Maiworm, Chief Financial Officer. Please go ahead. Sergio Maiworm: Thank you, operator. Good morning, everyone, and welcome to Expro's Third Quarter 2025 Call. I'm joined today by Expro's CEO, Mike Jardon. First, Mike and I will have some prepared remarks, then we will open it up for questions. We have an accompanying presentation on the third quarter results that is posted on the Expro website, expro.com, under the Investors section. In addition, supplemental financial information for the third quarter results is downloadable on Expro website, likewise under the Investors section. I'd like to remind everyone that some of today's comments may refer to or contain forward-looking statements. Such remarks are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such statements speak only as of today's date, and the company assumes no responsibility to update forward-looking statements as of any future date. The company has included in its SEC filings cautionary language identifying important factors that could cause actual results to be materially different from those set forth in any forward-looking statements. A more complete discussion of these risks is included in the company's SEC filings, which may be accessed on the SEC website, sec.gov, or on our website, again at expro.com. Please note that any non-GAAP financial measures discussed during this call are defined and reconciled to the most directly comparable GAAP financial measure in our third quarter 2025 earnings release, which can also be found on our website. With that, I'd like to turn the call over to Mike. Michael Jardon: Thank you, Sergio. Good morning, everyone, and welcome to Expro's third quarter call. I'll begin by reviewing the third quarter 2025 financial results from today's press release. Expro achieved its highest quarterly free cash flow ever and continued to improve its EBITDA margin. We expect a strong fourth quarter and have raised our annual guidance. Next, I'll cover operational highlights, macro trends, a preliminary 2026 outlook and key strategic themes. Sergio will provide further details on financials, updated 2025 guidance and our overall capital allocation framework. Let's begin on Slide 1. Expro reported quarterly revenue of $411 million and EBITDA of $94 million, representing a 22.8% margin. Adjusted free cash flow was $46 million or 11% of revenue, which was the highest recorded by the company to date. The financial results reflect ongoing operational efficiency gains relating to margins and free cash flow. This record-breaking free cash flow generation marks a significant milestone for Expro, highlighting the company's successful strategy in improving operational efficiency and maximizing cash conversion. Achieving the highest adjusted free cash flow in the company's history underscores our commitment to financial discipline, creating and returning value to shareholders. Such performance sets a new benchmark and demonstrates our focus on increasing performance amidst dynamic market conditions. In the third quarter, Expro also repurchased around 2 million shares for roughly $25 million, achieving our annual target of $40 million ahead of schedule. We are also raising the 2025 annual guidance for EBITDA and free cash flow to reflect anticipated performance to date and for the rest of the year. Further details will be provided by Sergio later in the call. Moving to Slide 2. Expro's $2.3 billion backlog provides solid revenue visibility and demonstrates the company's diverse portfolio and operations across regions. Securing long-term contracts and delivering cost-effective solutions strengthens customer trust and underpins ongoing growth. Maintaining safety, service quality and performance highlights Expro's strengths. As we look to the future, the strong backlog and steady customer relationships help guide our planning for 2026. It's also important to note that while the backlog is encouraging and supports our strategic planning and visibility on revenue, it isn't a guarantee of future outcomes. Primarily, the backlog acts as a valuable health check for our business, offering insight into its current strength and helping guide informed decisions amid changing market conditions. As we look ahead, it's important to consider the broader market context shaping our industry and our outlook. Despite the current softer commodity price environment, the outlook for Expro's core markets remains constructive. We fundamentally believe that oil and gas investments will remain resilient with continued investment in offshore and international projects, supporting demand for our services in Expro's core regions. Long-term demand for hydrocarbons remains resilient, particularly in non-OECD markets and offshore developments. Upstream investment is expected to remain largely flat globally in 2026. We do, however, see pockets of growth in some international markets. We expect upstream investments to recover later in 2026 and into 2027 and beyond, with growth led by offshore projects in Latin America, the Middle East and West Africa, regions where Expro is very well positioned. Natural gas fundamentals have temporarily softened, but gas remains critical to the global energy mix, and therefore, supporting long-term demand for Expro's services and technology. As operators prioritize capital discipline and production optimization, we see sustained demand for our brownfield-focused offerings and digital solutions. The ongoing shift towards decarbonization and increased investment in geothermal and carbon capture, or CCS projects, particularly in Asia Pacific, ESSA and North America, positions Expro's sustainable energy business for continued growth. While macroeconomic risks persist, Expro's diversified portfolio, strategic offshore and international exposure enables us to navigate near-term headwinds and capitalize on emerging opportunities across the full asset life cycle. Turning to Slide 3. At this stage, it is a bit too soon to provide definitive guidance for 2026. However, our current outlook for Expro suggests that activity levels in 2026 will be largely consistent, if not slightly lower than those anticipated than those projected in 2025. Preliminary assessments indicate that operational activity will likely increase in the second half of the year following a slower start during the first quarter where we will have the typical winter season effect from operations in the Northern Hemisphere and the NOC planning effect early in the year. Although revenue expectations remain relatively flat to slightly down for next year, Expro remains strongly committed to further expanding EBITDA margins and free cash flow generation. Based on our activity outlook and our position today, I am confident in our ability to achieve these objectives. It should be noted that this outlook is informed by initial discussions with our customers and our historical experience across various market cycles. As we are in the early stages of developing the 2026 budget, numerous factors, including continued customer engagement and geopolitical developments could influence our perspective prior to releasing formal guidance in February alongside our fourth quarter earnings report. Before turning to our operational update, I wanted to discuss a few things that make Expro unique and we think are important attributes for investors to consider beyond the broader macro dynamics. That is also on Slide 4. We believe Expro's future stock performance will also be driven by several company-specific factors that set us apart from peers and position us for sustained value creation. One of our most powerful differentiators is our ability to expand our wallet share with existing customers. By providing additional or enhanced services to customers we already serve, while leveraging the existing cost base, we are able to significantly expand our margins with new technology deployments. This approach, not only deepens our customer relationships, but also drives incremental profitability and efficiency without the need for increased personnel on board. Another unique driver is the transformation of our production solutions business. Historically, as a consumer of capital, this segment is maturing into a generator of free cash flow. This evolution reflects both operational discipline and the successful execution of our strategy to optimize asset utilization and drive higher returns from our installed base. As production solutions continues to scale, we expect it to be a meaningful contributor to our overall financial strength and flexibility. In addition, Expro's commitment to technology leadership remains a core pillar of our differentiation. Our ongoing investments in technologies, digitalization and artificial intelligence enable us to deliver innovative, high-value solutions to our customers. This, not only enhances our competitive positioning, but also supports margin expansion and operational efficiency enhancements across our portfolio. Finally, our disciplined approach to margin expansion and free cash flow generation, combined with a track record of integrating value-accretive acquisitions further distinguishes Expro. By focusing on international and offshore markets and executing on cost efficiency programs like our Drive 25 initiative and others, we can deliver superior returns and create long-term shareholder value independent of broader market dynamics. Moving to our operational performance on Slide 5. During this quarter, Expro has consistently demonstrated strong operational performance. We continue to secure new business and remain dedicated to delivering our services safely and efficiently in the field, a commitment validated by our customers and recognized within the industry. Expro was recently honored with ENI's Best Contractor HSE Performance award for our contributions to the Congo OPT project. This accolade coincided with the first anniversary of our OPT plant operating without a single lost time incident with over 2 million man hours of activity, underscoring our team's success and highlighting our exemplary standards in safety and operational excellence. We received the OTC Brasil Spotlight on New Technology award for both the QPulse multiphase flow meter and the ELITE Composition solution with the official presentation scheduled at next week's OTC Brasil event. At the Gulf Energy Awards here in Houston, Expro was shortlisted for a record 10 technologies across 7 categories, further affirming our leadership and innovative capabilities in the sector. Notably, Expro earned the Best Health, Safety and Environmental Contribution and Upstream award for our VIGILANCE intelligence safety and surveillance solution. Our purposeful approach to innovation ensures we address client requirements directly, contributing to industry progress and delivering measurable value. In addition to these achievements, Expro successfully completed the inaugural deployment of Velonix, an optimized pipeline pig control technology for a U.S. midstream client. This implementation results in a reduction of approximately 7 million pounds of carbon dioxide emissions, generated cost savings for the customer and improved data quality to support accelerated decision-making, further exemplifying Expro's commitment to operational excellence and sustainability. As detailed in our September 8 press release, Expro has established a new offshore world record for the heaviest casing string deployment, utilizing the advanced Blackhawk Gen 3 wireless top drive cement head with SKYHOOK technology. Conducted in the Gulf of America, this milestone sets a benchmark for safe and reliable offshore cementing operations in ultra-deep high-pressure environments. These achievements demonstrate how Expro's technology portfolio delivers a competitive edge, unlocks future revenue opportunities and supports margin expansion through scalable, differentiated solutions. Building on these technology milestones, our regional performance this quarter further underscores our commitment to efficient, effective innovation across our global operations. This quarter, we secured a 5-year extension with Chevron for subsea services in the Gulf of America. This long-term contract reflects the trust Chevron places in Expro and reinforces our reputation for high-quality service. In Alaska, we won a significant contract with ConocoPhillips, expanding our well testing leadership and creating new opportunities to deploy our multiphase flow meters and fluid analysis services. In Congo, we secured a multiyear slickline services contract with Perenco. This contract significantly strengthens our intervention services in West Africa and demonstrates our technical expertise. In the Middle East and North Africa, we secured key well flow management contracts for ADNOC and PETRONAS. The first contract is for well test services for 4 packages over 2 years, while the second contract involves 6 well test packages and a multiphase pump that will be used as a zero flaring solution for the well test activities. These wins enhance our reputation as a trusted partner in unconventional well development and reinforces our commitment to innovative sustainable solutions. Turning to the Asia Pacific region. In the second quarter, we reported that Expro completed the first rigless conductor driving operation on a client's platform in over a decade, delivered ahead of schedule, demonstrating our commitment to innovative solutions in the region. I'm also pleased to share that in the third quarter, the Bass Straight campaign received highly positive feedback from NOPSEMA, Australia's offshore safety regulator and was formally recognized for achieving ALARP, As Low As Reasonably Practicable, safety standards. This recognition reaffirms our dedication to operational excellence and the highest safety protocols. Across every phase, we champion safety through best practices, strict procedures and continuous improvement, underscoring our robust safety culture and commitment to protecting our workforce and partners. Across all regions, Expro's operational and technology achievements this quarter demonstrate our ability to deliver value-driven innovation and maintain the highest standards for safety and efficiency. These results position us strongly for continued growth and margin expansion in the quarters ahead. Before turning over to Sergio, I'd like to remind everyone of Expro's value proposition that we've highlighted on Slide 6. Expro's long-term strategy is anchored in building a large, diversified and compelling business mix company with clear market leadership positions. Our overarching goal is to maximize and sustainably generate free cash flow through industry cycles, ensuring resilience and value creation for our shareholders. First, we are committed to continuously improving our financial results. This means, driving margin expansion and robust free cash flow generation, underpinned by disciplined cost efficiencies through initiatives like our Drive 25 campaign. We are also focused on reducing the capital intensity of the business and consistently delivering top quartile performance across our operations. Second, we see significant opportunity to grow Expro through inorganic, scalable acquisitions. Our approach is to target international and offshore opportunities with adjacent offerings that present strong industrial logic and accretive financial profiles. We have developed a proven blueprint for integrating businesses efficiently and in a timely manner, and our track record demonstrates our ability to create shareholder value through disciplined M&A. Third, we are high-grading our business by leveraging technical leadership. We continue to invest in technologies across our core business segments and are actively scaling our digital capabilities, including artificial intelligence and digitalization. Importantly, we are globalizing the technology platforms acquired through recent M&A, ensuring that innovation and technical excellence remain at the heart of our value proposition. In summary, Expro's strategy is designed to deliver sustainable growth, operational excellence and superior returns. By maintaining a disciplined focus on financial performance, pursuing targeted acquisitions and investing in technology leadership, we are well positioned to lead our industry and deliver long-term value for our shareholders. With that, I'd like to turn the call over to Sergio to review our financial results in detail. Sergio Maiworm: Thank you, Mike, and good morning again to everybody on the call. As Mike noted, Expro continues to deliver consistent and above expectations financial results. In the third quarter, we reported revenue of $411 million. EBITDA for Q3 reached $94 million with a margin of 22.8%, up about 50 basis points from last quarter and 270 basis points year-over-year. Slide 7 illustrates our quarterly and annual margin growth. We are confident in further margin expansions in 2025 and 2026, with the latter being driven by the full impact of Drive 25, increased customer wallet share at higher margins, international growth from acquisitions like Coretrax and ongoing cost optimization and efficiency improvements. EBITDA margin expansion is not the goal in itself on Slide 8, but a means to increase free cash flow generation. And in the third quarter, Expro posted its highest quarterly free cash flow in the company's history, generating over $46 million on an adjusted basis. We aim to further reduce the capital intensity of the business and expect even stronger free cash flow in 2026, both as a percentage of revenue and in absolute terms. We have increased our 2025 guidance for free cash flow, though we're cautious about Q4 due to potential working capital effects. The Q4 guidance is conservative and already accounts for these factors. Expro also bought back $25 million in shares in the third quarter, achieving our $40 million goal ahead of time, and we still have another $36 million available under the current $100 million repurchase plan. Turning to liquidity. The company closed the quarter with $532 million in total liquidity. That includes $199 million in cash on the balance sheet after accounting for the revolving credit facility repayments and the share repurchases during the quarter. During the third quarter, the company completed a $22 million voluntary prepayment of its revolving credit facility. The voluntary prepayment reduced the outstanding draw balance on the RCF from $121 million to $99 million as of September 30. As mentioned before, we're raising our EBITDA and free cash flow guidance for 2025. The details are on Slide 9. We now expect our adjusted EBITDA to be between $350 million and $360 million compared to a notional $350 million plus before. We're lowering our CapEx guidance. We now expect our capital expenditures for the year to be between $110 million and $120 million, whereas before, we had approximately $120 million. Lastly, we're also increasing our free cash flow guidance. We now expect our adjusted free cash flow to be between $110 million and $120 million compared to the approximately $110 million we were estimating before. As mentioned, the free cash flow guidance is somewhat conservative given the possibility of working capital use in the quarter. We certainly have some upside potential from here. Now, I'd like to quickly address our segment performance this quarter before finalizing with our capital allocation framework. A reminder that details around our segment's performance can also be found in the appendix of the presentation. Turning to regional results. The North and Latin America, or NLA, third quarter revenue was $151 million or up $8 million quarter-over-quarter, reflecting higher well construction and well flow management revenue in the Gulf of America, partially offset by lower well intervention and integrity revenue in Argentina. For Europe and Sub-Saharan Africa, or ESSA, third quarter revenue decreased $7 million to $126 million sequentially, primarily driven by lower well flow management and subsea well access revenue in the U.K. and Norway. Segment EBITDA margin at 32% was up 200 basis points sequentially, reflecting higher activity and a favorable product mix. The Middle East and North Africa, or MENA, delivered another solid quarter, but slightly lower compared to Q2 with revenues at $86 million, driven by lower well construction and well intervention and integrity revenue in the Kingdom of Saudi Arabia, the UAE and Qatar. MENA segment EBITDA margin was 35% of revenues, a decrease of about 100 basis points from the prior quarter, reflecting the lower well construction activity. Finally, in Asia Pacific, or APAC, third quarter revenue was $49 million, a decrease of $8 million relative to the second quarter, primarily reflecting the lower well flow management, well intervention and integrity and well construction revenue in Malaysia and lower well construction and subsea well access revenue in Australia, partially offset by higher well construction and well flow management revenue in Indonesia. Asia Pacific segment EBITDA margin at 21% of revenues decreased about 500 basis points from the prior quarter, reflecting decreased activity and mix. Now I'd like to briefly discuss our capital allocation framework on Slide 10. Expro's capital allocation framework is designed to maximize long-term value creation by maintaining a disciplined and balanced approach across 4 equally important priorities. Our philosophy is that, every dollar of capital must be deployed where it can generate the highest risk-adjusted returns. And as such, each of these 4 areas continuously competes for capital on an ongoing basis. First, we're committed to investing in our business to drive organic growth with superior return profiles. This includes funding projects and initiatives that enhance our core capabilities, improve efficiency and support innovation across our service lines. Every investment is rigorously evaluated to ensure it meets our standards for superior returns throughout the business cycle. As a reminder, the vast majority of our capital expenditures are geared towards specific projects with known return profiles. These are not speculative investments. Second, we pursue selective, highly accretive mergers and acquisitions that complement our existing capabilities and customer relationships. Our M&A strategy is focused on opportunities that offer clear industrial logic, scalable technologies and synergies and the potential to expand our presence in attractive markets. We apply the same disciplined capital allocation criteria to acquisitions as we do to organic investments, ensuring that only the most compelling opportunities receive funding. Third, we're committing to returning capital to shareholders. Our framework targets the return of at least 1/3 of free cash flow to shareholders annually, primarily through share repurchases. This commitment reflects our confidence in the company's ability to generate sustainable free cash flow and our focus on delivering direct value to our investors. Finally, we maintain a fortress balance sheet to ensure financial flexibility and resilience. Preserving a strong balance sheet enables us to navigate market cycles, invest in growth opportunities as they arise and protect the company's long-term stability. Importantly, these 4 pillars, organic investments, M&A, shareholder returns and balance sheet strength are not ranked in order of priority. Instead, they are managed dynamically with each area continuously competing for capital based on the quality of opportunities available. This disciplined balanced approach ensures that Expro remains agile, resilient and focused on maximizing value for all shareholders. With that, I'll turn the call back to Mike for a few closing comments. Michael Jardon: Sergio, thank you. As we conclude our prepared remarks and before opening up for questions, I'd like to conclude with the following thoughts. Despite the softer commodity market backdrop in the near-term, we continue to see resilient, if not robust, investment in upstream oil and gas in the international markets. We also expect the offshore sector to further recover starting in the second half of 2026 and into 2027 and beyond. Looking ahead, we remain confident in Expro's ability to deliver resilient performance even as we navigate softer market backdrops. Our diversified business mix, disciplined capital allocation and relentless focus on operational excellence position us to weather industry cycles and continue creating value for our stakeholders. We expect to finish 2025 on a strong note with a robust fourth quarter that reflects both the strength of our customer relationships and the successful execution of our strategic initiatives. As we move into 2026, we are well positioned to further expand our EBITDA margin driven by ongoing cost efficiencies, margin-accretive growth and the maturation of our production solutions business into a significant free cash flow generator. Moreover, we anticipate continued growth in our free cash flow generation in 2026, supported by our balanced approach to capital allocation and our commitment to maximizing returns across all areas of the business. We believe these strengths will enable Expro to deliver sustainable long-term value for our shareholders regardless of the broader market environment. We thank our employees, customers and shareholders for their continued support and look forward to building on our momentum in the quarters and years ahead. With that, I'd like to open up the call for questions. Operator: [Operator Instructions] Our first question comes from Ati Modak from Goldman Sachs. Ati Modak: Just a quick question on the margin expansion comment for '26 on flat to slightly lower revenue. Can you help us understand what the drivers there are? Is it largely the Drive 25 initiative? Are there other factors that are driving that expectation? Michael Jardon: So, Ati, thanks for the question. Thanks for joining us today. I guess a couple of things I try to highlight is, yes, it will be the full year effect of our Drive 25 initiative. If you recall, although we've changed the total target throughout the year as we've expanded and increased it, we've really targeted taking out about 50% of that benefit in 2025. So we'll have the natural margin expansion from that in 2026, which will help us offset some of the inflationary cost pressures and those kind of things. Additionally, we'll continue to internationalize some of the M&As that we've made, Coretrax in particular. And then the third element really is, as we continue to roll out new technologies, and I think I've highlighted this to you and to others before, but just keep an eye on the number of new technologies you see us continue to roll out. We'll continue to get market uptake that helps us expand our wallet share, really helps us position ourselves. It's really a combination of all those. And frankly, what we have the organization focused on today is, we can't control the activity, the overall activity. We're going to continue to get our fair share. We're going to continue to position ourselves with customers globally. But we're going to stay focused on the things that we can really affect, which is operational efficiency, execution, rolling out new technology, those type of things. Ati Modak: And then on the comment that offshore activity could pick up in the second half, what are you keeping an eye on? And can you give us any additional sort of regional color in terms of how you're seeing activity play out at the moment? Michael Jardon: Sure. And I'll start with the one that I think is going to be the laggard. And I think the laggard is probably going to be Asia Pacific. I think it's the one in 2026 that is -- we're seeing some softness here in Q3 and even in Q4 in Asia Pacific. So I think it's going to be the one that's going to be a little bit of a laggard. That's not altogether different than how we foresaw 2025 overall. We kind of highlighted early in the year that we felt like Australia was going to be a bit soft overall. But I do think going into '26, and I think we'll start to see some activity ramp up in the second half is really it's going to be the Golden Triangle. It's going to be West Africa. It's going to be Gulf of Mexico, those type areas. I also think that 2 others to keep in mind is, we're starting to see some positive sentiments and some positive commentary in Saudi, in particular, with the jack-up activity. Although we don't generate a lot of activity in the jack-up market in Saudi, I think it kind of goes to the tone and the tenor that's going on in the Kingdom, I think that's going to be more constructive. And then I think some of the things we're starting to see out of Mexico is going to be helpful for us as an industry overall. So those are the ones I would really highlight. Sergio, anything I missed? Sergio Maiworm: No, Mike, I think that's it. Ati Modak: Maybe if I can squeeze in one more. The share repurchases, you mentioned you reached ahead of schedule. What does that mean for repurchase for the rest of the year? Will you not do anything? And then what's reasonable to think for '26? Sergio Maiworm: Yes, Ati, that's a great question. We'll continue to evaluate, as we always do in line with the capital allocation framework that we laid out on this call as well. We'll continue to look for opportunities to return more capital to shareholders. We adjusted our free cash flow guidance to $110 million to $120 million. So the $40 million that we've already repurchased represent at least 1/3 of that already. So as we continue to see more free cash flow generation, we will continue to evaluate opportunities to repurchase shares. So that is a continuous effort for us. So we'll continue to do that. Michael Jardon: And we still have plenty of room in the -- still have plenty of headroom in the preauthorized amount. So we'll continue to be thoughtful about that here just as we kind of see what are the market dynamics and how we see things playing out for Q4. Operator: Our next question comes from Eddie Kim from Barclays. Edward Kim: Just wanted to circle back on your comments on '26 activity levels being consistent, if not slightly lower than '25 levels. You mentioned activity is likely going to increase in the second half of next year, which implies that first half of next year could be a little softer than normal, even considering typical seasonality. So could you talk about maybe what's driving that softness in the first half of next year? Is it all being driven by Asia Pac? Or is there something else going on there? Michael Jardon: Sure. No, Eddie, thanks for joining us. I appreciate the question. I guess how I would frame it up is, this is -- we're just now in the early stages. We're kind of in the first, maybe the -- if not the top, maybe the bottom of the first inning right now in terms of our budget preparation process. So we're going out to kind of start that bottoms-up exercise with our customers and literally look at kind of project by project. Fundamentally, this is my sense from customer conversations and customer discussions that I've had with kind of trying to understand how do they see their spend for the rest of '25 and how it goes into 2026. I think they are thoughtful and mindful of some of the things going on today, commodity pricing, what's happening in the geopolitical sphere, does the peace agreement in the Middle East hold? Something happen more meaningfully with Russia and Ukraine. All those kind of things, I think, are kind of causing a little bit of a cautious sentiment for them to kind of wait and see how this is. And then fundamentally, how we see kind of going into next year, yes, you're right, there's some softness in Asia Pacific. And we -- as much as I would like to wish it away, we always have a Q1 effect. Northern Hemisphere is slow because of the winter season. Our NOC customers are always historically over the last 30-plus years in my career, they're always a little bit slow getting out of the gate in Q1. That's really kind of what we're seeing. But as we -- we'll get a better sense here over the next 8 weeks or so as we go through the budget process. But my sense is, we're probably talking about a flattish to slightly down 2026. And fundamentally, as I said in the earlier question, what we've got the organization focused on is, we're going to control what we can control, and we can't control how much activity there is, but we can control our service delivery, our agency performance, the rollout of our technology, continue to enhance efficiencies. That's what I want the team really focused on. And if we see a ramp-up in activity in the middle of Q2, we'll take it and we'll be ready to be positioned. If it's more like the end of Q2, then we'll deal with it that way as well. Edward Kim: Understood. My follow-up, just tailing on those comments. I understand you'll provide more detailed guidance during the fourth quarter earnings call. But yes, you mentioned activity levels flat or slightly lower next year. At the same time, you said you expect continued margin expansion. So just putting those 2 things together, is it fair to assume that EBITDA for next year should be at least similar to '25 levels? Or how should we think about that just directionally? Michael Jardon: Yes, I think that's a good way to think about it directionally. We will -- I will be very disappointed if we don't expand EBITDA margins in 2026. And what is the overall activity set look like to determine an absolute number, but kind of in the range where I think flat to slightly down going into next year, I would think we'd see similar EBITDA numbers. And quite frankly, what we're -- I would say, we're more focused on, but what we have a real sense of urgency around is better conversion of that into cash generation. Operator: [Operator Instructions] Our next question comes from Derek Podhaizer from Piper Sandler. Derek Podhaizer: I just have a couple of education questions. Maybe we could first start on the production solutions opportunity that you mentioned a number of times on the call. Can you help us understand what types of services you're talking about the technologies and maybe which regions are best suited for production solutions? Michael Jardon: Sure. Derek, thanks for joining us, and thanks for the question. So it is -- fundamentally, these are -- a great example of it is the early pretreatment facility that we put together that we collaborated with ENI on in the Congo. And that really was a facility that helped treat gas to ensure it met the export spec, which meant they could actually load it on an FLNG vessel. So that was an enhancement to an existing facility. We can also have production optimization or production enhancement where we're actually providing some places like Algeria, where we're providing gas recompression, gas reinjection, helping to reduce the flaring opportunities that those things have. So really it is existing infrastructure. It can be production facility type things. We don't pursue the big massive [ epic ] type projects. What we're really focused on is smaller modular kind of accelerated monetization of existing assets. And those are predominantly for us, very strong presence in the Middle East, strong opportunities for us in in West Africa and then also some that we see here in South America as well. So a good geographic spread that's more brownfield-type activity than it is greenfield activity. Derek Podhaizer: And then I know you mentioned those were big consumers of cash, but now you believe this is going to flip to cash generation. So can you maybe help us frame the magnitude of these projects that were consuming cash, but now what it can be when it's generating cash? Sergio Maiworm: Yes, Derek. No, that's a good question. So we actually embarked on a bunch of these projects over the last few years. So this is just the construction of those facilities, as Mike pointed out, and the investments that we had to make, and we had a few of those projects back to back. So we consumed a bit of capital. But now that a lot of these projects are already online, like the OPT project for ENI and the Congo, basically, that just becomes an annuity for us. There's a very low operating cost to continue to operate those facilities. And there's just a consistent stream of cash. It's very visible. It's very predictable for us. So as we stack up some of these projects that have been concluded and as those projects go from the construction phase into the operations and maintain phase of that, it just becomes an annuity and you just start stacking one on top of the other. So that actually contributes a lot for the free cash flow generation of the business. Does that make sense? Derek Podhaizer: No, it does. That's very helpful. And then just kind of a follow-up to the follow-up. Back to 2026, what Ati and Eddie were talking about on the margin expansion story, maybe could you help us provide a little bit more color on where we'll see the most impact, whether that's from a region line perspective or a product line perspective? Just want to start thinking about kind of the shape of '26 from either the product lines or the regions how you report it. Michael Jardon: Yes. I mean it's -- and again, it's kind of early for me to give too much granularity on what 2026 is going to look like. I think we're going to -- Gulf of Mexico, Gulf of America, I guess, I'm supposed to call it now, is probably going to be similar, flattish kind of year-on-year. We don't see a massive change and kind of what's going to happen with the rig count, those type of things. I think they'll continue to move from magically on Wednesday, the rig frees up, it's going to move to another operator on Thursday, so to speak. So I think the Gulf is going to be pretty consistent. I think South America will have some -- can have some particular strength. I think MENA is going to, again, be solid and probably have a little bit of upside in there. There has been some softness here for us in the last couple of months just because of some of the Saudi activity. They had some operational issues with a vendor that created some slowness there. So I think it will be solid. And I think West Africa will be kind of consistent year-on-year. I don't think we'll start to see some of the impact of some of the new FIDs, that's what we'll start to see in kind of the second half of 2026. That's kind of how I would frame it up. And then Asia Pacific is the one in which I think it's going to continue to be a little bit softer than what we would like to see it, but I think that's just kind of how the customer activity sets are going to be really until Australia, in particular, kind of gets kicked back off into more of a drilling phase. Operator: Our next question comes from Joshua Jayne from Daniel Energy Partners. Joshua Jayne: I just wanted to dig into the margin question that Derek just asked a little bit incrementally. So when I think about looking into '26, one of the regions you highlighted is for potential strength is the Middle East. And just when we think about the margin difference between that region and something like Asia Pac, for example, which you expect to be, I guess, a bit on the softer side in '26. Is that part of what's ultimately driving the margin uplift? Or could that -- or if you have a higher contribution there moving into '26, is that -- could that lead margins to expand further than what you're projecting outside of Drive 25? Michael Jardon: No, Josh, it's a really good question. It's a perceptive question. It really is going to be -- so for us, a lot of the driver is going to be the mix. And the mix can be what's the geographic mix. If we actually see a -- what's the impact of the Middle East? Is it flat year-on-year? Is there -- historically, we've kind of had some single-digit growth in the Middle East. And obviously, when there's growth in the Middle East for us, it really moves the needle because it has such a high margin profile. But also what's the impact of -- as we roll out new technologies or we continue to expand our customer wallet, those generally come with higher margins or more accretive. It really is the mix that has an impact on us that it is a little bit more difficult for us at this point in time to really kind of predict what's going to happen there. And then the other element, I know we've kind of been cautious on Mexico activity because we don't have a massive amount of Mexico activity. With Pemex, we're actually going to see some -- we'll start to see some activity in 2026 with non-Pemex operations, and that will be a positive as well. So long answer to say, it depends -- a lot of it depends on the mix, and we'll try to continue to accelerate technology rollout and those types of things, and we'll try to continue to expand our presence in places like the Middle East. Joshua Jayne: Okay. And then one technology question, one release that I thought was pretty interesting over the course of Q3. You highlighted the launch of your Remote Clamp Installation System. So it was deployed in Q4 of last year and then deployed again in Q2 of '25. Maybe just use that as an example of like when I think about a technology like that, how ultimately scalable do you see something like that and when you could really see acceleration of a product like that taking hold in the market? Is that something that happens in '26, more in '27? Maybe just a time line when we see announcements of successful deployment once and then a second one and just moving forward. Michael Jardon: And again, Josh, it's a good perception question. The Remote Clamp Installation simplistically, this allows us to robotically install clamps on completions. When you're running completion stream, you don't -- you have no hands on. You have no personnel, nobody is in the red zone, no hands are in there. And as we have moved from concept to field trials to commercial installations, our operators are extremely pleased with this. We increase the speed at which we can run completions and install control lines and [ install ] clamps on those. More importantly, if you don't have people with their hands in the red zone or their physically in the red zone, it reduces or almost completely eliminates the risk of having an HSE incident. So I think this is one that we'll continue to get more and more uptake from customers on it. We've had really, really good support in the North Sea. I think it's one we'll be able to continue to accelerate. So we'll start to see that more installations in 2026 and really ramp up as we go into 2027. Operator: Thank you very much. We currently have no further questions, and this will conclude the Q&A, and this will conclude today's call. We'd like to thank everyone for joining. You may now disconnect your lines.
Operator: Good morning, and welcome to the third quarter conference call for Graco Inc. If you wish to access the replay for this call, you may do so by visiting the company website at www.graco.com. Graco has additional information available in a PowerPoint slide presentation, which is available as part of the webcast player. At the request of the company, we will open the conference up for questions and answers after the opening remarks from management. During this call, various remarks may be made by management about their expectations, plans and prospects for the future. These remarks constitute forward-looking statements for the purposes of the safe harbor provisions of the Private Securities Litigation Reform Act. Actual results may differ materially from those indicated as a result of various risk factors, including those identified in Item 1A of the company's 2024 annual report on Form 10-K and in Item 1A of the company's most recent quarterly report on Form 10-Q. These reports are available on the company's website at www.graco.com and the SEC's website at www.sec.gov. Forward-looking statements reflect management's current views and speak only as of the time they are made. The company undertakes no obligation to update these statements in light of new information or future events. I will now turn the conference over to Chris Knutson, Vice President, Controller and Chief Accounting Officer. Christopher Knutson: Good morning, everyone, and thank you for joining our call. I'm here today with Mark Sheahan and David Lowe. I will provide a brief overview of our quarterly results before turning the call over to Mark for more commentary. Yesterday, Graco reported third quarter sales of $543 million, an increase of 5% from the same quarter last year. Excluding acquisitions, which contributed 6% growth and currency translation, which contributed another 1% growth, organic sales declined 2% in the quarter. Reported net earnings increased 13% to $138 million or $0.82 per diluted share. During the quarter, we recognized a $14 million noncash gain from a reduction in the fair value of contingent consideration related to last year's acquisition of Corob. This gain is an unallocated corporate operating expense. Excluding the impact of excess tax benefits from stock option exercises and this contingent consideration fair value gain, adjusted non-GAAP net earnings was $0.73 per diluted share, an increase of 3%. The gross margin rate was flat compared to the same quarter last year. The effects of our targeted interim pricing actions started to be realized during the quarter, offsetting higher product costs resulting from lower factory volume, unfavorable effects of lower margin rates from acquired operations and incremental tariffs. Tariffs affected product costs by $5 million in the quarter, resulting in a 100 basis point decline in the gross margin rate. Operating expenses decreased $6 million or 5% in the quarter. The decline was driven primarily by the recognition of the noncash gain related to the fair value contingent consideration reduction. Excluding this gain, total operating expenses increased $8 million or 6%, driven by incremental expenses from acquisitions of $10 million. Excluding expenses of acquired operations, operating expenses declined $2 million. Adjusted operating earnings increased $5 million or 3% during the quarter. Operating earnings as a percent of sales was 28% for the quarter and consistent with the same period last year. The adjusted effective tax rate was 20%, which is consistent with our expected full year tax rate of 19.5% to 20.5% on an as-adjusted basis. Cash provided by operations totaled $487 million for the year, an increase of $51 million or 12%. Improved inventory management from consolidating operations under One Graco and lower sales and earnings-based incentive payments drove the increase. Cash provided by operations as a percentage of adjusted net earnings was 146% for the quarter and 132% for the year-to-date. Significant year-to-date uses of cash include share repurchases of 4.4 million shares totaling $361 million, dividends of $138 million and capital expenditures of $34 million. These cash uses were offset by share issuances of $32 million. A few comments as we look forward to the rest of the year. Based on current exchange rates, assuming the same volumes, mix of products and mix of business by currency as in 2024, movement in foreign currencies would have a 1% favorable impact on net sales and net earnings for the full year. Finally, projected unallocated corporate expenses and capital expenditures are $35 million to $38 million and $50 million to $60 million for the full year, respectively. I will now turn the call over to Mark for further segment and regional commentary. Mark Sheahan: Thank you, Chris. Good morning, everyone. I'm pleased to report that sales were up 5% this quarter with acquisitions contributing a strong 6% growth. This more than offset a modest 2% decline in organic revenue. Our Contractor segment continues to face headwinds from subdued construction activity and cautious consumer sentiment in North America. The Industrial segment delivered a 1% sales increase, supported by acquisitions and favorable exchange rates. While growth occurred in many product categories, overall sales were set back by the timing of powder finishing system sales compared to last year. Expansion markets performed well, led by momentum in the semiconductor space. Third quarter order activity increased mid-single digits across all segments, driven by strategic pricing and steady demand. Last year's third quarter had a nearly $25 million backlog reduction. Excluding this reduction, organic sales grew 4%, aligning with third quarter order rates. Backlog levels are stable and no significant challenges are expected for the rest of the year. Details on backlog reduction by segment are included in the conference call slide deck. We announced targeted price increases during the third quarter, and those efforts are gaining traction. These actions are helping to offset the impact of tariffs, which added $5 million in costs this quarter and $9 million year-to-date. While pricing has not fully covered these costs yet, we expect this by the end of the year. Turning to segment performance. The Contractor segment sales increased 8% for the quarter, with acquisitions contributing 11%, more than offsetting a 3% decline in organic sales. Affordability concerns have continued to affect the North American construction market with declines in both the Pro Paint and the Home Center channels. Channel partners are managing inventory tightly in response to current conditions. On a positive note, Protective coatings equipment sales had their best performance of the year and pavement products saw increased demand supported by infrastructure investments. Incoming orders grew low single digits in the quarter, giving us confidence heading into the fourth quarter. Industrial segment sales increased 1% in the quarter with acquisitions and currency offsetting a 2% organic revenue decline. The Americas grew 3% organically, led by good demand in vehicle service and automotive OEM projects, particularly in liquid finishing systems and sealants and adhesives. In EMEA, gains in process manufacturing were not enough to offset a drop in vertical powder coating systems due to project timing. In Asia Pacific, there was solid demand in mining, which was not enough to offset lower solar and EV investments. Despite lower organic sales overall, profitability was extremely strong with incremental margins of 220% year-to-date. Expansion market sales were up 3% with good activity in semiconductor products, partially offset by declines in the environmental business. While semiconductor has grown this year, we are still below peak revenue and continue to face some challenges in China. Margins have been strong throughout the year, though they may be volatile quarter-to-quarter due to fluctuating volumes. Moving on to our outlook. Year-to-date sales are up 5%, supported by the 6% increase from acquisitions, which have more than offset a slight organic revenue decline of 1%. Heading into the fourth quarter, order rates are satisfactory and year-over-year comparisons in the Contractor segment are becoming easier. As a result, we're keeping our full year revenue guidance of low single-digit growth on an organic constant currency basis. That concludes our prepared remarks. Operator, we're ready for questions. Operator: [Operator Instructions] Our first question comes from Deane Dray of RBC. Deane Dray: Maybe we can start with since macro overlay and expectations is so important. Kind of can you zip through the end markets and regions, just the performance of what stands out versus expectations up or down? And then any kind of the forward look, the leading indicators, day rates, what you saw in the first -- the last 6 weeks of orders, too, please? Mark Sheahan: Yes. So I think it's a continuation of really a lot of the themes that we've been talking about all year. I think that in terms of like the industrial end markets, I wouldn't characterize the demand is robust, but I would also say that people are still ordering products, and there's targeted opportunities in some of the areas that we talked about like vehicle service and our process pump segment, which have been pretty good. And also our liquid finishing segment as a lot of customers are looking at converting from air operated to electric, that's created some opportunities for us as well. So it's kind of hit and miss depending upon the customer type, the end market that we're in. The North America market has probably been the one where we've unfortunately seen more caution from customers just because of the changing landscape with respect to the tariff situation. I think it has created some caution in some of the end markets and some of the customers. We're hopeful that, that kind of cleans up. But if I were to put my hat on from the end of last year when we were putting our plans together, I think we're more hopeful that we would have a more stable environment in North America than what we've experienced. Our teams are still working really hard. They're still executing. There's still opportunities out there. But again, the environment is not what I would characterize as robust. China has really actually held up pretty well for us this year, which after a couple of years of declines there has been nice to see. And again, it really depends on the end markets that you're in. The mining industry, in particular, in Asia Pacific and maybe to a lesser extent, China has held up pretty well. And the -- some of the traditional industrial markets, including adhesives, sealants and liquid finishing and the powder business have actually held up pretty well in China. So I would say that China has been a positive surprise maybe for us after a couple of years of tough business over there. And probably the other big surprise is just the uncertainty in some of the end markets with our industrial business. Contractor, I mean, I know we'll get into it on this call, but the issue there, again, is just affordability, home affordability issues primarily in North America, nothing too surprising. We're hopeful that we get a little bit of a break on that with rates coming down. The environment has been tough. Last year, as you know, we had the lowest level of housing sales in this country since 1995, and this year is even lower than that. So turnover is good for us. Houses need to sell. When houses sell, they hire contractors to paint and they fix up and they remodel, and it's just good for the overall health of our contractor business. It will get better. We're very well positioned once things firm up on the demand side and we get some volume growth. The P&L is in great shape. Profitability is super high. Incremental margins look good. Cash flow is extremely strong. So it's really just making sure that we're all set up for what will be better volume days ahead in Contractor. Deane Dray: And the leading indicator looks, stay rates, October, et cetera? Christopher Knutson: When we look at the rates and what we see coming out from some of those indicators, the pretty flat, I would say, on -- in terms of housing starts, with a 30-year interest rate is now at 6.1%, which is lower than it's been in quite some time. So we're hoping that as those rates start to trend downwards, that we'll see some improvement come with housing movement, as Mark had previously talked about. Mark Sheahan: Yes, it's still a pretty sluggish environment, Deane. And we're hopeful it's going to get better, but I don't think our results are really all that bad when you look at how hard this housing and construction industry has been hit. I never -- I don't like the fact that we're down a little bit organically in Contractor. But given the pain that's going on in that market for a while here, it's been the challenge that the team has dealt with in an admirable way. David Lowe: Yes. I would just add that a fairly significant portion of that market, as Mark touched on, with resale being so slow is remodeling activity. Now that's one of the areas that affects both our Pro Paint side and our Home Center side of our business. That -- actually, this was the first year that the group that does forecasting around that, Harvard University, projected that category to grow -- that activity to grow this year. That really hasn't happened. So I think that, that holds us back, and we hear some of our channel partners talk about the same things, both on the Home Center side and as well as on the paint materials side of the business. Deane Dray: And then just a follow-up. I know it's a rare event for you to do a second price increase in September. But just kind of give us some color about how it was introduced? Are they all sticking and you expect this to fully offset the tariffs? What's the time frame there? Mark Sheahan: Yes. Good question. We did announce price increases in the early third quarter. We like to give our channel partners enough time to digest those before we actually implement them. So we didn't actually start to really have those take effect until late in the third quarter. But I would say sort of low to mid-single-digit kinds of increases across all the business units in all of the regions with the exception of the Pro Paint channel in North America and the Home Center channel in North America, and those are queued up to go in January. Operator: Our next question comes from Mike Halloran with Baird. Michael Halloran: Can you unpack what you're implying for the fourth quarter here? If I -- is this mainly through the pricing that hasn't come in fully being more ramped in the fourth quarter? Comps, is it something you're fundamentally seeing in the demand outlook that gives you a little bit more confidence in the fourth quarter because the inflection of growth is above normal seasonality. And so I just want to make sure I understand what those puts and takes are to get you to that positive fourth quarter number that's implied with the guide? Mark Sheahan: Yes. I think we're -- we kept the guide. I think that, obviously, you'll do the math, and you guys can figure out that it looks like we're going to be on the low end of the guide when we get there. We're not likely to get all the way up to the high end of the low single-digit guidance. But despite where we're at year-to-date, we're down about 1%. We think with our incremental pricing actions that we put in, the order rates have been stable, that somewhat better in the third quarter than what we had seen earlier in the year. Obviously, there's some areas of business that are doing better than others. And then we also have a fairly easy comparison in Q4 with the Contractor business. So you sort of put all that together and our team, our forecasts are rolling up to hitting in somewhere in that low single-digit range. Michael Halloran: So to be clear, it's not like you're assuming there's something fundamentally getting better in the fourth quarter. It's more steady and then you put the other factors in play and then that's how you get to that guide. Mark Sheahan: Exactly. Yes. I think that's fair. Michael Halloran: And if you think about kind of to the second part of -- the second question Deane asked there, when does price cost turn positive for you guys? So when does that drag? Is it with those price increases that you said were coming in the first quarter? Or when you hit the fourth quarter here, does that dynamic normalize out? Mark Sheahan: Yes, I think we'll definitely see it here in Q4. Actually, if you look at Q3 gross margin, if you were to back out the impact of the Corob acquisition, our margins were actually up in Q3. So we are doing okay on the price cost. We'll see that roll through here in Q4 as well. Operator: Our next question comes from the line of Saree Boroditsky of Jefferies. Saree Boroditsky: You alluded to this just a second ago on the price, but it looks like Contractor was the only segment to have a large headwind from product cost. I think you mentioned putting in price increases in North America in January. So just maybe talk through your ability to push through price in that segment versus the others. Mark Sheahan: Yes, it's good, but we are respectful of the fact that we deal with large channel partners, and it's -- conversations happen around this time of the year. They start at that level. We intentionally did not try to push price midyear with them, which I think is appreciated because some of our competitors did. And so, we fully expect that we'll be able to realize some pricing starting at the beginning of the year with our larger channel partners. We did raise prices in Contractor in the spray foam category and the high-performance coatings category and in our line striping and texture businesses. So it's not like we didn't raise prices at all in Contractor. We did hit those categories with the other industrial categories in the September time frame. David Lowe: And you will see in Q4 in our international locations, the product lines, especially we're talking about the Pro Paint line, which, of course, is largely sold through some of these big channel partners here in North America. Price adjustments will be processed there now, and we'll see some benefit even before the end of the quarter in that category, too. Saree Boroditsky: Appreciate the color. It looks like you turned a little less negative on APAC and expansion. Just maybe some -- an update on what you're seeing there and the key driver of that decision to update that -- the pie chart. Mark Sheahan: Yes. I think that the Asia Pacific region, as I said earlier, I think overall, the China business has actually held up better than maybe what we thought. The comments that I made during the opening remarks were targeted at the semiconductor space where despite decent levels of demand, there's still some challenges in getting licenses and getting products into China, which we are hopeful will get cleaned up at some point. That's really, I think, part of the reason why we moved a little bit to a less optimistic view in that region overall. I wouldn't call it a dramatic change, but just kind of a fine-tuning of where we see things at here as we make our way through the year. Operator: Our next question comes from Bryan Blair of Oppenheimer. Bryan Blair: So you're a few quarters in now with the new organizational structure. And obviously, you've been navigating a pretty choppy sluggish backdrop. To date, how has the more market and customer-centric framework helped your team to navigate this volatility and better position for recovery? And then on the side of M&A strategy, has there been a noticeable difference in funnel development? Just curious what "proof points" you could call out? Mark Sheahan: Yes. Thanks for asking. On the One Graco side of the house, I think that it's still fairly early days. But for sure, we're seeing a lot of margin improvement from some of the cost initiatives that we took last year, just look at the industrial incremental margins is probably a good benchmark for you in terms of what we've done there. And we're on track with the targeted number that we had given to you last year. Those things are moving forward quite well. Commercially, the teams are really starting to gel with respect to having distributors be able to carry multiple product lines that they weren't in the past. So we're seeing like upticks in some of the MRO business because those are broad-ranging distributors that carry multiple products, and they're very interested in being able to get access to some things like our lubrication products, for example. We're also getting, I would say, better penetration in some of the international markets like down in Mexico, where historically, maybe we're a little bit more protective in terms of who would get access to products like our Quantum pumps, which are going into a lot of different applications on the process and sanitary side. Well, now we've opened that up a bit, and we're seeing some traction there as well. The teams are working well, but it is still early days. I mean there's growing pains that happen whenever you put multiple business units together and then you also put the regions together. But I'm very happy with what I'm seeing and what I'm hearing from the teams. When I meet with customers, distributors, they're really happy because they view this as us taking down a lot of the walls that maybe prevented them from being able to sell different product categories that they walk by applications every day and they weren't able to have access to, let's say, for example, lubrication products. Well, now they have that. So it's really a matter of getting them trained, making sure that they've got the opportunities. And then if they do and they're trained, we're going to open up those channels for them. So I'm very happy. On the M&A front, it's kind of a continuation. I like the pipeline. We got a lot of companies in there. We're talking with them regularly. We're on top of any of the targets that we're interested in. We've had some success this year. Obviously, with the Color Service acquisition that we announced during the quarter. There's other things in the pipeline that we're also excited about. But -- it is a -- for sure, it is a secondary to our organic growth strategy. We want to execute on M&A. We like these businesses where they're technology-based, where we think we can add some value, where they're growing, where we like the management team where we can add value. And we're continuing to push those types of opportunities pretty aggressively here at Graco. So hopefully, some stuff pops here over the next 6 to 12 months, but I think we're in a good spot. Bryan Blair: All very encouraging. I appreciate the color. It looks like top line contribution from your acquisitions pretty solid, at least in combination. Maybe offer a quick update on Corob and Color Service integration. I know the latter is still quite early stage. Just how they're performing relative to the deal model to date. Mark Sheahan: Yes. I think that for sure, Corob is coming in right where we thought it would be, which was our expectation was that we want to make sure that we retain what we had seen from them previously in the earlier year in terms of their revenue. So we feel really good about where that one is at. No surprises, great business, great management team. Super excited on how we can help them collaborate here better in North America, particularly with some of the larger channel partners like the Home Centers and the Pro Paint side, where their penetration isn't as good as some of their competition. So very good there. Color Service, yes, brand new. It is part of the Gema Powder business. It's being managed by a leadership team that is actually in charge of running our SAT vertical lines business. They're both in Italy. They're closely located to one another. Those teams are -- it's really early days, but they've got ideas as well on how to integrate and how to implement some of the best practices that the Gema organization has shown over the years into the Color Service business model. So we're excited about that one, too. It's a nice technology business. They're solving customers' problems. They're moving materials that people care about. It fits really well with what we're trying to do. David Lowe: Yes. And I would just add on the Color Service side. They take us into some large markets that historically we haven't had a lot of exposure to like the textile market, tire market. And those could be good learnings in addition to, as Mark referred to, their powder technology expertise that our powder equipment business is quite excited about. Operator: Our next question comes from the line of Andrew Buscaglia of BNP Paribas. Andrew Buscaglia: I just want to dig in on one comment you've been making in the last several quarters on vehicle service. First off, how big is that? And then it just seems to be an interesting market that's bucking a lot of trends you're seeing across, I guess, general automotive. And what are the dynamics there driving such good growth for you guys? Mark Sheahan: Yes. We don't break out the revenue on that, but it is a nice business for us. Actually, it was the business that Graco started with back in 1926. So we've been in it for quite a long time. I think that the teams would tell you that probably the biggest driver of the demand here more recently has been our focus on creating fluid management systems that really track the information by vehicle in terms of the amounts of fluids that are being dispensed. So going back to these are materials that people care about. They're expensive, they matter, making sure that every single vehicle gets lubricated appropriately and that they're tracking the inventory of fluids that they need to be able to make sure that, that service is done correctly and having that tie into the back-office systems where they can do demand planning, order planning, schedule when the guy needs to come to take out the used oil, all those things. We bring a really nice package together for a lot of the larger fleets and auto dealerships and large users of this type of equipment, and that's really been a nice recurring theme for that group. But it started with the product and the technology. David Lowe: And I would just add that motivating these dealers that Mark mentioned is the fact that along with their used car activity, this is -- service is a very profitable area for them. And anything they can do to expand the share of wallet of either the customers or the manufacturers during the early years of a new car service period is very interesting to them. Andrew Buscaglia: Interesting. Okay. And your free cash flow, it's been delivering really strong conversion lately. It's -- you guys probably should do over 100% free cash flow conversion this year. I think that's the second year in a row now, and you're typically historically more of like a 80% to 90% converter. Is this kind of the new normal going forward? And what is behind that? And how sustainable is that going forward? Mark Sheahan: Yes. I don't know that I would -- I don't know that I have a view on whether it's a new normal or not, but I would tell you that it is something that we're focused on. Cash matters, we know that. We are challenging our teams to make sure that we're not overutilizing the balance sheet when it comes to things like inventory and accounts receivable. I will say that the One Graco initiative helped clean some of that stuff up, where in the past, you've had multiple factories. Every division had their own factory. Every division had their own warehouse and operations around that. So being able to put that all under one organization has really driven a lot of improvements. It's early days for us in terms of what we think we have available to us and improvements, but it is getting a lot of attention and focus on our end because we all know that it is a very important metric, and it is a value creator for the company. And that's not something that we take lightly, and it's not something that we have lost sight of. And I feel like we're in a really good spot to continue to drive improvements going forward. David, I don't know if you have anything. David Lowe: No, I think that even on the -- I think an important point is the One Graco point is that we didn't take the steps as a strategy to drive operations. But as we talk to our operating team, sort of quarter-by-quarter, they're finding opportunities where they can eliminate duplication activities, have these centers of excellence that we've talked about before. And not only can it improve quality, improve service levels, there's really money to be saved on the factory floor by eliminating those. Mark Sheahan: Yes. The only other thing I might add, too, just as I was thinking about it is over the last 5 years, we've added a lot of production capability here at Graco. We've expanded multiple facilities. We've broke ground on a bunch of new ones. We're in really good shape brick-and-mortar-wise. We did announce earlier in the year that we're going to be consolidating operations out of our Minneapolis factory into currently existing Graco facilities, both here in Minnesota as well as in South Dakota and down in Ohio. So being able to do that, those types of things, again, kind of lines up with One Graco. It might have been harder to do that under the old regime, but now being able to really close a factory here and move all the production into these new state-of-the-art facilities is pretty exciting, plus all the overhead cost, infrastructure, things of keeping a factory up and running will go away. Operator: Our next question comes from Joe Ritchie of Goldman Sachs. Joseph Ritchie: Just -- I was curious around the additional disclosure you guys gave this quarter on backlog because I historically have just never thought of you guys as a backlog company. And so I just wanted to get a better understanding as to what you were trying to, I don't know, signal, not signal by providing that information. Mark Sheahan: Yes. We thought it would be helpful, and that's why we put it in there. You're right. We don't normally talk about it. But when you just look at the third quarter in and of itself, last year, we did have a significant amount of backlog that flowed through the top line to the tune of about $25 million, $30 million, something like that. Some of that was in our industrial business on the Gema Powder side, on some of the sealants and adhesive systems that were being sold during that time period. And then part of it, too, was on the contractor side as well, where they had some new products that were a little bit late on the launch cycle last year. So they had built up some orders and got those shipped out in Q3. What I'll say is that right now, our backlog is about where it was at the beginning of the year, and we feel like that is a really good place to be in. We don't have any more headwinds. Our backlog is in the neighborhood of $225 million, $230 million. I'm looking at Chris. He's nodding his head. At one time, our backlog was $500 million at Graco. And that was obviously when the supply chain crisis happened and all those orders come flying in and inflation is hitting and everyone is putting their orders in ahead of time. So we've really unwound that now over the last 2.5, 3 years, and we're at a point now where it's really back to a more or less a book and ship business with the exception of maybe the Gema Powder business, which is more project-based. Joseph Ritchie: Got it. That's super helpful. And do appreciate that context. And I know, look, I know that you guys don't give guidance outside of your expectations for growth for the entire year. But as you kind of think about maybe kind of like an early framework for 2026, what's interesting to me is that you look across your different businesses and look, outside of expansion, of late, you really hadn't seen a lot of growth across Contract or Industrial, but your margin expansion in Industrial, particularly has been notable. I'm just trying to get a sense for how to think about maybe segment margins going forward into 2026. And so any kind of qualitative or quantitative comment would be helpful. David Lowe: Well, I think the key to margins in our business model is going to be the volumes. I think that we believe one of our sort of bedrock ways we think about our business is in all of our businesses, we have opportunities to improve margins. And I've demonstrated I'm not much of a forecaster in terms of when the business is going to turn. But I do believe with some volume growth, moderate volume growth in Industrial and in Contractor, when that happens, it can carry these margins that aren't bad today, I think, is your point, to an even higher level. Mark Sheahan: Yes. I would just say it, too, that we're really good operators at Graco. We -- I think we do a great job in terms of getting our teams oriented around making sure that we're not spending resources that we don't need to spend. And as we head into next year, I think that, that's going to be the go-in mantra that we're really going to keep a close eye on our expenses, manage that well. We get some tailwind, hopefully, on some of the pricing actions that we've done. And if we get a little bit of help on the -- half of our business is tied in with commercial construction, housing, those end markets, contractor-type markets. If we get any help on that, as David said, the volumes will really, really help the equation. Operator: Our next question comes from Jeff Hammond of KeyBanc Capital Markets. Mitchell Moore: This is Mitch Moore on for Jeff. Maybe first, I know there's a lot of moving pieces with the macro right now, but how should we be thinking about the magnitude of the price increases for early 2026 in Contractor? And then more broadly for the segments, does the fact that this recent pricing -- you did this recent pricing action change your view on doing another price increase here in a couple of months? Mark Sheahan: Yes. So we're not going to comment on the level of the pricing with the Home Centers and the Pro channel just because those negotiations are happening and our teams are working. I don't want to say anything that is -- put them in a bad spot. So I would expect that we're going to get what we are proposing, which will be reasonable. It will be fact-based. It will be based on what we're seeing for input costs. We're very transparent. We share all that information with them, and also based on what we view pricing in the market to look like. So we're expecting that those will kick in, in the January time frame. As of -- the rest of it, I think in terms of what else we might do in other business units, I'm going to leave that up to them. Obviously, to the extent that we think that we have the ability to raise prices again in 2026, we'll do that. But I think we are also cognizant of the fact that over the last 3 to 5 years, there's been a lot of pricing that's going on in our end markets. So it's really competitive based and there will likely be some targeted price increases, but we -- we're aware of the fact that is a market where because of all the activity on the pricing front, including the stuff that we just did, my preference would be to not push quite as hard as what we have. Mitchell Moore: Okay. That's helpful. And then just maybe sticking with pricing and competition and tariffs. I was just wondering, particularly with the DIY and Pro Paint channels, just wondering if there's been any evidence of share shift towards Graco versus some of your foreign competition? Mark Sheahan: I don't think that that's something that we can quantify because it's really difficult. But I will tell you that in the Home Center channel in North America, which is like really the primary channel for those types of products, their business is down pretty significantly. So are we down more than our competition? Are we down less? It's really hard to know. I just know that it's down. And their foot traffic is down, their level of business activity is down. It ties back in with this whole turnover, affordability, remodeling. Those markets have just been pretty flat to down, and I think we're seeing that in that channel. So it's hard to know whether we're doing -- we're not as bad as our competitors, but I don't like the fact that we're down. David Lowe: Yes. The premise is, of course, that everybody has a different -- somewhat different manufacturing footprint. And sometimes they go for price and sometimes they have to lump it. And I think that, that applies really across most of our niche businesses is that we could be talking about liquid finishing too, and each of the major manufacturers have very different global footprint. So there's frequently a story behind the story. But Mark's underlying point is absolutely right on. In the short term, there's switching costs, which tend to make our relationship sticky. But big picture, long term, products have to be priced as to what the market will bear. Operator: Our next question comes from the line of Matt Summerville of D.A. Davidson. Matt Summerville: Just a couple of quick ones. Do you have an early read on what the Contractor kind of new product pipeline looks for 2026 as you think about maybe trying to use innovation to reinvigorate demand if we're going to be in this, I'll just call it, general housing malaise for longer things maybe to help stimulate a replacement cycle? Or is that something maybe you've already done in the recent past? Mark Sheahan: I would say the pipeline looks pretty similar to what we've experienced over the last few years. I'd call it more of a normal year, some additions in the paint category, some in the line striping category and some in the texture category. But it's a good pipeline. It should help drive some demand. Yes. So I'd kind of a normal year next year in terms of what we're seeing. Matt Summerville: And then you mentioned in Contractor, I think it was in your prepared remarks that you're seeing both Home Center and Pro Paint customers tightly manage inventory. Do you expect inventories to further decline into calendar year-end? Or are they running about as lean as you would expect them to run given the environment we're in? Mark Sheahan: Yes. I think they're pretty smart. I think that they're -- I don't sense that they've got a lot of inventory that they got to get rid of or deal with here. I think that they're just managing it to the levels of the business that they're seeing. Operator: Our next question comes from Walter Liptak of Seaport Research. Walter Liptak: I wanted to ask kind of similar to what Matt was just asking on 2026. I know you don't get a whole lot of visibility, but I wonder if you could comment a little bit about maybe in Industrial, some of those capital projects, is there a lot of quotes out there? Could they get released? And then when you think about 2026 and the One Graco and kind of the new go-to-market strategies, all things being equal, could you get another percent or so of organic growth just from your own kind of strategic changes? Mark Sheahan: Yes. I think that I'll take the second one. That's what we're driving for is you don't go through all the work to do this without really expecting that your channel partners are going to get access to more products and sell more and have it easier to do business with. I think it translates into growth for us vis-a-vis what we would have had under the old regime. I haven't put a number to it. I don't know if it's a percentage thing, but that is definitely the reason why we did it. David Lowe: I'll take a shot on the investment side, your first question. When we look around -- when we sell to so many different markets, it's always hard to generalize. And so we can always find 3 or 4 positive stories, a couple of disappointments. What I would say in terms of quotation activity and discussions around projects, which is, while we're short cycle, we sometimes have an indication that a major customer is working on, say, a new paint line or a new sealant line or something like that. We have good quotation activity in traditional Graco markets like farm and construction equipment. Even throughout the, call it, the turbulent times of the last couple of years, automotive, as a business, both in the legacy and the EV has been consistent in making investments. And when I talk about other -- some of the other niche markets that we serve, they get pretty small, so we can have a couple of orders, say, from the commercial aerospace market. There aren't that many manufacturers around the world, but we have heard of investment possibilities that are at least intriguing going into the coming year. But of course, there's markets that have been soft, as we've talked about late, both on the construction and on the industrial side, especially those markets that serve the construction industry like window and door, furniture, some of the white goods people that could swap over into a couple of -- 2 or 3 of our different business units. On the construction side, I would say our premise that you've heard us talk about, Walt, over the last 5 years hasn't changed. We're still underbuilt. We have a generation of people that if we can see some improvement in affordability, and that does start with mortgage rates. That's why we track them probably as closely as you people do. We really believe that when we have a little bit better dynamics there, there's a lot of housing to be constructed. And as we've already touched on, a lot of remodel and repaint work that will help us. Walter Liptak: Okay. Okay. Great. I appreciate the kind of thoughts on that macro. Maybe another one that's on 2026. When you think about the One Graco and there's a profit component of it a margin component that you talked about as well as the organic growth component, which one is easier, which one could you see the most benefits from in 2026? Is it more top line? Or is it more on the profit improvement? Mark Sheahan: Yes. I think for sure, if we can get volume on the top line, it's going to really be nice for us. So I'd say that one. Operator: [Operator Instructions] Our next question comes from Brad Hewitt of Wolfe Research. Bradley Hewitt: So as we think about contractor margins, it looks like you've done about 28% margins year-to-date, excluding Corob. I guess how do you think about incremental margins for Contractor going forward? And how much volume recovery do you think is necessary to get back to kind of the 29% to 30% zone ex-Corob? Mark Sheahan: Yes. I don't think a lot of volume is needed. Obviously, the pricing is going to help us offset some of the tariff costs. Volume starts coming back, then you can -- you realize a lot of efficiencies in the factory that we're just not seeing when volumes are flat or even slightly down. So I have no concerns whatsoever in terms of them getting back up to those kinds of margin rates even with a very small amount of volume increase. Bradley Hewitt: Okay. Great. And then curious if you could provide a little more color on what you're seeing in the white knight business from a growth perspective this year. And then from a medium-term perspective, is there potentially any change to your thoughts on the growth algorithm for that business as a result of the proposed sectoral tariffs on semiconductors? Mark Sheahan: Yes. I don't know that we are going to be able to give you like specifics on revenue for the white knight business, but it has come back. Obviously, everyone knows that there was about a 2-year period there where a lot of those investments were not happening, but it's a cyclical business, and we recognize that and things have picked up there, and they are getting orders, and we're happy about that. But I think as I said in the earlier comments, they're not back to the levels that they were at a couple of years ago. The macro still look pretty favorable. There's still a lot of investment going on. I'm sure that we'll be able to get our fair share of that. Operator: As there are no further questions, I will now turn the conference over to Mark Sheahan. Mark Sheahan: Okay. Well, I want to thank everyone for participating today, and I look forward to chatting with you down the road. Operator: This concludes our conference for today. Thank you all for participating, and have a nice day. All parties may now disconnect.